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.
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- 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)
- This growth was driven by sales revenue for its ePlex Respiratory Pathogen Panel 2 (RP2)
- 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
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- 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
I hold a B.S. in plant science with a specialization in plant breeding and genetics from the University of California Davis. Currently I am working towards my PhD in crop genetics at the University of Florida. My passion on par with science is investing and entrepreneurship and have been a diligent student of the stock market for over 2 years achieving gains over 150%.I’ve suffered losses as well and found a lesson to be learned in each one. My goal is to share all that I’ve learned to help others make money trading stocks.