Participants

Sabrina Dunbar; Chief of Staff; GeneDx Holdings Corp

Katherine Stueland; Chief Executive Officer, Director; GeneDx Holdings Corp

Kevin Feeley; Chief Financial Officer; GeneDx Holdings Corp

Dan Brennan; Analyst; TD Cowen

Mark Massaro; Analyst; BTIG

Matt Sykes; Analyst; Goldman Sachs

Matt Stanton; Analyst; Jefferies

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the GeneDx first quarter 2024 earnings conference. (Operator Instructions) Please be advised that today's conference is being recorded.
And it is now my pleasure to introduce the commercial Chief of Staff, Sabrina Dunbar.

Sabrina Dunbar

Thank you, operator, and thank you to everyone for joining us today. On the call, we have conference Katherine Stueland, President and Chief Executive Officer, and Kevin Feeley, Chief Financial Officer earlier today, and JBX released financial results for the first quarter ended March 31, 2024.
Before we begin please take note of our cautionary statements. We may make forward-looking statements on today's call, including about our business plans, guidance and outlook. Forward looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 29, and we are under no obligation to update when discussing our results, we refer to non-GAAP measures, which exclude certain items from the reported results, please refer to our first quarter 2021 earnings release and slides are available at ir dot JBX.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.
And with that, I'll turn the call over to Katherine.

Katherine Stueland

Thanks, Sabrina, and thank you all for joining us. We're excited to share the strong results from the first quarter. With the continued execution from our team. We're raising our guidance for the year, bolstered by our view that we can sustainably deliver profitable growth in service of a critically important unmet need for diagnosing rare disease to an ever-growing group of patients and their families.
We have transformed JBX over the past few years, but it's also fair to say that our entire industry has changed tremendously in that time. The companies that are thriving are those that are focused on their distinct strengths. And in our case is our industry-leading exome and genome.
Our team is working with exceptional focus, purpose and care to put an end to the diagnostic odyssey by delivering the most comprehensive answers to clinicians and their patients. We're proud to say that we've hit yet another milestone. We've interpreted more than 600,000 clinical exomes since 2012. To give you a sense of how we've accelerated the growth.
We interpreted half of those in the past three years and 100,000 since the fall, either exomes contribute to our proprietary data assets, which enables more definitive diagnoses for more patients. That data asset is key to our competitive advantage, and it's only getting stronger with our growth. We organized our entire team around three goals in the middle of last year, one, driving exome utilization to improving our average reimbursement rates and three, reducing cash burn.
This focus is paying off. In the first quarter, we delivered more than $61 million in revenues, 61% in gross margins and an eighth consecutive quarter of cash burn reduction as a result, we are raising our annual revenue guidance to $235 million to $245 million will continue to expand our gross margins out of Q1, and we're reducing our cash burn guidance, which Kevin will walk through.
There's a lot that went well in Q1. Our commercial and medical affairs teams are driving exome and genome as a standard of care in the pediatric setting. This increased utilization positively impacted our product mix, which came in at about 30% exome and genome, but this representing over 70% of our total revenue over time, we expect to drive substantially all of our volumes and revenues to actual genome.
So our product mix this quarter is a sign of early success on this path to a to test future. We continue to drive market leadership with 80% of all clinical exomes being run at T & Ds providers that were targeting fall into two categories. Geneticists and pediatric specialists, including pediatric neurologists and pediatric developmental specialists are focusing on deeper penetration in existing accounts as well as new customers. Improving reimbursement was also a bright spot for the team.
In the first quarter, we saw faster than planned improvements in our average reimbursement rates, which also positively contributed to the strength of the quarter. We still believe there's room to improve that over time. We're operating with a strong bias towards cash management, efficiency and scalability. And we've seen market improvements as we integrate new tools and technologies, streamline processes, introduced machine learning features and drive down COGS in our labs.
Our team also retired more than 400 tests to simplify our menu in line with our strategy we continue to say that our flagship exome and genome products have the rare attributes of being both what is best for patient care and best for our business today. One in 10 Americans have a rare disease with 50% of them being children. We know that the expanded utilization of testing reveals that far more people are impacted by genetic diseases and we are committed to serving this growing patient population in the future.
Our sights are set on diagnosing all hereditary disease in as many families as possible. So over time, we'll introduce JBX to broader patient populations to inform health decisions through every stage of life. But for now, our team is focused on helping and the diagnostic odyssey for as many children and families as quickly as we can in that purpose, motivates our team each and every day.
And with that, I'll hand the call over to Kevin.

Kevin Feeley

Thanks, Catherine. First Quarter 2024 revenues from continuing operations grew to $61.5 million compared to $40.7 million in the first quarter of 2023 and $58.1 million in the fourth quarter of 2023. That is an increase of 51% year over year and 6% sequentially. Our team result in over 16,500 whole exome and genome tests in the first quarter, which generated revenues of $44 million in the first quarter from the exome and genome portfolio.
That's an increase of 96% year over year and 12% sequentially. Both volume and collection performance contributed to the growth. Adjusted gross margin from continuing operations was 61% in the first quarter of 2024, up from 34% a year ago and up from 56% in the fourth quarter of 2023.
The margin expansion during the quarter is driven by all three of continued favorable mix shift towards Exosome, improved exome average reimbursement rates and continued cost per test leverage on mix, exome and genome surpassed a key milestone representing 30% of all tests resulted this quarter. That's up from 17% a year ago and up from 27% in the fourth quarter of 2023.
We continue to believe that over time, nearly all forever of bone disease diagnosis will be run on an exome or genome backbone and that our total gross margin will continue to benefit as these high value prop tests pickup, greater share of our overall test volume and replace lower margin products on average reimbursement rate.
We've amplified resources in line with the three focus areas Catherine outlined, one such imperative was improving exome reimbursement rate through denial reduction in the first quarter of 2024. Our average reimbursement for the exome and genome portfolio after all denials was approximately $2,600, which compares to approximately $2,500 in the fourth quarter of 2023.
We are encouraged with the uptake here. But the reality is that nearly half of all exome claims are still being denied. A large portion of all denials are administrative in nature for claims, not meeting a variety of nonmedical requirements designed by payers, and we're working hard to ensure upfront order document collection and claims submission processes evolve to enable insurance specific workflows to improve our probability of success.
Another large portion of our denials might abate over time as Medicaid policy continues its momentum towards broad coverage for exome and genome. And already in 2024 two states have expanded coverage for rapid whole genome.
And then Nick, you and in the outpatient setting, New York State added exome coverage to their medical plan effective April 1, 2024. That brings us to 28 states covering exome and the outpatient setting and 11 covering rapid whole genome in patients. We applaud those states for taking this important step, but there is still a long way to go towards ensuring nationwide equitable access for all patients who needed on cost per test.
The team has done a great job lower input costs and wet lab process improvements are the headliners this quarter, but we continue to believe that automation across clinical interpretation and analysis offers mostly untapped long-term potential to drive scalability and cost efficiency and moving down to operating expense, total adjusted operating expense was $45.4 million for the first quarter of 2024.
That is a reduction of 26% year over year and 6% sequentially. Having again delivered reduced costs. We're approaching what I consider to be a normalized OpEx base for the business. Our team has built the muscle memory for efficiency, and we will not stop looking for ways to improve operating leverage throughout the business.
On the bottom line, total company adjusted net loss for the first quarter of 2024 narrowed to $8.5 million. That's an improvement of 83% year over year and 52% sequentially. Our first quarter cash burn was $17.2 million, which improved 71% year over year and 48% sequentially. I call out the net cash burn this quarter included approximately $6 million to fund the company's Annual 401K employer match approximately $2.9 million in what can be considered one-time payments related to previously reserved legacy Semafo refund requests and $800,000 severance payments related to our previously announced cost reduction initiative.
We've now delivered eight consecutive quarters of cash burn reduction and expect to drive sequential declines in cash burn each quarter. Of 2024. Cash, cash equivalents, marketable securities and restricted cash was $113.9 million as of March 31, 2024. And as a reminder, in October 2023, we announced that we entered into a five year senior secured credit facility with Perceptive Advisors.
The agreement provided for up to $75 million in capacity consisting of an initial tranche of $50 million, which was drawn in October 2023 and an optional second tranche of $25 million, which is available through December 2024.
Now turning to guidance. As Catherine said, we are raising our previously issued revenue guidance and now expect to deliver revenues between $235 million and $245 million for full year 2024. We're raising previously issued adjusted gross margin guidance and now expect to land the full year adjusted gross margin at 60% or higher.
And we are improving the low end of our net cash burn guide and now anticipate using $70 million to $80 million of net cash for the full year of 2024. And finally, we once again reiterate our expectation to turn profitable in 2025.
With that, I'll now turn it back to Katherine for any closing remarks.

Katherine Stueland

Thanks, Kevin. The shift from single gene testing to multi-gene testing began more than a decade ago and now are successfully shifting the rare disease market from multi-gene panels to exome and genome. This takes time and the dedication of a team that wants to win for the growing number of patients and families who rely on us.
And it's all made possible by the shareholders who support our growth. I'd like to thank our team and our investors for the opportunity to prove that we can set a new standard of clinical care while running a really good business. We know that the path to profitability is one that not many companies in our space have achieved, and we are fully committed to making that happen. To ensure we can out more and more families and return value to our shareholders.
Along the way, we'll now open the call up for questions.

Question and Answer Session

Operator

(Operator Instructions)
Dan Brennan, TD Cowen.

Dan Brennan

Great. Thank you. Thanks for the question. And obviously, congrats on another good quarter of maybe even for a few questions on the quarter and the guide. Obviously, we had the FDA issued the LDT guidance today. And I'm just wondering any comments from Management about what you thought of it, what stood out, how it might impact the Company?

Katherine Stueland

Certainly. And we were happy to see the 500 plus page document come out earlier today after a lot of speculation. And net-net, we think that this is a good opportunity and we have been planning for this new era of FDA regulation.
In fact, we've hired a Head of Regulatory and who's joining the team. So I think we are well prepared to ensure that we can comply with with FDA and now at having we've been operating the lab for 20 plus years and having complied with clear CAP New York State.
And we have a really, really strong system and very good, I would say regulatory and quality systems already in place. So and we're looking forward to moving into this new era.

Dan Brennan

And then maybe sorry, maybe just one quick follow-up to that. And then maybe one quick one on the on the business but down from like a competitive standpoint, the fact that existing LDTSLDT.s get grandfathered in so a or had you guys earmarked some cost associated maybe with running PMAs or anything of that sort that maybe now you might not have to do? And then B, would you expect it could raise the hurdle because you're on the market and for other players that want to come into it at all, make it harder for future plays on to compete.

Katherine Stueland

Yes, we think that this is an important opportunity for us. And as we said today, we've run more clinical exomes than anyone. We've got such a robust. What we believe is the largest rare disease data asset running exome and genome so we think that is a really important opportunity for us to be able to set the standard as we move into compliance with FDA.
And we think that there should be a high bar as it pertains to others being able to enter the market. But and we're still calling through the 500 plus pages and working with our consultants and our regulatory and clinical teams to best determine exactly how we're going to move forward. But we've baked in costs associated with it. And so we're feeling good about the opportunity ahead.

Dan Brennan

And then maybe I'll just ask one on the business. Obviously, there will be many I'm sure to follow, but you reiterated guide for profitability by '25 and you did raise the gross margin guide pretty materially this year. You lowered the burn this year. So is the profitability guide, the fact that it stays stays like something must have changed in that profitability guide, is it for a quarter and '25 as at full year? Just any more color about the impact in '25 versus the benefits you're seeing come in better than second in '24?

Kevin Feeley

Yes, Dan, it's look, we're super pleased with Q1 performance, and I think that's representative and the improved outlook that we provided for the remainder of the year. We've said all along that and the full year 2025, we expect to be profitable and there will be a quarter in there in which we make that turn. And we haven't specifically called out the timing there. And overall, I think we're standing behind our overall commitment that the full year on balance will be profitable and that there will be a quarter within that year where we make that sustainable turn.

Dan Brennan

Great. I'll get back in the queue. Thanks, guys. Congrats.

Operator

Mark Massaro, BTIG.

Mark Massaro

Hey, guys, congratulations on another good quarter on this looks like it's the fourth consecutive quarter of sequential revenue growth. And I know you didn't provide guidance for Q2, but with this rising mix shift to exome and genome and your sales force aligned to sell those which come in at a higher price and is it reasonable for us to extrapolate that you could have sequential revenue growth perhaps throughout this year?

Kevin Feeley

Yes, I think that's fair. Mark might continue to call out that the fourth quarter is typically our seasonally strongest quarter, and I see no reason for that to change this year. So in line with that, I do want to call out that we expect and have delivered consistent robust revenue growth and Xome would expect that to continue. But at the same time, the non Exosome portion of our portfolio, we don't want to surprise anybody if we see volumes and revenues decline in those testing lines. That would be in line with our strategy to overall replace those testing lines with exome and genome.

Mark Massaro

Okay. And maybe just a clarification question. I think I heard you talk about a $2,600 exome genome panel ASP up from $2,500 in the last quarter. Did you provide a metric on the patient on the denial rate? I assume you probably had some improvement in denials or collections in the quarter. And then can you speak to any lift from new payers, like whether it's Medicaid or some commercial payer coming on?

Kevin Feeley

Yes. Of all of the improvement in that average reimbursement rate would come this a reduction in denials there's been no changes to underlying contracted pricing. And so reduction in denials with the denial rate, I'm just north of 50% in the first quarter.

Mark Massaro

Okay. Got it. And then related to that? I mean, what do you think of it one long term run rate could be for exome genome ASP.s? I know if you're at around the $2,600 level today, I think you're getting paid more than two times that from other health plans. So I guess where do you see on perhaps a normalized run rate even if it's up two to three years from now?

Kevin Feeley

Yes. Look, I think over time, we might expect a reduction in the dollar rate, potentially some reduced contracting rates such that the $2,600 we experienced in the first quarter. I consider to be a new floor for us to work off of over the next and several quarters and couple of years.

Mark Massaro

Okay, got it. And maybe last one for me. You guys exceeded my revenue projections by well over $11 million. So I am not I must not be a good model or you guys are just executing well, I guess can you speak to them if you had any success converting accounts from from an VK. in the quarter and then related to that. I know that LabCorp put in a bid and won the assets to acquire in VK. Can you just speak to what your expectations are from any potential of perhaps converting some of those in VA accounts up later this year?

Katherine Stueland

Perfect. Yes. So you know that the rare disease business at NVKM. is in part centered on one of our core targets in terms of providers that we're focused on, and that's the pediatric neurology market. And so we have been targeting them. And as we've talked about and we pulled back from general pediatricians to really double down in that space.
That's where we're seeing really good success, both with new customers who haven't been ordering genetic testing where we convert them rapidly to utilizing our Exosome out of the gate. And then we have seen success in pediatric neurologists who have been ordering panels, including panels from an VK. and getting them to start ordering on our XL.
So we have seen success there and expect that we'll continue to convert that entire market. And that segment from from panels to exomes I think LabCorp has obviously made it an important acquisition and that hereditary cancer business that in vitro filters and certainly kind of the shining star there, the rare disease and panel business, we think over time will become obsolete and will be converting all of that tax on the genome.
But that's a core part of our strategy as we think about expanding utilization of that, the most comprehensive tests that's providing rapid turnaround times as quickly as panels and most patients not having an out of pocket. So we'll continue to turn the crank on that. I'm a commercial and medical affairs perspective.

Mark Massaro

Okay. Sounds good. Congrats on the quarter and I'll hop back in the queue often.

Operator

Matt Sykes, Goldman Sachs.

Matt Sykes

And good afternoon, Katherine, Kevin, Thanks taking my question and congrats on the quarter. Maybe Katherine, just kind of a high-level question. You had mentioned in the press release that the data and I know you had released earlier you presented at the American College of Medical Genetics bomb comparing Exosome versus CMA.
I know converting people from C-MAC exome is part of the challenge here, education awareness that data set in particular. How much do you think that will help in that education awareness? And do you need to continue to provide data similar to that to convince people to start with exome first? And how much more education awareness do you feel like you need to do?

Katherine Stueland

Yes. It is really important data for us when we think about kind of refocusing in the future on the general pediatric segment. So what we started to see last year when we did enter the general pain segment was and their tendency to utilize to utilize CDMA and therefore, the data that we've been able to generate is super helpful in terms of being able to not only go to payers, but ensure that we can continue to educate and clinicians who are ordering CMA.
We have seen since we refocused our commercial strategy away from the general pediatricians and to the paid narrows, as you expect, our CMA volume has has shifted. And so we think this is really important for the longer term strategy of being able to educate that broader pediatric pediatricians segment. But over the next several years, we're really going to be doubling down on pediatric neurologists, pediatric developmental specialists.
And in those settings, there is less utilization of C&I. So we think the data that we've generated is really, really good for the longer-term strategy.

Matt Sykes

Got it. Very helpful. Thank you. And then just on the XM genome test mix, it looks like you guys have kind of averaged around 300 basis points per quarter in terms of improving that mix towards exome genomes. Is that a number that we should could kind of extrapolate for the balance of this year with maybe higher step up in Q4 because of seasonality?
I'm just given the importance to margins, just trying to figure out cadence of this test test mix, how regular it is, how predictable it is and how you look at driving that that mix shift higher in terms of increases on a quarterly basis?

Kevin Feeley

Yes, I think them certainly sequential increase is absolutely fair. So anywhere in that range on 1% to 3% I think we've said all along that and all else equal, a test mix of roughly 40% would get us profitable at some sort of consistent gross margin profiles in our OpEx profile. And if you think about a turn to profitability in 2025, sort of a steady march up towards that point is what we'd expect.

Matt Sykes

Got it. And then just for my final question, just on reimbursement. Can you just remind me and apologies if you've said this before, but just sort of the percentage of patients that you face that are Medicaid-eligible just given the traction you've had and some of the states that have passed that just want to get a sense for the context of the Medicaid population and then secondarily, Kevin, you mentioned half of Xome claims are still being denied.
And I know you addressed some of the dials on the earlier question. And I was just wondering that in terms of like moving that denial rate down, is that like a body problem in terms of just hiring more people to do that largely administrative work? Or do you feel like you can move the needle on denials with the current staff and OpEx spend that you have today?

Kevin Feeley

Yes. The first roughly 15% to 20% of the business volume-wise is institutional and so the remainder then of the exome and genome business is split between commercial insurance and Medicaid. And there's roughly a 50 50 split in that insurance channel between commercial and on Medicaid with, as we've called out 28 states covering outpatient and 11 on the rapid whole genome product in patients. And so a disproportionately higher denial rate today. And then Medicaid populations for wherever volume is sourced from those states without coverage.
And then on addressing front end processes, no, not not necessarily a body problem or something that we can solve just by throwing more bodies at it and more so ensuring that's upfronts workflows from the ordering system through that time of claim submission are specific and unique to individual patient insurance products rather than a one size fits all process.
What we see is vast disparity in the medical necessity requirements as well as administrative requirements to ensure that exome and genome claims ultimately get paid. And so some work to do to make sure that processes are custom to those unique workflows is what has to happen, and that's more technology-based and process-based than just adding people, if that makes sense.

Matt Sykes

Thanks, very helpful.

Operator

Matt Stanton, Jefferies.

Matt Stanton

Hey, thanks a lot has been covered in terms of the guidance increase, both on the revenue and margin side and reiterating the targets for '25. But Kevin would just love to get your kind of high-level thoughts just visibility you have in the business today and just maybe how much that's improved over the last three quarters here?

Kevin Feeley

Yes. I'd look up. We've invested a lot into the team and it's good in 2023, we learned a lot of lessons with respect to commercial execution. I think the team is well poised to now understand what call points work for us. And we have the right size and skill set across the commercial organization.
And so I think it provides some of the confidence that allowed us to raise our guidance earlier in the year, and we think it's a substantial raise in guidance and look forward to them using some of those lessons learned over the past year.
Or two, as we've developed the strategy to start to expand the utilization of exome and genome. We the team has what it needs to execute on our plan. And so looking forward looking forward to seeing the results as the year progresses.

Matt Stanton

Thanks. And then maybe one quick one, just an update on the sales force realignment you did in last quarter to target more profitable accounts? And then any color around the enterprise sales team? I know it's a bit longer cycle, but just any update around some of those changes you've made more recently.

Katherine Stueland

So yes, you've got the sales force. So absolutely right. We've got 54 sales reps about nine medical science liaisons who are focused on the outpatient opportunity, which is predominantly with our exome and we put that into place in the fourth quarter in anticipation of 2024, we're really happy with. And with the performance of the team, we feel like we've got the right incentive comp program in place.
And I think that's based on what we're seeing year to date by way of volume in the door as a percentage of mix. We're feeling really good that the team is executing that they're focused on the right accounts that they are importantly motivated by their incentive comp plan. So I'm feel great about the team and continuing to drive forward with 2024.
And so good momentum with the sales force, and you're absolutely right on. And on the enterprise side of things, we have a small team that is going in and doing enterprise-wide sales arm for that, Nick, you opportunity and Nick, you is and I think it's an important market for us but it's a different type of sales approach.
And with that, it's a really good way to be able to by a different sort of consultative sale with the C-suite and really be able to get some of the health economics data in front of in front of these hospital systems are a fixed number of beds in that in the non-acute setting. So we think it is a way to be able to introduce genomics at more of a system-wide level.
And as to your point about, it's a longer selling cycle. That's exactly why but and we would hope to see some in 2025 some a greater percentage of volume and revenue coming in from that Nichia segment. This year, we're anticipating able to speak of rents and repeat from last year.

Matt Stanton

Super. Thank you.

Operator

Thank you. I'll now turn the call back over to CEO, Katherine's Stueland for any further remarks.

Katherine Stueland

Thank you so much. We appreciate all of the great questions and engagement and will continue to provide updates on our progress, and we look forward to seeing you at upcoming investor conferences. So thanks so much. Have a good night.

Operator

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.