NeoGenomics company overview presentation 1.21.16

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Company Overview Presentation January 2016

Transcript of NeoGenomics company overview presentation 1.21.16

Page 1: NeoGenomics company overview presentation 1.21.16

Company Overview Presentation

January 2016

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Forward-looking Statements This presentation contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act, as amended; Section 21E of the Securities Exchange Act of 1934; and the Private Securities Litigation Reform Act of 1995. The words “may”, “would”, “could”, “will”, “expect”, “estimate”, “anticipate”, “believe”, “intend”, “plan”, “goal”, and similar expressions and variations thereof are intended to specifically identify forward-looking statements. All statements that are not statements of historical fact are forward-looking statements.

Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. The risks that might cause such differences are identified in our filings with the Securities and Exchange Commission. We undertake no obligation to publicly update or revise the forward looking statements made in this presentation to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events.

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Investment Highlights

Fast growing cancer genetics lab servicing Oncologists, Pathologists and Hospitals

Strategic client partnerships created

by “Tech-Only” model

Dynamic, rapidly- growing and consolidating industry

Industry-leading revenue & test volume

growth

Most Comprehensive Cancer Testing Menu in Industry

Strong Management Team with large cap

lab experience

Acquisition of Clarient Should more than Double the Revenue of NeoGenomics in 2016

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Experienced Management Team

• Douglas VanOort, Chairman & CEO Chief Operating Officer, Quest Diagnostics Executive Vice President, Corning Life Sciences, Inc.

• Maher Albitar, M.D., Chief Medical Officer & Director of R&D Med. Dir. for Hematopathology & Oncology and Chief of R&D, Quest Nichols Institute; Director of Leukemia and Molecular Laboratory, MD Anderson Cancer Center

• Robert Shovlin, Chief Growth Officer Chief Development Officer, Bostwick Laboratories President & Chief Executive Officer, Aureon Biosciences

• Steven Jones, Director, EVP – Finance, & Chief Compliance Officer Chairman, Aspen Capital Group; Managing Member, Medical Venture Partners Vice President, Merrill Lynch Investment Banking

• George Cardoza, Chief Financial Officer CFO, Protocol Global Solutions; Controller, Central Region, Quest Diagnostics

• Mark Machulz, Vice President, Operations Director of Operations - Clarient Diagnostic Services

• Steven Ross, Chief Information Officer Vice President Technology, Chico’s FAS, Inc.

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1,152 4,082 12,838

20,998

32,539

45,675

57,332

76,288

114,606

137,317

177,279

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

$558 $1,885

$6,476

$11,505

$20,015

$29,469

$34,371

$43,484

$59,866

$66,467

$82,194

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

NEO’s Proven Track Record of Consistent Growth

Base NEO* Annual Revenue Base NEO* Tests Performed ($, 000s)

* Base NEO represents organic revenue and test volume growth from legacy business and excludes the impacts from the PathLogic and Clarient acquisitions.

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Steady Margins Despite Lower Avg Unit Prices – Base NEO*

* For comparison purposes Base NEO excludes the impacts from the Path Logic (completed 7/8/14) and Clarient acquisition (completed 12//3015). (1) Productivity calculated as the average number of lab tests completed per month per laboratory FTE.

45.9%

44.7% 44.8%

47.7% 48.0%

45.9%

-36.3%

54.0%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

35%

40%

45%

50%

55%

FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 YTD 9/30/15

Gross Margin % Cum Change in Avg Rev/Test Since 2009 Cum Change in Productivity Since 2009 (1)

Cum

Cha

nge

in A

vg R

ev/T

est &

Pro

duct

ivity

Gro

ss M

argi

n

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Customer Targets

Pathologists & Hospital Pathology Groups (about 82% of YTD 2015 Revenue*) • Enable community Pathologists to practice using sophisticated tools and tests • Innovative technical component (TC or “tech-only”) services – Flow, FISH, IHC • Outstanding Web-based Lab System & extensive training programs

Oncologists & Clinician Groups (about 15% of YTD 2015 Revenue*) • Includes Hematologists, Oncologists, Dermatologists, Urologists • Disease Panels and comprehensive molecular menus • Increasing Opportunity to service larger practices with Tech-only model

Clinical Trials & Other (about 3% of YTD 2015 Revenue*) • Contract research/clinical trial support work for Pharma clients

* Percentages are for Base NEO only and exclude the impacts from the Path Logic acquisition (completed 7/8/14) and Clarient acquisition (completed 12//3015).

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Rapidly Growing Market Opportunity The exploding cost of cancer care offers extraordinary opportunities for those labs that can deliver innovative and value-based solutions to the healthcare system.

Source: National Institutes of Health (NIH)

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Accelerating Pace of Innovation

• 70 new/revised tests, incl: NeoLABTM Liquid Biopsies • MDS/CMML Profile • AML Profile • FLT3 Mutation Analysis • NPM1 Mutation Analysis • PML-RARA Translocation • RUNX1-RNX1T1Transloc • INV16 Translocation • c-kit Mutation Analysis • IDH1 Mutation Analysis • IDH2 Mutation Analysis • NRAS Mutation Analysis • KRAS Mutation Analysis • BTK Inhibitor Resistance • Solid Tumor Monitoring

Germline MolDx Testing • BRCA1 & BRCA2 • Lynch Syndrome (colon) • 73 Gene Comprehensive

Predisposition Panel

Other • ALK, ROS1, RET Fusion • Sarcoma gene Fusion • NeoSITE Cervical FISH • Expanded IHC Menu • Smart Flow Cytometry

• 10-color Flow Cytometry • Implemented Adv MolDx

platform in lieu of Kits • 28 new Molecular Assays • Proprietary method for

increasing sensitivity of Sanger sequencing

• 7 NeoTYPE MolDx Panels • SVM for FISH (Patent App) • Barrett’s Esoph. FISH

(Patent App) • NeoARRAY/SNP

Cytogenetics • Internalized send-outs

• 40 new Molecular tests • Add’l NeoTYPE Panels • Next Generation

Sequencing (48 genes) • ROS1 FISH • NeoSITE Melanoma FISH • Plasma/Urine-based

Prostate Test (Patent App)

• SVM-based Cytogenetics Analysis System

• SVM-based Automated FISH Analysis System v2

• Began development of NeoLAB (Liquid Alternative to Biopsy) Prostate Cx test

2015

2012

2013

• 60 new/revised MolDx tests • 24 new NeoTYPE Next

Generation Sequencing Profiles

• 26 new IHC/ISH tests • Additional NeoLAB Prostate

clinical studies • AML Extended FISH Panel • AML Favorable-Risk FISH

Panel • MDS Extended FISH Panel • Plasma Cell Myeloma Risk

Stratification FISH Panel • RET FISH • MET FISH • ALL Adult & Pediatric FISH

Panels • HER2 Breast Equivocal

FISH Panel • BRAF Translocation FISH • Chromosome 1 POC Ploidy • Launched robotic FISH-

Cyto processing platform

2014

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Clarient Transaction Background

• NeoGenomics’ has had a long-standing Vision to become the leading cancer testing and Information company – Key Strategic Elements of Strategy

• High-quality and low-cost provider. • Growth by market share gains as “one-stop-shop” for cancer genetic testing. • Innovate aggressively to advance precision medicine • Diversify product line and enter BioPharma market.

• Communicated desire to accelerate achievement of Vision and Strategies through M&A.

• Clarient is a transformational acquisition for NEO – creates ability to transform NEO quickly into industry leader.

• We were in a strategic dialogue with GE for a year, and are

extremely pleased with the outcome.

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New NextGen

Digital Companion

Pathology Dx

OncologyTechnologies: FISH Clinical Trials

Flow

Cytogenetics

TraditionalOld Anatomic Path.

Low Market High Growth

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Consistent with NEO’s Acquisition Strategy

NEO Focus – Upper right hand quadrant

Synergistic Deals

High

High Low Market Growth

Tech

nolo

gies

Clarient Attributes

Technology leader

High growth (clinical trials)

Revenue scale

Nationwide presence

Complementary footprint

Geographic proximity

Ongoing GE affiliation

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Strategic Rationale

1. Lab scale allows opportunity to be the low-cost provider in each key laboratory discipline.

2. Better balance of clinical products to reduce concentration risk.

3. Significantly enhanced Clinical Trials capability.

4. Create greater economies of scale in IT, Regulatory, Billing, Compliance, etc.

5. Leverages and optimizes the Sales and Marketing function across a broader revenue base with more diverse geographic coverage.

6. Leverages innovation & product development across broader client base.

7. Greater ability to serve Managed Care and large buyers in a significant way.

8. Better “one-stop-shop” capability and services to existing and new clients.

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Key Benefits

• Synergy potential of $20mm - $30mm/year within 3-5 year – Laboratory, Purchasing, Cross-selling, etc.

• East Coast/West Coast labs – Combine Irvine and Aliso Viejo

• Low cost position in every testing discipline

– FISH, Flow, Cytogenetics, IHC, Digital Pathology, Molecular

• Leadership in hematological and solid tumor cancers – One-stop-shop for clients with broad geographical coverage

• Significant clinical trials business

– Combined business approximates $25mm revenue

• Potential to be a leading consolidator going forward

• GE as significant long-term Investor – Collaboration in Bioinformatics in Precision Oncology

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Clinical Trials - BioPharma

A rapidly growing part of Clarient’s business and a fantastic opportunity . . .

• Over $20mm/yr. in current business

• Strong relationships with several leading Pharmaceutical firms

• PDL1 22C3 – FDA Approved companion diagnostic for Keytruda

• Continued push into Companion Dx and personalized medicine

• Approved vendor with top firms

• On several firms advisory boards

• Solid pipeline and future growth opportunities

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Revenue Synergies – Cross Selling

• - World Class Molecular Testing Menu • - NeoTYPE Panels • - Extensive Tech-only Service Offering • - Excellence in Heme Laboratory Testing • - Leading growth-oriented Sales & Mkting Team

• - Industry Leading Digital Pathology Platform • - Strong capabilities in IHC/Histology • - Leading Solid Tumor Laboratory

We plan to bring the best of both Companies to our existing clients…

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Growth – Expanded Geographic Coverage

NEO Field Sales Representation (27) Clarient Field Sales Representation (27) Does Not Include Sales Management or Managed Care

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Organic Growth through Market Demand

Core Growth

10 – 15%

Demographic Changes

Market Share Gains

Innovation Driven Growth

5 – 10%

Constant Test Development

Liquid Biopsies “plasma tests”

“Smart Medicine”

BioPharma Growth

20-25+%

Clinical Trials Companion Dx

We have very real opportunity to grow volumes 15-25% annually in each of our clinical and biopharma businesses for a long time…

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Recent Financial Information

* Excludes intangible impairments

Pro Forma Adjusted EBITDA includes adjustments to reflect the business being acquired.

(Dollars in Millions)

Reported by Clarient NeoGenomics2014 2014

Audited LTM Audited LTMResults 9/30/2015 Results 9/30/2015

Revenue 127.2 122.7 89.3 97.5

Estimated Revenue using Neo Policies 131.8 127.2 89.3 97.5

EBITDA* (3.9) 4.3 9.2 9.5

Pro Forma Adjusted EBITDA 12.9 12.3 9.2 9.5

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2016 - Combined Pro Forma Revenue Bridge(1)

(1) Preliminary Estimate - Subject to further refinements after close

We estimate combined revenue of approx. $240 – $250 mm in 2016…

NEO estimates net positive price adjustments of $4mm plus at least $15mm of growth in core business. We estimate Revenue Distractions of approximately $ 6 million.

Clarient revenue includes estimated Bad Debt rate for Clarient, previously included in net Revenue

$0

$50

$100

$150

$200

$250

$300

Neo Clarient* CMS Fees Distractions New Neo

$118mm

$129mm

($6mm)

$4mm $245mm

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2016 Pro Forma Adjusted EBITDA Bridge (1)

NEO expects to realize significant EBITDA growth and cost synergies in 2016 and beyond as a result of efficiencies gained through the combination with Clarient

– The 2016 PF Adjusted EBITDA bridge conservatively estimates a $3mm reduction to Adjusted EBITDA as a result of revenue distractions expected during the integration

(1) Preliminary Estimate – Subject to further refinements after close

$0

$5

$10

$15

$20

$25

$30

$35

$40

Neo Clarient CMS Fees Synergies Distraction New Neo

$16mm

$12mm

$4mm

$6mm

($3mm)

$35mm

We estimate combined Adj. EBITDA of approx. $33 – $38 mm in 2016…

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Transaction Consideration

$80 MM Cash – $15 MM – NEO cash from balance sheet – $10 MM – New, 5-year $25mm revolver – $55 MM – New, 5-year Term Loan

$110 MM of Series A Redeemable Preferred Stock

– Issued at $7.50 per share – Redeemable by NEO at any time at the issue price plus accrued PIK dividends – Up to $10 MM discount for early redemption (declining discount over 4 years) – GE Ability to convert to common after 3 years if common stock > $8.00 per share

for 30 consecutive trading days. – 4% annual PIK dividend begins 1/1/17 and increases after Year 4 by 1% per

year to 10% in year 10.

15mm shares of common stock issued at close

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Implied Transaction Valuation & Revenue Multiple

($ and shares in milllions) Shares Issued Transaction Consideration

Cash $80.0Common Stock (@ $5.68 /share close on 10/20/15) 15.0 $85.2Preferred Stock (@ $7.50/share Issue Price) 14.7 $110.0

Implied Transaction Enterprise Value (1) $275.2

Clarient RevenueLTM 6/30/15 Audited $127.3

Est. LTM 6/30/15 - NEO Method (2) $132.5

Transaction Value/ LTM RevenueLTM 6/30/15 2.16 x

Est. LTM 6/30/15 - NEO Method (2) 2.08 x

(1) Transaction stucture contemplates a debt-free & cash free closing.(2) Historically Clarient has recorded bad debt in Net Revenue, whereas NeoGenomics has recorded bad debt in G&A. Thus, we have made a pro forma adjustment to put Clarient's revenue on a similar basis to NEO's revenue.

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NeoGenomics Vision and Goals

Leadership Goals:

• To be the leading oncology-focused testing and information company in the World.

Competencies:

• Outstanding Scientific, Medical and Informatics expertise. • Partnerships for efficiency/effectiveness across health-care care continuum

• Disciplined process management and quality systems.

• Entrepreneurial, values-driven culture.

Financial Performance Goals:

• Consistent and sustainable double-digit revenue growth.

• Clinical Trials > 15% of revenue.

• Adjusted EBITDA margin of 20-25% when annual revenue >$300 MM.

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Appendix

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Appendix

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Core business focused on IHC, Flow, FISH, Cytogenetics and Molecular tests

National reach with focus on both independent and hospital pathologists

Consistently strong growth - early development to late stage testing

> 90 projects in process for >30 customers

Clarient Overview

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IHC/Digital Pathology: Large and Industry leading capabilities

FISH/ISH: Similar Instrumentation and capabilities

FLOW: Similar instrumentation and capabilities

Molecular: Smaller menu

Cytogenetics: Similiar capabilities

Facilities/Infrastructure Customer Mix

Product Lines (1)

78,000 sq. ft. Lab located in Aliso Viejo, CA

Available Capacity due to efficient workflow and processes.

Uses similar equipment and Instrumentation.

Uses similar IT Labs Systems and database structure

24,000 sq. ft. facility located in Houston, TX

IHC42%

FISH/ISH19%

FLOW14%

Molecular15%

Cyto5%

Other5%

(1) Clinical operations only. Percentage of tests Performed.

CLINICAL CUSTOMERS

BIOPHARMA CUSTOMERS and

Other

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Clarient Test Volume and Average Unit Price

2015 data is a preliminary estimate. AUP data is for clinical tests only.

Revenue by Customer Type: Tests

2013 2014 2015Est 2013 2014 2015EstClinical $111.9 $106.5 $97.0 Clinical Revenue $111.9 $106.5 $97.0BioPharma $13.8 $20.7 $23.0 Tests 297.7 284.7 271.5Clarient Total $125.7 $127.2 $120.0 AUP $376 $374 $357

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

$140.0

2013 2014 2015Est

BioPharma

Clinical

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2013 2014 2015Est

Tests

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Clarient Revenue and Payer Mix in 2014

Payor Mix - 2014 Clinical Only

2014 Payor MixClient 39.6%Insurance 34.4%Government 12.4%HMO 5.3%Patient/Other 8.3%Total 100.0%

Client

Insurance

Government

HMO

Patient/Other

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Reimbursement is Finally Expected to Increase in 2016 Implied CY 2016 Physician Fee Schedule Rates Based on Inputs from CMS Final Rule CMS-1631-FC (Issued 10/30/15)

CPT Proc Code Procedure Description

National Unadj Rate

2014

National Unadj Rate

2015

Prelim Rule - Implied

National Unadj Rate

2016 (Issued

July 2015)

% Change

2016 Prelim

Rule vs 2015

Final Rule - Implied National

Unadj Rate 2016 (1)

% Change

2016 Final Rule vs Prelim Rule

% Change

2016 Final Rule vs

2015

88184 FLOW 1ST MARKER 87.77$ 94.51$ 58.50$ -38.1% 76.31$ 30.4% -19.3%88185 FLOW EACH ADDL MARKER 53.73$ 57.49$ 17.69$ -69.2% 46.22$ 161.3% -19.6%88189 FLOW INTERP 16 OR MORE MARKERS 110.69$ 113.91$ 115.19$ 1.1% 114.29$ -0.8% 0.3%

88374 FISH AUTOMATED PER PROBE (Multiplex Probe Stain) 255.77$ 205.54$ 350.62$ 70.6% 346.10$ -1.3% 68.4%88374-TC FISH AUTOMATED PER PROBE TECH (Multiplex Probe Stain) 193.08$ 160.26$ 304.40$ 89.9% 299.88$ -1.5% 87.1%88374-26 FISH AUTOMATED PER PROBE INTERP (Multiplex Probe Stain) 62.69$ 45.28$ 46.22$ 2.1% 46.22$ 0.0% 2.1%

88121 FISH AUTOMATED - UROVYSION 508.30$ 556.97$ 566.92$ 1.8% 558.20$ -1.5% 0.2%88121-TC FISH AUTOMATED - UROVYSION 459.99$ 505.23$ 514.56$ 1.8% 506.25$ -1.6% 0.2%88121-26 FISH AUTOMATED - UROVYSION 48.31$ 51.74$ 52.36$ 1.2% 51.95$ -0.8% 0.4%

Uses G0461 in 201488342 IMMUNOHISTOCHEMISTRY (1st Stain) 88.48$ 90.91$ 108.69$ 19.6% 107.48$ -1.1% 18.2%88342 - TC IMMUNOHISTOCHEMISTRY TECH (1st Stain) 57.67$ 54.26$ 71.14$ 31.1% 70.22$ -1.3% 29.4%88342 - PC IMMUNOHISTOCHEMISTRY INTERP (1st Stain) 30.81$ 36.65$ 37.55$ 2.5% 37.26$ -0.8% 1.7%

Uses G0462 in 201488341 IMMUNOHISTOCHEMISTRY (Add'l Stain) 68.42$ 67.91$ 91.72$ 35.1% 90.64$ -1.2% 33.5%88341 - TC IMMUNOHISTOCHEMISTRY TECH (Add'l Stain) 55.88$ 45.99$ 63.55$ 38.2% 62.70$ -1.3% 36.3%88341 - PC IMMUNOHISTOCHEMISTRY INTERP (Add'l Stain) 12.54$ 21.92$ 28.17$ 28.5% 27.95$ -0.8% 27.5%

Uses G0461 in 201488344 IMMUNOHISTOCHEMISTRY (each Multiplex Stain) 88.48$ 117.50$ 176.58$ 50.3% 173.77$ -1.6% 47.9%88344 - TC IMMUNOHISTOCHEMISTRY TECH (each Multiplex Stain) 57.67$ 77.26$ 135.41$ 75.3% 132.92$ -1.8% 72.0%88344 - PC IMMUNOHISTOCHEMISTRY INTERP (each Multiplex Stain) 30.81$ 40.25$ 41.16$ 2.3% 40.84$ -0.8% 1.5%

88361 MORPHOLOGY, EACH ANTIBODY - AUTOMATED 157.98$ 170.32$ 122.77$ -27.9% 149.40$ 21.7% -12.3%88361-TC MORPHOLOGY TECH, EACH ANTIBODY - AUTOMATED 98.51$ 109.96$ 65.72$ -40.2% 88.49$ 34.6% -19.5%88361-26 MORPHOLOGY INTERP, EA ANTIBODY - AUTOMATED 59.47$ 60.37$ 57.05$ -5.5% 60.91$ 6.8% 0.9%

(1) Assumes no other Physician Fee Schedule (PFS) rule changes or limited coverage determinations are implemented for 2016.