Neogenomics Laboratories ($NEO) is a lab dedicated solely to the diagnosis and study of cancer. This “behind the scenes” oncology player offers services to practicing oncologists and pharmaceutical firms performing cancer research. They have recently launched a new liquid biopsy that could be adopted by oncologists as part of routine practice. Is now a good time to scoop up shares of this little known healthcare business?
Equity analyst Joshua Mazher investigates…….
“We have detected cancer” may be one of the most terrifying things to hear when awaiting biopsy results. Unfortunately, this has become a reality for nearly 2 million Americans in 2022, and this number will only continue to rise exponentially as the population ages (10,000 Americans per day receive Medicare cards). The medical world has made great strides in recent years with a surge of technological advancements in biotech, however, cancer remains a beast that has yet to be tamed. Perhaps the most lethal quality in cancerous cells is their ability to adapt to different drugs and medicines designed to suppress them. Cancer’s variability is another aspect that makes it so complex. Cancer has five stages (Stage 0 through Stage 4) of progression, with Stage 0 signifying the detection of abnormal cell formation and Stage 4 signifying that the cancer has metastasized to different parts of the body. While most diseases have a set pattern, cancer’s progression rate differs from person to person. For some, it may take a month or two for a cancerous tumor to fully develop; for others, it may lay dormant for decades before one starts noticing symptoms. Such variability in the disease is why even after two centuries’ worth of research in the field of oncology, scientists have yet to find a definitive cure. That said, a “cure” needn’t be the end-all-be-all as recent trends have shown a handful of biopharmaceutical firms that are trailblazing a new era of hope in the form of biotech for cancer patients across the globe.
Recent cancer developments have enabled some of the world’s best oncologists to have a clearer understanding of cancer treatments in the near future. Groundbreaking new technology is being developed at an astonishing rate, and biopharmaceutical concerns with an aim to find potential cures are on the rise. One such company that I would like to highlight is NeoGenomics. NeoGenomics was founded in 2002 with a streamlined vision that is best summarized in its mission statement: We create better, more hopeful futures for people living with cancer. It’s in our DNA. This concise yet effective motto essentially summarizes the golden standard of cancer treatments in today’s age. Sure, a definitive cure for cancer doesn’t exist. However, this doesn’t mean that treatments to help better the lives of those battling cancer day-to-day don’t exist as well. NeoGenomics has established itself as a world leader in cancer diagnostics. They boast an impressive catalog of over 650 diagnostic tests, involving intricate DNA and RNA gene sequencing. Now if 650 plus tests seems a bit much, it’s important to see the logic behind cancer treatment development.
Cancer and the Importance of Diagnostics
As aforementioned, finding an overarching cure for cancer is close to impossible due to the variability in the disease from person to person. That is why it is paramount for companies like NeoGenomics to develop a variety of diagnostic tests in order to create personalized treatments for patients. We can see this trend in similar companies such as Foundation Medicine, who have also committed themselves to developing personalized cancer treatment plans. Having a personalized approach to fighting cancer is a surprisingly recent development.
Everyone reading this has probably heard stories from cancer patients who have undergone chemo. Chemotherapy is the most widely used form of treating cancer, but its notorious consequences are never pretty. In addition to the surface-level drawbacks such as hair loss and immunity deficiencies, chemo’s biggest flaw is that it can only suppress cancerous cells for so long. Unless completely eliminated (which is close to impossible), tumors learn to adapt and resurface over time. Thus in the modern age of genetic sequencing, personalized diagnostic tests are the best asset in identifying the root cause of what causes the cancerous cells to resurface after initial treatments, enabling doctors and oncologists the best opportunity to ensure that cancer can be suppressed as long as possible with the fewest ailments to the patients. Such a task is no easy feat, however, NeoGeonomics has patented one of their premier cancer diagnostic tests, the Radar Assay.
Profit on the Radar?
In March of 2021, the world of cancer-related biotech was put on notice as NeoGenomic’s Radar Assay diagnostic testing product got approved by the FDA. Radar Assay itself is a liquid biopsy that boasts an incredible sensitivity to the detection of cancer, down to a patient’s blood cells. Oftentimes, the difference between saving a patient’s life versus losing a patient to cancer comes down to how quickly doctors can identify a growing tumor. Radar Assay provides exceptional speed in the detection of cancerous cells, and many experts believe that it is a step above competitors’ diagnostic tests in terms of sheer accuracy. Blood that contains ctDNA (Circulating Tumor DNA) refers to DNA that comes directly from cancerous cells. If one is able to detect ctDNA in a person’s bloodstream, it is a very effective means for measuring cancer. Radar Assay boasts impressive accuracy in identifying ctDNA in patients, with astonishing accuracy. According to a recent tracer study, “Prior to neoadjuvant therapy, Radar detected ctDNA in 88% of patients (38/43) and allowed for ctDNA dynamics monitoring during treatment, surgical periods, and after therapy.” And compared to many competitors’ digital PCR Assay tests, Radar detected up to 10 times the amount of ctDNA.
So what does this entail? Well, NeoGenomics is quickly climbing the ranks of effective cancer treatments, and in the world of finance, it stands firm as a go-to choice for the onlooking investor. When analyzing the total addressable market of cancer diagnostic testing, in 2022 the market was estimated to be at USD 135.16 billion. As previously stated, cancer’s difficulty in finding a cure is why health experts predict that the number of cancer patients will only continue to grow well into 2030. Thus, by 2030, the market is expected to grow to an estimated $258.54 billion. To give a better measure of what this means, the CAGR between 2022 and 2030 is poised to be approximately 8.4%. This statistic highlights the remarkable growth rate of the cancer diagnostic market and the opportunities for investors looking to expand their portfolios. The key players in this market include Big Pharma giants like Roche Diagnostics as well as smaller biopharmaceutical companies providing key innovations like BioGenex. Few firms are as specialized in cancer as NeoGenomics.
Since cancer research is one of the world’s most popular fields, innovation and product design are key to emerging as a leading cancer development program. Companies that end up becoming the most financially succesfull tend to have a product that they hone and develop to the point where it breaks through the consumer spectrum, thereby accelerating their growth and separating it from the rest of the field. As an investor, the key is to find that take-off point and invest right before the world begins to take notice. Timing is key and the timing couldn’t be better for NeoGenomics with their promising product Radar. On June 15th, 2023 NeoGenomics announced its first commercial insurance coverage partnership with none other than Blue Cross Blue Shield. For reference, BCBS is a global leader in health insurance, covering 1 in 3 Americans. In California alone, BCBS has an astonishing 31% of the market share in the state’s ACA healthinsurance marketplace. It’s pretty safe to say that the reach of BCBS is massive, and a partnership with NeoGenomics spells certain exposure to clients from across the nation. In combination with its already promising results of testing, NeoGenomics’ Radar assay product should gain traction at a brisk rate.
As things currently stand, NeoGenomics has a market cap of USD 2.05 billion, with a share price of $16.07. For the past few years, NeoGenomics has had negative cash flow and profit margins. However, in March of 2023, their cash flow suddenly shot up to a positive $12.43 million. The addition of Chris Smith, the new CEO of NeoGenomics, explains how such a turnaround could be possible. Mr. Smith has an extensive track record of remarkable quarterly turnarounds. In his four year stint with OrthoClinical Diagnostics prior to joining NeoGenomics, Smith accelerated revenue growth from 1% to double digit levels.
This indicates the next step in NeoGenomics’ commercial progression, as they are now ready to market their products instead of expending the majority of their revenue on the development of their products. Currently NeoGenomics has captured roughly 1.5% of the total cancer testing marketplace, however with the recent developments involving its new product, 10% is a milestone that certainly seems attainable in years to come. Public companies in niche spaces like cancer diagnostic testing are known to optimize their bang-for-buck, and so trading for five times their revenue is certainly a possibility. That could eventually mean a total market capitalization as high as $20 Billion, up from today’s $2 Billion.
The originally stated share price of $16.07 won’t stick around forever, so if you are an investor who is interested, now is the best time to jump into NeoGenomics. If you are looking for a company that is getting ready to capitalize on a new product engineered to detect cancer faster than the competition and quickly make its mark on the evergrowing field of oncology diagnostics, then look no further than NeoGenomics.