NGNM: Q3 2009 Updated Analyst Coverage
NeoGenomics On Track for Q1 2010 Launch Of Significant New Melanoma Test
Customer Restructuring Out Of System By Q4 2009
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Summary and Recommendation
NeoGenomics’ third quarter was adversely impacted by the restructuring of its relationship with its largest customer (previously 22% of revenues). As a result, the company reported a modest decline in sequential revenue attributable primarily to the restructuring as well as the expected Q3 seasonality. The company has been proactive in generating new revenue sources and we believe any future loss in revenues from the restructuring will no longer be meaningful. NGNM expects the impact to be fully absorbed by Q4 2009. We expect this revenue loss will be quickly replaced in coming quarters with new immunohistochemistry (IHC) tests and new FISH tests for Melanoma.
Preparing for the Melanoma launch in Q1 2010, the company has continued to invest heavily in its sales and marketing organization. We believe a matured sales force will provide a strong boost to the top line in the second half of 2010.
In addition to the new Melanoma test, NeoGenomics plans to develop two new
cancer tests with Abbott, which could further augment revenues in the medium to long term. NeoGenomics has adopted a balanced growth strategy and is focused on developing a solid platform for future developments. We remain enthusiastic about the company’s growth prospects and current progress and thus rate the company a Strong Buy with a one-year price target range of $2.15 to $2.50 per share.
Key Points
• Revenue increase of 44% y-o-y to $7.3 million from $5.1 million
• Commencement of Melanoma validation study with 500+ samples
• Continued investments in sales personnel; SG&A expense higher
• Customer Restructuring to be complete by 4Q 09.
• Revenue down to 5% from 22%.
• Build-out of a full-service Melanoma testing laboratory
• Gross margin at 50%, unchanged from last year
• Cash on hand $3.1 million
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