Please ensure Javascript is enabled for purposes of website accessibility

Fulgent Genetics' CEO Just Told Investors To Look Out For An Acquisition

By Jason Hawthorne - Apr 20, 2021 at 7:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

He also gave clues that point to a few possible targets.

The conference calls that follow a company's earnings report are rarely eventful. Usually, a few executives make a statement summarizing the performance of the business and then analysts ask questions. Occasionally, a comment will give shareholders insight into what the leadership team is really thinking.

Fulgent Genetics' (FLGT 1.82%) CEO Ming Hsieh made one of these on the company's fourth quarter call in March. He mentioned the potential for an acquisition to expand the company's diagnostic and screening capabilities. Further, he specifically called out a desire to open up new markets in Asia and Europe. With those two pieces of information, let's explore a few of the companies Fulgent Genetics might buy.

A woman leans out of the passenger side of a car for a COVID test.

Image source: Getty Images.

Men at work

Ming Hsieh has some experience making deals. He came to the U.S. as an engineering student at the University of Southern California and founded a company directly out of school. Then he founded another. The second, Cogent Systems, developed fingerprint identification technology and was sold to 3M for $943 million in 2010. A year later, he founded Fulgent Genetics. Several of the C-level executives currently at Fulgent were also with him at Cogent. 

Prior to  the COVID-19 pandemic, the company's business was primarily reproductive testing, as well as testing for cancer and rare diseases. Its early entry into COVID testing propelled revenue to $422 million last year, a 1200% climb from the prior year. With business still booming, Hsieh shared that it had $625 million in cash at the end of February. That's plenty of money to go shopping for an acquisition in a fragmented industry. 

Who could it be now?

Of the publicly traded companies that are small enough to be potential targets, three spring to mind for what they would offer in terms of technology, geography, or both. Bionano Genomics (BNGO -2.90%) is a leader in optical genome mapping. Renalytix (RNLX 4.49%) uses artificial intelligence for patients with chronic kidney disease, and is based in Europe. Finally, Burning Rock Biotech (BNR -8.59%) is a Chinese company that specializes in genetic testing to identify therapies for late-stage cancer patients.

Bionano Genomics' Saphyr system consists of an instrument, reagents, and analytical tools focused on cytogenetics, the study of structural changes to chromosomes. There are two factors that could interest Fulgent in a purchase. First, more than half of Bionano's revenue comes from outside the U.S. Second, studies have shown its testing to be lower cost versus traditional cytogenetics testing. Driving costs down for customers is something Fulgent is obsessed with. Last year, Bionano also purchased a diagnostic company that specialized in testing for pediatric neurodevelopmental disorders. That would further expand the addressable market. 

Renalytix is a U.K.-based diagnostics company that uses artificial intelligence to support clinical decisions for patients with chronic medical conditions like kidney disease. The company is focused on improving risk assessments to ensure appropriate clinical care. Often, that care is predicated on stratifying patient risk. More accurate assessments lead to more appropriate care. It's important to get it right because some estimates show chronic diseases accounting for 75% of the healthcare spend in the U.S. annually.

Finally, Burning Rock Biotech is a Chinese cancer diagnostics company. The company offers a broad range of cancer tests to evaluate tumor sensitivity, malignancy, and predict the likelihood of recurrence. Aside from being based in China, Hsieh has said Fulgent plans to invest heavily in cancer and cancer-related diagnostics to gain market share. That would make Burning Rock a potential fit.

How will it affect shareholders?

Any acquisition will likely be pricey, but expect Hsieh and team to be conservative. The company has mostly conserved the influx of cash from 2020 and prides itself on having grown organically with minimal dilution to shareholders. Further, even earnings guidance has been conservative. Aside from blowing away estimates each quarter last year, the 2021 projection did not include its split of a $2 billion contract from the Department of Homeland Security. 

So far, leadership has kept shareholders' best interest in mind. That makes sense as insiders own 32% of shares. Hsieh has laid out some of his thinking behind a potential acquisition, and there are plenty of candidates to choose from. However, based on the criteria, it seems Bionano Genomics, Renalytix, or Burning Rock Biotech might make the cut.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fulgent Genetics, Inc. Stock Quote
Fulgent Genetics, Inc.
$55.52 (1.82%) $0.99
3M Company Stock Quote
3M Company
$128.49 (-0.71%) $0.92
Bionano Genomics, Inc. Stock Quote
Bionano Genomics, Inc.
$1.34 (-2.90%) $0.04
Renalytix AI plc Stock Quote
Renalytix AI plc
$2.56 (4.49%) $0.11
Burning Rock Biotech Limited Stock Quote
Burning Rock Biotech Limited
$2.66 (-8.59%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.