NeoGenomics takes hit, but future brighter
NeoGenomics Inc., a clinical laboratory that specializes in cancer genetics diagnostic testing, on Thursday reported a net loss due to testing reimbursement challenges in the second quarter.
However, the long-term future appears brighter for the Fort Myers-based company, as it makes progress on various fronts and as the money it can recoup is expected to increase next year.
Revenue for the second quarter was $24.3 million, an increase of 18 percent over last year. The company’s PathLogic acquisition accounted for $1.9 million or half the revenue growth, and growth in the core business accounted for the rest.
The number of tests in the core business grew by 21 percent. Average revenue per test decreased by 11 percent, primarily as a result of decreases in reimbursement for Fluorescence in-situ Hybridization (FISH) testing because of new billing codes introduced in 2015.
Second-quarter net loss was $176,000, versus net income of $274,000 in the second quarter a year ago and net loss of $761,000 in first quarter of 2015.
“Our base business had very strong results in the second quarter, which were partially masked by exceptionally large decreases in FISH reimbursement and the continued insourcing of certain FISH tests by our largest client,” said Douglas VanOort, chairman and CEO.
Steven Jones, executive vice president for finance, said the company projected a $6 million-$8 million impact for the year, but it’s now looking like it will be in the $8 million-$9 million range.
“These are massive changes to have to absorb in such a short time,” Jones said.
As a result of larger overall reductions to FISH reimbursement in 2015 than originally expected and continued softness in the revenue of PathLogic, the company also announced it was lowering its previously issued revenue guidance for the full year 2015 to $100 million-$103 million, versus the previous guidance of $103 million-$108 million. However, a return to profitability is expected in the third quarter.
Looking better
The FISH reimbursement landscape is looking better for NeoGenomics. The Centers for Medicare & Medicaid Services recently released a proposed 2016 rule for the physician fee schedule. If that is maintained in the final rule, it will have an overall positive effect.
“We estimate that approximately $6 million-$8 million of the $12 million two-year reduction in FISH reimbursement would be reversed, assuming most commercial insurances will follow Medicare’s lead,” VanOort said. “We estimate that there would be an overall positive impact to revenue of approximately $4 million-$6 million in 2016.”
The CEO acknowledged the reduced reimbursement rates have hurt, but the company has “weathered the storm by getting much more efficient.”
NeoGenomics is focusing on growth and cost-reduction initiatives the rest of the year and into 2016. He called growth in the core business broad based, with the western and central regions of the country seeing the largest increases and from all testing categories, with molecular testing seeing the fastest growth.
“We continue to gain market share, and our pipeline of new account opportunities continues to be very strong,” he said.
Service levels improved in the second quarter to their best levels in years, VanOort said, due to investments in automation, organizational development and lean processses.
He identified three areas of future growth that have not yet realized gains: clinical trials, prostate cancer liquid biopsy development (to be launched in 2016), and PathLogic.
NeoGenomics wants to be an industry consolidator, VanOort said, but the company hasn’t found a good acquisition target since it bought PathLogic in July 2014.
“We have a lot of growth opportunities available to us,” he said. “Our long-term goal is to be America’s premier cancer testing laboratory and we believe we are beginning to achieve this lofty goal.”
NeoGenomics stock (NASDAQ: NEO) closed at $6 Thursday, down 37 cents on the day.
Connect with this reporter: email clogan@news-press.com or follow on Twitter @caseylo