All right. We are kicking off the life science tools and diagnostics portion of the Wells Fargo 21st Annual Healthcare Conference. I just want to thank everyone for joining us. We have Kevin Feeley here from GeneDx. We'll get started. I'd love for you to just tell us a little bit about GeneDx, and the problems that you guys are trying to solve within rare disease.
Yeah, great. Thanks for having us, Evan. GeneDx has been operating for 26 years now. Main operating lab down in Gaithersburg, spun out of the NIH, two scientists who wanted to focus on rare disease diagnosis, and that's what GeneDx does best. We are in the mission of ending what we call the diagnostic odyssey, which is the fact that far too many families face a prolonged period not finding an answer for what oftentimes can be devastating symptoms as disease progresses through the course of a child's lifetime. We have the technology today in whole exome and whole genome sequencing to diagnose rare disease, frankly, close to at birth. The average age of diagnosis when I started with the company more than a decade ago was 15 years old. We've gotten that now down cut nearly in half.
But we have the ability to diagnose children far earlier in age. One in every 10 Americans walking around with an undiagnosed rare disease. It's a large unmet medical need out there, and we're focused on bringing our industry-leading technologies to those patients every day.
That's great. Thank you for that background of the company. Moving to you reported 2Q a couple of weeks ago. Results were slightly above expectations. You returned to profitability, I think, a quarter earlier than you expected. Can you just give us a recap of the quarter and just the various moving parts?
Yeah. If you look at the second quarter, it boils down to unbelievable demand for our services. If you look at what we've embarked on, 20 years of serving the expert geneticist community across the globe. It was just 2023 that we moved beyond those experts and into the first of what, over time, will be additional call points, that being pediatric neurology. It's just been since 2024 that we began commercial efforts in the Neonatal Intensive Care Unit. Later this year, really approaching primary care for the first time in terms of general pediatricians. The second quarter saw a continuation of what has been multiple years of high growth. Demand has never been stronger for our services as we continually bring more and more answers to families. So that culminated in 32% volume growth in the second quarter.
If you look at what we've outlined in terms of the second half of the year, the primary focus will be to continue to grow volumes at that level. But at the same time, turning our attention to really optimizing the revenue cycle to get paid more often for our services as we begin to expand the scope of clinician types, as I said, in the second half of this year, moving to the primary care setting and general pediatrician, and that's underpinned by that strong level of demand we saw in the second quarter.
Great. So I want to stick with the volume part that you're talking about. So like you said, 32% growth for volumes, broad-based, it sounds like. Again, for the full year, 30%, so kind of similar levels. How much headroom do you think remains in your foundational channels? At what point, to sustain this kind of growth, does it start to depend more on these newer call points that you referenced?
Yeah, I mean, what was most exciting, the second quarter driven primarily by those markets we have most experience with. So geneticists, ped neuro, and the NICU driving most of that 32% growth. That was on the heels and an acceleration of the 30% year-over-year growth we saw in fiscal 2025. The innermost core of those channels, geneticists, we're serving eight out of 10 expert geneticists in the U.S., but even they still have large untapped patient populations. As you think about what will be multiple years ahead of putting down multi-gene panels and single-gene tests and replacing them with exome and genome, still about only 30% penetrated in the patient size across the geneticist community. You compare that to pediatric neurologists, about one in every three pediatric neurologists now are ordering from GeneDx, and that's after only three years of entering into that call point.
But still, in terms of patient penetration, in mid-teens in terms of patient penetration within pediatric neurology. Then the NICU, a massive untapped opportunity. There is about 800 level 3 and level 4 NICUs in the U.S. About 1/3 of all those are active ordering accounts for GeneDx. We think over time, there ought to be 225,000 tests that come out of the neonatal intensive care unit in the United States. That is underpinned by a study called SeqFirst, we put out in partnership with Seattle Children's and University of Washington, that called for the fact that roughly 60% of babies in the NICU could have a meaningful change in care with intervention with a rapid genome. The reality today is only about mid-single digits of all babies in the NICU are getting a genetic test, let alone a rapid genome.
And so significant headroom in even those most experienced channels we are operating in. With geneticists, it is about continuing the conversion cycle from multi-gene panels and into exome and genome. Within pediatric neurology, it is about reaching the second 2/3 of doc activation. Then in the NICU, it is really boosting up that utilization rate over time. So the 32% growth in the second quarter really driven by those three channels alone, and that is before seeing brand-new growth curves start in new markets. The largest of which is general pediatricians on the back of new AAP guidelines that came out in 2025 that called for either exome plus CMA or whole genome as a first-line diagnostic for children with global intellectual developmental delay. That is 600,000 kids annually. In February, we launched into a new product offering a Prenatal genome.
That is servicing the prenatal market, really with a focus on maternal-fetal medicine. About 4% of pregnancies in the U.S. show up with some form of abnormal ultrasound that make them an ideal candidate for a Prenatal genome. So again, that is a brand new market to us just this year. I think those are just two examples of significant growth curves ahead on top of what is untapped potential, even in our most experienced markets.
Great. So we talked earlier about really in the second half, strong focus on getting paid for the services that you are providing. So really, since the last quarter, I feel like most of the questions we fielded are around the, I think 32% of your insurance-based outpatient volumes were. Sorry, 32% of your genome volumes were insurance-based outpatient, which was down from 40% in 1Q. And I think, just running through the math, people thought that your ASP would actually move up sequentially based on that. So can you help us sort that out?
Yeah. It is the right area to ask questions because one of the single largest opportunities we have here at GeneDx is to improve on. The reality today is in the outpatient setting, we are collecting on one out of every three cases for exome and genome, and we ought to be able to do much better than that. As you mentioned, in terms of overall mix dynamic, we did see outpatient genome mix decline from 40% down to 32%. That is not an indication of overall demand, but more so some measures we are taking as a leader in this space to properly moderate and manage through some mix dynamic. It really was impacted by the introduction of a new product offering we launched mid-February, that being an Exome-to-Genome Reflex. So active engagement across the geneticist community in particular to speak to them about this reflex offering.
It gives the physician an immediate answer or near immediate answer, the quickest answer possible in terms of our leading exome. Then, if relevant, a fast follow with an additional report with the genome content. I think what you saw from the 40% in the first quarter of genome outpatient mix down to 32% was direct impact of uptake by that reflex product, which is being really well-received out in the marketplace. Overall, we would expect mix levels to maintain around these levels, potentially genome in a range of about 30% for the second half of the year. But again, that is not a reflection of overall demand, but more so we think the reflex product being accepted as an appropriate bridge to allow more time for us to reduce the cost curve on genome over time.
I think if you look at where that product fits most neatly today, it is within the expert geneticist space in those additional call points that I mentioned earlier in ped neuro. Exome is still the predominant product today. It is serving those physicians really well, exome finding the answer for nearly all conditions they are searching for. Again, in the general pediatrician space, AAP guidelines call for exome plus CMA, and that will be our focus for that call point moving forward.
Got you. Then so as genome mix settles in at about 30%, how should we think about ASPs, I guess, evolving from flat sequentially. I think the expectation is that they are kind of flat again in 3Q. How should we expect that to evolve going forward then?
I think, look, beginning in the fourth quarter and in 2027, we expect meaningful improvements in that collection rate. That 32% collected stands in contrast to 88% of commercial payers now have some level of policy coverage for genome. If you look even in the second quarter, we submitted claims 68% of the time to payers with policy coverage for genome. The gap there, effectively the gap of denied claims. If we look across the reasons those claims are being denied, over 2/3 of all denials are what I would call procedural or administrative. Call that things other than disputes around medical necessity. There has been a sea change in policy coverage supporting genome and supporting exome over the past several years, and we've not kept pace with the revenue cycle processes necessary to be able to operate at the size and scale.
GeneDx has been through several years of hyper-growth now. We've long passed the point at which we can rely on legacy manual processes in order to submit claims. If you look at the payer universe, there's about 1,000 different payer plan combinations, all having very different rule sets. We have to get better as an organization at using technology and using AI and ML to get payer-specific workflows. We're hard at work. That's the number one priority of the company right now, is to implement those payer-specific rule sets so that we can avoid the 2/3 of denials that are for superficial reasons, and we think are wholly addressable and something we can avoid in the future.
Got you. No, that's helpful. You've touched on this a decent amount already. But in terms of the 2/3 that seem very addressable by you and just changing some of the workflows, can you just maybe talk about some of the things that you're doing to improve documentation, billing, appeals, some of the internal processes that you're doing?
Yeah. Maybe I'll start on the front end and then move to the back end. On the front end, we're about 18 months into our own journey to implement Epic Aura. We've got a number of hospital systems now with a bidirectional interface through Epic Aura that certainly gives us a better advantage at collecting clinical documentation upfront. I think the number one thing we can do is ensure that at the time we're submitting claims, that we're capturing the right clinical notes to adhere to payer-specific policies around medical necessity. The only way to do that in today's world is, in a bit of a seamless way, is to scrape those medical records electronically so that we're not pushing that burden onto the physician. We've got a number of initiatives underway.
Epic Aura is one example, but some improvements in our own physician portal to be able to scrape those records electronically to take that burden off of the physician's plate, but ensure that we're getting all the requisite information upfront and timely. Payer prior authorization procedures continually present themselves. 99% of payers still require prior authorization for these tests, so ensuring that sometimes we go slow to move fast to hold tests properly for prior authorization to make sure we're checking every box applicable on a punch list required by payers is an example. Some payers give you more time than others, so ensuring that there's an automated queuing of that is an example.
On the back end, in terms of fighting to overturn denials, escalating through and up through things like physician peer review processes are just examples of some of the tactics that we're designing as we speak in order to combat that denial rate over time.
Great. On a related point, on the last call, you talked about your 35% collection rate that you think should be closer to 70%, I believe you said. So really double where you are today. You also have this shift that's dynamic where you're going from exome to genome. Given these two curves that are intersecting, how should we think about a longer-term ASP in the future?
I'd maybe flip that on you to say, if we look at today's collection rate for genome at 32%, and exome's right around there. Every 5 percentage point increase at today's volume, all else equal, is equal to about $50 million of revenue. We think a viable target would be to get today's collection rate up towards 70%. We've done extensive benchmarking against other specialty diagnostic products. We think there's a proven playbook in order to combat the denial rate and improve collections over time. It might take a couple of years to get there. Along the way, would expect to unlock significant improvements in the collection rate on a rolling basis. Without putting a number, we think the average reimbursement rate, and more importantly today's collection rate, have significant room to improve over time.
We were at a point where that average reimbursement rate was about $4,000 a test, and there's no reason to think that we can't get well past that over time with some of these structural process improvements that we know we have to make.
Great. You referenced the AAP guideline update from, I think about a year ago. How has this changed conversations with health systems and clinicians? And what is its typical lag between guideline adoption, order and protocols, and reimbursed volume?
When those guidelines came out the summer of 2025, we thought it important to condition the market that we typically see a good 18-24 months from guidelines to when we'd see volumes materially inflect. That will put us to the fourth quarter of this year, and I think we remain on track for that. We've spent the better part of the last year engaging with the pediatrician community, attending their conferences, extensive market research surveys to really understand what it will take to get these primary care docs to move to this next generation of technology. Underpinning that has always been a thesis around customer experience. How do we make these tests easy to order? How do we make them easy to understand? And how do we make the pediatrician a hero in the story to the family?
More than a diagnosis, how do we arm them with educational materials, support materials, in order to guide the family on what to do next? We've been releasing a number of customer experience features, what we call one-minute ordering or a more seamless ordering process earlier this summer. A more simplified report launched earlier this summer. That back-end support on track to be delivered in the next several weeks. Ultimately, aimed towards adhering to what has always been our expectation that 18-24 months after guidelines, we can really start to move the needle in terms of volume flow. That starts in the fourth quarter of this year, and early signals are strong. We're seeing new account activations continually ramp up.
We are seeing repeat orders from some of those first accounts in terms of unlocking greater volumes, and remain absolutely convinced that the pediatrician market will be a large market for us to serve well into the future.
Okay. I believe you have built out a whole sales team around this effort internally. Can you frame the economics that you expect from this effort, rep productivity ramp, revenue per rep or maturity, and how ARR in general pediatrics compares to the geneticist channel, given that payer mix is probably different there?
Yeah. So we added about 50 new reps that may evolve up over time. If you think about the pediatrician community, there are 60,000 pediatricians in the U.S. We are certainly not targeting all of them out of the gate. There are 25,000 that have ordered a chromosomal microarray or some form of genetic test in the past. When you further double-click into that cohort, ordering dense physicians like developmental behavioral specialists would be the initial target over the next several quarters. In terms of sales rep productivity, look, over the past couple of years, we have been averaging about $4 million per rep in those more mature channels like geneticists.
I think there is an acknowledgment as we move outside of dense orders like geneticists. Nearly every patient who sees a geneticist will get a genetic test ordered towards a primary care doc, like a pediatrician. That sales team will become less efficient.
But we think with proper targeting to make sure that we are finding those ordering dense physicians, those affiliated with larger scale hospital systems, multiple physicians within a practice. Those are our targets over the next couple of years, and we think could be a very efficient and effective way to go about building the market over time.
Okay. On maybe a bit of a longer-term question on gross margins. I think you are at 70% right now, with genome about 1/3 of the volume. But genome COGS, I think, are about two times exome. Kind of as this mix evolves, you take this journey down to really have more genome as part of the mix. What does that math kind of look like in terms of a longer-term gross margin for you guys, and how much of the internal stuff you are doing with automation and lab utilization, et cetera, how much does that help you get to where you want to be?
Yeah. Gross margin improves with that improvement in the collection rate, but it also comes through what we see as a pretty clear roadmap to reduce cost per test, in particular on genome. Our processes have been optimized in the past for exome. But that gives us a lot of confidence that we have the ability to optimize for genome in the same way. If you look at the COGS profile between exome and genome, the reality is the reagent kit alone, the consumables for genome are considerably higher compared to exome. If you look at overall reagent consumable wet lab cost, I think over time, as utilization for these tests increases, we are able to show more demand for the genome. That invariably will put some pressure on our manufacturing partners to play their part in reducing the consumable price towards parity with exome.
To us, that is something that is high confidence will come over time. Pinpointing the exact timing of when that cost curve will come down becomes a little more difficult, but there is no doubt that it will come down over time. There is the benefit of some increased competition in the sequencing market. I think more importantly, the proprietary analysis and interpretation platform we built is agnostic to the sequencer manufacturer, and we have a pretty exciting roadmap to use ML and AI to further reduce dry side cost on the back end after the sequencer. About 1/3 of all costs reside in that dry side labor component, and those are fairly expensive resources at that. It is an area certainly where technology will be our friend over time. If you look at gross margin, it has room to expand through reduced COGS.
It has room to expand through increased collection rates. Ultimately, if you look at the profile of GeneDx, this is a company that should grow at a really high rate through the second half of this decade and beyond. We have got a gross margin total company-wise around 70% today, and at or higher than that rate is where the company ought to reside for the foreseeable future.
Okay. I think you mentioned one-minute ordering earlier, and that being an important thing for unlocking the general pediatric market. Can you just talk about where you are in this rollout and how important it is for the ramp in the back half of the year?
Yeah. A number of features being released in our own physician portal, I'd say have been released over the past month or so. If you think about the three customer experience foundations, one is one-minute ordering, the simplified report, and the care pathways. One-minute ordering is out, and it's in the marketplace. There's a number of shots on goal in order to effectuate that. One is improvements we've made to our own portal, and the other is, as I mentioned earlier, continuing to activate more health systems onto Epic Aura. Along with that comes an experience to order the test in a fairly seamless way. One-minute ordering, I think, a full check mark next to that. The more simplified report looks at what used to be about a 20-page detailed report that geneticists love with respect to ancillary findings and variants of unknown significance.
A primary care doc doesn't have time nor an inclination to want to see such a thing. We did, about a month ago, launch a more simplified report where the physician can choose what type of experience they want to see in the reporting process. The last to come is the care pathways on the back end towards the second half of this year.
Helpful. I guess jumping around a little bit, but in terms of, we've talked a bunch about these expansion markets outside of your traditional foundational markets. I think in 2Q, you kind of talked about strong growth across all end markets. Can you talk a little bit about this? Where in these new markets are you finding the most traction? Are they more interested in exome or genome? Any differences you're seeing within those markets.
Yeah. For us, it is about finding the right fit product-wise for the right patient at the right time. In the prenatal space, we put out the Prenatal genome in February. Uptake has met or exceeded expectations. We have got a small team there, about 10 individuals really with a focus on maternal-fetal medicine. Signals are really strong after just a few months on the marketplace to tell us that that market will be a large and important portion of the portfolio moving forward. As we touched upon general pediatricians, the real inflection point comes in the second half of this year into the fourth quarter and into 2027. All conditions are now set for us to go after that market in a big way. What was most encouraging was the second quarter growth, that 32% really coming from geneticists, ped neuro, and the NICU.
I think showed that the foundation of those three markets alone still have significant room to run in terms of untapped potential.
Great. I think earlier you mentioned competition. We get a decent number of questions about that. You have seen people enter the market. What does the actual market look like today from a competitive standpoint? Where are you losing and how does your reflex strategy hold up against a competitor that is using genome and pricing aggressively to buy share? I also would love for you, if you can, to touch on, I saw, I guess ARPA-H announce some funding. Oh, did it go out? Anyway, I will just speak a little bit louder. I saw ARPA-H announce some funding for some exome genome projects. Wondering how that might, or what your thoughts on that are.
Yeah, look, for us, at least my works. We could share. Competition comes down to the differentiators that physicians and hospital systems look for. They look for diagnostic quality and yield. They look for turnaround times. They look for customer experience. All of that is underpinned by trust, and we have got two decades of serving this market. I have been now with the company for about 11 years. We have seen competitors come and go. Our market share has stayed relatively consistent during that time. We continually enjoy eight out of 10 geneticists ordering their services from GeneDx. There is certainly some churn in there from time to time, but more times than not, when we see a clinician leave GeneDx, we see them boomerang back after trying the experience elsewhere. The underpinning to that is the GeneDx Infinity data set.
More than 1 million exome and genome, almost 3 million genetic tests since inception. 8 million well-characterized phenotypic data points in the data set. Two-thirds of every case we have run since inception, parent-child trios. Over half of our data set since inception are non-Caucasian individuals where these tests have resided elsewhere in the world. It is an unmatched data set, which our team has the ability to reference when physicians trust our firm over others with finding an answer more differentiated, more complete, and quicker than others. As competition enters the new market, we view it as our responsibility to set the bar at which they need to live up to. It starts with that data set. That moves into turnaround times and the ability to operate at extreme scale.
The customer experience features, we think, are important as we move out of that realm of serving experts in the space and into more primary care settings. We think we have got a customer experience through some of those features that we have launched that really sets GeneDx apart beyond the clinical expertise. But of course, is underpinned by unmatched clinical expertise. From a competitive landscape, like I said, we have seen waves of competition in the past. I expect that to continue. The rare disease market, ultimately, from a diagnostic perspective, should catalyze more diagnosis, equaling more drug discovery and development, ultimately more therapeutics. There is a large market out there that happens to be about 20 years behind oncology, and we are just getting started in that.
Great. Got about two minutes left. Maybe on the balance sheet. I think you expanded your facility, $50 million of debt on the facility. Blackstone invested. You have about $200 million of pro forma cash. You are profitable, and you just, I think, took out $25 million of costs. What was the reasoning behind expanding the facility, and what are your priorities for capital allocation?
Yeah. Part of it was opportunistic. Blackstone Life Sciences is a relationship we entered into earlier this year. They have proven to be really great strategic partners, thought partners. Look, we did burn more cash than we anticipated in the first half of this year. You mentioned the cost-out, cost reduction program. We fully effectuated a plan to take about $25 million in net costs out of the organization. Wanted to take funding off of the table in terms of any sort of concern or overhang. But we do expect to generate significant cash beginning in the fourth quarter of this year, but into 2027 and beyond. Took the opportunity to expand the debt facility with what we think is a really high-quality partner that has been valuable at helping us think about where to bring the company next.
Great. 22 seconds left. Anything else you want to leave investors with about GeneDx?
Yeah. Look, thank you for coming, and thank you, Evan, for the participation. Look forward to updating you all on our next earnings call after the Q3.
Great. Thank you so much.