Q3 2023 GeneDx Holdings Corp Earnings Call
Participants
Sabrina Dunbar; Chief of Staff; GeneDx Holdings Corp.
Katherine Stueland; President & CEO; GeneDx Holdings Corp.
Kevin Feeley; CFO; GeneDx Holdings Corp.
Mark Massaro; Analyst; BTIG,LLC
Prashant Kota; Analyst; Goldman Sachs Group, Inc.
Presentation
Operator
Good day and thank you for standing by, and welcome to the GeneDx third quarter 2023 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sabrina Dunbar at GeneDx. Please go ahead.
Sabrina Dunbar
Thank you, operator, and thank you to everyone for joining us today. On the call, we have Katherine Stueland, President and Chief Executive Officer, and Kevin Feeley, Chief Financial Officer.
Earlier today, GeneDx released financial results for the third quarter ended September 30, 2023. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance, and outlook.
Forward looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 30, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.
Please refer to our third quarter 2023 earnings release and slides available at ir.genedx.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.
And with that, I'll turn the call over to Katherine.
Katherine Stueland
Thanks, Sabrina. We have a lot of news to cover on our call today, so I'm going to jump right in.
Our third quarter results were strong with $53 million in revenue, gross margins of nearly 50%, and a 52% year-over-year reduction in cash burn. We also saw the highest mix of exomes as a percentage of total volume coming in at nearly 30% in September.
Our industry-leading exome and genome drove almost two thirds of our revenue this quarter. And we continue to grow the market and offer clinical insights to more and more patients. And at the same time, we are materially reducing our cost structure in effective and scalable ways.
The fundamentals of our business have never been stronger. We have organized our entire team around three major efforts, one, increasing exome and genome volumes; two, reducing claim denial rates to increase revenue per test; and three, driving down our cash burn. Our exome focused strategy is taking hold.
Our goal is to transform the market from single-gene tests, multi-gene panels, and micro rays to exomes and genomes. And with exome representing 63% of our revenue in September, we're well on our way. This quarter, we saw a 12% increase in the number of clinicians ordering exomes in an outpatient setting, with the fastest growing clinician count coming from neurology, representing 18% quarter over quarter growth.
Pediatric neurologists continue to make up the largest portion of our new ordering clinicians. But building markets takes time. This year, we had our sights on an aggressive growth trajectory in the second half of the year centered around a faster conversion of single and multi-gene tests to our exome business. With $50 million in core revenue in Q3, we expect continued growth in Q4 and full year revenue now in the range of $187 million to $192 million.
We have just moved through the final stages of shutting down the former Sema4 business that took longer than we anticipated but is officially complete. Excluding those final shutdown costs and one-time severance costs, our cash burn in Q3 from continuing operations was approximately $25 million. That is today's steady-state burn rate from which we plan to improve moving forward.
Today, we announced that we've effectuated a cost reduction plan of approximately $40 million from the Q3 base, which includes vendor spend as well as a reduction in force. We are prioritizing efforts that support economic genome growth and increases in paid claims.
We'll continue to invest in the teams responsible for these efforts as we're seeing that they are making tangible progress. Thanks to the addition of some key leaders across commercial, operations, finance, and product and technology. Some of the efforts that have been de-prioritized include R&D and other longer-term strategies that we'll earn our right to invest in once we get closer to profitability.
Today, we also announced that we have entered into a debt facility of $75 million with Perceptive Advisors, and we're grateful to them for believing in our team and the strength of our business in the near and long term. This fortifies our balance sheet and with the reduction of burn that we have just effectuated, provides balance sheet flexibility in 2025.
Balancing our investment and growth, while removing cash burn from the business is no easy task, but with the plan we've assembled, I'm confident we are making the right choices to ensure we grow our leadership position in the most cost-effective way possible.
I know we're not alone in navigating these waters. Other companies are facing similar challenges, but I'm proud of how our team has come together in close partnership with our Board on a clear-eyed view of the market we're living in, in meticulously focused strategy that prioritizes growth of our exome and genome offering and course correcting as we move forward. You have our commitment that we'll continue to do so in order to drive shareholder value.
I want to extend an immense thank you to our teammates and leaders past and present who have invested their time and passion to get us to where we are today. And I thank you to the incredible team who continue to stay committed in our mission despite the one it has people navigating.
No path to profitability is easy, nor straightforward, particularly when introducing a new technology to improve healthcare. But with the generous support and patience of our shareholders, we're all grateful for the opportunity to make a meaningful impact on patients and are committed to delivering value for those shareholders that continue to entrust us to realize that vision. Kevin?
Kevin Feeley
So I'll repeat what Katherine said. It was a strong quarter. Total revenues were $53.3 million for the third quarter of 2023. Revenues from continuing operations were $50.4 million compared to $47.2 million in the third quarter of 2022 and $45.2 million in the second quarter of 2023. Excluding a one-time appeal benefit in the third quarter of 2022, revenues increased 14% for this third quarter.
Whole exome and genome volume this quarter was over 13,000 tests, which represents a 71% increase year over year and 11% increase compared to the second quarter of this year. We generated $34 million this quarter from exome and genome testing, a 42% increase year over year and 18% compared to the second quarter of this year.
Adjusting for the same one-time appeal benefit in the third quarter of 2022, revenue specific to exome and genome increased 61% year over year. In the third quarter of 2023, adjusted gross margin from continuing operations was 48%, up from 37% in the second quarter. The margin expansion is coming from three places.
The first is test mix. To level set, our adjusted gross margin for exome remains over 60%. Exome and genome represented 23% of all tests in the third quarter with a high of 28% in the month of September. Total gross margins will continue to benefit as exome picks up more share of our overall test production volume, replacing lower margin and in some cases, negative margin products.
The second is on cost per test. We now have to lower cost per test, Illumina X Plus machines live, and we will aim to replace the remainder of our APs legacy NovaSeq fleet at the right time over the next several quarters. We also have recently received our first PacBio Revio machine. Beyond our long-read sequencing collaboration, the team here is excited about the potential use of this technology to lower costs by replacing older orthogonal confirmation platforms.
Additionally, we've now completed the consolidation of disparate library preparation platforms to a lower cost solution offered by Twist Biosciences. And while we are pleased with where exome costs are today, a number of initiatives are already underway or planned to further improve the cost base.
Automation and AI across review analysis report writing and certain genetic counseling steps offer real near and long-term cost reduction opportunities. And third was from average reimbursement rates. The fully loaded average reimbursement rate on the exome and genome portfolio was over $2,500 in the third quarter, slightly up from over $2,400 last quarter.
The excellent portfolio operates at over 60% gross margin today despite a high denial rate that we know has opportunity to be improved upon. As Katherine mentioned, new leaders have been brought into the company to lead billing, market access, sales, product and technology, and finance related teams to bring enhanced experience and new perspectives specific to these efforts. The majority of our denials, we continue to believe are addressable. Let's now move down to operating expense.
Total adjusted operating expense was $49.4 million for the third quarter of 2023, down from $91.8 million in the third quarter of 2022, and $60.1 million in the second quarter of 2023. That's a reduction of 46% year over year and 18% from last quarter. We once again delivered reduced costs as we further separate from the legacy Sema4 business and search for efficiency.
For awareness, this quarter includes a $1.8 million onetime benefit. This baseline will further reduce over the next couple of quarters with the cost rationalization plan affected earlier today. On the bottom line, total company adjusted net loss for the third quarter of 2023 narrowed to $21.1 million compared to an adjusted net loss of $69.8 million in the third quarter of 2022 and $38.6 million in the second quarter of this year. Improvements of 70% and 45%, respectively.
Our third quarter cash burn at $42 million, including nearly $17 million in final Sema4 payables and one-time costs, and otherwise would have been approximately $25 million for the quarter. Our total cash, cash equivalents, marketable securities, and restricted cash were $115 million as of September 30, 2023. And today we announced that we have entered into a new five-year senior secured credit facility with Perceptive Advisors.
This agreement provides for up to $75 million in capacity consisting of an initial tranche of $50 million, which was drawn on October 27, 2023, and an optional second tranche of $25 million, which is committed through December 2024, so subject to certain criteria.
Interest is payable at a rate of SOFR plus 7.5%. And under the terms of the agreement, Perceptive will be issued warrants to purchase 800,000 Class A shares of the company's stock at closing, with an exercise price equal to the 10-day VWAP. That price is $3.17 a share. upon borrowing of the subsequent tranche, Perceptive would be issued warrants to purchase an additional 400,000 Class A shares.
Personally, I want to thank the Perceptive team for the hard work involved in the transaction. We are excited to have yet another strong thought partner in the mix, and giving rise to the net proceeds of the initial tranche, our pro forma cash on hand at September 30, 2023, is $163.7 million.
Now turning to guidance, we expect to end 2023 with full year revenue from continuing operations in a range between $187 million to $192 million. We're narrowing the expected cash burn guidance for the second half of 2023 to a range between $75 million to $79 million, inclusive of servicing obligations of the exited business activities.
As a reminder, in December 2023, the next scheduled installment payment of $5 million will be made with respect to the legacy Sema4 payer settlement. And as we have expressed, the outlook to turn profitable in 2025 remains unchanged. So while we're not providing specific long-term guidance beyond 2023 at this point, I did want to speak to how we view that path to profitability by the end of 2025.
There are three primary drivers. The first is rationalizing the operating expense base. Our current adjusted operating expense is roughly $50 million a quarter or run rate of $200 million annually. We're taking out an additional $40 million in specifically identified costs to get down towards $160 million over the next several quarters. We firmly believe these cost reductions will not impact our ability to drive excellent growth.
The second is by expanding gross margin. We just reported Q3 adjusted gross margin, 48%. Remember our blended exome gross margins are greater than 60% today. So as exome test continue to make up more of our revenue, our total margin moves towards that 60%-plus. We also believe exome margins can expand beyond their current level given COGS reductions and reimbursement work.
The third is revenue growth. We just reported Q3 revenue of $50.4 million for continuing operations or a $202 million run rate. Our future revenue growth is all exome and genome. And exome just grew 62% year over year this past quarter. If one were to assume even a much lower exome growth rate in the zone of 20% over the next two years, that generates a very reasonable breakeven level given the cost structure I just mentioned.
That said, we certainly aim to achieve stronger exome revenue growth than now. So with the cost saving initiatives announced today, margins continuing to trend towards our current exome margin and revenue growth tracking to even moderate levels, we see a clear path to breakeven by the end of 2025.
And finally, in terms of cash, our cash burn for continuing operations was approximately $25 million this quarter. And on a go-forward basis, you should expect adjusted net loss and cash use to more closely conform to each other, except for the payer settlement, severance, and fairly minimal CapEx.
I'd also point you to the liability section of our balance sheet which will show a huge structural improvement as we've now put substantially all legacy Sema4 operating payables behind us. We, therefore, anticipate the new debt financing proceeds will primarily serve as balance sheet protection as we shift towards sustainable profit.
I'll now turn the call back to Katherine for any closing remarks.
Katherine Stueland
Our commitment to turning to profitability in 2025 is our unquestionable focus. As we've commented today, that is possible with growth, efficiency, and cash management, and our plan supports these three drivers.
In managing the business to this goal, we are well positioned to lead the market to diagnosing all inheritable diseases with our exome and genome backbone and ultimately realize our vision of using genomic and clinical data to inform disease diagnosis, treatment selection, and to accelerate drug discovery and development. For now by focusing our business on exome and genome, we will drive value creation for our shareholders while continuing to serve more and more patients.
Now I will turn it back to the operator for Q&A.
Question and Answer Session
Operator
Thank you. (Operator Instructions) Dan Brennan, Cowen.
Hey, this is Joe on for Dan. It seems like the exome volume growth story and the mix shift is really playing out with the 70% excellent growth in the quarter and 20% mix in September. So what do you see changing in the fourth quarter that's bringing down the implied Q4 guide?
Kevin Feeley
Yeah, Joe, look, I think the way we view it is we did add some new team members to the commercial field force, and that's in large part what is driving the growth in the exome portfolio. We're really happy with how the quarter played out. We've seen some pretty substantial growth in both Q2 and Q3. And so the guide is really reflective of what we see line of sight to -- October is coming in strong.
We're pleased with the data thus far. We do typically see a Q4 uplift in terms of ordering patterns and ASPs, we would expect that. And so, I have every confidence that we can hit the high end of that range. But the previous guidance range that we provided, particularly at the higher ends of that, we just fell short in the first couple of quarters of this year.
Really happy with how the second half of the year is progressing here. So the guide really is just reflective of how the other part of the year played out.
Got it. And then on ASPs, it looks like they came down about 15% in Q3 on a blended basis. Do you see pricing generally stabilizing into '24? Do you expect these kind of like 10% to 15%-ish year-over-year quarters to continue?
Kevin Feeley
No, I think we view Q3 as a baseline from which to improve on, and if you've just focused in on exome, we did see improvements in Q3 versus the second quarter with average of just north of $2,500 versus the second quarter in the $2,400 range after all denials. We'd expect a similar progression in the fourth quarter with a slight uptick in the fourth quarter.
And as we mentioned in our remarks, we've got teams nearly across the entirety of the company focused on improving front end processes to bring down the denial rate and would expect that over the next several quarters, you'd see incremental ASPs improvements in exome.
On the other product lines, we've identified some near term opportunities, in particular with chromosomal microarray and hereditary cancer. Frankly, those are two product lines that had not received as much focus in the past couple of years as they maybe should have. So the team working on improving denial rates on those two product lines, in particular. Outside of exome and CMA and hereditary cancer, you might expect blended ASPs on the other panels to stay flat on a go-forward basis.
Katherine Stueland
The only thing I would add to that, and I think the way that Kevin framed it in terms of finding opportunities beyond the exome, since we saw a nice increase in exome, we are going to be retiring about 350 tests in early 2024. So again, continuing to really focus the business on the test, the differentiators that are best for patient care and that can have a positive impact on the P&L as well.
Got it. And then just last on the $40 million incremental cost out, where it is coming from and just if you talk about or where we'll see this in the P&L would be great?
Kevin Feeley
Yeah, that -- about half is coming from employee reductions. We took some actions midway through the third quarter and then today impacted another subset of employees with a fairly sizable reduction in force throughout the day today. The groups impacted there, primarily research and development and some product and technology and then other support functions.
As frankly as we've gotten further away from separating Sema4, the overall support necessary for the go-forward business is titrating down. And so, we're reacting as quickly as possible to rightsize the cost base as we move further and further away from that shutdown. And those shutdown activities are now complete.
As it relates to the remainder of the spend there, we've taken a focus on really earning our way to longer term pursuits around research and development, and so, reductions with respect to projects that would have a longer term payoff in 2026 and beyond. And so, feel confident that everything necessary to grow the top line to expand gross margins still remains intact, and it's those longer-term pursuits with respect to R&D that have been trimmed down.
Got it. Thanks for taking the questions.
Operator
Mark Massaro, BTIG.
Mark Massaro
Hey, guys. Thank you for taking the questions. I know you addressed that most of the $40 million annualized cost reduction is coming from R&D and support functions, but were there any reduction to the sales force or MSL crew? I think -- based on my notes, I think you're planning to onboard 10 new reps in the second half of this year and finish somewhere in the 65 to 70 range. Can you just maybe update us on the size of the commercial organization?
Katherine Stueland
Yeah, the commercial organization is going to continue to be an area of investment for us though. So for the most part, I would say that the removal that we tried to do very surgically ensures that we are not eliminating any roles that will slow down growth or will impact the integrity of the product.
So we feel really confident that the quality will remain high and ensure that we can continue to be the market leader and that we can continue to drive meaningful growth through the commercial organization.
So no impact on sales force, no impact on MSLs. Those two teams and the commercial functions supporting them are critically important and have been doing a fantastic job this year as evidenced by the results of the quarter. The sales force -- we've got I think about 62 of those roles in sales right now. So close to being at capacity, we always expect that there's going to be a handful of roles that are open from time to time.
And then we do have our team of MSLs that are fully staffed. They were just gathered in Gaithersburg last week. I had the chance to talk with them. So they are continuing, I would say, as we look towards the future commercial strategy to really hone in on working collaboratively as a team looking at overall account profitability and keeping focused on ensuring that we can continue to drive exome and genome moving forward. And those MSLs are critically important to our ability to do that.
Mark Massaro
Okay. Thank you for that. So I'm still not understanding why you lowered the full year guidance. I mean, I understand that you needed 60% of your revenue to come in in the back half of this year. We were modeling below your guidance, but still the implied Q4 is still very significantly below the Q4 consensus revenue estimate.
So maybe can you just walk us through what has changed? I understand that you have been onboarding new reps. I assume maybe there initial traction in Q3 wasn't as high as you expected, but what else is going on in terms of pricing, in terms of work with payers? I would assume that some of your prior guide would have required more work from payers.
So can you just broadly give us an update on traction with commercial pay, maybe the timing of some of the new plan coverage, and maybe some of the one-time payments that you might have expected in your prior outlook?
Kevin Feeley
Yeah, I think, Mark, it's a little less around payers and pricing. In fact, we are fairly optimistic that the data in the last two months and including through today, through October, from a reimbursement and then our perspective is improving and is starting to show payoff from the efforts we've put in place around revenue cycle.
If you go back to the original guide, it anticipated that, in particular, at the tail end of the second quarter and beyond, we would start to see a fairly sizable ramp in a conversion from chromosomal microarray into exome. We had previously talked about bringing on some of those CMA tests as steppingstones or seeds for future exome. And as the commercial team has been out executing, we've added the MSL teams to engage in conversations.
I think what we've seen is that we should expect a more moderate conversion ramp from CMA into exome than a massive bolus of conversion or inflection point, really anchored on a few things. One, physician -- long-standing physician behavior. We are just encountering docs who have been practicing genetics for the same way for quite a long period of time. And we have education to do with respect to misperceptions in the marketplace with respect to these tests that they take months and not weeks.
We've got our rapid exome product down to a verbal report in three days. And so, all perceptions around turnaround times, all perceptions around pricing, and the noise that might be in a report with respect to variants of unknown significance are all things that we're seeing in trench behaviors and mindset among physicians. And we've seen a flattening of that conversion ramp versus previous expectations.
So it's primary driver. That said, the exome portfolio has grown rapidly, and we'd expect pretty similar growth rates going forward. So the go-forward guide for the fourth quarter, we just posted a plus $5 million revenue quarter from Q2 to Q3, and we'd expect something similar in the fourth quarter. As we're starting to see a normalization of what we can expect in terms of that CMA tax on conversion.
Mark Massaro
Okay. That is helpful. So it looks like the midpoint of your guide would imply about 10% or 11% revenue growth for the full year. Recognizing that you are picking up a higher mix from exomes, is it reasonable as we think about our models for 2020 for that greater than 10% should be readily achievable? But any other granularity or commentary about the levers of growth in '24 would be helpful.
Kevin Feeley
Yeah, so we're not providing a full-year '24 guidance. We'll do that in early January, but just try to outline for you, in my prepared remarks and there's a page in our earnings materials as a deck we posted to our website, really to sketch out what we believe is an illustration of the path to profitability and believe firmly we can get there to breakeven and beyond even if you assume the year-over-year revenue growth of around 20%.
And if you think about the go-forward base, all of our growth is really going to come from the exome portfolio, which just grew well in excess of that mark. And so, really believe that you should expect similar exome growth year over year moving forward. If you recall, this year was impacted earlier from some price concessions we offered to the marketplace at the end of next year.
So that played with the year-over-year growth rate some and that's all worked through the system and believe at this point, you should expect on exome, only sequential ASP improvements moving forward. So we might expect a greater growth rate year over year from '23 to '24 than what we posted this year.
Mark Massaro
Okay. That's helpful. And if I can sneak one last one, the adjusted gross margin from continuing ops of 48%, that was strong and well above our modeling. Do you think that's perhaps a level that you can build off of from here? Or were there any one-timers in Q3?
Kevin Feeley
Yeah, we do think it's a new level or base to work off of. There were no meaningful one-time items in that number, either in terms of ASPs, revenue, or COGS. To your point, we are seeing some efficiency initiatives take hold and provide results ahead of schedule. I tried to call out a few in my opening remarks. But yeah, we've outperformed in the cost per test, in particular cost per test around exome and think that those efficiency gains are here to stay.
Mark Massaro
Okay. That's it for me. Thank you.
Operator
(Operator Instructions) Brandon Couillard, Jefferies.
This is Matt on for Brandon. Maybe sticking with gross margin, and I appreciate all the color, Kevin, in terms of the three buckets you spiked out for the sequential improvement in gross margin, should we think about each one of those kind of having a similar contribution? Or is there one in there that was an outsized driver to the improvement that we saw in 3Q?
Kevin Feeley
It's really the -- I would say, take them in the relative order that I outlined with cost per test leading the way there. And those are coming from a number of areas, both in the wet and dry side of the laboratory, some are process related, some are technology related. The new machinery from Illumina is paying off as expected.
I think what gives us the most comfort and conviction moving forward is we've got a large roadmap going forward of additional efficiency items that are near-term line of sight and can be relied on. And so, we're only just getting started in driving down cost per test of exomes. That one probably leads the way and you can take them into ranked order in which I outlined.
That's helpful. And then I appreciate all the color on the cost-outs. I just wanted to ask so $40 million of further cost-outs reiterated your profitability target for 2025. So not pulling it forward on those or anything.
I mean, are we supposed to think about that when that profitability question comes, it could be more meaningful given the additional $40 million that's coming out today, or just trying to get hands around meeting the profitability target, not playing it forward, but taking another $40 million out of the cost structure? Thanks.
Kevin Feeley
Yeah, I think the marker of 2025 acknowledges that the revenue base came in a bit lower than expected for this full year. The $40 million really meant to ensure we meet the commitment we made, which was to turn this company profitable by the end of 2025. We're more convicted today in our ability to do that.
Frankly, we found more efficiencies as part of a recent review than we thought we might on the outset of that analysis. I think any upside to be able to pull profitability into 2024 would come from outsized revenue growth, which, of course, we're aiming to achieve, but wanted to be careful not to over-promise.
And then, I guess, last one maybe for Katherine. You had made a lot of changes on the commercial side, work in new territories, new outreach programs, things like that. Maybe just talk a little bit about what the recent hire for your Chief Growth Officer, should we expect any kind of change or additional things there in the commercial side or more just kind of a continuation of some of the moves you guys have made so far this year? Thanks.
Katherine Stueland Certainly, so just added Melanie Duquette, who joined in September, to lead the overall commercial strategy and she's working off of a strong foundation that we have in place. I think to take us to kind of the 2.0 version of where we want to go in terms of commercial efficiencies. So really what we expect is I would say the cross-functional teams that our focusing on growth and on account profitability to be really working more efficiently together.
So I would say she has done a tremendous job when she was at her prior company, really shifting the focus from volume to keeping the team focused on volume, on revenue, on ASPs, and overall account profitability. So I would say that's what we're looking for in terms of the shift moving forward and just some continued improvement on overall efficiency and ensuring that those teams that we're working with are working in a more singular way and support of account growth.
So continued focus on opening up markets, but doing it in a way that will align with our P&L and will continue to focus on delivering on good patient care.
Operator
Matthew Sykes, Goldman Sachs.
Prashant Kota
Hey, guys, this is Prashant Kota on from Matt. What split do you see between inpatient and outpatient exam testing? And do you see that evolving over time?
Katherine Stueland
Hi, Prashant. Yes. So the vast majority, I think, 97%, 98% is in the outpatient setting today, really predominantly focused on exome versus genome in the outpatient setting. I would say, though that the rapid setting in the inpatient, which is primarily a utilization of our rapid genome product, that is growing quickly. It's just a very small portion of the business.
I think that's going to fall into the category of longer-term market building. There is a lot of fundamental dynamics that we have to continue to work through in order to drive utilization. That being said, we just had a really nice win in a health system in Florida where we've been able to get institutional contracts set up to be able to drive utilization of our rapid genome in the NICU.
So I'm encouraged by some wins like that that ensure that product is being utilized. The vast majority of the inpatient is institutional pay. So that's obviously one barrier that we have removed both for utilization and also for us. We get paid 100% of the time on those. So we really appreciate that business.
But we continue to view that as being a longer pole in terms of driving utilization, that's going to take some more time. So as we think about the breakdown over the next several years, we're still going to see it predominantly in that outpatient setting.
Prashant Kota
Got it. And then can you just talk about your progress in reducing claim denials? And specifically, what percent of claims are not approved, if you have that number, and roughly how long is the appeals process?
Kevin Feeley
Yeah. So as we talked about, we did bring in a bunch of new folks, really to take a look at our end-to-end processes, in particular on the front end of claim submission. So a lot of work is ongoing. And we did see an uptick in ASPs, that all driven by a slight reduction in the denial rate this quarter.
So pleased with the initial finding, certainly a long way to go there. I think it was just important to get pressurized on our processes and we really feel confident that much of the denials are addressable. To your question, north of 60%, so low 60s is our denial rate today on the exome portfolio. That hasn't changed in a while, although we did improve about one percentage point in the third quarter versus the second, and that's what drove the incremental uptick in average ASPs.
I think, longer term, you should expect us to take incremental bites out of that denial rate with each passing quarter as the effects of the ongoing work begins to take hold. The appeal process themselves -- itself is lengthy with really us going back to payers to re-adjudicate claims based on the medical necessity and unique circumstances of patients.
We have an appeal process stood up today, but I think more important to driving down denials and improving ASPs and, therefore, revenue comes from avoiding denied claims. And that's where all of our effort is focused at the moment.
Prashant Kota
Got it. That makes sense. And if I could squeeze one last one in, how are you thinking about capital allocation given the new capital you've raised with the debt agreement?
Kevin Feeley
Yeah, I think the way we look at the new debt agreement is to couple it with the cost reduction actions that we took today, which, as I mentioned, the reductions really placing an emphasis on three main priorities for the company. How do we drive exome growth? How do we improve exome reimbursement by reducing denials? And then how do we find cost efficiency and reduce cost elsewhere to improve the financial health of GeneDx to meet that commitment to become profitable sustainably in 2025 and beyond?
And so, all of our available capital is allocated to supporting those three pursuits with any capital allocated to R&D and product and technology to find ways to help the company get more efficient to drive down exome cost.
Prashant Kota
Great. Thank you.
Operator
Thank you. And now to include Q&A for today. I would now like to turn the conference back to Katherine Stueland for any closing remarks.
Katherine Stueland
Great. Thank you. We have a strong and growing business, a commitment from the management team to continue to do it as efficiently as possible. And we are grateful for the continued support of our shareholders and look forward to seeing many of you at an upcoming conference. Thank you.
Operator
And this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
