NGNM: Q3 2010 Updated Analyst Coverage
Cost Restructuring, Product Repositioning And Increased Sales Will Drive
Growth And Profitability In 2011, In Our View; Maintain BUY, $2.40 Target
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Revenue in 3Q:10 increased 19% year-over-year from $7.3 to $8.7 million. We expect 19% y-o-y growth in 4Q:10 to $9,3 million and continue to expect a 5 year revenue CAGR of 30%.
A new VP of Sales and Marketing is in place and is expected to drive higher sales productivity. Test volumes are expected to increase 20% from 8,591 in 4Q:09 to 10,083 in 4Q:10.
The gross margin is expected to stabilize at 45%, reflecting the ease of pricing pressures. Contracts with 3 of the largest managed care organization and several other regional and local players have been secured.
We expect the average revenue per test to decline 1.0% in 4Q:10 on a year over year basis but to be offset by a growing number of tests.
We expect uptake in Melanoma FISH Test revenue driven by focused marketing and sales initiatives such as direct sales to dermatologists and a medical publication.
We contend that NGNM’s new cost cutting initiatives and productivity improvements will yield a moderate profit in 2011 and expect EPS of $0.02 for 2011.
Summary
For 3Q:10 NGNM results were slightly lower than our
estimates with revenue off by 1%. The volatility in revenue
over the trailing 12 months has been primary due to client
in-sourcing and managed care activities. With both these
hurdles now behind the company, revenue will likely to be
more stable and show steady growth. Sales are expected to
grow, albeit slower, given the uncertain macro-economic
outlook.
We expect an uptick in sales productivity with the changes
in sales and marketing organization including approach
methods –such as direct sales to dermatologists, a more
aggressive training focus and an increase in test credibility.
The Melanoma FISH test uptake is expected to contribute to
the top-line with the release of a validation study within 3-6
months. The 500 plus specimen study will help establish
credibility of the tests and encourage endorsement from
physician groups.
NGNM is well positioned competitively and is a compelling
investment story. It has established products with excellent
scientific foundations with sound financial momentum.
NGNM remains adequately cushioned in this poor credit
environment. We reiterate the strength and scalability of the
business model and continue to see significant traction
going forward.
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OTC BB: NGNM
 
More information about the covered company
is available at:
www.neogenomics.com
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