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Genmark; All Systems Go

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By on BioPharma, Energy & Solar, S&P 500, Technology & Software

After the markets closed on Tuesday, GenMark reported first-quarter results, with revenue of $7.9 million topping our $6.4 million target and the consensus of $6.5 million. The base business (excluding Natural Molecular Testing Corporation, NMTC) was up 85% year-over-year and was primarily driven by demand for the company’s FDA-approved respiratory virus panel (RVP) and the RUO HCV-genotyping kit. Annuity per analyzer grew to $72,000 in the quarter versus $64,000 in the most recent quarter and $62,000 in the prior-year period (again, excluding revenue from NMTC).

While the company did not formally raise guidance for 2014, management reiterated the placement target of 125 (31 this quarter was shy of our estimate of 38 placements) and indicated that it now expects to hit “at least” the $25 million top-line number provided earlier this year (in large part because of the upside in the first quarter). While the quarterly results are interesting and speak to the value of the underlying technology, the most important part of the story is undoubtedly the NexGen system, which remains on track for commercialization in Europe in the back half of 2014 and in the United States about one year later. In addition, management disclosed a seventh assay in development—a fungal infection panel that targets a $50 million-$60 million global market.

We view continuing product development as an encouraging sign about the overall development of the system. With the stock under significant recent pressure, keeping this timeline and expanding the menu is essential to taking pressure off of the name. With NexGen still on track for commercialization on essentially the same timeline, and particularly in light of the significant pullback in the stock (down 34% year-to-date), we strongly encourage investors to consider initiating or adding to positions as we await commercial launch of NexGen and subsequent share price appreciation.

Key topics that we address in this note include:  (+) NexGen launch remains on track for launch outside the United States in late 2014 and management announced the seventh NexGen assay in development.  (+/−) While focus is rightly on NexGen development, the base business continues to be strong as it leads the way for the NexGen launch. May 07, 2014 Stock Rating: Outperform Company Profile: Aggressive Growth Symbol: GNMK (NASDAQ) Price: $8.77 (52-Wk.: $8-$16) Market Value (mil.): $368 Fiscal Year End: December Long-Term EPS Growth Rate: Dividend/Yield: None 2013A 2014E 2015E Estimates EPS FY $-0.82 $-1.19 NA CY $-1.19 Sales (mil.) 27 25 NA Valuation FY P/E NM NM NA CY P/E NM NA Trading Data (FactSet) Shares Outstanding (mil.) 41 Float (mil.) 29 Average Daily Volume 209,645 Financial Data (FactSet) Long-Term Debt/Total Capital (MRQ) 0.0 Book Value Per Share (MRQ) 2.6 Return on Equity (TTM) -40.6 Two-Year Price Performance Chart

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