Here's where the volume came from today....
I profiled NGNM to my subscribers at www.insightertrading.com last night. Google "insightertrading.com" and you'll see some other quality growth stories we've been in. Just thought you fellow NGNM longs might want to point out any oversights in my analysis of the firm.
~~PASTE OF NGNM PROFILE @ $1.75~~
[11/8/2006] NGNM - Molecular diagnostics under the microscope...
01:43:43am
2006-11-08
The medical diagnostics business it a pretty boring industry. Certainly it lacks the compelling stories like clinical trials, big pharma buyouts, and FDA approvals. However, there is a segment of the industry that's on fire right now.
The industry as a whole can be drilled down to three segments:
Clinical Testing - This is what we're all familiar with. Low margins, and high volumes of simple blood and urine tests. These tests generate about $5-$30 in revenue per test and this segment is growing in the low single digits.
Anatomic Pathology - Many of us have had experience with this segment via Pap smears, skin biopsies, and tissue biopsies. These tests generate between $25 and $500 per test and the growth here is about 7% annually.
Genetic/Molecular Testing - This is the space that NGNM (Neogenomics) operates in. This segment involves analyzing chromosomes, genes or base pairs of DNA for disorders. Both genetic and molecular testing have become important and highly-accurate diagnostic tools over the last five years. New tests are being developed rapidly, thus this market segment is expanding rapidly. Genetic/molecular testing requires very specialized equipment and credentialed individuals (typically MD or PhD level) to certify the results and typically yields the highest average revenue per test of the three market segments. The tests NGNM performs for example yield between $200-$1,000 per test. In fact, in the first half of '06, NGNM's average revenue per test was $706.
So now that we know where NGNM is located in the spectrum of medical diagnostics, let's look for some evidence of the growth in this space. Before we look at NGNM's results, let's look at some of their competitors.
MYGN - Trading at $28.56 it's just pennies off of a new 52 week high. This $1billion market cap firm just smashed estimates and here's what they had to say about the molecular diagnostic market....
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43% Revenue Growth and 95% Operating Income Growth Highlight Molecular Diagnostic Business -
For the three-month period ended September 30, 2006, molecular diagnostic revenue increased to $30.9 million from $21.5 million in the same quarter of the prior year, an increase of 43%.
"We are very pleased with the continued growth in our molecular diagnostic business and the advances in moving our drug candidates towards the market," said Peter Meldrum, President and Chief Executive Officer of Myriad Genetics, Inc. "We believe that the remarkable growth in top-line revenues and the substantial improvement in operating profits are indicative of a vigorous, growing molecular diagnostic business."
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Now let's take a look at what NGNM has recently said about it's markets...read closely....
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We have an opportunity to add additional types of tests to our product offering. We believe that by doing so we may be able to capture increases in our testing volumes through our existing customer base as well as more easily attract new customers via the ability to bundle our testing services more appropriately to the needs of the market. Until December 2004, we only performed one type of test, cytogenetics, in-house, which resulted in only one test being performed per customer requisition for most of FY 2004 and average revenue per requisition of approximately $490 in FY 2004. In December 2004, we added FISH testing to our product offering, and in February 2005, we began offering flow cytometry testing services. With the addition of these two new testing platforms, our average revenue/requisition increased by 35.6% in FY 2005 to approximately $632/requisition.
We believe this bundled offering approach could drive large increases in our revenue and afford us significant synergies and efficiencies in our operations and sales and marketing activities. For instance, initial testing for most hematological cancers may yield total revenue ranging from approximately $1,700 - $2,800/case and is generally comprised of one or more of the following tests: cytogenetics, fluorescence in-situ hybridization (FISH), flow cytometry, and morphology testing. Whereas in FY 2004, we only addressed approximately $500 of this potential revenue per case, we now address approximately $1,200 - $1,900 of this potential revenue per case.
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So how is this "bundled" approach working for NGNM? Take a look at their last Quarterly....
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For the three months ended June 30, 2006 our revenues increased 413% to approximately $1,767,500 from approximately $344,900 in 2005. This was the result of a 353% increase in testing volume and a 13% increase in average revenue per test. For the six months ended June 30, 2006 our revenues increased 441% to approximately $3,111,300 from approximately $575,100 in 2005. This was the result of an increase in testing volume of 397% and a 9% increase in revenue per test. This volume increase is the result of wide acceptance of our bundled testing product offering and our industry leading turnaround times resulting in new customers. This increase in revenue per test is a direct result of restructuring arrangements with lower revenue per test and pricing policies with new customers.
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Nice margins on this business too, and those margins will continue to ramp as revenue per test scales higher....
~~PASTE~~
As a result of the revenue and cost of revenue our gross profit percentage for the three months ended June 30, 2006 increased to 59% from 47% for the three months ended June 30, 2005. The gross profit percentage for the six months ended June 30, 2006 increased to approximately 58% from approximately 40% for the six months ended June 30, 2005.
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And they just swung to profitablity to boot....
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As a result of the foregoing, our net income for the three months-ended June 30, 2006 increased approximately $342,600 to approximately $161,300 from a loss of approximately $181,400 during the three months-ended June 30, 2005. For the six months-ended June 30, 2006 net income increased approximately $664,200 to approximately $267,700 from a loss of approximately $396,500 during the six months-ended June 30, 2005.
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Looks like a nice little growth story here for a company with a $40million dollar market cap, and about 10million shares in the float. Yes, 9 times sales is expensive, but it's mitigated if you factor in the 400% revenue growth year over year.
There's also this little nugget that was buried in the last paragraph of a press release from September when the firm announced their new bundled tests aimed at the oncology market dubbed "GPS"....
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"Overall, we are excited about the impact that we believe the GPS product will have on our growth rate in FY 2007. As we announced with our Q2 06 earnings release we plan to issue revised upward guidance for FY 2007 with our Q3 06 earnings release."
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Never underestimate how surprised the market can be by information that a company has previously disclosed. It happens all the time. Now the stock has been trading higher into it's earnings call on Friday. The shares printed a fresh high today of $1.78 so it appears as if there is some money out there that remembers the revised guidance comment I pasted above.
Decent support at $1.40 and very firm support at $1.15.....
Related Industries: Health - New Pick - Overlooked Potential - Pharmaceutical -
Initial Stock Price: $1.75
