Fulgent Genetics, Inc. Q2 FY2025 earnings call

• Clinical Pipeline: Ming Hsieh mentioned the therapeutic development pipeline is on track. FID-007 is in Phase II with 32 patients enrolled, and FID-022 has started Phase I. - Laboratory Services: Brandon Perthuis noted a successful quarter with core revenue growth. They launched a new whole genome sequencing service, received the CE Mark for Fulgent exome and Fulgent Pipeline Manager, and made progress in managed care with over 20 new agreements adding over 35 million covered lives. - Financials: Paul Kim reported Q2 revenue of $81.8 million, non-GAAP gross margin of 44.2%, adjusted EBITDA loss of $3 million, and revised guidance for core revenue, EPS, and cash position.

In the second quarter of 2025, Fulgent Genetics' core laboratory services revenue totaled $81.7 million, which is a 16% year-over-year increase and 11% sequential increase. On a sequential basis, Precision Diagnostics was up 7%, Biopharma Services was up 54%, and Anatomic Pathology was up 11%. For the therapeutic development segment, the first clinical candidate, FID-007, is in a Phase II clinical trial with 32 patients enrolled and dosed, expected to complete enrollment by year-end 2025 with data readout in 2026, with an estimated cost of approximately $30 million over multiple years. The second clinical candidate, FID-022, has begun its Phase I trial with the first patients enrolled, and the estimated cost for the Phase I trial is approximately $8 million.

• Core revenue guidance for 2025 has been increased from $310 million to $320 million. - Non-GAAP EPS guidance for 2025 has been revised from a loss of $0.65 per share to a loss of $0.35 per share. - GAAP EPS guidance has been revised to a loss of $2.10 per share from $1.95 per share. - Anticipate ending 2025 with approximately $770 million in cash, cash equivalents, restricted cash, and investments in marketable securities.

• Forward-looking statements are subject to risks, uncertainties, and changes in circumstances that may cause actual results to differ. - Clinical trial outcomes for FID-007 and FID-022 are uncertain. - Market competition and regulatory changes could impact the company's performance.

Q: Congrats on the quarter. I guess maybe on the guidance, the $10 million increase for full year, how much to start from the Q2 bit versus the second half improvement. And then specifically, I think there was a $7 million increase in Precision Diagnostics. I was wondering if that is coming out from the VA contract or the Foundation Medicine partnership.

A: Yes. Thank you for the question. Brandon, do you want to talk about the strength in our laboratory services business and the reason why we're raising the outlook.

Q: Great. And then my second question on the AP. It seems like pretty strong in the quarter. I was wondering if there was anything like a onetime dynamic that we should think about, given that your guidance or just like the second half will be slower. I just want to make sure that I understand the dynamic within AP.

A: Yes, absolutely. Lu, yes, there's really no one-time event in the quarter. I think for a couple of quarters now, we said we've been pretty happy with the turnaround we've made there. The lab has done an excellent job with quality and turnaround time and EMR integrations. And I think the biggest thing we've done there is improve and expand that sales organization. The growth you're seeing in AP is purely organic growth. It's blocking and tackling. It's winning new deals. The AP team has excellent sales leadership and has an excellent team that is much bigger today than it was a year or 2 ago. So it's pure execution from both the lab and the sales team, and we're quite excited to see that AP business turn around and hit a really nice stride in terms of growth.

Q: Congrats on the color there. Just a follow-up from Lu's question on TAM pathology. I think you did say 11% growth. That is a really good number. When you talked about the new sales force, were you able to enter new geographies that -- and if that's the case, is there any other new geographies that you have an opportunity to get into to keep growing that Anatomic Pathology business?

A: David, it's Brandon. Thanks for the question. And yes, you nailed it. We did put new salespeople in new geographies. I think we've mentioned a few times that our managed care contracts are very strong and they're national managed care contracts. That gives us a ton of green grass to go out there and hunt in. So the sales team historically has been subscale. There's been a lot of territories that were not covered, but there's AP opportunities plentiful across the country. So the focus has been hiring really good salespeople that can hit the ground running and putting them in territories where we either don't have reps or don't have growth consistent with other sales territories. So again, it's not super flashy. It's blocking and tackling, hiring the right people, putting them in the right geographies and then giving them a product and a service that they can successfully sell. It's turnaround time, quality, the quality of our subspecialty trained pathologists. I think we put all of that together, we have an AP business that is growing and will continue to grow throughout the rest of the year.

Q: Then just one last on FID-007, I think you said enrolling this year and then reading out next year. Is there anything that would hold up the enrollment for this year? And as we're thinking about the readout in 2026, what could impact the time lines there as well?

A: All right. David, thank you for the question. I think that we expect to accelerate the enrollment during the second half of the 2025. Previously, we excluded the patients pretreated with Paclitaxel. But with the current enrollment and the data we've seen, the safety data we've seen from the first 32 patients, we felt we could open up for the patients who are previously treated with the Paclitaxel could be also enrolled into our program. So we are broadening the pool. The another area where we've seen an encouragement from the NCI line is the patients previously treated with pembro who becomes the -- use the maintenance therapy as the first line. So we're in a good position for the head and neck cancer patients whoever they progressed with pembro treatment, they can get into our treatment options right away. So we see all the positive signs in that area.