Medium-Size Labs Report Mixed Earnings Bag

For some medium-sized molecular laboratories, robust growth in revenue for the first half of 2015 continues to carry the day. For others, they are searching for the elusive catalyst that will take them to the next fiscal level.

NeoGenomics, the Florida-based laboratory that focuses on a variety of molecular cancer assays, reported robust revenue growth but has had trouble breaking into the black.

For the second quarter ending June 30, NeoGenomics reported an 18 percent growth in revenue, to $24.4 million compared to $20.7 million a year ago. But the company posted a loss of $176,000, compared to net income of $274,000 for the second quarter of 2014. For the first half of 2015, NeoGenomics reported a loss of $937,000 on revenue of $47.4 million, compared to net income of $376,000 on revenue of $38.9 million a year ago. In a call with analysts, Chief Executive Officer Douglas Van Oort said that test volumes grew 21 percent year-over-year, with molecular profiling assays growing 130 percent.

Van Oort reported delays in integrating the products of Sacramento-based PathLogic into its sales pipeline. "We do have concrete plans in place to expand this business and are managing it closely. However, we now expect it will take until about the end of the year to increase revenue at PathLogic to achieve breakeven level of profitability," he said. Van Oort also noted that the proposed increase in reimbursement for FISH testing from the Centers for Medicare & Medicaid Services could lead to an overall positive impact in revenue of $4 million to $6 million in 2016, more than offsetting proposed payment cuts for performing flow cytometry.

San Diego-based Illumina, which performs lab tests and also distributes testing platforms, also reported strong revenue growth, along with an explosive growth in earnings. For the second quarter ending June 28, it reported net income of $102.2 million on revenue of $462.8 million. That compares to net income of $46.6 million on revenue of $390.8 million—growth rates of 120 percent and 20 percent, respectively. The company not only reported significant increases in testing volumes, but a backlog in shipping its testing platforms. However, Illumina has not updated its guidance for the remainder of the year. For the first half of 2015, it has reported net income of $238.9 million on revenue of $921.9 million. That compares to net income of $106.6 million on revenue of $753 million for the first half of 2014.

Although it reported an 8 percent increase in total test volume during the second quarter, Redwood City, Calif.-based Genomic Health is stuck in a revenue plateau. It reported a loss of $9.2 million on revenue of $70.6 million, compared to a net loss of $4.6 million on revenue of $70.5 million for the first half of 2014. While Genomic Health reported strong volume growth in its OncotyeDX test for ductal carcinoma in situ and prostate cancer and an overall 12 percent increase in orders during the quarter, the company is still struggling to receive commercial payer coverage for its assays in the U.S., although Palmetto GBA just approved coverage of its prostate cancer test for Medicare.

"We believe we are well positioned to deliver profitability and double-digit revenue growth by the end of the year," CEO Kim Popovits said in a conference call with analysts.

Salt Lake City-based Myriad Genetics has mostly gotten past the fallout of an adverse 2013 U.S. Supreme Court decision that essentially dissolved its monopoly on BRCA testing. For the company's fiscal fourth quarter ending June 30, it reported net income of $18.7 million on revenue of $189.9 million. That compares to net income of $33.7 million on revenue of $188.8 million for the year-ago quarter. For fiscal 2015, it reported net income of $80.2 million on revenue of $723.1 million. For fiscal 2014, it reported net income of $176.2 million on revenue of $778.2 million.

Takeaway: The smaller molecular laboratories are grappling with either stagnant revenue growth or keeping strong demand for its products under control.