管理層發言
Welcome to the NeoGenomics Fourth Quarter and Full Year 2024 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. Please note, this call is being recorded and an audio replay will be available on the company's website. Kendra Sweeney, Vice President of Investor Relations, you may begin your conference.
Thank you, Holly. Good morning, everyone, and welcome to the NeoGenomics fourth quarter and full year 2024 financial results call. With me today to discuss the results are Chris Smith, Chief Executive Officer; Jeff Sherman, Chief Financial Officer; Warren Stone, Chief Commercial Officer; and Andrew Lukowiak, Chief Innovation Officer. Additional members of the management team are available for Q&A, including Melody Harris, Chief Operations Officer and Kareem Saad, Head of Strategy and Transformation. This call is being simultaneously webcast. And we'll be referring to a slide presentation that has been posted to the investors tab on our website. During this call, we will make forward-looking statements regarding our future performance. We caution you that actual events or results could differ materially. The forward-looking statements made during this 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 our most recent Forms 10-K, 10-Q, and 8-K we filed with the SEC to identify important risks and other factors that may cause our actual results to differ from the forward-looking statements. During this call, we 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 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. I will now turn the call over to Chris Smith, Chief Executive Officer of NeoGenomics.
Thanks, Kendra, and good morning, everyone. Thanks for joining us today. On today's call, we'll discuss the highlights of our fourth quarter and full year financial results and provide an update on key business growth drivers. Before we discuss the financial results, I just want to thank our teammates for their unyielding commitment to our mission and their hard work throughout the year. Our mission and vision, which is about saving lives by improving patient care, is what attracted me to Neo and is what drives me and our teammates of 2,200 across the United States and in the UK every day. I want to thank my teammates for the work they've put in over the last several years to transform this company. As many of you know, when I took the CEO role, it was with the commitment to help lead a turnaround back to growth and profitability. This transformation occurred much quicker than I originally anticipated.
We have now grown revenue by double digits for nine consecutive quarters and have turned around adjusted EBITDA from a negative $48 million in 2022 to a positive $40 million in 2024. With the company now in a strong financial position, I decided it was time for me to retire. While I retire on April 1st, I'm confident in the future growth potential of Neo. We compete in a very large and growing market with a broad test menu. We enjoy a leadership position in the community setting and we have a world-class management team. In addition, I think our incoming CEO, Tony Zook's deep commercial experience, especially around launching new products and R&D, as well as having the opportunity to interact with the management team and learn the business as a Board member over the last few years made him the right choice as the next CEO to lead Neo into the future. With that, let's get into the Q4 highlights on the next slide.
As you can see, we had another strong quarter with revenue of $172 million, growing revenue by double digits for the ninth consecutive quarter. Clinical testing volumes increased by 9% versus the prior year with a 5% increase in revenue per test. Adjusted gross margins improved to 48%, the highest in 20 quarters or five years. As a highlight, we saw 24% growth in NGS in the quarter and 34% for the year. NGS now represents over 30% of our total revenue. From an adjusted EBITDA perspective, our progress continues with a 27% improvement for the quarter, making Q4 our sixth consecutive quarter of positive adjusted EBITDA. We made key investments in our commercial and enterprise operation organizations throughout the year. These investments, combined with the entire organization's efforts to enhance customer experience, have enabled us to serve nearly 700,000 patients in 2024, which I believe positions us well to achieve our goal of serving 1 million patients annually by 2028.
The success we experienced throughout the transformation and the continued momentum of our quarterly financial results enabled us to raise our long-range financial plan last month. We're not going to be in the habit of adjusting this number annually, but given our understanding of the business today versus where our new management team was at Investor Day in April 2023, we want to provide a clear picture of the business as we see it over the next few years. Our long-range financial plan targets top-line growth of 12% to 13% annually. Notably, this excludes any revenue from MRD. We believe the company has the potential to continue to grow the NGS business by 25% annually, which would outpace the market growth rates, which we believe is around 15%. We think about our gross margins, we see about 100 to 150 basis points of expansion each year. When you take that with the revenue, our disciplined approach to OpEx and our focused investment strategy, it gives us about 250 to 300 basis points of growth in adjusted EBITDA margins.
Our confidence in continuing to execute on this broad range of growth levers as well as the large addressable market in our business is what drives our LRP performance over the next several years. The statistics are clear: one in two men and one in three women are projected to be diagnosed with cancer in their lifetime and 80% of those new patients will choose to be treated close to home in a community setting. Our value proposition has always been how do we provide patients with the same cancer care they'd receive at an academic center like MD Anderson, in the community setting where they live and are being treated, like Greenville, South Carolina. Our broad menu of over 500 tests and our relationship with hospital pathologists and community oncologists gives us confidence in our long-range plan. On that, let me turn it over to Warren Stone, our Chief Commercial Officer, to give an update on the business and some highlights and insights into the growth.
Thanks, Chris, and good morning, everybody. Let's turn to Slide 7. The optimization of our commercial business is one of our key drivers in achieving long-term sustainable growth. Our field organization continues to effectively execute our commercial strategy, protect, expand, and acquire. To deliver volume growth, increased AUP, and improved mix driven by strength in NGS. NeoGenomics drove significant organic volume growth in the fourth quarter across the portfolio as our commercial and lab operations teams continue to execute. Growth is especially robust across NGS with revenue growth of 24% in the quarter, driven by competitive account wins, improved mix, and adoption of large test panels across Heme and solid tumors. As we shared on the third-quarter call, we are expanding our commercial resources to drive market penetration into community oncology and to support the launch of key products targeted to this segment.
We anticipate we'll be at 140 salespeople when the expansion is complete, approaching a one-to-one ratio between hospital pathology and community oncology core points. Most of these team members have been onboarded and attended our global sales meeting last week, joining at a very exciting time for Neo as we look to launch new tests in the coming months, including PanTracer liquid biopsy. With greater reach from an expanded commercial organization, we will continue to penetrate both new and existing accounts with our comprehensive menu of oncology testing solutions. A key differentiator for Neo is our broad menu of over 500 tests, which address diagnosis and precision medicine needs in NCCN guideline-approved panels and comprehensive pan-cancer panels. This allows us to meet providers where they are in terms of how they choose to treat their patients. To enhance our comprehensive menu, which already includes flow MRD tests and to further our leadership position in Heme, we announced a multi-year exclusive strategic commercial collaboration with Adaptive that will advance minimal residual disease monitoring options for patients with select blood cancers.
Under this partnership, patients will have access to compass and chart comprehensive and personalized assessment services, alongside Adaptive's NGS-based clonoSEQ MRD assay, all from one single bone marrow sample. We believe MRD is an integral part of patient care, not only as a prognostic tool but also to guide clinical decision-making and this exclusive collaboration reflects a broader commitment to providing the best-in-class personalized diagnostic testing for patients throughout their cancer journey while strengthening our leadership position in Heme testing. We'll continue to evaluate opportunities for in-licensing and strategic partnership arrangements to enhance our efforts to drive innovation and bring optionality to patients who can benefit from MRD testing. While we focus on growing the commercial footprint, we always keep the patients as a priority. We know the difference a day makes while waiting for test results.
So the entire organization works to get results back to physicians quickly. I'm proud to say our lab improved turnaround time by 11% annually compared to 2023, even with significant increases in test volumes. Providing a seamless user experience to our customers is at the heart of our commercial strategy. Last year, we implemented over 300 new interfaces with ordering accounts across community oncology practices and hospitals, a three times increase over 2023. As a result, more than 40% of our customers now have custom interfaces directly with us. We see a material increase in revenue with each customer we establish an interface with as it enables stickiness in the relationship by making it easier to do business with us. We intend to continue to invest in the acceleration and the deployment of more comprehensive interfaces to support our customers as we expand our commercial presence. The trust our partners have in us to deliver on turnaround time and meet our commitments has once again improved our Net Promoter Score to 74 in 2024, up from 70 in 2023.
Importantly, oncology-specific respondents, which is reflective of our new target market, improved from 42 in 2023 to 64 in 2024. This is especially rewarding as community oncology is a tough market to penetrate and notably less sticky than the hospital business. In the pharma setting, we did not see the customer year-end budget flush that fuels revenue in the fourth quarter. These macro conditions and the limitations of selling new RaDaR contracts resulted in the softer quarter. As we enter 2025, we have concluded preparations and implementation of our revised commercial strategy. This model better aligns with the needs of our pharma customers and their buying processes, resulting in increased value and shorter sales cycles. Additionally, it allows Neo to capitalize on operational synergies, which will enhance quality and customer experience. Now let me hand over to Andrew Lukowiak, Chief Innovation Officer, to talk about upcoming products and clinical data that will provide our commercial organization with tools to expand their reach.
Thanks, Warren. Turning to Slide 9, I'd like to focus on innovation. We believe innovation is another critical driver for delivering long-term sustainable growth. Identifying and executing on the right opportunities positions us well to capitalize on this rapidly evolving market, both now and for the long-term. We organize these opportunities into three distinct but complementary segments: products, studies, and research. Let's begin with products. The bulk of our existing test menu has addressed the diagnostics market, but more and more, we are moving our business into therapy selection. We believe the therapy selection market is around $13 billion in size with only about 35% penetration. So to aid in capturing share of this market, we are launching the Neo PanTracer liquid biopsy in the clinical setting in the first half of this year. For the clinical customer, the PanTracer liquid biopsy will be a comprehensive and highly sensitive test, complementing traditional tissue testing for therapy selection in advanced stage solid tumor patients.
We will also launch an upgrade to our Neo Comprehensive NGS panel to include HRD. Beyond the therapy selection market, we continue the development of RaDaR version 1.1, which is on track to complete clear validation. We continue to support RaDaR 1.0 under the legally approved carve-outs for patients and clinical trials already using the technology. The next song of innovation is the generation of clinical evidence. We are accelerating investment to participate in outcomes-based clinical studies that help drive adoption, support reimbursement, and expand our current clinical applications. We'll give a more detailed update of our clinical studies in the coming months. Last, but perhaps most important, is the development of a dedicated research program to enhance our MRD portfolio. This program focuses on applying a directed intentional approach to generating intellectual property specific to the field of MRD, including the development of both broad core technologies as well as targeted innovations that would be cancer-type specific. We're pleased to announce that this program is already operational with multiple opportunities actively being explored. And now, I'll hand it back to Jeff for some color on some margin expansion.
Thanks, Andrew. We are excited about what you and your team are working on and you're already having an impact on our R&D efforts. We are executing our margin expansion initiatives to deliver sustainable growth. Through a combination of efforts, including automation, staffing efficiencies, and higher-value tests, we drove over 240 basis points of gross margin improvement in the second half and full year of 2024 versus the prior year. We've provided you with some high-level updates on our plans to improve and upgrade our lab information management system. The migration to one single LIM system is a multi-year process and each quarter we continue to make progress. We have now combined our clinical and pharma workflow, blending COGS and operating expenses into one single segment and increasing efficiencies. Now, let me go into our fourth quarter and full year financial results. I will start with a little more detail on our operating results for the quarter.
We delivered a strong overall performance in Q4 with yet another quarter of double-digit revenue growth, increasing 11% over the prior year to $172 million. The combination of clinical test volume growth, the ongoing shift to higher-value tests, and improvements in revenue per test due to RCM initiatives continue to drive revenue growth. Adjusted gross margins improved by 134 basis points to 48% with adjusted EBITDA improving by $3 million or 27% from the prior year to $12 million. As Chris said, Q4 was our sixth consecutive quarter of positive adjusted EBITDA. Total revenue for the quarter, remind you, we are reporting one single segment going forward, grew to $172 million, an increase of 11% over the prior year. The increase in revenue reflects increasing test volumes and higher revenue per test due to increased ordering of higher-value NGS tests and strategic reimbursement initiatives.
As our expanded sales force penetrates deeper into the community oncology setting, we are seeing increased adoption of NGS testing, which is driving higher volume growth. The strong demand for NGS testing and the insights it provides continue to fuel revenue growth and earnings. As Warren noted, we did not see the expected pharma budget flush with year-end projects in the fourth quarter that we had expected and had observed in prior years, which impacted our revenue. On top of this, we were limited in our ability to sell new RaDaR contracts due to the preliminary injunction and negotiated settlement. We enter 2025 confident that we are positioned to grow our pharma relationships and we did see growth in informatics, now called oncology data solutions, in the fourth quarter and for the full year. Looking at our fourth quarter financial overview on Slide 14, adjusted gross profit increased by 14% over the prior year as a result of revenue growth and operating leverage generating higher adjusted gross profit and margins.
Regarding operating expenses, sales and marketing expense was $22 million, an increase of 24%, reflecting our continued investment in the expansion of our commercial sales organization and support staff. R&D expense increased 12% to $8 million in the quarter and our 2025 guidance also incorporates ramping investments in R&D, targeted to drive future products and long-term IP value, as Andrew noted. Finally, G&A expense increased to $63 million driven by higher technology costs to drive customer engagement, increased compensation costs, and higher depreciation expenses. We ended the fourth quarter with cash and marketable securities of $387 million, a decrease of 7% versus the prior year. Cash flow from operations was positive $10 million as we continue to make investments in the business to fuel long-term sustainable growth. We still intend to pay off our May 2025 convertible notes with the principal balance of $201 million using existing cash and marketable securities.
Turning to Slide 15 for full year 2024 results. Revenue was up 12% versus the prior year to $661 million, driven by deeper penetration in the community setting, higher volumes, a continual shift to higher-margin modalities, and execution of revenue cycle management initiatives. Adjusted gross profit was $311 million, representing an adjusted gross margin of 47% or an improvement of 245 basis points. Cash flow from operations improved 460% to positive $7 million and adjusted EBITDA increased over 1,000% to positive $40 million, an improvement of $36 million over the prior year. Let's move on to our full year 2025 guidance. Warren and Andrew talked about the investments we are making into the commercial organization and in R&D. We are investing more heavily in the first half of the year than we initially anticipated to enable accelerated growth in the back half with the typical seasonality of Q1 being the softest.
For the full year, we expect revenues of $735 million to $745 million, representing 11% to 13% growth and adjusted EBITDA of $55 million to $58 million, representing an improvement of 38% to 45%. While we do not give quarterly guidance, we wanted to give clarity into the weighting of the year due to these investments in H1 and the ramp of revenue in H2. Similar to last year, we expect first-quarter revenues to be about 23% of full year revenue, representing growth of 8% to 10%, and we expect 8% to 10% of the adjusted EBITDA for the year to be earned in Q1. We will continue to take a balanced approach to investments with increasing adjusted EBITDA, enabling expanded investments in our commercial organization, further investments to drive operating efficiencies in the business, and targeted investments in R&D to drive future product innovation for our well-established commercial channel. In summary, 2024 represented a strong year of execution and financial discipline, which positions us well to continue the momentum into 2025. And with that, I'll hand it back to Chris to wrap up.
Thanks, Jeff. Wow, it's been a great quarter contributing to a very strong year. I'm so proud of our teammates for working so hard to sustain performance that delivers these results. Before we wrap up, let me give a quick update on RaDaR litigation as to whether RaDaR 1.1 infringes two of Natera's patents and it's still ongoing. A jury trial is currently scheduled for October 2025 and as you've heard the team talk about today, we remain committed to bringing patients optionality in MRD testing and are confident in our position in the market. So to round out the call, in 2024, we saw four consecutive quarters of double-digit year-on-year revenue growth and positive adjusted EBITDA in all quarters as well as the highest adjusted gross margin in 20 quarters in Q4. We served nearly 700,000 patients on the path to our goal of serving 1 million patients annually by 2028. We saw meaningful progress in the execution on our strategic priorities and expect this momentum to continue throughout the year, which allowed us to raise our long-term guidance earlier this year. Our 2025 guidance reflects our confidence in the business and our teammates who will help us along the way. So now let's hand the call back over to Kendra for questions. Thank you.
Thanks, Chris. That concludes our prepared remarks this morning. Let's go ahead and open the line for questions. Holly?
Certainly. At this time, we will be conducting a question-and-answer session. Your first question for today is from Andrew Brackman with William Blair.
Hey, Andrew.
分析師問答
Hi guys. Hi, Chris. Good morning. Thanks for taking the questions to the entire team. Maybe just to start here on the guide. If we look back over the last few years, investors have really sort of rewarded those revenue beats. So as we sort of think big-picture for the full year 2025, can you maybe just sort of talk to us about where some of the levers are for potential upside to the range for the year? And then I guess, conversely, where might there be a little bit more risk than we might typically expect from Neo in the guide here? Thanks.
Yes, at the beginning, you mentioned whether investors rewarded the performance or not, and I apologize for missing that. Overall, we are experiencing strong momentum in NGS, with a 24% growth this quarter and 34% for the year, despite facing a tough comparison from last year's Q4. One significant opportunity I see is in the second half of the year with the launch of liquid biopsy; we plan to introduce it in the first half. Additionally, we now have around 35% more personnel in the field compared to a year ago, and even our existing team has gained more experience, positioning us well for revenue growth. We're also enthusiastic about our partnership with Adaptive, which we believe has substantial potential. It's essential to note that setting up all the necessary systems will take us through the first half, suggesting a significant opportunity for the second half. Furthermore, we're observing good progress and momentum in the Heme sector, which is growing around 10% to 11%, with us being the market leader there.
We'll also be launching another solid tumor product, likely in late Q2 or Q3. Overall, those elements hopefully provide us with opportunities. When considering risks to the business, I would highlight our ability to capitalize on those opportunities as our primary concern. In the community setting, we maintain a strong leadership position, but the pharma business has presented more challenges. We didn't see expected growth in Q4, but we have reorganized the field team under Warren's leadership, starting in late Q4 and into Q1. The pharma sector has faced difficulties largely due to our inability to sell new RaDaR. We expect to gain better clarity on the future following the court case in October.
Great. That's good color. And then maybe just back to Warren's comments on further in-licensing and partnerships and participating in MRD in various ways. Now that the Adaptive partnership has sort of been signed here, have your requirements for any of these deals sort of changed at all and if so, how? Thanks.
Yes, I'm going to let Kareem actually who runs strategy and BD talk to that. But I will tell you, Andrew, I think one of the greatest things that we have is our distribution channel. I would say it's best in class. And so I think we just didn't have the talent. We chose not to invest in BD and bring in the talent to build out that business when we first all got together because we were trying to get the house in order. But now Kareem has been here eight months.
Yeah, Andrew, I'd say no change in the overall requirements or the criteria that we use to evaluate these opportunities. We look at strategic fit, potential for how we can plug these partnerships into our commercial channel to leverage these technologies and complement the broad test menu that we bring to our customers. Then we look at the financial parameters of these opportunities and make sure that they're accretive to our business, both on the top line but also on the bottom line. So it really hasn't changed. And again, now we're in the process of activating the partnership and we'll probably go live with a partnership in the second half of the year. So we're excited about that.
And I will say we are seeing a lot more interest in inbound calls from companies in various stages of product development. Given our distribution channel, I think the adaptive announcement is probably even accelerating that a little bit more. So we're seeing a lot of activity from companies that have interesting products that are looking for a partner.
Great. Thanks, guys.
Hi, Puneet.
Yes, Hi guys. Yes, thanks, Chris. So first one, if you can elaborate on AUP assumptions that you have in the guide. Obviously, NGS is an important contributor there, maybe liquid PanTracer, but you have revenue cycle too. So just trying to get a sense of AUP contribution that you expect here in the full year? And then, yes, let me pause there. I'll come back for follow-up.
Okay, Jeff.
Yes, we didn't break it out separately in our guide, Puneet, but I would say, I would expect somewhat of a similar mix between volume and AUP growth, know that we saw over the last year is what I would contemplate for 2025.
Got it. And then if I look at the PanTracer product, you are launching that product in the first half. Just maybe just elaborate a bit on sort of the gross margin impact that you expect from that? And maybe just also help us understand, you have a well-established competitor in the market. Others have emerged with liquid CGP products over the years. So what's the commercial strategy here? Is it more about gaining ground with new accounts or in the community oncology setting or is it taking more share? Maybe just help us understand the strategy there? And lastly, for the pharma business, what is the growth expectation for that this year just given the business is disappointed? Thank you.
Yes. So from a gross margin perspective, I would put this in the category of a high-value test here at Neo. So I think from a reimbursement standpoint, we expect it to be competitive with what's on the market. And I think given our overall cost profile, it will be accretive to overall gross margins. And I'll turn it over to Warren on that.
Yes, the positioning, et cetera, a great question. So first of all, we see the PanTracer liquid as a very competitive test. It's going to include TMB and MSI, which are sort of becoming prerequisites from the target customer. I think what's important to understand here is that the backbone or the platform that this runs on is the same platform that we run our Neo Comprehensive solid tumor. And a big part of our strategy here is to offer a concurrent testing solution between solid tumor biopsies and obviously the liquid biopsy and having the common backbone is going to make it very easy to reflex, particularly in the lung setting, but for all sorts of solid tumors where liquid biopsies are playing an increasingly important role. From a targeting perspective, we've seen a lot of success as we gained share on the Neo Comprehensive solid tumor, and feedback from ordering physicians in the fact that this has been a gap within our portfolio. So based on that feedback, we feel confident that we're able to leverage our broader menu, provide a solution to consolidate testing both across the Heme and solid tumor sides of things within one lab. So that remains a very compelling value proposition from our perspective, which differentiates us from our competition.
Yes, I think people often discuss this, Puneet, but every one of our competitors' customers is purchasing more tests from us than from our competitors due to our extensive menu. This is why we’ve experienced growth. They were satisfied with one of our competitors' excellent tests, but since they offer a full range of services, our ability to provide an end-to-end solution has significantly benefited us.
And then on the pharma side, I would say our non-clinical revenue now, which really includes our pharma and our oncology data solutions. I mean, if you look at 2024, it was down 7% for the year and we did talk about Q4 even being softer where we typically see a budget flush and we saw other analysts reporting this as well, it clearly just did not happen as has been a pretty historical practice. So it did grow sequentially from Q3 to Q4 but came in a little bit lighter than we were expecting. So we believe stabilization there and expect to see some growth, but it will be modest growth. On the pharma component of the business, more growth on the informatics or oncology data services business. And then I think clinical will continue to be driving good growth as it has been.
Okay. Got it. Okay. Thank you.
Hey, Tycho.
Yes. Hi guys. This is Jack on for Tycho. Appreciate you taking our question. I guess, first, I think you touched on it during the call, but would it be great to get a timeline update for RaDaR 1.1 and also 2.0. And then following that, the MRD space looks to be increasingly competitive with notable coverage determinations recently and launches on the horizon. I guess, how do you expect to compete in a bit more crowded field this time versus when you launched 1.0? And what are your expectations for original 1.0 users with respect to adoption of 1.1, are there any indications that those customers will be sticky and perhaps easier wins?
I think there were about seven questions in your query, but I'll try to address them all. It’s not surprising that you’re closely examining MRD after your note last night, which was well done. We provided clarity as we’re preparing for the trial in October. We indicated we expect validation to be clear by late Q1 or early Q2, so we feel well positioned. Our bridging study demonstrating clinical effectiveness and equivalency between 1.0 and 1.1 is progressing well. The path for MolDX differs from that of legal, so we remain optimistic. I appreciate that others are developing in this market, as there are quality tests and companies involved. Your estimate of a $20 billion market stands out, while there are estimates pointing to a $30 billion market. We are confident in securing our share. It’s important to remember that the true pioneers of MRD are based in Cambridge, where some of the most knowledgeable individuals are focused on MRD.
We feel great not only about 1.1 but also about future advancements. Rather than calling it 2.0, I prefer to refer to it as next-gen, which is part of why we brought Andrew on board to enhance our research program. We’ve made significant pivots in the past six months, determining our focus not only for today but for the next five years. Thus, we can maintain a positive outlook on our market position. While we will face competition, I believe that is beneficial for business.
We can build on that just on a couple of things, Chris. So I think maybe two points. I think the note last night said this as well. Sensitivity remains one of the most important buying drivers for ordering physicians. And I think that next-gen strategy is to get to a technology that is significantly more sensitive to address lower shedding cancers and the adjuvant and neoadjuvant setting. But I think our strategy is not sort of to have next-gen and nothing else. We likely will run 1.1 in parallel with next-gen because to allow for cost optimization. In the surveillance setting, you don't need the sensitivity. So therefore, you don't need a sequencing as deep and the 1.1 solution is going to provide a long-term strategy there for us while the next-gen will focus on areas where you need greater sensitivity, deeper sequencing, and higher costs in the adjuvant, neoadjuvant setting for lower shedding cancers.
Thanks.
Great. And then if I could just squeeze in an eighth question here.
I'm going to have you jump back in the queue in the interest of time, if that's okay.
Your next question is from Mason Carrico at Stephens.
Hey, Mason.
Hey guys, thanks for taking the questions here. Would you be willing to talk a bit about revenue contribution from new products in 2024? Just as well just remind us of the cadence of products that rolled out over the last 12 months as we think about modeling out the clinical business this year?
Yes, you want to talk about the cadence like when we rolled out the new products?
Over the last two years, from January 2023 to 2024, we launched 13 new products that are significant in nature. While there were some line extensions, the focus was on these 13 new products. Last year, we introduced seven of them to the market at various stages. Most of these were based on next-generation sequencing, which supports our NGS growth. We have not yet disclosed the exact contribution of new products to our strategy, but they are a clear factor driving the growth in NGS that we've reported.
Yes, remember we launched many small products recently. While they may not be significant alone, they contributed to our overall offerings. The important launches to consider are the new large panel solid we introduced in the second quarter of 2023 and the new large panel Heme launched in the third quarter. That's why I've mentioned the comparables as we moved into the fourth quarter. We believe it's essential to launch several line extensions and smaller products every year, but we aim for one to two major launches every 12 to 18 months. This year, you can expect the liquid biopsy and an extension of our large panel with HRD. Then, we'll plan to introduce another significant new panel in the first half of 2026. To summarize, consider that we typically face comparables every 12 to 18 months. However, as Warren noted, we don’t break down individual product contributions, though we do report individually on NGS, with most of these products falling under that category.
Okay. And then sorry if I missed this, but have you guys started to see any benefit from the biomarker legislation? What are your expectations around that this year? Is that baked into the guide at all? Or would that be upside?
Yes, it's part of our overall RCM strategic reimbursement initiatives. And I would say it's been slow. I mean, I think just because the legislation is passed, it does not mean the payers flip the switch and start paying us. So I'd still kind of describe it as hand-to-hand combat into trenches because you still have to kind of work with each payer and states where it happened and you're operating with payers that are operating in 50 states that have multiple different payment systems. And so it's a pretty complex process, but we think it's definitely going to be a tailwind long-term and it's part of the incremental opportunity we see over the next several years to have more of these large panel tests being required to be paid for by the biomarker legislation.
Got it. Thank you.
Your next question is from Tejas Savant with Morgan Stanley.
Hey, guys. Good morning.
How are you doing?
Good, how are you? So, Chris, I want to go back to the point about using your channel to push through partner assays. I think, Jeff, you pointed to adaptive as one example, but there's other similar activity that's been spurred by that announcement. So can you talk a little bit about what's your long-term philosophy about the shared economics of those arrangements? And more specifically, can you share a little bit more color on how you plan to direct salesforce incentives on your end to ensure a balanced focus for situations where there may be partial overlap with your own assays? I think the adaptive case was unique in that sense. It's largely sort of complementary. But in a field like MRD, you could envision sort of overlapping customer bases and value proposition. So just some clarity on that would be great.
I believe the Adaptive case was quite unique since it complements our offerings. However, I would say that we are focusing more on licensing opportunities rather than strategic partnerships, and these opportunities would align with our current portfolio without competing against it. It's important to note that in MRD, there are various perspectives to consider, such as whether it's tumor naive or tumor informed. Overall, we feel optimistic. Regarding our field organization, we adjust our approach based on the behaviors we aim to promote. Warren can elaborate further, but those engaged in the oncology clinical setting tend to be incentivized more on non-hospital products, particularly those related to NGS. In contrast, the hospital team is usually more focused on hospital-based offerings. As we roll out new products, our strategy will determine how we position them. While we don't disclose our methods publicly, we are confident in our ability to guide the field organization towards where they need to prioritize their efforts. I’m looking at Kareem, so let me hand it over to him.
Yes, I mean, I think one of the key strategic drivers for these partnerships is that there are products and capabilities that are complementary to our existing product set. And our customers are looking for a provider of comprehensive testing across the Board. And so for us, that's really the main criteria that drives a lot of these partnerships. And so we try to minimize the overlap intentionally and deliberately. So that's the whole point.
And I think coming back to one of the comments that Kareem made earlier in the strategic rationale, core point overlap is something that's imperative. I would struggle at this stage to support an opportunity that would drive our commercial organization into a different core point, which would then significantly dilute the efforts from a core business perspective. So that comes back to sort of how we select these deals.
Got it. That's actually super helpful. I have a quick follow-up really for Jeff on the guide. I think 1Q at the midpoint, Jeff, you're calling for about 3% EBITDA margins. The full year is around 8%. And you talked about the ramp upfront OpEx back-end loaded on revenue. Where are you thinking about sort of exit rates for EBITDA margin in the fourth quarter this year? And is it fair to model that as a jumping-off point for 2026? Or should we think of a slight sort of 1Q reset off of which it starts building again with a year-over-year increase next year?
Yes, I think from a trending perspective, Q1 is clearly our weakest quarter if you go back four or five years. It's always been the weakest quarter of the year. So if you look back at last year, Q1 was about a little bit shy of 9% of adjusted EBITDA for the year, and then the adjusted EBITDA built and the margin improved throughout the year. So I would expect kind of a similar dynamic in 2025 with Q1 being our weakest quarter, I said in that 8% to 10% range. We are increasing some investment in sales expansion enablement as well as R&D, as I said in my prepared remarks, but we do think as you have those salespeople ramping throughout the year, you'll see more back-end benefit from that as well.
Yes, I want to make sure I understood, but you're also talking about the jump-off from 2025. Are we talking about the gross margin jump-off at 2025 into 2026 or the adjusted EBITDA?
Adjusted EBITDA, Chris.
Yes, I believe you will see a similar trend due to the seasonality of the business. The exit rate for Q4 will decline, and I expect it will decrease in Q1 2026 before increasing again throughout the year, given the nature of the business.
Right, but up against Q1 of 2025.
Correct.
Right. So kind of that stairstep type of thing.
Yes. I mean, we do face some of the high-deductible dynamics that others in the industry have talked about as patients kind of race to see treatment into Q4 of the year, and then there is kind of a little bit of a slowdown in Q1, and you can have more weather impact in Q1 as well, so.
Got it. Fair enough. Thank you, guys.
Your next question is from Mark Massaro with BTIG.
Hey, Mark.
Hey guys. Hey, this is actually Vivian on for Mark. Thanks for taking the questions. A lot has been asked, so I'll just keep it to one maybe. Just the latest on RaDaR V2. It sounds like you may have an inclination to keep pursuing V2 over inorganic growth. Could you just explain your latest thinking around investing in V2 versus M&A? Thanks.
I believe you're referring to our next-generation RaDaR. We plan to explore both paths. Given our expertise in product development, much of our internal work has historically focused on tumor-informed products, and we haven't devoted as much attention to tumor-naive research. That said, we are actively pursuing both opportunities. I want to emphasize that while we are discussing new products, there is substantial organic development happening. In terms of inorganic growth, we are not looking to acquire companies that don't add value. Our strategy isn’t to purchase businesses that operate at a loss, such as a MRD product that loses $50 million annually. Our focus is primarily on targeted licensing deals with companies that possess innovative technologies, and we may consider one or two disease states to incorporate into those products. I just want to clarify that.
Yes, understood. Thanks for taking the question.
Thanks.
Your next question is from Matt Sykes at Goldman Sachs.
Hey, Matt.
Hey guys, this is Prashant Kota on for Matt. Thanks for taking the question. So you mentioned in your slides, 51% improvement in the Gartner productivity index on the clinical services side. Can you just talk about the drivers there and how you maintain innovation to stay competitive given your lower R&D spend as a percentage of sales relative to your competitors?
Yes, it's kind of two different things, but I'll let Warren talk about Gartner Index.
Yes, it's two different things. One of the initiatives we started back in late 2022 and early 2023 was to evaluate the maturity and productivity of our commercial organization because we aimed to invest in that area. If productivity isn't high, investing can be ineffective. There's a standardized assessment from Gartner that evaluates the productivity of commercial organizations. This assessment helps identify areas where productivity is lacking. We have systematically worked to address those gaps and will continue to do so. There is still progress to be made, but our investments in back office resources, new systems and tools, and standardized sales processes over the past two years have contributed to a 51% improvement in productivity. This is significant because as we add new resources, they enhance our reach, and our existing resources become more productive, creating a compounding effect in the market. Additionally, our focus on launching new products through R&D fuels our growth. The combination of innovation and increased productivity drives the overall growth of the organization.
Got it. That's helpful. And then could you just talk about some of the reasons why providers or health systems would not want NGS-based testing and how are you looking to overcome those barriers?
Would not? Nate? Nate is on the call. Maybe if you want to provide a medical perspective on that.
Yes, I think in general, the trend is that we're seeing less and less of that. The movement is definitely towards panel testing. I think NGS is increasingly incorporated into guidelines. Of course, there are going to be situations where costs could drive a desire in particular circumstances to take a more focused approach. But the trend is certainly moving more and more away from that, and I think we would all expect it to continue in that regard. And there are a handful of other circumstances where perhaps again where there's a particular biomarker of interest where there could be some benefits of sensitivity from a more focused assay. But again, these will increasingly be a smaller and smaller slice of all molecular testing occurring in the oncology space.
Amazing. Thank you.
Your next question is from Mike Matson with Needham.
Hi everyone. This is an analyst standing in for Mike. Thank you. I’ll ask my two questions together if that’s okay. Regarding the 2028 target of serving 1 million patients, I’m trying to understand how this aligns with the revenue target. Based on some rough calculations, it seems like achieving 1 million patients would require around 9% volume growth. Should we consider this as a base-case scenario with high-single-digit growth around 9% or 10%, while the remainder comes from pricing improvements? For my second question, with the Neo Comprehensive launch alongside HRD this year, is this something that clinicians have been particularly interested in, perhaps limiting Neo Comprehensive growth? Should we view this as a potential inflection point or more as an incremental addition to the test?
Yes, I'll start with the million patients. This is a goal we're considering at a broader level, but it also incorporates pharmaceutical patients, which makes the patient mix somewhat different. Therefore, I wouldn't rely on that figure to project volume growth in our long-range plan. As we continue to expand our sales force, I believe our approach will remain a mix of both volume growth and rising revenue driven by higher-value tests, revenue cycle management initiatives, and pricing increases. Overall, it's been a balanced approach, perhaps slightly leaning towards volume growth in the past couple of years. However, I wouldn't use the goal of 1 million patients to estimate a specific volume number.
On the HRD question, I think this comes back a little bit to what Dr. Montgomery was saying earlier in that, the guidelines are changing, and HRD is now is going to become more prevalent in guidelines. Today it's in place for Ovarian and we anticipate prostate and breast to follow in the near future, and as a result, this is definitely a need that we see coming from ordering physicians that up until today, we're not able to address. So this will when we launch this product early in the second half of the year, will address an unmet need within our portfolio today.
Okay, great. Yes, super helpful. Thank you for taking our questions.
Your next question is from Dan Brennan with TD Cowen.
Hey Dan.
Great. Thank you, and good morning. I appreciate you taking the questions. My first inquiry is about the Advanced Diagnostics business, which seemed to be a weak area this quarter. Going back to the third quarter, management appeared optimistic about the business reaching its low point. Although you mentioned a lack of flush was the cause for this quarter's performance, I would like to understand more about the situation. You previously discussed a new go-to-market strategy and expressed positivity regarding building a solid pipeline of opportunities in Q3. Could you provide additional insights about what's occurring on the ground and the current state of the backlog? Also, when you mention growth in 2025, should we expect low single-digit growth? Is that the appropriate way to think about it?
Yes. So maybe let me kind of address it. Look, we obviously talked about that pharma flush. And look, I would definitely say that we feel significantly better going into this year than I think coming out of probably last year. I think when we went from the third quarter kind of been moving into the fourth quarter, we thought we'd get that flush. We don't really report anymore on bookings, but I will tell you that we're having significantly more activity than we would have in this time last year. So I think all the trends look good.
Yes, it was up sequentially, Dan. It wasn't up as much as we expected from Q3 to Q4. The budget flush has been quite consistent over the last several years, but we didn't see it this time. However, as Chris mentioned, the activity at the start of the year has shown us that we should anticipate growth. Coming off a 7% decline in the non-clinical business last year and a 12% drop in the fourth quarter, we expect to see growth, and I believe that even modest improvements in that area will support the overall growth trajectory alongside the continued strong performance in clinical.
Yes. And I mean, the challenge here is a long sales cycle. This is a much longer sales cycle to convert from sort of creating bookings to actually convert those bookings into revenue, particularly in prospective studies where they need to obviously enroll patients, get samples, those types of things. So it is a long sales cycle, and that's going to hamper the ability in terms of how quickly we can turn this around. We remain very confident in the business.
Great. Thanks for that. And then maybe just kind of a high-level one on the clinical business. Sequencing, I think in your deck, said it grew 34% for the year. You guys still have a bunch of products coming out this year, which support continued really strong growth. I'm just wondering, like we're coming out with like 32% sequencing growth this year with 4% core. Just wondering if you can comment at all on kind of those assumptions or if not, maybe just on the core side, like how did the year end up and any way to think about what the right trajectories is for that business in 2025?
Yes, Dan, we view the modalities separately from NGS. Generally, we see growth in the modalities at around 3% to 4%, and we have consistently projected that we will outpace the market in this regard. For NGS, the growth in the marketplace is between 15% to 20%, and we anticipate it will continue to grow significantly faster than the market. This gives us a clearer perspective. Jeff, if you have anything to add, please do. We believe that if you're increasing the lower modalities, you are gaining market share. There's a lot of enthusiasm about the growth in the NGS market; for example, John Doe achieved 100 last year and is expected to reach 120 this year in NGS. However, we are also heavily focused on increasing market share, which is where we believe we continue to excel. This is why we see the other modalities growing faster than the market, and we emphasize this as a strong indicator.
Great. Thank you, Chris.
Your next question is from Andrew Cooper with Raymond James.
Hey, Andrew.
Hey, everybody. Thanks for the time. A lot already asked, but maybe just digging in a little bit more kind of link to something you just touched on. But as we think about that pace of clinical ASP or AUP stepping up, how should we think about that pace in 2025 and maybe the delta in 2025 versus 2024 prior years of what's RCM initiatives, what's mix and what sort of traditional price capture in terms of driving that ASP growth as we move forward?
Yes, we frequently discuss that approximately 60% of our business is billed directly to clients, specifically hospitals. As a company, we have a policy that all our materials and labor costs are increasing, so we implement a price increase accordingly. We feel positive about this aspect. Regarding other parts of the business, there are developments moving in the right direction, such as the biomarker law. Additionally, while we may not emphasize this much in investments because it's not about hiring more staff, we are actively working on expanding our payer relations. This is crucial since the biomarkers won't be effective if we can't utilize them properly. Overall, we are optimistic about our Average Unit Pricing (AUP).
Yes, and I would say from a mix perspective, if you looked at 2024, roughly about 60% of the overall increase in AUP was driven from NGS and the balance was a mixture of other test mix, price increases, and revenue cycle initiatives. I think that's probably a reasonable way to think about it for 2025.
Okay. Helpful. And then maybe just one very quick one. Thinking back to 3Q, you had the hurricanes right there at the start of the fourth quarter. You talked about potentially a little bit of impact, but it probably gets made up. Just any color there on potential hurricane impacts and if anything from the West Coast fires as well, would love your insights.
Yes, I definitely think all of those events have impacts on the business at a moment in time. Because we're really not an elective procedure type of business historically. We think the majority of that stuff eventually flushes through. You just are delaying when you see your physician, I think the challenge is getting into see docs. I joked in the call about Greenville, South Carolina, because that's where my mom lives and she has cancer. Even getting in to see hers, right, in Greenville it's tough. And so I think what you see is when these big events happen, it delays things. So it's hard to put a finger on where it is. It's definitely disruptive. I think because we have redundancy, we're able to take care of the existing patients pretty quickly because we like when it's a hurricane here, we move it to California. If we're really impacted by the fires in California, we move it here. Look, we're just hoping that there's never an earthquake and a hurricane at the same day on the West Coast and the East Coast. But I think for us, we're in pretty good shape.
Perfect. I'll stop there. Thanks, everybody.
Thanks, everybody. Look, we appreciate you taking the time and catching up, and everybody have a wonderful day. Take care.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.