GeneDx Holdings Corp. (WGS) Earnings Call Transcript & Summary

Thank you very much for being here on Thursday at the JPMorgan Healthcare Conference. My name is Raji Gunasekaran. I'm an associate on the health care team at JPMorgan. I'm pleased to introduce GeneDx, and we have their President and CEO, Katherine Stueland.

Thank you so much, Raji, and thank you to JPMorgan for hosting us. We've got a great crowd here in San Francisco. It's been a really exciting week for all of us at GeneDx as we've introduced a new company name. We've introduced a new stock ticker WGS, which is really a nod towards our pioneering work in bringing whole genome sequencing to the market to be able to benefit patients. We also announced that we delivered on 40% revenue growth over the past year and 40% gross margins. We have a clear path to profitability in 2025. So I'm thrilled to be able to be here to share with you what our new vision is as we've brought the best of GeneDx and Sema4 together. First, of course, we will be making forward-looking statements. So we'll refer you to our new IR website on genedx.com for risks and uncertainties. But our mission, as we thought about what the best of GeneDx and Sema4 can do together really is to deliver personalized insights to be able to diagnose disease more effectively and faster, be able to connect patients with treatments and really accelerate drug discovery, development and commercialization. So as -- I took a step back to say, what might you need in order to do that? I'm really pleased to say, we have all of the technology and capabilities that we need in order to deliver on this mission. But I think it's important to really get grounded and what is the problem that we're trying to solve. So if it's for an infant in the NICU, if it's for a child with an unexplained symptom; if it's for an adult, a grandfather who might be showing symptoms of Alzheimer's disease, so many patients today, I think all of us can relate to this, are going through a diagnostic odyssey of source. You're showing up with symptoms, you're going to the doctor, you're trying to figure out, is it a scan that I need? Is it a test? Is it blood work? And oftentimes, this can go on for many months, if not years. And what it really drives down is patient care. It denigrates how we're able to get people on the right therapy sooner. It really creates increased costs and burden on the health care system, and it's just completely inefficient, and it doesn't need to be that way. So our solution is to bring together genomic data and clinical data to be able to deliver on better health. And when I think about what are the 3 things that we need in order to deliver on this, one, it's one test off of a genome to diagnose disease quickly; two, it's being able to curate and combine the genomic information with data from an EMR; and three, it's a loyal and growing customer base that can benefit from all of these services, but also can help us drive continued growth in the future of more than 20% with really healthy gross margins. And we have all of that today with GDX and Semaphore. So let's take a look at what we've done in terms of bringing the best of both to the future of GeneDx. So GeneDx, for those of you who don't know, it was spun out of the NIH 20 years ago by scientists who were really pioneering the use of genetic testing for the hardest-to-diagnose patients. What we've built over those 20 years is what we believe is the most comprehensive and definitive genomic interpretation platform. And that's critically important in terms of being able to take a genome's worth of information and deliver it reliably with fewer unknowns. So that is what we've been able to build. And a hallmark of that really is our exome that we shepherded to the market in 2013, around the time of the Supreme Court decision, saying that one could not patent DNA. GeneDx, like many others, was focused on multi-gene panels, but very quickly turned towards how do we take the power of the whole genome. And the first step was with our exome. So since 2013, we've been able to drive growth of 400,000 clinical exomes, a 1/4 of those over the past year. So what that tells us is the market today, 10 years after that historic decision, the market and clinicians are ready today for more information delivered through our exome and genome. What we've also been able to invest in over the past few years, a scalable genomics lab in Gaithersburg, Maryland. We have a genome lab that can run millions of samples per year. We've built out an incredible commercial team that is growing. We're continuing to add to that commercial team today. And we've also invested in a medical affairs team, critically important in terms of being able to generate additional clinical data and really substantiate our place as the leader in this market as well as managed care. And we'll talk a bit about some of the really important changes that have been happening in terms of medical policy moving forward. So now let's turn to Sema4. So Sema4 has built Centrellis, which is a health insights engine. What we're able to do is take clinical records from an EMR, curate them and then be able to combine the insights from those EMR records, combine them with genomic information. And that is really what delivers a more precise and personalized health insight, not only for diagnosis but for treatment, to what is going to be the options in front of you, whether it's a clinical trial or an FDA-approved therapy, and then importantly, being able to contextualize. So what do other patients like me, with the same profile, how have they fared in terms of their prognosis. So that is what Centrellis can deliver. I think, notably, we're going to continue to invest in strengthening that asset moving forward. We have reorganized the product and technology team for scale. And we did spend quite a bit of time last year, discontinuing parts of the business that were just not healthy. So we did exit from somatic oncology testing. And we are finishing up in the first quarter our exit from reproductive health testing. Both of those were burning a significant amount of capital. They had materially negative gross margins on the oncology side. And I think as we all know, it can require hundreds of millions, if not billions, of dollars of capital to really create something scalable in the oncology world to be able to do that well. And given the economic environment that we're in, we wanted to take a look and say, "Where do we really have a competitive advantage?" So it's with that genomic interpretation platform and with Centrellis. So the best of both of these creates a seamless solution for the diagnostic odyssey that I talked about when I first shared the problem. We intend to sequence once, be able to continuously analyze a genome through our interpretation platform, be able to combine that with clinical data to deliver better health insights and then generate genomic health insights over time. Importantly, we're going to be delivering these insights to biopharma companies as well, and we'll talk about the go-to-market strategy for our partnerships there. We also announced earlier this week that the strategy is working. So as we look at our pro forma revenues, so excluding the reproductive health revenues from Sema4 from '22, we exceeded our initial target for GeneDx. We delivered $170 million to $173 million of revenue, which is about a 40% year-over-year growth rate. Healthy revenues, we had our strongest December ever. So we've got incredible momentum going into 2023. We also delivered gross margins of about 40%, and we expect that we're going to continue to grow that in the future, along with other key metrics. So as we look at our revenue growth for this year, we expect between $205 million and $220 million. We will continue to expand those gross margins. We think that in the future, we'll be able to get to gross margins well beyond 50% and 60% gross margins as we continue to make improvements in the overall operations, improvements on reimbursement, but also start to shift to more of a data business. And we do expect to turn profitable in 2025. So we have set the foundations from a financial standpoint to really deliver impressive growth at healthy growth margins and put a stake in the ground on profitability. So as we think about growth, it's been a high-growth year for us. And I think it's important, historically, there wasn't a real true commercial strategy at GeneDx. They had done a phenomenal job of building the technical capabilities, but really hadn't put a commercial engine behind that capability to drive growth. It was mainly organic. So as we think about the market, we really think about it in 3 segments. So first, there's the rare disease and pediatric segment, which we estimate to be about $3 billion conservatively. That's where we are today. So I'll talk about the commercial strategy in that space. We expect of that $3 billion that we're going to be able to get to about 17% of market share by the end of this year. The next area is in the adult diagnostic setting. So being able to diagnose cardiovascular disease as well as neurodegenerative disease as well, such as Alzheimer's disease. And then the final setting is in newborn screening. We'll talk about a landmark collaboration that we have in New York State on that, but that gets us to that future of sequence once analyzed throughout the course of one's life. So we'll focus now on rare disease and pediatrics. I'm pleased that there's been a lot of attention in the rare disease space over the past decade. We've seen it. The benefits of the Orphan Drug Act. We saw the acquisition of Horizon by Amgen. And we're seeing more and more companies investing in drug development. But what is implicit in all of this is being able to get a diagnosis. 50% of people with rare diseases are children, 1 in 10 people have a rare disease, and it is a global problem. We're focused right now in the U.S., in terms of really being able to get our exome, first and foremost, to diagnose disease. Importantly, as we think about all of the focus in oncology, there are as many compounds in development and under regulatory review and rare disease as there are in oncology. So there is an incredible amount of investment going into that, which means that for these patients when they get a diagnosis, there's going to be a potential for taking action and getting on a healthier path forward. So our commercial strategy today in pediatrics is in 2 settings. One is in the inpatient setting. The other is in the outpatient setting. I'll zoom in on the inpatient setting. So when an infant is in the NICU, we're able to offer a rapid test for that infant, get an answer, move the baby out of the NICU as soon as possible. We're providing rapid results. We're able to connect those patients to -- well, the parents of these patients to other parents like them, and ultimately, that provides better health outcomes. It also helps drive cost savings. So we estimate in an inpatient setting, an average of $30,000 per patient by using exome and moving that patient out. And in the outpatient pediatric setting, which might be for autism, it might be for a patient with seizures or with developmental delay, we estimate an average of about $6,800 in terms of cost savings. So where are we driving this growth? It is with a loyal and growing customer base. In the past year, 94% of pediatric specialists ordered an exome from us. So we are indeed the one that is leading the way. We'll talk a little bit momentarily about why our exome is the preferred exome by so many doctors. But historically, we really have been calling on the geneticist. Our commercial team is now focused on continuing to work with those geneticists, but then the other call points that they're focused on are expanding to the neonatologist, the pediatrician, the pediatric neurologists, all of them rely on the geneticist to say which lab should I utilize, and there's a good partnership there. So the fact that we've been able to lock in so much loyalty with those geneticists really transfers nicely to be able to add new customers, which means we're able to help more and more patients within each of these children's hospitals and health systems today. Importantly, beyond the work that we're doing, emerging guidelines are supporting the use of exome and genome. So ACMG, NSGC all have, recently, over the past 12 to 18 months, put out recommendations and guidelines. But importantly, we're going to be on the genetics societies, and we're getting into the American Epilepsy Society, putting out guidelines, saying that exome and genome sequencing are preferred for patients. The reimbursement landscape has shifted to be very favorable for us. So 70% of commercial payers do have coverage for exome or genome. And in fact, starting March 1 of this year, UnitedHealthcare has announced that they will start covering exome and genome in the outpatient setting. So all of these are important elements of what opens up access. And I think that it is a testament to the ability to generate data, publish data, bring those data to payers to convince them to put medical policy in place. And it also, I think, is an important nod to the way that we've been thinking about the pricing of these tests to ensure that we can support our gross margin profile, but that it also falls in line with what payers are willing to pay for. So in terms of the additional work that we're investing in to transform standard of care, there is SeqFirst, which is a collaboration that we have with the University of Washington and Illumina, that's generating data, and we had our first data readout a few months ago in the NICU and in the pediatric outpatient setting. We have the GUARDIAN study, which is a landmark study in New York State. It's a collaboration with Colombia. It's a collaboration with the New York State Department of Health and with Illumina. Illumina is providing reagents. We do the sequencing and interpretation, and these are for healthy newborns. So we're looking at 250 conditions, and what we're learning is how do you deliver that information appropriately to a new parent when there may be a symptom. So this is important work from an overall standard of care standpoint in order to see how might we be able to scale that and utilize genetic information more proactively. -- which really gets us to this entire future of sequence once analyzed throughout the course of one's lifetime. So what you'll see on the left of the slide is the sequence once to birth. What we are doing continuously is analyzing that genomic information. And whenever there is an onset of a symptom that may be answered through a genome, what we're able to do is report out and provide an on-demand answer. So if it's a child with a seizure, suspicion of autism, if it's PGx, so matching a patient through PGx with the right medication, or more importantly, making sure they don't get on the wrong medication. If it's eventually getting back to carrier screening, we'd like to get back to informing people on how to have a healthy pregnancy, but running that off of that one test and then cancer risk, and of course, Alzheimer's disease. So this creates a virtuous cycle of being able to provide value throughout the course of one's lifetime and throughout their family. So what really sets us apart is our interpretation platform. I mentioned earlier, we've run 400,000 exomes. And with every patient that we run through our interpretation platform, it gets smarter, and it's delivering fewer variants of unknown significance. So what you see on the left is probably where we started around 2013, where we have a fair number of uncertain variants, and what you see on the right is where we stand today. So we're able to give a more definitive diagnosis, whether it's benign, whether it's pathogenic. But you'll see that bottom part there is uncertain, and we have fewer uncertain variants than anyone else. So this is a really important element of what sets us apart, being able to deliver a genome's worth of information with a lot of uncertainties, doesn't do anyone as much good. So the preciseness of what we've been able to do is hugely important. This is a really interesting illustration I think of the difference between multi-gene panels and exome. So on the top, what you see are patients represented from an epilepsy panel that are from multi-gene panels. What you see on the bottom is represented by our exome. And part of what we have been doing over the past decade or so is testing baby as well as parents. So we have trios for 60% of our cases, which means we have richer data and all of this is in rich for rare disease. So when you're thinking about diagnosing rare disease or rare disease drug development, you should be working with us because we've got an incredible database of patients that we might be able to connect you to. So that gets into the drug development side of things and our ability to effectively partner with biopharma. In 2020 alone, more than half of novel new drug and biological approvals were orphan drugs for rare diseases. So as I mentioned earlier, this is an incredible area of focus and investments. Our data strategy really leverages Centrellis as a solutions provider. And again, Centrellis is the combination of genomic and clinical data. So on the left, what you see is where we are today, which is, we call it the Find programs. That's really identifying patients and their clinicians and connecting them with biopharma companies. And the second box is Understand, and so that is a combination of the genomics information and the curated clinical data. So this is where you're able to see a more complete picture of a patient cohort where we're able to say, here were all the lab tests that were done at what point in time with what treatment intervention throughout the part of the way, while also being able to infuse the genomic information. And that sort of picture of that patient cohort is hugely important to biopharma to figure out how to design clinical trials, how to think about exclusion, inclusion criteria to really accelerate drug development. The third box is our future state, which is Platform, which is really -- it's a therapeutic agnostic platform, but -- and it will enable our biopharma partners to be able to go in and look holistically across all of the clinical data and genomic data. So that's a future area of investment for us. But we believe that in the Find and Understand strategy with Business Pharma, we're going to be able to drive some meaningful deals over the next several years. And lastly, all of this is supported by just a wonderful team of very committed and passionate leaders across many different disciplines, and a team that I would say is steeped in integrity. So I'm very proud to be able to be standing by their sides as we usher in this new chapter. That really comes down to one test, better health, and there's no one better than GeneDx. So with that, I think I will invite some of my colleagues, Kareem Saad, who is our Chief Transformation Officer; and Kevin Feeley, our Chief Financial Officer. And Raji, I think we'll turn to Q&A.

Thank you, Katherine. We'll now take questions from the audience. We've got a mic floating around. So if anyone wants to put their hand up, we will hand you the mic. I'm happy to get this started. So we'll give you some softballs. So you mentioned 3 different markets, right, rare disease, adult and newborn. Could you tell us which are you most excited about? And where do you see yourself helping patients the most?

You can't make me choose a favorite. I think the future on the newborn side of things is really interesting because I would not have predicted 10 years ago that we'd be in a place where we could actually get a program like that off the ground. The GUARDIAN study, we have been enrolling at a rapid clip. So it's been really good to see the enthusiasm from Colombia, our partners, but also from clinicians who are willing to really dive in and work with us to figure out the best way to do this. So I would say that has been an upside surprise from my perspective, having spent the past decade in this industry. That being said, there is such a dire need for the pediatric rare disease segment. And a good portion of my time this week has been spent, I guess, with investors. But I've also been spending time with the drug developers and patient advocates. And these patient advocates, as many of you may know, they are parents who are desperate to get a diagnosis for their child. They are actually incredibly motivated. They're out looking for compounds to bring to drug developers to try to convince them to actually put them into development. So there is such a near unmet need in the pediatric segment that we can't move fast enough to try to help these parents. So I think that there is both this incredible purpose on the future on newborn screening but there is such a dire unmet need today that we have the privilege to be able to try to solve for.

And when do you expect to start driving the adult market?

So we're going to start doing some design work with KOLs and with clinical collaborators in the second part of this year to figure out exactly which conditions we want to take a look at. And I would expect in 2024 and 2025, we'll really start putting, I would say, some more rigor around what those studies need to be. We want to take a very disciplined approach, which I think is unique to the diagnostic space. I think there are some companies who have done it really, really well. Genomic Health was one of those companies that would really invest in good, rigorous clinical-trial-like studies. And we want to make sure that we can take a similar thoughtful approach to being able to do this the right way in collaboration with experts. We know that there's a big problem to solve outside of genetics experts. How do you translate the information from a clinical report in to something that a specialist who hasn't touched genetics since they were in medical school, how they might be able to understand it. So there's a lot of work to do actually on the product development side to be able to better activate and support the market where we're not working with geneticist at all and where it's more of a specialist outside of that.

And could you talk about how your commercial strategies evolved over the past year or so?

Yes. And I'm proud to say I led the commercial team at Invitae for many years. Jen Brendel, who leads our commercial team at GeneDx, she was from Pfizer, Bayer and with me at Invitae. She's built a much better commercial engine. And it's one that's really focused on being able to drive revenue as well as new customer acquisition and really using data to inform our sales team. So it is a very disciplined team that we've put together. As I mentioned earlier, the team before I joined GeneDx was really, really focused on technical and clinical excellence, which is what you would want. Not every company has the ability to do that. So if you have to choose to excel out of the gates in technical and clinical excellence or commercial, I would choose technical and excellence every day. So the commercial team, I think, is now building off of that strong foundation, but it was under invested in. So we doubled the sales team last year. We're continuing to add some territories just because we've seen such strong rep productivity. It's about $3 million of revenue per rep. And we're just getting started in terms of being able to continue to build off of a new team that is doing a heck of a job bringing new customers into the door, but also making sure that customers who have come to rely on us will continue to order from us.

And speaking of acquiring new customers, how do you think about continuing the shift of the physician and the payer's perceptions of exome and genome testing?

That's an area that has shifted quicker than I would have expected as well. The UnitedHealthcare bulletin that came out just recently, where they're going to be covering exome and genome in the outpatient setting happened faster than we all had expected, but I think we are generating important data. We had some data actually at ASHG in October that really showed that many patients are left behind when clinicians are using panels and so there's better outcomes when using exome and genome. We take that to the payers to influence them. We've actually seen in state Medicaid, some really important leadership in terms of covering exome and genome. Actually, the state of Michigan had their Medicaid covers Trios, so baby and parents for $8,500, and we've seen 4 states quickly follow to be able to put those policies in place. So we're actually seeing some really nice movement and our managed care team is continuing to support those efforts as well.

Nice. And shifting gears a bit, could you talk about how you continue to invest in Centrellis? And also, what are management's goals for that side of the company?

So Centrellis, once again, it's the ability to combine clinical and genomic data. Part of what we want to do moving forward is invest in data that is tied towards a biopharma strategy. So historically, I think the team had really been focused on amassing as much data as possible without necessarily knowing where it was going to be going. So what Kareem has done, and I'll let him speak about this momentarily, is really put some rigor behind what patient cohorts were enriched for, what companies are out there that are developing drugs and making sure that on a go-forward basis, the data that we're curating really ties to being able to go that next step to diagnosis. So do you want to talk a bit about that?