We are presenting our second of three planned Black Books this afternoon as we work to get these new ideas off the watch and/or bias lists and across the goal line. Please join us today for the presentation at 2PM ET on NeoGenomics (NEO) which we think is heading much higher from here. If you have questions, feel free to send us an email at .
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NEO | Best Idea Long | #Re-Open, the Road to $80 Please join us TODAY @ 2 PM ET Participating Dialing Instructions Toll Free: Toll: UK: 0 Confirmation Number: 13720184 Healthcare Subscribers CLICK HERE for event details (includes video, dial-in and materials link) |
HEDGEYE HEALTH CARE WRITE-UP
Background
NeoGenomics (NEO) is a pure-play, one-stop-shop oncology diagnostics company. With offices in the U.S., U.K., Singapore, and Switzerland, NEO has a global reach with a continuously expanding test menu that presently includes over 700 tests. It has grown from ~$20MM in revenue per year when Doug VanOort joined as CEO over a decade ago, to a run rate in excess of $500MM. NEO's growth over the years has been spurred by a couple of key acquisitions: Clarient in 2015 doubled the size of the company, and then Genopitx in 2018 doubled the sales team and added $85MM in revenue. More recently, Neogenomics acquired their partner Inivata fully bringing liquid biopsy (InVisionFirst Lung, RaDaR) into the mix. They have also expanded their suite of products that add to scale and analysis capability with the Human Longevity and Trapelo deals, which add to the "flywheel" that the management team has created across its business units.
The Clinical division is NEO's largest business, serving hospitals, pathologists, and oncologists in the community, and where 80-85% of cancer care occurs, which in turn supports their Pharma Services and Informatics unit, helping precision medicine development (development work, clinical trials, etc.) which provides a great foundation for new tests such as the liquid biopsy tests coming through their acquisition of Inivata.
Thesis
NEO's focus on community oncology testing puts the company a likely beneficiary of the post COVID return to inperson care. We both have evidence that cancer screening saw significnat declines during the lockdowns early in the pandemic, but also a slower than average recovery compared to other types of care. NEO does have a modest headwind in declining COVID testing but the recovery in core testing will more than offset the declines in COVID testing. We think there is likely 50% incremental volume in a backlog of pent up cancer screening that will flow through volume and testing over the coming 6 to 8 quarters. Delayed screening has led to higher percentages of later stage cancers, greater need for pathology, testing, and follow up. We've heard this anecdotally from pathologists, clinicians, and lab directors and are now beginning to see it in patient volume data. 1Q21 was weak broadly for Healthcare. We think 2Q21 will be the point of lift off for a longer run of positive revisions for NEO and many other companies in the sector.
Valuation
We expect above average revenue in 2021 and 2022 which we expect to be valued at the higher end of NEO's historic EV/Sales multiple. We also expect success of Inivata and the massive opportunity they open up in 2023 supports a premium multiple as well.
Catalysts
- Claims data show a pickup in core test and InVisionFirst Lung volume
- Consensus revenue estimates for NTM and 2022 rise, pushing the stock into MicroQuad 2
- Positive data on Inivata's RaDaR assay for MRD
- Pharma Services & Informatics growth accelerates
- Additional M&A activity
Risks
- Valuations in the lab space contract due to macro/style factors
- Our snapback + thesis is overly aggressive or fails to materialize and NEO doesn't see incremental volume
- Competition limits NEOs share gains and above-market growth opportunity
- Incremental pricing pressure
All data available upon request. Please reach out to with any inquiries.
Thomas Tobin
Managing Director
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