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    GeneDx Holdings (WGS)

    WGS Q2 2024: Raises FY24 Guidance to $255–265M, Near-Term Breakeven

    Reported on Jul 30, 2024 (After Market Close)
    Pre-Earnings Price$30.13Last close (Jul 30, 2024)
    Post-Earnings Price$35.00Open (Jul 31, 2024)
    Price Change
    $4.87(+16.16%)

    What went well

    • Accelerating test volume mix: The company is experiencing strong sequential growth in its exome and genome testing mix (31% of all tests this quarter with an expected sequential increase of 1%–3% per quarter), which supports revenue acceleration and market share expansion.
    • Improved operating efficiency and margin expansion: With a gross margin of 62% in Q2, a narrowed adjusted net loss of $2.7 million, and 9 consecutive quarters of reduced cash burn, the company is on a clear path to profitability and margin improvement.
    • Strategic partnerships and policy tailwinds: The collaboration with Epic, aimed at integrating orders and results delivery starting in Q4 and accelerating benefits into the second half of 2025, along with favorable shifts in Medicaid coverage and biomarker legislation, positions the company to drive broader adoption of rapid genome sequencing.

    What went wrong

    • Regulatory and Payer Coverage Uncertainty: There is a risk that slower or unpredictable expansion in payer and Medicaid coverage could continue to impact reimbursement rates, especially given the nearly 50% denial rate for tests and reliance on state-specific policy decisions.
    • Seasonality and Revenue Volatility: Concerns remain regarding revenue guidance as Q3 is expected to be lighter than Q2, which may put pressure on achieving forecasted revenues even if Q4 is typically stronger.
    • Legal and Investment-Related Cash Outflows: Significant one-time legal settlements (e.g., $10 million to $13 million) and increased investments in genome product enhancements may continue to weigh on margins and delay the path to consistent profitability.

    Q&A Summary

    1. Profitability Outlook
      Q: When will profitability be reached?
      A: Management expects a near-term move to breakeven, with a Q2 adjusted net loss of $2.7M and potential profitability as early as the upcoming quarter, even though full-year targets remain set for 2025.

    2. Revenue Guidance
      Q: What is the updated revenue guidance mix?
      A: They raised full-year revenue guidance to $255–265M, driven by a robust 31% exome/genome mix and anticipated sequential growth of around 1–3% per quarter.

    3. Epic Partnership
      Q: What are the key details of the Epic deal?
      A: The collaboration with Epic aims to streamline ordering and reporting, with rollout efforts planned for Q4 and initial benefits expected in the second half of 2025.

    4. Cash Burn & Investments
      Q: How will investments affect cash burn?
      A: Despite reinvesting in genome enhancements and technology, they projected a lower net cash burn of $65–75M for 2024 through stable operating expenses and improved margins.

    5. Denial Rate Trends
      Q: How are denial rates improving?
      A: Denial rates are now just below 50%, with notable improvements in Medicaid due to policy adoption and enhanced collection practices in the commercial segment.

    6. Cost Efficiency
      Q: What progress has been made on cost per test?
      A: Process automation and laboratory improvements since 2021 have significantly lowered the cost per test on both the wet lab and diagnostic sides, boosting overall efficiency.

    7. Whole Genome Adoption
      Q: Will whole genome adoption accelerate further?
      A: Management anticipates a faster uptake of whole genome testing—as seen in states like Texas—once payer policies align, potentially leading to better margins over time.

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