Quarterly Numbers for Niche Labs Indicate a Maturing Market

As personalized medicine and molecular testing have established themselves in the health care sector, it is leading to more mature growth patterns for the publicly-traded specialty laboratories. Translation: Smaller annual revenue growth, but promising outlooks for future earnings and performance.

Sequenom
Sequenom reported revenue of $37.8 million for the quarter, up just 2 percent from the $37.1 million it reported during the first quarter of 2014. But the company leaped into the black for the quarter, reporting net income of $14.3 million. That's compared to a $15.7 million loss during the year-ago quarter. The company attributed the dramatic shift in part to a $21 million profit through its pooled patents agreement with another local company, Illumina. It also cut operating expenses.

Additionally, Sequenom launched two massive prenatal genomic screening tests, HerediT, which scans for more than 250 genetic conditions, and VisibiliT, a version of the assay for international markets. Overall test volumes were up 6 percent for the quarter compared to a year ago, but volume for Sequenom's most popular test, MaterniT21, was up 12 percent.

Illumina
Illumina was one of the few labs to report fairly dramatic growth. Revenue for the quarter was up 28 percent for the quarter, to $539 million, compared to $421 million during the first quarter of 2014. But net income truly skyrocketed, to $136.7 million, compared to $60 million a year ago. That was about 25 percent higher than the consensus among analysts. Illumina boosted its 2015 earnings forecast by about 2 percent, to around $480 million. It projects revenue growth for the year to be about 20 percent, to just around $2.2 billion.

In a report discussing the company's earnings, AtonRa Partners commented that "Illumina's addressable market is expected to expand significantly thanks to developments in oncology and non-invasive prenatal testing," and that it was on the right track continuing to expand into liquid biopsies.

Foundation Medicine
Another big growth spurt was reported by Massachusetts-based Foundation Medicine, albeit on a smaller scale than Illumina. Foundation's revenue for the first quarter reached $19.3 million, up 68 percent compared to a year ago. Test volume for its cancer assays was up 67 percent. Revenue per test was $3,400, slightly lower than the year before but still healthy for any laboratory test.

However, the company reported a loss for the quarter of $17 million, up from $12.2 million during the first quarter of 2014. Costs and expenses were up nearly 40 percent quarter over quarter.

Foundation CFO Jason Ryan said during the company's earnings call that revenue was projected to be in the $105 million to $115 million range for the calendar year. That's about a 70 percent increase on the low end compared to calendar 2014. However, no projections were made regarding when the company would become profitable. The company did close a development deal with pharmaceutical giant Roche that will bring in about $250 million in capitalization and ensure that its developing product pipeline remains robust.

"We're continuing to build a transformational business for the long-term, and we believe we made significant progress in that direction during the first quarter," Foundation CEO Michael Pellini, M.D., said in a statement.

Genomic Health
With help from its Oncotype prostate cancer detection test, Redwood City, Calif.- based Genomic Health reported revenue of $68.2 million for the first quarter ending March 31, up 2 percent from the first quarter of 2013 and 3 percent when currency fluctuations are taken into account.

The company said volume for its prostate cancer test tripled year-over-year, while the breast cancer test showed moderate growth.

The company reported a loss of $15 million, up from $7.4 million during the first quarter of 2014, slightly more than the consensus. Chief Financial Officer G. Bradley Cole told analysts that the company took a $5.5 million non-recurring charge associated with winding down some of its breast cancer research operations. Instead, the company would be focusing on liquid biopsy testing—i.e., blood over tissue samples. It also missed about $800,000 in revenue associated with breast cancer testing due to payer delays in implementing a new CPT code for the procedure. That revenue is expected to be recouped over the next couple of quarters, he added.

"Looking ahead we believe we are well positioned to deliver key reimbursement milestones and clinical data presentations to drive further test utilization and revenue growth, returning us to profitability by the end of the year, while strengthening our position at the forefront of precision medicine with our liquid biopsy pipeline," said Kim Popovits, Genomic Health's chief executive officer, in a statement.

That shift in focus has cheered some stock analysts. Amanda Murphy of William Blair & Co. in Chicago said that Genomic Health should fare well down the line. "We believe that given the company's meaningful commercial infrastructure and strong brand reputation, Genomic Health is well positioned to be a key player in genetic-based testing," she wrote in a recent report.

Myriad Genetics
Salt Lake City-based Myriad Genetics continued to be hurt by the loss of its legal battle over the BRCA gene patents, and reported revenue of $180 million for its fiscal third quarter ending March 31. That's down from $182.9 million for the year-ago quarter.

The company remained profitable, with net income of $21.5 million, compared to $36.8 million for the third quarter of fiscal 2014, and actually beat analysts consensus by a penny a share.

For the first nine months of its fiscal year, Myriad reported net income of $61.5 million on revenue of $516.6 million. That compares to net income of $142.6 million on revenue of $565.3 million during the first three quarters of last fiscal year.

The company did report a significant gain in rheumatology testing through its Crescendo Bioscience affiliate, but that remains a small part of its business. It also announced the purchase of a clinic in Germany that will allow it to be reimbursed by the payers in that nation for tests. The purchase avoided a regulatory process that can take years to complete before being able to accept revenue from payers.

The overseas market remains relatively small for Myriad, but it grew 63 percent quarter over quarter, primarily through sales of its EndoPredict breast cancer prognostic assay. Switzerland recently accepted the test into its health care system, after a study indicated it saved $3,500 per patient in health care costs compared to older diagnostic approaches.

But as a result of Myriad's quarterly numbers, Blair's Murphy lowered fiscal 2015 revenue estimates to $720 million from $739 million and fiscal 2016 revenue to $754 million from $813 million. Its fiscal 2014 revenue was $778 million.

Trovagene
San Diego-based Trovagene, by far the smallest of the niche labs, reported revenue for the first quarter of $127,000, up from $111,000 in the first quarter of 2014. It reported a loss of $7.2 million, compared to $3.2 million a year ago. The company said it had entered into collaborations with both the City of Hope and University of California San Diego to test its platform for detecting certain lung cancer mutations.

Takeaway: Earnings reports for the niche molecular labs are mixed, but generally reflect the growth curve of a more mature market.