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NeoGenomics Q4 Revenues Grow 12 Percent

NEW YORK (GenomeWeb) – NeoGenomics reported Wednesday morning that fourth quarter revenues grew 12 percent, fueled by strong growth in clinical genetic testing volume and pharmaceutical services.

For the three months ended Dec. 31, 2017, NeoGenomics reported revenues of $67.8 million compared to $60.5 million in the same quarter last year, beating the average analyst estimate of $66.3 million.

Clinical testing revenues were up 7 percent year over year to $59.1 million from $55.3 million, boosted by a clinical genetic testing volume increase of almost 19 percent, the company said. Meanwhile, revenues in the company's smaller pharma services division grew 71 percent to $8.7 million from $5.1 million in the year-ago period.

The company reported that average revenue per clinical genetic test decreased by 8 percent to $338 from $365 in the same quarter last year, primarily due to changes in test mix and reduced reimbursement levels for certain molecular tests.

In a conference call following the release of the firm's financial results, NeoGenomics Chairman and CEO Douglas VanOort attributed growth in the company's clinical testing division, in part, to the breath of the company's testing offerings.

"Our strategy to offer a one-stop shop for all oncology testing needs is paying off as new clients are requesting many tests in our comprehensive service offering," he said.

He also noted that the company is adding capacity with the construction of a small lab in Atlanta, focused primarily on providing rapid turnaround flow cytometry services to clients in that area.

Meanwhile, the company's growing pharma services business has been "strategically important" to the overall company, VanOort said. "It gives us a window into what new oncology drugs the leading [and] most innovative pharma and biotech companies are developing, and it allows us to partner with those innovators as we discover and test new biomarkers to help them with their drug development programs."

The company is adding capacity to its pharma services division by constructing a new lab in Houston to replace an older facility acquired through the company's Clarient acquisition.

In terms of headwinds, VanOort said the company expects impact of less than $1 million or .4 percent of clinical revenues for full-year 2018 from the new lower Medicare prices that took effect at the beginning of the year as a result of the Protecting Access to Medicare Act, because less than 30 percent of the company's test mix is affected by PAMA pricing.

Many of NeoGenomics tests including, flow cytometry, immunohistochemistry, and fluorescent in-situ hybridization, or FISH, are subject to the physician fee schedule. The company expects an impact of less than $2 million, or less than .7 percent of clinical revenues, for full-year 2018 as a result of reduced rates for certain immunohistochemistry and flow cytometry tests.

A larger reimbursement challenge will come from changes to the so-called 14-day rule, he said. The 14-day rule previously required non-hospital reference labs to bill hospitals for tests performed within 14 days of a patient's release from the hospital. Under changes to the rule, reference labs can bill Medicare directly for certain molecular pathology tests, he noted.

"We believe this is a poor policy change by [the Centers for Medicare & Medicaid Services] as it does the opposite of policy shifts in recent years and will result in less accountability for ordering and additional cost to the government. However, a few smaller labs lobbied for this change and it was enacted even despite concerns expressed by NeoGenomics and the American Clinical Laboratory Association," Van Ooort said.

The company expects greater complexity and confusion among clients as a result of the change, as well as difficulty in collecting for some newer and innovative molecular tests, VanOort said. He estimated impact from changes to the 14-day rule to reduce reimbursements by approximately $2.5 million to $3 million, or 1 percent to 1.25 percent of clinical revenue, this year.

NeoGenomics' R&D expenses fell 40 percent year over year to $556,000 from $930,000. Its SG&A costs grew 9 percent to $28.1 million from $25.8 million.

Net income attributable to shareholders in the fourth quarter was $2.3 million, or $.03 per share, compared to a net loss of $14.2 million, or $.18 per share, in the fourth quarter last year. Non-GAAP earnings per share in the quarter were $.05, beating the analysts' average estimate of $.04.

NeoGenomics said that in the recently completed quarter, it received a one-time gain of $3.1 million related to the new tax law.

For full-year 2017, the company posted net revenues of $258.6 million, up 6 percent from $244.1 million in 2016. It beat the consensus Wall Street estimate of $257.2 million.

The firm cut its R&D spending 22 percent year over year to $3.6 million from $4.6 million. Its SG&A costs grew 14 percent to $113.3 million from $99.7 million.

NeoGenomics reported a net loss attributable to shareholders of $11.4 million, or $.14 per share, compared to a net loss of $30.4 million, or $.39 per share, in 2016. On a non-GAAP bais, EPS was $.13, beating the analysts' average estimate of $.12.

The company had $12.8 million in cash and cash equivalents as of the end of 2017, it said.

For 2018, NeoGenomics guided to full-year revenues of between $260 million and $272 million, with a loss per share in the range of $.13 to $.08. Adjusted EPS is estimated to be between $.15 and $.20.