This presentation provides an overview of NeoGenomics, a cancer genetic testing company. Key points include:
- NeoGenomics has experienced consistent historical growth in the number of cancer tests performed and annual revenue.
- The company focuses on fast-growing cancer genetics testing and has strategic partnerships with oncologists and hospitals.
- Management aims to continue expanding the test menu and achieving operating leverage to accelerate cash flow and earnings.
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NeoGenomics Laboratory Company Overview 2014-03-11
1. 1
NASDAQ: NEO
Company Overview Presentation
March 2014
Time Matters. Results Count!
âImproving Patient Care
through exceptional cancer
genetic testing services!â
2. 22
Forward-looking Statements
This presentation contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act, as amended;
Section 21E of the Securities Exchange Act of 1934; and the Private Securities
Litigation Reform Act of 1995. The words âmayâ, âwouldâ, âcouldâ, âwillâ, âexpectâ,
âestimateâ, âanticipateâ, âbelieveâ, âintendâ, âplanâ, âgoalâ, and similar expressions
and variations thereof are intended to specifically identify forward-looking
statements. All statements that are not statements of historical fact are forward-
looking statements.
Investors and prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and involve risks
and uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors. The
risks that might cause such differences are identified in our filings with the
Securities and Exchange Commission. We undertake no obligation to publicly
update or revise the forward looking statements made in this presentation to
reflect events or circumstances after the date of this presentation or to reflect the
occurrence of unanticipated events.
3. 33
Investment Highlights
⢠Fast growing cancer genetics lab servicing Oncologists,
Pathologists and Hospitals
⢠Strategic client partnerships created by âTech-Onlyâ model
⢠Dynamic, rapidly-growing and consolidating industry
⢠Industry-leading revenue & test volume growth
⢠Strong productivity and operating leverage leading to
accelerating cash flow and net income
⢠Strong Management Team with large cap lab experience
5. 55
Accelerating Cash Flow & Earnings
($, 000's) 2011 2012 2013
Total Revenue 43,484$ 59,867$ 66,467$
% Growth 26.5% 37.7% 11.0%
Total Gross Margin 19,428 26,836 31,737
Gross Margin % 44.7% 44.8% 47.7%
Sales & Marketing Exp as a % of Rev 16.0% 12.5% 13.1%
Gen & Admin Exp as a % of Rev 28.4% 26.5% 26.2%
R&D Exp as a % of Rev 1.2% 3.8% 3.7%
SG&A Expenses 19,837 25,624 28,563
Total SG&A as a % of Rev 45.6% 42.8% 43.0%
Adjusted EBITDA 2,134$ 5,997$ 8,515$
% Growth NA 181.0% 42.0%
Net Income/(Loss) (1,177)$ 65$ 2,034$
Diluted EPS ($0.03) $0.00 $0.02
Summary Operating Metrics
Avg. Revenue/Test 570$ 522$ 484$
% Change -4.9% -8.4% -7.3%
Avg. Cost of Goods Sold/Test 315$ 288$ 253$
% Change -2.7% -8.6% -12.2%
6. 66
Management Team
⢠Douglas VanOort, Chairman & CEO
Operating Partner, Summer Street Capital Partners;
Chief Operating Officer, Quest Diagnostics
⢠Maher Albitar, M.D., Chief Medical Officer & Director of R&D
Med. Dir. for Hematopathology & Oncology and Chief of R&D, Quest Nichols Institute;
Director of Leukemia and Molecular Laboratory, MD Anderson Cancer Center
⢠Robert Gasparini, Director & Chief Scientific Officer
Director of Genetics, U.S. Labs; Worldwide Marketing Mgr., Ventana Medical Systems;
Asst. Director, Prenatal Diagnostic Center (Harvard)
⢠Steven Jones, Director, EVP â Finance, & Chief Compliance Officer
Chairman, Aspen Capital Group; Managing Member, Medical Venture Partners;
Vice President, Merrill Lynch Investment Banking
⢠George Cardoza, Chief Financial Officer
CFO, Protocol Global Solutions; Controller, Central Region, Quest Diagnostics
⢠Robert Horel, Vice President, Sales & Marketing
Regional Mgr., US Labs; Product Specialist, Ventana Medical Systems; Pilot, U.S. Navy
⢠Steven Ross, Chief Information Officer
Vice President Technology, Chicoâs FAS, Inc.
7. 77
NeoGenomicsâ Cancer Testing Services
Key Testing Methodologies
Cytogenetics: chromosome analysis
- âNeighborhood view of 46 houses from 1000 feetâ
Flow Cytometry & IHC: cell surface marker analysis
- âSingle house view from 500 feetâ
Fluorescence in-situ Hybridization (FISH): gene
analysis - âDoor and window view of one houseâ
Molecular testing: DNA/RNA analysis
-âView of serial number on door lockâ
8. 88
Customer Targets
Pathologists & Hospital Pathology Groups (about 72% of Revenue)
⢠Enable community Pathologists to practice using sophisticated tools and tests
⢠Innovative technical component (TC or âtech-onlyâ) services â Flow, FISH, IHC
⢠Outstanding Web-based Lab System & extensive training programs
Oncologists & Clinician Groups (about 25% of Revenue)
⢠Includes Hematologists, Oncologists, Dermatologists, Urologists
⢠Disease Panels and comprehensive molecular menus
⢠Increasing Opportunity to service larger practices with Tech-only model
Clinical Trials & Other (about 3% of Revenue)
⢠Contract research/clinical trial support work for Pharma clients
9. 99
Industry Dynamics
& Demographics
⢠Aging U.S. population and
prevalence of cancer
⢠Diagnostic testing reduces
healthcare costs and improves
clinical outcomes
⢠Emergence of molecular diagnostics
⢠Targeted therapeutics and
companion diagnostics
⢠Capitalize on new healthcare
paradigm
⢠Attract New Customers
â Promote key advantages of
âtech-onlyâ model
â Partner with Clinician Offices
⢠Grow existing customer base
â Sales force productivity
â Increase share of wallet
â Promote product education
â Capitalize on competitor turmoil
⢠Sustainable revenue growth opportunity
⢠Significant degree of operating leverage in
the business model
New Products &
Solutions
Market Share Gains
⢠Continue to expand test menu
⢠Sublicensing of HDC products
â Cytogenetics/Flow/IHC systems
â Prostate/colon/pancreatic Cx Tests
â International opportunities
⢠Proprietary test development
⢠Disruptive technology for select solid
tumor cancers
⢠Seek new R&D partnerships
Superior Financial Model
NeoGenomics Formula for Success
10. 1010
⢠Molecular diagnostics transforming lab services
industry and fueling rapid growth
â Molecular diagnostics enable physicians to better
diagnose diseases and predict therapeutic efficacy
⢠Clinical Benefits: Effective treatment at an early stage
increases patient survival rates
⢠Healthcare Savings: a) forego spending on ineffective
therapies and b) effective intervention at an early stage
generally lowers overall treatment cost
â Need for companion diagnostics being driven by rising
drug costs and an increase in targeted therapeutics
⢠XalkoriŽ (Crizotinib) - Cost of ~$90,000 annually to treat
non-small cell lung cancer. 50 â 61% effective for the ~3%
of the population with certain genetic characteristics
⢠Diagnostic testing can significantly lower
healthcare costs and improve clinical outcomes
â Diagnostics represents only 2-3% of total healthcare
spend but influence approximately 70% - 80% of
physician decisions
⢠Cancer prevalence expected to increase as U.S.
population ages
â 77% of all cancers diagnosed are in people age 55 or
older, the fastest growing segment of the US
16%
17% 16%
18%
22%
25% 25% 26%
11%
13% 12% 13%
16%
19% 20% 20%
0%
5%
10%
15%
20%
25%
30%
1980 1990 2000 2010 2020 2030 2040 2050
PercentOfPopulation
Age 60 and older Age 65 and older
Current
U.S. Population Demographics
Boomer Impact on Cancer Market
Industry Dynamics
11. 1111
U.S. Cancer Testing Market Size $10-12 Billion
Hematopoietic Cancers Solid Tumor Cancers
Total Testing Market: $3 - 4 Billion $7 - 8 Billion
Est. Genetic Mkt. (TAM) ~$2 - 3 Billion ~$2 - 3 Billion
Patients in Treatment: 850,000 7.0 million
New Diagnoses/Yr.: 150,000 1.45 million
Specimen Types: Bone Marrow (350K/Yr)
Per. Blood (150K/Yr)
Lymph Nodes
Tiss. Biopsies (8-10MM)
Fine Needle Aspirates
Other Bodily Fluids
Neo Revenue Split: ~80% ~20%
12. 1212
Cancer Testing Market Characteristics
⢠Cancer Genetics is high growth segment of lab Industry
- ~15-20% annual test volume growth in genetics testing
- ~6-8% annual test volume growth in related AP testing
⢠Less than 400 Cancer Genetic Labs in the U.S.
- 2/3 affiliated with academic institutions
- Approximately 20% perform 80% of testing
- Only 15-20 labs with national reach
⢠High pace of consolidation - Recent examples include:
Target Acquiror TV/LTM Rev
Caris Diagnostics Miraca 3.5x
Genoptix Novartis 1.7x
Clarient GE Healthcare Svcs 5.8x
Genzyme Genetics LabCorp 2.5x
14. 1414
2011
4 molecular
tests
3 FISH
FL â IHC menu
2012
10-color Flow Cytometry
Implemented State-of-the-art
MolDx platform in lieu of Kits
28 new Molecular Assays
Proprietary method for increasing
sensitivity of Sanger sequencing
7 NeoTYPE MolDx Panels
New Aperio Digital Image Analysis
SVM for FISH (Patent App)
Barrettâs Esoph. FISH (Patent App)
NeoARRAY/SNP Cytogenetics
Internalized 99% of send-outs
2013
40 new Molecular tests
Addâl NeoTYPE Panels
Next Generation
Sequencing (48 genes)
ROS1 FISH
NeoSITE Melanoma FISH
Plasma/Urine-based
Prostate Test (Patent App)
SVM-based Cytogenetics
Analysis System
SVM-based Automated
FISH Analysis System v2
Accelerating Pace of Innovation
16. 1616
⢠Expansion of Sales Team with seasoned Professionals
⢠Growth of molecular assays, panels and Next Gen Sequencing
⢠Recent expansion in FISH and advanced flow cytometry
⢠New Image Analysis/Immunohistochemistry Platform
⢠Exclusive strategic alliance with Covance for Clinical Trials
⢠Proprietary NeoSCORE Prostate Cancer and other proprietary tests
⢠M&A Opportunities
Key Growth Drivers Over the Next 3 Years
17. 1717
Increasing Margins Despite Lower Average Unit Prices
(1) Productivity calculated as the average number of lab tests completed per month per laboratory FTE.
(2) The expiration of the Medicare Technical Component (TC) Grandfather Clause took effect on 7/1/12 and resulted in an ~11% YoY Reduction in Avg Rev/Test.
47.3%48.4%46.1%
44.7%44.6%43.9%44.5%44.8%45.2%
47.1%47.2%
41.5%
43.2%46.3%45.9%48.4%
50.0%
-23.4%
56.5%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Q409
Q110
Q210
Q310
Q410
Q111
Q211
Q311
Q411
Q112
Q212
Q312
Q412
Q113
Q213
Q313
Q413
Gross Margin % Cum Change in Avg Rev/Test(2) Cum Change in Productivity(1)
19. 1919
Quarterly Financial Information
($, 000's) Q4 12 * Q1 13 * Q2 13 * Q3 13 Q4 13
Total Revenue 14,893$ 15,657$ 15,603$ 16,884$ 18,323$
% Growth (YoY) 15.5% 3.3% -0.1% 18.9% 23.0%
Total Gross Margin 6,434 7,246 7,157 8,171 9,163
Gross Margin % 43.2% 46.3% 45.9% 48.4% 50.0%
Sales & Marketing Exp 1,692 1,931 1,971 2,336 2,487
General & Administrative Exp 4,097 4,175 4,064 4,334 4,823
Research & Development Exp 448 835 616 340 649
Total SG&A (Incl R&D) Expenses 6,237 6,942 6,651 7,011 7,959
SG&A as a % of Rev 41.9% 44.3% 42.6% 41.5% 43.4%
Net Income/(Loss) (113)$ 3$ 273$ 900$ 858$
Diluted EPS ($0.00) $0.00 $0.01 $0.02 $0.02
Adjusted EBITDA 1,439$ 1,794$ 1,825$ 2,163$ 2,733$
Summary Operating Data
% Growth in Tests Performed (YoY) 35.3% 19.1% 12.7% 19.1% 27.8%
Avg. Revenue/Test 488$ 488$ 480$ 501$ 470$
Avg. COGS/Test 277$ 262$ 260$ 258$ 235$
* YoY comparisons impacted by a reduction in revenue of $1.3 MM/Qtr as a result of the expiration of the TC Grandfather Clause.
20. 2020
Key Financial Information
Recent Share Price (3/11/14): $ 3.46
Common Shares Outstanding: 49.1 M
Current Market Cap: $168.0 M
Fully Diluted Shares: 55.8 M
52 Week Low/High: $2.05/$4.69
Avg. Daily Trading Volume (3 Mos): 283,766
21. 2121
NeoGenomics Summary
⢠Emerging leader in fastest-growing segment of lab testing industry
⢠Robust competitive advantages and product portfolio
⢠Strong Management Team with outstanding industry experience
⢠Accelerating profitability driven by growth and operating leverage
⢠Recent Guidance(1): Q1 2014(2) FY 2014(2)
Revenue ($, MMs) $18.8 - $19.3 $73.0 - $77.0
EPS $0.01 â $0.02 $0.05 - $0.07
(1) Guidance is before factoring any potential impacts from a negative resolution of the issues re the National Correct Coding Initiative FISH edits.
See 8-K filed on 2/19/2014 for additional information on this topic.
(2) NeoGenomics preliminarily estimates that a negative resolution of the NCCI FISH edits issue would reduce revenue by approximately $3 million
and net income by approximately $0.04 per share in FY 2014, with the impact more heavily concentrated in the first half of the year. Q1 revenue
and EPS would be reduced by approximately $1.0 million and $0.02/share in the event of a negative resolution.
22. 2222
Implied 2014 Physician Fee Schedule Rates
Based on our 24% Medicare payer mix through the first 9 months of 2013, we expect
the Medicare 2014 PFS Rates to have less than a 3% impact to total revenue (1).
CPT Proc Code Procedure Description
National
Unadj Rate
2011
National
Unadj Rate
2012
National
Unadj Rate
2013
2014 w/
Interim SGR
Fix (1)(2)
2014 vs
2013 %
change
88184 FLOW 1ST MARKER 83.92$ 82.71$ 88.80$ 87.77$ -1.2%
88185 FLOW EACH ADDL MARKER 50.29$ 50.04$ 54.10$ 53.73$ -0.7%
88189 FLOW INTERP 16 OR MORE MARKERS 103.29$ 102.45$ 106.49$ 110.69$ 3.9%
88367 FISH AUTOMATED PER PROBE 256.18$ 264.13$ 258.23$ 255.77$ -1.0%
88367-TC FISH AUTOMATED PER PROBE TECH 195.36$ 203.89$ 198.35$ 193.08$ -2.7%
88367-26 FISH AUTOMATED PER PROBE INTERP 60.82$ 60.25$ 59.88$ 62.69$ 4.7%
88368 FISH MANUAL PER PROBE 219.83$ 221.24$ 232.04$ 232.49$ 0.2%
88368-TC FISH MANUAL PER PROBE TECH 157.65$ 159.98$ 170.46$ 167.65$ -1.6%
88368-26 FISH MANUAL PER PROBE INTERP 62.18$ 61.27$ 61.58$ 64.84$ 5.3%
88360 MORPHOLOGY, EACH ANTIBODY MANUAL 123.33$ 120.49$ 127.25$ 130.04$ 2.2%
88360-TC MORPHOLOGY TECH, EACH ANTIBODY MANUAL 71.01$ 69.44$ 74.85$ 75.23$ 0.5%
88360-26 MORPHOLOGY INTERP, EA ANTIBODY MANUAL 52.32$ 51.06$ 52.40$ 54.81$ 4.6%
88342 IMMUNOHISTOCHEMISTRY 103.92$ 105.52$ 115.34$
88342-TC IMMUNOHISTOCHEMISTRY TECH 62.86$ 64.67$ 73.15$
88342-26 IMMUNOHISTOCHEMISTRY INTERP 41.11$ 40.85$ 42.19$
G0461 IMMUNOHISTOCHEMISTRY (1st Stain) 103.92$ 105.52$ 115.34$ 88.48$ -23.3%
GO461-TC IMMUNOHISTOCHEMISTRY TECH (1st Stain) 62.86$ 64.67$ 73.15$ 57.67$ -21.2%
G0461-26 IMMUNOHISTOCHEMISTRY INTERP (1st Stain) 41.11$ 40.85$ 42.19$ 30.81$ -27.0%
G0462 IMMUNOHISTOCHEMISTRY (Add'l Stain) 103.92$ 105.52$ 115.34$ 68.42$ -40.7%
GO462-TC IMMUNOHISTOCHEMISTRY TECH (Add'l Stain) 62.86$ 64.67$ 73.15$ 55.88$ -23.6%
G0462-26 IMMUNOHISTOCHEMISTRY INTERP (Add'l Stain) 41.11$ 40.85$ 42.19$ 12.54$ -70.3%
(1) Assumes no other Physician Fee Schedule (PFS) rule changes or limited coverage determinations for 2014.
(2) Calculated using a 2014 CMS Conversion Rate of 35.8228 as enacted in the 'Pathway for SGR Reform Act of 2013â on December 26, 2013.
This SGR Fix is only in effect to 3/31/14 unless extended further by Congress.