NeoGenomics Laboratory Company Overview Presentation 01/09/2014
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The document presents NeoGenomics' company overview, emphasizing their fast-growing cancer genetic testing services and strong management team. It highlights their investment opportunities, strong revenue growth, and the increasing need for molecular diagnostics due to the aging population and rising cancer prevalence. Additionally, the document outlines key testing methodologies and market dynamics driving future growth in the cancer diagnostics sector.
NeoGenomics Laboratory Company Overview Presentation 01/09/2014
- 1. NASDAQ: NEO Time Matters. Results Count! Company Overview Presentation January 2014 “Improving Patient Care through exceptional cancer genetic testing services!” 1
- 2. 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 “may”, “would”, “could”, “will”, “expect”, “estimate”, “anticipate”, “believe”, “intend”, “plan”, “goal”, and similar expressions and variations thereof are intended to specifically identify forward-looking statements. All statements that are not statements of historical fact are forwardlooking statements. Investors and prospective investors are cautioned that any such forwardlooking 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. 2
- 3. Investment Highlights • Fast growing cancer genetics lab servicing Oncologists, Pathologists and Hospitals • • • • Strategic client partnerships created by “Tech-Only” model • Strong Management Team with large cap lab experience 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 3
- 4. Consistent Historical Growth Annual Revenue ($, 000’s) Tests Performed (000’s) 2012 2011 2010 2009 2008 0 2007 $0 2006 20,000 2005 $10,000 2004 40,000 2012 $20,000 2011 60,000 2010 $30,000 2009 80,000 2008 $40,000 2007 100,000 2006 $50,000 2005 120,000 2004 $60,000 4
- 5. Accelerating Cash Flow & Earnings 2010 2011 2012 $ 34,371 16.6% $ 43,484 26.5% $ 59,867 37.7% Total Gross Margin Gross Margin % 15,783 45.9% 19,428 44.7% 26,836 44.8% Sales & Marketing Exp as a % of Rev Gen & Admin Exp as a % of Rev R&D Exp as a % of Rev SG&A Expenses Total SG&A as a % of Rev 21.8% 31.2% 1.5% 18,746 54.5% 16.0% 28.4% 1.2% 19,837 45.6% 12.5% 26.5% 3.8% 25,624 42.8% ($, 000's) Total Revenue % Growth Adjusted EBITDA % Growth $ Net Income/(Loss) Diluted EPS Summary Operating Metrics Avg. Revenue/Test % Change (566) 2,134 NA $ 5,997 181.0% $ (3,303) ($0.09) $ (1,177) ($0.03) $ 65 $0.00 $ $ $ 522 -8.4% 600 -7.1% $ 570 -4.9% 5
- 6. Management Team • Douglas VanOort, Chairman & CEO • Maher Albitar, M.D., Chief Medical Officer & Director of R&D • Robert Gasparini, Director & Chief Scientific Officer • Steven Jones, Director, EVP – Finance, & Chief Compliance Officer • George Cardoza, Chief Financial Officer • Robert Horel, Vice President, Sales & Marketing • Steven Ross, Chief Information Officer Operating Partner, Summer Street Capital Partners; Chief Operating Officer, Quest Diagnostics Med. Dir. for Hematopathology & Oncology and Chief of R&D, Quest Nichols Institute; Director of Leukemia and Molecular Laboratory, MD Anderson Cancer Center Director of Genetics, U.S. Labs; Worldwide Marketing Mgr., Ventana Medical Systems; Asst. Director, Prenatal Diagnostic Center (Harvard) Chairman, Aspen Capital Group; Managing Member, Medical Venture Partners; Vice President, Merrill Lynch Investment Banking CFO, Protocol Global Solutions; Controller, Central Region, Quest Diagnostics Regional Mgr., US Labs; Product Specialist, Ventana Medical Systems; Pilot, U.S. Navy Vice President Technology, Chico’s FAS, Inc. 6
- 7. NeoGenomics’ Cancer Testing Services Key Testing Methodologies Cytogenetics: chromosome analysis - “Neighborhood view of 46 houses from 1000 feet” Flow Cytometry & IHC: cell surface marker analysis - “Single house view from 500 feet” Fluorescence in-situ Hybridization (FISH): gene analysis - “Door and window view of one house” Molecular testing: DNA/RNA analysis -“View of serial number on door lock” 7
- 8. Customer Targets Pathologists & Hospital Pathology Groups (about 74% of Revenue) • • • Enable community Pathologists to practice using sophisticated tools and tests Innovative technical component (TC or “tech-only”) services – Flow, FISH, IHC Outstanding Web-based Lab System & extensive training programs Oncologists & Clinician Groups (about 21% 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 5% of Revenue) • Contract research/clinical trial support work for Pharma clients 8
- 9. NeoGenomics Formula for Success 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 Market Share Gains • Attract New Customers – Promote key advantages of “tech-only” model – Partner with Clinician Offices • Grow existing customer base New Products & Solutions • Continue to expand test menu • Sublicensing of HDC products – Cytogenetics/Flow/IHC systems – Prostate/colon/pancreatic Cx Tests – International opportunities – Sales force productivity • Proprietary test development – Increase share of wallet • Disruptive technology for select solid tumor cancers – Promote product education – Capitalize on competitor turmoil • Seek new R&D partnerships Superior Financial Model • Sustainable revenue growth opportunity • Significant degree of operating leverage in the business model 9
- 10. Industry Dynamics – 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 Need for companion diagnostics being driven by rising drug costs and an increase in targeted therapeutics • • Xalkori® - Cost of ~$90,000 annually to treat non-small cell lung cancer. 50 – 61% effective for the ~3% of the population with certain genetic characteristics U.S. Population Demographics Diagnostic testing can significantly lower healthcare costs and improve clinical outcomes – • Boomer Impact on Cancer Market Molecular diagnostics transforming lab services industry and fueling rapid growth 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 – 77% of all cancers diagnosed are in people age 55 or older, the fastest growing segment of the US 30% Current 25% Percent Of Population • 20% 20% 20% 2030 2040 2050 22% 16% 17% 18% 16% 15% 10% 26% 19% 25% 25% 16% 11% 13% 12% 13% 1990 2000 2010 5% 0% 1980 Age 60 and older 2020 Age 65 and older 10
- 11. U.S. Cancer Testing Market Size $10-12 Billion Hematopoietic Cancers Solid Tumor Cancers $3 - 4 Billion $7 - 8 Billion ~$1 - 2 Billion ~$1 - 2 Billion Patients in Treatment: 850,000 7.0 million New Diagnoses/Yr.: 150,000 1.45 million Bone Marrow (350K/Yr) Per. Blood (150K/Yr) Lymph Nodes Tiss. Biopsies (8-10MM) Fine Needle Aspirates Other Bodily Fluids ~80% ~20% Total Testing Market: Est. Genetic Mkt. (TAM) Specimen Types: Neo Revenue Split: 11
- 12. Cancer Testing Market Characteristics • Cancer Genetics is high growth segment of lab Industry - ~20% annual growth in genetics testing - ~8% annual 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 Caris Diagnostics Genoptix Clarient Genzyme Genetics Acquiror Miraca Novartis GE Healthcare Svcs LabCorp TV/LTM Rev 3.5x 1.7x 5.8x 2.5x 12
- 13. A Growing Commercial & Facility Footprint VT WA ME MT ND MI NH MN OR ID NY SD WI MI WY IA NE IL CO CA KS MO IN WV AZ KY SC AR NM MS TX CT VA NC OK RI NJ DE MD OH NV UT PA MA AL Nashville, TN 7k sf GA LA Irvine, CA 18k sf FL States sending specimens since Jan 2012 Tampa, FL 5k sf Ft. Myers, FL 45k sf 13
- 14. Accelerating Pace of Innovation 2011 4 molecular tests 2012 2013 10-color Flow Cytometry 25-35 new Molecular tests Add’l NeoTYPE Panels 3 FISH Implemented State-of-the-art MolDx platform in lieu of Kits 30 new Molecular Assays ROS1 FISH FL – IHC menu Proprietary method for increasing sensitivity of Sanger sequencing 7 NeoTYPE MolDx Panels Plasma/Urine-based Prostate Test (Patent App) New Aperio Digital Image Analysis SVM for FISH (Patent App) Barrett’s Esoph. FISH (Patent App) NeoARRAY/SNP Cytogenetics Internalized 99% of send-outs Next Generation Sequencing (48 genes) NeoSITE Melanoma FISH SVM-based Cytogenetics Analysis System SVM-based Automated FISH Analysis System v2 14
- 15. More than 80 New Assays Launched in 2012 & 2013 Solid Tumor Assays* Molecular Assays: 1. IDH1 & IDH2 Mutation Analysis 2. c-KIT Mutation Analysis 3. PIK3CA Mutation Analysis 4. NRAS Mutation Analysis 5. TP53 Mutation Analysis 6. NeoARRAY SNP/Cytogenetic Profile 7. KRAS Mutation Analysis 8. BRAF Mutation Analysis 9. EGFR Mutation Analysis 10. Microsatellite Instability Analysis 11. NeoTYPE Breast Profile 12. NeoTYPE Colorectal Profile 13. NeoTYPE Gastric Profile 14. NeoTYPE Lung Profile 15. NeoTYPE Solid Tumor (Other) Profile 16. TPMT Genotyping 17. UGT1A1 Genotyping 18. Kit/PDGFRa Mutation Analysis 19. HRAS Mutation Analysis 20. PTEN Mutation Analysis 21. HOXB13 Genotyping 22. GNAS Mutation Analysis 23. MLH1 Promoter Methylation Analysis 24. MGMT Promoter Methylation Analysis FISH/ISH Assays: 1. ISH – Kappa ISH 2. ISH – Lambda ISH 3. NeoSITE Barrett’s Esophagus FISH 4. ROS1 FISH 5. NeoSITE Melanoma FISH 6. 1p/19q Deletion FISH Test Hematopoietic Assays* Molecular Assays: 1. BCR-ABL1 Translocation, t(9;22) 2. ABL1 Kinase Domain Mutation Anal 3. IgVH Mutation Analysis 4. FLT3 Mutation Analysis 5. NPM1 Mutation Analysis 6. JAK2 V617F Mutation Analysis 7. JAK2 Exon 12-14 Mutation Anal 8. BCL2 Translocation, t(14;18) 9. BCL1 Translocation, t(11;14) 10. MPL Mutation Analysis 11. MPN Reflex Panel 12. DNMT3A Mutation Analysis 13. RUNX1-RUNX1T1 (AML1-ETO) Translocation, t(8;21) 14. SF3B1 Mutation Analysis 15. B-Cell Gene Rearrangement 16. T-Cell Gene Rearrangement 17. CBFB/MYH11 Translocation, inv(16) 18. PML-RARA Translocation, t(15;17) 19. CEBPA Mutation Analysis 20. WT1 Mutation Analysis 21. NeoTYPE CLL Prognostic Profile 22. NeoTYPE AML Prognostic Profile 23. ETV6-RUNX1 (TEL-AML1) Translocation, t(12;21) 24. CARD11 Mutation Analysis 25. CD79B Mutation Analysis 26. MYD88 Mutation Analysis 27. RUNX1 Mutation Analysis 31. NOTCH1 Mutation Analysis 32. EZH2 Mutation Analysis 33. Chimerism/DNA Fingerprinting Analysis 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. TET2 Mutation Analysis CBL Mutation Analysis ASXL1 Mutation Analysis PTPN11 Mutation Analysis CSF3R Mutation Analysis PTPN11 Mutation Analysis STAT3 Mutation Analysis ETV6 Mutation Analysis NeoTYPE Lymphoma Profile NeoTYPE MDS/CMML Profile NeoTYPE Spliceosome Profile FISH/ISH Assays: 1. NHL FISH Panel (Revised) 2. MYC/IgH t(8;14) 3. CLL FISH Panel (Revised) 4. MDS FISH Panel (Revised) 5. MPN FISH Panel (Revised) 6. AML FISH Panel (Revised) 7. Eosinophilia FISH Panel 8. IGH/MAFB FISH 9. PTEN FISH BOLD = Multi-assay tests customizable to meet client needs (assays may also be ordered individually). * Certain assays may be useful in both solid tumor and hematopoietic cancers. Each assay listed in area of primary use. 15
- 16. Key Growth Drivers Over the Next 3 Years • 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 16
- 17. Productivity Increases Keeping Margins Stable 100% 42.8% 50% 90% 40% 80% 30% 70% 20% 60% 10% 50% 47.3% 48.4% 46.1% 44.8% 45.2% 44.7% 44.6% 43.9% 44.5% 47.1% 47.2% 41.5% 48.4% 43.2%46.3% 45.9% 0% -10% 40% -20% 30% -18.4% Gross Margin % Cum Change in Avg Rev/Test(2) Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 -50% Q4 10 0% Q3 10 -40% Q2 10 10% Q1 10 -30% Q4 09 20% Cum Change in Productivity(1) (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. 17
- 18. Cost Management & Operating Leverage Operating Cost per Test & Adj. EBITDA Margin $800 $723 $700 $642 $642 $671 12% $649 $618 $576 $600 5% $500 $400 -1% $300 0% -2% 13% $565 6% 8% 12% $555 $531 11% $512 12% 15% 10% 6% 10% $526 $482 $478 $464 $466 5% 0% -1% -5% -5% $200 -10% $100 $0 -12% -15% Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Cogs Cost/Test R&D Cost/Test G&A Net of R&D Cost/Test Total Cost/Test S&M Cost/Test Adj EBITDA Margin % 18
- 19. Quarterly Financial Information ($, 000's) Q3 12 * Q4 12 * Q1 13 * Q2 13 * Q3 13 * Total Revenue % Growth (YoY) $ 14,202 25.5% $ 14,893 15.5% $ 15,657 3.3% $ 15,603 -0.1% $ 16,884 18.9% Total Gross Margin Gross Margin % 5,892 41.5% 6,434 43.2% 7,246 46.3% 7,157 45.9% 8,171 48.4% Sales & Marketing Exp General & Administrative Exp Research & Development Exp 1,839 3,930 808 1,692 4,097 448 1,931 4,175 835 1,971 4,064 616 2,336 4,334 340 6,576 46.3% 6,237 41.9% 6,942 44.3% 6,651 42.6% 7,011 41.5% Total SG&A (Incl R&D) Expenses SG&A as a % of Rev Net Income/(Loss) Diluted EPS $ (975) ($0.02) Adjusted EBITDA $ Summary Operating Data % Growth in Tests Performed (YoY) Avg. Revenue/Test Avg. COGS/Test $ (113) ($0.00) $ 3 $0.00 $ 273 $0.01 $ 900 $0.02 842 $ 1,439 $ 1,794 $ 1,825 $ 2,163 41.7% $ 502 $ 293 35.3% $ 488 $ 277 $ $ 19.1% 488 262 12.7% $ 480 $ 260 19.1% $ 501 $ 258 * Quarterly financials impacted by a reduction in revenue of $1.3 MM/Qtr as a result of the expiration of the TC Grandfather Clause. 19
- 20. Key Financial Information Recent Share Price (1/9/14): $ 4.12 Common Shares Outstanding: 48.9 M Current Market Cap: $201.8 M Fully Diluted Shares: 55.8 M 52 Week Low/High: $2.05/$4.20 Avg. Daily Trading Volume (3 Mos): 267,386 20
- 21. NeoGenomics Summary • • • • • Emerging leader in fastest-growing segment of lab testing industry Robust competitive advantages and product portfolio Strong Management Team with outstanding industry experience Accelerating profitability driven by growth and operating leverage Recent Guidance: Q4 2013 FY 2013 Revenue ($, MMs) $17.6 - $18.1 $65.7 - $66.2 EPS $0.01 – $0.02 $0.03 - $0.04 21
- 22. Implied 2014 Physician Fee Schedule Rates Based on our 24% Medicare payer mix through the first 9 months of 2013, we expect the implied 2014 PFS Rates to have less than a 3% impact to total revenue (1). CPT Proc Code Procedure Description National National National Unadj Rate Unadj Rate Unadj Rate 2013 2011 2012 88184 88185 88189 FLOW 1ST MARKER $ $ $ 83.92 $ 50.29 $ 103.29 $ 82.71 $ 50.04 $ 102.45 $ 88.80 54.10 106.49 $ $ $ 87.77 53.73 110.69 -1.2% -0.7% 3.9% 88367 88367-TC 88367-26 FISH AUTOMATED PER PROBE $ $ $ 256.18 $ 195.36 $ 60.82 $ 264.13 $ 203.89 $ 60.25 $ 258.23 198.35 59.88 $ $ $ 255.77 193.08 62.69 -1.0% -2.7% 4.7% 88368 88368-TC 88368-26 FISH MANUAL PER PROBE $ $ $ 219.83 $ 157.65 $ 62.18 $ 221.24 $ 159.98 $ 61.27 $ 232.04 170.46 61.58 $ $ $ 232.49 167.65 64.84 0.2% -1.6% 5.3% 88360 88360-TC 88360-26 MORPHOLOGY, EACH ANTIBODY MANUAL $ $ $ 123.33 $ 71.01 $ 52.32 $ 120.49 $ 69.44 $ 51.06 $ 127.25 74.85 52.40 $ $ $ 130.04 75.23 54.81 2.2% 0.5% 4.6% 88342 88342-TC 88342-26 IMMUNOHISTOCHEMISTRY $ $ $ 103.92 $ 62.86 $ 41.11 $ 105.52 $ 64.67 $ 40.85 $ 115.34 73.15 42.19 G0461 GO461-TC G0461-26 IMMUNOHISTOCHEMISTRY (1st Stain) $ $ $ 103.92 $ 62.86 $ 41.11 $ 105.52 $ 64.67 $ 40.85 $ 115.34 73.15 42.19 $ $ $ 88.48 57.67 30.81 -23.3% -21.2% -27.0% G0462 GO462-TC G0462-26 IMMUNOHISTOCHEMISTRY (Add'l Stain) $ $ $ 103.92 $ 62.86 $ 41.11 $ 105.52 $ 64.67 $ 40.85 $ 115.34 73.15 42.19 $ $ $ 68.42 55.88 12.54 -40.7% -23.6% -70.3% FLOW EACH ADDL MARKER FLOW INTERP 16 OR MORE MARKERS FISH AUTOMATED PER PROBE TECH FISH AUTOMATED PER PROBE INTERP FISH MANUAL PER PROBE TECH FISH MANUAL PER PROBE INTERP MORPHOLOGY TECH, EACH ANTIBODY MANUAL MORPHOLOGY INTERP, EA ANTIBODY MANUAL IMMUNOHISTOCHEMISTRY TECH IMMUNOHISTOCHEMISTRY INTERP IMMUNOHISTOCHEMISTRY TECH (1st Stain) IMMUNOHISTOCHEMISTRY INTERP (1st Stain) IMMUNOHISTOCHEMISTRY TECH (Add'l Stain) IMMUNOHISTOCHEMISTRY INTERP (Add'l Stain) 2014 w/ 2014 vs Interim SGR 2013 % Fix (1)(2) change (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 2013’ on December 26, 2013. This SGR Fix is only in effect to 3/31/14 unless extended further by Congress. 22