Good morning, ladies and gentlemen. And welcome to the NeoGenomics Third Quarter 2021 Earnings Call. At this time, all participants have been placed on a listen-only and the floor will be open for questions-and-comments after the presentation. It is now my pleasure to turn the floor over to your host, CEO, Mark Mallon. Sir, the floor is yours..

Thank you, and good morning, everyone. I’d like to welcome you to all to NeoGenomics’ 2021 third quarter conference call. And I m very pleased that for the first time we all doing this call from our new Fort Myers headquarters.

Joining me here are George Cardoza, our Chief Operating Officer and President of Lab Operations; Doug Brown, our Chief Strategy and Corporate Development Officer; and Charlie Eidson; our Director of Investor Relations. Joining the call via phone from California is Dr. Gina Wallar, President of our Pharma Services Division and from the U.K.

President of Inivata, Dr. Clive Morris. Also here from us we have with us today are Kathryn McKenzie, our CFO; and Bill Bonello, our President of Informatics. As per our press release this morning, we are excited and I am excited to announce their new roles at NeoGenomics.

I want to thank them for important contributions in their current roles and I am so pleased to have them continue with their new responsibilities as key members of the NeoGenomics leadership team.

Since taking over as CEO of NeoGenomics in April, I have been working closely with our Board on succession planning and optimizing our leadership team and structure. As a part of this process, we have taken important steps to reorganize internally including promoting George to Head of our Lab Operations and Dr. Waller to Head of our Pharma Services.

We have also been able to attract world class talent to our leadership team, hiring Halley Gilbert as our Chief Legal Officer; John Mooney as our Chief Technology Officer. We have some additional leadership positions to fill, but I am pleased with the moves we have made and the positive impacts on our business I believe they will have.

Before we begin our prepared remarks, Charlie will read the standard language about forward-looking statements..

This conference call may contain forward-looking statements, which represent our current expectations and beliefs about our operations, performance, financial condition, and growth opportunities. Any statements made on this call that are not statements of historical fact are forward-looking statements.

These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, actual outcomes and results could differ materially from those indicated in the forward-looking statements.

Any forward-looking statement speaks only as of today and we undertake no obligation to update any such statements to reflect events or circumstances after today.

Before turning the call back to Mark, I want to let everyone know that we will be making a copy of our prepared remarks for this morning’s call available on the Investor Relations section of our website shortly after the call is completed.

We also want to let everyone know that we are going to limit the number of questions to one per person in order to give more people a chance to ask questions within the one hour that has been allotted for this call..

Thank you. I would like to spend some time with you now sharing some thoughts on our current positioning, the strategic value of NeoGenomics and how I see us continuing to be a leader in the oncology diagnostics marketplace.

But before I dive into my thoughts on our exciting future, I would like to take a few comments -- make a few comments regarding our third quarter financial results. For the quarter, we continued to demonstrate growth, as company revenue increased 12% year-over-year, excluding discontinued COVID-19 PCR testing revenue from a year ago.

And we strongly believe the business would have grown faster if not for the impact of the Delta variant on the quarter.

As we have discussed previously, the resurgence of COVID-19 clearly affected our business, perhaps more so than others, given our significant geographic presence in the southeast and south central parts of the country, where the Delta variant has had the most pronounced impact.

We continue to see very positive signs for excellent growth in the future. Our Pharma Services bookings during the quarter grew 41% year-over-year reaching an all-time high of $49 million reflecting the strong demand for our services. We exited the quarter with backlog at $261 million in Pharma Services, another record high.

With a reduction in COVID cases nationwide, we expect to see higher rates of growth in our core Clinical business and in Pharma Services going forward. While quarter three results did not achieve our expectations, we view the current challenges as transient and remain very optimistic regarding our growth prospects for 2022 and beyond.

To this end, we recently presented our five-year growth plan to the NeoGenomics Board of Directors and that plan was received with overwhelming support for the investment necessary for us to strengthen our leadership in oncology diagnostics.

We presented a bold plan, which will significantly accelerate growth of our overall business and critically bolster the launch of RaDaR, our potentially transformative new assay for minimal residual disease and recurrence testing.

In fact, we believe that successful commercialization of our RaDaR assay will increase our long-term growth rate into the high-teens.

A key driver of our confidence in RaDaR is its differentiated performance based on analytical validation data demonstrating 95% sensitivity and 100% specificity at circulating tumor DNA concentration levels as low as 0.0011% variant allele frequency or 11 parts per million.

To support growth initiatives for our existing business and for RaDaR, over the next six months we will be doubling the size of our customer facing sales force by substantially expanding our Precision Medicine Manager and Medical Science Liaison teams.

We believe this investment to -- will be able to accelerate growth could lead to a doubling of our revenue by 2025, with the potential to exceed $1 billion in annual sales. Indeed, I am very confident in our future.

Over the past 10 years we have established a solid foundation as the leading provider of oncology testing for community hospitals and oncology practices. We focused on this market segment because approximately 85% of oncology testing and treatment occurs in the community setting.

It has always been our mission to ensure that patients have access to the best, and most appropriate care, regardless of whether they are treated in a large academic medical center or a small community hospital. As those of you who have followed us know, we have endeavored to provide the most comprehensive test menu in the industry.

Because of the depth and breadth of testing that we provide, we will serve more than 4,000 healthcare providers and 0.5 million cancer patients this year. This is a remarkable milestone to achieve. We also established leading testing franchises for highly prevalent cancers such as breast, lung and various hematologic cancers.

Having established this foundation, we are now in a great position to help usher in the next-generation of transformative testing technologies and to again ensure that these tests are available to patients in all types of settings, not just to those who are treated in select academic facilities.

We often hear NeoGenomics referred to as a fast follower. In fact, we have often used that term to describe our strategy for adopting new technologies.

We have been able to execute this fast follower strategy because we have the scientific and medical know-how to quickly develop and launch new, often improved lab-developed tests and because we have a trusted relationship with thousands of physicians who are already ordering a significant portion of their cancer testing from us.

Combining high quality assays with best-in-class service has enabled us to consistently grow faster than the overall cancer testing market. While this strategy has served us well in the past, it will not be sufficient to take us where we want to be in the future.

As we consider the current testing landscape, the pipeline of new testing technologies and our own proprietary assets, we realize that we have an opportunity and I would argue a responsibility to be the leader in establishing certain new testing technologies.

And our RaDaR assay is a prime example of this in the minimal residual disease and recurrence market. We are investing to be the clear leader in this massive, emerging market which is estimated to be in excess of $15 billion. When we acquired Inivata earlier this year, we knew that the RaDaR assay was special.

But as the assay continues to be analyzed and assessed by oncology researchers at global pharmaceutical companies and KOLs in clinical oncology, I have become even more convinced that this assay and our opportunity to deliver for patients and investors is, in fact, unique.

Detecting the recurrence of cancer for a patient has traditionally been accomplished, as you know, by radiographic imaging.

Research conducted on both RaDaR and other liquid biopsy MRD assays demonstrates that these new technologies provide an oncologist with timely sensitive information to act much sooner on a patient at risk of recurrence of cancer.

Evidence strongly suggests that our RaDaR assay may be the most sensitive assay for detection of recurrence as measured by analytical sensitivity. Evidence further suggests that RaDaR’s potential sensitivity advantage could translate into the detection of cancer recurrence months ahead of competitor assays.

This sensitivity and NeoGenomics strong Pharma Services capabilities, are generating significant interest from BioPharma clients. We now have multiple active BioPharma collaborations for RaDaR and we are starting to see initial collaborations translate into larger late-stage development program opportunities.

We are pleased to share we recently were awarded one such opportunity, with encouraging signs on several others. The strong interest of multi-national pharma companies has only increased my confidence in the opportunity we have in front of us. Many of you know my background in the pharmaceutical industry.

In my 30 years in the industry I had the privilege to lead teams responsible for the successful launch of many new pharmaceutical products. And from my commercial product experience, I know that when you are holding a strong hand, you launch into the market aggressively.

Based on this personal experience and what I have learned from MRD industry experts about our RaDaR assay, I indeed sense that we at NeoGenomics have a strong hand and an obligation to both patients and our shareholders to move more aggressively toward a successful launch for RaDaR.

Given this context, as I mentioned earlier, we will be immediately pursuing the doubling of our customer facing team. We will expand our Precision Medicine team to 50 Precision Medicine Managers and hire 10 Medical Scientific Liaisons to serve the medical oncologist who will focus on the launch of RaDaR.

These will also continue to support the uptake of InvisionFirstLung, our Liquid Biopsy test for lung cancer. These additional hires will complement our industry-leading existing sales force and the sales force at Agendia who we are partnering with in the breast cancer MRD market as well.

Based on the initial MRD market development in colorectal cancer and NEO’s strong franchises in breast cancer and lung cancer testing, we anticipate we can leverage these foundations to be a market leader in MRD testing.

The combination of these strengthens with our expanded Precision Medicine Manager team will most certainly accelerate the market penetration of our RaDaR assay, benefitting thousands of cancer patients sooner.

We also expect to be able to accelerate what we believe could become a multi-hundred-million-dollar per year revenue opportunity for NeoGenomics.

And as we pursue these massive opportunities, I want to remind everyone that we remain on our previously stated timeline of attaining MolDx submission for our first indication around the turn of the year, with an anticipated reimbursement approval and initial commercial launch near the middle of 2022.

I am clearly excited about the bright future at NeoGenomics. Our base business is diversified and profitable with sustainable growth, and this foundation allows us to make smart and bold investments. In the core business, we will continue process improvements and grow our base business even as we pursue outsized growth opportunities.

We anticipate that post-pandemic Clinical volume acceleration will allow our base business to fund our growth initiatives. I firmly believe that these investment decisions will ultimately be significantly beneficial to all of our stakeholders, patients, providers, employees and shareholders.

I will now ask Kathryn to update you on the quarter and then I will provide some closing remarks. We will then have time for Q&A.

Kathryn?.

Thank you Mark. Revenue excluding COVID-19 PCR testing grew 12% year-over-year to $121 million in quarter three. Clinical revenues of $102 million represented 11% year-over-year growth excluding COVID-19 PCR testing. This 11% year-over-year increase was comprised of a 7% increase in Clinical volume and a 4% year-over-year increase in revenue per test.

Incoming volume company-wide was impacted during the quarter by the Delta variant incidence surge.

Similar to the dynamics experienced during prior pandemic waves, higher COVID-19 incidence led to reduced patient visits to oncologists, cancelled COVID-19 incidents led to reduce patient visits to oncologists, cancelled screening appointments and reduced sales team access.

We were particularly hard-hit by the Delta variant given our substantial presence in both Florida and Texas, which together represent more than 20% of our total revenue. In Florida specifically, we saw some of the most stringent COVID related restrictions put in place that we have seen during the entire pandemic.

These factors culminated in a Q3 Florida daily volume trend across the state that was roughly 5% below our previous 2021 lows that were experienced in January and February. This compares to daily volume trends of up 9% when comparing the same periods across all other sales regions nationwide.

Pharma Services revenue grew 14% year-over-year to $19 million. We did experience COVID related delays and planned clinical trial related work as patient enrollment timelines were pushed out by our customers.

We would emphasize that the vast majority of projects in the quarter were delayed rather than canceled and we would expect to perform this work in coming quarters. Despite lower Q3 growth, our Pharma Services year-to-date growth rate through nine months remains healthy at 36% year-over-year.

What’s very exciting to us is that demand trends continue to be strong in our Pharma Services business. We added a record $49 million in signed contracts and exited the quarter with a record $261 million in backlog, which represents year-over-year backlog growth of 41%.

We believe we are well-positioned to meet or exceed our long-term target of 25 plus -- 25%-plus revenue growth for this business in coming years. Our total GAAP gross margins decreased to 38.9%, reflecting the first full quarter of Inivata related non-cash amortization.

Total adjusted gross margin which excludes non-cash amortization was down slightly year-over-year to 42.9%. Lower than anticipated Clinical volumes and Pharma Services revenue led to lower efficiencies on our largely fixed cost COGS infrastructure.

The labor market for skilled lab technologists remains competitive, particularly in Southern California, and we are hiring aggressively to expand our testing capacity nationwide. Capitalizing on our fully integrated clinical LIMS network, we are in the process of bringing up or expanding dry lab analysis pods in multiple cities across the country.

We’ve identified Phoenix and Atlanta as cities with pockets of strong talent. Operating expenses increased $38 million year-over-year to $87 million, primary driven by expense contributions from the recent acquisitions of Inivata Limited and Trapelo Health, and additional investments to support growth.

The increase also includes a loss contingency accrual of $10.5 million related to a regulatory matter we will discuss in a moment. Adjusted EBITDA was a loss $3 million in Q3 and reflects a flow-through of lower than anticipated revenues, as well as the first full quarter of expenses from Inivata, which closed in June.

Turning to the balance sheet, we exited quarter three with $543 million in cash and marketable securities, which excludes an additional $3 million in restricted cash designated to finalize construction of our new state-of-the art laboratory and global headquarters here in Fort Myers, Florida.

Speaking of our new facility in Fort Myers, we are happy to share that we have moved administrative functions into the building and we will be migrating laboratory operations into the new facility in stages over the next few months.

The building triples our lab footprint in Fort Myers providing much needed capacity for expected growth in the years ahead. Our balance sheet also includes an accrual for a compliance item that will be disclosed in the 10-Q that we expect to be filed later today.

We are voluntarily conducting an internal investigation, with the assistance of outside counsel that focuses on the compliance of certain consulting and service agreements with federal healthcare laws and regulations. Based on preliminary findings of this internal investigation, we voluntarily notified the Office of Inspector General of the U.S.

Department of Health and Human Services of our investigation in November of 2021.

Though our review of this matter is ongoing, we have accrued a reserve of $10.5 million for potential damages and liabilities associated with the federal healthcare program revenue received spanning multiple years in connection with the agreements at issue that were identified during the course of this internal investigation.

Turning to guidance, we are lowering our previously provided annual revenue and adjusted EBITDA guidance. We now expect consolidated revenue to be in the range of $482.5 million to $487.5 million and full year 2021 adjusted EBITDA to be in the range of a loss of $2.5 million to positive $2.5 million.

The impact of the Delta variant on our business in Q3 was much larger and prolonged than we anticipated impacting our Q3 results in our Clinical Services and Pharma Services divisions. We expect the Q3 reduction in sales team access in the clinical market and delays in clinical trial work with Pharma Services to have a flow-through impact on Q4.

These factors caused us to reduce the level of sequential improvement we anticipate for the quarter. I will now turn the call back over to Mark Mallon..

Thank you, Kathryn. With regards to the compliance matter, we continue to take all reasonable steps to ensure that we have identified and are addressing all issues underlying our self-disclosure. NeoGenomics has always strived to maintain a culture of compliance and has a strong track record of operating ethically.

Moving forward, further solidifying our compliance culture is a key priority for me and the leadership team.

To that end, I am pleased that Kathryn will be stepping into the newly created role of Chief Sustainability & Risk Officer to help our team stay focused on mitigating evolving risks in this fast changing business, while also leading our ESG efforts.

Shifting the discussion back to our business outlook, I am incredibly excited about the opportunity in front of us at NeoGenomics. Strategically we remain very well positioned as a leader in oncology diagnostics and we see significant opportunity for growth in the years ahead across all of our businesses.

It’s clear to me that RaDaR is a special asset. We are committed to make the investments necessary to realize its sizable Clinical and Pharma market opportunities for minimal residual disease and recurrence testing.

We intend to take a leadership role in forming this market which we believe will fundamentally improve the cancer treatment paradigm for patients everywhere. Now I am going to turn the call back over to Charlie for Q&A..

At this point, we would like to open the call for questions.

Incidentally, if you are listening to this conference call via webcast only and would like to submit a question, please feel free to email us at charlie.eidson@neogenomics.com during the Q&A session and we will address your questions at the end if the subject matter hasn’t already been addressed by our call-in listeners.

As mentioned at the beginning of this call, we would like to ask each person to limit their questions to one so that we may hear from everyone and still keep within the hour allotted for this call. Operator, you may now open up the call for questions..

[Operator Instructions] Your first question for today is coming from Andrew Cooper. Please announce your affiliation then pose your question..

Hi, everybody. Thanks for the question.

Maybe just first is to dive into the guide on EBITDA and sort of what the trajectory on profit may look like as you think about doubling the sales force, maybe just when we think about the fourth quarter, can you give some framing for how much is tied to lower flow-through in Pharma and Clinical versus the labor components that you mentioned, obviously being tight, and then as well, adding the new salesforce over the next six months? And maybe how much of that did you get it accomplished in the third quarter as well? Thanks..

Kathryn, do you want to take that..

Yeah. Andrew, thanks for the question. As we’re looking towards Q4, there’s a couple of dynamics at play. One is what we mentioned on the topline, as far as the limited access or the less than projected access for our sales team in the Q3 will have some impact on the topline in Q4.

But really, as we’re looking in Q4, there is a big investment that we are looking to make and the acceleration for Inivata as well bringing on the sales team. So that announcement that we had this morning as far as doubling our sales team is not really reflected in Q3, but will be as we start to onboard in Q4..

Okay.

And maybe just a quick follow up if I could, just when we think about that limited access or more limited access then you had expected? Can you give a sense for where you sit on November 4th relative to the earlier in the third quarter when obviously things were much worse than they are now?.

So, Andrew, we clearly are seeing improvement in access and increase in patients returning to the oncology offices. I wouldn’t say we’re back to, again, sort of normal pre-pandemic levels and we expect that the improvement will continue.

I think the thing that is positive for us and why we remain very confident in 2022 and beyond is that, as incidents of COVID drops, we do see access go up, we see patients come back and our business follows ahead. It’s not necessarily a switch of -- a change of a switch.

But we’re very confident that they will certainly continue to improve and we look forward to a strong 2022..

Appreciate it. I will stop there and jump back in the queue to let others have a chance. Thanks. .

Thanks, Andrew..

Your next question is coming from David Westenberg. Please announce your affiliate..

All right. Thank you. David Westenberg at Guggenheim Securities. Yeah. Apologies, I did want to ask a little bit more of a long-term question. But I am getting questions as well on the guidance here for Q4. Could you -- I am actually thinking about a little bit more the topline.

Your commentary around Florida, I think is definitely consistent with kind of the checks that we got. That has been subsided and I think this subsiding of that was roughly three weeks ago.

Can you help us maybe conceptualize a little bit more of your commentary around maybe slow start to clinical trial kind of delay and similar kind of question to Andrew, in terms of like, where we stand today? Could we have seen makeup demand maybe in -- from Delta delays in October, I mean, in August, September, you’re starting to hit now and then maybe there’s some upside to that guidance? Again, it seems very -- we totally understand the Q3 thing, it’s just a little tougher to conceptualize the Q4, and again, I wish I could ask a strategic question, but that’s the inbounds I am getting?.

Yeah. So I will start and then maybe Gina can explain a little more on the Pharma side. But we really look at it as a two-prong impact on topline, because there was the impact in Q3, both from access and just from patient visits that impacted our volume in Q3.

But that access will impact Q4 as well, because a portion of our business is growth and the bringing in of new clients and new revenue streams, which takes a little bit of time to ramp up. So while we may see and we saw previously a bigger, let’s say, bounce back posts our initial COVID impacts in 2020.

Our impact of COVID in 2021 related to the Delta variant was not as low as it was previously, and as such, I don’t see the rebounding as V shaped, perhaps, as it was before. But there really are two pieces.

It’s the returning of our core business and our -- the volumes and return of patients, as well as the bringing on of new business for Clinical, that will impact our topline. And again, we feel really good about our growth and our pipeline and our backlog, but some of that will take a little bit of time as we look to realize it.

But, Mark, would you like to fill?.

No. I think that captures it..

Thank you..

Thank you, David..

Your next question is coming from Puneet Souda. Please announce your affiliation then pose your question..

Yeah. Hi. Puneet Souda, SVB Leerink. Thanks for taking my question, Mark.

First of all, just in terms of overall on the NGS side of things and the liquid biopsy side of things, I just wanted to get a sense of how do you view the overall competitive landscape and how you’re positioning into that channel? Obviously, a number of efforts ongoing in different companies, and well, along those lines also, just want to get a sense from you, at a high level on your overall philosophy in M&A and how do you look at acquisitions both for yourself and how do you look at partners? There’s, obviously, quite a bit of speculation lately and multiple companies are pursuing the same market in oncology.

So I wanted to get a sense from you of -- you, obviously, have a broad menu and offering here. So would love some thoughts on that? Thank you..

Thanks, Puneet. So your first question, I think, was asking about sort of what’s happening in the marketplace in NGS liquid biopsy in the competitive environment. And obviously, there’s a huge amount of focus on. There has been significant investment.

And we’re committed to taking the steps and making the investments to win and lead in the MRD asset market with our RaDaR, but also to be a leader in the NGS and liquid biopsy.

The thing I want to really emphasize, though, is that we have something that we don’t think any of our other competitors have, which is this channel that we’ve built up over the last decade to community hospitals, oncologists and pathologists, and the million plus tests that we do every year.

That is a foundation that we can build on and leverage and basically help shift the practice of medicine as we bring in our new NGS asset. We bring in new liquid biopsy products like Invision Lung, and certainly, as we launched RaDaR into this market.

Having those relationships, having that flow of products to which the start of discussion and to intervene at the moment that decisions or making decisions is an incredible place to start a business.

And candidly, part of the reason you’re seeing the investments as we have these new players is they don’t have that kind of a starting position that we have in there. So that’s, one, I am going to clearly make sure we’re taking advantage of and that we’re making sure that we put in the additional resources to take advantage, particularly of RaDaR.

In terms of acquisitions and strategy around that, I think, we continue to focus both on organic growth as a first priority, but also adhere brand growth, I think, Puneet, that basically, half of our growth comes from both.

And we’re going to continue to be focused on where we can acquire innovation or attract the businesses that are going to make our overall platform strong. I don’t know, Doug, you have -- Doug you want to add a comment..

Yeah. No. Hey, Puneet. It’s Doug. I think what we said in the past is we feel like we would have the scale on the Clinical side from our own, we have the channel that we’re dropping technology into it and really that’s what the antibiotic transaction was about. We would like more scale on the Pharma side. Informatics is growing nicely.

There are other tools out there that could be interesting. And I would say an area that we are starting to think harder about is AI leveraging all the slides that we have in our database.

You’re talking about a couple million slides over the history of the company that have a lot of valuable information embedded in there and it’s something we’re exploring pretty seriously. Thank you..

Got it. And just last clarification if I could, I don’t know if this was covered, but can you pursue an ADLT with the RaDaR assay? Thanks..

Yeah. Clive is on the phone.

So Clive do you want to answer that?.

Yeah. Certainly. Thanks for the question, Puneet. And as Mark said, we’re on track for our initial reimbursement submission for RaDaR around the turn of the year. We will continue to build that and we are planning for effectively multi-tumor or pan-cancer use for RaDaR.

So you can expect to see incremental data across tumor types and further reimbursement paths. And of course, we are pursuing a parallel FDA path as well. And ADLT is something we will consider as part of that. So, certainly we think that’s possible, but we haven’t disclosed anything around timing yet on that..

Got it. Thank you..

Okay. Thanks..

Thanks, Puneet..

Your next question is coming from Mark Massaro. Pleases announce your affiliation then pose your question..

Hey, guys. Thanks. It’s Mark at BTIG.

I guess, the first question is, have you seen any incremental pickup within InvisionFirstLung recognizing it’s somewhat early, but it has been in the market for some time? And then I wanted to get a sense for, Doug VanOort, not only coming up with the Executive Chair role, but also planning to retire from the Board at the end of this year? Can you just talk about any change in strategy that you guys might be thinking? And then as it relates to replacing him on the Board? How should we be thinking about you expanding the Board, and perhaps, making any changes -- further changes to the management team, the Board, and perhaps, strategic direction? Thanks..

Thanks, Mark. So let’s say, I think, there were three questions in it. So, one is on the uptake of InvisionFirstLung, actually, since we have redoubled our focus InvisionFirstLung in the August timeframe, we have already started to see an uptick in performance and actually assessing and recording a test.

This is based on the impact of the performance as the Precision Medicine Managers are having. It also has to do with that the great turnaround time that we’re able to achieve with our lab and research time apart from Nevada. We’re able to get to five-day turnaround time.

And also really just having a wholesale organization focus on what we call patient first, really thinking about based on the right patient, what is the right first diagnosis and for 60% of lung cancer patients, they’re going to be medically contraindicated for a biopsy or the biopsy sample is likely to be too small.

And these are great candidates for InvisionFirstLung and our wholesale team is aggressively pursuing that. So all of those together are leading to an uptick in performance. It’s still early days. But I am very encouraged what I’ve seen so far.

You asked a bit about strategy and with Doug VanOort stepping down as the Executive Chairman and moving towards retirement at the end of the year. In terms of strategy, I mean, this is the strategy that we created over the past year that the Board has created and we’re implementing that strategy.

In fact, what we’re doing is, we’re doubling down on that strategy and accelerating the implementation by moving to expand the salesforce significantly next year, building out a significant medical research team.

And basically, we’re going to be looking at opportunities across the spectrum of levers to pull behind RaDaR to see how we can build additional data, how we can gain additional access, how we can accelerate moving to that pan-tumor space.

So it’s all still pursuing the strategy of maintaining a foundation of the great channel that we have in the community and then bringing in the tech -- new technology, particularly RaDaR and first continuing to leverage the fantastic opportunities we have with Informatics and Pharma. That’s the strategy.

It’s about executing and moving aggressively in that space. In terms of the Board, what I will just say there is that, we’re continuously assessing what are the needs for the company and what we would help them -- continue to strengthen and the Board, I shouldn’t say many, I mean, that’s -- the Board does that with self reflection.

And so we’re always thinking about how we can strengthen the Board. We’ve got a great Board today and we’re going to continue to look for ways to keep that strong and meet the needs of the company in the future..

Great. Thanks so much..

Your next question is coming from Brian Weinstein. Please announce your affiliation then pose your question..

Hey. Good morning. This is Griffin Soriano for Brian.

Just a question on Pharma Services and you call out that backlog of $260 million? Can you give us a sense of the leakage you would expect coming out of that and remind us over what timeframe that backlog takes to work through? Basically, when that last dollar of revenue would be expected to be earned?.

Gina, do you would like to take that?.

Yeah. Sure. Hi, there. So our backlog generally converts over the course of the projects, which average about three years over time and some projects finish early and some projects go over? So we see an average of about a three-year timeline and about -- and somewhere between 60% to 80% of contracts on average come through..

Understood. And just a quick follow up on RaDaR, the indications in multi-cancer expansion there. Have you announced the initial indication, don’t really see that? And then roadmap to expansion, any thoughts on the timeline there, when we should expect LDTs and additional indications? Thank you..

Clive, why don’t you take that?.

Yeah. Certainly. Short answer, no, we haven’t given away the details of timing of indications, what will be first or indeed subsequent ones. But as I say, the first one will be around the turn of the year and I expect to see others during the course sort of next year and onwards.

So we expect clearly as data comes out and we drive the trial use, we deliver the data, there will be increasing numbers of LDT submissions for reimbursement there..

Thank you..

Thanks, Brian -- Griffin, sorry..

Your next question is coming from Alex Nowak. Please announce your affiliation then pose your question..

Great. Good morning, everyone. So I just want to better understand those assumptions around the RaDaR market launch and reasons to invest in the sales team now.

So are you assuming you’re going to submit for a completely new LCD with all the extra RaDaR? Are you planning on falling under an existing LCD? And then, depending on your answer there, just what gives you the confidence that you’re going to have reimbursement established by at least Medicare by middle of 2022? And then, I guess, if you don’t have reimbursement, would you hold back the launch?.

So I am going to ask Clive to talk about why we’re confident and sort of our approach through reimbursement and then I want to say a couple of words about the strategy of moving aggressively now to expand salesforce.

Clive?.

Certainly. Thanks for that. And in shorts, we’ve had dialogue with MolDx [ph] around the route through to reimbursement so we have a clear view of what we need to be delivering and submitting to get through the path-forward approval and we’re confident in our plan and we’re executing against that.

So as Mark has said, we are on track with our previously mentioned plans. So I think that would be the plan. I think Mark will talk more about the commercial sort of launch, but remember, there’s a lot of activities other than the reimbursement that I am sure Mark will talk through.

We’ve started with a lot of our key opinion leader builds in our trial data, clearly, that needs to work through as we prepare for launch. So, launching and getting things moving ahead of the actual reimbursement is the pan, but I will hand over to Mark to talk further around that..

So the reason that we’re moving forward aggressively now with the sales force is because there’s just so much work to do in advance of a commercial launch of a major new brand, particularly when you’re actually trying to change the practice of medicine. You need to build relationships and connections with the oncologists.

This is not only about what information and education you have got, but you have to have a level of trust. You’re asking an oncologist to change what they’re doing with cancer patients and that’s a very big deal, as you would expect.

There is a tremendous amount of education to get these physicians to be comfortable to start prescribing this new assay when it’s available. There are a number of certain things that we can do to get them more comfortable and raise their awareness and really sort of building almost a demand before the launch of the new assay and a new product.

And we’re going to look at all of those tools and options and it’s going to be - you have to have that sales force in place to take advantage of it. And yes, this is going to help us get off to a faster start.

It is about anticipating that mid-year reimbursement which we are confident on, but it’s also about laying the groundwork for what’s going to be a multi-hundred-million-dollar opportunity and a multi-billion-dollar business. And so you can get started too soon on laying the foundation to be a success and the leader in that market..

Yes. Understood. Makes sense.

And then could you expand on the investigation? Just more details on what was identified, how long it’s been ongoing? And then, just curious if the investigation or the findings from the investigation all feed into a lower volume number for the implied Q4 guide or if those are related or not?.

So in terms of the investigation, this is an ongoing investigation. So there’s really not much more or not really more than we can say than what we shared in our prepared remarks. This is something that we raised and we uncovered in the first half of the year. We moved aggressively to start the internal investigation.

As we came up with the understanding of the situation, we moved aggressively to fully investigate, as well as put into place any changes that needed to be made to make sure that we really are holding up the highest standards from a compliance standpoint.

It’s linked to a small number of contracts and customers and as more information becomes available, we will provide an update. And that’s basically what we can say about the investigation. You asked about performance..

Okay. I appreciate it..

I think we’re very clear about our performance and what we see in the future and that’s what we stand by..

The only thing I would add is..

I appreciate it. Thank you..

We don’t expect that this will have a meaningful impact on our go-forward revenue. So the items that we’ve discussed as far as the top-line really relates to the delta variant or access and delays as opposed to any..

All right. Thanks, Mark. Thanks, Kathryn..

Thank you, Alex..

Your next question is coming from Derik De Bruin. Please announce your affiliation then pose your question..

Hi. It’s Derik De Bruin from Bank of America. So I just want to follow up on the question on sort of like physician education going through it - going forward there. I mean, look, there is a lot of companies that are doing a tumor-informed approach for - similar to what you’re doing with RaDaR.

And obviously, physicians are going to be faced with a lot of different information and also the regulators and payers.

I guess what is being asked by the payers and the regulators to sort of differentiate between these different assays? And then what - then how are you going to go through like detail against what the other competitors doing in this space? I mean it seems like everyone’s all the - there’s a lot of information coming down the pipe at once, and it looks like it could potentially slow uptake of maybe entire classes, like there is a lot of noise on whose product is better and which ones are better than that?.

So, couple of points here. It’s a good question. So, yes, there is a lot of education going on the concept and the products. I think this is a huge market. There is a huge number of oncologists and so I think that education, particularly around the disease and how this technology can be used is going to be reinforcing and clarifying.

A lot of this education is occurring in small sort of interactions as well as to [inaudible] and so it takes a lot of effort and time. So I think it’s a good thing that there are multiple players out there that are sort of building the market. In terms of how we’re going to differentiate, we’re very clear on it.

As we’ve highlighted, we think we have potentially class-leading sensitivity and we think this is the key feature for a minimal residual disease and recurrence test because the whole point is how thoroughly, how quickly and with how much confidence can you detect that recurrence coming and so we will be emphasizing that.

It’s a simple message and I think we can deliver on it. I think the other differentiating is our platform.

It’s the position that NeoGenomics has in the marketplace and our channels to the customer because it’s about education, but it’s also about trust and it’s also about being in the right place at the right time with the right relationship that actually includes what the physician is doing. And nobody else has that the position the way Neo does.

So the great potentially class-leading sensitivity combined with our number one channel is what’s going to differentiate us and lead to success in the MRD market..

Great. And if I can squeeze in one follow-up. You talked about exiting this year at a $100 million run rate on the Pharma Services.

I guess if you hadn’t had these COVID delays, would you still be backing that comment that this would be a $100 million business as you sort of exit ‘21?.

Yes.

And just if you look at the quarterly bookings of almost $50 million, it suggests that this business is growing rapidly and is going to exit in terms of actual sales momentum and the interest from the customers really very much in line with that guidance, putting aside the impact and the delayed testing which has delayed some of the revenue, but it’s there and it’s going to come through..

Great. Thank you..

Your next question is coming from Matt Sykes. Please announce your affiliation then pose your question..

Hey, everybody. Matt Sykes from Goldman.

Just one quick one from me on Pharma Services, just given the growth and the backlog and what you’re seeing in that market, I am just curious about, you talked about increasing spend in Clinical Services, but I am just thinking about your internal capital allocation and where you’re going to spend money, how are you thinking about Pharma Services to support that kind of growth? And is there just a lower level of spend needed or higher level of spend needed for that business in your mind in order to kind of continue that growth path?.

So thanks for the question. It’s a great question. So what I would say, first of all is, we have already increased our investment in Pharma Services. As you know, we’ve added sites internationally, we have built up over the last couple of years a substantial sales, marketing, medical and scientific team.

And that team - right, we’ve made those investments, but of course, they were hampered with COVID-19. Just as on the Clinical side, it has reduced access or basically changed all the access with Pharma into sort of a virtual program.

Our teams have done a great job of keeping the momentum going and that comes through with bookings progress that we’ve made, but we really feel like we’ve got the resources in place there and it now as COVID recedes, as we get more and more access, we’re going to just keep leveraging that investment to really accelerate growth further..

Thanks. Appreciate it..

Your next question is coming from Tejas Savant. Please announce your affiliation..

Good morning. This is Tejas Savant from Morgan Stanley. So two questions for me, one of the guide and a quick follow-up on the investigation.

So in terms of the outlook, Kathryn, how are you thinking about the quarter-over-quarter increase for each segment? Is it fair to assume low-single-digit in Clinical and mid-teens growth sequentially in Pharma, or is the weakness because of the delta variant sort of residual impacts more skewed towards one segment versus the other?.

I think you’re thinking about it correctly. When we are looking at volumes right now, especially for Clinical, we’re seeing some improvement just not back to pre-delta volumes at this point.

And so, as we’re getting through Q4, we’re starting to see some of those returns, but there are still pockets in the country where it’s coming back a little bit slower than others. So it’s something we’re watching very closely, but that’s part of what’s included in the guide.

Pharma, we generally have a quarter-over-quarter increase when it comes to Q3, Q4. I think you will see that, but again, it comes down to access to samples and frankly, the ability for those to come through from our clients..

Got it. That’s helpful. And then on the ongoing investigation, Mark.

I think, Kathryn, you just mentioned, no impact to forward revenue, but as we think about any sort of potential restatements to historical periods or any contemplated changes you will have to put in place in terms of your go-to-market strategy or changes in key personnel, can you just walk us through any of those potential outcomes..

Go ahead, Kathryn..

I will go ahead and talk about the financials and then to you as far as the steps we’ve taken. So I just want to clarify, there is not going to be a meaningful impact to revenue on a go-forward basis and we have worked closely internally as well with our external counsel in evaluating any impact to historical financial statements.

We have no need to restate any financials as a result of this investigation. The revenue from historical perspective is not impacted, but I will turn it to Mark on some of the steps we’ve taken from a remediation perspective..

Yeah. You have two questions, but one about, is this going to have an impact sort of on our business model or our approach to commercializing our business of our assays, and then I think you also asked the question about personnel changes. So for the first question, we have really strong confidence in our overall compliance and ethics.

And so we have very great confidence that the model that we’re pursuing, leveraging our base sales team that’s supported by a great customer service teams, pathologist teams, the great connections that we have with our customers and how we provide our reports and all of those ongoing relationships and then adding on top this new team that’s going to be focused on medical oncologists and really emphasizing the new opportunities they have with RaDaR and products like Invision Lung.

That model we have 100% confidence in it. We have a track record that has shown that it is a model that drives share growth consistently and growth overall ahead of the market and we’ve got the capabilities and the controls to really execute that well and that’s what we are going to be doing.

In terms of personnel changes, I talked upfront about, we have really put a lot of effort and thought about our leadership team and our people and we’ve got great people and great leaders and have full confidence in them.

In the scope of an investigation like this, that there were issues that involved particular individuals, then we take appropriate action in that case and we have taken action to change processes. We train teams, make investments in the right types of control. So we are very confident in the position going forward. We’re not relaxed.

We can continue to look to improve, but we’ve got a great business model and we’re going to continue to execute well against it..

Got it. I appreciate the color, guys..

Your next question is coming from Mike Matson. Please announce your affiliation then pose your question..

Hello. This is Joseph on for Mike Matson from Needham. I guess maybe a question around the five-year growth plan. Neo completes 1 million tests a year, an incredible amount of tests.

But I guess I don’t know if you’ve alluded to this before, but if you can give some color around rough percentage of testing capacity that Neo is at now, obviously, disclosed the lab infrastructure build-outs that are going to be increasing that? And then maybe more generally around testing modalities.

Is there any areas where Neo has been lagging, whether it’s from a changing diagnostics landscape or just lower market share in general and what’s going to be done to increase adoption in the next five years?.

So I will start with our capacity. Obviously we’re sitting here in Fort Myers looking over in our brand new laboratory, we actually even processed our first test there this week. So as Mark said, our teams are moving over there in stages in the coming weeks.

But it’s significantly larger than the laboratory we had and it probably over triples our capacity, if not even more in terms of what we can do. We also mentioned that we’re adding laboratories, again we’re sort of going where the techs are for some of our dry lab and analysis tech. We’ve opened up in Phoenix, Arizona.

And we’re also expanding in Atlanta, Georgia to again add those capabilities and to be able to recruit talent wherever we need it.

So we are growing, we are substantially increasing our capacity, and even in California, which is the one place where we are probably the tightest right now, we are looking to expand there as well and certainly, expand our capabilities in NGS testing, which is the fastest-growing modality that we have.

Our RaDaR assay is actually going to be processed in RTP and we have a beautiful new facility there to make sure that we have a dedicated facility so that we can have great turnaround times and really again follow the demand that we’re expecting for that test..

Yeah. I’d just had a couple of thoughts on that. One great strength that we have with Neo is that because we work with one lab system, one overall process, the same procedures for any particular test regardless of where they are in the network, it gives us quite a bit of flexibility.

We can actually have product assessing in one part of the network and have the technician from any further network at any time work on those tests and so it gives us a lot of flexibility to respond to fluctuations in demand. The second thing and George has been [inaudible] as well, we are confident in our overall capacity.

When you’re growing parts of your business at 25%, 30%, or more, you’ve got to think about how you grow your capacity every day. And so we are seeing some segments, which we talked about in like California versus waking up every morning and going to sleep every night thinking further what we can do to make sure we’re keeping capacity ahead of demand.

You had another question then, is sort of driving the right. How do we - as we think about the core business, how do we keep growing share. I think it’s through several things.

One is we’ve got to make sure that we’ve got the resources in the marketplace that we think are going to be competitive and so that’s big part of our being able to expand our team, right. So we want to be able to launch RaDaR without pulling off of the opportunities that still remain in the base business.

To achieve that $1 billion ambition, we have to have great success with RaDaR, but we have to continue to have great success with our base business. And so we’re resourcing to do that.

I think the things that have led to our success we’ve got to maintain those with great service, great turnaround time, sort of being that leading partner to the community pathologists and oncologists will allow us to keep driving here. That’s how we’re going to grow faster in the market, we have to take here - we are a leader.

But there is so many players and so many patients, there is still room to leverage growth and growing share. And we’re going to - we’ve got a track record of continuously improving our assays so that we are always very current and at the highest quality with our assays and we’re going to continue to do that..

Okay. Great. That’s super helpful. And then maybe just a quick one, can you touch on the specific investments in R&D this quarter? We saw a pretty large uptick in that number..

Yeah. So that really is you’re starting to see the investments come through for Inivata. So if you think about RaDaR and InvisionFirstLung and the work we’re doing there, that’s really your increase..

Okay. Great. Thank you..

That is all the time we have for questions today. I would like to turn the floor back over to Mark..

Thanks. I will close with two comments. I mean, I think maybe the most important thing I can say is just a normal thank you, an appreciation message sent out for almost 2,000 NeoGenomics team members around the world.

They have incredible dedication and passion and commitment to making a difference for cancer patients and they are the reasons why we believe we have the leading on capabilities on oncology diagnostics and information. So, thanks to all of our Neo team members around the globe.

And I also want to thank all of you and in particular, to those investors already in Neo or those thinking of becoming investors in Neo, we really appreciate your interest. We appreciate the opportunity to have this dialog and we look forward to continue to tell you about really exciting things that are ahead for NeoGenomics..

Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation..