Fulgent Genetics, Inc. (FLGT) Earnings Call Transcript & Summary

Hello, this is Paul Kim. I'm the Chief Financial Officer of Fulgent Genetics. With me is Brandon Perthuis, our Chief Commercial Officer, who would like to give you an overview and our strategy going forward for Fulgent Genetics. Fulgent was founded in 2011. We went public in 2016, primarily as a rare disease company. And in the several years following that, we've expanded our capabilities into areas such as germline cancer, women's reproductive health and sequencing as a service. We brought Brandon on with a number of senior sales and commercial individuals. We revamped our sales and commercial organization from 2017 into 2018. And then we also brought in Dr. Larry Weiss in 2021 to continue to strengthen our management team. And we've entered into the COVID business at the beginning part of 2020. Brandon, then if you go to the next slide. In the most recent quarter, we've posted very, very strong results as a result of the continued progress in the company, both in terms of growth and the COVID as well as the non-COVID business . We have accelerated our capabilities, not only from a financial standpoint, but from a Brent standpoint, and we posted record results in the previous quarters, which is bolstering our cash balance, and giving us the opportunity to execute on our post-COVID strategy going forward, with M&A being a primary driver of that. And with that, I'll turn it over to Brandon Perthuis.

Thanks, Paul. Thanks, everyone, for joining our webcast today. So I'm going to present 1 slide on what sets Fulgent apart, and a couple of slides on some of our recent M&A activity and strategic investments. And then I'm going to spend the bulk of my presentation highlighting our new liquid biopsy test for liver cancer, hepatocellular carcinoma. . So what's sets Fulgent apart? We are a company founded in technology. We used a proprietary approach to our attachment chemistry to design our probes. We've built our own algorithms, variant calling tools, databases, alignment algorithms, copy number varying algorithms. We've applied machine learning and AI to build a foundational technology to which we can then expand our product offerings, and that's exactly what we've done. So if you look at Fulgent over the last several years, it has expanded in a very big way, especially our test menu. It is exploded to now include over 18,000 different genes, 900-plus panels. We offer clinical whole genome, clinical whole exome, rapid NICU genomes. We provide a lot of flexibility to our clients, being able to leverage how the technology talks across functions in our laboratory to provide flexibility to our customers for ordering. So our test menu now, we believe to be one of the largest in the United States, and continues to grow. Further leveraging that foundational technology is in operations. So we believe we have some of the lowest cost structures in the industry. Our technology platform is integrated in interface with our lab automation, driving additional efficiencies across the organization as well as improved turnaround time and quality. A part of Fulgent is we're very proud of. We do everything ourselves in-house. We don't outsource so both the technology, the product offering, all has been built from the ground up organically with Fulgent infrastructure. So we made a couple of big announcements recently. I just mentioned, we built everything organically. Fulgent has never done an acquisition. However, we did complete our first acquisition in August of this year. We purchased CSI Laboratories, which is a company that was founded in 1997, a profitable company with very high-quality, long-term customers, very good reimbursement contracts with over 165 million covered lives. And this is a laboratory that offers flow, IHC, immunohistochemistry, cytogenetics in the oncology space, which is a major -- of major interest to Fulgent. So with the acquisition of CSI is just accelerated our path to becoming a national player in oncology, and we'll be able to leverage the next-generation sequencing products we offer at Fulgent combined with the traditional cancer diagnostics of CSI. So CSI offers over 400 unique tests, predominantly focused in the Southeast region, but in the last -- in the months following the acquisition, we've been expanding the sales team in a big way, and we are planning a national expansion of the CSI brand in laboratory through a much larger sales force. We also announced an additional investment in our China joint venture. This additional investment gave full in controlling interest of the joint venture, currently has approximately 100 employees, and essentially is a clone of Fulgent in China, meaning that technology platform I mentioned was able to be ported over to our China operation. So the same foundational technology, the databases, the infrastructure, the algorithms are being used by our joint venture in China. And the same test menu, the thousands of tests we offer in the United States, are being offered in China. China is a very large market and arguably the largest genetic testing market in the world. And you must have an operation in China on the ground to address that market. So we have that now, and we look forward to leveraging this joint venture to grow our market share in China, initially focused on pediatric, but also a big emphasis on women's health, reproductive health and oncology. So with that, I'll spend the rest of the presentation updating the community on our exciting new product, the first liquid biopsy is going to be available for hepatocellular carcinoma. And I'll talk a little bit about our partnership with Helio Health. So Fulgent made an equity investment in Helio Health of $20 million. This was announced just a couple of months ago. Helio Health is an emerging liquid biopsy company for the early detection of cancer. The first one being liver cancer, but we have an R&D pipeline that will take us into additional cancers in the future. The investment in Helio Health secured Fulgent exclusive commercial rights to LDT products in the United States and Canada. And we're just weeks away from launching our first test, which is the HelioLiver test for hepatocellular carcinoma. So a little bit more about the partnership. Helio Health is an AI-driven health care company, focused on development of early detection cancer test. We think the marriage makes a lot of sense. I mean both companies have a lot of strengths, and we're able to leverage those synergies. Helio having a world-class portfolio of blood test for early detection, excellence in R&D, in a lead liver test, which we're going to talk about. Fulgent brings commercial execution, cap laboratory, CLIA laboratory. Obviously, the scale and capacity to be able to produce and perform this test at scale. And obviously, with the expertise we have in go-to-market strategy, sales, marketing and the scale of the company, with revenues approaching $1 billion. So the Helio Liver is a novel test using cell-free DNA to screen for hepatocellular carcinoma, HCC. We recently presented data this week actually at AASLD, The Liver Meeting, showing the significant increase in sensitivity for early-stage detection. So we presented sensitivity of 76% in stage 1, stage 2, and 92% sensitivity for late-stage, stage 3 and stage 4 at a 91% specificity. The benefits of the HelioLiver test is a more convenient and accessible test. Currently, the standard of care is ultrasound. It's not a great test. But it sure "ultrasound sensitivities" in the 40% range. However, ultrasounds are highly variable depending upon the size of the lesion, the location of the lesion, the body mass index of the patient, the equipment being used as well as operator variability. So many of those things lead to sensitivities in the low 40% range. That's just not good enough. We need a better test for early detection of liver cancer. Currently, liver cancer be a standard of care. Early stage is only 44% of the time is diagnosed versus 56% of the time at late stage. The survivability of liver cancer early stage in late stage is tremendously different. We're talking a 13 full increase in survivability with early detection versus late detection. And as we meet with payers, and we begin to lay out the health care economics, the detecting liver cancer early versus late, a huge cost savings in the treatment. We quoted somewhere north of $100,000 in cost savings per patient, early detection versus late detection. And it's a large market. 130-plus million Americans are at high risk for liver cancer. A lot of these patients are not being screened today. There's some lack of adherence to the screening protocol, which is an ultrasound every 6 months. So we hope we're going to have a more accessible, easy-to-use product versus having to do in an ultrasound or an MRI. Just a few additional points. The poster is available that we presented at AASLD. And we're currently scheduled to launch the product next month, which we're really excited about. This will be the first liquid biopsy test launched in the United States for liver cancer. So -- in addition, a lot of the data we're presenting today has been on our case control study. However, we do have a pivotal FDA clinical trial in place prospective the CLiMB study. we linked to the NCT number there. This will be a prospective clinical trial comparing the HelioLiver test to standard of care, and we'll look to be wrapping up this study in the second quarter of 2022. So I mentioned HelioLiver. You'll see it go to market as HelioLiver powered by Fulgent Genetics. Novel blood test for the detection of hepatocellular carcinoma. Turnaround time is quite rapid. You're looking at results between 7 to 10 days when you'll get a normal or abnormal results. So most importantly, a simple, affordable test with rapid turnaround time that's going to lead to earlier detection of liver cancer where we can actually make a difference. Once late-stage liver cancer has been detected, the access to curative therapies, ablation and transplantation are not available. Patients need access to a product that will detect liver cancer earlier, and the HelioLiver over ultrasound is going to be at around twice as sensitive as ultrasound. There are also some other biomarkers that are out there that are used for hepatocellular carcinoma detection, these being ASP and the GALAD methodology. However, a similar story with ultrasound, just they don't produce the sensitivity in the detection rate that we're able to show with the HelioLiver test. So in stage 1, the existing data we have is showing a 76% sensitivity. And then late stage, a 92% sensitivity. It's a big market. Fulgent is really excited to bring our -- really our first novel test to market. We think the hepatologist in the gastroenterologist are going to be very excited about this product. We have a large network of key opinion leaders already that has helped in the design, validation of the clinical trials of this product, and they appear to be ready to order this product on day 1. Hepatocellular carcinoma hasn't seen much innovation in a long time in terms of detecting it. This will be a major standard of care, potentially shifting product. So it's a large market. We're building a sales team specifically for this product to call on hepatologists. There's roughly 6,000 or so specialty -- specialists that focus on liver disorders. And then you branch out into gastroenterologists. And there's 15,000 gastroenterologists. So we have a lot of territory to cover, and we're going to be building out that commercial organization as quickly as we can. Many of these hires have already been put in place, and we're going to continue to ramp. Looking at the market in general. So we're currently recommended for screening, which is every 6 months, which is a great point. It's not a one and done. This is an every 6-month test. If you look at those people that are currently recommended for surveillance, approximately 600,000 patients have a cirrhotic liver. They have cirrhosis. Approximately 1.2 million have hepatitis B, and approximately 2.4 million in hepatitis C. Those are the patients that are currently in guidelines that should be getting screening every 6 months. As I mentioned, that's not always happening because the standard of care is ultrasound, and maybe a patient can't get to the medical center. Maybe they have trouble scheduling it. Maybe there's a backlog there. But we know that patients are not adhering to 6-month screening for a variety of reasons. The Fulgent HelioLiver test should knock down many of those barriers. Beyond those that are currently recommended for screening, you get into additional high-risk factors for HCC, and you're getting to 100 million plus that have nonalcoholic fatty liver disease and some of these other conditions. So it's a large TAM, and we look forward to bringing our product into this to improve the survivability of these patients with HCC. Just diving into the 5-year survival rates, they are greatly improved. If liver cancer is diagnosed at stage 1, approximately a 50% survivability rate. At stage 2, 34%. Unfortunately, most liver cancers are still being diagnosed late stage. And when you get into stage 3 and stage 2, you're at 12% and 3%. So it's just a really important disorder to catch early. As I mentioned, early stage, you'll have access to ablation and transportation and other curative therapies that you will not have access to at late stage. I mentioned patients aren't adhering to screening. These are some of the reasons I've mentioned: difficulty, scheduling process, the cost of the ultrasound, where to get it, how do I get there. It's just they're not adhering to it for a variety of reasons. The HelioLiver is a simple blood draw. Your family practitioner can draw your blood for you. A local phlebotomy service can draw your blood. In the future, maybe we can even send mobile phlebotomy into people's homes to have their blood drawn. We would have knocked down those barriers. We want to catch liver cancer early. With that, I'll sort of summarize a bit of a transformational process we've gone through at Fulgent. And Fulgent went public in 2016 as a pediatric rare disease company. With the organic growth we've had in our test menu and the strategic investments we've made in Helio Health and CSI, now puts Fulgent in multiple -- multibillion dollar market, and creates an entity that's a bit unique that has the full service, germline testing, somatic testing and now a novel liquid biopsy test. So we're incredibly excited about the progress we've made with the company, the future prospects of the company. Very excited to bring this new product to market. And we'll continue to keep the investment community updated on the HelioLiver and our progress in general. So thank you for joining our webcast today, and we appreciate the time.