El Monte-based genetic testing and clinical lab analysis company Fulgent Genetics Inc., which rode the Covid testing wave to nearly $1 billion a year status, is moving ahead with its post-Covid strategy.
Fulgent announced in its recent quarterly earnings report that it had introduced a new genetic prenatal test and is laying the groundwork for clinical trials of its second drug candidate. These initiatives are the direct outgrowth of the sudden huge cash infusion brought about by the company’s massive Covid testing contracts during the pandemic.
Then, last week, Fulgent announced a cancer drug development collaboration with the Moffitt Cancer Center in Tampa, Florida.
The prenatal test, called Knova, aims to greatly expand the genetic conditions and diseases that can be screened for through a single maternal blood sample. Fulgent began gradually rolling the test out this month as part of its laboratory diagnostics business.
The new drug candidate is a more powerful version of an existing chemotherapy drug used to treat tumors for several types of cancers. The hope is the increased potency can enable lower doses of the drug and reduce harmful side effects.
“We have a strong strategy with both laboratory service business and the therapeutic development business,” Fulgent founder and chief executive Ming Hsieh told analysts on the company’s earnings call.
The Knova prenatal test, which is to be administered by OB-GYN practitioners, marks the company’s first move into this market. And Fulgent is thinking big.
“Historically, a blood draw during pregnancy is used to look for a small number of diseases and conditions, such as Down syndrome,” said Brandon Perthuis, Fulgent’s chief commercial officer. “It’s all very limited. Our test allows from the same blood test to screen for dozens of other diseases and conditions that are not currently screened for.”
These include Rett syndrome (a neurodevelopmental disorder that affects body motion, breathing, brain functions); Sotos syndrome (involving excessive physical body growth); and Tuberous syndrome (high rate of tumor formation in the brain and other organs).
Perthuis said the common feature of all of these diseases is that they originate in a single genetic “point mutation” that the Knova test can pinpoint.
“It represents a 60% improvement in detecting severe genetic conditions,” he said.
Because of the advanced lab analysis the Knova test involves, it works through Fulgent’s own clinical lab system only. It’s not a generic test kit that can be taken to any lab.
As such, Perthuis said it takes some effort to convince OB-GYN practitioners to add this test to their prenatal test regimens. That’s why he said the rollout of the test is gradual.
Ultimately, he said, the goal is much loftier: persuading OB-GYN practitioners to use Fulgent as the “one-stop shop” for all prenatal testing.
One analyst participating in the earnings call agreed with Fulgent’s gradual approach.
“We think the team is taking reasonable actions to drive growth, and a paced entry into the OB-GYN setting with the newly disclosed Knova NIPT opens an additional door,” Andrew Cooper, an analyst with St. Petersburg, Florida-based Raymond James and Associates, wrote in a research note.
More-potent chemotherapy drug
On the drug development front, Fulgent announced a second drug based on its nanoencapsulating technology that uses a microscopic coating to enhance the effectiveness of existing chemotherapy drugs.
The first drug enhanced in this way is paclitaxel, a chemotherapy drug brought to market originally by New York-based Bristol Myers Squibb Co. to treat a range of solid-tumor cancers. Fulgent’s version of this drug is more potent and therefore can be administered in lower doses, reducing toxic side effects; it is now beginning Phase 2 clinical trials.
The second drug involves the chemotherapy drug irenotecan, brought to market by New York-based Pfizer and used to treat colorectal and other cancers. Fulgent actually applied its nanoencapsulating technology to the root drug behind irenotecan. With that enhancement of the root drug, Fulgent’s version was made more potent than irenotecan.
According to Fulgent’s May 3 announcement, the company intends to submit by the end of this year an application to the Food and Drug Administration for “investigational new drug” designation for its more powerful version of irinotecan that would then make it eligible to start clinical trials.
“It’s more effective in fighting the tumor – at least 100 times more potent than the version that’s on the market,” Perthuis said.
Partnership with Moffitt Center
The deal involving the Moffitt Cancer Center is actually with Fulgent’s subsidiary, Fulgent Pharma, the drug-development arm of Fulgent.
The Moffitt Center is one of 57 National Cancer Institute-designated comprehensive cancer centers.
The aim of the partnership is to speed up the development of personalized cancer therapies, using Fulgent nanoencapsulation and genetics expertise and Moffitt’s clinical research experience.
Financial terms of the partnership were not disclosed, including the nature of any revenue-sharing arrangements, if any.
Under the partnership, the Moffitt Cancer Center will provide Fulgent with priority access to its clinical expertise and resources, with the aim of expediting the advancement of Fulgent’s clinical pipeline. This includes prioritized clinical-trial activation, enhanced patient screening, and data sharing designed to get investigational therapies to patients in need more quickly and efficiently.
Additionally, the partnership will focus on co-developing next-generation personalized treatment options for cancer.
“Pooling our unique strengths, Moffitt and Fulgent will strive to create new precision oncology therapies customized to meet the specific needs of each patient, thereby improving future outcomes,” Ray Yin, Fulgent Pharma’s president and chief science officer, said in the announcement.
Substantial cash cushion
Both the new genetic test and the second drug development effort have been enabled by Fulgent’s Covid testing bonanza. In 2019, prior to the pandemic, Fulgent was a small but growing genetic testing company that posted $33 million in revenue. Then, during the first summer of the Covid pandemic, Fulgent used its genetic testing capability to win huge government Covid testing contracts, including with the Los Angeles County Department of Health Services and the New York City public school system.
Fulgent initially had to scramble to boost its lab facilities – including opening a huge new lab in Houston. But by 2021, Fulgent’s annual revenue had soared to $993 million, almost 30 times the 2019 total.
While the Covid testing revenue faded nearly as quickly as it arrived, Fulgent was able to bank enough of that revenue to emerge a much bigger and cash-rich company than before the pandemic.
“Covid-19 stress-tested our laboratories and our platform,” Perthuis said. “We proved that this business is scalable and our technology is scalable. We went from zero Covid tests per day to 100,000 tests per day in less than a year’s time.”
Fulgent used some of this revenue to build up its non-Covid testing lines and to expand its small drug-development capabilities. So last year, while overall revenue of $289 million was less than one-third the 2021 peak, nearly 90% of that revenue was non-Covid related. Perthuis pointed out that this so-called “core revenue” of $262 million was still eight times the level of 2019.
What’s more, Fulgent banked hundreds of millions of dollars in Covid-testing revenue for future growth and acquisitions. As of the end of the first quarter, Perthuis said the company had roughly $800 million in cash with virtually no debt.
“That can be deployed internally or towards additional mergers and acquisitions,” he said.
