NeoGenomics company overview presentation 1.21.16
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Transcript of NeoGenomics company overview presentation 1.21.16
Company Overview Presentation
January 2016
2
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.
3
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
4
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.
5
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.
6
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
7
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).
8
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)
9
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
10
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.
11 Confidential
New NextGen
Digital Companion
Pathology Dx
OncologyTechnologies: FISH Clinical Trials
Flow
Cytogenetics
TraditionalOld Anatomic Path.
Low Market High Growth
11
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
12
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.
13
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
14
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
15
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…
16
Growth – Expanded Geographic Coverage
NEO Field Sales Representation (27) Clarient Field Sales Representation (27) Does Not Include Sales Management or Managed Care
17
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…
18
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
19 Confidential
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
20 Confidential 20
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…
21
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 > $8.00 per share
for 30 consecutive trading days. – 4% annual PIK dividend begins 1/1/17 and increases after Year 4 by 1% per
year to 10% in year 10.
15mm shares of common stock issued at close
22 Confidential
Implied Transaction Valuation & Revenue Multiple
($ 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.
23
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.
24
Appendix
20
Appendix
25 Confidential
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
25
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
26 Confidential
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
$140.0
2013 2014 2015Est
BioPharma
Clinical
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
2013 2014 2015Est
Tests
27 Confidential
Clarient Revenue and Payer Mix in 2014
Payor Mix - 2014 Clinical Only
2014 Payor MixClient 39.6%Insurance 34.4%Government 12.4%HMO 5.3%Patient/Other 8.3%Total 100.0%
Client
Insurance
Government
HMO
Patient/Other
28
Reimbursement is Finally Expected to Increase in 2016 Implied CY 2016 Physician Fee Schedule Rates Based on Inputs from CMS Final Rule CMS-1631-FC (Issued 10/30/15)
CPT Proc Code Procedure Description
National Unadj Rate
2014
National Unadj Rate
2015
Prelim Rule - Implied
National Unadj Rate
2016 (Issued
July 2015)
% Change
2016 Prelim
Rule vs 2015
Final Rule - Implied National
Unadj Rate 2016 (1)
% Change
2016 Final Rule vs Prelim Rule
% Change
2016 Final Rule vs
2015
88184 FLOW 1ST MARKER 87.77$ 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.