Just two years ago, Temple City-based Fulgent Genetics Inc. was a small but promising genetic testing company with $32 million in revenue for all of 2019.
Today, Fulgent is a testing juggernaut with revenue for the 12 months ending Sept. 30 passing the $1 billion mark to reach $1.04 billion.  

That huge 32-fold leap in revenue has occurred organically and is almost entirely due to the Covid-19 pandemic and the ever-increasing demand for the company’s Covid testing services.

Likewise, Fulgent’s share price, which finished 2019 at about $13 a share, last month hit a peak of $105 before slipping back a bit this month to about $80.
What’s more, in a reversal from a year ago when investors were wondering how the company would adapt when the Covid testing bonanza subsided, the concern now is whether Fulgent can keep up with the recent explosion in demand for Covid tests as the omicron variant sweeps across the nation — especially the demand for the company’s at-home test kits.

Indeed, Fulgent had to stop sending its home Covid test kits to patients for several weeks during the holiday season because it simply couldn’t ship the units fast enough. Shipments resumed January 12th.
The realization is sinking in that Covid will remain a significant threat for several more quarters, driving demand for Fulgent’s Covid tests.

“Even six months ago, the executives at Fulgent weren’t sure how long the Covid testing activity would continue at such a high level,” said Kevin DeGeeter, managing director for health care research at New York City-based investment firm Oppenheimer & Co. Inc. “There will now be substantial work for them in this area for the foreseeable future.”

Fulgent declined to comment on the overall impact the omicron Covid variant has had on its testing volume, citing “quiet period” restrictions in place in advance of its fourth quarter and year-end earnings report due out in early March.
Instead, a company spokeswoman pointed the Business Journal to statements Fulgent has issued in recent months, including one Dec. 1 that indicated Fulgent’s test analysis platform could identify the newly discovered omicron variant.

Large Covid testing contracts

Prior to the pandemic, Fulgent specialized in providing advanced genetic screening services. In September 2019, the company launched its at-home genetic screening platform, which it calls Picture Genetics. This platform detects various genetic markers for diseases and other conditions, and was initially applied to three groups of subjects: prospective parents, infants and people interested in their overall health.

Once the pandemic began, Fulgent entered the Covid testing market by happenstance. In early May 2020, company founder and Chief Executive Ming Hsieh decided on a lark to walk over to an L.A. County Department of Public Health Covid testing site near Fulgent’s Temple City headquarters. He observed that officials were not pleased with test result turnaround times of up to a week.
 
Fulgent followed up with county officials, letting them know its lab had the ability to deliver screening test results within 24 hours. The county agreed to give Fulgent a contract to run three drive-thru Covid test sites. Within a year, Fulgent had become the county’s largest provider of Covid test services.

Since then, Fulgent’s strategy has been simple: It has pursued large Covid testing contracts, primarily from major public agencies, including New York City public schools, Houston-area public schools and Miami-Dade County.

To execute this strategy, Fulgent needed more capacity to analyze tests. So, it built a new lab in Houston capable of handling more than 20,000 tests per day.
Fulgent also entered the at-home Covid testing market using its Picture Genetics platform. But here, the company has encountered some logistical problems, especially as demand has exploded for at-home tests during the omicron surge.

“Fulgent’s best performance has been with large testing sites,” analyst DeGeeter said. “The company is good at getting large numbers of test kits to major test sites. But the at-home test market functions much more like Amazon: processing an online order from an individual and then quickly shipping to that person’s residence — a one-to-one transaction. And getting logistics chains set up to handle individual orders has proven problematic — not just for Fulgent but for most at-home Covid test providers.”

Controversy at home

Meanwhile, Fulgent has encountered controversy on its home turf. In late November, Los Angeles County Sheriff Alex Villanueva wrote a letter to the L.A. County Board of Supervisors informing them that he would be dropping Fulgent from the roster of Covid testing providers for Sheriff’s Department personnel.

In the Nov. 29 letter, Villanueva wrote that FBI officials in the Los Angeles field office briefed top county officials about risks associated with Fulgent’s tests. Specifically, he said, the bureau was concerned about alleged ties between Fulgent and three Chinese companies — BGI Group (formerly known as Beijing Genomics Institute) and Huawei Technologies Co. Ltd. of Shenzhen and WuXi Biologics of Shanghai.

Villanueva alleged in his letter that these three companies have direct ties to the Chinese government. He said his chief concern was that genetic information of Sheriff’s Department personnel could ultimately be shared with the Chinese government.

Both Fulgent and Los Angeles County officials vehemently denied Villanueva’s claims. In a Dec. 1 letter to county employees, Lisa Garrett, the county’s director of personnel, said, “The county has no evidence from any law enforcement agency or any other source that any county employee data has been or will be shared with the Chinese government.”
 
Garrett added in her letter that Fulgent doesn’t collect individualized genetic information from its Covid test patients; rather, it detects the genetic markers left by the coronavirus in patients.
And Fulgent — in a Nov. 30 response letter prominently linked to on its website — conveyed the same points. Fulgent added in its response, “Fulgent Genetics operates privately and independently in the People’s Republic of China and does not share personal data of any kind with the Chinese government.”

In a follow-up inquiry, a sheriff’s department spokesperson confirmed on Jan. 12 that the department had indeed dropped Fulgent from its roster of Covid testing providers.
Fulgent offered no additional comment beyond its Nov. 30 response and a separate posting demanding Villanueva’s statements be retracted.

The controversy did cause Fulgent’s share price to dip Dec. 1 by $10, to $83 a share. But the dip was short-lived: Three weeks later, the share price had surged to an all-time high of $105. It has since slipped back to about $80 a share on some profit-taking and a broader slump in health care sector stocks.

Looking ahead to fourth quarter and full-year 2021 earnings due out in early March, Fulgent has given full-year revenue guidance of $930 million. That figure is likely conservative, however, because it was issued two weeks before the identification of the omicron variant and the subsequent need for Covid testing surged nationwide.