NEOGENOMICS INC (NEO) Q3 2025 Earnings Call Transcript

Good morning, everyone, and welcome to the NeoGenomics Third Quarter 2025 Financial Results Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Priya Vedaraman, Senior Vice President of Finance at NeoGenomics. The floor is yours.

Thank you, Jenny, and good morning, everyone. Welcome to the NeoGenomics Third Quarter 2025 Financial Results Call. With me today to discuss the results are Tony Zook, Chief Executive Officer; and Jeff Sherman, Chief Financial Officer. Additional members of the management team will be available for the Q&A portion of our call. This call is being simultaneously webcast. For reference, concurrent with today's call, we posted a short slide presentation in the Investor tab on our website at ir.neogenomics.com. During this call, we will make forward-looking statements regarding our future financial and business performance, business strategy, the timing and outcome of reimbursement decisions, and financial guidance. We caution you that the actual events or results could differ materially from those expressed or implied by the forward-looking statements. These forward-looking statements made during the call speak only as of the original date of this call, and we undertake no obligation to update or revise any of these statements.

Please refer to the information disclosed on the safe harbor statement slide in the deck posted on our website as well as the information under the heading Risk Factors in our most recent Forms 10-K, 10-Q, and 8-K that we filed with the SEC to identify important risks and other factors that may cause our actual results to differ materially from the forward-looking statements. These documents can be found in the Investors section of our website or on the SEC's website. During this call, we will also refer to certain non-GAAP financial measures that involve adjustments to GAAP results. The non-GAAP financial measures presented should not be considered an alternative to the financial measures required by GAAP, should not be considered measures of liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measures in a table available in the press release we issued this morning and in the slide deck available in the Investors section of our website. I will now turn the call over to Tony.

Thanks, Priya. Well, good morning, everyone. Thank you for joining us today. I'll begin with a discussion of Q3 highlights and key business growth drivers before turning the call over to Jeff for a deep dive into the financials. We'll then open the call for your questions. During the third quarter of 2025, we again delivered record clinical volumes and revenues while making meaningful progress advancing our NGS and MRD long-term growth initiatives, including securing a favorable court ruling in our ongoing litigation with Natera that paves the way for a full clinical launch of our RaDaR ST MRD assay. I'll cover these initiatives in more detail shortly. Taking a step back, for those who may be new to the story, having spent much of my first two quarters as CEO engaged in conversations with key stakeholders, I am as optimistic as ever about the significant opportunities that are in front of us as a leader in cancer testing.

Importantly, we continue to differentiate ourselves in the community setting with both hospitals and oncologists, where approximately 80% of all cancer care is delivered. We've built a geographically balanced lab network that allows us to be responsive to customer needs, including offering some of the fastest test turnaround times in the industry, where faster, more accurate treatment decisions can have a material impact on patient outcomes. Our recent acquisition of Pathline, a New York State-approved lab based in New Jersey, gives us a meaningful presence in the Northeast, which is the #3 cancer care market in the U.S. We believe the addition of Pathline allows us to offer significantly faster turnaround times, a larger and relevant New York State-approved test menu, and an enhanced physician experience in the Northeast region, where we have historically been underpenetrated. The integration continues to proceed according to the plan that we communicated when we announced the transaction in March, including the validation of critical turnaround time-sensitive assays, which was completed during the third quarter.

We remain positive about the impact that the acquisition will have in accelerating our growth in the Northeast, and we're on track to capture operational efficiencies and synergies that we anticipate will be accretive to profitability beginning in 2026. Together with our world-class commercial team, we have deep relationships with hospitals, cancer centers, and oncologists across the country. We're winning the customer experience by enabling precision oncology in the community setting, where adoption of next-generation testing has historically lagged behind NCI-designated cancer centers. Our customers increasingly view us as the partner of choice for all of their testing needs as their patients advance along their cancer care journey. We offer one of the broadest menus in the industry with more than 500 tests focused solely on oncology. Our menu spans everything from diagnostics to next-generation sequencing for therapy selection to MRD for cancer recurrence and monitoring.

This makes Neo an ideal partner for institutions and practices looking to consolidate send-out testing to simplify operational workflows and improve patient experience. The therapy selection and MRD markets represent more than $40 billion of addressable market opportunity, both of which are growing rapidly and are relatively underpenetrated. Needless to say, the ongoing investments that we make in R&D, as well as the potential BD partnerships are focused on these areas. This is particularly true of MRD, where we think we can create significant value while introducing innovation to the cancer testing market where it's needed most in the community setting. We also remain committed to our next-gen MRD research program, focused on generating IP that is entirely separate and distinct from our RaDaR portfolio. Given our broad menu and strong brand recognition in the community setting, coupled with a competitive MRD test, we believe we will capture market share over time as we add additional indications to this modality.

While Jeff will provide a detailed review of our financials in a moment, I'd like to hit a few highlights from our third quarter. Our clinical business continued to perform well, driven by volume and share gains in key segments. As expected, nonclinical revenue declined in the quarter due to lower revenue from pharma and biotech customers. Total revenue for Q3 was $188 million, representing double-digit growth of 12% year-over-year. Our clinical business continued its robust growth, generating revenue growth of 15%, excluding the Pathline acquisition. The clinical performance was driven by effective execution of our commercial strategy: Protect, expand, and acquire. In the third quarter, we again saw a sequential improvement in AUP, a record quarter for test volumes, and NGS revenue growth of 24%, well ahead of the low to mid-teens NGS market growth rate. The five NGS products launched in 2023 contributed 24% of clinical revenue in the quarter.

We continue to see demand for our non-NGS modalities as well, with all modalities growing above market, which resulted in record volumes, up 10.4% versus prior year on a same-store basis. The nonclinical portion of our business accounted for less than 9% of our total revenue in the third quarter and was down from the prior year, consistent with our expectations. Turning now to our RaDaR ST test. In August, the District Court for the Middle District of North Carolina granted our motion for summary judgment that all of Natera's asserted patent claims are invalid for claiming an eligible subject matter. The court dismissed Natera's claims against NeoGenomics with prejudice and entered a declaratory judgment of invalidity of both of Natera's asserted patents. The ruling paves the way for us to broadly commercialize RaDaR ST, formerly RaDaR 1.1. We launched RaDaR ST for biopharma customers in Q3.

And while some of these efforts could result in bookings in Q4 of '25, the lead times necessary to obtain samples make it more likely that we'll begin recognizing revenue from biopharma customers in 2026. We have received MolDX approval for RaDaR ST in subsets of head and neck and breast cancer. We're preparing for a robust launch of this important assay in the clinical oncology setting in Q1 of 2026. We estimate that MRD cancer surveillance and monitoring represents a $30 billion addressable market, growing at a 30% CAGR. And with the market penetration of less than 10%, we believe we are well positioned as the cancer testing partner of choice in the community setting to capitalize on this lucrative market and deliver a differentiated and integrated MRD solution to our oncology customers. In parallel with our RaDaR ST launch preparedness activities, we continue to focus our R&D investments in next-generation MRD, demonstrating our long-term commitment to the MRD space as well as complementary targeted partnerships that allow us to fill in MRD product gaps that we don't currently address to deliver a unique industry-leading MRD portfolio to the market.

Now turning to PanTracer LBx, our liquid biopsy genomic profiling test that delivers comprehensive clinically actionable insights from a simple blood draw. PanTracer LBx is a noninvasive blood-based test that analyzes circulating tumor DNA to identify key genomic alterations that inform treatment decisions in patients with advanced stage solid tumors. PanTracer LBx, together with our PanTracer tissue test, forms a comprehensive portfolio, capable of delivering a holistic genomic picture of the patient in support of therapy selection. With an average turnaround time of just seven days, PanTracer LBx empowers real-time decision-making. Recall that last quarter, we elected to delay the commercial launch of PanTracer LBx so that we could incorporate learnings from our evaluation assessment program to improve the product profile. In preparation for a full clinical launch, we allowed select physicians to use the assay on a limited basis ahead of commercial availability.

The EAP, which was very well subscribed, helped us further enhance the assay clinically, and optimize the launch by testing and identifying the opportunities to streamline logistics, reporting, and customer support. With the benefit of valuable lessons we garnered from our EAP, we launched the product in late July, three months later than expected. Based on the interest we're seeing, I believe the delay allowed us to introduce a better product, which will further support the strong NGS volumes we are capturing this year and position us well for continued growth in 2026. We continue to work with MolDx on our PanTracer LBx submission, and we'll provide additional updates as they become available. As it pertains to our full year 2025 guidance, based on the strength in our clinical business and expected performance in our nonclinical business that I just reviewed, we are reiterating the revised guidance for consolidated revenue, adjusted EBITDA, and net loss that we provided last quarter.

I'm incredibly optimistic about our future, particularly as we continue to innovate in the large and rapidly growing NGS and MRD markets and further leverage our leading presence in the community setting, where as much as 80% of cancer care is delivered to patients. And with that, I'll hand it over to Jeff to further discuss our results from the quarter.

Thanks, Tony, and good morning. Third quarter total revenue grew sequentially by 4% from Q2 and increased by 12% over prior year to $188 million. Total clinical revenue continued with strong double-digit growth and increased by 18% from prior year. This strong clinical growth was partially offset by nonclinical revenue climbing by 27% versus the prior year, driven by weakness in the pharma revenue that Tony spoke about. Adjusted gross profit improved by $5.2 million or 7% over prior year. Adjusted EBITDA was $12.2 million, the ninth consecutive quarter of positive earnings. Clinical volumes and revenues continued with robust growth in the quarter. Total test volumes increased by 15% in the third quarter with AUP growth of 3%. Same-store revenue without contribution from Pathline was $167 million, representing growth of 15%, driven by a 10% increase in test volumes and a 4% increase in AUP.

We are continuing to see strength across our portfolio with above-market growth rates across the modalities we offer. NGS revenues grew by 24% over prior year in the quarter and accounted for 33% of total clinical revenue. Year-to-date NGS revenues grew by 22% over prior year. Average revenue per clinical test increased sequentially from Q2 by $15 or 3% and was up by 3% from prior year. Excluding Pathline, AUP increased by $17 or 4% from Q2 and was also up 4% over prior year. A larger percentage of higher-value tests, including NGS, as well as recent managed care pricing increases are helping to drive higher AUP. Total operating expenses in the quarter were $107 million, an increase of $11 million or 12%. We recorded an additional $7 million in impairment charges related to the planned sale of Trapelo, with the balance of the cost increase due to higher compensation costs driven by the expansion of the commercial sales team.

Cash flow from operations was a positive $9 million in the quarter, and we ended the quarter with total cash of $164 million, up slightly from Q2. Our balance sheet and expected cash flow will enable us to continue to invest in our business to drive organic growth, increase operating efficiencies, and fund future business development opportunities, including licensing and partnerships. We continue to see traction from the investments we have made to expand and enhance our commercial organization with our strong test volume growth. The LIMS project remains on track, and we expect to deliver operating efficiencies in 2026 and 2027 through the consolidation of multiple LIMS systems and reduction in redundant operating costs as well as streamlining our lab operations. We remain committed to driving long-term shareholder value through targeted investments in the business and improved operational execution.

As Tony noted, we are reiterating our full year guidance that we updated in the second quarter. We expect full year consolidated revenue will be in the range of $720 million to $726 million, representing growth of 9% to 10% over full year 2024. We anticipate adjusted EBITDA to be in the range of $41 million to $44 million, representing growth of 3% to 10%. And we expect full year net loss to be in the range of $116 million to $108 million, representing an increase of 37% to 47% as compared to our full year 2024 net loss of $79 million. We will release our 2026 guidance when we report our full 2025 full year earnings in February 2026. With that, I'll turn the call back to Tony.

Thanks, Jeff. To recap, during the third quarter, we again delivered strong clinical volumes and revenue while advancing NGS and MRD initiatives that we believe will contribute to accelerating growth in 2026 and beyond. We believe our unwavering focus on delivering a superior customer experience in the community setting is resonating in the marketplace. And as we continue to expand our menu of tests, community oncologists and pathologists will continue to view us as a partner of choice for their cancer testing and send-out consolidation needs. We remain committed to innovation and operational excellence, which we believe will drive sustainable and profitable growth for our company and improve outcomes for patients. Thank you for your continued interest in NeoGenomics. Operator, this concludes our prepared remarks, so please open the line for questions.

Your first question is coming from David Westenberg of Piper Sandler.

Congratulations on a strong quarter, especially with the growth in clinical revenue. Jeff, how comfortable are you with the guidance? Can you update us on PanTracer liquid? Is there any possibility we could see revenue from it this year? I'd also like to clarify that it was removed from the guidance, so any revenue we do receive from it this year would be considered an upside to your estimates.

Yes. Thanks, Dave. So we gave thoughtful guidance for the year in Q2. We believe we had a good third quarter and believe we're in a good position to meet Q4 expectations. In terms of liquid, Tony was pretty clear last quarter that we did not need approval for liquid biopsy from MolDX to hit our guide, and that is still the case as we look at our performance now in the fourth quarter.

I understand you’re not providing guidance for 2026, but you shared valuable insights on MRD and mentioned it may contribute to revenue in that year. Could you clarify when you anticipate certain reimbursements to occur? I acknowledge there are some competitive elements to consider. Additionally, can you elaborate on the scale and timing of the expected MRD revenue? Also, how much commercial support will you allocate for these launches? Just as a reminder, regarding breast cancer, there are many expansion indications. Do you foresee obtaining any expansions for that indication this year or next? Congratulations, and I will conclude with that.

Thanks, David. It's Tony. I'll take a crack at a couple of these, and then certainly, I can look to Warren to add a little bit more color as well. First, on '26, as you appropriately say, we'll talk '26 in 2026, but I will give you a sense of what we see as some of the growth drivers that we anticipate for 2026. And then I will pull that back to your conversation around liquid biopsy and RaDaR ST. So at the highest level, you should expect the growth drivers for '26 to be in large part, quite similar to what we had in 2025. We expect our ongoing strong clinical performance relative to volumes to continue. And so that will certainly be a growth driver for us. We expect ongoing NGS growth rate. As Jeff commented in his remarks, we had 24% growth in revenue in NGS, and that without the full ability of PanTracer LBx included within that mix. And so we have every expectation that NGS will continue to be a growth driver for us.

As you rightfully mentioned, PanTracer LBx combined with the PanTracer family, we believe will be drivers moving forward. I can't really speculate as to the timing of LBx reimbursement. But nonetheless, we see early signs of a positive uptake for the product. And we believe once reimbursement is secured, that will be a growth driver for us. We'll see revenue build through the course of the year with obviously more of that becoming evident in the second half. The sales force that you mentioned, we are beginning to see the full benefit of now the sales force expansion efforts that we have put in place, and we expect that to be a continued driver for us. And then on the RaDaR ST front, we've already launched RaDaR ST in the pharma sector. We're having good early conversations with that. As you might expect, the lead times on that book of business takes considerably longer. So we would expect kind of a slow revenue build in 2026 and most of that revenue becoming evident in the back half of 2026.

And with MolDX approval with the current indications, we expect a full launch of RaDaR ST in the clinical setting in Q1. That will also be a build for us through the course of the year. And of course, there's still Pathline in our RCM initiatives. And so we still see a healthy list of growth drivers for us in '26. And relative to sales force, I think Warren and Beth Eastland and their teams have done a phenomenal job onboarding the existing representatives that we have. I will tell you that we still believe that that is the right size for the indication mix that we have. But as we continue to invest and we will invest in new indication flow, you should probably believe that we will be looking at options to upsize that sales force as it is under-indexed, especially in the oncology side of our sales force. But we don't anticipate that coming on too early. That will be, again, a build probably more in the latter half, indicative of the new indications that we will be submitting and when they might come online, which will be more than likely the second half. So that's kind of a high level of the drivers. And again, we'll get more detail on these things in '26 when we talk around February time. Okay, Dave?

Our next question is coming from Andrew Brackmann of William Blair.

Maybe on the NGS side of things, so the growth rates here imply that you're obviously taking share or growing the market or some combination of both. Can you maybe just talk to us about where you're seeing the most win on the customer side of things? What types of accounts where you're winning? And then also on the product side, what products are you leading with? Where you're able to sort of capture share and begin to capture some share there?

Yes. Thanks, Andrew. Certainly, as you said, the growth rate of 24% implies a pretty meaningful share capture. Most of that business in quarter three was coming out of the community setting and largely from the oncology practice. Certainly, we still see opportunity within the community hospital setting. But as we onboard new practices, bring on new oncology ordering physicians and we see repeat order rates, we're seeing a compounding effect. So largely coming from that community oncology setting. In terms of focus areas, certainly, the PanTracer Family has been a core focus for us. We've launched liquid, as we've mentioned, but at the same time, we've introduced the PanTracer family, which includes PanTracer Tissue, PanTracer Tissue plus HRD, and obviously, PanTracer Liquid, which is our solution for therapy selection on the solid tumor side, and we're seeing really strong growth within that category as we make that a priority. But we're certainly not losing sight of sort of what got us here, which is our heme NGS portfolio, and that continues to grow very effectively as well. But there's a subset of five to seven products, which are ultimately our key focus area from a therapy selection perspective, and all of them are seeing attractive growth.

And then just from a potential expand and acquire perspective, from an acquirer, new oncologists coming on board, we're seeing a good lift from recently brought on oncologists. In 2025, we track that closely, and we're seeing reorder rates and higher penetration amongst that. So we are seeing success in the acquire aspect of our strategy as well.

I guess, Andrew, the last tap-off point, I think Warren was just hitting on it towards the end. NGS just strategic for us is extremely important that we continue that penetration into the therapy selection markets. As Warren highlighted, the top five products now represent almost one quarter of our clinical revenue and NGS in totality is almost one third of our total clinical revenue. And so it aids us in AUP and a whole lot of other areas. And so it's going to be a continued point of emphasis for us moving forward. So thanks for the call.

And then if I could follow-up, just as one other question here. On the LIMS rollout, and I also think that you're integrating with Epic in some accounts. Obviously, those are multiyear processes to roll out here. But anything you can maybe share with respect to benefits that we should start to see from these initiatives into 2026, just in practical terms, what does this do for your business?

Warren and I will address that, Andrew. First, I want to highlight the ongoing need for simplification within the organization. Currently, having multiple locations and several LIMS systems works against us. Transitioning to a unified LIMS program will be beneficial, allowing not just the lab team, but the entire organization to track where testing stands at any time. We can also eliminate eight LIMS systems that we had before, which presents a clear cost benefit. Additionally, to manage the complexities of these multiple systems, other areas of the organization have to put in considerable effort that a streamlined LIMS could improve. We expect to see some efficiencies starting in the latter part of 2026, with more substantial benefits becoming apparent in 2027 and 2028 and beyond. This is just one step among many in our simplification efforts to enhance contributions. Now, I’ll let Warren provide some additional insights.

Yes. So let me start with the Epic, Andrew. So first of all, I will start by saying we have over 340 interfaces in place already today. Some of them with Epic already, but we're establishing the Epic Aura solution, and that will go live towards the end of this year, and we'll see fairly rapid customer onboarding in early part of 2026 and beyond. So excited about the acceleration nature that the Epic Aura solution will bring to us. And we've seen very strong sort of revenue growth and ongoing adoption when we put interfaces in place in general, and we believe it will be the same with Epic Aura. So certainly, that's a key strategy for us moving forward and enables growth and stickiness. Coming back to the LIMS side of things, as Tony said, I think a strategy to simplify, we have sort of five key priorities: operational simplification and margin expansion, one of which is being LIMS. I'll touch on two of the benefits that I anticipate us seeing value in 2026.

The first one is our ability to be able to proactively equip physicians, ordering physicians and practices to understand sort of test status and more particularly the ability to do add-ons, et cetera, that they can do themselves versus having to come to customer service. So just ultimately creating a more seamless experience for the ordering physician or the practice, so to speak. That's one area. The second one is the LIMS system we're putting in place has sort of AI integrated into it, and it will allow us to identify areas of, I'm going to call it, leakage, productivity leakage within our workflows, and we can identify this and obviously look to streamline the workflow to iron out those areas that sort of lack or have opportunity for productivity. So it really is going to deliver insights to our workflow that we don't have today that will allow for further productivity.

Our next question is coming from Mason Carrico of Stephens.

On your NGS business, you've called out share gains. You guys often quote NGS revenue growth. But I was curious if you'd be willing to give us a bit of insight into how NGS volume growth has trended, just to give us a better view on gains. So when we look at NGS revenue growth, 24% this quarter, I think 23% last quarter. How much has been driven by volume versus ASP? Because I assume you guys are benefiting from ASP to some degree as coverage expands for those assays.

Yes, we haven't disclosed the exact volume, but I would say it is primarily driven by volume. There is some growth in average unit price, but overall it is more about the volume than the average unit price growth. As we continue to see increased market penetration and gain access to our strong commercial channel, that's where we are observing the volume increase. We are also seeing positive growth between liquid and solid products. Therefore, I believe we are well positioned to maintain those gains.

And when you think about revitalizing growth within your pharma business, could you just talk about how much of that is in your control versus how much relies on a snapback in spend across the broader sector? I guess what do you view as kind of the key internal initiatives that you'll need to execute on to reaccelerate growth in that segment?

Yes. Mason, I'll take a crack and then Warren again could add additional detail. I would say that for us, a big part of the opportunity lies in the portfolio and bringing that portfolio forward. And so we have now the opportunity to represent products like Paletrra. We have RaDaR ST now available to us within the Pharma segment and of course, the liquid biopsy and PanTracer family. It affords us opportunities to have conversations and get a little bit more relevant in those conversations as well. As I said to you before, I think a lot of those conversations are generating interest, but because of the lag times, I would still expect that some of the challenges that we see in our business in '25 will continue into 2026. And so we see a return to growth opportunity in '27, and anything that would lead that to happen a bit faster would represent upside. As far as things in our control, there are things still in our control, and that's a heavy focus on execution excellence, and we have onboarded a leadership team that is taking the bull by the horns. And I think that part is very much in our control to drive the right conversations with the right customers. And that, I think, is something that we acknowledge that we had to improve upon. I'm pleased to see that that action is taking root across the organization. With that, I'll turn to Warren to add any other color.

I think Tony hit most of the high points. I'd say that certainly, we're preparing our execution so that we can offer an attractive value proposition to our target customers in the biopharma space. Certainly, the inclusion of RaDaR has made us a significantly more attractive partner, which is enabling access for us to focus on both RaDaR but other sort of high-value products, NGS, Paletrra, et cetera. So we're certainly gearing our commercial organization around that focus, coupled with underpinning that with a sound customer experience, which is again a key buying driver for pharma sponsors. From a market perspective, certainly, we're going to continue to work to execute effectively. As the market rebounds, we feel that there will be a compounding effect in the recovery of the business.

But this is a long sales cycle product area. And so just to reiterate what Tony said last quarter, we expect pharma to be soft in Q4 as well as throughout 2026 as well.

Our next question is coming from Dan Brennan of TD Cowen.

This is Tom speaking on behalf of Dan. Congratulations on the quarter. I have a question regarding what is contributing to the increased activity in your base clinical business. It seems to have improved in terms of volume this year compared to previous years. I'm referring to the non-NGS business. What factors are driving this growth? Is it due to better bundling or faster turnaround times? There was a belief that this sector would face significant competition from NGS, so I'm interested in understanding how you're achieving this growth and how sustainable it might be moving forward.

Tom, thanks for the question. I think a couple of facets I'll highlight here. First of all, I would again come back to effective execution of our protect, expand, and acquire strategy. We continue to do a great job of protecting existing customers. And that's sort of driven to just a continuous focus on customer experience, whether that be from an operational perspective or just end-to-end as we look at it from requisition to results. So protect has really been a key factor. But we're seeing accelerated wins on the expand side and the acquire side of things. And I attribute that to two aspects. First and foremost, it's new products that we're bringing into the portfolio, and we speak significantly, obviously, about the NGS side of things, but don't forget about products like Claudin 18 and c-MET, which have been critical sort of pillars to actually round out our offering. So new products are certainly a key driver.

And I think lastly and very importantly, we communicated in Q4 of last year around the sales force expansion and sort of said that this was going to be a six to nine-month sort of ramp to productivity. And what you're seeing right now is just follow through on exactly what we had said. We're starting to see increased productivity from those added sales resources, which are focused on the protect, expand, acquire strategy and the new products we're bringing to market. And these things are operating in concert with one another, delivering the type of numbers that you reflected on.

Yes. The only thing I would add to that is even with record volumes, our operational execution and turnaround times continue to improve. So that remains kind of a vital component of our go-to-market strategy for retaining and growing and expanding business.

Great. And then just one follow-up on kind of the launch of PanTracer into next year and just trying to scope out the potential for acceleration there. So should we be treating this as kind of 2023 all over again? Or is the sales force now appreciably larger? Should we expect a larger acceleration given this is quite a hot area in general in oncology diagnostics? So just anything to help frame your expectations versus your kind of solid tissue launch in 2023 would be really helpful.

Yes, certainly. As an organization, we've matured since 2023. We've also expanded commercially as well. And so I think using 2023 as a sort of proxy would probably be a good starting point at this junction and probably layering on some additional factors like the sales force expansion would be a way to look at it.

And the majority of the sales force expansion was in the community segment. So that really positions us well to have the coverage we need for these new products.

Our next question is coming from Subu Nambi of Guggenheim Securities.

This is Thomas on for Subu. Maybe I can ask both upfront. So first, are you still expecting stronger performance in the data business on the nonclinical side in the fourth quarter? And maybe just some color on why that should show strength based on what you've seen so far this year? What you're seeing in the funnel to be comfortable with that? And then second, can you just talk specifically for clinicians in the community setting on how RaDaR has been received following the favorable summary judgment? What's the chatter like there?

Yes. On the data business, Q4 is historically the strongest quarter in that business. That business actually did grow in the third quarter, double-digit growth in the third quarter. And so we are expecting that business to see sequential growth over Q3 and the fourth quarter.

Yes. Again, I just want to reiterate that we have not clinically launched RaDaR as yet in the clinical setting. However, obviously, the news regarding the outcome of the summary judgment has certainly circulated through the community oncology setting. And I'd say the vibe is increasingly positive about the fact that we can reenter the market. Again, it comes back to the fact that we believe we have one of the most sensitive assays in the market, but also the portfolio effect, the ability to consolidate all of your needs within the community oncology setting within a single vendor. So this helps round out that sort of value proposition for us.

Yes. I think that's an important point, just to reinforce. We've always said this preferred partner of choice in the community setting, and that speaks to a balance of breadth of portfolio and innovation as well. And we look at that breadth of portfolio beyond just heme or solid tumor and MRD; we look at breadth of portfolio at MRD as well. And so for us to be in a position to be able to offer Flow MRD, have an outstanding NGS partner MRD with Adaptive and now RaDaR ST. And don't forget, we're going to continue to invest in our next-gen MRD program. So it's a suite of products that also fits well into our overall strategy. So I believe as that becomes more evident to our customers, the chatter will increase. Thanks for the question.

Our next question is coming from Yuko Oku of Morgan Stanley.

Given that IMvigor011 trial demonstrated how incorporating MRD testing can enhance probability of trial success, are you seeing an uptick in interest from pharma partners in integrating MRD into their clinical trial designs? And then a separate follow-up. Could you provide an update on an Adaptive partnership? And what are some of the key learnings and feedback from the pilot so far?

Yes. So coming back to sort of pharma interest, I would say that pharma interest has been robust ever since we launched the product back in August of this year. Certainly, our first targets were prior users of the assay because of their familiarity, et cetera. But we've rapidly expanded that. We were recently at the ESMO conference, which was in Germany late last month or early this month. And again, very, very strong interest with regards to the assay for multiple purposes, but also from an endpoint perspective, as you articulated. So we're encouraged by the early signs in terms of the pharma sponsor interest with regards to MRD. Sorry, what was your second question? Yes. So we continue to progress very favorably with Adaptive. We started a pilot initiative in the third quarter. And really, this was just to sort of understand the operational workflows, et cetera, because both organizations are very focused on delivering a sound customer experience, and we continue to expand that pilot into three distinct phases. We're rolling out the first phase of the three-phase initiative now holistically in the fourth quarter and Phase II and Phase III will happen quickly in 2026.

Our next question is coming from Tycho Peterson of Jefferies.

This is Lauren on for Tycho. Just going back a little bit to the rebounding growth in the pharma and nonclinical setting, likely more of a '27 event. For '26, how are you seeing RaDaR adoption evolving in pharma partnerships versus the clinical setting? And then in terms of kind of the phrasing of partner of choice you've been using for community oncologists, what are some of the specific investments or initiatives that are kind of reinforcing that position?

We expect to see revenue from MRD in the pharma sector for 2026, which will help address some challenges we've faced. We'll provide more details as part of our guidance next year, but we are optimistic about pharma revenue from MRD. Regarding your second question, there are multiple factors at play. Primarily, it's about our portfolio and being the preferred partner for the community setting. We're focused on having the most relevant portfolio, especially with our therapy selection options. We believe the PanTracer family enhances our offerings, along with important add-on tests like c-MET and Claudin 18, which strengthen our larger portfolio in diagnosis and therapy selection. We now have MRD as well, and as Tony mentioned, it isn't just the RaDaR ST; it's also our partnership with Adaptive and the presence of Flow MRD on the heme side. Additionally, we're enhancing our bidirectional interface and improving the customer experience, as these are crucial factors for buying decisions. Community oncology practices are increasingly looking to reduce friction in their operations to concentrate on essential activities. They prefer vendors that can provide a seamless experience, and we believe that by consolidating oncology send-out requirements to a single lab and offering an exceptional customer experience, we present a strong value proposition.

Yes. Historically, when we were active in the market with RaDaR Pharma, we achieved $6 million to $7 million in annual revenue after a couple of years. Therefore, we expect a similar ramp-up for pharma in RaDaR as we reengage in the market.

And our next question is coming from Puneet Souda from Leerink.

How are you considering the Average Unit Price as you bring this MRD on board? Could you also elaborate on your perspective regarding the competitive landscape? CGP has been growing for several companies offering products in the market. Are you observing any notable differences competitively in the NGS side of the business?

So I'll start with AUP and then let Warren talk about the competitive dynamics. Puneet, so I think obviously, getting MolDX approval was a good first step for RaDaR. We're also working to get commercial approval as well. And as is the challenge with some larger panel tests, that will take time to get commercial coverage for RaDaR as well. Others being in the space and having more overall acceptance, I think is a positive. So I think it will be a driver for AUP over time, but probably more starting in the back half of next year and into '27.

In terms of therapy selection in NGS, we certainly continue to see the same competitors in the community oncology setting. It remains a highly competitive environment. However, we believe that the expansion of our portfolio, which was requested by many community oncologists, has been very well received. It's not just the volume increases from our liquid biopsy tests; we're also observing growth across the category. Interestingly, we're seeing renewed growth in our NeoTYPE cancer-specific panels for breast, lung, and brain cancers as well. This comprehensive offering we have across solid tumors and hematologic cancers differentiates us in the marketplace.

Yes. And the last piece I would say is from a cost per test perspective, Pathline has a higher overall cost per test than legacy Neo because of that lack of incremental volume. So the ability to streamline Pathline and actually pump incremental volume in there will bring down that cost per test as well. So early.

Our next question is coming from Mark Massaro of BTIG.

This is Vidyun on for Mark. I'll just keep it to one on RaDaR. Could you just remind us what indications you're pursuing here in addition to head and neck and breast cancer? And any cadence of reimbursement that you're expecting there? Any further milestones we should be looking for out to '26?

Well, as you mentioned, the two indications that we have secured have been subsets of head and neck, which is HPV-negative adjuvant and surveillance. And in breast, it's HR-positive and HER2-negative surveillance five years out. So those are the two that we go to market. Relative to new indication areas, I will tell you we have every intention. We have been doing ongoing work in R&D. And so we will be making additional submissions for indications, expansion for RaDaR ST. I won't go into the specifics about those for relatively obvious reasons, but we plan to be moving forward with those. And as well, we are continuing our next-gen MRD program as well. And we see the necessity of having both RaDaR ST and Next-Gen because having an ultrasensitive option for low-shedding cancers is going to be an important aspect as well. And so we see the indication flow a little bit different for our Next-Gen program that we would with RaDaR ST. So we're trying to avoid redundancy and overlap in spend relative to those indications. So you should expect us to add indication submissions in the short term, which we believe could be manifest in the second half of 2026.

And our next question is coming from Mike Matson of Needham.

This is Joseph on for Mike. I guess just two from me. Just looking at pricing, AUP, obviously, you guys have seen many consecutive quarters of improvement there. While small Pathline is a headwind there. And I did hear what you guys said concerning just volume coming through at a higher rate will improve COGS. But I know NGS, bringing NGS into there is the plan or was the plan. I was just kind of curious if you could remind us on the time line for that. Is that a 2026 plan? Or is that already in the works to bring NGS or more NGS into the Pathline lab?

Yes. So just to be clear, on the Pathline lab, so the NGS is going to be done at our other sites. So the fast turnaround tests enable us to capture more NGS work. The time lines for doing that NGS work enable us to send those out to our other labs in Florida and California and still meet our time frame. So we're actually going to gain operating leverage by pumping more volume into our existing sites as a pull-through through the Pathline site.

Yes. And just as a follow-up on that Pathline, as we said, the strategy there was always to give us the opportunity to deal with the under-penetration in the Northeast, and we have made really good progress there. So all the legal integration and the assay validations have been completed. And so now we can offer a more complete complement of the Neo portfolio and take advantage of the Pathline site for the more rapid turnaround testing needs that are up there, but as Jeff said, taking advantage of our footprint and the efficiencies we gain in our other lab sites. And so we're confident. I know our selling team is excited about the prospects that they are generating. We see a healthy new customer list beginning to emerge, and that's why we are of the belief that it will be a growth driver for us in '26 and beyond.

I guess maybe just one quick one. NGS growth specifically, I know the target there is 25% or more, very near that target, obviously, above market growth right now. But we have seen acceleration there in NGS growth the last two quarters. I'm just curious how you're thinking of the next quarter, 4Q '25 and 2026? Is it back on that target of over 25%? Is the target more just above 20% at this point? I'm just kind of curious your guys' thoughts there.

Yes. So we gave guide for the back half of the year. We didn't give a Q4 specific guide. We expect to see continued good growth in NGS, but we haven't broken out the specifics on that.

Well, that does conclude our question-and-answer session. I would now like to turn the floor back to Tony Zook for closing comments.

Well, again, I'd just like to thank everybody for joining us on the call. As we said, it was a good quarter. We have focused on operational excellence, and I'm pleased to say that the teams in both our commercial organization and our lab have performed extremely well, and we're very proud of all the work people at Neo are doing to advance cancer care for all the patients in the community. Once again, thank you for your time, everyone, and we'll look forward to some one-on-one follow-ups.

Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.