In what can only be described as a rough year for public markets, a select group of stocks has managed to buck the trend. Investors seek to uncover these hidden gems to help their portfolios thrive through turbulent times. Healthcare, and biotechnology in particular, has been a bright spot, outperforming the broader markets.
GenMark Diagnostics (GNMK) ranks among this year's top performers. Investors in the San Diego-based developer of diagnostic tests and equipment have seen their shares soar 149% since the start of 2020. While many companies have reduced or withdrawn 2020 financial guidance, GenMark increased its projected revenue twice, spurred by demand for its rapid test for COVID-19.
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COVID-19 testing drives demand
GenMark highlighted that the coronavirus test drove 80% of placements of the company's ePlex diagnostic platform during the first quarter. The rapid test platform also offers a range of capacity. For example, rural hospitals can get a small-scale machine capable of running 12 tests during an eight-hour shift. On the opposite end of the spectrum, a large academic hospital can get an ePlex machine capable of running 96 tests over the same time period.
Importantly, the management team highlighted on the first-quarter earnings conference call that suspected COVID-19 patients often get screened with GenMark's respiratory panel first. If that turns up negative, then the specific diagnostic for SARS-Cov-2, the virus responsible for COVID-19, is run next.
Investors want in
On May 11, GenMark announced it successfully raised $80 million in financing by issuing approximately 8.34 million shares at $9.65 per share. The stock had traded in the $11 to $12 range in the days leading up to the announcement of the financing. After an initial drop, the stock returned and continues to trade around $12 per share.
However, investors started clamoring for the stock much earlier than the financing. GenMark's stock typically traded a few hundred thousand shares per day. Then, from Feb. 28 onward, trading volumes spiked to millions of shares daily. This coincides with GenMark's announcement that it was shipping its new COVID-19 diagnostic test.
GenMark applied for Emergency Use Authorization of its COVID-19 test from the Food and Drug Administration (FDA) on May 11. On May 19, the FDA granted the authorization, causing over 18 million shares of GenMark's shares to trade in a single day.
Upping guidance
GenMark's stock really started to climb after it increased 2020 revenue guidance on April 7. The revised estimates peg 2020 revenue in the range of $112 million to $122 million, representing a year-over-year increase of 27% to 39%. GenMark, then, increased its revenue guidance again. Alongside its first-quarter earnings on May 5, the company upped the range to $120 million to $130 million.
First-quarter 2020 sales hit $38.7 million, an 80% gain over the first quarter of 2019. GenMark's gross margin also rose from 27% to 40% for the quarter. Fueling the increase is an annuity of $130,000 to $135,000 per machine annually. The company expects to end the year with 175 to 200 installed machines.
The takeaway
The biotech sector outperformed through this year's pandemic-driven market collapse. This makes sense since the world turned to the industry for diagnostic tests, treatments, and vaccines. GenMark provides a rapid COVID-19 diagnostic test run on its own proprietary machine which continues to attract new users. The management team appears to be very confident, having raised the annual revenue guidance twice in roughly 60 days.
Biotech investors wanting a piece of the company began accumulating shares in March. Those savvy investors have more than doubled their investments. The additional $80 million dollars in financing from institutional funds provide GenMark's management team ample resources to meet its projected revenues. The company appears to be an intriguing, albeit speculative, investment idea. As with all riskier investments, start with a small position and add more shares as confidence in the company grows.
