NEW YORK – As GenMark Diagnostics tries to gain traction in the infectious disease testing space, it said on Monday it had joined the growing number of firms that are developing a test for the novel coronavirus test.
While company officials downplayed the effect of the test on its top and bottom lines moving forward, investors clearly greeted the news as they sent the company's shares up by as much as 46 percent on Tuesday before ending the session up 22 percent a day after GenMark said it had begun shipping research-use-only test kits to detect the SARS-CoV-2 virus, while also reporting a 40 percent year over year increase in its fourth quarter revenues.
The company said that it had started shipping the SARS-CoV-2 coronavirus tests last week to its distributor in Hong Kong and to hospitals in the US that have access to clinical samples. GenMark said on Monday that it anticipates using information from customers that are using the RUO test to support an application within a week to the US Food and Drug Administration for Emergency Use Authorization of the test.
Scott Mendel, the firm's newly appointed interim president and CEO, said on a conference call to discuss the firm's financial results that the timing of the EUA approval is uncertain, but the firm hopes to obtain it within a month.
Mendel said, however, estimating the impact of an available RUO and EUA-approved test on the firm's revenues is difficult. He noted that the SARS-CoV-2 coronavirus assay is a single-target test that it could roll into a broader ePlex respiratory panel if the virus that causes the disease known as COVID-19 persists.
At present, however, customers "would run the RP panel first because it contains 20-plus pathogens and then reflex to the single-target test if the patient comes up negative," he said. While COVID-19 is an important health concern, "we don't think it's going to drive a tremendous amount of volumes," certainly not in the fourth quarter of 2019 or Q1 2020, with only one month remaining in the quarter, Mendel added.
The surge in the firm's stock price on Tuesday may be associated with perceptions of an overall improvement in the Carlsbad, California-based company's business prospects.
William Blair analyst Brian Weinstein wrote in a research note Tuesday that non-industry experts are likely to focus on GenMark's business activities associated with COVID-19, but "we do not believe this is a large opportunity for the company given the very small market for testing for COVID-19 that we see today, or anticipate in the future in the US or elsewhere."
Institutions doing testing may favor their own laboratory-developed tests or use of a US Center for Disease Control and Prevention assay, which cost "significantly less" and can be used on a larger installed base, Weinstein said.
The FDA last Saturday announced that it will allow high-complexity CLIA-certified labs to immediately perform tests they've developed and validated for the SARS-CoV-2 coronavirus while they are pursuing emergency use authorization.
GenMark's test — used as an LDT or kit following emergency use authorization — will join a large list of molecular tests and immunoassays available for COIVD-19 testing.
SARS-CoV-2 testing aside, a number of analysts covering GenMark viewed its Q4 financial results as positive in light of the firm's valuation. For example, Canaccord Genuity analyst Max Masucci said that the investment bank thinks GenMark "is worth a look" due in part to its inexpensive valuation.
Looking ahead in 2020, according to Mendel, GenMark's three main priorities are strong revenue growth; making steps towards cash-flow positivity through growth, continued gross margin improvement, and operating efficiencies; and menu and technology advancements.
On Monday, GenMark reduced its 2020 revenue guidance at the low-end by $6 million. For full-year 2020, the company said it expects revenues in the range of $100 million to $110 million, which would represent growth of 14 percent to 25 percent, updated from 20 percent to 25 percent that it had previously communicated.
It noted total ePlex analyzer placements in Q4 was primarily driven by customer interest in GenMark's BCID panels, which received FDA clearances last year. About 80 percent of placements in Q4 were driven by BCID demand, the firm said Monday.
A multicenter study, published recently in the Journal of Clinical Microbiology, reported that GenMark's BCID-FP Panel "offers a faster turnaround time for identification of fungal pathogens in positive blood cultures that may allow for earlier antifungal interventions and includes C. auris, a highly multi-drug resistant fungus."
Still, it was evident during the conference call Monday that the firm is working through a number of issues, including accelerating the time it takes to implement a system and increasing platform utilization, to capitalize on the revenue potential of ePlex.
Mendel noted that the timeframe for implementation of ePlex has been trending longer than the three to six months the firm had initially anticipated.
"Since the launch of BCID in the middle of 2019, we have learned that the implementation process for these panels requires focused efforts from our team and a variety of constituents within the hospital," he said, adding, "With additional experience and focus, we are confident that we can improve the implementation process."
Reducing time to implementation and revenue generation has also been challenging for other companies entering the BCID space. Accelerate Diagnostics, for example, has recently introduced a return-on-investment tool to its sales team to speed the time to implementation of its Pheno BCID and AST system.
Mendel said GenMark is implementing steps to streamline the implementation process, and added, "We are measuring and incenting our teams to successfully complete these implementations, and we are adding additional specialists to help expedite the most challenging steps frequently encountered during the process."
Though GenMark expanded geographically in 2019, placing new ePlex instruments in new countries, it has work ahead of it to increase testing on those systems.
"In 2019 we expanded our international footprint to more than 30 countries, and in 2020 we will be laser-focused on maximizing return on that investment and allocating our time and resources to those areas that could drive both revenue growth and margin expansion," Mendel said.
According to GenMark's CFO Johnny Ek, the average annuity per ePlex placement in the fourth quarter was $148,000, which represented a year-over-year increase of 6 percent. In 2020, the firm anticipates between $130,000 and $135,000 reflecting full-year 2019 average annuity of $132,000.
The company is focusing its efforts on the ePlex analyzer placements "that will ensure improved utilization and strong recurring revenue streams," Ek said on the conference call. "As a result, we anticipate placements in 2020 to range from 130 to 160 analyzers reflecting continued strong US placements and a more measured approach internationally."
Within the US, ePlex analyzer placements have been generating almost six times the annuity of placements outside the country. With 70 percent of placements in the fourth quarter within labs that previously had a competitive analyzer, the firm has started looking country by country at all placements to get a clear view of those with potential to drive the strongest revenue and margin growth.
Mendel said he is encouraged by a strong sales pipeline. The current funnel of customer prospects will generate approximately $15 million in annualized revenue if they are all converted to routine clinical use, he said.
GenMark said it expects to begin clinical trials before the end of this year for a gastrointestinal panel it is developing for ePlex, with the aim of an FDA submission in the first half of 2021.
In February, Hany Massarany stepped down as president and CEO and member of GenMark's board, after a nine-year span in which he led the company during its development and launch of ePlex. Mendel noted on Monday that the management change came as the company entered the next phase of its lifecycle. "As we're balancing strong revenue growth [with] an eye toward positivity, it seemed like a natural time to make a transition," he added.