neo company overview presentation
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NASDAQ: NEO
Company Overview Presentation May 2013
Time Matters. Results Count!
“Improving Patient Care through exceptional cancer genetic testing services!”
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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 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.
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Investment Highlights
• Fast growing pure-play, cancer genetics lab
• Servicing: Oncologists, Pathologists and Hospitals
• “Tech-Only” model creates strategic client partnerships
• Rapidly growing industry undergoing consolidation
• Strong Management Team with large cap lab experience
• Industry leading revenue & test volume growth driven by new test innovation and increasing sales force productivity
• Increasing productivity and operating leverage leading to accelerating cash flow and net income
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Consistent Historical Growth
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Tests Performed (000’s)
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Accelerating Cash Flow & Earnings ($, 000's) 2010 2011 2012Total Revenue 34,371$ 43,484$ 59,867$ % Growth 16.6% 26.5% 37.7%
Total Gross Margin 15,783 19,428 26,836 Gross Margin % 45.9% 44.7% 44.8%
Sales & Marketing Exp as a % of Rev 21.8% 16.0% 12.5%Gen & Admin Exp as a % of Rev 31.2% 28.4% 26.5%R&D Exp as a % of Rev 1.5% 1.2% 3.8% SG&A Expenses 18,746 19,837 25,624 Total SG&A as a % of Rev 54.5% 45.6% 42.8%
Adjusted EBITDA (566)$ 2,134$ 5,997$ % Growth NA 181.0%
Net Income/(Loss) (3,303)$ (1,177)$ 65$ Diluted EPS ($0.09) ($0.03) $0.00
Summary Operating MetricsAvg. Revenue/Test 600$ 570$ 522$ % Change -7.1% -4.9% -8.4%
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• Molecular diagnostics transforming lab services industry and fueling rapid growth
– 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
• Diagnostic testing can significantly lower healthcare costs and improve clinical outcomes
– 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
16% 17% 16%18%
22%25% 25% 26%
11% 13% 12% 13%16%
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1980 1990 2000 2010 2020 2030 2040 2050
Perc
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Age 60 and older Age 65 and older
Current
U.S. Population Demographics
Boomer Impact on Cancer Market
Industry Dynamics
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U.S. Cancer Testing Market: $10-12 Billion Hematopoietic
Cancers Solid Tumor Cancers
Total Testing Market: $3 - 4 Billion $7 - 8 Billion
Est. Genetic Mkt. (TAM) ~$1 - 2 Billion
~$1 - 2 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 TAM % Neo Addresses: 90-100% 30-40%
Neo Revenue Split: ~80% ~20%
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Cancer Testing Market Characteristics
• Highest growth segment of lab Industry - ~20% annual growth in genetics testing - 8-10% annual growth in related AP testing
• Approx. 360 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
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Business Model Targets
Pathologists and Hospital Path Groups
• Innovative technical component (TC) only services – Flow, FISH, IHC
• Enables community pathologists to compete with large labs
• Rapid turnaround-time and web-based reporting
• Extensive training programs
Oncologists and Clinician Groups • Specialized high level of service and outstanding quality for clinicians
• Genetic Pathology Solutions™ (GPS) reporting – all relevant case data on one page report
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NeoGenomics’ Cancer Testing Services
Key Testing Modalities 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”
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• Hired Dr. Maher Albitar as Chief Medical Officer (Jan 12)
• Entered into exclusive worldwide license to Health Discovery Corp’s IP relating to pattern recognition technology, biomarker discovery, and gene & protein-based tests for cancer LDTs (Jan 12)
- Targeted initial focus areas: prostate, pancreatic and colon cancer tests; automating cytogenetics and flow cytometry analysis
• 10 Color flow cytometry (Q2 12)
• Increased IHC menu to 140 antibodies and 21 diagnostic panels (2012)
• 49 New Molecular Assays and NeoTYPE MolDx Panels (2012 - present)
• SVM-based test for ALK lung cancer FISH (Sep 12)
• NeoARRAY/SNP Cytogenetics Test (Nov 12)
• New Aperio Digital Imaging Platform (Q4 12)
• Barrett’s Esophagus FISH Test (Dec 12)
Recent Innovation
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Molecular Assays Launched in 2012
Solid Tumor Assays Hematopoietic Assays
1 IDH1 & IDH2 Mutation Analysis 2 c-KIT Mutation Analysis 3 PIK3CA Mutation Analysis 4 NRAS Mutation Analysis5 TP53 Mutation Analysis6 NeoARRAY SNP/Cytogenetic
Profile7 KRAS Mutation Analysis 8 BRAF Mutation Analysis 9 EGFR Mutation Analysis
10 Microsatellite Instability Analysis11 NeoTYPE Solid Tumor Profiles:
Breast, Colorectal, Gastric, Lung & Other
12 BCR-ABL1 Translocation, t(9;22)
13ABL1 Kinase Domain Mutation Analysis
14 IgVH Mutation Analysis 15 FLT3 Mutation Analysis 16 NPM1 Mutation Analysis 17 JAK2 V617F Mutation Analysis 18 JAK2 Exon 12-14 Mutation Analysis 19 BCL2 Translocation, t(14;18)20 BCL1 Translocation, t(11;14)21 MPL Mutation Analysis 22 DNMT3A Mutation Analysis
23RUNX1-RUNX1T1 (AML1-ETO) Translocation, t(8;21)
24 SF3B1 Mutation Analysis 25 CBFB/NYH11, inv(16) 26 PML-RARA Translocation, t(15;17)27 WT1 mutation Analysis28 NeoTYPE CLL Prognostic Profile29 NeoTYPE AML Prognostic Panel
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Accelerating Pace of Innovation
2011
4 molecular tests
3 FISH
FL – IHC menu
2012
10-color Flow Cytometry
Implemented State-of-the-art MolDx platform in lieu of Kits
29 new Molecular tests
NeoTYPE MolDx Panels
Digital Image Analysis
SVM for ALK FISH
Barrett Esophagus FISH
NeoARRAY/SNP Cytogenetics
Internalized 99% of send-outs
2013 (Planned)
20-30 new Molecular tests
Add’l NeoTYPE Panels
Next Generation Sequencing
ROS1 FISH
NeoSITE Melanoma FISH
Plasma/Urine-based Prostate Test
SVM-based Cytogenetics Analysis System
SVM-based Automated FISH Analysis System v2
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Irvine, CA 18k sf
Nashville, TN 7k sf
Ft. Myers, FL 31k sf
A Growing Footprint
States sending specimens
Tampa, FL 5k sf
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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
• Grow existing customer base
– Salesforce productivity
– Increase share of wallet
– Promote product education
• Attract New Customers
– Promote key advantages of “tech-only” model to community-based hospitals
– Partner with Clinician Offices
• Sustainable revenue growth opportunity • Significant degree of operating leverage in
the business model
New Products & Territories
Market Share Gains
• Continue to expand test menu
• Sublicensing of HDC products
– Cytogenetics/Flow systems
– International opportunities
• Proprietary test development
• Mergers & Acquisitions
Superior Financial Model
Key Growth Drivers
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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 – 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, Chico’s FAS, Inc.
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Productivity Increases Have Offset Changes in Average Revenue/Test to Keep Margins Stable
(1) Productivity calculated as the average number of lab tests completed per month per laboratory FTE. (2) The Medicare Technical Component Grandfather expiration took effect on 7/1/12, which resulted in a 7.3% sequential decrease in Avg. Unit Price.
(2)
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%
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Gross Margin % Cum Change in Avg Rev/Test Cum Change in Productivity(1)
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Quarterly Financial Information
($, 000's) Q4 11 Q1 12 Q2 12 Q3 12 * Q4 12 * Q1 13 *Total Revenue 12,893$ 15,160$ 15,611$ 14,202$ 14,893$ 15,657$ % Growth (YoY) 47.3% 72.2% 49.2% 25.5% 15.5% 3.3% % Growth (QoQ) 13.9% 17.6% 3.0% -9.0% 4.9% 5.1%
Total Gross Margin 5,834 7,144 7,367 5,892 6,434 7,246 Gross Margin % 45.2% 47.1% 47.2% 41.5% 43.2% 46.3%
Sales & Marketing Exp 1,801 2,036 1,934 1,839 1,692 1,931 General & Administrative Exp 3,530 3,750 4,066 3,930 4,097 4,175 Research & Development Exp 127 497 528 808 448 835 Total SG&A (Incl R&D) Expenses 5,459 6,283 6,528 6,576 6,237 6,942 SG&A as a % of Rev 42.3% 41.4% 41.8% 46.3% 41.9% 44.3%
Net Income/(Loss) 152$ 603$ 551$ (975)$ (113)$ 3$ Diluted EPS $0.00 $0.01 $0.01 ($0.02) ($0.00) ($0.00)
Adjusted EBITDA 1,055$ 1,775$ 1,943$ 842$ 1,439$ 1,794$
Summary Operating Data% Growth in Tests Performed (YoY) 57.2% 74.9% 57.1% 41.7% 35.3% 19.1%Avg. Revenue/Test 572$ 563$ 541$ 502$ 488$ 488$
* Quarterly financials impacted by a reduction in revenue of $1.3 MM/Qtr as a result of the expiration of the Medicare TC Grandfather Clause.
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Key Financial Information
Recent Share Price (5/3/13): $ 3.67
Common Shares Outstanding: 48.7 M
Current Market Cap: $178.7 M
Diluted Shares (MRQ, Pro Forma): 50.9 M
Fully Diluted Shares: 55.8 M
Non-affiliate Float Shares: 41.1 M
52 Week Low/High: $1.55/$4.20
Avg. Daily Trading Volume (3 Mos): 228,349
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NeoGenomics Summary
• Emerging leader in the fastest growing segment of the lab testing industry
• Robust competitive advantages and product portfolio
• Strong Management Team with directly relevant industry experience
• Accelerating profitability propelled by revenue growth and increased operating leverage
• Q2 2013 guidance: $15.8 - $16.4 million of revenue with $0.00 – $0.01 per share of net income
• Fiscal 2013 guidance: $68 - $73 million of revenue with $0.03 - $0.05 per share of net income