Wednesday, December 7, 2016

Genetics Testing Company FULGENT; IPO, S-1, Investor Call

Numerous public (INVITAE) and non public (COUNSYL, AMBRY) companies are growing in the genetic testing space.   Business deals are announced regularly (GOODSTART will be offered through a new alliance with Roche's NIPT laboratory Ariosa.)

Fulgent Genetics is a Los Angeles-area genetics laboratory which moved rapidly from its founding in 2013 to its IPO on September 29 (here), which raised $50M.  It has a market cap of $170M as of early December.

Fulgent provides broad-spectrum genetic testing services.   It had 2014 revenue of $1.3M and 2015 revenue of $9.5M.   It had a net loss in 2015 of $5M from continuing operations, most of which would be represented by a reported $4.3M in R&D.
  • Yahoo Finance Home Page, here.
  • Company website, here.
  • 500 page S-1 filing document, here.
  • November 7, 2016, investor call transcript, here.   

Every IPO in the tech sector has a grim business risks section (we may fail for reason 1, we may fail for reason 2, we may fail for reason 3, etc.)   That said, here is an extract from the Fulgent S-1 business risks section:
We face intense competition, which is likely to intensify further as existing competitors devote additional resources to, and new participants enter, the market, and if we cannot compete successfully, we may be unable to increase our revenue or achieve or grow profitability. 
With the development of NGS, the clinical genetics market has become increasingly competitive, and we expect this competition to further intensify in the future. We face competition from a variety of sources, including, among others:

  • Dozens of companies focused on molecular genetic testing services, including specialty and reference laboratories that offer traditional single-gene and multi-gene tests, such as Ambry Genetics, Inc.; Counsyl Inc.; Foundation Medicine, Inc.; GeneDx, a subsidiary of OPKO Health, Inc.; Invitae Corporation; Myriad Genetics, Inc.; and Pathway Genomics Corporation, as well as other commercial and academic laboratories; and

  •  Established and emerging healthcare, information technology and service companies that may develop and sell competitive tests, which may include informatics, analysis, integrated genetic tools and services for health and wellness.
Additionally, participants in closely related markets, such as prenatal testing and clinical trial or companion diagnostic testing, could converge on offerings that are competitive with the type of tests we perform. Instances where potential competitors are aligned with key suppliers or are themselves suppliers could provide such potential competitors with significant advantages. 
Further, hospitals, research institutions and eventually individual physicians and other practitioners may also seek to perform at their own facilities the type of genetic testing we would otherwise perform for them. In this regard, continued development of, and associated decreases in the cost of, equipment, reagents and other materials and databases and genetic data interpretation services may enable broader direct participation in genetic testing and analysis and drive down use of third-party testing companies such as ours. 
Moreover, the biotechnology and genetic testing fields continue to undergo significant consolidation, permitting larger clinical laboratory service providers to increase cost efficiencies and service levels, resulting in more intense competition.