Fulgent Genetics, Inc. (NASDAQ:FLGT), a leading provider of comprehensive genetic testing solutions and a pioneer in the development of innovative cancer therapies, has reported its financial results for the first quarter of 2024. The company's performance in Q1 2024 showcases its ability to navigate the evolving healthcare landscape and capitalize on emerging opportunities in both its laboratory services and therapeutic development segments.
Financials
For the first quarter of 2024, Fulgent Genetics reported total revenue of $64.5 million, a slight decrease of 3% compared to the same period in the prior year. However, excluding $1.3 million in COVID-19 testing revenue, the company's core revenue, which represents its laboratory services business, stood at $63.2 million. This core revenue figure represents a year-over-year increase of approximately $500,000.
The company's gross profit margin for the quarter improved to 34.3%, up from 28.4% in the prior-year period. This increase was primarily driven by a decrease in overall compensation expenses as Fulgent optimized its cost structure. On a non-GAAP basis, excluding stock-based compensation and intangible asset amortization, the company reported a loss of $269,000, or $0.01 per share.
Fulgent ended the first quarter of 2024 with a strong balance sheet, boasting $846.2 million in cash, cash equivalents, and marketable securities. This robust financial position provides the company with the necessary resources to execute on its strategic initiatives and continue investing in both its laboratory services and therapeutic development businesses.
Business Overview
Laboratory Services
Fulgent's laboratory services business, which includes precision diagnostics, anatomic pathology, and biopharma services, continued to demonstrate resilience and growth potential. The company's precision diagnostics segment, which is the largest contributor to its laboratory services revenue, grew 34% year-over-year, driven by strong performance in reproductive health and oncology testing.
The company's anatomic pathology business faced some headwinds during the quarter, but Fulgent is taking steps to stabilize this segment, including revamping its sales strategy and adding new sales leadership. Additionally, the company is investing in operational efficiencies, such as consolidating its Texas and New York operations into a new facility, and leveraging digital technologies to improve the quality and turnaround time of its anatomic pathology services.
Fulgent's biopharma services revenue stream is tracking according to plan for 2024, and the company remains focused on building a deeper opportunity funnel to help smooth out the lumpiness in this business. The company has recently expanded its biopharma sales team and continues to enhance its product offering to address the evolving needs of its clients.
Therapeutic Development
Fulgent's therapeutic development business, which is focused on developing innovative cancer therapies using its proprietary nanoencapsulation and targeted therapy platform, continues to make significant progress. The company's lead drug candidate, FID-007, has shown promising results in clinical trials for the treatment of various cancers, including head and neck, ampullary, and pancreatic. An abstract of preliminary results from the Phase 1/1b study of FID-007 in head and neck squamous cell carcinoma (HNSCC) has been accepted for presentation at the 2024 ASCO Annual Meeting.
Furthermore, Fulgent's Phase II clinical protocol for the second-line treatment of HNSCC with FID-007 has been accepted by the FDA, and the company expects to enroll the first patient in this trial during the current quarter. The company is also advancing a second drug candidate, FID-002, a nano-encapsulated SN-38 compound, and plans to file an Investigational New Drug (IND) application by the end of 2024.
In addition to its lead drug candidates, Fulgent is developing a next-generation antibody-drug conjugate (ADC) technology platform that could potentially provide broader and more targeted solutions for heterogeneous cancer cells compared to existing ADC platforms.
Outlook
For the full year 2024, Fulgent Genetics is reiterating its previously provided guidance. The company expects total core revenue, which excludes COVID-19 testing revenue, to be approximately $280 million, representing a 7% year-over-year growth.
Regarding margins, the company anticipates non-GAAP gross margins, excluding stock-based compensation, to improve from the mid-30% range in the first quarter to approximately 40% or slightly above by the end of 2024. However, the company expects slightly lower non-GAAP operating margins in the quarters ahead as it continues to invest resources to grow its business, with operating margins expected to be around -18% for the full year.
The company's therapeutic development business is expected to incur a cash burn of approximately $15 million to $17 million in 2024, which is factored into the company's earnings per share and cash guidance. Utilizing a non-GAAP tax provision and an average share count of 31 million, Fulgent reiterates its full-year 2024 net non-GAAP loss of approximately $1.05 per share, excluding stock-based compensation and amortization of intangible assets, as well as any one-time charges.
Fulgent's strong balance sheet, with an anticipated cash, cash equivalents, and investments position of approximately $800 million at the end of 2024, excluding any stock repurchases or other extraordinary expenditures, provides the company with the financial flexibility to execute on its strategic initiatives and continue investing in both its laboratory services and therapeutic development businesses.
Geographic and Revenue Breakdown
Fulgent's revenue is primarily generated from the United States, which accounted for $57.9 million, or 90%, of the company's total revenue in the first quarter of 2024. The remaining 10% of revenue came from international markets, with China contributing $4.1 million and other countries contributing $2.5 million.
In terms of revenue breakdown, Fulgent's laboratory services business is divided into three main segments: precision diagnostics, anatomic pathology, and biopharma services. Precision diagnostics, which includes the company's reproductive health and oncology testing services, was the largest contributor, generating $37.4 million, or 58% of total revenue, in the first quarter. Anatomic pathology contributed $23.1 million, or 36% of total revenue, while biopharma services accounted for $2.7 million, or 4% of total revenue.
The company's precision diagnostics segment experienced a 34% year-over-year increase, driven by strong performance in reproductive health and oncology testing. The anatomic pathology segment faced some headwinds, leading to a 13% decline in revenue compared to the prior-year period. Biopharma services revenue decreased by 68% due to timing of contract deliveries.
Fulgent's management team remains focused on stabilizing the anatomic pathology business, leveraging operational efficiencies and sales force optimization, while also continuing to drive growth in its precision diagnostics and biopharma services segments.
Conclusion
Fulgent Genetics' first-quarter 2024 results demonstrate the company's ability to navigate the evolving healthcare landscape and capitalize on emerging opportunities in both its laboratory services and therapeutic development businesses. The company's strong balance sheet, with a robust cash position, provides the necessary resources to execute on its strategic initiatives and continue investing in its core operations and innovative drug development pipeline.
Despite facing some headwinds in its anatomic pathology segment, Fulgent's overall performance, particularly the growth in its precision diagnostics business, and the progress in its therapeutic development pipeline, position the company well for continued success in 2024 and beyond. Investors should closely monitor Fulgent's ability to execute on its growth strategies, maintain its strong financial position, and deliver on its guidance and long-term objectives.