By:
Chez Daggs, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary:
• NeoGenomics, Inc. (NASDAQ: NEO) is a provider of cancer diagnostics
and pharma services to oncologists, pathologists, pharmaceutical companies,
academic centers, and more.
• NeoGenomics completes acquisition
of Genoptix, Inc.
• Launched new diagnostic
test for breast cancer.
• Reported record
revenues and strong organic revenue growth in the fourth quarter.
Key
points:
In December of 2018,
NeoGenomics completed their acquisition of Genoptix, Inc., a leading clinical
oncology laboratory, specializing in hematology and solid tumor testing which
was headquartered in California. Strategically, this acquisition makes a lot of
sense. NeoGenomics can now expand their reach into more oncology practices, and
significantly accelerate their progress towards major growth objectives. It
also makes them unique in a sense that it allows them to create a new standard
of highly advanced cancer testing service throughout the country. Management
estimates expect Genoptix to contribute around $85 million of revenue in the
first year, around $25 million of cost synergies, and incremental margin on
Genoptix revenue to reach approximately 25% by the end of the third year.
In March of 2019, NeoGenomics
announced availability of the Ventana PD-L1 (SP142) Assay for tumor tissue from
patients with triple negative breast cancer (TNBC). This assay is a companion
diagnostic test to identify TNBC patients who may be appropriate candidates for
TECENTRIQ, an immunotherapy approved specifically for breast cancer. Ventana
PD-L1 was recently approved by the FDA and is ready for clinical use. TNBC accounts
for 10-20% of cases and is named because tumors lack three biomarkers that are
commonly targeted with drug therapies when present. TNBC is very difficult to
treat therefore makes many therapies ineffective, but the launch of PD-L1
(SP142) will provide TNBC patients access to a companion diagnostic test for a new,
better treatment option.
In February 2019, NeoGenomics
reported fourth quarter and fiscal year results. NeoGenomics reported record
revenue and EBITDA for the quarter of $76.5 million and $13 million
respectively. Historically NeoGenomics has delivered choppy operating margin
year to year, but for 2018 operating margin jumped up to 4.46% compared to
1.31% for 2017. On top of that the company now looks profitable. The acquisition
also puts the company on track to generate strong revenue growth of about 40% compared
to the previous year.
What
has the stock done lately?
Like most equities, the
stock had a rough end to 2018 despite the strong close of their acquisition.
Since the start of 2019, the stock has been steadily climbing to yet another 52
week high. The stock rose nearly 18% solely in the month of February following
the announcement of its strong earnings report, and it’s expected to continue
on its run.
Past
Year Performance:
Today, the stock is
trading more than double than it was a year ago. It has a 52 week H/L of $7.71
- 20.31. The stock has increased nearly 163% in value over the past year, and just
recently hit that $20.31 mark in mid-March. The stock is currently dancing
right around the price target it was pitched at of $20.64. The stock has been one of the strongest
players in the genetic testing stocks.
1
Year Stock Chart vs. Russell 2000
Source:
FactSet
My
Takeaway:
Since being added to the
AIM small cap equity fund, the initial investment thesis with which the company
was purchased has almost come to reality. NeoGenomics completed their
acquisition of NeoGenomics, they experienced superior top-line growth, and
received FDA approval of their genetic code PD-L1. NEO is essentially at its price target, but
has been a great run. It might time to decide on whether to sell or seek some
additional profit.
1
Month Stock Chart
Source:
FactSet
