NeoGenomics has enhanced its recent dramatic organic growth with a significant acquisition. The Florida-based NeoGenomics announced earlier this month it had completed the acquisition of Path Logic, an anatomic pathology laboratory based in West Sacramento, Calif. It has a second lab in Santa Ana in Southern California. And in what is becoming an increasingly rare event in laboratory mergers and acquisitions (M&A), NeoGenomics announced the purchase price: $6 million. The lab itself has annual revenue of about $10 million. Analysts Amanda Murphy and J.P. McKim of William Blair & Co. estimate that the deal was paid for in equal amounts of cash and debt. “Path Logic has earned a reputation as one of the highest-quality anatomic pathology laboratories in California. The staff of outstanding specialized pathologists, with capabilities in dermatopathology, nephropathology, women’s health, and GI/GU pathology, will further build and diversify NeoGenomics’ specialized testing as a ‘one-stop shop’ for highly specialized AP testing services,” said Douglas Van Oort, NeoGenomics’ chief executive officer. “With this expanded capability, both our clinical trial clients and our hospital and pathology-based clients will have access to an expanded product line and consulting expertise.” Van Oort estimated that the acquisition would add between $3 million to […]
NeoGenomics has enhanced its recent dramatic organic growth with a significant acquisition.
The Florida-based NeoGenomics announced earlier this month it had completed the acquisition of Path Logic, an anatomic pathology laboratory based in West Sacramento, Calif. It has a second lab in Santa Ana in Southern California. And in what is becoming an increasingly rare event in laboratory mergers and acquisitions (M&A), NeoGenomics announced the purchase price: $6 million. The lab itself has annual revenue of about $10 million. Analysts Amanda Murphy and J.P. McKim of William Blair & Co. estimate that the deal was paid for in equal amounts of cash and debt.
“Path Logic has earned a reputation as one of the highest-quality anatomic pathology laboratories in California. The staff of outstanding
specialized pathologists, with capabilities in dermatopathology, nephropathology, women’s health, and GI/GU pathology, will further build and diversify NeoGenomics’ specialized testing as a ‘one-stop shop’ for highly specialized AP testing services,” said Douglas Van Oort, NeoGenomics’ chief executive officer. “With this expanded capability, both our clinical trial clients and our hospital and pathology-based clients will have access to an expanded product line and consulting expertise.”
Van Oort estimated that the acquisition would add between $3 million to $4 million of revenue synergies in the short term, as customers on both of their lists have access to the merged testing menus. After a period when redundant operations are eliminated, he projects that the transaction will be accretive to NeoGenomics’ bottom line within six months.
The deal sent NeoGenomics’ stock soaring about 15 percent, rising from about $3.65 a share just before it was announced to more than $4.20 a share. The stock was trading at little more than $3 a share in late June.
Last month, NeoGenomics bumped up its estimates for second-quarter revenues by 7 percent, from between $18.8 million and $19.3 million to $20 million and $20.5 million. However, it did not increase its earnings estimates, which are currently at around breakeven.
As a result of the transaction, Murphy and McKim upgraded revenue projections for NeoGenomics by $5.7 million for 2014 and $13.3 million for both 2015 and 2016. And while they are cutting their prior earnings per share estimate by a penny a share, they are increasing it by 3 cents in 2015 and 4 cents in 2016.
Meanwhile, NeoGenomics also announced the release of 23 new cancer profiles using next-generation sequencing. They can be used for both solid tumors and hematological forms of the disease.
“These new profiles are designed to provide information that clinicians can utilize in the management of their patients. They provide information on clinical behavior, prognosis, and potential response to currently approved drugs and investigational therapies undergoing clinical trials,” said Maher Albitar, M.D., NeoGenomics’ chief medical officer and its director of research and development. “While each profile covers, on average, less than 20 different actionable molecular abnormalities, physicians can customize each profile and add additional genes from a list of validated genes. We believe that these small targeted profiles of driver genes are the most clinically justifiable approach to cancer testing given the targeted drugs that are currently available.”
Murphy and McKim noted that the expansion of NeoGenomics’ product offerings “enables pathologists to further broaden their test menu options [and thus compete against larger independent labs] while being able to retain the sample to benefit from the professional component of FISH and flow [cytometry].” They also noted that the company should be able to expand its scale and reach through additional M&A activity. It reiterated an “outperform” rating for NeoGenomics’ stock.
Takeaway: NeoGenomics’ organic growth is being supplemented with a significant outside acquisition.
