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Fulgent Genetics Eyes 'Aggressive' Commercial Strategy

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NEW YORK – Fulgent Genetics is looking to build on a successful third quarter by expanding its international sales and offering more consumer-initiated genetic tests.

On Monday, the Temple City, California-based testing firm reported 84 percent growth year over year in total revenue, a 272 percent increase in billable tests year over year, and a net profit of $1.5 million.

On a conference call following the release of results, Fulgent officials discussed not only how they planned to keep the ball rolling but also why, despite the firm's recent performance, they are projecting conservative numbers for its fourth quarter and full-year revenue projections.

In afternoon trading on the Nasdaq, shares of Fulgent were up 33 percent at $12.57 and up more than 250 percent since the beginning of the year.

Fulgent CEO Ming Hsieh noted on the call that the reported numbers represented record highs for revenue and next-generation sequencing-based test volume, building on second quarter results that showed 56 percent revenue growth and 187 percent test volume growth, year over year.

At least one Wall Street analyst has taken notice. "Last quarter we signaled we would reconsider our rating dependent upon more consistent performance, and Fulgent certainly delivered," PiperJaffray's William Quirk wrote on Monday in an analyst note. He raised Fulgent's stock rating to Overweight from Neutral and raised the price target to $12.30 from $9.50.

Fulgent officials noted that they'd managed to achieve that growth with only a nominal increase in headcount and mostly in their US business. Hsieh noted that the company has only added about 20 people since the beginning of the year. And CFO Paul Kim said that the US accounted for more than 80 percent of revenues.

However, that's likely to change soon. Fulgent CFO Paul Kim said the firm would "be very aggressive in our commercialization strategy" and that it would be "addressing the international markets." He did not provide details but said the firm would be providing color on its commercialization strategy in the future.

Hsieh noted on the call that the firm is "excited" about the opportunity to reach consumers directly with Picture Genetics, a new venture announced in September, despite the fact that the firm expected to see "minimal revenue contribution from these tests in the immediate term."

The three tests offered through Picture are meant to be ordered by consumers, with physician review and genetic counseling provided by telehealth firm PWNHealth.

At launch, the only available test was a $295 carrier screening test called Picture Parenting. Now, Picture Wellness, which tests for the American College of Medical Genetics list of 59 medically actionable genes, is also available, Hsieh said and the third test, a newborn screening test, would be available "later this year."

Kim raised the firm's full year revenue guidance to approximately $32 million dollars, which would represent growth of about 50 percent year over year. That was purposefully conservative, he said, adding that the firm has raised guidance every quarter this year. "We expect to see elevated test volumes in periods ahead … but at the same time we want to be measured in guidance, given rapid inflections in test volume we've seen the last few quarters," Kim said. "We're applying additional conservatism given the pending impact of Centers for Medicare & Medicaid Services coverage for hereditary cancer testing going forward."

Last month, CMS proposed a new national coverage determination (NCD) for NGS sequencing panels for cancer patients that have been approved or cleared by the US Food and Drug administration.

Kim noted that Fulgent does not provide financial details about individual tests but noted that the amount of test requisitions it is getting from "oncology and related areas is a significant portion of our business." The firm also offers rare disease and women's reproductive health testing, as well as sequencing services.

Kim said Fulgent is seeing orders from "cash paying" customers who are outsourcing testing to the firm. "They're the ones submitting claims to CMS and the federal agencies," he said. "We don't know how that's going to impact the reimbursement experience for these organizations."

That and the fact that the company doesn't "want to get too ahead" of itself is the reason Fulgent wants "to be a litter metered" about its expectations moving forward, Kim said.

But Quirk, the analyst, wrote, "we do not believe [the CMS NCD on NGS testing] will have a negative effect on volumes."