Neogenomics Inc (NEO) Q4 2020 Earnings Call Transcript

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Neogenomics Inc (NEO -0.92%)
Q4 2020 Earnings Call
Feb 24, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the NeoGenomics Quarter Four and Full Year 2020 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Doug VanOort, Chairman and CEO of NeoGenomics. Sir, the floor is yours.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, thank you, Paul. Good morning. I'd like to welcome everyone to NeoGenomics' Fourth Quarter 2020 Conference Call. Joining me for this call are a number of management team members from our Fort Myers headquarters, including Kathryn McKenzie, our Chief Financial Officer; Rob Shovlin, President of our Clinical Division; Bill Bonello, President of our Informatics Division; Doug Brown, our Chief Strategy and Corporate Development Officer; and Charlie Eidson, our Manager of Investor Relations.

Joining on the call via phone from California is Dr. Larry Weiss, our Chief Medical Officer and Director of R&D and George Cardoza, President of our Pharma Services division. Also joining us this morning is Lynn Tetrault, who is serving as our lead independent Director of our Board of Directors. Lynn and I were members of our Board's Special CEO Succession Search Committee, and she is available to help address questions about CEO succession.

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

Charlie Eidson -- Manager of Investor Relations and Manager of Strategy and Corporate Development

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 statement 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 I turn the call back to Doug, I want to let everyone know that we'll 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 two per person in order to give more people a chance to ask questions within the 1 hour that has been allotted for this call.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Thank you, Charlie. For today's call, I'll briefly review some quarter four and full year 2020 highlights. Kathryn McKenzie will provide a more detailed review of the financial results, and I'll then share our current thinking about opportunities in 2021. I'll conclude by commenting on this morning's other exciting announcement about our CEO succession plan. We'll then have time for questions and answers.

2020 was a remarkable year for NeoGenomics and one that, obviously, no one could have anticipated or prepared for. When we reflect on the year, we take pride in how the NeoGenomics team responded and excelled in the most challenging operational environment and dynamic market perhaps any of us have lived through. In times of great challenge, our character and resilience is tested. Our NeoGenomics employees passed the test. They kept a laser-focus on performing their essential work for cancer patients despite all that was going on around them. They showed up for work in our labs, continued to process specimens and delivered high-quality results for physicians and the patients we serve. There are people across America and around the world who deserve our appreciation and our NeoGenomics team is clearly among them.

I want to start this call by recognizing their great effort and dedication to saving lives.

While our labs remain fully capable of processing a high-volume of tests, that volume of test was affected by the pandemic. Many patients were reluctant or unable to see their oncologist or participate in oncology clinical trials throughout most of the year. Yet even in this year of great challenge, our total revenue grew 9% year-over-year, and we are ready for growth to accelerate as the pandemic subsides. There is good reason to be confident in a return to higher rates of growth in our core business. Our business recovered nicely in the second half of the year, and we saw a direct correlation between higher core test volume levels at times of lower incidence rates of COVID-19 cases.

In addition, in January, we achieved relatively strong growth in geographic areas that were under less restrictive measures while we saw negative growth in areas like California and the Northeast where more restrictions were in place. Our Midwest, Southeast, South Central and Florida regions combined for 10% volume growth during the month of January, giving us confidence in future nationwide volume levels we may achieve when the entire country is more open.

The pharma division grew 30% in 2020 despite the disruptions and our informatics division generated more revenue in the fourth quarter of 2020 alone than it did in all of 2019. Demand for our products and services is strong, and we're hopeful that increased vaccinations and lower incidence rates will quickly allow us to return to higher rates of core oncology growth as this year unfolds. Our fastest areas of growth continue to be next-generation sequencing, pharma services and informatics. Interestingly, these product and service offerings were minimal in size just 5 years ago.

As we closed the books on 2020, these three growth drivers account for nearly one-third of NeoGenomics' core revenue. Even in a disruptive year and despite maintaining a full volume cost infrastructure for the entire year, we remained profitable and finished 2020 with $35 million of adjusted EBITDA. We are proud of these financial results. We're equally proud that even in these most trying times, we have strengthened our competitive position in the oncology marketplace.

We made significant investments in growth, both organic and inorganic. We acquired the oncology assets of Human Longevity in La Jolla, California, made a minority investment and established a strategic partnership with Inivata and launched or modified over 60 internally developed tests. We also reallocated precious resources to quickly build a COVID-19 PCR laboratory in our Carlsbad facility and performed over 550,000 tests to do our part to help America battle the pandemic.

And perhaps most importantly, we continue to invest in our culture and organization. We worked hard to support our team members through the difficult times we have all endured, positioning the company for continued success. We know that our value as a company starts with our employees and our culture and we see a demonstration of that value in customer satisfaction survey scores. Our Net Promoter Scores continued to increase in 2020, even during the pandemic, and our clinical division Net Promoter Score reached an all-time high at 66. This bodes well for future organic growth.

Let's turn our attention now to the fourth quarter. The final quarter of 2020 was a good one for NeoGenomics. Fourth quarter revenue increased 18% year-over-year to a record $126 million. Importantly, fourth quarter year-over-year growth in our core oncology business was nearly 10%. You may recall that quarter three growth was due almost entirely to COVID-19 PCR testing with core oncology revenue actually down. In the fourth quarter, for the first time since the pandemic began, we saw year-over-year growth in all three of our core divisions.

Our clinical division grew core oncology revenue 5% year-over-year in quarter four, driven by next-generation sequencing volume growth of 23%. Pharma services revenue was up 43% to the highest quarter on record. Our sizable investments in this area are paying off, as this segment is growing quickly and now represents over 16% of core oncology revenue.

COVID-19 PCR testing revenue declined nearly 50% on a sequential basis in quarter four, as demand for our services lessened in lieu of a proliferation of rapid tests and increased PCR testing capacity. We believe that excess PCR capacity currently exists in the country, significantly reducing our role as an overflow COVID testing laboratory. In the fourth quarter, core clinical test volumes increased 5% year-over-year, while next-generation sequencing services grew nicely, we continued to drive growth in other testing modalities, with particular strength in FISH testing. While it is good to see our test volumes growing again, the pandemic continues to affect our ability to acquire new customers, as most sales team members remain unable to be actively in the field. And frankly, maintaining strong turnaround time service levels was a challenge for us as we experienced volume volatility and a variety of supplier disruptions. However, our customer retention rates remained extremely strong, and we believe that our fourth quarter volume growth reflects a slight increase in clinical market share.

Our Pharma Services segment, which includes informatics, had record revenue, bookings and ending backlog in the fourth quarter. With over $48 million of new signed contracts, our backlog of signed contracts now stands at $209 million, an increase of over 60% from 1 year ago. In pharma services, we continue to benefit from our domain expertise in oncology, an increasing global footprint, our global alliance with PPD, which includes our New China lab; investments in next-generation sequencing, including whole exome sequencing; and our positioning as a companion diagnostics partner to biopharma. We now have greater than 40 active companion diagnostic projects in place and our portfolio continues to grow.

Our growing list of products and services for the worldwide biopharma industry, including informatics, is increasingly in demand. The pharma business is stronger than it has ever been and is well-positioned to fuel our overall corporate growth rate as it continues to become a larger share of our revenue mix.

I'll now turn the call over to Kathryn McKenzie, our Chief Financial Officer, to discuss some of the other details of quarter four financial results.

Kathryn B. McKenzie -- Chief Financial Officer

Thank you, Doug. As Doug highlighted, overall revenue grew 18% year-over-year to $126 million. Importantly, our core oncology revenues increased 10% year-over-year, driven by strong growth in NGS, pharma services and informatics. COVID-19 PCR testing contributed $9 million of revenue, down from $17 million in quarter three. Clinical division revenue, excluding COVID-19 testing, returned to growth with a 5% increase over 2019. Clinical division revenue per test of $369 was nearly flat from $370 in the fourth quarter of 2019 and is up 3% sequentially from last quarter.

While there is continued modest reimbursement pressure, this is offset by a favorable change in the mix of test volume and improved results from billing and reimbursement initiatives. The favorable product mix is driven by next-generation sequencing and FISH testing services, which are growing at much higher relative rates. For all of 2020, revenue per test was $363, down about 1% from $366 for full year 2019. As Doug mentioned, pharma services revenue increased 43% year-over-year to a record $19 million in the fourth quarter and grew over 30% to $62 million for the full year. Research-related revenue continued to show strength. And while clinical trial volume increased during the quarter, we have not yet fully returned to pre-pandemic rates.

Our ability to drive value for our clients through companion diagnostic programs is evident in our over 40 active projects in our pipeline. Pharma sponsors increasingly are interested in our informatics products, and that also is a growth accelerator. Record bookings for the quarter of $48 million led to a year-end backlog of $209 million. We are very optimistic about the strength of this business as we look forward to 2021 and beyond.

Overall, gross margins improved approximately 250 basis points sequentially in the fourth quarter to 45.6%, reflecting a continued recovery in both clinical and pharma revenues on a largely fixed cost COGS infrastructure. Gross margin for the year was 41.8%, which reflects the significant impact of the pandemic, primarily during the second quarter of 2020. As we have discussed before, our gross margin rate includes certain longer-term margin investments. Particularly in our pharma division, we have capacity that we have not yet fully grown into in many of our locations, including La Jolla and our international laboratories. These investments support the continued growth of our bookings and backlog and are in line with our long-term strategic priorities.

Operating expenses increased $4 million year-over-year to $52 million and included investments in and support for informatics, new facilities, including in La Jolla and in international expansion. We also have higher technology expense to support these initiatives as well as our COVID-19 testing services and higher sales and marketing expense. The increases were partially offset by significantly reduced travel. We achieved a record level of adjusted EBITDA of $18 million in Q4, driven by a recovery in our core oncology businesses and relatively high EBITDA margin contribution from COVID-19 PCR testing.

Turning to the balance sheet. We exited quarter four with $296 million in cash and marketable securities, which excludes an additional $22 million in restricted cash designated for construction of our new state-of-the-art laboratory and global headquarters in Fort Myers, Florida. We have since added to this cash balance with our financing in January and now have over $800 million in cash and marketable securities. Quarter four DSOs remained strong at 78 days.

I will now turn the call back over to Doug VanOort.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Thank you, Kathryn. As we look ahead, we remain highly confident in the strength of our core oncology business and long-term growth opportunities. In fact, we are more confident than ever before. Post-pandemic, we believe that growth in our core business will recover steadily back to our longer-term clinical volume growth targets of mid-teens. We believe our pharma segment growth will exceed our previous long-term 20% revenue growth target.

There is, however, significant uncertainty about the short-term and the pace of recovery from this pandemic. Because of the unpredictable pace of the oncology markets' return to full recovery, we have decided not to reinstate formal 2021 financial guidance yet. We will resume formal guidance when we feel comfortable that the uncertainties surrounding the pandemic will allow us to guide more confidently. Notwithstanding that short-term uncertainty, we anticipate that quarter one will generate mid single-digit revenue growth in our clinical and pharma businesses. For the first few weeks of this quarter, clinical test volume was flat compared with the prior year, but last week's severe weather caused significant disruptions in test shipments to our labs.

We expect our Pharma Services segment to continue to be strong, with quarter one year-over-year growth exceeding our 20% long-term revenue goal. We expect daily volumes in our clinical business to improve every month now as we exit the pandemic. With vaccinations on the rise and daily COVID cases on the decline, we are anticipating that oncology testing volumes will track and maybe exceed historical growth rates in the second half of 2021.

Our business development professionals in clinical, pharma and informatics are very excited to be able to visit with their customers again and work on their pipeline of new potential accounts. I must say that our management team is quite excited about that environment, and we are actively preparing for it.

I'll share some of our 2021 initiatives that will position NeoGenomics not only for volume recovery but also for strategic leadership in the oncology market. Our leadership team has been planning and positioning the company to take full advantage of our opportunities in a post-pandemic environment. These first several weeks of 2021 have been as busy as I can recall. In early January, we executed a public financing in the equity and convertible debt markets. Both transactions were oversubscribed, and the outcome was quite successful as we raised over $500 million in net proceeds. This capital raise allows us to be more competitive in terms of our position as we assess M&A opportunities in the oncology market that will be able to advance our strategic priorities.

In addition, we announced a strategic collaboration in precision medicine with Parexel in our informatics division, and we believe there are many other future opportunities like this one out there. As many of you are aware, the M&A market is very active. In the first two months of 2021 alone, there have been several transactions. Other opportunities may also be available. We have a long history of M&A success with Clarient, Genoptix and recently with the La Jolla Oncology business of Human Longevity. We want to build on that success in 2021. Many of you are aware that we have an option to purchase Inivata, a company with novel technology that is developing a minimal residual disease or MRD test that is shown to be highly sensitive. While no decisions have been made, that partnership is progressing very nicely and we are very encouraged by our diligence on the radar assay for minimal residual disease.

We are also investing in areas that will build on our foundation and support sustainable organic growth rates as well as organic strategic growth. We have established our goals and objectives for 2021 and aligned our processes and incentive plans as we've done now for over a decade. This year, in addition to a focus on world-class culture, we'll be working hard on further differentiating NeoGenomics based on strong service levels. Our Net Promoter Score is high, and our customer retention rates are very strong, but we want to make them even better.

Turnaround time is important for patients and clients. NeoGenomics has traditionally had industry-leading turnaround time. Whether it's liquid circulating tumor DNA or tissue-based testing, we want to make sure that we are the best in the industry. We're also moving faster on innovation. We recently introduced a world-class RNA fusion assay and are working on a number of very advanced NGS panels and rapid tests. We believe these offerings will have the capability to save lives by informing precision therapy selection and monitoring residual disease so that it can be treated earlier.

2021 will be an exciting year for NeoGenomics, and that leads me to the next topic, CEO succession. The Board of Directors and I have been discussing CEO succession for a number of years. We're very pleased that the company has grown nicely, and the team is deeper and stronger than it's ever been. We believe the company is well-positioned competitively and has enormous opportunities to grow well into the future. I've had the honor and privilege to lead NeoGenomics now for 12 years, and I believe that this is the right time for a transition, personally and for the company. After a thoughtful and deliberate succession and CEO search process, we're very excited to have Mark Mallon serve as NeoGenomics' next CEO.

Mark brings a great experience in healthcare. He spent 24 years as a senior executive at AstraZeneca and recently as CEO of Ironwood Pharmaceuticals, where he led the financial transformation of that company. We issued a press release this morning that provides some detail about Mark's very successful career and track record. Rather than repeat that, I thought it might be more helpful if I described why the Board and I are so confident that Mark will be a great CEO for NeoGenomics.

First, Mark has a deep and broad operational experience. He has demonstrated that through a track record of disciplined execution in growth in both the US and globally. That experience is very important in leading NeoGenomics into the future. Mark also has a keen intellect and impressive strategic strengths. He is intrigued with NeoGenomics' competitive and strategic positioning. He will see great opportunities to continue to drive growth in our clinical, pharma and informatics businesses. And importantly, Mark is a leader who is a great fit for NeoGenomics' culture. He has an authenticity and deeply rooted values that align with ours. He is a developer of people and teams and culture, which is critical to our continued success.

I was heavily involved in the CEO selection process, interviewed many impressive people. Mark stood out as being an outstanding fit for our company and I'm truly confident in his ability to lead NeoGenomics in this exciting market for oncology diagnostics. And I'm personally excited about Mark becoming our next CEO and I'm looking forward to working closely with him in my role as Executive Chairman. In that role, I will continue to serve as Chairman of our Board of Directors and work to ensure a smooth transition.

Mark will officially join NeoGenomics on April 19, and he is looking forward to meeting with our terrific team of employees and the great investors and analysts that have believed in NeoGenomics and continue to do so.

I'll conclude our formal remarks by saying that while 2020 was challenging for us operationally and strategically, it was truly a remarkable year for our company. We're very proud of our team and of our performance and our commitment to our vision, our values and most importantly, to patient care. We have tremendous opportunities ahead.

Oncology diagnostics is a more exciting place to be than ever before. Advances in science and technology, both in improved diagnostics and a proliferation of oncology therapies are increasing survival and enhancing quality of life for cancer patients around the world. Our leading position in the market is proving to offer significant, sustainable competitive advantages and we are working to make that competitive position even stronger as we pursue our vision to become the world's leading oncology diagnostics company.

I'll now hand the call over to Charlie Eidson to lead us through some questions and answers.

Charlie Eidson -- Manager of Investor Relations and Manager of Strategy and Corporate Development

At this point, we would like to open up 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 [email protected] 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 number of questions to two, so that we may hear from everyone and still keep within the 1 hour allotted for this call.

Operator, you may now open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] And the first question is coming from David Westenberg. David, your line is live. Please announce your affiliation and pose your question.

David Westenberg -- Guggenheim Securities -- Analyst

Hi. Thank you for taking the questions. I want to start off with RaDaR you kind of mentioned. I'm not sure exactly what you can say on that, but the space is getting pretty attractive with some CRC products. So I was just wondering if you can give us some timelines in terms of launch and what you think about in terms of reimbursement? And then if you know maybe you can talk about product specific, if you could talk about maybe some of the market dynamics, do you see this quickly transitioning from CRC to other kinds of cancers? Thank you. And I have a couple of follow-ups.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, thank you, David. Thanks for the question. As you know, RaDaR is an assay in development by our strategic partner Inivata, and they are in charge of and doing a great job developing that assay. We also believe that minimal residual disease, which RaDaR is intended for, is a very attractive space for us and very encouraging for patients really around the world. I think Inivata is currently planning to continue development of the product as we go through this year, and what they would like to do is to apply for MolDX reimbursement at some point in the near future, probably later this year.

But as I said, they're in charge of the development process. In terms of the market dynamics, we believe this is a terrific market. We believe that the RaDaR assay is the most sensitive assay that we are aware of that's being developed. And there are a number of tumor types that a minimal residual disease product like Inivata would target, including potentially breast, lung, colon and a variety of other solid tumors. So this is very, very encouraging for us. We're optimistic about our relationship with Inivata and about the RaDaR assay.

David Westenberg -- Guggenheim Securities -- Analyst

Great. I'm going to go back to the commentary you gave in terms of regional dynamics. I think you said ex-Northeast and ex-West Coast, and I think you said 10% dynamics, could you give a little bit of more indication on terms of what that 10% might represent if it maybe did represent some pent-up demand? I'm just trying to get a feel for as the economy reopens in the other parts of the regions, if it might look like that, and if there was, in fact, pent-up demand there and you have a lot of analysts. So I'll hop back in the queue.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Okay. Thank you, David. Well, the observation that we made about 10% volume growth in the month of January in regions that were less restrictive in terms of COVID restrictions was actually a little bit surprising to us, and there's a big difference between the areas of the country that are more or less restrictive and the correlation to our volume growth. It's hard for us to pinpoint exactly how much of that might be pent-up demand and how much might be just a freeing up of the markets, but that was our experience, and we're hopeful that that bodes well for our clinical division volume growth as we continue to see COVID cases decline as the year unfolds.

David Westenberg -- Guggenheim Securities -- Analyst

Thank you very much and congrats on retirement.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Thank you, David.

Operator

Thank you. And the next question is coming from Alex Nowak. Alex, your line is live. Please announce your affiliation and pose your question.

Alexander Nowak -- Craig-Hallum Capital -- Analyst

Great. Good morning, everyone. This is Alex from Craig-Hallum. Congrats on the transition to everyone. Enjoyed working with you, Doug. Welcome to the NEO team, Mark. Maybe actually on the transition to start, Doug, you and your team, you've built up, obviously, a very impressive lab in the space. Perhaps walk through just how you and the Board were looking about bringing someone in with prior pharma experience versus pull straight from another diagnostic lab? What sort of new expertise does this bring to NEO? And I guess how does it signal -- or what does it signal about the future path for the company?

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, thank you for the question, Alex. There are a number of different variables that we looked at in our selection of the next CEO, I mentioned some in the script. Obviously, culture is very important to us, a history of operational experience and strategic experience, healthcare experience. But in terms of Mark's special skills and experiences, we're very encouraged that he has a lot of deep experience with AstraZeneca. AstraZeneca, as you know, is one, not only of the leading pharma companies, but also a leading oncology company, and so he has a lot of experience in oncology. And what we've talked about in the past, our pharma division, our informatics division, things like next-generation sequencing, minimal residual disease, these are the kinds of products that are going to drive outsized growth for us in the future and I think Mark with his experience and strategic abilities is very nicely positioned to help us undertake those opportunities.

Now, Alex, we also have Lynn Tetrault here, who as I mentioned is our Lead Independent Director and Lynn joined me on the search committee, and she may have some other comments about Mark.

Lynn A. Tetrault -- Lead Independent Director of the Board

Thanks, Doug, and Alex, thanks for the question. I think what I'd start off saying is I have had privilege of knowing Mark for 22 years and worked with him for 15 years at AstraZeneca. So I have real experience of what he's capable of delivering. And I think the Board's intention is continuing to follow the strategy that we've been on to drive strategic growth and innovation and ensure excellent operational delivery and financial performance and continue to build the unique culture that makes NEO the company that it is. And I am really confident, and I know the entire Board is confident, in what Mark will bring to that. I've seen firsthand what a tremendous leader he is. He is an incredibly bright, strategically strong individual with a great track record and he will be a terrific fit to the culture. I think his experience in pharma will bring a broad perspective to NEO that will be helpful, and his global leadership experience I think will also be a tremendous advantage for the company. But I think the Board is excited about the opportunities and continuing to follow the strategy that we have done so to date.

Alexander Nowak -- Craig-Hallum Capital -- Analyst

That's great. I appreciate that. And maybe to build on the informatics piece. There's, obviously, a large lab out there using informatics as its primary pitch on diagnostics. But can you expand more and give some specifics about the capabilities you want to build-out in the informatics unit that could be unique to NEO? And should we think about the informatics unit as being a stand-alone business unit generating its own revenue, generating its own gross profit dollars? Or is it going to be more of a loss[Phonetic] leader? And I don't mean that a negative term, but a loss leader to bring in more oncologists to NEO, help out with your market share, help out with tests or just help out with the pharma business.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, Alex, I'm going to turn that over to Bill in a second, but I want to say that we're so excited about informatics for a couple of reasons. It is an independent revenue grower for us and I think might be profitable for us as we go forward, but it also is benefiting our pharma division and our clinical division, so it very much is synergistic with the rest of NeoGenomics. But we're excited about the products that we're building here. And Bill, do you want to give a little color there?

William Bonello -- President, Informatics Division

Sure. Absolutely. So at the core, Alex, we're building out tools for precision medicine, tools that will help ensure that patients get the right therapies, so they get access to clinical trials. The primary customer for most of those services, at least today, is the pharma services industry and we're working with them on a number of different projects involving -- some of them are involving clinical trials anywhere from the trial design to the site selection to the actual screening of patients to follow-up with patients or their providers. Some of them involve commercial launches and understanding the market dynamics and trends in diagnostic testing that might impact access to a particular therapy. Some of them are at a broader sort of investigational level where they're using data to sort of formulate future plans either commercially or from a drug development standpoint.

A lot of the work that we're doing with them today is basically being done sort of the tough way. But in the background, we are building automated tools that will allow pharma to build cohorts and place information more broadly throughout the oncology ecosystem, so that's basically what we're developing. We're absolutely generating revenue. And I, for one, will be extremely disappointed if we're not generating good profit down the road.

Alexander Nowak -- Craig-Hallum Capital -- Analyst

Okay. Very helpful. Thank you.

Operator

Thank you. And the next question is coming from Mark Massaro. Mark, your line is live. Please announce your affiliation and pose your question.

Mark Massaro -- BTIG -- Analyst

Hey guys, thanks for taking the questions. I guess, Doug, congrats on a really strong tenure at NeoGenomics as CEO, I guess. Can you share why you think now is sort of the right time for you to step down in the CEO role and move to Executive Chair?

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, good morning, Mark. I think it is the right time. The company is stronger than it's ever been before. I think we have a very good strategy. I think the company is very well positioned for the future, and it's really a great time to bring in a new experienced leader to take the company to the next higher level of performance. We have really tremendous opportunities ahead, and I think it's a great time for a new person to come in and pursue those. In my case, I think I decided that it's better to retire when things are in good shape so that we can be thoughtful about transitioning a new CEO, and I think that's the best thing for the company.

Mark Massaro -- BTIG -- Analyst

Yes. Understood. So I have another question, and it's related to your commentary around how COVID testing is certainly shifting to the point of care. I guess, how long do you expect to offer COVID testing? And then related to that, your gross margins were down year-over-year. I guess, at least qualitatively, do you expect gross margins to go up in 2021? And to what extent would maybe shifting away from COVID help?

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, our strategy, Mark, for COVID testing was always to be an overflow lab. We never wanted to make this our primary business. We were doing this relatively altruistically. It did happen to buffer some of the decline that we had in our core oncology business. But at this point, we did have a fair amount of volume in COVID testing in quarter three that declined by about half in quarter four. Our COVID testing in quarter four actually occurred sort of as the resurgence occurred. And so now as the resurgence has declined, as COVID cases have declined, you can imagine what has happened to our COVID testing business. And I think if we don't see a future for us in COVID testing as the next month or so unfolds, then we probably will not be in that business.

In terms of gross margins, Kathryn may want to weigh in here. I would just say that COVID testing helped our EBITDA margins, not necessarily our gross margins. But as COVID testing for us declines, we would expect that there would be an EBITDA impact for us going forward.

Kathryn B. McKenzie -- Chief Financial Officer

Yes. And from a gross margin perspective, Mark, just thinking about qualitatively, we're continuing to assess areas for improvement in gross margin in our core business, but keeping in mind the investments and the additional capacity we do have in pharma and the pressure we have and are experiencing continued on the pandemic volumes in Q1. As we get through the rest of the year, absolutely, there is room for continued improvement over prior year.

Mark Massaro -- BTIG -- Analyst

Okay. Thank you.

Operator

Thank you. And the next question is coming from that Tejas Savant. Tejas, your line is live. Please announce your affiliation and pose your question.

Tejas Savant -- Morgan Stanleya -- Analyst

Hey guys, thanks for the time this morning. Doug, first of all, congratulations on the next stage, as Executive Chairman. It was a pleasure working with you. In terms of just the 1Q guide here, are you essentially assuming sort of a low single-digit million contribution from COVID testing? And is it fair to think that, that goes to zero starting in 2Q, just given your comments here around excess capacity in the field?

Douglas Brown -- Chief Strategy and Corporate Development Officer

Hi. It's Doug Brown here. I think it's fair to say that, as Doug said, the pandemic subsiding has had an impact on the PCR testing. As the quarter evolves, you can envision that continue to go down. And as Doug mentioned that, when you think about the rest of the year, we're hopeful that we're not in that business. So I think you may get some reasonable assumptions there, Tejas.

Tejas Savant -- Morgan Stanleya -- Analyst

Okay. Good. That's helpful. And then on the liquid biopsy launch, I mean, anything you can share in terms of color, it's relatively recent here, but I know you launched a mobile phlebotomy offering back in November. Has that helped in terms of just getting the word out and getting volumes to ramp here as you launch the two assays there?

Douglas Brown -- Chief Strategy and Corporate Development Officer

Yes, Tejas. And then just so everyone knows, we have two liquid biopsy products. The Inivata InVision, it's called InVisionFirst-Lung test, and our own pan-cancer test. We have had uptake, and we have had very good feedback from our clients about both of those tests. and we have -- it's been a little difficult to market them since our sales folks are unable to readily get into oncology offices, so that clearly has impacted things. But we have had some uptake, and we have improved our service offering. We've offered now and just launched mobile phlebotomy.

We've made some significant changes to our reporting for liquid biopsy, and we've done a number of other things, which we think are going to improve the offering. And as our folks get out there in the field, we have very high hopes for further penetration. The market where we play in the community is really underpenetrated in terms of liquid biopsy. As you know, in the community setting, probably 80% or more of cancer care occurs. So we think we've got a lot of room for growth.

Tejas Savant -- Morgan Stanleya -- Analyst

Got it. And then one final one for me on capital deployment. Doug, I saw in the comments you made on sort of more opportunities here on the M&A front and your plans to kind of like pursue those here in '21. Can you highlight what would be sort of the -- beyond Inivata, what would be the two or three adjacencies where you think it would make a lot more sense to buy rather than build and whether it's sort of very interesting assets out there?

Douglas Brown -- Chief Strategy and Corporate Development Officer

Hey, Tejas, it's Doug Brown again. I would say the narrative we've had the last year is we are really focused on pharma, informatics and NGS, whether it's tissue or liquid. If you look back at the last thing we did strategically, the purchase, puts us in the whole exome sequencing business on the pharma side. We continue to think about bolstering areas in pharma and informatics in high-growth areas. So that's the focus.

Tejas Savant -- Morgan Stanleya -- Analyst

Got it. Super helpful. Thanks, guys.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. And the next question is coming from Puneet Souda. Puneet, your line is live.

Westley Dupray -- SVB Leerink -- Analyst

This is actually Wes Dupray on for Puneet this morning. I want to extend our teams congratulations to Doug as well. It's been a fun few years for me. I was hoping to just dig in a bit more onto the NGS side of the business in the quarter, 23%, it's a really strong quarter. I was wondering if you could just talk about the impact of the liquid biopsy launch there, what your expectations are moving forward? I mean, obviously, we have some easier comps, I think, coming up over the next few quarters. And then what impact we can expect us to have on the revenue and cost per test?

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, hi, Wes, thank you for the comments and for the question. Yes, our next-generation sequencing product line is continuing to grow nicely. We've made a lot of changes to it. We're continuing to make changes to it. We're investing a fair amount in next-generation sequencing. And by the way, our new Fort Myers laboratory is going to have a brand-new next-generation sequencing lab, which we think will improve service as we will have then East Coast and West Coast capabilities. So we're really investing in next-generation sequencing.

And the RNA fusion that Dr. Weiss and the R&D team just recently launched is, I think, a testament that our continued investment in assay development as well as in facilities and infrastructure. The liquid biopsy launch, as I just mentioned, I think, is going well and we think it's going to gain traction sequentially as the year unfolds. So next-generation sequencing has been a high-growth area for us, we think it will continue to be a high-growth area for us. And also, Doug Brown just mentioned our whole exome sequencing line in pharma. We think that, that will continue to gain traction for us as well. So we're pretty bullish on our NGS portfolio.

Kathryn B. McKenzie -- Chief Financial Officer

And from an AUP and a cost per test perspective, NGS does carry a higher revenue per test, but you're very astute in that it also carries a higher cost per test. So when we're looking at the overall margin contribution, those will offset a bit as well even though NGS is growing faster than our other modalities, they are all growing. So just as a reminder, the impact on overall AUP increase of that revenue per test increase, it will take some time to be realized in a significantly higher AUP because all of our modalities are growing.

Westley Dupray -- SVB Leerink -- Analyst

Great. Thank you. And then just on pharma, really seem to weather the storm throughout the year, really strong growth in the second half of the year. I guess just how can we think about it moving forward? I mean backlog is continuing to grow really nicely here. I think you mentioned about 16% of the core business, and that's probably accelerating. But just trying to think about backlog conversion, I mean, I know you mentioned more than 20% growth in the first quarter, but if you're comparing the first quarter of last year to the fourth quarter, we're at a much higher run rate. So just looking for any color on how we can expect pharma to perform moving forward? Thank you.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Yes. We're very excited about the pharma business and the long-term growth opportunities there. I will say, Wes, that the pandemic has impacted our pharma business and really continues to impact the pharma business somewhat. And there is some seasonality to the pharma business. Also, quarter one traditionally has been a little bit lower. But our backlog, I think we ended the year at $209 million of combined backlog for informatics and for pharma. And that is converting. I mean, George Cardoza is on the line with me and may want to make a couple of comments about the backlog conversion. But our sales team in pharma is doing a great job. We added a lot of new contracts. The demand is very strong. And as I said, I think our revenue growth in the next year or two should exceed our previous long-term revenue growth targets of 20%. George, do you want to make a comment about the backlog conversion?

George A. Cardoza -- President, Pharma Services

Yes, Doug, absolutely. I hope you see in the 43% year-on-year growth that, obviously, it is starting to convert certainly. And I think if you look at the back half of the year, you see 30% growth, so that's back more in line. We had 38% growth in 2019. So I think as sort of the pandemic lifts, we're hopeful certainly that we can get back to high-growth rates. But certainly, although the pandemic is still having an impact on enrollees in clinical trials, we're seeing the research side to be pretty strong. And certainly, informatics has been very strong, but there is still a little bit of a drag out there on the enrollee side in some of these trials. The trials are active but we are still hearing some frustration that they're not quite getting the enrollee counts that people would like or people anticipated. So still a little bit of a COVID headwind, but I think as that lifts, we're very optimistic about especially the second half of 2021.

Westley Dupray -- SVB Leerink -- Analyst

Great. Thank you.

Operator

Thank you. And the next question is coming from Jacob Johnson. Jacob, your line is live, please announce your affiliation and pose your question.

Mason Carrico -- Stephens, Inc. -- Analyst

Hey, guys, this is Mason on for Jacob. Just a few quick ones from me. First, on Inivata, a lot of excitement around liquid biopsy, I think investors are interested in better understanding the time-line here. So how should we think about the timing of you potentially buying the company? And what are the key things you need to see to make a decision?

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, we have a great relationship with Inivata. We have a seat on the Inivata Board of Directors and we have a terrific relationship between our commercial folks and our operating folks in the clinical division and the pharma division and Inivata. So right now, the InVision first assay is being commercialized by us, and we have a pretty good insight as to that uptake and how that is progressing. We would like to work with Inivata on the MRD assay development and understand better how that is progressing. We believe that it's progressing very, very nicely, but the MRD assay is, frankly, more interesting to us than the InVisionFirst-Lung assay. So our decision in terms of acquiring that company and exercising our option will be largely dependent on the progress with the assay development for minimal residual disease.

Mason Carrico -- Stephens, Inc. -- Analyst

Got it. And then maybe one just big picture question. As we look out a couple years, how should we think about your mix of revenues? How large could pharma services and informatics be compared to your legacy clinical services business? And how much of clinical services could we expect to come from liquid biopsy?

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, I would say that we've tried to give some hint as to how we think about that, and I will maybe answer that question in two different ways. So one is organically, and then the other is inorganically. So organically, we would expect the combination of pharma and informatics to grow at at least twice the rate of our clinical division. And I think we have good evidence for that. It's actually occurred in the last year, and you could see that in the numbers. And we've invested very heavily in both areas, which is why you see some pressure on gross margins and other margins as we put infrastructure in place.

In addition to that though, and you can do the math, I think, Mason, we would also want to think a lot about strategic investments, mergers and acquisitions to fuel the growth in pharma and informatics. And I think that we're working on those as we speak, and I think it's possible that we could sort of rocket-boost the growth rates there. And we would like to have a combination of pharma and informatics be at least a-third of the revenue in a few years.

Mason Carrico -- Stephens, Inc. -- Analyst

Got it. Thanks for taking the questions.

Operator

Thank you. And the next question is coming from Brian Weinstein. Brian, your line is live. Please announce your affiliation and pose your question.

Brian Weinstein -- William Blair & Company -- Analyst

Hi guys, good morning. Doug, congrats on the transition. I'm not sure where people in Florida retired to because people in Chicago go down there. So a few months a year where it's actually nice to come visit us in June, July or something like that. So a question on pharma services here. I'm curious -- a series of questions here on this. I'm curious how competitive these mandates have become? A lot of investments being made by you guys and others there. So can you talk about how competitive this is becoming? Really what are the dynamics that determine winning or losing with these things and how that's changing? And then I'm also curious about the deals that you've been signing more recently. Can you talk about these in terms of the depth of relationship here? Are you going deeper with kind of existing partners or are you bringing new partners into the mix? Thanks.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Thank you, Brian, and I will miss your sense of humor, I'd say. In terms of pharma services, I'll maybe take a crack at this, and George, I think, can weigh in. We have a fairly broad list of the major pharmaceutical companies in oncology who are working on oncology drug development. It's a very broad list, and we are both broadening the list of clients and deepening it. So one of the aspects of the business that we have developed is a comprehensive menu not only for clinical, but also for pharma. So we offer a lot of different test modalities for pharma and that allows us, once we've established a reputation, they understand our service levels and our commitments to have an opportunity to participate in other kinds of test modalities and other trials and research that pharma companies are engaged in. So I would say it's both, we're broadening the client list and deepening the client list, and I think there's a lot of room for both going forward. George, do you want to make any other comments about that?

George A. Cardoza -- President, Pharma Services

Yes, absolutely. I do think in 2020, well, you heard earlier, our sales team did have some challenges. Certainly, typically they go to trade shows, they meet people, so now they're doing everything via Zoom and Webex, but they have been able to certainly be successful deepening a lot of our relationships. And I think that's the nice part, we have a very broad list of customers, so there are a lot of opportunities for them to get greater share in these accounts. And I think we did a really good job of that in 2020. And we have brought in some new customers as well. I mean, our team has been working extremely hard. But hopefully, if things get back to normal, we can travel a little bit more, you'll see maybe a little bit more push to sort of new logos coming into the portfolio. But I do think in 2020, we were able to deepen some relationships and I do think that's what enabled our growth, especially in the second half.

Brian Weinstein -- William Blair & Company -- Analyst

Great. And then you talked, Doug, about differentiation on service with some investments that you want to make there focused specifically on turnaround time. Is that simply just having labs on both sides of the country? Or are there other investments that you're making there? And then you also mentioned some supply chain issues impacting this in the short term, is that all COVID-related and is that all now behind you? Thanks, guys.

Douglas M. VanOort -- Chairman and Chief Executive Officer

What's interesting, Brian, the supply chain disruptions and how they have occurred in our business, originally there were things like gloves and thigh[Phonetic] pads and extraction kits and a whole number of other things. And the downstream disruption has been challenging, frankly. I mean, even in terms of logistics, with some of our logistics carriers. So there has been disruption and we're looking to operate in a much more stable kind of environment going forward. Now I think I mentioned a number of times our Net Promoter Score and customer survey activity, we are pretty rigorous about surveying customers a couple of times a year. And we don't just get one survey score, I mean, we get a lot of rich data. And Rob Shovlin and our whole clinical team and our pharma team also pore through these data, and we try to analyze what we can do better along a variety of different kinds of attributes.

And so turnaround time has always been an important attribute and probably perhaps the most important but there are a lot of others too. So we're continuing to work on fundamental changes in some of our laboratories to reduce turnaround time, but we're working on a number of other service differentiators and that's a continual process for us. It's part of our really quality system of continuous improvement.

Brian Weinstein -- William Blair & Company -- Analyst

Great. Thank you.

Operator

Thank you. And the next question is coming from Ivy Ma. Ivy, your line is live. Please announce your affiliation and pose your question.

Ivy Ma -- Bank of America -- Analyst

Hi. This is Ivy from BofA. Congrats on your retirement, Doug. I just wanted to follow-up on capital deployment and appreciate all the details so far with a likely strategic focus on pharma and informatics. Can you expand on how does the succession plan change your M&A plans, if any? And if there's any change to the strategy either in terms of financial metrics or geographic region? Thank you.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Well, thank you, Ivy, and thanks for congratulations. I'll make a couple of comments and then maybe turn it over to Doug Brown. First of all, we've talked a lot with Mark Mallon about our strategy. We have a pretty rigorous process to define our goals and objectives for each coming year and we have that as well for 2021. And Mark embraces the goals and objectives that we currently have in place, both operationally and strategically. And I think that Mark is going to add a lot to the execution of our goals and our strategies. But at this point, we don't think our goals and strategies are changing at all. I mean, obviously, our goals and strategies, we put them down in paper, and we have a lot of dialogue about them and then we change them as circumstances change. And so that will continue. But right now, our goals and our strategies are in place, and Mark embraces those.

Douglas Brown -- Chief Strategy and Corporate Development Officer

Hi, Ivy, it's Doug Brown. So I would echo what Doug said. And also when you think about his comments about leaving the company in a position of strength, so you think about operationally, culturally and also strategically. Now certainly Mark Mallon is going to put his fingerprints on the company and he brings a new dimension, but when I think about what he brings, I get most excited about pharma and a product mentality. So you're seeing this convergence of service and product in our sector, and he's bringing something global. He's launched products. You think about the MRD assay and where this company can go and also pharma services. So inorganically, we're trying to drive that mix, but Mark can really help organically as well. So I think it's more of the same, but he's also going to accent that strategy.

Operator

Thank you. And we will now hand the call back to Doug for any closing remarks.

Douglas M. VanOort -- Chairman and Chief Executive Officer

Okay. Thank you very much, Paul. And as we end this call, I would like to recognize the approximately 1,714 NeoGenomics team members around the world for their dedication and commitment to building a world-class oncology diagnostics company. And on behalf of our NeoGenomics team, I want to thank you for your time joining us this morning. For those of you listening that are investors or are considering an investment in our company, we thank you for your interest in NeoGenomics. Thank you.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Douglas M. VanOort -- Chairman and Chief Executive Officer

Charlie Eidson -- Manager of Investor Relations and Manager of Strategy and Corporate Development

Kathryn B. McKenzie -- Chief Financial Officer

Lynn A. Tetrault -- Lead Independent Director of the Board

William Bonello -- President, Informatics Division

Douglas Brown -- Chief Strategy and Corporate Development Officer

George A. Cardoza -- President, Pharma Services

David Westenberg -- Guggenheim Securities -- Analyst

Alexander Nowak -- Craig-Hallum Capital -- Analyst

Mark Massaro -- BTIG -- Analyst

Tejas Savant -- Morgan Stanleya -- Analyst

Westley Dupray -- SVB Leerink -- Analyst

Mason Carrico -- Stephens, Inc. -- Analyst

Brian Weinstein -- William Blair & Company -- Analyst

Ivy Ma -- Bank of America -- Analyst

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