Base business grows by 159%, Installed base
increases by 41 new analyzers, 2013 Guidance revised to
approximately $27M
GenMark Diagnostics, Inc. (Nasdaq:GNMK), a leading
provider of automated, multiplex molecular diagnostic testing
systems, today reported financial results for the quarter ended
September 30, 2013.
Revenues for the quarter ended September 30, 2013 were $4.6
million compared with $5.3 million during the third quarter of
2012. The 12% year-over-year decrease in total revenue was
attributable to a lack of purchases from Natural Molecular Testing
Corporation (NMTC) during the current quarter, offset by
significant growth from other customers. NMTC accounted for 66% of
total revenues in the quarter ended September 30, 2012 and 26% of
total revenues in the quarter ended June 30, 2013. NMTC did not
make any purchases in the third quarter of 2013. Reagent revenues
for the third quarter declined 22% year-over-year to $4.0 million
from $5.1 million. Instrument and other revenues increased by 314%
year-over-year to $651,000 from $158,000, due mainly to sales of
XT-8 instruments. The Company placed 41 new analyzers during the
current quarter to support its base business and removed 50
analyzers from NMTC, the majority of which were placed in 2012,
bringing its total installed base to 375, all in end-user
laboratories within the U.S. market.
“Our base business, which excludes NMTC, demonstrated impressive
revenue growth on both a year-over-year and sequential basis,
growing by 159% in the third quarter of 2013 compared with the
third quarter of 2012, and growing approximately 21%
quarter-over-quarter ahead of the flu season. We believe the
significant growth of our base business confirms the increasing
implementation of our eSensor technology across a growing customer
base and validates its unique value proposition in advance of
releasing our sample-to-answer NexGen system,” stated GenMark’s
President & CEO Hany Massarany. “On October 2nd, we filed a law
suit against NMTC seeking the collection of past due amounts from
earlier product sales and for damages resulting from unsatisfied
contract purchase commitments. On October 21st, NMTC filed a
voluntary petition in the United States Bankruptcy Court seeking
relief under Chapter 11. As a result, this quarter we have made
appropriate adjustments to our financial statements to account for
NMTC’s bankruptcy filing.”
Gross profit for the quarter ended September 30, 2013 was
$0.5 million, or 11% of revenue, compared with a gross profit of
$2.2 million, or 42% of revenue for the same period in 2012. During
the current quarter, the Company reserved $0.9 million of inventory
made for NMTC and impaired $0.3 million of manufacturing equipment
procured to support NMTC’s previous purchasing volumes. On a
non-GAAP basis, which excludes the effect of NMTC related
adjustments during the current quarter, gross profit for the
quarter ended September 30, 2013 was $1.7 million, or 36% of
revenue.
Operating expenses increased $4.3 million to $12.8 million
during the third quarter of 2013 compared with the third quarter of
2012. Sales and Marketing expenses increased $3.4 million
year-over-year mainly due to a one-time increase in the Company's
allowance for doubtful accounts reserve of $2.5 million related to
NMTC and continued expansion of our U.S. sales force ahead of the
launch of our NexGen system. Research and Development expenses
increased $0.9 million due to Company's NexGen platform and assay
development activities. On a non-GAAP basis, operating expenses for
the third quarter of 2013 were $10.3 million.
Loss per share was $0.30 for the third quarter of 2013, compared
with a loss per share of $0.20 in the third quarter of 2012. The
loss per share in the current quarter included a one-time realized
gain of $1.4 million from the sale of preferred stock in a private
company that was acquired by a third party in July 2013, as well as
$3.6 million in reserves and one-time write-offs due to NMTC. On a
non-GAAP as adjusted basis, which excludes the effects of this
one-time gain and NMTC related adjustments during the current
quarter, the Company’s loss per share for the third quarter of 2013
was $0.24.
The Company ended the third quarter of 2013 with $112.5 million
in cash and investments. The Company intends to continue utilizing
its cash balances to invest in new product and menu development,
mainly the development of its NexGen platform and related test
menu, and for infrastructure improvements and general corporate
purposes.
"Based on prolonged reimbursement challenges and the recently
published CMS rates for the new pharmacogenomics (PGX) test codes,
we expect the emerging PGX sector to experience additional downward
pressure in the near term. Consequently, we are adjusting our 2013
revenue guidance to approximately $27 million and now expect more
modest PGX purchasing patterns in 2014. Despite these short term
headwinds, we remain very optimistic about our future,” added
Massarany. “Our NexGen development efforts remain on schedule and
we continue to be confident that we will bring to market the most
competitively differentiated sample-to-answer system. We’re on
track to complete its development in the second quarter of 2014,
and as a result of the excellent progress made by our R&D
organization, last week our Board of Directors approved the funding
for two additional assay development teams to accelerate our NexGen
menu expansion beyond our initial five panels. This week in
Phoenix, we will show an advanced prototype of our NexGen system at
the Association of Molecular Pathology meeting. This will be the
first time future NexGen customers will have an opportunity to
review the system and, based on early indications, we expect an
excellent response."
YEAR-TO-DATE 2013
Revenue for the first nine months of 2013 was $21.0 million,
compared to $11.0 million for the prior year period, an increase of
90%. Reagent revenue for the first nine months of 2013 was $20.0
million, compared to $10.4 million for the prior year period, and
instrument and other revenue for the first nine months of 2013 was
$1.5 million compared to $0.5 million for the prior year period.
Our base business grew by 173% for the nine months ended
September 30, 2013 over the previous year.
Gross profit for the nine months ended September 30, 2013
was $8.6 million, or 41% of revenue, compared with a gross profit
of $4.1 million, or 38% of revenue for the same period in 2012.
During the current period, the Company reserved $1.2 million of
inventory made for NMTC and impaired $0.3 million of manufacturing
equipment procured to support NMTC’s previous purchasing volumes.
On a non-GAAP basis, gross profit for the nine months ended
September 30, 2013 was $10.1 million, or 48% of revenue.
Operating expenses increased $11.7 million to $33.2 million
during the first nine months of 2013 compared with the first nine
months of 2012. Sales and Marketing expenses increased $5.6 million
year-over-year mainly due to an increase in the Company’s allowance
for doubtful accounts reserve of $2.7 million related to NMTC, and
additional sales personnel costs. Research and Development expenses
increased $6.3 million due to the Company’s NexGen platform and
assay development activities. On a non-GAAP basis, operating
expenses for the nine months ended September 30, 2013 were
$30.5 million.
Net loss for the first nine months of 2013 was $23.0 million, or
$0.69 loss per share, compared to net loss of $17.4 million, or
$0.71 loss per share, for the prior year period. The loss per share
included a one-time realized gain of $1.4 million from the sale of
preferred stock in a private company that was acquired by a third
party in July 2013, as well as $4.2 million in reserves and
one-time write-offs due to NMTC. On a non-GAAP as adjusted basis,
the loss per share for the nine months ended September 30,
2013 was $0.60.
INVESTOR CONFERENCE CALL
GenMark will hold a conference call to discuss third quarter
2013 results and the outlook for 2013 at 4:30PM EST today. The
conference call and webcast can be accessed live through the
Company’s website under the Investor Relations section and will be
archived for future reference. To listen to the conference call,
please dial (877) 312-5847 (US/Canada) or (253) 237-1154
(International) and use the conference ID number 94463692
approximately five minutes prior to the start time.
ABOUT GENMARK DIAGNOSTICS
GenMark Diagnostics is a leading provider of automated,
multiplex molecular diagnostic testing systems that detect and
measure DNA and RNA targets to diagnose disease and optimize
patient treatment. Utilizing GenMark’s proprietary eSensor®
detection technology, GenMark’s eSensor® XT-8 system is designed to
support a broad range of molecular diagnostic tests with a compact,
easy-to-use workstation and self-contained, disposable test
cartridges. GenMark currently markets four tests that are FDA
cleared for IVD use: Cystic Fibrosis Genotyping Test, Respiratory
Viral Panel, Thrombophilia Risk Test, and Warfarin Sensitivity
Test. A number of other tests, including HCV Genotyping, 2C19
Genotyping, and 3A4/3A5 Genotyping are available for research use
only. For more information, visit www.genmarkdx.com.
SAFE HARBOR STATEMENT
This press release includes forward-looking statements regarding
events, trends and business prospects, which may affect our future
operating results and financial position. Such statements,
including, but not limited to, those regarding our expected 2013
financial performance and the timely completion of our NexGen
system and related assay development projects, are all subject to
risks and uncertainties that could cause our actual results and
financial position to differ materially. Some of these risks and
uncertainties include, but are not limited to, third-party payor
reimbursement to our customers, the loss of a significant customer,
risks related to our history of operating losses, the need for
further financing and our ability to access the necessary
additional capital for our business, as well as other risks and
uncertainties described under the “Risk Factors” in our public
filings with the Securities and Exchange Commission. We assume no
responsibility to update or revise any forward-looking statements
to reflect events, trends or circumstances after the date they are
made.
ABOUT NON-GAAP FINANCIAL MEASURES
GenMark's management believes that non-GAAP financial measures
provide meaningful supplemental information regarding the Company's
performance by excluding certain expenses and other items that may
not be indicative of core business results. To supplement the
Company's financial results for the third quarter of 2013 presented
in accordance with GAAP, GenMark uses the following financial
measures defined as non-GAAP by the SEC: non-GAAP cost of sales,
non-GAAP sales and marketing expenses, non-GAAP operating expenses,
non-GAAP gross profit, non-GAAP net loss, and non-GAAP loss per
share. GenMark’s management does not, nor does it suggest that
investors should, consider such non-GAAP financial measures in
isolation from, or as a substitute for, financial information
prepared and presented in accordance with GAAP. GenMark believes
that both management and investors benefit from referring to these
non-GAAP financial measures in assessing GenMark’s performance and
when planning, forecasting and analyzing future periods. These
non-GAAP financial measures also facilitate management's internal
comparisons to GenMark’s historical performance and our
competitors' operating results. GenMark believes these non-GAAP
financial measures are useful to investors in allowing for greater
transparency with respect to supplemental information used by
management in its financial and operational decision making.
Further, our reconciliations of non-GAAP to GAAP operating results,
which are included on the attached tables, are presented solely to
assist a reader in understanding the impact of the various
adjustments to our GAAP operating results, individually and in the
aggregate, and are not intended to place any undue prominence on
our non-GAAP operating results.
GENMARK DIAGNOSTICS, INC. UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except
par value) As of As of September
30, 2013 December 31, 2012 Current
assets Cash and cash equivalents $ 63,274 $ 51,250 Investments
48,478 — Restricted cash 758 1,343 Accounts receivable - net of
allowances of $2,733 and $53 2,355 3,190 Inventories 1,965 1,993
Other current assets 682 226
Total current
assets 117,512 58,002 Property and equipment, net 7,948 7,074
Intangible assets, net 3,048 1,832 Other long-term assets 106
1,108
Total assets $ 128,614 $ 68,016
Current liabilities Accounts payable 3,029 2,445
Accrued compensation 2,453 3,076 Current portion of loan payable
111 638 Other current liabilities 2,790 3,015
Total current liabilities 8,383 9,174
Long-term
liabilities Loan payable, net of current portion 49 63 Other
noncurrent liabilities 2,280 2,329
Total
liabilities 10,712 11,566
Stockholders’
equity Common stock, $0.0001 par value; 100,000 authorized;
41,492 and 32,753 shares issued and outstanding as of September 30,
2013 and December 31, 2012, respectively 4 3 Preferred stock,
$0.0001 par value; 5,000 authorized, none issued — — Additional
paid-in capital 331,899 247,449 Accumulated deficit (213,577 )
(190,566 ) Accumulated other comprehensive loss (424 ) (436 ) Total
stockholders’ equity 117,902 56,450 Total liabilities
and stockholders’ equity $ 128,614 $ 68,016
GENMARK DIAGNOSTICS, INC. UNAUDITED CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands,
except per share data) Three Months
Ended Nine Months Ended September 30,
September 30, 2013 2012
2013 2012 Revenue Product
revenue $ 4,521 $ 5,194 $ 20,627 $ 10,876 License and other revenue
116 62 325 150
Total revenue
4,637 5,256 20,952 11,026 Cost of sales 4,138 3,027
12,373 6,878
Gross profit 499 2,229 8,579
4,148
Operating expenses Sales and marketing 4,916 1,485
9,830 4,264 General and administrative 2,476 2,510 7,572 7,743
Research and development 5,398 4,467 15,786
9,437
Total operating expenses 12,790 8,462
33,188 21,444
Loss from operations
(12,291 ) (6,233 ) (24,609 ) (17,296 )
Other income
(expense) Interest income 203 5 413 17 Interest expense (3 )
(21 ) (17 ) (73 ) Other income (expense) 1,297 (2 ) 1,232
(15 )
Total other income (expense) 1,497 (18 )
1,628 (71 )
Loss before income taxes (10,794 ) (6,251
) (22,981 ) (17,367 ) Provision for income taxes (23 ) (1 ) (30 )
(43 )
Net loss $ (10,817 ) $ (6,252 ) $ (23,011 ) $ (17,410
) Net loss per share, basic and diluted $ (0.30 ) $ (0.20 ) $ (0.69
) $ (0.71 ) Weighted average number of shares outstanding, basic
and diluted 35,987 31,751 33,331 24,370
Other comprehensive loss Net loss $ (10,817 ) $ (6,252 ) $
(23,011 ) $ (17,410 ) Net unrealized gains on available-for-sale
investments 21 — 12 —
Comprehensive
loss $ (10,796 ) $ (6,252 ) $ (22,999 ) $ (17,410 )
GENMARK DIAGNOSTICS, INC. UNAUDITED RECONCILIATION
OF NON-GAAP FINANCIAL MEASURES (In thousands, except per
share data) Three Months Ended
Nine Months Ended September 30, September 30,
Adjusted Financial Data: 2013
2012 2013 2012 Cost of
sales $ 4,138 $ 3,027 $ 12,373 $ 6,878 Inventory reserve(1)
(852 ) — (1,182 ) —
Impairment of production equipment(2)
(302 ) — (302 ) —
Non-GAAP cost of sales $
2,984 $ 3,027 $ 10,889 $ 6,878
Gross profit $ 499 $ 2,229 $ 8,579 $ 4,148 Inventory
reserve(1) 852 — 1,182 —
Impairment of production equipment(2)
302 — 302 —
Non-GAAP gross
profit $ 1,653 $ 2,229 $ 10,063 $ 4,148
Non-GAAP gross margin % 36 % 42 % 48 % 38 %
Total operating expenses $ 12,790 $ 8,462 $ 33,188 $
21,444 Inventory reserve(1) (19 ) — (19 ) — Allowance of doubtful
accounts(3) (2,472 ) — (2,702 ) —
Non-GAAP
operating expenses $ 10,299 $ 8,462 $ 30,467
$ 21,444
Total other income (expense) $
1,497 $ (18 ) $ 1,628 $ (71 ) Preferred stock sale(4) (1,383 ) —
(1,383 ) —
Non-GAAP other income (expense) $
114 $ (18 ) $ 245 $ (71 )
Net loss $
(10,817 ) $ (6,252 ) $ (23,011 ) $ (17,410 ) Inventory reserve(1)
871 — 1,201 —
Impairment of production equipment(2)
302 — 302 — Allowance of doubtful accounts(3) 2,472 — 2,702 —
Preferred stock sale(4) (1,383 ) — (1,383 ) —
Non-GAAP net loss $ (8,555 ) $ (6,252 ) $ (20,189 ) $
(17,410 )
Net loss per share, basic and diluted $
(0.30 ) $ (0.20 ) $ (0.69 ) $ (0.71 ) Inventory reserve(1) 0.02 —
0.04 —
Impairment of production equipment(2)
0.01 — 0.01 — Allowance of doubtful accounts(3) 0.07 — 0.08 —
Preferred stock sale(4) (0.04 ) — (0.04 ) —
Non-GAAP net loss per share, basic and diluted $ (0.24 ) $
(0.20 ) $ (0.60 ) $ (0.71 )
(1) Reflects nonrecurring charges related
to inventory specifically made for NMTC
(2) Reflects nonrecurring charges related
to the Company's procurement of additional manufacturing equipment
to support NMTC's prior purchasing patterns
(3) Reflects nonrecurring charges related
to outstanding amounts owed by NMTC
(4) Reflects a nonrecurring realized gain
on sale of Advanced Liquid Logic, Inc. preferred stock to Illumina.
Inc.
The Company makes reference in this
release to “non-GAAP” results, which exclude the impact of
adjustments associated with NMTC’s bankruptcy, and “non-GAAP as
adjusted” results, which exclude NMTC related adjustments and the
one-time gain realized upon the sale of the Company’s investment in
a private company. The Company believes that excluding these items
and their related effects from its financial results reflects
operating results that are more indicative of the Company’s ongoing
operating performance while improving comparability to prior
periods, and, as such, may provide investors with an enhanced
understanding of the Company’s past financial performance and
prospects for the future. This information is not intended to be
considered in isolation from, or as a substitute for, statement of
comprehensive loss, net loss, net loss per share or expense
information prepared in accordance with GAAP.
GENMARK DIAGNOSTICS, INC. UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In
thousands) Nine Months Ended September 30,
2013 2012 Operating activities: Net
loss $ (23,011 ) $ (17,410 ) Adjustments to reconcile net loss to
net cash used in operating activities: Depreciation and
amortization 1,912 918 Amortization of premiums on investments 133
— Stock-based compensation 2,697 1,509 Provision for bad debt 2,720
(45 ) Non-cash inventory adjustments 675 563 Changes in operating
assets and liabilities: Accounts receivable (1,885 ) (9 )
Inventories (216 ) (402 ) Other current assets (263 ) 92 Accounts
payable 570 907 Accrued compensation 29 871 Other liabilities (861
) 523
Net cash used in operating activities (17,500 )
(12,483 )
Investing activities Change in restricted cash 585
(3,594 ) Purchase of available-for-sale securities (52,841 ) (1,000
) Payments for intellectual property licenses (888 ) (1,306 )
Purchases of property and equipment (3,273 ) (2,919 ) Proceeds from
sales of marketable securities 4,250 — Maturities of short-term
investments 800 5,000
Net cash used in investing
activities (51,367 ) (3,819 )
Financing activities
Proceeds from issuance of common stock 86,247 48,300 Costs incurred
in conjunction with public offering (5,180 ) (3,226 ) Principal
repayment of borrowings (706 ) (1,608 ) Proceeds from borrowings
166 835 Proceeds from stock option exercises 364 52
Net cash provided by financing activities 80,891
44,353
Net (decrease) increase in cash and cash
equivalents 12,024 28,051 Cash and cash equivalents at
beginning of period 51,250 25,320 Cash and cash
equivalents at end of period $ 63,274 $ 53,371
Non-cash investing and financing activities: Property and
equipment purchased with capital lease $ — $ 109 Transfer of
systems from property and equipment into inventory $ 431 $ 124
Property and equipment costs incurred but not paid included in
accounts payable $ 308 $ 249 Intellectual property acquisition
included in other noncurrent liabilities $ 556 $ — Offering costs
incurred but not paid included in other liabilities $ 330 $ —
Supplemental cash flow disclosures: Cash paid for income
taxes, net $ 8 $ 4 Cash paid for interest $ 17 $ 73
GenMark Diagnostics, Inc.Hany MassaranyPresident/Chief Executive
Officer760-448-4358
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