DX Earnings Report: Lab Market Consolidates but Survivors Stay Strong

PAMA and private payor rate cuts and increased market competitiveness are fueling consolidation and driving smaller, independent labs (other than specialty labs) into near extinction. But the big, established companies continue to chug along, not only via acquisition revenues but organically—albeit at slightly lower year-over-year rates. Meanwhile, many of the newfangled genetic and molecular testing firms are making significant strides despite the current softness in the consumer market. Here’s an overview of the key trends from FY 2019 Q3.                                                                    

Gainers

Continuing recent patterns, the vast majority of companies reported at least some revenue growth during the period (37 v. 6). Not surprisingly, the emerging genetic and molecular firms are posting the most dramatic quarterly growth rates. It’s also not surprising that the vast majority of these firms have yet to become profitable. Thus, of the 15 firms that reported double-digit revenue growth for the quarter, all but 3 had negative earnings per share (EPS). The exceptions:

• Genomic Health, which reported 11% growth and positive net EPS of $0.48;
• NeoGenomics with 51% top-line growth and adjusted EPS of $0.07; and
• Castle Biosciences, which cracked the quarterly $10+ million revenues line for the first time with 300% growth and a surprising positive adjusted EPS of $0.05 (smashing the average Wall Street estimate of -$0.30 per share).

Earnings v. Expectations

Of the 37 companies that had clear consensus Wall Street estimates for Q3, 28 met or exceeded their target, including LabCorp which broke its two-quarter losing streak. For the second quarter in a row, Abbott was among the firms to fall short. Three companies had extremely disappointing third quarters:

• Qiagen, which was expecting earnings of between 4% and 5%, had to settle for 1% top-line growth due to what the company described as “significantly weaker-than-expected developments in China;” after the disappointing earnings news, the company announced the departure of its long-time CEO and a strategic pivot by partnering with former competitor Illumina for NGS kit development;
• Myriad Genetics, which posted a 9% revenue decline of $186.3 million, well below the Wall Street expectation of $202.1 million; and
• Fluidigm, which surprised the Street by coming in $2.3 million shy of its $28.7 million target thanks to a 9% decline caused by weakness in mass cytometry sales.

Other companies that fell short of revenue targets included Bio-Rad, PerkinElmer, Luminex, PacBio and Waters.

Among the 28 companies to hit their top-line targets, three missed on the bottom line, including (in order of miss magnitude) Invitae (actual EPS of -$0.69 vs. expected EPS of -$0.56), NanoString Technologies (-$0.64 vs. -$0.54), and GenMark Diagnostics (-$0.20 vs. -$0.19).

FY Q3’s Biggest Winners

While most came out ahead, five firms had a particularly stellar quarter:

• Bruker, which posted 12% growth and $521.1 million in earnings, easily smashing its Wall Street estimate of $496.7 million thanks to strong sales in mass spectrometry solutions and microbiology;
• ExactSciences, which continues to ride Cologuard and now adds OncotypeDX to its potent genetic screening cancer product mix via the recently completely acquisition of Genomic Health;
• Guardant Health, which benefited from the powerful combination of higher test volume and revenues per test to post $60.8 million, surprising Wall Street analysts that were expecting earnings in the range of $45.4 million;
• Natera, which had what its CEO described as a “transitional quarter,” by posting revenues of $77.9 million (as opposed to $74.0 million expected), nearly 20% growth, driven by higher sales of its Panorama noninvasive prenatal and Horizon carrier screening tests; and
• NeoGenomics, which posted $104.7 million, surpassing average estimates of $99.1 as a result of a 35% increase in test volume and 15% increase in average revenue per test.

**************

This article, along with a table detailing key data and revenue trends from each lab company with over $10 million in FY 2019 Q3 earnings, originally appeared in G2 Intelligence, Laboratory Industry Report, December 2019