GeneDx Holdings Corp. (NASDAQ:WGS) Q4 2022 Earnings Call Transcript

Matthew Sykes : Maybe just following up on Brandon’s first question. regarding the volume revenue mix split. I’m just curious, Katherine, you made some comments in the prepared remarks about conversion of the multi-gene panels to whole exome whole genome. And I know you’ve made a lot of investments in the past year in the sales force. I think you doubled the size and you kind of gave a number in terms of sales force productivity. I’m just wondering what level of incentives and how are you encouraging the commercial team in order to convert those multi-gene panels to whole exome, whole genome. Obviously, the evidence and guideline coverage helps. But I’m just wondering in terms of how you’re rolling out that strategy across the commercial team in order to get that conversion up?

Katherine Stueland : Yes. So this is a really important element of the strategy here. One, when you think about who is most likely to convert, if somebody is ordering testing today and they’re ordering a multi-gene panel. And so we’ve built a relationship with them. We are paying a higher amount for our sales reps once they convert to exome. On the non-experts who we may need to get them ordering a panel first, it’s a bit of the first step of where we can now get them on exome. We’re paying just a normal amount, but then the rep would get additional incentives once converting that clinician into an exome. So there’s a lot of work that our commercial team is doing now and throughout Q1 that we’re rolling out throughout the course of Q2 and through the remainder of the year.

As I mentioned earlier, we’ve had some really good data mining, both from a clinical data perspective, as I said earlier, data at ASHG that showed higher diagnostic yield, fewer compared to multi-gene panels, we’ve barely scratched the surface with getting that message out there. The 4 out of 5 patients not having it on a pocket with an exome. That has not been deployed yet. So we really have, I think, a lot of good messaging to work with backed by good data. But that’s part of the reason why we’re making this commercial investment now. We are expanding to include some additional territories in Q1 to be able to further support our growth with the conversion strategy, but also in turn we bring new customers on board. And then we’re also working on an enhanced service model that we think will only further play into that commercial leverage that we have.

So last year, we landed with $3 million of revenue per . We’d like to see that continue to increase. We think exome helps with that. And the service model and efficiency really helps us, I think, take each of our commercial dollars even further.

Matthew Sykes : Great. That’s super helpful detail. And then Kevin, just on the gross margin, so I know the guidance for ’23 calls for further expansion. You did 39%. I’m just talking about the legacy GeneDx. 39% just gross margin was exiting it, I think, at 41% for the fourth quarter. Like how should we think about the cadence of gross margins? And should we think of that 39% to 41% is sort of being the base to start from? Or are we kind of building from there? I’m just trying to get a sense for how gross margins contained throughout ’23?

Kevin Feeley : Yes. I think starting there with the base Q4 being the base, I think as important than what is some really interesting and impactful projects we have to reduce cost, gain efficiencies, line of sight levers that we can pull to further drive down operating costs and COGS I think as important than anything is just crystallizing that mix shift that we talked about. Our exome products today operates at 60% gross margin. And total company gross margins weighed down by the multi-gene panel side of the portfolio. And so a natural evolution would be towards that 60% mark in the intermediate term as we see exome take over the predominant share of test mix. I think the guide represented of an evolution of mix that we’ve seen step change, leaving things like average reimbursement rate at a company level to accrete as upside to our guide and our model, if that’s helpful, Matt.

Matthew Sykes : Yes, that’s great. And just one last quick one. Katherine, you mentioned the GUARDIAN study. Can you just remind us of the timeline? I know it’s just starting out, but just kind of timeline, what we should be looking for in terms of mileposts on the way?

Katherine Stueland : Yes. We have one coming this week. We’re really excited about it. ACMG in Utah, Dr. Wendy Chang is going to be presenting. We’ve got some early data that study enrolled relatively quickly, continues to enroll, but the first readout will be coming, I believe, I think on Saturday, maybe. So stay tuned for that. We’ll, of course, have a press release on that. But really, really excited about the prospects for that, the receptivity of it. And importantly, some of the findings that we are able to garner just looking at our own data set at what age we were diagnosing patients comparing it to the GUARDIAN data. So stay tuned.

Operator: Our next question comes from the line of Mark Massaro, BTIG.

Vidyun Bais : This is Vivian on for Mark. So in Q4, it looks like you drove a whole exome and whole genome revenue growth of about 52%. And it looks like you drove a whole exome and whole genome volume growth of about 19% year-on-year. So just curious if you’re expecting revenue growth to outpace volume growth in this segment here in ’23? And if you could just speak to some of the moving parts as it relates to volume and price within this bucket?

Kevin Feeley : Yes, Vivian. So I think you’re right about the overall revenue as it relates to price and volume mix. While we’re not providing a split of our guide between price and volume. I think important to note that throughout 2022, we saw significant improvements in our reimbursement and revenue cycle collection efforts as well as continued momentum from a policy perspective, both across commercial payers and state Medicaid programs as it relates to reimbursement for exome. We’ve got about 6 states right now from a Medicaid program perspective that cover exome and whole genome fairly widely. We need and expect to get closer to 50 over time than 6 where we stand today, and we’d expect to see that evolution over the next several years.

Roughly 70% of commercial payers do have policy coverage for exome and genome of course, subject to certain medical criteria. And so while we expect robust revenue growth, I think it will come from a mix of volume as we activate products switch from multi-gene panels into exome. Our guide itself is not reliant on significant price accretion. But we might expect that given what seems like overwhelmingly positive wave of guidelines and recommendations coming out, which ultimately, over time, influence commercial policy coverage.

Vidyun Bais : Okay. Perfect. And you touched on this a little bit, but could you just remind us on what is contemplated in the guide in terms of upside from reimbursement wins. You’ve also spoken about a strong focus on conversion from multi-gene panels into exome. So just if you could speak to what degree of that is baked into the guidance?

Kevin Feeley : Yes. The way I think about the guide is reliance on relatively flat pricing. So not reliant on contracted price increases or new policy, leaving those for upside. Seeing overall average total company reimbursement rates increased, but solely as a result of mix shift into higher value exome and whole genome testing.

Katherine Stueland : And I would just add to that. I mean, I think and it’s evident in last year’s numbers, too. We do sell a lot of really important panels. And it takes a while to make sure that we’re able to convince clinician to convert. So it’s our #1 strategy, but I do think that it’s going to take some time to do that. And so I would expect we’re going to continue to see a really healthy number of panels. And as I said, panels play a really, really strategic role and being able to get people who have not been ordering. So think about a pediatric neurologist. They’ve started ordering from us or from a competitor on the panel side of things. And they weren’t ordering any genetic testing before, say, 2016, I think. So it’s an important part of the mix, it’s an important part of the guide.

But once we get them started with that, we’re confident it’s better for patients, we’ve got the data showing a higher diagnostic yield. We’ve got the data showing that from a provider standpoint, fewer variants of unknown significance is really an important message to better patient care, easier for the clinician to understand and with reimbursement off the table, we think we’ve got what we need. But you’re introducing a new strategy, and that takes time.

Operator: Our next question comes from the line of Joseph Flanagan of Cowen.