Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fulgent Genetics Inc (FLGT, Financial) reported a total revenue of $71 million for Q2 2024, showing growth from $67.9 million in Q2 2023.
- Core revenue, excluding COVID-19 tests, was $70.2 million, driven by strong performance in precision diagnostics, reproductive health, and oncology.
- The company achieved a significant milestone with the consolidation of labs acquired through the informed diagnosis transaction, enhancing future growth potential.
- Fulgent Genetics Inc (FLGT) has initiated a Phase 2 clinical trial for its lead therapeutic candidate FID-007, showing promising preliminary results in treating head and neck cancer.
- The company maintains a strong balance sheet with approximately $838 million in cash, cash equivalents, and marketable securities, providing a solid foundation for future investments and growth.
Negative Points
- Despite the revenue growth, the company reported a GAAP operating expense increase to $45.4 million in Q2 2024, up from $43.9 million in Q1 2024, primarily due to higher R&D spending.
- Non-GAAP operating margins were negative at -7.4%, indicating ongoing challenges in achieving profitability.
- The company anticipates a non-GAAP operating margin of approximately -16% for the full year 2024, reflecting continued investment needs.
- The therapeutic development business is expected to incur a cash burn of $15 million to $17 million in 2024, impacting overall financial performance.
- Uncertainty around new FDA regulations on lab-developed tests could pose potential challenges and disruptions to the company's service offerings.
Q & A Highlights
Q: With an $800 million cash balance and proven cash discipline, is there any thought to capital allocation going back to M&A strategy? Or do you think you have too many irons in the fire with all the different businesses and clinical trials coming up?
A: (Paul Kim, CFO) Our cash balance is sufficient to address a wider market with our capabilities. We have seen significant growth in our core revenues and improved efficiencies, particularly in gross margins. We are careful with acquisitions but consistently evaluate opportunities. (Brandon Perthuis, CCO) We don't have too many irons in the fire and will continue to evaluate M&A opportunities carefully.
Q: Can you talk about some of the differentiation you have in the NIPT test and any guideline expectations?
A: (Brandon Perthuis, CCO) Our NIPT test includes screening for de novo point mutations, which most NIPTs do not. These monogenic conditions are serious and relatively common, adding clinical value. We are also monitoring potential expanded ACOG guidelines for expanded carrier screening, which would benefit the industry.
Q: Regarding the head and neck cancer opportunity, when would enrollment end, and how long would the study be? Can you help us size the opportunity for FID-007?
A: (Ming Hsieh, CEO) Enrollment is expected to complete in early 2026. If results are impressive, we might apply for fast-track FDA approval. There are over 50,000 head and neck cancer patients in the U.S., with a much larger global market. We see tremendous potential for growth in this area.
Q: What changed on the expense side that led to a more favorable guidance?
A: (Paul Kim, CFO) The biggest change was lower G&A costs due to better collections than anticipated. This reduction in expenses, along with better gross margins and higher revenues, contributed to the improved guidance.
Q: How does the uncertainty around the FDA regulation of LDTs impact how you manage your business?
A: (Brandon Perthuis, CCO) We believe we are in a good position regardless of the FDA's decision. Many of our tests are New York state approved, and we have a large test menu that predates the new regulations. This could create a competitive moat for our business.
Q: How is the market share picture evolving since one of your big competitors was acquired?
A: (Brandon Perthuis, CCO) There was minimal disruption to their business, and we did pick up some market share, but not to a large degree. The previous event had a more significant impact on our market share in Reproductive Health testing.
Q: Can you provide more details on the NIPT test detailing process and expected ramp?
A: (Brandon Perthuis, CCO) It will take significant clinician education and additional publication and validation studies. We expect more meaningful volume in 2025 as we focus on education and expanded indications.
Q: What are the factors affecting the growth of the anatomic pathology business?
A: (Brandon Perthuis, CCO) The business has been stabilized after addressing macro factors and restructuring the sales team. Recent wins and a strong sales pipeline indicate good momentum for the back half of the year.
Q: Any thoughts on potential deployment of capital for stock buybacks or other uses?
A: (Paul Kim, CFO) We have a $250 million stock buyback program with $150 million left. We see buybacks as an option but also focus on investing in the market and expanding our business. (Ming Hsieh, CEO) We are actively looking for M&A opportunities and continue to execute our strategy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
