From a personal and investment perspective, one of my keenest interests and concerns is the search for the holy grail cure for cancer. Since I am not a prolific poster at this board, you might have missed some of my past posts as follows:
4/3/2017 Macro view of the CAR T-cell sector
https://discussion.fool.com/macro-view-of-the-car-t-cell-sector-…
4/13/2017 Big Pharma in the CAR-T sector
https://discussion.fool.com/big-pharma-in-the-car-t-sector-32676…
9/5/2017 Cancer trial patient shortage
https://discussion.fool.com/cancer-trial-patient-shortage-328271…
10/3/2017 Part 2: Global look at CAR-T trials
https://discussion.fool.com/part-2-global-look-at-car-t-trials-3…
4/21/2018 Macro view of LIQUID BIOPSY sector
https://discussion.fool.com/macro-view-of-liquid-biopsy-sector-3…
My post today refers to and reiterates some info from some of these past posts.
INVESTMENT PERSPECTIVE
Cancer Treatment: Plan A versus Plan B
According to an August 11, 2014 MIT Technology Review article about Bert Vogelstein, M.D., co-director of the Ludwig Center at the Johns Hopkins Kimmel Cancer Center and one of the most highly cited scientists in the world, we’re not winning the war on cancer, and the death of Vogelstein’s brother shows why. Too many cancers are caught when they have become incurable.
Although worldwide spending on cancer medicines continues to rise with therapeutic and supportive care use at $133 billion globally in 2017, up from $96 billion in 2013, most of those medicines are given to patients when it’s too late. Spending on cancer medicines is heavily concentrated among a handful of therapies, with the top 35 drugs accounting for 80% of total spending, while over half of cancer drugs have less than $90 million in annual sales. List prices of new cancer drugs at launch have risen steadily over the past decade, and the median annual cost of a new cancer drug launched in 2017 exceeded $150,000, compared to $79,000 for the new cancer drugs launched in 2013. Some of the newest treatments, created at staggering expense, cost $10,000 a month and often extend life by only a few weeks. Pharmaceutical firms develop and test more drugs for late-stage cancer than for any other kind of disease.
Dr. Vogelstein strongly asserted:
“We as the public and as scientists have been entranced by this idea of curing advanced cancers. That is society’s “Plan A”. I don’t think that has to be the case. There are other ways to reduce cancer deaths: wearing sunscreen, not smoking, and getting screened to catch cancer early. All these preventive steps represent “Plan B” because they receive so much less attention and funding. Yet when prevention works, it has better results than any drug. In the United States, the chance of dying from colorectal cancer is 40 percent lower than it was in 1975, a decrease mostly due to colonoscopy screening. Melanoma skin cancer, too, is treatable with surgery if caught early. We think Plan B needs to be Plan A. The new blood tests could make that possible.”
Many participants and observers at this board (I’m primarily an observer here and hate the term “lurker”) have benefited well with “Plan A” investments in the likes of Kite Pharma (acquired by Gilead Sciences for a whooping $11.9 billion in August 2017) and Juno Therapeutics (acquired by Celgene for an astounding $9 billion in January 2018). Others here also have done well with “Plan B” investments like Foundation Medicine Inc (acquired by Roche for $2.4 billion) and Guardant Health (which was a private company when listed in my Liquid Biopsy post and later IPO’ed in October 2018).
I’ve narrowed my focus on primarily the direction and R&D efforts of the two liquid biopsy pioneers - Bert Vogelstein and Dennis Lo - given in the following private companies:
• GRAIL, associated with Denis Lo. https://grail.com
and
• Personal Genome Diagnostics/PGDx as well as other companies associated with Dr. Vogelstein. https://www.personalgenome.com
What attracts me to Lo and Vogelstein are their similar goals to shoot for the “whole enchilada,” i.e., develop one test that ideally will detect all cancers early on in supposedly healthy people and will be affordable enough to be included with other normal tests taken in annual physical examinations of patients - a massive global population and market.
The GRAIL 2016 Investor Presentation gave a target liquid biopsy test price range of $500 to $1,000 to make it attractive and affordable as part of an individual’s physical exam. Dr. Vogelstein believes $1,000 is too much and strives for a more affordable cost, say $100.
So, today we have “Plan A” CAR-T therapy offerings with cost per therapy currently at a whooping $350,000 to $475,000 versus “Plan B” efforts by Vogelstein and Lo to develop a catch-all cancer liquid biopsy test costing $100 to $1,000. In between are many other ongoing efforts to treat and cure all kinds of cancer. Practically all involved public and private companies, academic research centers and institutions cannot accomplish everything in-house and need to outsource work.
Enter NeoGenomics, Inc. (NEO), a premier pure-play oncology testing company that I’ve discovered mentioned often and given high reviews and respect by medical researchers, doctors, professionals and companies while undergoing my liquid biopsy due diligence and led to my initial NEO investment in 2018. In the Health Care - Life Sciences Tools & Services sector, NeoGenomics, Inc., together with its subsidiaries, operates a network of cancer-focused genetic testing laboratories in the United States; and laboratories in Switzerland and Singapore. It operates in two segments, Clinical Services and Pharma Services. The company’s laboratories provide genetic and molecular testing services to hospitals, pathologists, oncologists, urologists, other clinicians and researchers, pharmaceutical firms, academic centers, and other clinical laboratories. It offers cytogenetics testing services to study normal and abnormal chromosomes and their relationship to diseases; fluorescence in-situ hybridization testing services that focus on detecting and locating the presence or absence of specific DNA sequences and genes on chromosomes; flow cytometry testing services to measure the characteristics of cell populations; immunohistochemistry and digital imaging testing services to localize proteins in cells of a tissue section, as well as to allow clients to see and utilize scanned slides, and perform quantitative analysis for various stains; and molecular testing services, which focus on the analysis of DNA and RNA, and the structure and function of genes at the molecular level. The company also provides pathology consultation services for clients in which its pathologists review surgical samples on a consultative basis; and testing services in support of its pharmaceutical clients oncology programs covering discovery and commercialization, as well as acts as a reference laboratory supplying anatomic pathology testing services. NeoGenomics, Inc. was founded in 2001 and is headquartered in Fort Myers, Florida.
CORPORATE BUSINESS
NeoGenomics is a high-complexity CLIA-certified clinical laboratory, pharma services and information services company that specializes in cancer genetics diagnostic testing. The Clinical Laboratory Improvement Amendments (CLIA) program regulates laboratories that test human specimens and ensures laboratories produce accurate, reliable, and timely patient test results regardless of where the test is performed.
https://www.cms.gov/Outreach-and-Education/Medicare-Learning…
According to the Centers for Disease Control and Prevention (CDC), clinical laboratory test systems are assigned a moderate or high complexity category on the basis of seven criteria given in the CLIA regulations. For commercially available FDA-cleared or approved tests, FDA scores the tests using these criteria during the pre-market approval process. The final score determines whether the test system is categorized as moderate or high complexity. Tests developed by the laboratory or that have been modified from the approved manufacturer’s instructions default to high complexity according to the CLIA regulations.
https://wwwn.cdc.gov/clia/resources/testcomplexities.aspx
For those interested, the following website provides the FDA 7 Categorization Criteria:
https://www.fda.gov/medical-devices/ivd-regulatory-assistanc…
and the CLIA website provides the “Rigorous CLIA Required Personnel Qualifications:”
The NeoGenomics 10K for FY 2018 provides the following business description:
“We operate a network of cancer-focused genetic testing laboratories in the United States as well as a laboratories in Switzerland and Singapore. Our mission is to improve patient care through exceptional genetic and molecular testing services. Our vision is to become the World’s leading cancer testing and information company by delivering uncompromising quality, exceptional service and innovative solutions.
As of December 31, 2018, the Company has laboratory locations in Ft. Myers and Tampa, Florida; Aliso Viejo, Carlsbad and Fresno, California; Houston, Texas; Atlanta, Georgia; Nashville, Tennessee; Rolle, Switzerland, and Singapore and currently offers the following types of genetic and molecular testing services:
a. Cytogenetics - the study of normal and abnormal chromosomes and their relationship to disease. It involves looking at the chromosome structure to identify changes from patterns seen in normal chromosomes. Cytogenetic studies are often utilized to answer diagnostic, prognostic and predictive questions in the treatment of hematological malignancies.
b. Fluorescence In-Situ Hybridization (“FISH”) - a branch of cancer genetics that focuses on detecting and locating the presence or absence of specific DNA sequences and genes on chromosomes. FISH helps bridge abnormality detection between the chromosomal and DNA sequence levels. The technique uses fluorescent probes that bind to only those parts of the chromosome with which they show a high degree of sequence similarity. Fluorescence microscopy is used to visualize the fluorescent probes bound to the chromosomes. FISH can be used to help identify a number of gene alternations, such as amplification, deletions, and translocations.
c. Flow cytometry - a rapid way to measure the characteristics of cell populations. Cells from peripheral blood, bone marrow aspirate, lymph nodes, and other areas are labeled with selective fluorescent antibodies and analyzed as they flow in a fluid stream through a beam of light. The properties measured in these antibodies include the relative size, relative granularity or internal complexity, and relative fluorescence intensity. These fluorescent antibodies bind to specific cell surface antigens and are used to identify malignant cell populations. Flow cytometry is typically performed in diagnosing a wide variety of leukemia and lymphoma neoplasms. Flow cytometry is also used to monitor patients through therapy to determine whether the disease burden is increasing or decreasing, otherwise known as minimal residual disease monitoring.
d. Immunohistochemistry (“IHC”) and Digital Imaging – Refers to the process of localizing proteins in cells of a tissue section and relies on the principle of antibodies binding specifically to antigens in biological tissues. IHC is widely used in the diagnosis of abnormal cells such as those found in cancerous tumors. Specific surface cytoplasmic or nuclear markers are characteristic of cellular events such as proliferation or cell death (apoptosis). IHC is also widely used to understand the distribution and localization of differentially expressed proteins. Digital imaging allows clients to see and utilize scanned slides and perform quantitative analysis for certain stains. Scanned slides are received online in real time and can be previewed often a full day before the glass slides can be shipped back to clients.
e. Molecular testing - a rapidly growing cancer diagnostic tool focusing on the analysis of DNA and RNA, as well as the structure and function of genes at the molecular level. Molecular testing employs multiple technologies including DNA fragment length analysis, real-time polymerase chain reaction (“RT-PCR”) RNA analysis, bi-directional Sanger sequencing analysis, and Next-Generation Sequencing (“NGS”).
f. Pathology consultation - services provided for clients in which our pathologists review surgical samples on a consultative basis. NeoGenomics expert pathologists often assist our client pathologists on their most difficult and complex cases.
Operating Segments
We have two primary types of customers, Clinical and Pharma. Our Clinical customers include community based pathology practices, oncology groups, hospitals and academic centers. Our Pharma customers include pharmaceutical companies to whom we provide testing and other services to support their studies and clinical trials.
Clinical Services Segment
The clinical cancer testing services we offer to community-based pathologists are designed to be a natural extension of, and complementary to, the services that they perform within their own practices. We believe our relationship as a non-competitive partner to community-based pathology practices, hospital pathology labs and academic centers empowers them to expand their breadth of testing and provide a menu of services that matches or exceeds the level of service found in any center of excellence around the world. Community-based pathology practices and hospital pathology labs may order certain testing services on a technical component only (“TC” or “tech-only”) basis, which allows them to participate in the diagnostic process by performing the professional component (“PC”) interpretation services without having to hire laboratory technologists or purchase the sophisticated equipment needed to perform the technical component of the tests. We also support our pathology clients with interpretation and consultative services using our own specialized team of pathologists for difficult or complex cases and provide overflow interpretation services when requested by clients.
In addition, we may directly serve oncology, dermatology, urology and other clinician practices that prefer to have a direct relationship with a laboratory for cancer-related genetic and molecular testing services. We typically service these types of clients with a comprehensive service offering where we perform both the technical and professional components of the tests ordered. In certain instances larger clinician practices have begun to internalize pathology interpretation services, and our “tech-only” service offering allows these larger clinician practices to also participate in the diagnostic process by performing the PC interpretation services on TC testing performed by NeoGenomics. In these instances NeoGenomics will typically provide all of the more complex, molecular testing services.
Pharma Services Segment
Our Pharma Services segment supports pharmaceutical firms in their drug development programs by supporting various clinical trials and research. This portion of our business often involves working with the pharmaceutical firms (sponsors) on study design as well as performing the required testing. Our medical team often advises the sponsor and works closely with them as specimens are received from the enrolled sites. We also work on developing tests that will be used as part of a companion diagnostic to determine patients’ response to a particular drug. As studies unfold, our clinical trials team reports the data and often provides key analysis and insights back to the sponsors.
Our Pharma Services segment provides comprehensive testing services in support of our pharmaceutical clients’ oncology programs from discovery to commercialization. In biomarker discovery, our aim is to help our customers discover the right content. We help our customers develop a biomarker hypothesis by recommending an optimal platform for molecular screening and backing our discovery tools with the informatics to capture meaningful data. In other pre and non-clinical work, we can use our platforms to characterize markers of interest. Moving from discovery to development, we help our customers refine their biomarker strategy and, if applicable, develop a companion diagnostic pathway using the optimal technology for large-scale clinical trial testing.
Whether serving as the single contract research organization or partnering with one, our Pharma Services team provides significant technical expertise, working closely with our customers to support each stage of clinical trial development. Each trial we support comes with rapid turnaround time, dedicated project management and quality assurance oversight. We have experience in supporting submissions to the Federal Drug Administration (“FDA”) for companion diagnostics and our Pharma Services strategy is focused on helping bring more effective oncology treatments to market through providing world class laboratory services in oncology to key pharmaceutical companies in the industry.
Our Pharma Services revenue consists of three revenue streams:
• Clinical trials and research;
• Validation laboratory services; and
• Data services.
In 2018, our Clinical Services segment accounted for 87% of consolidated revenues and our Pharma Services segment accounted for 13% of our consolidated revenues. For further financial information about these segments, see Note R to our Consolidated Financial Statements included in this Annual Report.”
[END OF EXERPT FROM FY 2018 10K]
I’ve pulled together the following data showing the breakdown of quarterly and annual revenue growth for Clinical Services and Pharma Services for over the recent past 3 years.
**NEO CLINICAL Sequen- PHARMA Sequen- TOTAL Sequen-**
**REVENUE SERVICES % of tial Y-o-Y SERVICES % of tial Y-o-Y REVENUE tial Y-o-Y**
**($ M) Total Change Change ($ M) Total Change Change ($ M) Change Change**
**Q2 '19 88.982 87.5%% 3.2% 49.4% 12.731 12.5% 35.9% 55.1% 101.713 6.4% 50.1%**
Q1 ‘19 86.210 90.2% 30.8% 51.3% 9.367 9.8% (11.3%) 45.2% 95.577 25.0% 50.7%
**FY 2018 241.873 87.4% 13.5% 13.5% 34.868 12.6% 28.4% 28.4% 276.741 15.2% 15.2%**
Q4 ‘18 65.913 86.2% 10.9% 23.3% 10.562 13.8% 9.5% 32.6% 76.475 10.7% 24.5%
Q3 ‘18 59.449 86.0% (0.2%) 16.1% 9.647 14.0% 17.6% 21.3% 69.096 2.0% 16.8%
Q2 ‘18 59.540 87.9% 4.5% 7.2% 8.206 12.1% 27.2% 22.2% 67.746 6.8% 8.8%
Q1 ‘18 56.971 89.8% 6.6% 7.7% 6.452 10.2% (19.0%) 42.7% 63.423 3.3% 10.4%
**FY 2017 213.097 88.7% 1.4% 1.4% 27.154 11.3% 25.4% 25.4% 240.251 3.6% 3.6%**
Q4 ‘17 53.456 87.0% 4.4% 7.966 13.0% 0.2% 61.422 3.9%
Q3 ‘17 51.187 86.6% (7.8%) 7.950 13.4% 18.4% 59.137 (5.0%)
Q2 ‘17 55.547 89.2% 5.0% 6.717 10.8% 48.6% 62.264 8.4%
Q1 ‘17 52.907 92.1% 4.521 7.9% 57.428
**FY 2016 210.159 90.7% 21.649 9.3% 231.808**
At the 7/30/2019 earnings call for Q2 2019, NEO Chairman and CEO Douglas M. VanOort reported:
• Revenue increased 50% year-over-year to $102 million with organic growth of approximately 20%. Growth was strong in both divisions. Clinical volumes increased 34% year-over-year.
• On the Clinical side, we’ve added large hospital and oncology clients and continue to gain market share with both hospitals and community oncology practices. We also launched an important new companion diagnostic test, which only began to ramp at the end of the second quarter. Importantly, we are actively hiring, which should increase over capacity to accommodate new business at a faster pace.
• On the Pharma side, our backlog is larger than ever, which bodes well for revenue in the second half of this year. Our pipeline is robust, and we expect to benefit from our international expansion.
NEO CFO Sharon Virag gave the following additional details:
• Clinical Services revenue increased 49% to $89 million driven by the Genoptix acquisition and continued market share gains. Clinical volume increased 34%, while revenue per test increased 12% year-over-year to $355. Revenue per test decreased $13, or about 3%, sequentially. While a good portion of this decline is attributable to test mix, which will vary from quarter to quarter, we did incur greater than anticipated revenue volatility from the finalization of managed care contract negotiations necessary to include Genoptix in our contracts.
• Pharma Services revenue increased 55% to almost $13 million, which is a new high water mark for the division and was ahead of our internal projections. For the first half of 2019, Pharma Services revenue is up over 50% compared with last year. We booked $20 million of new business in the second quarter and increased our backlog quarter-over-quarter to $106 million, despite reporting strong Q2 revenue performance that converted a significant chunk of backlog to revenue.
Genoptix acquisition
On 12/10/18, NeoGenomics completed the acquisition of the parent company of Genoptix, Inc. for $125 million in cash, as adjusted by working capital and other adjustments, and 1 million shares of NeoGenomics common stock. Genoptix is a leading clinical oncology laboratory, specializing in hematology and solid tumor testing. The acquisition expands NeoGenomics’ reach into oncology practices, and significantly accelerates the company’s progress towards key scale and growth objectives.
NeoGenomics gave the following benefits of this transaction:
• Advances expansion into community oncology practices. Genoptix has well-established relationships with community oncology practices, a sales force and pathologists that are experienced in serving oncologists, and customized reports that are considered to be the gold standard among community oncologists. Oncology practices are an important, and under-penetrated, channel for promoting NeoGenomics’ capabilities in next-generation sequencing and liquid biopsy.
• Leverages complementary services to create unprecedented offering in oncology testing market. NeoGenomics will draw on the best attributes from each company to improve the quality of service for all of our customers. Genoptix’s customers will benefit from NeoGenomics’ more comprehensive test offering, broad portfolio of managed care and GPO contracts, and national laboratory infrastructure. NeoGenomics’ customers will benefit from Genoptix customized consults and reports and extensive experience serving community oncologists. With deep relationships across all customer segments, NeoGenomics is positioned to better coordinate oncology testing between oncologists and pathologists within the community to improve patient care.
• Accelerates revenue and profit trajectory. The acquisition is expected to contribute $85 million of revenue and break-even EBITDA in year one, $25 million of cost synergies over time, and 25% EBITDA margin by the end of year three.
NeoGenomics collaboration with QIAGEN (QGEN)
On 11/30/2018, QIAGEN N.V. (QGEN) and NeoGenomics, Inc. (NEO) announced a master service agreement to accelerate the availability of innovative companion diagnostics that enable precision medicine for cancer patients. The partnership between QIAGEN and NeoGenomics, a leading provider of cancer-focused genetic testing services, will ensure Day-One patient access to FDA-approved molecular tests paired with newly approved drugs for cancer.
Building on the U.S. Food and Drug Administration’s modernized regulatory approach to advanced diagnostics, especially next-generation sequencing (NGS) tests, the collaboration with NeoGenomics will allow QIAGEN and pharmaceutical partners to streamline the development and launch of targeted drugs and companion diagnostics to guide treatment decisions. The partnership offers flexible pathways leading to introduction of FDA-approved companion diagnostics simultaneously with launch of new therapies.
https://ir.neogenomics.com/press-releases/detail/104/qiagen-…
In my 4/21/2018 Macro view of the LIQUID BIOPSY post, I identified QIAGEN as a circulating tumor DNA (ctDNA) company with ctDNA-based liquid biopsy tests; a circulating tumor cells (CTCs) company with CTCs-based liquid biopsy tests; and a exosomes company with liquid biopsy tests based on extracellular vesicles/other analytes.
QIAGEN N.V. (QGEN) is a Netherlands-based holding company and the leading global provider of Sample to Insight solutions that enable customers to gain valuable molecular insights from samples containing the building blocks of life. Their sample technologies isolate and process DNA, RNA and proteins from blood, tissue and other materials. Assay technologies make these biomolecules visible and ready for analysis. Bioinformatics software and knowledge bases interpret data to report relevant, actionable insights. Automation solutions tie these together in seamless and cost-effective workflows. QIAGEN provides solutions to more than 500,000 customers around the world in Molecular Diagnostics (human healthcare), Applied Testing (primarily forensics), Pharma (pharma and biotech companies) and Academia (life sciences research). QIAGEN employs about 4,900 people in over 35 locations worldwide.
Recently on 5/28/2019, NeoGenomics, Inc., a leading provider of cancer-focused genetic testing services, announced availability of the QIAGEN therascreen® PIK3CA RGQ PCR test from QIAGEN N.V. (QGEN) for post-menopausal women, and men, with hormone receptor positive, human epidermal growth factor receptor-2 negative (HR+/HER2-) advanced or metastatic breast cancer following progression on or after an endocrine-based regimen. This PIK3CA assay is a companion diagnostic test recently approved by the FDA to aid clinicians in identifying breast cancer patients suitable for treatment with Piqray®* (alpelisib), a newly approved therapy developed and marketed by Novartis. Piqray is indicated in combination with fulvestrant for the treatment of postmenopausal women, and men, with hormone receptor (HR)-positive, human epidermal growth factor receptor 2 (HER2)-negative, PIK3CA-mutated, advanced or metastatic breast cancer as detected by an FDA-approved test following progression on or after an endocrine-based regimen.
Approximately 70% of patients with breast cancer have the HR+/HER2- subtype, and approximately 40% of these patients have a PIK3CA mutation. In advanced breast cancer, PIK3CA mutations are associated with tumor growth, resistance to endocrine treatment, and a poor overall prognosis.
NeoGenomics Laboratories will serve as the Novartis Day 1 Preferred Laboratory Partner for this critical companion diagnostic test.
“Our launch of the QIAGEN therascreen®** PIK3CA RGQ PCR test will provide breast cancer patients with access to a critical companion diagnostic test for an important new treatment option,” said Douglas M. VanOort, NeoGenomics’ Chairman and CEO. “As a leading provider of oncology testing for clinical trials and patient care, NeoGenomics is in a unique position to provide day-one access to companion diagnostic tests enabling patients to access important new therapies without delay. We are pleased to collaborate with Novartis to provide HR+/HER2- advanced or metastatic breast cancer patients access to a companion diagnostic test for its newly approved treatment, Piqray. In addition, the therascreen test is one of the first of what we expect to be many test launches based on our collaboration with QIAGEN to offer patients Day-One access to innovative companion diagnostics for newly approved drugs.”
https://ir.neogenomics.com/press-releases/detail/119/neogeno…
FY 2019 FINANCIAL OUTLOOK
Since issuing its initial corporate financial guidance for FY 2019 on 02/19/2019, NeoGenomics has revised and increased twice its FY 2019 financial outlook as follows:
**Q1 Q2**
**NeoGenomics Initial Updated REVISED**
**(in $ millions) Guidance Guidance GUIDANCE**
Consolidated Revenue $ 379 - 395 384 - 400 $ 388 - 402
Net Income/(Loss) $ (3) - 3 (3) - 1 $ (1) - 3
Adjusted EBITDA $ 49 - 53 52 - 56 $ 54 - 58
===============================
NeoGenomics expansion of global operations
NeoGenomics, Inc. (NEO), a leading provider of cancer-focused genetics testing services, and Pharmaceutical Product Development, LLC (PPD), a leading global contract research organization (CRO), announced the grand opening of a NeoGenomics oncology-focused clinical trials testing lab in the same building as the PPD® Laboratories central lab in Singapore.
NeoGenomics’ Pharmaceutical Services Division has established a track record of rapid growth and is building a global network for clinical trials. After opening and operating a College of American Pathologists (CAP) accredited facility in Rolle, Switzerland since 2017 to service European clinical trials, NeoGenomics prioritized additional expansion into Singapore to service the Asia-Pacific region and allow for global clinical trial placement. NeoGenomics Chairman and Chief Executive Officer, Doug VanOort noted, “Our customers in the Pharmaceutical Services Division are truly global customers who want the ability to place studies wherever they can find the enrollees. They are looking to partner with laboratories that provide great service and high quality, consistent testing across the globe. We’re very excited about our Singapore laboratory and the potential growth opportunity we see within the Asia-Pacific region. This is another milestone in our plan to be a premier global provider of services to the pharmaceutical industry.”
NeoGenomics and PPD formed an alliance in 2018 to provide premier laboratory testing solutions for oncology clinical trials and biomarker research and development. Through the collaboration, NeoGenomics provides a wide range of lab testing services to support PPD Laboratories’ oncology clinical trial activities in North America, Europe and Asia-Pacific. This expansion in Singapore is part of the companies’ established plan to invest in PPD’s existing labs service offerings in China and Singapore. It also augments PPD Laboratories’ offerings of specialized oncology and pathology biomarker testing for biopharmaceutical customers and advances the companies’ initiative to provide an integrated, global solution for complex development programs.
https://ir.neogenomics.com/press-releases/detail/125/neogeno…
NeoGenomics (NEO) CORPORATE FINANCIALS
The following corporate financials for NEO show the following:
Second-Quarter 2019 Highlights:
• Consolidated revenue increased 50% to $101.7 million.
• Clinical Services revenue increased 49% to $89.0 million.
• Pharma Services revenue increased 55% to $12.7 million.
• Pharma Services backlog increased 18% to $106.1 million.
• Gross profit increased 60% to $49.0 million.
• Non-GAAP diluted EPS of $0.07, a Y-o-Y increase of 40%.
• Gross margin improved just over 300 basis points year-over-year to 48.1%.
• Pharma Services gross margin was outstanding, reaching 50% for the first time ever.
• A solid stable capital structure.
• Completed $160.8 million net equity offering and refinanced credit facility to $250.0 million
• Full-year 2019 guidance increased for the second time that now expects consolidated revenue of $ 388 to $402 million, a Y-o-Y increase of 40% to 45%.
As of 7/30/2019, NEO share price has increased 89% Y-T-D and 73% over the recent 52-week period. Today, 8/1/2019, NEO share price reached an all-time high a $25.98 and closed at $25.85, up over 8% since 7/30/19.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?..
NEOGENOMICS INVESTOR PRESENTATION JULY 2019
Here’s an excellent investor presentation.
https://d1io3yog0oux5.cloudfront.net/_f6012dd1402c1c930444b6…
**NEO 7/30/19**
MARKET CAP $ 2.28 B
Employees 1,485
52-WK HIGH 24.84
PRICE 23.90
52-WK LOW 11.05
Price Change Y-T-D 89.5%
Price Change 52-week 73.1%
P/E 103.91 (non-GAAP)
EV/Sales (ttm) 5.99
P/S (ttm) 6.72
As an EV/S proponent, I show NeoGenomics’ current low 5.99 ratio versus 6.72 for P/S.
**MARKET NON-GAAP NON-GAAP GAAP GAAP**
**CAP REVENUE YoY NET INCOME YoY Diluted EPS YoY NET INCOME YoY Diluted EPS**
**FY/QTR $ B $ M Change $ M Change $ Change $ M Change $**
**FY '19 est $388M-$402M 40%-45%**
**Q2 '19 2.095 B 101.713 50.1% 7.228 61.8% 0.07 40.0% 1.991 0.02**
Q1 ‘19 1.935 B 95.577 50.7% 7.159 182.2% 0.07 133.3% (2.424) (0.03)
**FY 2018 1.140 B 276.741 15.2% 17.937 127.6% 0.20 122.2% 6.088 (155.6%) 0.07**
Q4 ‘18 1.140 B 76.475 24.5% 5.485 71.9% 0.06 0.353 (81.0%) 0.00
Q3 ‘18 1.429 B 69.096 16.8% 4.617 0.05 2.023 0.02
Q2 ‘18 1.101 B 67.746 8.8% 4.466 27.2% 0.05 5.924 0.07
Q1 ‘18 0.660 B 63.423 10.4% 2.537 24.3% 0.03 (2.212) (40.7%) (0.03)
**FY 2017 0.707 B 240.251 3.6% 7.881 0.09 (10.943) (0.14)**
Q4 ’17 0.707 B 61.422 3.191 0.04 1.858 0.02
Q3 ’17 0.808 B 59.137 (0.585) (0.01) (6.915) 0.09
Q2 ’17 0.683 B 62.264 3.512 0.04 (2.156) (0.03)
Q1 ’17 0.598 B 57.4238 2.041 (0.50) (3.731) (0.05)
**FY 2016 0.695 B 231.808 132.3% (30.816) (0.40)**
**FY 2015 0.490 B 99.802 14.6% (2.657) (0.04)**
**FY 2014 0.243 B 87.069 1.132 0.02**
Margins
CFO Sharon Virag reported for Q2 2019:
• Gross margin improved just over 300 basis points year-over-year to 48.1%. This annual improvement was driven by the impact of volume growth, higher average revenue per test, productivity gains, and cost efficiencies. As expected, gross margin declined modestly sequentially as we continued to add employees to accommodate growth in our Clinical Division.
• Notably, our Pharma Services gross margin was outstanding, reaching 50% for the first time ever. The Pharma services business is beginning to reach the scale at which they are expected to be more in line with company gross margins.
**MARGINS GROSS OPERATING PROFIT**
Q2 '19 48.1% 4.4% 1.95%
Q1 ‘19 49.3% 2.7% (2.5%)
FY 2018 46.0% 3.6% 1.0%
Q4 ‘18 48.5% 3.7% 0.5%
Q3 ‘18 45.1% 5.9% 2.9%
Q2 ‘18 45.1% 1.2% (0.6%)
Q1 ‘18 43.1% 4.0% 1.0%
FY 2017 42.4% 1.7% (0.2%)
FY 2016 42.3% 2.4% (2.9%)
FY 2015 43.8% (5.9%) (2.5%)
STOCK-BASED COMPENSATION
SBC/revenue ratios are favorably very low.
**SBC REVENUE SBC/REV**
**$M $M**
Q2 '19 2.019 101.713 1.98%
Q1 ’19 2.139 95.577 2.23%
FY 2018 6.955 276.741 2.60%
Q4 ’18 1.807 76.475 2.36%
Q3 ’18 1.191 69.096 1.72%
Q2 ’18 2.333 67.746 3.44%
Q1 ’18 1.624 63.423 2.56%
FY 2017 6.441 240.251 2.68%
FY 2016 5.438 231.808 2.34%
Capital Structure
The NeoGenomics capital structure remains stable and solid.
**CAPITAL STRUCTURE Q2 2019**
Cash & cash equivalents (mrq) $ 167.436 M
Working Capital $ 217.183 M
Current Ratio (mrq) 4.67
LT Debt (mrq) $ 123.211 M
Stockholders’ Equity $ 489.734 M
LT Debt/Stockholders’ Equity 25.2%
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PERSONAL PERSPECTIVE
First of all, I’m a survivor of colon cancer and “clean” for 24 years, thanks to Dr. Bert Vogelstein, a strong advocate of preventative steps that represent aforementioned “Plan B”. First observed in 1995 outdoors in bright sunlight, bright red blood streaks appeared in my stool while hiking in the California Sierras with my brother-in-law, a physician, who suspected what it might be and wasted no time pushing and rushing me through the process. A couple weeks later, after (a) a colonoscopy during which I stayed awake to observe the entire procedure live on a TV monitor, heard what was going on from one of the best gastroenterologists and saw the source of my bleeding, a quarter coin in size adenoma, (b) the bad news a malignant adenoma from my gastro doctor, who had already scheduled a consult with a nearby top-notch surgeon and (c) numerous pre-op tests, I was rolling in a hospital operating “suite” ordering room service to a surgical nurse who whipped back with a smile “Okay, wise guy.” Up to that point, things happened so fast that it really didn’t fully sink in that I had cancer. No hysterics or despair, that’s not me, as I’m one who thinks positive and` just rolls with the punches. My attending surgeon and his surgical resident delivered post surgery good news that the colon re-section successfully removed the tumor that had not fully penetrated through the colon wall, no evidence of metastasis and no need for chemotherapy and radiation that, however, would be pushed for by a consulting oncologist and radiologist later at my bedside. I played it safe, months later receiving quick chemotherapy injections and finding myself the only male sitting in a room full of women dressed in those clumsy gowns with openings in the back, waiting their turns primarily for breast cancer radiation treatment. I was stunned/awestruck, realizing fully that breast cancer was non-discriminatory, surrounded by women of all ages, diversity and socio-economic backgrounds. In a room with a heavy dark cloud, I tried my best to be upbeat and encourage those I conversed with to think positive and talked about upbeat topics. The radiology technician was a strikingly attractive, tall bald-headed black woman who was highly upbeat, kind and sympathetic. One day I came in, found her crying behind the scene and learned that a visit with her oncologist, who was also mine, just revealed that her breast cancer had returned. I gave her a big hug (sadly cannot do that in today’s crazy PC nonsense) and words of encouragement. When she came in to the room to call the next person, she was back to her bubbly-self. Wow, an amazing awesome woman! This face-to-face encounter with so many different cancer victims over a 4-week long radiation treatment period made an indelible impression on me forever.
Next, after the end of the Vietnam War in 1975, it took the U.S. Congress 16 years to acknowledge certain cancers and other diseases were caused by exposure to Agent Orange (a chemical defoliant heavily used and sprayed throughout South Vietnam) in the Agent Orange Act of 1991. The truth is back then most Washington politicians and career bureaucrats could care less about these vets and just wanted them to go away and die off via diseases and/or suicide. Remember now, the U.S. Vietnam War veterans were undeservingly rejected, despised or ignored by a divided American public. As a Vietnam War U.S. Navy officer veteran who went ashore to Danang and Chu Lai and was exposed to Agent Orange and suffered some of the 14 presumptive diseases that qualified me for tax-free compensation for a service connected disability, my highest priority is getting as many Vietnam War U.S. military veterans suffering any of these diseases and PTSD into the VA compensation system and healthcare system. 7 of the 14 presumptive diseases are cancers, i.e., chronic B-cell leukemias; Hodgkin’s Disease; multiple myeloma; non-Hodgkin’s lymphoma; prostate cancer; respiratory cancers of the lung, larynx, trachea, and bronchus; and soft tissue sarcoma; the other diseases include Diabetes Mellitus Type 2; Ischemic Heart Disease; Parkinson’s Disease; Porphyria Cutanea Tarda; Chloracne (or similar acneform disease); AL Amyloidosis; and Peripheral Neuropathy, Early-Onset. One mandatory criterion to qualify for compensation for a service connected disability is that a veteran applicant must have set foot on Vietnamese soil, which disqualified U.S. Navy crews aboard ships (aircraft carriers, helicopter carriers, cruisers, 1 battleship - USS New Jersey, destroyers, frigates, supply ships) in what is called the Blue Water Navy. For over four decades, Washington politicians and the VA fought against providing disability compensation to Vietnam War veterans in the Blue Water Navy, arguing that it was not obligated to by law because those vets did not serve within the territory of Vietnam. But in January 2019, 44 years after the end of the Vietnam War, the Court of Appeals for the Federal Circuit ruled 9-2 in favor of a Blue Water Navy veteran, Alfred Procopio, age 73, and other veterans, deciding that they should be eligible for benefits provided to troops who were stationed on the ground or who served on inland waterways and have Agent Orange-linked diseases. VA Secretary Robert Wilkie said in March the department would recommend that the Justice Department not fight the decision, but Justice requested several extensions for filing an appeal, leaving the veterans in limbo and prompting Congress to take up legislative action to guarantee them benefits. Finally, a green light for the VA to receive and process claims from Blue Water veterans of the Vietnam War, who I am now notifying and pushing to apply.
Also, largely unknown and ignored is that millions of the Vietnamese people were also exposed to Agent Orange and suffered associated health maladies horribly without any available medical treatment. I saw evidence, when I returned to Vietnam in 1997 on a 21-day visa with my Vietnamese-American friend, a colorectal surgeon, who was a South Vietnam Army medical officer during the war, escaped and returned later with permission from Hanoi communist leadership to re-establish the Boy Scouts only south of the former DMZ border; scouting was very popular throughout the former Indo-China under French rule. We traveled by van from Saigon/Ho Chi Minh City to Danang, stopping to check scouting organizations and units in cities, towns and remote villages, where my doctor friend was also asked to exam many suffering blood-related cancers, prostate cancer, Parkinson disease, Type II diabetes and other Agent Orange-related diseases that also manifested in the next the generation (off-springs of those exposed to Agent Orange). Too often my doctor friend walked away with tears in his eyes, shaking his head telling me there was nothing he could do.
Lastly, my daughter is currently on the frontline as a clinical RN in hematology, caring for in-patients with cancers at the City of Hope, a leading research and treatment center for cancer, diabetes and other life-threatening diseases located in Los Angeles County. Her job is extraordinarily demanding, stressful and an emotional downer when patients are lost. Some patients are receiving FDA approved Yescarta CAR-T cell therapy (developed by Kite Pharma) and Kymriah CAR-T (jointly developed by the University of Pennsylvania and Novartis) that cost a whooping $350,000 to $475,000 without insurance coverage. Others are clinical trial participants of CAR-T therapies of Celgene/Juno Therapeutics and the City of Hope. It’s kinda fulfilling to witness investments made and discussed at Saul’s board that developed and delivered real world treatments for cancer, albeit some extremely expensive.
SUMMARY
Although outside of this board’s current norm, NeoGenomics is a solid company, operating in the black with top-notch corporate leadership, excellent growth in revenue and a solid capital structure. NeoGenomics is another diversified holding in my family’s current portfolios that is easy for me to follow and FULLY comprehend.
As always, conduct your own due diligence and decision-making.
Regards,
Ray