GeneDx Holdings: Stock To Keep Outperforming As Business Momentum Persists

GeneDx Holdings Corp. (NASDAQ:WGS) specializes in providing precise medical diagnostics by leveraging its genomic and data science expertise, particularly its vast rare disease dataset, to interpret large-scale clinical data.

In June, we published a report titled Mapping a Path to Leadership. This follow-up focuses on GeneDx's second-quarter performance and the upcoming third-quarter earnings report.

Founded in 2000 by National Institutes of Health scientists, GeneDx focused on making genetic testing accessible for rare disease patients. After being incorporated as CM Life Sciences in July 2020, the company merged with Sema4 in July 2021, and Sema4 subsequently acquired GeneDx in April 2022. In January 2023, the company was renamed GeneDx Holdings Corp.

GeneDx's key investment strengths lie in its expanding market opportunity and first-mover advantage in pediatric exome and genome testing, as detailed in our initial report. This momentum was reflected in its second-quarter results, which exceeded expectations.

Revenue growth was driven by the rapid expansion of its whole exome and genome business, which grew over 125% year-over-year and now accounts for 74% of total revenue. This segment is the company’s crown jewel and the primary focus of investor interest.

The second-quarter loss was lower than expected, as GeneDx moves towards profitability, which it anticipates by 2025.

The company reduced its quarterly cash burn to $6.1 million, down over 65% from $17.2 million in Q1, marking its ninth consecutive quarter of improvement. At the end of Q2, GeneDx had $108 million in cash and equivalents.

Average reimbursement rates rose to $2,800 in Q2, an 8% sequential increase, significantly boosting revenue growth and remaining a top-line driver.

More state Medicaid programs are expanding access to rapid whole exome and genome sequencing for neonatal care, improving diagnosis rates and reimbursement coverage. By the end of Q2, 14 states offered rapid whole genome testing coverage. The company has also been working with state policy leadership to ensure expanding access to exome and genome testing nationwide. Last quarter, Connecticut, passed a law approving access to rapid whole genome sequencing.

The company is also working with commercial payers, including United Healthcare, to expand whole genome sequencing services to their members.

GeneDx will report third-quarter earnings on October 29 after market close. The adjusted EPS consensus is -$0.22, and the GAAP estimate is -$0.44, according to Seeking Alpha.

Below is a snapshot of the company’s financial progress over the last six quarters.

In June, we initiated coverage of GeneDx as a turnaround company poised to leverage its advanced genomic testing capabilities amid rising demand for precise medical diagnostics. With a strong foundation in rare disease data and expertise in whole exome and genome sequencing, GeneDx is well-positioned to lead the market in pediatric care and beyond, improving patient diagnostics and treatment outcomes, and reducing healthcare costs.

GeneDx has a unique opportunity to strengthen its market position. Although competition in the sector will increase, GeneDx's extensive rare disease dataset—one of the largest in the industry—provides a significant competitive advantage, particularly when combined with AI-driven diagnostics. With over 600,000 sequenced exomes and genomes, the company uses its data science expertise to deliver genomic diagnostics at a large scale.

The third-quarter report will focus on revenue growth, higher reimbursement rates, reduced cash burn, and narrowing losses. In our previous report, we noted that a more favorable macro backdrop, combined with GeneDx's strengths, could drive the stock above $50 within 6 to 12 months. With the stock having already reached that target, a positive Q3 report could propel it towards $100 over the 6 to 12 months, especially with a potential year-end rally we anticipate in small-cap stocks as election uncertainty subsides.

Investors should conduct due diligence and understand the risks associated with small-cap speculative stocks.

(The article was first published on Seeking Alpha.)