Luminex reported a 12 percent increase in second-quarter revenues this week, driven largely by a 24 percent spike in assay sales.
For the three months ended June 30, the Austin, Texas-based firm reported total revenues of $54.3 million, compared to $48.3 million for the second quarter of 2012.
CEO Patrick Balthrop said during the firm's earnings call that the results "reflect momentum" in Luminex's infectious disease and genetic disease testing franchises, both of which are growing in the double digits, with "noteworthy contributions" from the company's xTAG Gastrointestinal Pathogen Panel as well as the growing number of laboratory-developed tests that are run on its platform.
He also attributed the jump in assay sales to the firm's decision to move to a direct sales model for its molecular diagnostics business earlier this year (BAN 1/15/2013).
At the same time, Balthrop cautioned investors that "protracted administrative issues" in the US related to recent changes in the ways that molecular diagnostic assays are reimbursed have resulted in a decline in reimbursement for some of its tests.
Because of this, Luminex anticipates lower full-year 2013 revenues than it had initially expected, he said.
GPP gaining traction
Chief Financial Officer Harriss Currie said on the call that 68 percent of Luminex's Q2 assay revenues were generated by demand for its menu of infectious disease tests, such as its xTAG Respiratory Virus Panel and the GPP.
The US Food and Drug Administration cleared the GPP for use on Luminex's higher-throughput LX 200 system in January and for use on its benchtop MagPix system in April (BAN 4/16/2013). Using the GPP, which is based on Luminex's bead array technology, users can detect 15 gastrointestinal pathogens in a single, five-hour assay.
Balthrop said that the firm has recently "ramped up its commercial efforts in the US for the GPP" and that it has a "fast-growing number of GPP customers and expects adoption to continue in the second half of the year.
"To date, we have dozens of US accounts, either live or in some stage of validation testing," Balthrop said. "We believe this early traction is due to high-volume labs recognizing the significant clinical benefit of this first-to-market molecular assay as well as our motivated direct sales effort."
One of those early adopters is the City of Milwaukee Public Health Laboratory. In a recent Journal of Clinical Microbiology paper, investigators from the lab demonstrated the use of the GPP in not only a clinical setting, but for use in determining the causes of public health outbreaks (BAN 7/23/2013).
On the call, Balthrop acknowledged that the GPP could be used in public health labs, but described the public health market as "tangential" to the clinical market, as public health labs are "constrained in terms of their ability to adopt new technologies."
While Luminex is encouraged by GPP adoption in the US, Balthrop said the firm is "behind [its] expectations" in Europe. He said that the assay has been "well received" by European labs, and that there are "dozens" of contracted customers using the GPP, but that many national health agencies are in the process of restructuring, and those processes have slowed adoption of the assay.
Luminex has made some changes in its commercial organization to better reach European customers, but Balthrop said the "experience we've had in the EU has frankly not been stellar," and it's "going to take some time for that to get traction."
PGx, NMTC, and LDTs
Sales of genetic disease tests generated the remaining 32 percent of Luminex's assay revenues, according to Currie.
Balthrop said that the firm "continues to make good progress" with its pharmacogenomic assay portfolio. Earlier this month, the FDA cleared an updated version of its CYP 2D6 assay for clinical use. Balthrop said that the company has also submitted a 2C19 assay to the FDA and anticipates clearance in the second half of the year.
The "pharmacogenetics category represents a growth opportunity and our assays and technology are ideally suited for the high-volume labs where this testing is performed," said Balthrop.
The 2D6 assay is currently Luminex's sole, FDA-cleared, pharmacogenomic test. But other test providers use and continue to adopt the company's technology for their own laboratory-developed tests.
Last month, Natural Molecular Testing Corp., a Seattle-based company, announced that it would convert its pharmacogenomic test services to a new panel based on Luminex's xMAP multiplex bead array technology (BAN 6/18/2013). The new test, called the Personalized Medicine Panel, or PMP, analyzes 42 targets related to drug metabolism and is customizable.
This week, Balthrop described NMTC as one of Luminex's "fastest growing customers," and called the NMTC deal a "prime example of the opportunity with our technologies and capabilities in the overall lab-developed test market."
While Luminex is "optimistic" about the PMP's prospects, Balthrop noted that the assay has only been available for seven weeks, and that NMTC has inventory on hand from previous suppliers. He also said that NMTC could face challenges this year "due to the lagging overall reimbursement process by government agencies and other payors for tests classified into newly implemented molecular diagnostic reimbursement codes."
Because of these issues, Luminex has been cautious about factoring contributions from NMTC-derived sales into its full-year guidance. Still, Balthrop told investors that the reimbursement situation is "temporary," and that the opportunity for NMTC's panel remains "significant."
Since the beginning of this year, payment coding for molecular diagnostic tests in the US has focused on the purpose of the test performed, rather than the method used. Since May, regional Medicare Administrative Contractors have been developing their own fee schedules for tests performed based on these new codes using a gap-fill approach. Some other payors meantime have held back on setting their own fees, Balthrop said, because they are waiting for the MACs to set pricing for the new codes first.
During the call, Balthrop elaborated on how this process has impacted Luminex and other molecular diagnostics firms, as some payors delay setting prices for new test codes, and others are processing claims, but not payments, for assays they have paid for in the past.
"Unfortunately, the current situation lacks consistency and transparency across payors and regions making details and timing of a resolution difficult to predict," Balthrop said.
Balthrop stressed that reimbursement issues impact "only a fraction" of Luminex's total assay revenue. He said that the firm's infectious disease assays remain largely immune from the process, as they are performed on hospitalized patients and are reimbursed differently from tests performed on outpatients visiting hospitals and clinics.
He added that Luminex's genetic disease assays have been affected most by the new reimbursement regime, because those tests are reimbursed on an outpatient basis. Luminex's pharmacogenomic assays, in particular, are run on Medicare patients, and providers of those tests are the "ones who have been experiencing most frustration with delays in reimbursement," Balthrop said.
He noted that Luminex's customers' claims are being processed, but that they are not being paid because prices have not yet been set for the related codes. Because of that uncertainty, some have held off on purchasing new Luminex products until the reimbursement environment becomes more stable.
"It's affected our customers in a significant way and the situation continues to be a little cloudy," Balthrop said, adding that "no one believes it's permanent in nature."
These issues have also led Luminex to say that it expects its full-year 2013 revenue to be closer to the bottom of its guidance of between $220 million and $230 million
"These reimbursement issues appear administrative in nature and should prove temporary, but nonetheless, we believe it's prudent to consider these in the context of our communicated guidance," Currie said on the call.
During the call, Currie provided more information on the firm's Q2 results.
Luminex sold a total of 266 multiplexing systems in the second quarter, split almost evenly between its higher-throughput LX 200 systems and its benchtop MagPix systems, he said.
Though sales were in line with expectations, the company's systems sales fell 9 percent year over year to $7.6 million from $8.4 million.
Luminex's consumables sales were up 9 percent to $11.8 million in the quarter from $10.8 million. Royalty revenue increased 11 percent to $8.6 million from $7.7 million, and assay revenue climbed to $21.7 million from $17.5 million. All other revenues were $4.6 million, up 20 percent from $3.9 million in Q2 2012.
Luminex posted net income of $3.7 million, or $.09 per share, for the quarter, compared to $3 million, or $.07 per share, for Q2 2012. On a non-GAAP basis, its net income was $7.2 million, or $.17 per share, compared to $6.3 million, or $.15 per share. It beat the consensus Wall Street estimate of $.10 per share.
The firm's R&D spending for the quarter increased 17 percent to $11.8 million from $10.1 million, while its SG&A expenses climbed 21 percent to $20.2 million from $16.7 million.
Luminex finished the quarter with $37.5 million in cash and cash equivalents and $5.5 million in short-term investments.