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Fulgent Genetics Aims to Use COVID-19 Testing Gains to Grow Clinical Sequencing Business

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NEW YORK – Historically focused on clinical sequencing, Fulgent Genetics recently saw dramatic increases in its COVID-19 RT-qPCR testing business. While the firm plans to continue to grow its PCR business in 2021, it also expects to attract attention to its next-generation sequencing tests — including for SARS-CoV-2 variants — as well as to offer new products.

Fulgent is also positioning its at-home self-collection brand, Picture Genetics, to be at the forefront of a potential new market for consumer-initiated clinical sequencing.

The Temple City, California-based firm's revenues skyrocketed in the fourth quarter, from roughly $8 million in 2019 to $295 million in 2020, while its full-year revenues jumped from approximately $35 million to nearly $422 million.

On a call with investors to discuss these eye-popping results, Fulgent's CEO Ming Hsieh emphasized that they are even more notable considering the firm had no diagnostic PCR testing business for respiratory infectious diseases prior to the pandemic.

Now, it is positioned to be a market leader in terms of COVID-19 diagnostics test volumes. To date, Fulgent has run 4.4 million SARS-CoV-2 tests, Hsieh said, with 90 percent of results returned within 24 hours after a sample is received and 97 percent returned within 48 hours. The firm has also had no sample losses or PCR failures to date, Hsieh said.

Fulgent's chief commercial officer, Brandon Perthuis, reported that the firm currently has capacity to handle 100,000 SARS-CoV-2 tests per day across its two laboratories, with room to grow.

Hsieh attributed the firm's ability to scale so dramatically to its core abilities in genetic testing, as well as to a proprietary lab operations and reporting system that includes sample management software, and to its "ability to rapidly secure multiple reimbursement agreements."

Fulgent won a number of competitive contracts in the state of California to become the highest-volume testing lab in the state, he said, with county-wide testing contracts in Los Angeles, San Bernardino County, Santa Clara, Long Beach, and Anaheim, for example.

Fulgent's CFO Paul Kim said that the firm won six additional contracts in the recently-completed quarter, which will be "contributing multimillion dollars each in quarterly revenues."

Outside of California, the firm's back-to-school testing contract with the New York City Department of Education — which was also secured through a competitive bid process — has been extended through the coming school year, and the firm recently won a contract for school testing in Las Vegas, Kim said.

"At this point, we have direct agreements with 11 counties for our services, many large corporations, testing organizations, sports teams, sports conferences, cruise lines, hundreds of nursing homes and assisted living facilities, just to name a few," he said. 

The firm also discussed a contract with the Department of Homeland Security to test agency employees through a partnership with Federal Resources, a US military and government supplier.

On the call, Perthuis said it is a "five-year indefinite delivery, indefinite quantity" contract worth up to $2 billion to be shared by a total of four firms.

In terms of securing testing contracts, Perthuis said that the firm stands out from its competition in part due to its complete service offering, meeting its turnaround time agreements, and total capacity for testing.

"Our customers love us," he said, adding that "we're confident that for the contracts we have we'll continue to be their preferred partner."

In addition to COVID-19 testing, the firm's NGS business also grew in 2020. Fulgent secured 15 contracts with new customers for services such as hereditary cancer, cardiovascular genetics, carrier screening, and neurodegenerative genetics testing, Perthuis said.

The firm has also already developed an NGS-based COVID-19 test. Perthuis commented that the firm did not commercialize its NGS test as a diagnostic earlier in the pandemic because the rapid turnaround time of the RT-PCR test was more critical in controlling the spread of the virus.

"Fast forward to today, next-generation sequencing is now in the spotlight of this pandemic due to its ability to identify strains and mutations and screen for potential new mutations," he said. "We have now hit a perfect intersection of Fulgent's core competencies."

Fulgent currently has the capacity to handle approximately 10,000 NGS tests per day and is working with the local and federal government on genomic studies of this virus. "We believe our ability to offer both NGS and RT-PCR puts us in a leading position to partner with organizations doing these studies," Perthuis said.

Kim also commented that the firm sees "growth potential" from its NGS-based COVID test as it continues to win more customers "who want sequencing to understand the characteristics of COVID as well as the growing number of variants."

An optimistic outlook

The company's cash balance has grown from $432 million at the end of 2020 to $625 million by the end of February 2021 and is poised to reach more than $1 billion "sooner rather than later," said Kim, allowing it to expand its business further.

The firm intends to "dramatically increase" the head count of its sales team by the end of 2021, for example, Perthuis said. It will also expand its operations into Europe and Asia, although executives declined to provide more details at this time. "We also view M&A as a potential avenue to expand our addressable market into wider screening and diagnostic capabilities," Hsieh said.

According to CFO Kim, NGS opportunity for variant testing has "legs" as well. "The market is there in a bigger way for the variants aside from the testing on the NGS side, and that's what has us really excited," he said.

Furthermore, Fulgent is developing a pharmacogenomics panel with 44 targets and 140 drugs for a 2021 launch. Moreover, it plans to "invest heavily" in oncology diagnostics in its R&D pipeline, Hsieh said.

It has also launched two software products: a vaccine management platform and a community testing software service product. The latter is essentially Fulgent's front end sample tracking software, but instead of pointing the order to its own laboratory, it will point it to the customer's lab, Perthuis explained.

In addition, the firm expects to capitalize on some of the less tangible aspects of its success. For example, its turnaround times — which Perthuis said can be as quick as eight hours depending on the time of day a sample is received — puts the PCR test in a good position relative to antigen tests. "The feedback we receive from our customers that have run [rapid antigen tests] in parallel is that they continue to see RT-PCR as the gold standard," Perthuis said.

The Picture business is also becoming a nationally recognized brand, he said. For example, the firm partnered with New York City and Jet Blue Airlines for pre-travel testing, as well as with Los Angeles county to provide at-home sample collection for some residents at no cost to them.

Perthuis said that Fulgent has "dramatically expanded Picture's visibility and brand recognition due to the role the platform has played in COVID-19 testing," adding that the platform is now positioned to change the way genomic and other tests are delivered.

"We believe patients will become increasingly proactive in their healthcare, and consumer-initiated testing will be a rapidly growing market," he said. "With the Picture platform seamlessly integrated with telemedicine, we are uniquely positioned to expand the service offering by adding many new tests in the future."

Finally, COVID-19 testing has allowed the firm to establish new relationships with payors that it now hopes to develop further. Perthuis said that the firm billed an excess of 1.8 million more insurance claims in Q4 of 2020 than it did in the fourth quarter of 2019.

"We have become an in-network laboratory with several regional payors and now have close working relationships with several large national payors," he said, adding that "we believe we will continue to make meaningful progress becoming an in-network provider for our services."

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