GenMark Facing New Challenges Going Into 2019

I can understand if long-term GenMark (GNMK) shareholders feel a little cursed. Although there have been plenty of self-inflicted issues that have dented management credibility and pushed back development and revenue timelines, even when management execution has been good, new challenges have emerged to threaten the company’s longer-term revenue ramp. To that end, adverse coverage decisions, prospects for a more mild flu season, and threats of/from new competitive entrants have cut these shares almost in half from their late summer peak.

GenMark shares do seem undervalued, and I believe the company’s core ePlex platform does address real and legitimate needs in the hospital testing space. I also believe, though, that competitive and reimbursement pressures are unlikely to abate and the company is likely to face some hard choices with respect to funding/liquidity before achieving cash flow breakeven. Accordingly, I have to consider this a pretty high-risk opportunity.

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GenMark Facing New Challenges Going Into 2019

Yet Again, Investors Have To Readjust Expectations For GenMark

The past 12 months have been rough for GenMark Diagnostics (GNMK), as this molecular diagnostics company has struggled to meet its own timelines and live up to Wall Street expectations. While better-than-expected fourth-quarter results gave investors a little renewed confidence, guidance for 2018 brought that honeymoon to a quick end.

GenMark remains a high-risk, high-reward speculative play in molecular diagnostics. This recent flu epidemic has solidified the place of multiplex systems in clinical practice, but GenMark is facing an increasingly difficult competitive market, and there doesn't seem to be as much excitement in the channel as there once appeared to be. A revenue figure of $200 million in 2022, growing to over $400 million in 2027, with double-digit FCF margins can support a meaningfully higher share price, but the company's cash situation is far from ideal, and it really needs to start posting beat-and-raise quarters soon.

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Yet Again, Investors Have To Readjust Expectations For GenMark

Investopedia: Recent Financials May Not Be Entirely Fair To Hologic

I have no qualms with those who believe it is the responsibility of the management of public companies to communicate clearly and accurately with investors (and analysts) about the current state of the business and the likely near-term conditions. Likewise, I don't particularly object when the Street punishes those companies that come in short of expectations without having given suitable warning.

So I can understand some of the disappointment with Hologic (Nasdaq:HOLX) these days – the company arguably could have done a better job communicating (and adjusting expectations) in regards to the fall-off in 2D mammography, ThinPrep, and the Chinese business. At the same time, though, I see a lot of what's troubling Hologic as macro issues impacting the sector as a whole. As the company is continuing to execute reasonably well on costs and the Gen-Probe integration, today's share price may be something of an opportunity.

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Seeking Alpha: Luminex Has Both Many Opportunities And Many Questions To Answer

While I'm not opposed to paying up for a strong growth story, particularly in an area like molecular diagnostics (MDx), I think there are too many questions about the basic business model at Luminex (LMNX) to pay up for this stock today. The company does indeed have significant potential and large addressable markets, but the combination of inherent business model volatility, less than full control on product development, and rampant technological and commercial competition are all significant factors as well.

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Luminex Has Both Many Opportunities And Many Questions To Answer

Seeking Alpha: LipoScience - A Small Company Targeting A Large Market

Healthcare is arguably defined by a continual push for better mousetraps, and LipoScience (LPDX) may have a better mousetrap for diagnosing and characterizing heart disease. Not only does LipoScience provide information to doctors that other systems currently on the market do not, it does so with a platform that offers meaningful potential value for the hospital or lab using it. Diagnostics is a very crowded market and it is absolutely essential that LipoScience broaden its array of assays, but this looks like a small med-tech well worth keeping an eye on today.

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LipoScience - A Small Company Targeting A Large Market

Investopedia: Time For Hologic To Translate Technology Into Results

How does an investor profit if a company has the best technology in the world, but can't deliver market-beating returns? That's probably a harsh intro for Hologic (Nasdaq:HOLX) today, but the fact remains that the company has to demonstrate that it can drive tomosynthesis adoption and solid growth in diagnostics for this stock to really work over the coming years. That puts the shares in a challenging place for investors; bulls can likely see a lot of value here, while bears will point to the high debt and oncoming competition and likely conclude that the shares are best avoided for now.

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Investopedia: Will It Be Even Harder For Life Tech To Muddle Through In 2013?

Outside of some notable struggles among small and unproven companies, this has been a surprisingly strong year for life sciences companies. This strength, and relatively health multiples, is coming despite relatively unimpressive revenue growth and signs that 2013 could be a very tough year for the academic and government lab sectors. Consequently, while Life Technologies (Nasdaq:LIFE) is certainly worth a spot on a watch list, it's hard to muster a lot of enthusiasm for the stock right now.

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Seeking Alpha: Hologic Seems A Little Underrated

Big deals carry big risks, and Hologic (HOLX) does not have a great record with big deals. Couple that with a difficult hospital spending environment and I can understand why Hologic shares trade at a discount to fair value. That said, investors who want to buy into women's health and diagnostics could certainly do worse than to consider this name.

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Hologic Seems A Little Underrated

Seeking Alpha: Exact Sciences Could Be Exactly What Biotech Investors Need

Genomic testing has been a mixed blessing for investors thus far. While progress in the lab and clinic has been significant, the investment picture has followed a pretty familiar pattern - huge enthusiasm (and overvaluation) up front, crushing disappointment, and then general apathy and pessimism. If the pattern continues, a host of commercial successes should begin to appear over the next few years.

One of the more promising molecular diagnostics companies to watch at present is Exact Sciences (EXAS) - a small biotech company in pivotal studies for its non-invasive screening test for colon cancer.

Two Years To The Starting Line
If things go to plan, Exact Sciences should be launching the Cologuard test about two years from now. As of the company's last report, there are 59 sites enrolling patients for its pivotal study, and another 20 or so should come online in the first quarter of 2012.

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Exact Sciences Could Be Exactly What Biotech Investors Need

Seeking Alpha: Gen-Probe Looking To New Launches To Drive Momentum

Even for somebody like me who spent the better part of a decade as a sell-side med-tech analyst, the diagnostics industry is often a muddle. While large established players like Abbott Labs (ABT), Danaher (DHR), and Roche (RHHBY.PK) look to change with the times and hang on to lucrative market share, up-and-comers like
Cepheid (CPHD) and Gen-Probe (GPRO) look to shake up the market and drive significant growth through major advances in testing technology.

With a new testing platform on the way and an expanding menu of tests, Gen-Probe may be looking at capturing some real share over the next couple of years. At the same time, valuation leaves little room for mistakes.

Closing Out The Year With A Shrug
Gen-Probe's fiscal fourth quarter earnings were pretty much mediocre. Revenue growth of about 16% was a bit light, with generally better-than-expected performance in blood screening (up almost 31%) offsetting the clinical diagnostics business (up 13%).

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Gen-Probe Looking To New Launches To Drive Momentum

Seeking Alpha: Skepticism Still Working For Hologic Investors

Investors should always be a little leery of seeing too much love and praise for their holdings; having a few skeptics left to convince leaves some upside. Although Hologic (HOLX) shares have come up nicely in the past quarter, there is still a lot of growth potential in the earnings and in the stock.

Beat, Raise, Rinse, Repeat
Hologic has established a decent track record of slightly outperforming expectations and this fiscal first quarter continued that trend. Revenue rose a little more than 9% this quarter, slightly topping the average guess, as the company logged 10% or better sales growth in its breast health, diagnostics, and skeletal businesses. GYN Surgical was the laggard, with less than 4% growth over last year.

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Skepticism Still Working For Hologic Investors

Investopedia: Will Qiagen's Restructuring Address The Real Problems?

I am a major skeptic when it comes to the benefits of so-called "restructuring." I don't generally believe that companies find prosperity by firing workers and pulling away from marketing or research and development (R&D). Moreover, I think it sends a very poor message on accountability when the same executives who hired those workers (usually as part of a plan to "invest in growth") are later praised (and rewarded with even bigger pay packages) for firing them.

Now Qiagen (Nasdaq:QGEN) is throwing its hat into the restructuring ring. The real question for shareholders, though, is whether this is another meaningless shuffling of the deck chairs, or whether management has a cogent plan to attain what the company really needs.


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Investopedia: Is Hologic A Coiled Spring?

It's frankly more difficult to find overvalued health care stocks today than undervalued ones, assuming that the market can transition through this dry spell and that procedure volumes pick up with an eventual economic recovery. Given that Hologic (Nasdaq:HOLX) serves markets largely seen as mature, many investors question whether the company can grow fast enough to be worthwhile. Although that is a legitimate concern, investors have become pessimistic to a point where even modest growth could lead to a strong rebound in the stock.

A Respectable End to the Year  
Hologic's business is a combination of solid higher-growth businesses and some smaller, more sluggish operations. Overall growth rose 9% this quarter, with breast health and diagnostics up 11 and 12% respectively, while the surgical and skeletal health businesses grew 1 and 2%. Given that this is still a pretty unhealthy market for capital equipment and doctor office visits, these are pretty solid results. (For related reading on heath care, see How To Avoid Medical Debt.)

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Investopedia: Becton Dickinson Moves The Bar Lower

There are only so many times you can lament the malaise in the health care sector, but the fact is that it is a macro trend that is impacting almost every large company in the space. Becton Dickinson (NYSE: BDX) is built as a company with solid exposure to patient visit and procedure trends and that is working against the company now, as baseline procedure trends are weak and the company's pipeline is in a lull. While there is value here, investors could be looking at a stagnant stock for a little while.

A Mediocre End to the Year 

BD delivered a mixed end to its fiscal year, slightly beating on the top line and missing slightly on the bottom. Reported revenue growth surpassed 9%, but constant-currency growth was a much more modest 4% and U.S. growth was just barely above 1%. What growth there was, was remarkably balanced across the three major units: BD Medical and BD Diagnostics both posted 3.8% constant currency revenue growth, while Bioscience grew 4.7%.

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Investopedia: BD Healthy But No Great Bargain

It stands to reason that in an industry still struggling with weak end-user demand, the companies that are executing well are not especially cheap. That could apply to Intuitive Surgical (Nasdaq:ISRG) or St. Jude (NYSE:STJ), and it certainly seems to be true of Becton Dickinson (or BD) (NYSE:BDX). This remains a fine company, one of the best in health care, but that quality is already largely in the stock price. (To learn more about this sector, check out Investing In The Health Care Sector.)

An On-Target Second Quarter  

BD didn't shock anybody with its second quarter earnings, but "good enough" is definitely good enough these days in health care. Overall reported revenue rose 10% from last year's level, while currency-adjusted revenue was up more on the order of 5%.

 

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Investopedia: Hologic Holding Its Place

While a nervous stock market may be looking for safe places to wait out the economic turbulence in the world, health care does not look like that sort of safe haven these days. Hospitals are spending more than they were a year or two ago, but it is not as though purse strings are uniformly loose. Likewise, while most people still have jobs and continue to see their doctors, enough people have lost jobs or insurance coverage to make an impact on the volumes of health care companies that depend on routine visits. Hologic (Nasdaq:HOLX) is all about routine care (with a capital equipment kicker) and while this remains an attractive franchise, momentum is still soft. 

Slow Progress in the Third Quarter  
Hologic beat the top end of the analyst range for third quarter revenue, but 7% sales growth is still not likely to get investors too excited. GYN Surgery was a growth leader at nearly 11%, but Hologic's largest unit (Breast Health) was up better than 8% as well. Diagnostics and skeletal health were both up in the low single digits. 


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Investopedia: Cepheid Soaring

Molecular diagnostics company Cepheid (Nasdaq:CPHD) has long been one of my go-to names whenever I need a high-growth name that the Street did not quite fully understand and appreciate. The good news is that the stock has made my advice look good by more than tripling since the start of 2010. The bad news is that the stock has gone so far so fast that the company is simply going to have to become one of the MDx leaders to validate its current valuation. 

Another Great Quarter for Both New and Recurring Business  
Cepheid did everything it was supposed to do in the second quarter, and a little more besides. Revenue jumped 35% in the quarter as the company saw product revenue growth of 31%. This growth was fueled by an increase in systems revenue of 53% and reagent revenue of 40%, all of which more than offset the 25% decline in non-clinical revenue. Cepheid's international business is also doing well, growing more than twice the rate of the North American business this quarter. 


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Investopedia: Affymetrix's Downward Spiral Continues

If Affymetrix (Nasdaq:AFFX) wants to be a long-term player in the future of genetic research, the company had best get its rear in gear. This latest disappointing financial performance has not pushed Affymetrix to new lows (and the stock had actually been performing quite well over the last year), but it does highlight that the company continues to struggle while rivals like Illumina (Nasdaq:ILMN), Life Technologies (Nasdaq:LIFE), and Agilent (NYSE:A) move on with their platforms. 


A Disappointing Q2
After the close on Wednesday, Affymetrix pre-announced disappointing second quarter results. Instead of the consensus estimate of $75 million, revenue is going to come in closer to $64 million to $65 million. That is down about 10% from last year and the company is seeing notable weakness in its consumables business - a clear warning sign that demand for the company's microarray products is not where it needs to be.

Funding - Worse, But Maybe Not That Bad
It is fair to wonder how much impact issues with NIH funding have had on demand for Affymetrix's products. A significant percentage of Affymetrix's sales go into the academic research community and a lot of that demand is ultimately subsidized by NIH grants. While that is a legitimate concern, particularly amidst all of the debate and wrangling over the budget, it would not seem to impact Affymetrix any more than it would Life Technologies, Illumina, or Qiagen (Nasdaq:QGEN). In other words, Affymetrix has some company-specific and product-specific issues of its own right now. 



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Investopedia: Hologic Holding The Line

Hologic (Nasdaq:HOLX) was an interesting undervalued health care play when the company was waiting on approval for its tomosynthesis product (a better type of breast imaging technology). With approval in hand, though, now the concerns move to customer adoption and low patient volumes throughout the testing business. Though still an attractive and high-quality franchise, the company is going to need to deliver more growth to get the Street excited about the name. 

A Fiscal Q2 That's Solid, but Not Spectacular  
Hologic delivered a modest outperformance for the fiscal second quarter. Revenue rose about 5%, fueled by nearly 9% growth in the breast health business, as the company saw good pricing and some early adoption of the tomosynthesis product. Diagnostics was still weak (down more than 1%), though, as patient visit volume has not rebounded yet. Gyn/surgical and skeletal were both up above the company average, but these are smaller units. 


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Investopedia: What Becton Dickinson Lacks In Flash, It Makes Up For In Quailty

There is a relatively small list of companies like Becton Dickinson (NYSE:BDX) - companies that will leave investors fuming when they miss the relatively few opportunities they give investors to buy on the cheap. Becton Dickinson is not going to impress anybody with stunning growth, but the quality is there and this global medical technology player is a great cornerstone holding for investors that prefer the long-term buy-and-hold approach. 

An Okay Fiscal Q2
BDX's quality notwithstanding, the fiscal second quarter was okay. Revenue rose almost 5% on a constant currency basis, with diagnostics (up 6.5%) and medical (4.9%) providing the growth and biosciences (up 0.4%) struggling to hold its own. The company appeared to do well with its diabetes and pharmaceutical systems businesses, and strong sales of diagnostic systems are an encouraging sign (they will require future consumables to operate). Even the biosciences performance wasn't so bad once the headwinds from Japan and tough comps created by the year-ago flu outbreak and stimulus spending are considered. (For more, see A Checklist For Successful Medical Technology Investment.)

Profitability performance was likewise decent. Gross margin was slightly disappointing, as it improved just 10 basis points from last year. Adjusted operating income grew about 6%, and the margin shrunk very slightly, largely as the company upped its R&D spending. All in all, while the company reported an 8-cent beat relative to the average analyst estimate, 5 cents of that seems to have come from taxes and sharecount reduction, so it was more or less an in-line quarter.

Business Should Be Looking Up
Healthcare has been in the doldrums for some time now as job losses, co-payments and general anxieties have kept people away from the doctor's office. Investors can see the impact across the sector - whether it's Hologic (Nasdaq:HOLX), Johnson & Johnson (NYSE:JNJ), Abbott (NYSE:ABT) or any other patient-facing company, procedure volumes are down.


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