Stay tuned for our upcoming Quick Take on Fulgent, where we discuss the investment outlook and financials.
Introduction
Fulgent Genetics, Inc. is a technology-based company with two core businesses: a well-established laboratory services business and a therapeutic development business. The company's mission, since its founding in 2011, is to offer and develop flexible and affordable diagnostic and genetic tests and laboratory services to improve patient care and quality of life. Its long-term vision is to transform from a diagnostic business into a fully integrated precision medicine company.
Business model
Laboratory Services Business offering technical laboratory and testing services, as well as professional interpretation of laboratory results by licensed physicians.
Therapeutic Development Business focusing on developing drug candidates for various cancers using a novel nanoencapsulation and targeted therapy platform. The goal is to improve the therapeutic window and pharmacokinetic profile of new and existing cancer drugs.
Suppliers: Relies on a limited number of suppliers, including Illumina, Inc. as the sole supplier of next-generation sequencers and associated reagents, and maintenance/repair services. Other key suppliers include Roche Holdings AG, Beckman Coulter Diagnostics, Leica Biosystems, and Abbott Laboratories for specific lab equipment and services. For therapeutic development, ANP Technologies, Inc. is relied upon for certain services, equipment, and drug intermediates.
Human Capital: As of December 31, 2024, had 1,313 full-time employees (U.S. and international) for laboratory services and 19 U.S.-based full-time employees for therapeutic development. Offers a comprehensive compensation program, competitive salaries, equity, bonuses, and extensive benefits.
Laboratory Services
Fulgent's laboratory services business has broad testing capabilities with a scalable and affordable menu.
Comprehensive Anatomic Pathology Testing Services: Includes gastrointestinal, dermatopathology, urologic, breast, neuropathology, and hematopathology, supported by CLIA-licensed laboratories across the U.S..
Precision Diagnostics Testing Services: Utilizes next-generation sequencing (NGS) for biopharma research and clinical tests covering rare disease, hereditary cancer, reproductive health, and other disease subtypes. It also offers specialized oncology services leveraging technologies like flow cytometry, cytogenetic analysis, FISH, immunohistochemistry, molecular genetics, and NGS, along with consultations.
BioPharma Services: Provides testing services to pharmaceutical/biotech companies and contract research organizations (CROs).
Picture Telemedicine Platform: A patient-centric platform for convenient consumer-initiated testing and clinical support.
Laboratory Services Technology Platform
The proprietary technology platform for laboratory services includes proprietary gene probes, data suppression and comparison algorithms, adaptive learning software, and proprietary laboratory information management systems. This platform enables a broad test menu, rapid test development and launch, customizable offerings, lower cost per test, and high efficiency. An example of its capability was the rapid scaling of COVID-19 testing, providing approximately 19.4 million tests from 2020 through 2023.
Laboratory Services Customers & Marketing
Customers are classified by payor types: (i) Insurance, (ii) Institutional (hospitals, medical institutions, other laboratories, governmental bodies, payors, municipalities, large corporations), and (iii) Patients who pay directly. In 2024, one institutional customer contributed 22% ($62.6M) of total revenue. The sales and marketing force consists of internal teams and U.S. field-based representatives. The company has increasingly invested in strengthening sales and marketing efforts beyond historical organic growth and word-of-mouth.
Laboratory Services Research and Development
A highly qualified team with expertise in bioinformatics, genetics, software engineering, laboratory management, drug development, and sales/marketing conducts all R&D activities for this segment. Efforts include developing and curating their genetic information library and expanding the testing technology platform.
Fulgent Pharma
Novel Nano-Drug Delivery Platform: The core of Fulgent Pharma is a platform technology capable of delivering various water-insoluble or poorly soluble drugs through nano encapsulation. Unlike some other nano-drug delivery materials, Fulgent's materials are soluble in water and organic solvents and capable of hot melt mixing with active pharmaceutical ingredients (APIs). This is believed to allow for a broader range of drug candidate formulations, including amorphous formulations for both intravenous (IV) and oral use, with the goal of improving PK profiles, safety, and efficacy.
Target Markets: The platform aims to develop drug candidates for diseases where current standard of care is inadequate or can be improved, targeting large and well-established markets, such as Head & Neck (H&N) and Ampullary cancers.
Pipeline
FID-007 (nanoencapsulated paclitaxel)
Phase 1/1b Clinical Trial: Completed enrollment with 50 patients in the US for advanced solid tumors. Observed a manageable safety profile, preliminary anti-tumor activity in heavily pre-treated patients, linear and dose-proportional PK comparable to nab-paclitaxel, and no neuropathy above grade two.
Phase 2 Clinical Trial: Enrollment began in Q2 2024 for recurrent or metastatic H&N squamous cell carcinoma in the U.S. Up to 46 patients will be randomized (1:1) to FID-007 (75 mg/m2) plus cetuximab or FID-007 (125 mg/m2) plus cetuximab. Expect preliminary data around June 2025 and final results around June 2026. Assuming favorable results, plans to investigate in Phase 3 and potentially seek 505(b)(2) regulatory approval.
FID-022 (nanoencapsulated SN38):
Pre-Clinical Development: Observed superior efficacy over irinotecan in various xenograft cancer models (colon, bile duct, ovarian, pancreatic cancers) with no significant unexpected toxicity.
Phase 1/1b Clinical Trial: IND cleared by the FDA in January 2025. Plans to enroll 42 patients in the U.S. and begin dosing in mid-2025.
Antibody Drug Conjugates (ADCs): Significant advancement made using a novel patented linker and payload platform. Preclinical studies show better efficacy over different tumors with a broad range of target antigen expression compared to market benchmarks. New ADCs targeting novel targets are also in preparation.
Competition
Laboratory Services: Competitors include dozens of companies focused on pathology, genetic, and diagnostic testing, such as Ambry Genetics, Baylor Genetics, Caris Life Sciences, Exact Sciences, Foundation Medicine, GeneDx, Guardant Health, LabCorp, Myriad Genetics, Natera, NeoGenomics, PerkinElmer, Quest Diagnostics, and Tempus AI. Also competes with traditional in vitro diagnostic (IVD) kit developers and potentially hospitals/research institutions that perform testing in-house. Competition is intensifying due to industry consolidation and cost-saving initiatives.
Therapeutic Development: Highly competitive, with competitors including drug delivery platform companies and 505(b)(2) drug developers in cancer therapeutics, such as Bristol-Myers Squibb, academic institutions, and government agencies.
Competitive Disadvantages: Many competitors have longer operating histories, larger customer bases, more brand recognition, established manufacturing, deeper market penetration, greater financial/technological resources, and more experience with payors.
Intellectual Property
IP is essential and protected through a combination of registered and unregistered rights, including trade secrets, licenses, patents, trademarks, and contractual protections.
Trade Secrets: Principally relied upon for the laboratory services technology platform.
Patents: Focus on the nano-drug delivery platform, including FID-007 and FID-022. As of December 31, 2024, owns or exclusively in-licenses over 20 issued or allowed patents and over 10 active patent applications worldwide. Patents are expected to expire by 2034, with applications potentially expiring as far out as 2044. Specifically, 18 issued patents and 5 applications relate to FID-007.
Licensing: Has an exclusive license agreement with ANP Technologies, Inc. (amended last on May 1, 2024) for patents and applications covering FID-007 and FID-022 development. ANP is responsible for prosecuting and maintaining these licensed patents at its expense, unless it declines.
Trademarks: Owns registered and unregistered trademark and service mark rights for its brand, name, and logo.
US Payor Reimbursement
CPT Codes: Uses CPT codes for billing, often using miscellaneous codes for multi-gene panels, which can cause reimbursement delays or denials.
PAMA (Protecting Access to Medicare Act of 2014): Substantially changed Medicare pricing for clinical laboratory services. Requires reporting of private payor rates every three years for non-ADLTs, impacting Medicare payment rates. Recent amendments delayed data reporting and limited payment reductions through CY 2025.
HRSA Audits & Investigations: Being audited by HRSA for COVID-19 test reimbursements for uninsured individuals (totaling $548.9 million from 2020-2022). Also received a Civil Investigative Demand (CID) from the DOJ regarding potential false claims to the Uninsured Program.
Coverage, Pricing, and Reimbursement for Pharmaceutical Products: Sales depend on insurance coverage (government, commercial, managed care).
US Programs: Subject to cost containment programs (e.g., Medicaid Drug Rebate Program, Medicare Part D), mandatory discounts (340B program), and heightened scrutiny over pricing.
Inflation Reduction Act (IRA): Starting 2023, requires rebates if drug prices increase faster than inflation; starting 2026, CMS will negotiate drug prices for selected Medicare Part D drugs, potentially reducing revenue. Lawsuits challenging the IRA are ongoing.
PBMs: Increased scrutiny and legislative efforts impacting Pharmacy Benefit Managers (PBMs) could affect the pharmaceutical supply chain.
Stay tuned for our upcoming Quick Take on Fulgent, where we discuss the investment outlook and financials.