GNMK Coverage Update

Last Updated on February 11, 2021 by Zion Miller

GenMark Diagnostics (Nasdaq: GNMK)

Coverage Update 2/7/21

Outlook: Bullish

PT = $20 (0-24 weeks)

About GNMK 

• A commercial-stage medical-diagnostic company marketing its proprietary eSensor XT-8® and ePlex® systems to test for a multitude of pathogens including COVID-19
• GNMK has an interesting/compelling evolution. 
  • In 1993 Jon Faiz Kayyem, PhD and a team of scientists at CalTech invented biotechnology that could detect DNA electronically. Dr. Kayyem went on to found Clinical Micro Sensors, Inc. 
  • After a series of acquisitions, Dr. Kayyem became directly involved again in 2009 as an investor, and then CEO, and Chairman of the Board of Directors (BOD)
  • Dr. Kayyem and Christopher Gleeson subsequently redefined the company and brought in a fresh leadership team. The company (named Osmetech Inc. at the time) was renamed GenMark and started trading on the Nasdaq) in 2010.  
• In our view, Dr. Kayyem and his partner Dr. Gleason have a developed cutting edge molecular testing technology validated by impressive commercial performance over the past 12-months (discussed below)

Equity Overview

• 2020 was a transformational year for GNMK with the company seeing robust growth in its top and bottom lines. 

• • This growth was driven by sales revenue for its ePlex Respiratory Pathogen Panel 2 (RP2)
    • The RP2 test is one of the first rapid-result multiplex panels to identify 21 respiratory pathogens, including COVID-19. 
  • Based on preliminary 4Q20 and FY20 financial and operational results reported on 1/11/21 total revenue for 2020 should be $171m (+95% growth YoY).
    • Total revenue for 4Q20 should be about $50M (+84% YoY growth) 
• Additionally, this growth should be sustainable for the next few years given that many of the new contracts GNMK landed are multi-year contracts with committed volumes
• Earning power per analyzer = about $175K /year
• Installed 790+ analyzers in 2020
• Translates to about $135M in rev for 2021 already
• Legacy product= $ teens (M) 
• Plus growth
• Poised for positive growth. Shooting for double digits positive growth for 2021
• Company’s growth was accelerated 18-months due to the pandemic 
• Reached cash flow positivity in 2020
  • Official 4Q20 and FY financial and operational results are expected in late February. 
  • Financial results abbreviated breakdown Q1-Q3 2020
  • In 1Q20, GNMK’s revenue grew +80% YoY to $38M driven by strong demand for its COVID-19 testing system.
  • This momentum continued into 2Q20 earnings where total revenue topped $40M (up +118% YoY).
  • Third-quarter earnings followed the same trend with revenue reaching $42.6M (+104% YoY growth)
  • Gross margin increased marginally +5% YoY from 32.5% in 2019 to about 39.5% in 2020
  • On 8/17/20 GNMK submitted an EUA for its eSensor® SARS-CoV-2 Test and informed the FDA of its intent to distribute the product.
  • On 10/8/20 GNMK announced the formal receipt of the EUA by the FDA enabling the commencement of sales while the application is reviewed
  • Was awarded a $749K grant from BARDA to develop its ePlex RP2 Panel. 
  • On 9/14 GNMK’s ePlex RP2 achieved a CE mark which is a critical step to commercialization in Europe
    • In addition to being used for detecting COVID-19, the test is handy for influenza and other common respiratory pathogens
• In our view, GNMK should continue to trend up over the next 3-6 months driven by revenue growth for its eSensor and ePlex testing systems as validated by high demand in 2020.

Risk Profile

• • Risk estimate = green
• This does mean GNMK is a risk-free investment. As a young commercial-stage company that is not yet profitable, there are numerous known and unknown risks that should be considered. 
• To read more about these risks check out GNMK’s latest Form 10Q.
• In our view, the greatest risk would be the fading of revenue generated from COVID-19 testing in 2-5 years.
• It’s tough to predict how long the demand for COVID-19 testing will remain high. GNMK will likely need to eventually offset COVID-19 sales reductions with new sales channels, contracts, etc.     

Technicals 

• Support to watch = $14.61 (20-day SMA); 14.3 (50-day SMA), $13.65 (100-days SMA)
• Resistance to watch = $14.72; $15.10;  $15.63
• GNMK has been trending up since 1/28/21 when it bottomed out at $12.76
• Anticipating a continuation of the trend

Top 5 Institutional Shareholders (% owned) according to Fintel

• FMR (~15%)
• Casdin Capital (~12%)
• BlackRock (~8%)
• VanGuard (~5%)
• Adage Capital Partners (~5%)

Other GNMK Resources

• Jan 2021 corporate presentation
• Webcast from the JPM conference (1/12/21)
• Webcast from the Needham conference (1/14/21)