GeneDx (GDX (NYSE:GDX)) has reported favorable financial outcomes for Q2 2024, with revenues reaching $69 million and gross margins expanding to 62%. The genetic testing company has also achieved a significant reduction in cash burn for the ninth consecutive quarter.
With these results, GeneDx has raised its revenue forecast for the year and expects to be profitable by 2025. The company's success is attributed to its focus on pediatric healthcare, robust data set, and proprietary technologies. Additionally, GeneDx is making strategic investments in whole genome sequencing and partnerships to enhance patient access and testing workflows.
Key Takeaways
- GeneDx's Q2 2024 revenues hit nearly $69 million with a gross margin of 62%.
- The company has reduced its cash burn for the ninth straight quarter.
- Revenue guidance for 2024 has been raised to between $255 million and $265 million.
- Profitability is expected in 2025, with a net cash burn projection of $65 million to $75 million for the full year.
- GeneDx is investing in whole genome sequencing and has partnered with Epic.
- The company is expanding access to exome and genome testing through state Medicaid programs and commercial payers.
- Revenues from exome and genome testing grew 77% year-over-year, representing over 74% of total revenue.
- Average reimbursement rate for testing has increased, and operating expenses have decreased by 24% year-over-year.
Company Outlook
- GeneDx aims to achieve profitability in the next fiscal year.
- The company will continue to focus on exome and genome testing and expects to raise the average reimbursement rate by $100 per quarter.
- Strategic investments in technology and partnerships are planned to improve patient access and testing processes.
Bearish Highlights
- The company anticipates the third and fourth quarters to be seasonally lighter in revenue.
- Two significant expenses are expected in December, including $10 million for payer settlements and up to $13 million for litigation settlement.
Bullish Highlights
- GeneDx has retired lower-value tests, improving gross margins on non-exome tests.
- The company has seen improvements in collection performance and a reduction in denials.
- The focus on market leadership in exome and genome testing is expected to drive faster adoption and margin expansion.
Misses
- There were no specific misses reported in the earnings call.
Q&A Highlights
- The company discussed cost reduction strategies and the potential for more states to adopt genome sequencing directly.
- GeneDx highlighted the progress made in reducing the cost per test through automation and process improvements.
- The CEO expressed confidence in the rapid acceptance and future focus on whole genome testing over exome testing.
GeneDx's second-quarter performance underscores its commitment to delivering innovative genetic testing solutions and improving patient outcomes. With a clear strategy for growth and profitability, the company is well-positioned to continue its positive trajectory in the genetic testing market.
InvestingPro Insights
GeneDx's recent financial performance and strategic initiatives have caught the attention of industry analysts and investors alike. To complement the company's Q2 2024 report, here are some insights from InvestingPro that may provide additional context:
InvestingPro Data highlights for GeneDx include a Market Cap of approximately $787.93 million, a forward-looking P/E Ratio (last twelve months as of Q2 2024) of -7.1, and a Revenue Growth (Quarterly) for Q2 2024 at an impressive 44.77%. These metrics suggest that while GeneDx is currently not profitable, it is experiencing strong revenue growth, which could be indicative of the company's potential for future profitability.
From the InvestingPro Tips, two pieces of information stand out. Firstly, analysts have revised their earnings upwards for the upcoming period, which aligns with GeneDx's own optimistic revenue forecast and plans for profitability by 2025. Secondly, the stock has taken a notable hit over the last week. This volatility may present an opportunity for investors who are confident in the company's long-term strategy and may be looking for an entry point.
For readers interested in a deeper analysis, InvestingPro offers additional tips for GeneDx, including insights on the company's debt levels, liquidity, and profitability. To access these tips and more, visit https://www.investing.com/pro/GDX and consider using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. There are 11 additional InvestingPro Tips available, which could further assist investors in making informed decisions.
Full transcript - GeneDx Holdings Corp (WGS) Q2 2024:
Operator: Good day and thank you for standing by. Welcome to the GeneDx Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Sabrina Dunbar, Investor Relations. Please go ahead.
Sabrina Dunbar: Thank you, Operator, and thank you to everyone for joining us today. On the call, we have Katherine Stueland, President and Chief Executive Officer; and Kevin Feeley, Chief Financial Officer. Earlier today, GeneDx released financial results for the second quarter ended June 30, 2024. Before we begin, please take note of our cautionary statement. 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, July 30, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to our second quarter 2024 earnings release and slides available at ir.genedx.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 will turn the call over to Katherine.
Katherine Stueland: Thanks, Sabrina, and thank you all for joining us. The second quarter proved to be another strong quarter by all measures. We delivered nearly $69 million in revenues, expanded gross margins to 62% and achieved our ninth consecutive quarter of cash burn reduction. We’ve been relentlessly focused on these three metrics, and that focus continues to pay off. Given the strength in the first half of the year, I’m happy to say that we’re raising our revenue guidance for the year to $255 million to $265 million, and we’re even closer to our goal of becoming profitable. This is an important milestone for us as a company because of the massive opportunity in front of us to serve an ever-growing number of families and to positively impact the future of health care. Today, GeneDx is primarily focused on pediatric patients and the providers that care for these patients, including medical geneticists, genetic counselors, pediatric neurologists, developmental pediatricians and neonatologists. We have now sequenced more than 665,000 exomes and genomes and have performed more than 1 million genetic tests, working tirelessly to carry one of the largest and most diverse databases, of disease-associated genomic variants. This industry-leading data set, combined with our proprietary bioinformatics and variant identification and interpretation capabilities, propel [ph] us to create the most advanced diagnostic exome and genome sequencing options available. And those tests continue to become recommended as first-line test and the standard-of-care resulting in better health outcomes and cost benefits for both patients and health care systems. So to track our success, one of the key metrics we focus on is test mix. This quarter, exome and genome has accounted for over 74% of our total revenue, reflecting our successful transition towards a more streamlined and impactful product mix. The upshot of strong commercial execution has been amplified by our team’s operational and technological excellence. These teams continue to put additional wind in our sales by reducing costs, shortening turnaround times by identifying opportunities for improved efficiency, scaling our lab with support from AI and machine learning technologies and improving our billing workflows in service of better patient provider and payer experiences. In the third quarter of last year, I shared that we had adopted a mindset of discipline and focus on near-term highest impact business drivers. And that we must earn our right to invest in longer-term strategies as the point of profitability approach. It’s the right time to lean in and invest in our future, starting with a focus on whole genome sequencing. This quarter, we announced a partnership with Epic to integrate with health system workflows and improve provider and patient journeys via Epic electronic connections. And today, we shared more information about investments in our products as we translate our leadership in exome to pave the way for a genome future. We unveiled a series of enhancements to our genome product to reduce turnaround time, expand accepted sample types and increased diagnostic yield. We will remain absolutely disciplined as we approach future investments and focus on commercial liability for the dollars we invest. We’re also making progress on key policies across the United States that ensure there is expanding access to exome and genome testing nationwide. We’re pleased by the adoption of additional biomarker legislation in the second quarter and know the direct impact these laws will have on patients and families. As a company headquartered in Connecticut, we were proud to see rapid whole genome sequencing passed into law here effective July 1. Today, 14 states cover rapid genome sequencing, with North Carolina announcing added coverage in just the last few days. We also see certain commercial payers taking steps in the right direction as shown through our partnership with United Healthcare to offer whole genome sequencing to their patients across the country. We believe that equitable access to testing is fundamental and are thrilled to see bipartisan support among policymakers throughout the country. In addition to the supremely important work being done by state Medicaid programs and commercial payers, we’ve taken our own steps to drive progress forward. In the second quarter, we launched a patient access program for epilepsy patients in partnership with biopharmaceutical leaders to open up access to exome testing while helping eligible patients enroll in clinical trials and other therapeutic opportunities. Our proprietary genomics data set was built by patients across America. Thus offering one of the most representative and diverse looks at genomic data available. As we think about differentiation, we appreciate the steps we’ve taken historically to prioritize equitability and remove barriers to cost on our journey to servicing patients and providers in every circumstance, but we’re not done yet. There are millions of patients and families in the U.S. and globally that can benefit from the actionability of a genetic diagnosis. The diagnosis can immediately change clinical management, unlock clinical trial opportunities, qualify patients for the financial support they desperately need, connect families to communities unified around their child diagnosis by way of patient advocacy groups and much more. We recognize the privilege that a market-leading position offers us, and we are continuing to invest in accelerators for our business while balancing growth and scale with financial discipline and strength. With that, I’ll pass it over to Kevin to go through our results.
Kevin Feeley: Great. Thanks, Katherine. Second quarter 2024 revenues from continuing operations grew to $68.9 million compared to $45.2 million in the second quarter of 2023 and $61.5 million in the first quarter of 2024. That’s an increase of 52% year-over-year and 12% sequentially in total. Drilling into that, exome and genome revenues grew 77% year-over-year and 15% sequentially, delivering $50 million in revenue this quarter. Both volume and collection performance contributed nicely. Adjusted gross profit from continuing operations was $42.8 million in the second quarter of 2024. That’s up 153% compared to Q2 2023, and up 13% from the first quarter of 2024. Adjusted gross margin from continuing operations was 62% in the second quarter of 2024, up from 37% a year ago and up from 61% in the first quarter. Gross profit growth and margin expansion is driven by increased volume, improved average reimbursement rate, continued cost per test leverage and favorable mix shift. On volume and mix, exome and genome was 31% of all tests resulted this quarter, up from 22% a year ago and up from 30% in the first quarter. Overall, I’m quite pleased with the mix, given the strong underlying exome and genome volume, whereby our team delivered over 18,000 tests this quarter, an increase of 52% year-over-year and 9% sequentially. We’ll continue to optimize the test portfolio towards exome and genome balancing unit economics, clinical impact and customer satisfaction over time. On average reimbursement rate, our exhaustive effort to improve exome reimbursement rates through denial reduction is working. In the second quarter of 2024, our average reimbursement rate for exome and genome after all denials was approximately $2,800, up from $2,600 last quarter and up from $2,500 in the fourth quarter of 2023. Across the commercial insurance payer environment, we continue to enable and calibrate insurance specific workflow to reduce administrative and procedural denials. That said, we remain clear about the complex operating environment where some payer business models are inherently predicated on collecting premiums while narrowly interpreting archaic medical policy and administrative requirements to suit their own business needs. Our focus on generating clinical data and articulating the value proposition of our differentiated exome as a first-in-line test will continue to underpin our advocacy for equitable access and patient-centric medical policy. All so that we can help get more families the care they need and get reimbursed fairly. Across Medicaid populations, denials are and should continue to come down as medical policy continues its momentum towards broad coverage for exome and genome. In particular, state Medicaid programs continue to expand coverage for rapid genetic testing in the NICU. We highlighted North Carolina, Texas and Connecticut in our release today. And on cost per test, the team has done a great job optimizing the wet lab, and there remains opportunity to couple our unparalleled genomic data set with new generation of automation tools to drive scalability and efficiency across drive side clinical interpretation analysis, abstracting and report reading. Now moving down to operating expense. Total adjusted operating expense was $45 million in the second quarter of 2024. That’s a reduction of 24% year-over-year and 1% sequentially. I now consider us to be at a normalized relative OpEx base for the business, ready to drive operating leverage as we grow. One call out this quarter, GAAP expense and GAAP net loss in the second quarter of 2024 includes a onetime litigation charge, net of expected insurance recovery of approximately $13 million. The charge relates to a stockholder commenced lawsuit brought in the prior year as a class action on behalf of former stockholders of CM (TSX:CM) Life Sciences who did not redeem their shares in connection with the 2021 business combination between CM Life Sciences and legacy Sema4. The suit named CM Life Sciences and its directors at the time of that business combination. And on the bottom line, total company adjusted net loss for the second quarter of 2024 narrowed to $2.7 million. That is an improvement of 93% year-over-year and 68% sequentially, driven by gross profit growth and operating expense rationalization. With that, we’re approaching the turn to profitability. Our second quarter net cash burn was $6.1 million, which improved 89% year-over-year and 65% sequentially. And we’ve now delivered 9 consecutive quarters of cash burn reduction. On the balance sheet, cash, cash equivalents, marketable securities and restricted cash was a total of $108 million as of June 30, 2024. And as of June 30, 2024, there are 26,926,383 Class A common shares outstanding. The outstanding share count includes the issuance of 645,414 shares of Class A common stock to Perceptive in April 2024 to satisfy a cashless exercise of the 800,000 warrants they received in connection with the October 2023 debt placements. And now turning to guidance. We are again raising previously issued revenue guidance and now expect to deliver revenues between $255 million and $265 million for the full year 2024. We are reiterating previously issued adjusted gross margin guidance to land full year 2024 at 60% or higher. And we’re improving our net cash burn guide and now anticipate using $65 million to $75 million of net cash for the full year 2024. That latest guide here contemplates fully absorbing the legal settlement should that be required in 2024. The ultimate timing of that payment is still uncertain at this time. And as a reminder, the next scheduled payment under the 2022 legacy Sema4 payer settlement is $10 million, and that will be paid in December of 2024. Finally, we once again reiterate our expectation to turn the business profitable in 2025. With that, I’ll turn you back to Katherine.
Katherine Stueland: Wonderful. Thanks, Kevin. Over the past few years, we have successfully transformed GeneDx into a driving force in genetic diagnostics, and we couldn’t have gotten here alone. Our patients and their families, our customers, collaborators, our team members and our shareholders make all of this possible, and I want to thank each one of those constituents for their ongoing dedication and support. We’re painting a vision for a better future in health care, one, where every family can benefit from earlier diagnosis of disease through genomics and with another successful quarter under our belt or one step closer to realizing that future. I’ll now open the call up for questions.
Operator: [Operator Instructions] Our first question comes from the line of Tycho Peterson with Jefferies.
Tycho Peterson: Hey good afternoon. Maybe starting with pharma, biopharma. It looks like you added 11, I think you had 21 at the end of the first quarter. So maybe just talk a little bit about momentum, spend on biopharma, how much is data versus kind of new program ads?
Katherine Stueland: Certainly. So we added, as you pointed out, several new programs for the quarter. We’re really pleased some of that is repeat business from existing biopharma partners -- these are the nature of these programs predominantly connecting biopharma partners with providers who have patients who may be eligible for a clinical trial. And then as you saw in June, we announced a program in support from biopharma companies to open up access to epilepsy exome testing. And so we are through that program able to run all patients through insurance, work with biopharma companies on those patients who have been denied to be able to ensure that no patient has a barrier to that testing. So it’s data by way of connecting the biopharma companies to patients and we continue to see that as being the most, I think, representative commercial approach for the data business over the next 18 months or so. It’s meaningful not only in terms of building up that ecosystem, diversifying our revenue streams, but I think importantly, really paving a path forward for a lot of these patients to make sure that they know what they can do beyond getting a diagnosis being able to connect them with those next steps.
Tycho Peterson: And then what are you assuming for whole exome genome mix and revised guidance? Can you kind of bridge the new guide with the old and what’s getting better?
Kevin Feeley: Yes. So look, we’re really encouraged with the trajectory of exome and genome volumes from a mix perspective to 31% was a function of really strong underlying volume growth for exome and genome, but then also growth in other lines. And we continue to look at the test menu and our offerings to optimize for unit economics as well as clinical impact. We’ve said previously, I expect sequential growth in exome genome mix in terms of total tests anywhere from 1% to 3% per quarter. We delivered that this quarter, and I’d expect a similar pacing for the remainder of 2024.
Tycho Peterson: And last one just on pricing, over 2,800 in 2Q. Is there still kind of room to go in the back half of the year? And then, Kevin, I think you talked about reaching profitability in the next couple of quarters. I mean that’s a little bit different than what you previously said on 2025. I’m just curious if you can give us a sense of when in 2025, can you think you’ll hit it?
Kevin Feeley: Really encouraged about the performance on collection and bringing down denials to raise that average reimbursement rate. Previously, we said expect with each passing quarter of 2024 to assume something close to $100 in uplift in that aggregate rate. We were able to outperform that in the second quarter, and I think that remains the expectation is that we ought to be able to raise that rate something in the order of magnitude of $100 per quarter for each of the remaining quarters in 2024. Overall, really strong with where we came out in the second quarter. We’re really pleased with where we came out. Overall, on timing for returns [ph] of profitability, look, we just posted a net loss of sub-$3 million, $2.7 million. So we’re right on the doorstep. It will be in the coming quarter. The guide reiterated that the full year of 2025 on that measure of adjusted net loss, the balance of the full year $25 million will be profitable, and there will be a quarter upcoming here, likely in the first half off 2025, but we’re on the precipice of hitting that milestone.
Tycho Peterson: Great. Thank you very much.
Operator: Our next question will come from the line of Bill Bonello with Craig Hallum.
William Bonello: Hey guys. Great quarter. Can you tell us a little bit more about the Epic collaboration? How quickly do you expect to have that rolled out, maybe the breadth of your clients who are using Epic and then maybe a little bit on the cost?
Katherine Stueland: Certainly, I’ll kick it off. And thanks, Bill. The Epic partnership is one that other companies in our face have proven really can drive patient access and can accelerate utilization. And so we took a very data-driven approach to assessing the opportunity and whether or not the timing was right for us to make the investment now. And we saw a really impressive pipeline of opportunity, particularly in the NICU, to be able to drive our rapid whole genome sequencing product into that space. And strategically, that becomes a fantastic opportunity in terms of being able to embed our services. It ensures that it is easier for these providers to order. And then if you think about then extending that same sort of service through an entire health system more broadly into the pediatric setting, we think that it will translate nicely and I would remind you of the business on the NICU side of things is predominantly institutional. So we took a look at the pipeline of opportunity and we’re really pleased with what we believe we can realize likely in the second half of 2025. That requires some work later this year and into the first part of next year to actually make sure that the engineering side of things is well planned and well deployed in partnership with Epic. And so we’ve got that on our road map for Q4 and into next year. But as I said, we expect to start to see the benefits of that in the second half of 2025, but even more so broadly into 2026 and beyond.
William Bonello: Okay. And then just one other. Maybe you could talk a little bit more about the -- what you’re calling the reinvestment in whole genome and sort of specifically what it is your spending on what the improvements will be that and I’m assuming those expenditures are probably in the guidance, but just to confirm that.
Katherine Stueland: Yes. All of the investments are contemplated in the guide that we provided today, the updated guide. So the reality is when we prioritize the company’s efforts last fall. Everything was organized around really driving exome utilization and we put a pause on some of the genome improvements that we would have wanted to invest in earlier. Those are namely faster turnaround times, getting a written report out in five days. We previously have been doing a verbal in a number of days. And that is no longer what customers seem to be the right product delivery. So being able to drive a write report in five days, making it easier for sample collection. So a cheek swab or a buckle sample is something that is an additional product feature and then repeat expansion to help us drive a higher diagnostic yield and ensure that there doesn’t need to be any retesting. So those features, we have put a pause on, but because of the strength of our performance, we’re really, really pleased to be able to be in a place where we can start as we said, reinvesting in genome and ensuring that we can continue to translate our leadership that we’ve enjoyed with 80% of clinical exome coming through GeneDx having that same sort of market leadership on the rapid whole genome side of things as well.
Kevin Feeley: Yes. The only other thing I’d add to that is just overall reducing friction in the customer experience and the Epic collaboration is a prime example of that. We’ve heard loud and clear from in particular, hospital-based physicians that the Epic ordering process really important to their experience, and we want to meet customers where they are in that regard.
William Bonello: And just to follow up on that, I assume Epic sort of a two way street. It’s ordering and results delivery.
Kevin Feeley: Yes, yes.
William Bonello: Thank you very much.
Operator: Our next question will come from the line of Mark Massaro with BTIG.
Mark Massaro: Hey guys, congratulations on a solid quarter. When I look at the Q2, I guess this might be for you, Kevin. The $69 million of revenue from continuing ops, that’s approximately $7 million or $8 million up sequentially. Can you quantify if there was any material contribution from prior period collections?
Kevin Feeley: Yes. And the way I’d characterize that is that average reimbursement rate, the $2,800 that we cited is looking at resulted volume in the quarter as a function of revenue and the calculations there taking a historic look back in order to quantify the rate. And we continue to see overall improvements in collection performance, vis-a-vis a reduction in denials and we’ve seen that consistently over the past three quarters or so. And so those calculations used to derive revenue are continuing to be refined to pick up the improved performance. And so the way you see that is in the uplift in the overall rate there. I think the $2800 or so is a good baseline to assume moving forward as a new baseline from which we’ll look to improve in future quarters.
Mark Massaro: Okay. And then when I look back the last couple of years, and I know that you guys underwent transformation and a management change. But the last couple of years, you had about 55% of revenue in the second half, obviously, $45 million in the first half. When I look at your guidance split this year, it’s 50-50 right down the middle. And that would sort of imply that like Q3 and Q4, if they come in flat with Q2 levels, you’re still going to come in above the high end of your guidance. So I guess I’m really asking about seasonality and pacing and maybe walk me through how what could happen in Q3 or Q4 that could cause revenue to come in down sequentially from the Q2 level.
Kevin Feeley: Yes. Maybe one way to think about it, Mark, is the revised guide still puts us at the low end there. Nearly $10 million higher than the previous high end. So we view it as a substantial increase in the guide, which should tell you our relative confidence on the business to continue its momentum. Overall seasonality, as we’ve always said, Q4 is typically the strongest of the quarters, with Q3 being particularly light given available days for physicians to have appointments. And so certainly don’t want to signal any hesitancy with respect to continuing on our growth path. We think the guide uplift was meaningful and should be read that way. The third quarter is expected to come in a little bit lighter than the second in terms of seasonality and then the fourth quarter on top of that. I’d say all of that within the context of we’ve wanted to leave room in the guide throughout the year with respect to any decisions we might make on the non-exome portion of the portfolio as we continue this effort to rationalize and optimize test offering. And so the guide allows some room to absorb if we make any of those decisions.
Mark Massaro: Okay. That’s helpful. And then maybe the last question for me. You guys are clearly knocking on the door of profitability and coming in at $2.7 million adjusted net loss. I think for people listening on the line, I think, would you mind just reminding us that your definition of profitability would be to an adjusted net loss of either breakeven or slightly up? Or is it some other definition? Because it seems like there is an opportunity to potentially get there sooner than 2025. But maybe just walk me through some of the incremental spending you have in the back half and how we should be thinking about your definition of profitability.
Kevin Feeley: Yes, the right definition there being like-for-like with that adjusted net loss of $2.7 million we posted in the second quarter here. And that’s adjusted really to take out noncash items, depreciation, amortization, share-based compensation and any nonrecurring onetime item. The second part of your question, Mark?
Mark Massaro: Yes. It was on -- obviously, if you keep doing what you’re doing, you have a chance to get to profitability before 2025. So I’m just trying to think about what type or incremental level of spending do you have contemplated in the second half of this year that -- because you’re, call it, $3 million away from your goal. So I’m just trying to understand what you have planned for OpEx in the back half of this year that could keep your profitability out to $25 million.
Kevin Feeley: Yes. Look, I think you’re thinking about it the right way. We provided the guide on gross profit of 60% or higher. We outperformed that in the second quarter here with 62%, would expect fairly stable gross margin profile for the remainder of the year. And like I said in my prepared remarks, I think that OpEx has really leveled out. And so if the business were to continue on its top line growth trajectory, which we expected to were imminent with respect to the next couple of quarters having one of those hit that point of breakeven.
Mark Massaro: Great. Thanks for the time.
Operator: Our next question will come from the line of Dan Brennan with TD (TSX:TD) Cowen.
Daniel Brennan: Great. Thanks for the questions. Congrats on the quarter. Maybe just on denial rates. Can you just reflect what they were in Q2, Kevin, I didn’t hear -- I know you said you made progress on it, but I know you’ve talked about a still meaningful opportunity to close those. And maybe in that context, could you speak to how the progress with state Medicaid coverage plays into that?
Kevin Feeley: Yes, Dan. I think the denial rate slightly less than 50% of all tests now being denied with a fairly equal split between the commercial insurance portfolio and Medicaid, but for vastly different reasons on those denials where we’ve seen nice reduction in denials. As you can imagine, on the Medicaid side is on the heels of the momentum in various states picking up coverage for exome and/or whole genome sequencing. What we tend to see is that when a Medicaid program picks up coverage, this fairly clear medical necessity guidelines, administrative guidelines and therefore, predictable behavior with respect to adjudication of claims. And so it’s a matter of policy becoming effective, working out some initial kinks operationally, but then we tend to see a much lower denial rate and something far more predictable. Within the commercial insurance portfolio, almost the opposite, whereby many payers have some published criteria, but then we’re still subject to individual claim adjudication, subjectivity with respect to meeting administrative requirements and/or medical necessity. And so we’re attacking the problem by ensuring that we can retrofit payer-specific workflows upfront very different experiences, but slightly less than half of all claims being denied at this point, which is significant progress from where we were at this point a year ago.
Daniel Brennan: And in terms of the 14 Medicaid states where you have approval, have you baked in any more expectation for further coverage expansion within your guidance for 2024?
Kevin Feeley: We tend to look at it is to count it once enacted and published publicly. And I think the uncertainty in the way in which states need to take up the issue individually subject to political and other bureaucratic and fiscal means within the state makes it really hard to predict. So we’re not in the business of predicting, which states will come on next and only incorporate into the guide those states and coverage decisions that we have direct line of sight to.
Daniel Brennan: Got it. And maybe just staying on that theme, like the biomarker bills, have they had much impact yet. Obviously, there’s enthusiasm for what could happen, but just kind of wondering what kind of progress, if any, you’ve seen from payers kind of starting to pay in those states.
Katherine Stueland: Yes, we are seeing a direct impact of biomarker bills and then Medicaid coverage coming online. And it’s the product of patient advocates, our team and market access, policymakers, thought leaders all coming together to take a look at the problem that these states are facing. And so there is a really nice correlation between it. We see other states where they’re going right to medicate coverage without a biomarker build, but there is a correlation, including recently here in Connecticut.
Daniel Brennan: Got it. And maybe one more just on whole genome since you kind of seem to be an increasing focus now. Just -- can you remind us like how big is whole genome today for you within that genome, exome split? And to the extent genome does really pick up here, what kind of impact could it have on your business from a revenue margin standpoint?
Katherine Stueland: So no impact on our 2024 the percentage, we have not broken it down between exome and genome, but a small, small percentage, though, in terms of the business, small, but growing rapidly, right? So as we think about 2025, I think that’s where to see that it will really be a greater focus by way of volumes, by way of revenues, and we’ll put some thought into gross margins as well on that.
Daniel Brennan: Okay, great. Congrats…
Katherine Stueland: One thing to note Dan, is Texas, actually, their Medicaid actually skipped exome and went directly to genome. And I think that, that’s really an important flog that they’re planting. We’re not going to be moving forward in a genome world if it’s not going to be reimbursed. And so making sure that we continue to tie back our strategy to ensuring our services is get paid for is something we’re going to continue to have a lot of discipline on, but I think that, that’s a really interesting one to take a look at, and we’ll keep our eyes open to see if other states might also think about leapfrogging over exome straight to genome.
Kevin Feeley: Yes. And the pivot there is more to say, we’ll be ready for that, right? If you go back to January 2023, we changed the name of the company to GeneDx and intentionally picked our ticker symbol as WGS knowing there was a day where we’d be leaving towards an exome and genome only backbone.
Daniel Brennan: Great. Sounds good. Thanks, Kevin, thanks Katherine.
Operator: Our next question will come from the line of Matt Sykes with Goldman Sachs (NYSE:GS).
Matthew Sykes: Hey good afternoon. Hey Katherine, hey Kevin. Thanks for taking my questions. Congrats on the quarter. Kevin, if I could just start out, you made some comments about reducing cost per test. You made great progress there. Is there any way you can kind of help quantify what those changes in cost per test have been historically or maybe on a quarterly basis, just to give us some context what progress you’ve made.
Kevin Feeley: Yes. Maybe one way to think about it is if you go back to this quarter 2021 s when Katherine joined the company, and I think it’s fair to say we nearly have the cost per test on exome in that period of time, predominantly coming from wet lab process improvements fairly modest impact, but appreciative of some lower input costs from manufacturers, but much of those improvements coming in the form of automation and process improvements that we were able to introduce into the laboratory. Certainly, we’re seeing the benefit of scale with more volume come some scalability and efficiency gains on a cost per test basis. We’ve made good progress in reducing dry side costs that being analysis interpretation, abstracting, report writing, but those processes are still fairly manual, and we have a large dedicated differentiated team there. But that’s where we see a major opportunity in the next year to three years in further reducing costs as we scale to be able to further deliver margin expansion via cost per test reduction.
Matthew Sykes: Got it. And then just on the cash burn guide which you brought down, I’m just trying to square those comments -- that guidance change with the comments you made about leaning into investments. So I’m just wondering where that cost savings is coming from, I don’t know if it’s legacy test portfolio and supporting those tests or other areas. But maybe just help me square the leaning into investments with the continual reduction in cash burn that you’ve shown.
Kevin Feeley: Yes, a few different areas to think about there certainly exome cost per test, like we spoke about, we’ve been able to drive meaningful margin expansion both from COGS reductions, but as well as increased average reimbursement rate, therefore, expanding gross profit. I’d say ancillary to improvements we’ve made focused on exome. We are seeing improved gross margin on the non-exome test that remain. We’ve gone through a fairly extensive exercise over the past year to retire tests that were lower value clinically to physicians and patients, but also drags on gross margin. We’ve retired those tests, the bulk of the other panel line that you’ll see in our volume split in the release is Chromosomal Microarray. And that test along with the hereditary cancer line, we’ve been able to expand gross margins nicely over the last year. I’d say those were somewhat a byproduct of the improvements we’ve made through our processes to benefit exome and genome. But nonetheless, we’re seeing good margin expansion in those test offerings. From an OpEx standpoint, we’ve really built muscle memory throughout this organization to find ways to get more efficient to look at process to use technology, and we’re going to continue to do that. So I do expect that in the coming quarters, that adjusted net loss or net income will pretty closely conform to our cash flow on a quarterly basis. I did call out, of course, two large lumpy items. December will be $10 million for the payer settlements that Semafo signed in 2022 and then potentially making that $13 million net payment on the litigation settlement. So that might help bridge the cash burn guide to our current run rate on adjusted net loss.
Matthew Sykes: Got it. And if I can just ask one more, Katherine. Just following up on one of Dan’s questions. Do you believe that sort of what you guys have achieved so far in whole exome and sort of the growing acceptance from payers plus the biomarker bills -- do you think that’s a fair assumption to assume that when acceptance for whole genome, we get closer to that, that, that mix shift could actually progress even more rapidly than what you’ve done with whole exome because exome is kind of paved away. I mean you mentioned the example with Texas skipping over exome go to genome. I’m just wondering what your thoughts are on the future of the pace of whole genome acceptance going forward relative to what you experienced in whole exome?
Katherine Stueland: Yes. I think as I said, the Texas flag that they planted, I think, was really encouraging to us in terms of where this market is going. We have debates routinely about is it exome, is it a genome and making sure that providers are ready to order the test that we’re offering. So I do think that an important element of it is most definitely the policy to support payment for it. There’s still a lot of education that we need to do on exome and genome more broadly in terms of the benefits by way of faster turnaround times, more comprehensive answers. So there’s still, I would say, an important educational mission that we have to continue to drive in order to realize the opportunity for exome and genome. But I do think that once payers and policymakers start lining up behind a technology that we will see a faster clip of adoption there. So all really important in terms of being able to lay the groundwork for us. We’re fortunate, as I said, 80% of exomes come through GeneDx and we have, we are making ourselves synonymous not just with exome, but with genome. And so we intend to be that market leader regardless of whether a provider or a payer wants to be covering exome or genome we will be the leader in either one of those spaces.
Matthew Sykes: Thank you very much.
Operator: That concludes today’s question-and-answer session. I’d like to turn the call back to Katherine Stueland for closing remarks.
Katherine Stueland: Thank you so much. We appreciate everyone joining today and look forward to seeing you hopefully in the near future at a conference. So have a good safe rest of your summer. Thank you.
Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.
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