Kyle Piskel

Thanks, Chad. Let’s start with revenue for the third quarter on slide 7. Total revenue in the third quarter was $46.4 million with 81% from MRD and 19% from immune medicine, representing 22% growth from the same period last year. MRD revenue grew 52% versus prior year’s $37.5 million with clinical and pharma contribution of 56% and 44%, respectively.
ClonoSEQ test volume, including international, increased 30% to 19,600 tests delivered from 15,072 tests in the same period last year. ASP in the US grew 3% versus prior year, despite a $1.8 million reserve charge we took this quarter related to aged claims from 2023. MRD pharma sequencing revenue grew 21% versus prior year, reflecting healthy recovery from last year’s biopharma industry pressures.
Immune medicine revenue was $9.0 million, down 32% from a year ago, driven by an anticipated 56% decrease in Genentech upfront amortization, partially offset by 4% increase in immune medicine, pharma, and academic services.
Moving down the P&L, I want to highlight that sequencing margin, which excludes milestones in Genentech amortization, was 56% for the quarter. This represents a significant increase of 13 percentage-points versus prior year and 6 percentage-points sequentially. This improvement is mainly attributed to lower overhead costs from efficiencies in the production lab and direct labor leverage, which combined drove lower cost per sample.
Total operating spend for the quarter, inclusive of cost of revenue, was $79.1 million, representing an 11% decrease from last year. This decrease continues to be mainly driven by our focus on driving leverage across functions, with R&D once again being the biggest contributor of this decline, given more targeted investments in immune medicine.
As you can see from the segment reporting table at the bottom of the slide, MRD-adjusted EBITDA has improved sequentially throughout the year to a loss of $6.1 million this quarter, driven by both higher revenue and lower operating spend. Immune medicine-adjusted EBITDA loss also improved due to increased revenue and reductions in operating spend.
Total company-adjusted EBITDA was a loss of $14.3 million in the third quarter, compared to $21.4 million in the third quarter of 2024, and $29.8 million a year ago. Finally, interest expense from our royalty financing agreement with OrbiMed was $2.9 million, which continues to be more than offset by interest income. Net loss for the quarter was $32.1 million.
Now turning to our full-year guidance on slide 8. Related to MRD revenue for the full year, we are increasing the bottom end of our previous range from $140 million to $145 million, to now $143 million to $145 million. This is a result of our better-than expected performance in the third quarter, mainly attributed to the regulatory milestone realized.
We expect total company operating spend for the full year to be between $335 million and $340 million, excluding one-time restructuring and asset impairment charges. This compares to our prior range of $340 million to $350 million. Of this total spend, approximately 66% sits within the MRD business and approximately 25% within immune medicine. The remaining is due to unallocated corporate costs.
In addition, we are lowering our expected annual cash burn. We now expect the burn to be approximately $105 million versus our previous estimates of $115 million, and represents a 31% reduction over full year 2023. We expect approximately 47% of the burn this year to come from the MRD business and approximately 39% from the immune medicine business. The remaining is due to unallocated corporate costs.
I am encouraged by the strides we are making to enhance our financial profile while supporting top-line growth and managing our capital, and I look forward to a strong close of the year.
With that, I’ll hand it back over to Chad.

Chad Robins

Hey, thanks, Kyle. We are delivering on the promises we’ve made. Our relentless focus on execution and disciplined capital allocation are driving growth in our MRD business with a clear path to profitability while we continue to advance our targeted immune medicine programs.
With that, I’d like to turn it back over to the operator and open it up for questions.

Operator

(Operator Instructions) Dan Brennan with TD Cowen.

Dan Brennan

Great. Thank you. Thanks for the questions, and congrats on the quarter. Maybe the first one, just on the final gapfill price. In terms of the $1,300 realized price that now you’re targeting for 2025, can you just give us a sense of what you’re assuming there, and maybe what’s a range of outcomes if you’re more or less successful in converting some of these commercial contracts over to the higher price?

Chad Robins

Sure, Dan. I’ll start with that, and Kyle, feel free to jump in here. So first, I just want to say we’re extremely pleased to see close to a $300 increase in the gapfill price in terms of what that means for the long-term margin profile of the business. This will take some time to bleed in, and so let me just explain what that means.
So the fee-for-service Medicare is about 20%. 37% Medicare overall fee-for-service is about 20%. We’ll see that impact more immediately for new Medicare patients. For commercial payers, we expect to renegotiate with contracted payers at a higher rate and bring on contract patients on sooner, but some of that timing of that is more uncertain.
But if you look at overall, the 2023 average ASP of $1,050 and now increasing to $250 to an average price of $1,300 in 2025, which obviously means that at some point in 2025, we go above the $1,300 to average at $1,300. So $200 per test is driven by initiatives that we put in place to grow ASP this year, which includes what I mentioned, the expansion of payer coverage, closure of contract with some of the remaining large outstanding payers, and there’s a ton of operational enhancements that we’re doing that are going on right now, and we’re shifting the test mix more away from Medicaid.
In addition, we expect, anticipate that at least $50 plus per test on average during 2025 will come from this new gapfill rate and how that works through the variety of different payers. So we do believe, I will put this out there, we do believe there is a potential for upside, but we need to really assess the pace at which we can kind of impact the remaining payers.

Dan Brennan

Great. Thanks, Chad. And maybe just as a follow up, just on the MRD pharma, that’s exciting as well. Just kind of what’s baked in now for the guide for 2024 for MRD pharma? Are you assuming any more milestones? And could you just walk through a little bit of your funnel activity in terms of studies and kind of what that might portend for kind of a pharma growth as you look beyond ’24?

Chad Robins

Kyle, do you want to take that?

Kyle Piskel

Yeah. I mean, as it relates to the milestones and Q4, I’d just say we have a risk adjusted assumption there. I wouldn’t say there’s a big dollar amount associated to it. Relating to funnel — I mean, broadly we have roughly around 200 million in backlog, but an ODAC is going to continue to catalyze that backlog and as well through new bookings.
So I think we’re pretty confident in the pharma profile. Not explicitly ready to talk about 2025 guidance, but I think we can assume a decent growth rate into 2025. That’s probably similar to what we achieved this year.

Dan Brennan

Great. Thank you very much. I’ll go back into the queue.

Operator

Mark Massaro, BTIG.

Mark Massaro

Hey, guys. Thank you for taking the questions. Congrats on the quarter. Maybe I’ll start on the guidance. So you did beat by about $6 million in Q3 on revenue. You did not increase the upper end of the MRD guide. Can you maybe just walk me through some of the factors that might have contributed to that, recognizing that you are seeing strong growth in pharma?
I just wanted to get your thoughts on either the philosophy of the guidance or any particulars that we should be aware of?

Kyle Piskel

Yeah. Obviously, the MRD milestone happening in Q3 drove an increase and gave us confidence to kind of de-risk the low end of the range. So we were comfortable moving up. I guess why not taking it further? I mentioned the ASP charge we took in 3Q, which we didn’t previously forecast. So that’s some of it. The rest of it is pharma is challenging. I’ve mentioned this before. It’s probably a broken record about the quarter-to-quarter volatility.
One or two studies pushes out to the next subsequent period, and that can hurt us pretty meaningfully in one quarter. The other thing is — there’s potential for some softness just given the hurricane impact, and we’re still sorting through it. But we’re confident in the guidance and confident in the numbers we’re putting out, and we want to be just prudent just given all that’s going on so we can deliver and hit our guide.

Mark Massaro

Okay, that’s great. And do I have it right in terms of the numbers on MRD pharma? Did you say you now have 10 clinical trials in MM as a primary endpoint? And just to kind of level set, I think there might be about 60 or so trials. So I’m just trying to get a sense for how many trials you think might move over to primary, even if we look at, say, a year or two years.

Chad Robins

Yeah, we do now have kind of 10 multiple myeloma studies using clonoSEQ as a primary, including two that have recently been signed as new studies and three that were already converted or upgraded from secondary to primary. So that, in the trajectory, is looking good. Of all the studies that we have in myeloma, we continue to push.
It’d be hard to kind of put a direct number on it and speculate, but we do see kind of great traction from the ODAC decision, and we do really in three areas. One is kind of new studies where we’ve seen kind of an increase we’ve closed on 16 new myeloma studies year-to-date, 11 of which were post-ODAC. And so obviously, in terms of kind of the future growth in studying new studies, that’s great to see.
And then secondly, the impact on milestones, there’s an opportunity to accelerate some of these milestones because these companies are moving quickly to get their approvals based on the new accelerated approval pathway. And then third is kind of mentioned in the remarks, but I do think it’s always worth highlighting is, you know, there’s a really nice kind of interplay between kind of the pharma and clinical business, and we’re seeing really an increase in efforts from pharma companies to highlight kind of the importance of MRD kind of for clinical management and as a measurement of treatment response.
And so that kind of bolsters our confidence kind of in the clinical business. So not a direct answer, but we do expect, you know, many more to convert and for us to be able to access kind of that pool of milestones outstanding and new milestones that we sign on new contracts.

Mark Massaro

Great. And if I can sneak one last one in that’s related to that, what are you hearing from pharma specifically about the move from secondary to primary? Maybe if you could provide any more granular details just about the potential time savings or the clinical trial enrichment and or the probability of success. What are some of the key things you’re hearing about this interest to move to the primary?

Sure, Mark. Yeah. I mean, first of all, it’s important to note that each company needs to independently evaluate with the FDA whether their trials are eligible for accelerated approval and whether MRD can be utilized as a primary endpoint. So it will depend in some regard on the trial design and the specifics of the therapy that’s being evaluated in the setting.
That said, though, certainly companies are anticipating that there can be a significant improvement in the time frame it takes to complete the study. I mean, we’re talking going from eight, nine, ten years to get to a PFS endpoint to, you know, potentially three years to get to an MRD endpoint, depending on how it’s defined.
And we’ve now seen the first two studies over the last year that have read out with MRD as a primary endpoint, and I think those studies have both been received very favorably by the clinical community, which I think is also an important thing to note. So the feedback we’re getting is that it is very uniformly of interest to evaluate whether a primary endpoint could be utilized.
However, there are nuances to each individual development program and certainly distinctions in exactly how much time can be saved depending on the setting and the treatment being applied.

Mark Massaro

That’s helpful. Thanks guys.

Operator

Matt Sykes with Goldman Sachs. Your line is open.

Matthew Sykes

Good afternoon. Thanks for taking my questions. Congrats on the quarter. Maybe just pivoting over to mantle cell and the coverage you got there. I realize it’s a smaller market indication relative to some of the other markets that you’re in, but just given sort of the disease-aggressive recurrent nature, like how should we think about frequency of testing there and a potential volume ramp, understanding it’s one smaller market but slightly different type of characteristics of the disease?

Yeah, thanks for the question and good insights underlying the question. So mantle cell is indeed a bit smaller. It’s around an annual incidence in the US around 4,200 patients, maybe 20,000 prevalent patients. So not dissimilar to ALL, which I will note is 35% of our volume today.
But that said, it’s also an aggressive disease. As you noted, patients are often monitored for long periods of time. They will relapse multiple times over the course of years. And so there are a number of testing opportunities over the course of a patient’s lifetime.
The treatment journey is somewhat similar to some of the other indications you’re familiar with for clonaseq, like myeloma or DLBCL, where there’s an induction phase. There might be consolidation therapy, maintenance therapy. Some patients are transplanted. And then there’s also later line interventions, including potentially CAR-T.
And so at each of those time points, much like in other malignancies we test, there’s an opportunity for MRD to play a role. Now that said, guidelines have not been defined for mantle cell lymphoma like they have been for myeloma, for example. So that is work that remains to be done.
But there is currently a monitoring modality in place, which is imaging. And imaging is being done periodically for these patients at varying frequencies, depending on the point in their disease trajectory and the treatment. And so we do think that over time, there’s quite an opportunity both for response assessment, as well as for ongoing monitoring for disease recurrence.

Matthew Sykes

Great. Thanks. Very helpful, Kyla. And then Kyle, just on, you’ve made pretty impressive progress on the cost savings year to date. And just looking at slide seven, just looking at this quarter relative to last year’s Q3, looks like G&A and R&D were some of the areas where you did most savings.
Could you just kind of give us an idea amongst some of these categories of sales and marketing, G&A, R&D, like where is there still kind of runway for you to improve upon that? And how long do you expect that runway to last?

Kyle Piskel

Yeah, I mean, I think, you know, the improvement we’ve made, you know, we’ve done a handful of restructurings throughout the year. But I’d say sales and marketing, it’s a leverage story. We have the investments we’ve made. There’s some targeted investments we want to make in the reimbursement ops function.
But primarily looking at that as leverage. A bit similar story with G&A. You know, we’ve flattened out the org quite a bit to kind of drive a lot of those savings. R&D, this is primarily a result of targeted investments in immune medicine. We do have some larger initiatives left in MRD, the NovaSeq being one of them.
So, I think as we continue to assess opportunities and look for opportunities for additional savings, we’ll identify them. But we’re not making any plans to have further reductions in those areas. You didn’t ask about it, but I’ll also mention in ops, we’re continuing to drive additional leverage through, a lot of initiatives to reduce our overhead costs in flattening the org.
And I think, there’s still some leverage there we will continue to get. But again, I don’t think have any plans for anything targeted at this time.

Matthew Sykes

Great. Thanks.

Operator

Andrew Brackman with William Blair.

Maggie Nolan

This is Maggie Nolan for Andrew today. I want to ask one on EMR integration. So it sounds like there was some nice progress in the quarter with Epic and expanding accounts there. So can you talk about some of the learnings there now that you have 11 accounts live? And then just as you think about expanding your EMR integration work even further with Flatiron, how do you expect this to impact volume growth altogether in 2025?

Thanks for the question, Maggie. So first, in terms of learning, I think over the course of the 11 integrations that we’ve now completed, we’ve gotten substantially more efficient. We’ve understood kind of how best to leverage the accounts resources, which are often somewhat degree limited to be able to complete these integrations effectively and to make sure that we can hit the ground running with those accounts to implement some of the tools that are helpful in standardizing testing going forward with those accounts. So that’s been a big area of focus is to leverage the tools already built into Epic to increase standardization of testing time points.
We have seen now with 11 accounts under our belt and six that have been in place for more than a quarter, we’re starting to get a better understanding of what growth looks like in these accounts post integration. So the six accounts that have been live for at least since Q2, we saw quarter-over-quarter growth in Q3 of 13%.
And that’s — it’s for four of those six accounts, they’ve been live for a year. So that’s now in their third quarter post integration. They’re still growing at a pace faster than the rest of the business, which is great to see. For the fiveaccounts that went live just in the past couple of months, where we were happy to see really strong month-over-month growth in October, which has been consistent with our previous experience of sort of the higher growth rates we see right out of the gate for new accounts. So again, we’re starting to get a better consistent view of what the growth patterns look like.
We have quite a few in-progress integrations that are proceeding now. We actually still expect to have a completed integration in a total of about 20 accounts by the end of this year. And we’re targeting by the end of ’25 that about 50% of our total order volume will flow through an integrated platform, whether that be EPIC, Flatiron or another community EMR platform that’s highly utilized in some of the large community networks. So we are — we have kicked off the work with Flatiron, and we’re looking forward to bringing that as well as several other community integrations live in 2025.

Maggie Nolan

Great. And then just on — I think it was just mentioned on one of the last questions, but can you just update us on the progression of the rollout of NovaSeq and just how we should be thinking about the opportunity for COGS reduction there just looking into 2025 here?

Chad Robins

Yeah. We’re making a lot of progress, a lot of headway. Our plans are still for it to launch in the third quarter of 2025, assuming everything goes well, and everything is pointing in that direction currently. As it relates to the financial profile, depending on where volumes are at, we think annualized, you can probably get 5% to 8% improvement in margin profile in the first 12 months of that.
And then as volumes continue to grow, expanding margin profile from there. And I think it just reiterates our kind of long-term trajectory that we believe we can get to a 70% gross margin profile for the MRD business.

Maggie Nolan

Great, thank so much.

Operator

Sung Ji Nam, Scotiabank

Corey Rosenbaum

Hey, This is Corey Rosenbaum on for Sung Ji. Could you remind us how much of the Genentech amortization remains, if any, following this year?

Kyle Piskel

I believe we’ll probably exit with around $50 million to $60 million.

Corey Rosenbaum

Got you. Thanks for that. And as we look to next year and MRD continues to grow at a faster pace than Immune Medicine, is the best way to think about the total OpEx spend still around 70-25 between MRD and Immune Medicine for next year?

Chad Robins

We’ll provide kind of updated guidance in February. What I can say is we’re looking to kind of constrain the Immune Medicine spend. So it will be lower on a percentage basis.

Corey Rosenbaum

All right, that’s all for me. Thank you.

Operator

Tejas Savant, Morgan Stanley.

This is Jason on for Tejas. Congratulations on the quarter. So maybe just starting off, there was some recent news from a large player in the diagnostics space where UnitedHealth announced that they would no longer cover multi-gene panels for behavioral health.
So obviously, you have a different portfolio, but I was just wondering, how do you think about the challenges some of these private payers have faced recently on spiraling costs, weighing on their enthusiasm for genetic testing more broadly, perhaps due to more stringent prior authorization or just dragging your fee on biomarker build rollouts.

Chad Robins

No, I think it’s a good question. And one, I’m — just for background, I sit on the Board for Coalition for 21 Century Medicine. We spend a lot of our time as a Board looking at the payer landscape more broadly, both on the government side and on the private payer side. And I would just say this, and with respect to clonoSEQ, it’s about the value of our test and what it brings for patients.
And so we consistently go to value. And if you look at health economics and outcomes research and really the overall kind of savings to the health system and as it relates to the pricing of the test, I think all of those factors kind of play a role into making sure that your test is — and I don’t — we don’t comment on other people’s tests or reimbursement profiles in general.
I’m just speaking directly about clonoSEQ and the value that it brings and the value that’s been recognized by both the government and Medicare and by private payers really across the board. As like one great example of that is if you look at the use case that’s expanding rapidly for us is taking patients off of maintenance therapy in multi myeloma, the savings that — test provides to be able to give the confidence to a clinician and for two subsequent MRD readings to take a patient off of very expensive — I won’t name names, but you know the maintenance therapies in multi myeloma are over $100,000 per year.
And so when you’re talking about a test that costs $2,000 per year to do that, that value that it brings to payers is something that we continue to promote. But I would say, in general, being a CEO in a diagnostic business, I mean this is where we’re all faced with challenges on the payer side, making sure that we’re getting paid at a high rate and making sure that we’re collecting that cash, which is why we have such a heavy emphasis and focus on reimbursement, both on the contracting side and then reimbursement operations. It’s an area that we’re investing in and that we want to get the best people in and that we want to continue to progress in.

Got it. And then maybe just a quick follow-up. There was some news in September that Roche, they announced a 25% narrowing of their pipeline. So just wondering, after this announcement, have you sensed any impact to your partnership with Genentech? Thank you.

Chad Robins

Great question. As Roche also announced that they were reorganizing their oncology research division, they have assured us that, that does not have an impact on our partnership, and that’s all we can comment on at this time.

Great. Appreciate the time guys.

Operator

Thank you. I’m showing no further questions at this time. This does conclude the program, and you may now disconnect. Everyone, good day.