NEW YORK (GenomeWeb News) – GenMark Diagnostics reported after the close of the market Tuesday that its third quarter revenues declined 12 percent year over year in the wake of a key customer shifting to a competitor's platform.
The loss of the account, plus the challenges experienced by US customers who offer its pharmacogenomic tests in gaining reimbursement, caused the company to lower its full-year 2013 guidance.
The Carlsbad, Calif.-based molecular diagnostics firm reported total revenues of $4.6 million for the three months ended Sept. 30, down from $5.3 million in Q3 2012 but in line with the consensus Wall Street estimate.
GenMark attributed the drop in revenues to the end of an alliance the firm had with Natural Molecular Testing (NMTC), previously GenMark's largest customer. In June, GenMark competitor Luminex and NMTC entered into a multiyear collaboration and licensing deal, raising questions about the GenMark and NMTC relationship going forward.
GenMark noted in a statement accompanying its financial results that NMTC had accounted for 66 percent of the firm's revenues in the third quarter of 2012, dropping to 26 percent in the second quarter of 2013 and to zero for the third quarter.
Still, CEO Hany Massarany said on an earnings call this week that GenMark's commercial team "delivered another very solid quarter, with continued strong growth." He said that demand for the firm's infectious disease tests, such as its US Food and Drug Administration-cleared Respiratory Viral Panel, and its research-use HCV Genotyping Test, have continued to drive consumable sales and eSensor XT-8 instrument placements.
GenMark said that its reagent revenue declined 22 percent year over year to $4 million, while its instrument and other revenues increased 314 percent to $651,000, which the firm attributed to sales of its XT-8 instruments. It said that it placed 41 new analyzers during the quarter while removing 50 analyzers from NMTC. Its total installed base as of the end of the quarter was 375 instruments, all in end-user labs in the US.
Massarany noted that the firm filed a lawsuit against NMTC in early October "seeking the collection of past due amounts from earlier product sales and for damages resulting from unsatisfied contract purchase commitments."
However, NMTC has subsequently filed for Chapter 11 bankruptcy protection.
GenMark has since been listed as NMTC's largest creditor, he noted, with a disputed $75.7 million claim related to an outstanding receivable balance of $2.7 million and a remaining contract obligation of approximately $73 million.
Massarany said that GenMark has since "made appropriate adjustments to our financial statements to account for NMT's bankruptcy filing."
GenMark posted a net loss of $10.8 million, or $.30 per share, for the quarter, up from $6.3 million, or $.20 per share, for Q3 2012. On a non-GAAP basis, its net loss was $.24 per share, beating analysts' consensus estimate of $.27.
The firm's R&D spending in the quarter increased 20 percent to $5.4 million from $4.5 million, and its SG&A expenses increased 85 percent to $7.4 million from $4 million.
Massarany said that the company's R&D investments are related to the development of its sample-to-answer NextGen system. The system will integrate sample preparation steps, including extraction and amplification, with GenMark's existing eSensor detection technology in a single test cartridge. He noted that the company intends to launch the system and an associated menu of infectious disease tests in the second quarter of 2014.
While infectious disease testing remains GenMark's focus, several of its customers offer pharmacogenomic tests on its platform. Citing the challenges faced by these customers in gaining reimbursement for these tests, given the changes this past year in the way molecular tests are reimbursed in the US, GenMark lowered its full-year 2013 revenue guidance by $3 million to $27 million.
"Based on prolonged reimbursement challenges and the recently published CMS rates for the new pharmacogenomics (PGX) test codes, we expect the emerging PGX sector to experience additional downward pressure in the near term," Massarany added.
GenMark finished the quarter with $63.3 million in cash and cash equivalents and $48.5 million in investments.