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NantHealth Lays Off 300 as It Posts 17 Percent Decline in Q2 Revenues

NEW YORK (GenomeWeb) – NantHealth on Thursday announced it is laying off about 300 employees as part of a restructuring of its business.

The firm also reported a 17 percent drop-off year over year in revenues for the second quarter.

In a statement, the company said that the restructuring follows "a series of methodically analyzed actions, planned over the past nine months post initial public offering to focus on the business of its core competencies of artificial intelligence and be the leading cancer company driving 21st century delivery of care."

The restructuring includes integrating acquisitions and its partnership with NantOmics — whose CEO Patrick Soon-Shiong is also the CEO of NantHealth — made prior to NantHealth going public, so that the firm can focus on applying its machine learning systems and AI to cancer.

Additionally, NantHealth reached a deal on Aug. 3 to sell to Allscripts its provider/patient engagement assets, "which will enable the company to integrate the remaining engineering teams to focus on cancer."

The restructuring will result in a reduction of NantHealth's workforce of about 300 workers, the firm said, along with annualized cost savings of more than $70 million.

The announcement follows a challenging few months for the company, which has been dealing with fallout from a story in March by Stat saying that a contract tied to a $12 million donation to the University of Utah by Soon-Shiong effectively forced the school to return $10 million of the gift back to NantHealth for services it would provide.

The story also said that the deal provided NantHealth with valuable data that was used to build a product for evaluating a patient's risk of rare and inherited diseases, and "made it possible for [Soon-Shiong's] company to inflate, by more than 50 percent" the number of test orders for GPS Cancer that were reported to investors in late 2016.

GPS Cancer leverages whole-genome sequencing, whole-transcriptome sequencing, and quantitative proteomics to profile patients and provide doctors with information that can be used to create personalized treatment strategies.

Following the report, several class action lawsuits were filed against NantHealth, which has denied the Stat story. The company's share price has dropped more than 43 percent since the story was published.

The company also reported on Thursday that its second quarter revenues retreated to $26.2 million from $31.5 million in Q2 2016, missing the consensus Wall Street estimate of $31.3 million. NantHealth said the drop was primarily due to a sales decline in its non-core business lines.

Total software-related revenues retreated to $18.7 million from $19.3 million a year ago. Maintenance revenues improved to $4.7 million from $4.5 million; sequencing and molecular analysis revenues grew tenfold to $450,000 from $45,000; and other service revenues fell to $2.4 million from $7.6 million.

The company said that 379 GPS commercial tests were ordered during the recently completed quarter, and 264 were delivered.

Earlier this week, NantHealth said its GPS Cancer molecular test is now covered by Sistemas Medicos Nacionales, SA de CV — a healthcare service plan that provides care for patients in the cities of Tijuana, Tecate, and Mexicali in northern Mexico. The partnership marks the next step in the international expansion of GPS Cancer, which was recently also made available in Italy, Israel, and the Middle East, according to NantHealth.

NanHealth's R&D spending for Q2 2017 was sliced by more than half year over year to $11.8 million from $24.3 million. It also sharply reduced its SG&A costs to $22.9 million from $47.2 million.

The firm's net loss grew to $70.1 million, or $.58 per share, compared to a net loss of $54.1 million, or $.54 per share, in Q2 2016. On a non-GAAP basis, NantHealth had a net loss of $.18 per share, missing analysts' average estimate of a loss of $.15 per share.

NantHealth ended Q2 2017 with $92.7 million in cash and cash equivalents.

"We remain focused on extending coverage and driving physician engagement for our GPS Cancer solution around the world," Soon-Shiong said in a statement. "I am pleased to report that the team has developed a deep, late-stage pipeline that includes national and regional health plans, and new orders are trending favorably as a result of the increased resources. We are gaining traction with physicians, and the number of oncologists that have ordered the test has grown to 432 as of the end of the second quarter."

In late-morning trading on the Nasdaq Friday, NantHealth shares were down 11 percent at $3.60.