Skip to main content

NantHealth Q3 Revenues Grow 2 Percent as Reimbursement Issues Frustrate

NEW YORK (GenomeWeb) – NantHealth's third quarter revenues grew around 2 percent year over year, the company reported after the close of the market on Thursday.

The Culver City, California-based company said that it recorded $22.3 million in revenues for the three months ended Sept. 30, up from $21.8 million during Q3 2017. It missed the consensus Wall Street estimate of $24.6 million for the top line.

Following historical patterns, the vast majority of revenue came from the firm's software and hardware products, including software as a service. The software/hardware division booked $19.9 million in sales in the quarter, a slight increase from the $19.4 million recorded a year earlier.

"Revenue from this line item often varies from quarter to quarter, due to timing and completion of connected-care implementations," interim CFO Bob Petrou said on a conference call with analysts.

NantHealth saw a 28 percent drop off in revenue from sequencing and molecular analysis to $742,000 from $1 million for the same period in 2017. This result came despite a 76 percent sequential increase in orders of the company's marquee liquid biopsy test, and sequencing and molecular analysis revenue is still up by 26 percent year-to-date, the firm noted.

"The [third quarter] decrease was primarily driven by a change in product mix on tests performed and reimbursement as we transitioned a part of our sequencing and molecular analysis business to the [Liquid GPS] tests to accommodate for a growing segment of the market," Petrou said.

The company said it processed 469 Liquid GPS orders in the quarter compared to 266 in Q2 2018. Liquid GPS came online in March and NantHealth formally launched the product in June. Orders for the Cancer GPS whole-genome sequencing test fell to 461 from 642 in the previous quarter, however.

Chairman and CEO Patrick Soon-Shiong said that there are now 700 physicians ordering GPS Cancer and 245 ordering Liquid GPS.

Revenues from home healthcare services jumped 25 percent to $1.6 million in Q3 2018 from the prior year's $1.3 million.

The firm's net loss widened to $97.5 million, or $.89 per share, in Q3 2018 compared to $42.4 million, or $.37 per share, in Q3 2017, though most of the loss in the recently ended quarter stems from a one-time charge of $83.3 million related to an investment in sister company NantOmics, which handles sequencing for NantHealth. On a non-GAAP basis, NantHealth reported a loss per share of $.10, beating analysts' average estimate of $.13.

Its R&D expenses tumbled by 38 percent year over year to $4.8 million from $7.8 million while its SG&A costs dipped 3 percent to $17 million from the prior year's $17.5 million.

As of Sept. 30, NantHealth had $22.8 million in cash and cash equivalents, about $6 million less than at the end of Q2. Chief Operating Officer Ron Louks said that NantHealth has not had to draw on the $100 million line of credit offered by sister company NantCapital earlier this year.

Release of the financial results were delayed a week due to Hurricane Michael. NantHealth has accounting staff in Panama City, Florida, which suffered extensive damage from the monster storm last month. Louks said that all Panama City employees are safe and that the office is operating at full strength.

During the quarter, NantHealth also had some management changes that may signal a shift in strategy.

In August, then-CFO Paul Holt submitted his resignation, effective Sept. 11. Petrou replaced Holt on an interim basis.

In September, NantHealth hired Nikko Khazana as senior vice president for strategy and business development and Mark Mozley as SVP for global sales.

With the shake-up, the firm, part of Patrick Soon-Shiong's NantWorks business empire, is trying to reframe itself to the investment community in hopes of boosting its lagging stock price. Since going public at $14 a share in 2015, NantHealth has seen its value tank; shares closed Thursday at $1.46.

During the conference call, Soon-Shiong expressed his frustration with the lack of reimbursement for its tests and said that the company would stop offering GPS Cancer and Liquid GPS testing for free in some cases. "It's a very nonsustainable thing to do, and we are now going to be adapting a policy which will be addressing this issue of reimbursement very aggressively," he said.

He also made a lengthy appeal to shareholders in an attempt to convince them to ride out the continued losses in hopes that a sizeable payoff could be on the horizon in the form of personalized cancer treatments. For that reason, R&D will continue apace.

"While reimbursement was important, it's more important for us as an organization to get to what I call the molecular truth of the cancer, of understanding the entire DNA, RNA, and transcriptome, combining the tissue of the tumor with tissue of the normal to do this analysis, which we call GPS Cancer," Soon-Shiong said.

In pursuit of wider reimbursement, NantHealth scaled back its ambitions with the FDA after originally submitting a whole-exome tumor profiling assay covering 19,000 genes.

"Much as we tried as scientists to convince the regulatory world that it's better to measure 20,000 genes than 400 genes, we had to cry 'uncle' and say, 'Fine, we'll measure 400 genes.' That's the test that we're putting in now because that's what they're reimbursing," Soon-Shiong said.

"I feel it's an inferior test, and it kills me that we actually have to launch an inferior test just so we can get reimbursement, but that's life," he lamented. So NantHealth now is seeking approval of a 461-gene GPS Cancer test and a 469-gene Liquid GPS test while it continues to pursue its broader vision.

"Obviously, we'll support whatever is needed to get that test on the market, but that never was the purpose of that test," Soon-Shiong said.

He said that the full GPS Cancer panel is more of a tool for drug design than a test. "GPS Cancer is an ability for us to print the molecule today in its genomic sequence and deliver it in whatever vector that is available, whether it be the peptide itself, whether it be the adenovirus, whether it be an NK cell, whether it be a CAR T cell," Soon-Shiong explained.

"It's hard to get people to see ahead of the puck of why we are doing this test and continue, so we committed to going along because we have to, with the flow of an inferior test, to match what we believe is not a complete test in the market so that we can get reimbursed. But, we are not going to walk away from our commitment to build this test to … save lives," Soon-Shiong said.