GeneDx (WGS)2023-11-04 15:03Financial Data and Key Metrics - Total revenues for Q3 2023 were $53.3 million, with revenues from continuing operations at $50.4 million, up from $47.2 million in Q3 2022 and $45.2 million in Q2 2023 [8] - Excluding a one-time appeal benefit in Q3 2022, revenues increased 14% YoY [8] - Whole exome and genome volume reached over 13,000 tests in Q3, a 71% YoY increase and 11% QoQ growth [8] - Revenue from exome and genome testing was $34 million, up 42% YoY and 18% QoQ [8] - Adjusted gross margin from continuing operations was 48% in Q3, up from 37% in Q2 [42] - Cash burn for continuing operations was approximately $25 million in Q3, with a 52% YoY reduction in cash burn [12][17] Business Line Data and Key Metrics - Exome and genome testing accounted for 63% of total revenue in September, with exome growth at 70% in Q3 [6][40] - The company is focusing on increasing exome and genome volumes, reducing claim denial rates, and driving down cash burn [6] - The company plans to retire about 350 tests in early 2024 to focus on differentiating tests that are best for patient care and positively impact the P&L [21] Market Data and Key Metrics - The company saw a 12% increase in clinicians ordering exomes in the outpatient setting, with neurology showing the fastest growth at 18% QoQ [40] - The rapid genome product in the inpatient setting is growing quickly, though it remains a small portion of the business [74] Company Strategy and Industry Competition - The company is transitioning the market from single-gene tests, multi-gene panels, and microarrays to exomes and genomes [6] - Automation and AI are being leveraged across review analysis, report writing, and genetic accounting steps to reduce costs [2] - The company has entered into a $75 million debt facility with Perceptive Advisors to strengthen its balance sheet and provide flexibility in 2025 [7][80] Management Commentary on Operating Environment and Future Outlook - The company expects to achieve profitability by the end of 2025, driven by rationalizing operating expenses, expanding gross margins, and revenue growth [9][44] - The company is confident in its ability to drive exome growth and improve reimbursement rates, with a focus on reducing claim denials [75] - The company is navigating a challenging market but remains committed to driving shareholder value through cost-effective growth [7] Other Important Information - The company has completed the consolidation of library preparation platforms to a lower-cost solution offered by Tuas Biosciences [2] - The company has implemented a cost reduction plan of approximately $40 million, including vendor spend and workforce reductions [13] - The company has brought in new leaders across commercial, operations, finance, and product and technology to drive efficiency and growth [15] Q&A Session Summary Question: What is driving the implied Q4 revenue guide reduction? - About half of the reduction is due to employee reductions, primarily in R&D, product and technology, and support functions [4] - The company is focusing on projects with shorter-term payoffs and has trimmed longer-term R&D pursuits [4] Question: How is the company addressing cost reductions and where will these be reflected in the P&L? - The $40 million cost reduction plan includes vendor spend and workforce reductions, with a focus on supporting exome and genome growth [13][22] - The reductions are primarily in R&D and support functions, with no impact on the sales force or MSL teams [23][51] Question: What is the outlook for ASPs and pricing in 2024? - The company expects ASPs to stabilize, with slight improvements in Q4 and incremental ASP improvements in exome over the next several quarters [20] - The company is focused on reducing denial rates to improve ASPs and revenue [75] Question: What is the progress on reducing claim denials? - The company has seen a slight reduction in the denial rate, which is currently in the low 60s, with efforts ongoing to further reduce denials [75] - The company is focusing on avoiding denied claims rather than relying on the lengthy appeals process [75] Question: What is the breakdown between inpatient and outpatient exome testing? - The vast majority (97-98%) of exome testing is in the outpatient setting, with rapid genome testing in the inpatient setting growing but still a small portion of the business [74] Question: How is the company thinking about capital allocation with the new debt agreement? - The new debt agreement is coupled with cost reduction actions to drive exome growth, improve reimbursement, and reduce costs, with capital allocated to support these priorities [64] Question: What is the outlook for gross margins? - The company expects gross margins to continue to improve as exome testing makes up a larger portion of revenue, with exome margins currently over 60% [16][90] - The company sees the Q3 gross margin of 48% as a base to build from, with no meaningful one-time items impacting the number [56]