Fulgent Genetics, Inc. Common Stock (FLGT) Q2 2021 Earnings Call Transcript

Fulgent Genetics, Inc. Common Stock (FLGT 0.48%)
Q2 2021 Earnings Call
Aug 09, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Fulgent Genetics 2Q '21 earnings conference call. At this time, I would like to turn the conference over to Nicole Borsje with investor relations. Please go ahead.

Nicole Borsje -- Investor Relations

Great. Thanks. Good afternoon, and welcome to the Fulgent Genetics second-quarter 2021 financial results conference call. On the call today are Ming Hsieh, chief executive officer; Paul Kim, chief financial officer; Dr.

Larry Weiss, chief medical officer; and Brandon Perthuis, the company's chief commercial officer. The company's press release discussing its financial results is available in the Investor Relations section of the company's website, Fulgent Genetics -- ir.fulgentgenetics.com. An audio replay of this call will be available shortly after the call concludes. Please visit the Investor Relations section of the company's website to access the audio replay.

Management's prepared remarks and answers to your questions on today's call will contain forward-looking statements. These forward-looking statements represent management's estimates based on current views and assumptions, which may prove to be incorrect. As a result, matters discussed in any forward-looking statements are subject to risks, uncertainties, and changes in circumstances that may cause actual results to differ from those described in the forward-looking statements. The company assumes no obligation to update any of the forward-looking statements it may make today to reflect actual results or changes in expectations.

Listeners should not rely on any forward-looking statements as predictions of future events and should listen to management's remarks today with the understanding that actual events, including the actual future results, may be materially different than what is described in or implied by these forward-looking statements. Please review the more detailed discussions related to these forward-looking statements, including the discussions of some risk factors that may cause results to differ from those described in these forward-looking statements contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10-K for the year ended December 31, 2020, which is available in the company's Investor Relations website. Management's prepared remarks, including discussions of earnings and earnings per share, contain financial measures not prepared in accordance with accounting principles generally accepted in the United States or GAAP. Management has presented these non-GAAP financial measures because it believes they may be useful to investors for various reasons, but they should not be viewed as a substitute for or superior to the company's financial measures prepared in accordance with GAAP.

Please see the company's press release discussing its financial results for the second quarter of 2021 for more information, including the description of how the company calculates non-GAAP income and income per share and a reconciliation of these financial metrics to income and income per share, the most directly comparable GAAP financial metrics. With that, I'd now like to turn the call over to Ming.

Ming Hsieh -- Chief Executive Officer

Thank you very much, Nicole. Good afternoon, and thank you for joining our call today to discuss our second-quarter 2020[Audio gap]we have a number of exciting items to highlight on our call. I'm pleased to be joined by our recently appointed chief medical officer, Dr. Larry Weiss, who will present in time today discussing our emerging strategy around molecular diagnosis and oncology testing.

To that end, we had two very exciting strategic announcement today with the acquisition of CSI Laboratories and the commercial partnership with Helio Health, which we will cover more in detail in a few minutes. I'm also joined again by our chief commercial officer, Brandon Perthuis, who will cover updates to our go-to-market strategy, and our CFO, Paul Kim, who will discuss our financial results and outlook in detail. Taking a look at our second-quarter results. Revenue totaled at $154 million, up 790% compared to the second quarter of 2020 and down sequentially from the first quarter as we expected.[Audio gap][Inaudible] of quarter almost nine times the volume of the second quarter last year.

The sole driver of revenue and volume sought for in the quarter was faster than expected[Audio gap]RT-PCR test for the COVID-19. This dynamic was broadened based across the testing market and not specific to Fulgent, given the accelerated pace of vaccination and the decreasing need for testing across the country. We fully expect to see the slowdown in the test demand but the drop was somehow faster than anticipated. That being said, our NGS revenue, which we now call core revenue, exceed our expectation in the second quarter and grew 296% year over year to $25.7 million.

Paul will cover in detail about the majority of our core revenue was not related to COVID-19 testing. We also remain very profitable in the quarter, generating $2.59 per share in the GAAP EPS and $76.1 million in operating cash flow. While we are disappointed that our top-line results fell short of our expectations in this quarter, we are looking at our opportunities beyond the COVID and are very excited about the future holds. While we still have a number of agreements in place for COVID testing across the country, both for RT-PCR and NGS testing, we remain well-positioned to capture demand for the COVID testing as the market dictates.

That being said, we are focused on expanding our capabilities and commercial adjacency on the other area of genomic testing. We believe our response to the COVID-19 pandemic has demonstrated our ability to scale and execute with a high level of precision and excellence, and we hope would translate these capabilities into other areas of genomic testing with our core business. The acquisition of CSI Laboratories is a prime example of how we plan to strategically expand our business for long-term sustainable growth. With the acquisition of CSI Laboratories, we are excited to add a diverse menu of oncology testing and molecular diagnostic solutions to our menu.

CSI has operation in Georgia and Florida, and will add approximately 400 unique tests to our already expensive NGS test menu. In addition, NGS, CSI has very strong relationship on the reimbursement front, which will open up our menu to cover 160 million incremental covered lives across United States. We brought Dr. Weiss on board to manage and oversee this operation, and we look forward to leverage his expertise in conjunction with our next-generation sequencing platform and the best-in-class execution capability to scale our presence in this market.

Dr. Weiss will discuss this opportunity in more detail shortly. Another exciting announcement is the commercial partnership agreement and the strategic investment we have made in Helio Health, an emerging liquid biopsy company focused on early detection of cancer. With this partnership, we are gaining a foothold in the early detection liquid biopsy space in both -- in the U.S.

and China market. We'll maintain exclusive commercial rights to Helio's test distribution in North America, which could translate into a very large opportunity for us going forward. And finally, we announced today that we have been completing the acquisition of our JV in China. Taking majority ownership of the entity as discussed in the past.

This JV gives us direct access to the large growing genetic testing market in China with an established presence, feet on the ground and the same operational excellence of our labs in the U.S. We are excited about this opportunity to expand our pipeline in China in the years ahead. I'm very excited about this investment and opportunities they are creating for forging in the post-pandemic world. Our value has retained unchanged.

We continue to be disciplined in our spending and remain focused on driving efficiency across our business, while delivering the best-in-class products and services to our customers and partners. We look forward to what the future has in store. With that, I'll turn over the call to Dr. Weiss to further discuss our initiative on the molecular diagnostics and oncology front with this recent investment.

Dr. Weiss?

Larry Weiss -- Chief Medical Officer

Thank you, Ming. I am very pleased to be here today and excited to be a part of the expanding Fulgent team. I joined Fulgent because I saw what they were doing in NGS and COVID testing and was very impressed with their operational strength and IT expertise. It was no fluke that Fulgent was able to pivot from a germline NGS company to rapidly become -- among the leaders in COVID testing.

And when you combine Fulgent's operational strengths with its leadership in NGS, it makes for a very powerful combination. I believe that this combination will allow Fulgent to quickly transition to become a leader in somatic oncologic testing. Somatic mutation testing is different from germline testing in several aspects but the processes are essentially the same and are those Fulgent has already mastered. I'm excited to be taking ownership of the operations and integration of CSI Labs into the Fulgent platform.

CSI gives Fulgent an anchor into cancer testing as it combines a strong platform of traditional cancer testing with superb customer service. With this acquisition, we plan to leverage CSI's base of cancer testing and access disbursements to rapidly develop a West Coast state-of-the-art cancer testing laboratory. This new lab will complement CSI's Southeast location and quickly establish a national presence for Fulgent's oncologic testing platform. I'm also very excited about the strategic partnership we announced with Helio Health.

Our relationship with Helio gives us access to large markets for early cancer screening, again expanding Fulgent's footprint in cancer testing. My past experience at NeoGenomics taught me the value of providing a full range of testing options for oncologists, combined with excellent customer service. With CSI's base of cancer testing and Fulgent's operational capabilities and expertise in NGS, we hope to differentiate ourselves relative to companies who provide primarily NGS testing without expertise in other areas of oncologic testing, as well as companies who provide a wide range of oncologic testing but lack the focus and operational excellence necessary for providing optimal NGS services. With the acquisition of CSI, Fulgent is well-positioned to execute on our goal of developing a complete package of cancer-testing solutions on a national level, with particular expertise in NGS, combined with a superb customer experience.

I am very excited about this opportunity and look forward to developing Fulgent's oncologic testing program in the years ahead. I'll now turn the call over to Brandon Perthuis, our chief commercial officer. Brandon?

Brandon Perthuis -- Chief Commercial Officer

Thanks, Larry. While the dramatic improvement in the pandemic led to lower-than-expected COVID testing, especially in June for our country to see progress in fighting the pandemic. At the same time, much of this progress is being threatened by the spread of the highly contagious Delta variant. While COVID-19 testing came in under expectations in the second quarter, our core business shattered records in terms of cases accessions and total revenue.

For us to be able to handle the incredible amount of COVID-19 testing volume that we have with no turnaround time or quality issues[Audio gap]new records for our core business really highlights the power of the Fulgent technology platform. This is not something that could have been done with systems that were bolted together or off the shelf. This level of execution gives us tremendous confidence in our ability to continue to expand and play a role as a consolidator in this space. The growth in our core business continues to be driven by clients taking advantage of our expanded test menu, new opportunities created by more competitive pricing, continued expansion of our commercial partnerships for both sequencing as a service in our core testing menu, and COVID-19 genomic studies.

In the quarter, we had core business orders from over 400 unique institutions, and many of these clients are not using Fulgent for our full services rather some of our unique tests. Therefore, we see this as a significant opportunity for further client penetration and will be a focus as we expand the sales team. As Ming mentioned, we made our first-ever acquisition with the purchase of CSI Laboratories. CSI offers 400 unique test in molecular oncology, flow cytometry, FISH, cytogenetics, and histology.

We believe the combination of Fulgent and CSI creates an industry first by being able to offer traditional cancer tests, NGS cancer test to a liquid biopsy and MRD, hereditary cancer test, and comprehensive test menus for rare disease and adult genetics. By combining Fulgent's NGS cancer test with CSI testing platform, we become a true one-stop shop for oncologists and pathologists. From a commercial perspective, our focus will be on expanding CSI's reach beyond the Southeast of the United States[Audio gap]small sales team. We plan to dramatically expand the sales team and build out a specialized oncology testing lab on the West Coast to establish a national footprint for CSI.

We believe CSI's menu, turnaround time, quality, and medical professionals, combined with Fulgent's technology platform, operational excellence, and presence in Houston and Los Angeles is poised to make a disruptive impact in this market, which historically has been dominated by only a few companies. One other area that the acquisition of CSI really benefits Fulgent is with managed care contracts. We have only recently begun putting more emphasis on securing these contracts[Audio gap]has to be successful with institutions and other cash-pay clients. However, our managed care team has been successful in expanding our coverage network, and the acquisition of CSI brings our reach to over 180 million covered lives in network.

This essentially opens a new market for Fulgent as we now have -- we now can more effectively sell into those accounts that require insurance billing, be it hospitals, private clinics, OB-GYNs, maternal fetal medicine, neurologists, and many other subspecialties. Our existing sales team now has many more clients to call on. And as we onboard new sales team members, they will be able to sell without the limitation of minimal insurance contracts. In addition to the acquisition of CSI, Fulgent has made a $20 million investment in Helio Health, an emerging liquid biopsy company for early cancer detection.

This investment gives Fulgent an exclusive license to Helio's commercial LBT products, which are currently in clinical development. The first product we plan to bring to market will be a liquid biopsy test for liver cancer. This is a large market considering liver cancer is projected to be the third leading cause of cancer death by 2030. It is the sixth most commonly diagnosed cancer in the world and a fourth leading cause of cancer death in the world.

In addition, there has been a 1.5-fold increase in liver cancer in the United States over the last 15 years. While the existing guidelines for surveillance of liver cancer recommend an ultrasound every six months, ultrasound lack the sensitivity and is dependent on the size and location of the lesion, skill and training of the operator, instrument quality, BMI, etc. We believe Helio's new approach will be a paradigm shift in the way liver cancer is diagnosed and monitored. Multiple studies have confirmed the survival benefit of liver cancer screening in cirrhotic population and surveillance is associated with improved and early detection, receipt of curative therapy and overall survival.

We will be working diligently to bring this exciting new test to market with an initial launch goal of later this year. In addition to our launch effort, Helio has an ongoing clinical study in the United States[Audio gap]patients, of which 800 have been completed, and the goal of having these data to submit to the FDA in the coming quarters. In addition to liver cancer, Fulgent and Helio will develop early cancer screening for other cancers, including using Helio's methylation-based technologies to further expand our capabilities in liquid biopsy and oncology testing. Switching to COVID-19.

Testing decreased from the highs we saw in the first quarter. However, it is still a very meaningful revenue contributor to Fulgent, and we continue to secure meaningful wins. Along these lines, we are excited to announce that Fulgent was chosen to continue testing for New York City schools for the fall semester. This decision came after New York City put the fall semester out for competitive bid.

We believe our web-based platforms, turnaround time, quality and medical staffing all contributed to the decision. We are honored to be chosen and look forward to doing our part to keep New York City schools safe. In addition to New York City schools, we are securing meaningful wins on the West Coast and Southeast related to back-to-school testing. We have also seen some states mandate testing for healthcare and government workers, which are also significant opportunities for Fulgent.

While we saw a significant improvement in COVID-19 during the second quarter, there's still much uncertainty, especially around the rapid emergence of the Delta variant. As of August 6, the seven-day average of new cases in the United States was 106,000 compared to 55,000 one year ago and the daily new cases recently have been as high as 168,000, which is equivalent to the November time period. In the recent weeks, we have seen a significant increase in our testing volume and positivity rate across our customer base. During the second quarter, we saw positivity rates dip as low as 0.5%.

However, in the recent days, we have seen as high as 8%. We are monitoring the situation as closely as we can, and we expect COVID-19 testing to remain a meaningful part of our revenue for the remainder of 2021. We look forward to helping local and state agencies, colleges, K-12 schools, and companies with testing where we can as well as contributing meaningfully to the CDC's efforts to track and monitor variants with genomic testing. It continues to be a dynamic time at Fulgent, and we are very excited about the trajectory of our business.

With CSI and Helio transactions complete, we have dramatically broadened the footprint and addressable market of Fulgent, and we look forward to continuing to invest resources to expand our capabilities and fuel long-term growth and success. I'll now turn the call over to Paul Kim, our chief financial officer. Paul?

Paul Kim -- Chief Financial Officer

Thanks, Brandon. The revenue in the second quarter totaled $154 million, an increase of 790% compared to the second quarter of 2020. Billable tests in the quarter totaled almost 1.6 million, growing almost 9x the volume of Q2 last year. While the majority of this revenue was related to the COVID-19[Audio gap]in our core business.

Our core revenue, which we previously called NGS revenue, was up 296% year over year and 54%, sequentially. As Ming and Brandon mentioned, we were disappointed that our overall revenue came in below our expectations, and this was due to rapid vaccinations and drop-off of demand at drive-thru sites, particularly in California. Demand for COVID testing has been volatile. And as a result, we have generally taken a conservative stance on future revenue expectations from COVID testing, but the drop in Q2 was more drastic than we anticipated.

That being said, we have invested significant time and resources laying out the foundation for a successful post-COVID-19 growth opportunity through bringing on senior talent, investment, and M&A, and we're well on our way of achieving this goal. Our ASP in the second quarter was $99, slightly higher than the $95 we saw in the first quarter. While our ASP has largely remained stable over the last few quarters, the modest increase is due to the increasing mix of core tests that we saw in the quarter. Cost per test in the quarter was $23, slightly higher than the first quarter due to the increased mix of NGS testing.

Gross margins ticked down slightly in the quarter to 76.7% compared to Q1, as expected, given the lighter volume we saw. Looking over to operating expenses. Total GAAP operating expenses were $18.9 million in the second quarter, up from $18.4 million in the first quarter. Non-GAAP operating expenses totaled $16 million, down from $16.1 million last quarter.

Our operating expenses increased primarily due to investments in strategic headcount across our organization as well as an increase in legal and accounting costs associated with our M&A activity. Non-GAAP operating margin declined 8 percentage points from the first quarter to 66.7%. Adjusted EBITDA for the second quarter was $105 million, compared to $4.3 million in the second quarter of 2020. On a non-GAAP basis and excluding equity-based compensation expense, income for the quarter was $78.7 million or $2.55 per share based on 30.8 million weighted average diluted shares outstanding.

This takes into account a tax effect for stock-based compensation in the quarter. Now turning over to the balance sheet. We ended the quarter with $777 million in cash, cash equivalents, and marketable securities. We generated $76.1 million of cash from operations during the quarter, fueling our cash balance.

This cash balance includes the impact from our investment in Helio, which was $20 million in Q2, and our investment in the China JV, which was $19 million. This does not yet include the impact of the CSI acquisition, which could be up to $60 million in cash and which also closed in early August. Now moving on to our outlook. We are making a small change into how we discuss revenue guidance due to the moving parts were taken into consideration, including the dynamic COVID testing landscape, our acquisition in CSI and the consolidation of our China JV.

We will be breaking out our guidance by COVID and core revenue in the future with core reflecting what we previously called NGS revenue with the addition of CSI's contribution. Our COVID revenue includes all revenue from RT-PCR testing, including picture at home COVID tests. Our core revenues includes our traditional NGS business, contribution from our China JV, contribution from CSI, and our revenues from our NGS COVID tests. While these revenue segments haven't really changed, we [Inaudible] reflects -- better reflects our non-COVID business given the addition of CSI and Helio.

Starting with COVID revenues, as we discussed, we saw a sharper-than-expected decline in testing volume in Q2 due to rapid vaccinations and lower demand from drive-thru sites. We expect the volume will continue to decline through the balance of the year. However, the proliferation of the Delta variant has created additional moving parts duration for our guidance. We have seen test volumes trend higher with new cases, while the governmental agencies and schools are seeking more regular testing amid a more uncertain environment.

And we also believe that ongoing assessment of vaccine effectiveness could drive incremental testing. With that, we expect COVID revenues for the year will be at $690 million, down slightly from our previous guidance of $730 million. This reduction of $40 million is essentially due to our Q2 shortfall, and we believe testing volumes in Q3 and Q4 are still on track to meet the expectations we set last quarter. Moving on to our core revenue guidance, which is broken into core NGS, COVID NGS and the impact from CSI, we expect our core NGS business will be strong as we continue to build momentum with customers and capitalize on investments and recent key hires.

We expect core NGS revenues will total $80 million, up from approximately $70 million in our previous guidance. For COVID NGS revenues from the CDC, we are lowering our guidance from $15 million to $30 million. Though we're optimistic about this contract, it appears volume is largely predicated on positivity rates, which fell to a record low during the quarter. This situation with COVID and the Delta variant is obviously very fluid.

As such, we're taking a very conservative view as it relates to revenue from the CDC contract. And finally, we anticipate CSI will contribute approximately $15 million of revenues for the remaining part of 2021. Altogether, we expect our total core revenues will be $110 million for the year. With the $690 million in COVID revenues combined with $110 million of core revenue, we expect revenues will be approximately $800 million for the year, down slightly from our previous guidance of $830 million.

From a profitability standpoint, we continue to expect to show ongoing leverage in our business, which drops to the bottom line and drives cash flow generation. We continue to rely on our foundational technology for operating our business, which has produced superior growth in operating margins. We still anticipate that to be the case, though those percentages will likely be slightly lower as we get more active in M&A, hiring, and internal investments. As such, for the full-year 2021, utilizing a 27% tax rate and a share count of 31 million, we expect net income to be approximately $387 million or $12.50 per share for our shareholders, excluding stock-based compensation.

This EPS estimate is unchanged from our previous guidance from Q1, even with us lowering our revenue estimate by $30 million to $800 million. For the third quarter specifically, we expect total revenues to be in the range of $125 million to $150 million, with core revenues growing to approximately $32 million and COVID revenues to be in the range of $93 million to $118 million. We hope the detail we're providing today is helpful and reflects the confidence we have in our outlook for the year, and we have posted slides on our Investor Relations website that outlines our guidance in detail. This quarter has once again proven the viability of our business model and the power of our technology platform given the ability to drive nearly $100 million of cash flow in a single quarter.

In addition, we have demonstrated our ability to execute on strategic initiatives through M&A, with our investments in China, Helio, and CSI, all of which should bear immediate fruit from a strategic perspective. We intend to get bolder and more active in M&A in the future and are evaluating a range of different companies and technologies. We feel very good about our positioning as we expand our platform to drive sustainable growth in the post-COVID world. Operator, you may now open it up for questions.

Questions & Answers:

Operator

[Operator instructions] We'll take our first question from Kevin DeGeeter with Oppenheimer.

Kevin DeGeeter -- Oppenheimer & Co. Inc. -- Analyst

Hey, guys. Thanks for taking my question. Maybe just three for me. On CSI, I mean, interesting transaction, maybe you can just talk a little bit about buy versus build for those assets, it would seem that that's a capability that might have been able to be built out in-house, but perhaps done more quickly through M&A.

Paul, I think you highlighted at the end, continued high interest in M&A. Maybe you can frame for us a little bit in terms of how we should think about focus being -- is it primarily oncology? Are you interested kind of broadly outside of oncology, any perspective there? And then just with regard to reimbursement, which I think to us is maybe one of the more interesting topics for today. How do you sort of leverage CSI's infrastructure for reimbursement to gain perhaps broader reimbursement footprint for some of the NGS estimate? Thank you.

Ming Hsieh -- Chief Executive Officer

Yes. Thank you, Kevin, for the questions. I think I will probably cover in the more like a broad level, strategic level. We do believe the cancer diagnostics, it is a big market.

It is a $80 billion market. Fulgent Genetics has been in this market in the only representative in the germline testing market. We do have our capabilities in liquid biopsy, but we're missing other molecular diagnostics. So by adding the CSI and Helio, I covered this two together, give Fulgent Genetics is a pretty broad coverage in the cancer diagnostics space from the early cancer detection market to the germline, to the solid tumor, to the minimum disease monitoring.

So this is a $80 billion market. And this is much, much larger than the Fulgent Genetics initially got the IPO focused on the rare disease market. We're not missing the dismissed rare disease market. But we are playing -- we want to be a major player in the cancer diagnostic market.

With that, I ask Dr. Weiss to add a little bit more for the CSI.

Larry Weiss -- Chief Medical Officer

So as you heard, our intention is to get involved in the cancer market. And we have intention of developing our own laboratory on the West Coast, but the acquisition of CSI really jump starts our entry into the cancer market. First of all, they have a base of clients, and they already have an extensive test menu in areas such as immunohistochemistry, flow, FISH, and cytogenetics. And we're going to emulate that on the West Coast.

Even more importantly, for the West Coast lab, they have specimen -- access to specimens that is very hard to find when you're just starting out in a laboratory. They already have a base of a sales team that we are going to dramatically expand in the future. So although I think we could have done these things without CSI, CSI clearly gives us a huge jump start into being a major player in the cancer business.

Brandon Perthuis -- Chief Commercial Officer

Yes, Kevin. Brandon. I'll just add a little bit there, which is really -- goes to your third question, you asked why do we buy versus build? In addition to what Larry detailed, building would have been much more difficult, especially as it relates to the managed care contracts in reimbursement. So I think Larry's spot on.

It is a quick way for us to enter the market. We address the insurance and network issue by buying versus building. In addition, we're highly confident we can expand that business. They have a wonderful business.

It's been very successful. They have an amazing customer base. But it's a little bit geographically focused with a small sales team. And we think with a national presence and a much larger sales team[Audio gap]in a big way.

So I think for those reasons, justify sort of our buy versus build thought process.

Ming Hsieh -- Chief Executive Officer

I think, Kevin, adding Dr. Weiss and Brandon's comments, in addition, we do believe with the Fulgent Genetics technology, we could significantly improve the CSI's operation efficiency. CSI, it is a profitable -- have a profitable business, but with our technology insertion and the technology combination, we will significantly improve the bottom line.

Brandon Perthuis -- Chief Commercial Officer

And, Kevin, if you just want to work through the rest of your question. So your second question was on M&A. We specifically focused on oncology or a more broad area. I mean, obviously, oncology is of particular interest to us.

You can see by the moves we've made. That said, no, our M&A strategy is going to be broad. It's going to be broad, it's going to be bold, it's going to be aggressive and fast. We are looking forward to deploying this capital and continuing to leverage the technology platform to bolt-on, tuck-in, these acquisitions in a meaningful way.

But Ming, if you want to add any comments there.Ming HsiehGreat. Thank you for the comments.

Operator

Moving on, we'll go to Steven Mah with Piper Sandler.

Steven Mah -- Piper Sander -- Analyst

Hi guys. Thanks for taking the questions. I get a question on Helio. The commercial exclusivity, is that going to cover all of their LBTs, not just liver? Because my understanding is they're also developing tests for colorectal cancer, breast, and lung.

Ming Hsieh -- Chief Executive Officer

Yes, Steven, I think it is a very good question. I think we're taking by the steps. We aren't going to help Helio to commercialize its liver cancer test. So we already started taking the action.

But definitely, it's a methylation technology and their biomarkers for certain[Audio gap]liver, colon, and the lung. So they are slightly different, but we do have the opportunity to add in more tests in the coming quarters.

Steven Mah -- Piper Sander -- Analyst

OK. Got it. And does your partnership with Helio and your investment, can you talk about the potential of launching these tests through your China JV, liver cancer and lung cancer, a big problem in China? Is there some way to leverage your China JV with Helio?

Ming Hsieh -- Chief Executive Officer

Yes. Yes. Steven, it is a very good question. Actually, Helio's independent study, liver cancer test in China is slightly ahead of the U.S.

We do expect the China launch will be sooner than the U.S. launch.

Steven Mah -- Piper Sander -- Analyst

OK. But your exclusivity is just for U.S. testing? Or is it also for China testing for commercialization?

Ming Hsieh -- Chief Executive Officer

Exclusivities covers in the North America, which is both the U.S. and Canada. But in China, we'll be jointly working together. Fulgent Genetics will provide our laboratory services and Helio's already in the process to finalize its CFDA approval process for its liver cancer test.

It's a slightly different cancer test using qPCR instead of using the methylation in the U.S. But both technology will be available for both China and the U.S.

Steven Mah -- Piper Sander -- Analyst

OK. So in China, it's more of a collaboration then, OK.

Ming Hsieh -- Chief Executive Officer

Yes.

Steven Mah -- Piper Sander -- Analyst

OK. Got it. OK. And then maybe a question for Larry, and Larry, welcome to the team.

Larry Weiss -- Chief Medical Officer

Thank you.

Steven Mah -- Piper Sander -- Analyst

Could you let us know what percent of CSI revenue is molecular that can be migrated over to Fulgent's NGS platform because my understanding of CSI, and I might be a little outdated is, yes, they were mostly more traditional nonmolecular tests like immunohistochemistry, FISH, cytogenetics and flow. So maybe just give me a sense of the potential synergies with Fulgent.

Ming Hsieh -- Chief Executive Officer

Yes. Steven, I will cover a little bit. CSI currently do offer some genetic testing, but it's all sourced through third party. So with this transaction, CSI will be direct all its -- can direct all its genetic test to Fulgent side.

But really, when the CSI is -- as a stand-alone unit, they have been not much promoting too much of the liquid biopsy and genetic testing. But with this combination, we do plan to accelerate the process and also make a digital transition for the pathology transition that there becomes more modern and more than digital pathology.

Larry Weiss -- Chief Medical Officer

Yes. As being stated, CSI is basically a traditional pathology provider. Its assets are in immunohistochemistry, flow, cytogenetics, and FISH. They do a fair amount of single-gene testing, but their NGS is outsourced at present.

That's why we think this is such a complementary acquisition because we at Fulgent can provide the NGS and the molecular testing and really supplement CSI's strengths. So we see as a win-win, a win for CSI, and a win for Fulgent. Historically, CSI's client base has been with pathologists. But when we provide the molecular background, I think we can see a large expansion into an oncology customer base as well.

Paul Kim -- Chief Financial Officer

Yes. This is Paul. We intend to put our full resources behind this acquisition of CSI, and we also would not be surprised if that business grew in a considerable way. We took a look at a lot of different companies.

This is the one that we like very, very much from a philosophical standpoint. They have been in operations for a longer time frame than we have. We took a look at the quality of the customers, the flow of the samples, their offering, even just kind of the way the business was structured. I mean, unlike other smaller businesses, they don't lose money.

So a lot of things line up with us. I think the piece that they were lacking because they were private and a smaller company, is being able to tap into the resources to get the capital. They can really move that business in a meaningful way. So Ming and Larry and Brandon talked about, right, the reasons why and synergies.

And it's our intention to fully capitalize on this asset and to grow that business.

Steven Mah -- Piper Sander -- Analyst

OK. Great. And maybe if I just squeeze in one last one. Do you have any sense for the back half of the year, upcoming flu season? There's been -- we've been hearing some RSV popping up in the Southern Hemisphere.

And in addition to that, could you give us a sense of if you're going to be developing a combination test or broader respiratory panel that includes -- I know you guys have flu A and B plus COVID, but developing a panel that includes RSV as well?

Brandon Perthuis -- Chief Commercial Officer

Steven, it's Brandon. Yes. Thanks for the question, Steven. It's Brandon.

We are. We're going to be developing what we call a full respiratory pathogen panel. I think it has somewhere around 20 to 30 or so respiratory pathogens. So it would cover COVID-19.

It would cover flu A, B, RSV, and many other respiratory pathogens. This will be delivered on the same automation, the same equipment, the same robotic liquid handling as our COVID tests. So it's something that we can scale tremendously and continue to take advantage of the -- what we believe to be best in cost -- best-in-class cost structure of our PCR-based assays. So for an answer, we are.Steven MahOK.

Thank you

Thank you very much

Operator

And next, we'll go to Katie Tryhane with Credit Suisse.

Katie Tryhane -- Credit Suisse -- Analyst

Hi. Thanks for taking my questions. Just on some of the return to work and return to school testing. Can you just speak maybe a little bit further to outside of the New York school system, how you can participate there? And to what extent are those conversations actually progressing? We've heard that they may be progressing a little bit slower than previously anticipated, but just in recent weeks with the Delta variant, is that starting to pick up? And how should we think about the implications for you for the back half of the year there?

Brandon Perthuis -- Chief Commercial Officer

Katie, thank you. It's Brandon. We're not revising the back half of the year COVID guidance. Right? Q3 and Q4, we're maintaining our guidance.

So I think that says something to the strength of the opportunities we see. Outside of New York, we're seeing very meaningful progress opportunities in the Southeast, specifically the Texas, Louisiana area, Florida as well as some schools coming online in the Midwest. And then on the West Coast, we're seeing many back-to-school opportunities. So we think our experience in New York is incredible.

We've done a lot of testing in New York. We've done a very good job, and that's the largest school district in the United States. So these other school districts, they lean on that. They look to that experience we've had.

We can show how -- what an incredibly successful program we've run up there. So I fully believe we're going to be continuing with back-to-school testing in a big way. And I think COVID testing is going to be very meaningful in the back half of the year.

Katie Tryhane -- Credit Suisse -- Analyst

OK. Great. And then we've talked quite a bit about some of your other investments in Helio and CSI, but just curious on the FF Gene Biotech JV. I know you mentioned your intention to invest there further last quarter.

But just curious if you could provide maybe a little bit more insight on how that JV has performed since you initially invested, which I know was quite some time ago as well as how it's performed more recently like in the second quarter.

Paul Kim -- Chief Financial Officer

Yes. Katie, this is Paul. That's an excellent question. So I'm going to take a piece of that, then I'm going to be turning it over to Ming who can give you the strategic and the market reasons on why we took controlling interest of that.

So during this quarter and Q2, we already booked $2 million of top-line genetic testing revenues from China as a result of that consolidation. And we believe in the second half of the year, we'll be able to record anywhere from $5 million to $10 million of additional business from that China market. But I'll turn it over to Ming who can comment on the thought process on why we take the controlling interest, the potential market size in China as to -- as well as the product and service offerings that we intend to put out in the marketplace.

Ming Hsieh -- Chief Executive Officer

Yes, Katie. As you may recall, we used to own around 30% of this JV structure, which is back to four years ago. Really, our function was providing our technologies and the products and let our partner manages the sales and marketing and running the operations. As we see the more and more demand coming from China in terms of oncology, women's health and rare disease, I think it'd be better for Fulgent to put more of our focus in the China market.

So we have discussed with our partner. They are willing to give us the control, and we're starting taking over the operations. We put our focus and the growth requirement to the current management team, and then we're also adding the more of our newly recruited executives for the operation. This is including the handling our relationships in the Helio's operation in China.

We do see that it is very, very competitive market, and it is a growing market, and it's also a challenging market, but we do see the demand is there and a lot of opportunity for us to expand and grow that market.

Katie Tryhane -- Credit Suisse -- Analyst

OK. That's great. Thanks.

Operator

And this concludes today's call. Thank you for your participation. You may now disconnect.

Larry Weiss -- Chief Medical Officer

Thank you.

Duration: 51 minutes

Call participants:

Nicole Borsje -- Investor Relations

Ming Hsieh -- Chief Executive Officer

Larry Weiss -- Chief Medical Officer

Brandon Perthuis -- Chief Commercial Officer

Paul Kim -- Chief Financial Officer

Kevin DeGeeter -- Oppenheimer & Co. Inc. -- Analyst

Steven Mah -- Piper Sander -- Analyst

Katie Tryhane -- Credit Suisse -- Analyst

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