David Westenberg: Thank you. And I forgot to give Kyle a congrats on the new position. Thank you.
Kyle Piskel: Appreciate it. Thanks, David.
Operator: Thank you very much. One moment for our next question. Our next question comes from the line of Tom Stevens of TD Cowen. Tom, your line is open.
Tom Stevens: Hey guys, thanks for taking the question here. Just one on kind of the EBITDA margins by segment and thank you for breaking that out. I guess it looks like today it’s kind of negative 50 from about negative 100 last year and it looks like quite a big lift on an incremental basis to get the break-even by back half as kind of guided. Clearly, there’s lots of tailwinds there. There’s the pricing tailwind. There’s the switch to the X, but I guess could you break out maybe in a more granular way for investors just how you get to that break-even by next year?
Chad Robins: Yes, I mean broadly, obviously the ASP initiatives are a big factor, margin improvements to reduce our kind of per volume test costs. And really the biggest driver is the leverage throughout our operating expenses both on the sales team and those margin profiles at the end of the day as we continue to grow ASPs and the pharma business.
Kyle Piskel: Yes I mean, Tom, it’s three things, right? It’s raising the price per test. It’s lowering the cost that we deliver each test and it’s continuing to look at operating expenses. And we’re doing all three. And you can see that we’ve made improvements and kind of reduced the operating expense for the year of $10 million. We continue to look at ways that we can kind of reduce reduced expenses and gain leverage and we will do so.
Tom Stevens: Great. Go on, sorry.
Kyle Piskel: Just to reiterate, back half of $25 adjusted even at break-even and then the cash flow is not till $26 just to make sure that we’re clear.
Tom Stevens: Yes, definitely. And then just a question on kind of blood [ph]. You kind of mentioned it’s now 20% of your multimyeloma volumes. What reimbursement rate are you getting on blood versus your kind of more traditional bone marrow or spinal tap?
Susan Bobulsky: Our reimbursement rates aren’t distinguished by sample type. So our coverage policy, both for Medicare and for high-payers, our sample had contact. So coverage applies both to bone marrow and to blood-based testing for myeloma.
Tom Stevens: Wonderful. Thanks very much. I’ll hop back in the queue.
Operator: Thank you very much. One moment for our next question, please. Our next question comes from Sung Ji Nam of Scotiabank. Sung, your line is open.
Unidentified Analyst: Hey, this is Corey Rosenbaum [ph] on for Sung Ji. Thanks for taking my questions. So with the recent FDA ODAC recommendation during the meeting, there was a big discussion around the 10 to the minus 6 sensitivity threshold. Are any of the existing trials using clinical disease currently differentiating between 10 to the minus 5 and 10 to the minus 6? Just wondering how the industry may be able to start evaluating the differences between these two sensitivity thresholds. Thanks.
Susan Bobulsky: Yes, thanks for the question, Corey. Absolutely. A number, increasingly, studies are being designed to differentiate between 10 to the 5th and 10 to the 6th sensitivity. And of course, clinical disease is really the singular assay that can deliver that level of sensitivity consistently with a reasonable sample input and with a standardization across patients. So what we are actually hearing from the investigators who were central to the preparations and the data that went into support for the ODAC meeting a couple of weeks ago, they acknowledged that most of the data historically that was able to be analyzed was at 10 to the negative 5th. But the group, the KOLs have moved on to 10 to the 6th as the real important standard threshold. And they are already anticipating pursuing additional engagements with the FDA over the coming months and years to move that threshold to 10 to the 6th over time.
Unidentified Analyst: Awesome. Thank you. That’s all for me. I’ll head back to the queue.
Operator: Thank you very much. One moment for our next question, please. Our next question comes from the line of Tejas Savant of Morgan Stanley. Tejas, your line is open.
Unidentified Analyst: Hello, this is Hugo [ph] on for Tejas. Thank you for taking our questions. Where are you in the restructuring and resource allocation process to increase independence between the two reporting segments today? Are there any work that remains to be done heading into the back half or are they in good place operationally?
Chad Robins: I’d say the 90% of the work has been done. In Q1 we realigned the workforce, and most of that was aligning operations and R&D investments around each of the businesses. That work is complete. We still have a little bit of transitory processes in extracting the Immune Medicine and Pharmacervic Services Lab from our production lab for the MRD business, but that’s the only kind of remaining activity. So by and large everything’s done and we’re operating in that vein today.
Unidentified Analyst: Great. And then asking a question on the ODAC meeting. Following the adcom, how do you see FDA receptability to discussing MRD as an endpoint in other HIEM [ph] indications? Are there particular features of MM trials that may not read through to other HIEM indications like ALL, CLL, or DLBCL?
Susan Bobulsky: Thank you for the question. In fact, that’s a question that was of great interest to us as well, and certainly we do anticipate that this FDA, likely FDA decision following the ODAC will pave the way for further discussion with the FDA about MRD as an endpoint in other indications. The one that investigators have expressed the most interest to us about is CLL, and that is one for which currently the thresholds that are utilized guidelines in many trials are 10 to the fourth. But just like in myeloma, there’s interesting continuing to move that threshold further to the benefit of patients. And so we’re already actively engaging with investigators to talk about how we might essentially support those efforts, providing data, and supporting studies that are already being designed.
