CEO SUMMARY: This specialty lab testing company now has laboratories in Fort Meyers, Florida; Nashville, Tennessee; and Irvine, California. It recently beefed up its executive ranks and is adding to its menu of genetic and molecular assays. In December, 2006, NeoGenomics rolled out a nationwide TC/PC program in FISH testing that allows community hospital-based pathologists to perform and bill for professional component (PC) services.
SINCE ITS FOUNDING IN 2001, NeoGenomics, Inc. of Fort Meyers, Florida has quietly developed a growing business in genetic testing and molecular diagnostics.
A public company projected to exceed $15 million in revenues during 2007. NeoGenomics trades under the symbol NGNM.OB on the OTC Bulletin Board (OTCBB). Its recent market capitalization was about $50 million.
An interesting fact sets NeoGenomics apart from several of the anatomic pathology companies launched in the past decade. It has not accepted large amounts of venture capital money. In contrast, US Labs, Inc. absorbed more than $70 million in equity investments before its sale to Laboratory Corporation of America in 2005. Clarient, Inc. (formerly ChromaVision Medical Systems, Inc.) is another example of an anatomic pathology company that has attracted as much as $80 million in equity capital. (See TDRs, January 3, 2005 and August 30, 2004.)
“At NeoGenomics, the emphasis is on genetic testing and selected molecular assays,” stated Robert Feeney, Ph.D., Vice President of Sales and Marketing at NeoGenomics. “Our strategy is to be a national laboratory with a regionalized focus. We want to be a resource for community hospital-based pathologists and not compete against them. We currently operate laboratories in three distinct regional markets. They are Nashville, Tennessee; Irvine, California; and Fort Myers, Florida.”
Three Primary Types of Tests
NeoGenomics emphasizes cytogenetics, Fluorescent In Situ Hybridization (FISH), and flow cytometry. “FISH testing is a major product line for us,” explained Feeney. “We provide HER2 testing, bladder cancer testing with the UroVysion assay, and hematopoetic testing.”
To further its goal of supporting pathologists serving community hospitals, last December, NeoGenomics launched a TC/PC program in FISH testing. “NeoGenomics will provide the technical component (TC),” noted Feeney. “Our online reporting system forwards the case materials to the referring pathologist, allowing him or her to provide the professional component (PC) and bill for that service.
“This arrangement has been well received,” he added. “But it is only available to pathologists with the demonstrated proficiency to handle these types of cases.
“Strong demand for our TC/PC FISH arrangements led us to put a unique training program in place. NeoGenomics provides period proficiency testing to ensure consistency and accuracy of test results for any pathologist interested in working with FISH testing,” stated Feeney.
Training To Read FISH
“Currently we conduct several training courses per month,” he continued. “It pro- vides smaller pathology groups with a way to develop FISH skills within their practice. Once the competency of an individual pathologist is demonstrated, NeoGenomics will participate in a TC/PC arrangement and this pathologist is then approved to sign out FISH cases.”
Feeney noted that, as part of the process of demonstrating proficiency, the pathologists are tested for color blindness. “Up to 8% to 12% of males and about 0.5% of females can be color blind for red and green,” he commented. “Over the course of doing this testing, we’ve determined that several pathologists interested in learning how to read FISH tests were color blind— and were unaware of how their condition would affect interpretation of cases.”
A key part of NeoGenomics’ business plan is to offer complex esoteric testing. Its current test mix produces an average of 1.38 tests per requisition, with an average revenue per requisition of $668.01. One reason it recently opened its new laboratory in Irvine, California is to position itself to serve the market for clinical trials and provide research and development activities for the company.
NeoGenomics has attracted several veteran lab industry executives. The company’s President and Chief Scientific Officer is Robert P. Gasparini. Previously, Gasparini was Director of Genetics for US Labs, Inc. Prior to that, Gasparini was Molecular Marketing Manager for Ventana Medical Systems, Inc. Feeney, NeoGenomics’ Vice President of Sales and Marketing, formerly held positions at US Labs and Impath, Inc.
Currently about 50% of NeoGenomics’ specimen volume originates from Florida. It has referring clients in 17 states. NeoGenomics is in the midst of expanding its service menu to include additional hematopathology testing. Last fall, the firm hired hematopathologist Frank Yang, M.D., Ph.D. to spearhead the delivery of the new hematology/oncology testing services. NeoGenomics also brought aboard Matthew Moore, Ph.D., specifically to help develop new diagnostic assays.
Besides the addition of these scientists, NeoGenomics has also beefed up its sales force. “We now have 10 people in our sales organization and intend to nearly double that by year’s end,” explained Feeney. “We want to use our labs in Nashville, Irvine, and Fort Meyer as selling springboards into the regional markets that each is positioned to serve.”
One noteworthy difference between NeoGenomics and some competitors is the fact that NeoGenomics has yet to accept dilutive capital investments from professional investors. To the contrary, it runs on a tight budget and relies on internal growth to help fund ongoing expansion. For this strategy to succeed, NeoGenomics will need to sustain a highly-effective sales and marketing program. In particular, its sales staff must acquire new client accounts in a cost-effective manner.
As THE DARK REPORT has pointed out, some pathology companies launched during the past 10 years burned through their venture capital funding and never deliv- ered a satisfactory return on investment (ROI) to their investors—primarily because they overspent to acquire new client accounts.