GenMark Diagnostics Reports Third Quarter 2013 Results

  GenMark Diagnostics Reports Third Quarter 2013 Results

  Base business grows by 159%, Installed base increases by 41 new analyzers,
                 2013 Guidance revised to approximately $27M

Business Wire

CARLSBAD, Calif. -- November 12, 2013

GenMark Diagnostics, Inc. (Nasdaq:GNMK), a leading provider of automated,
multiplex molecular diagnostic testing systems, today reported financial
results for the quarter ended September30, 2013.

Revenues for the quarter ended September30, 2013 were $4.6 million compared
with $5.3 million during the third quarter of 2012. The 12% year-over-year
decrease in total revenue was attributable to a lack of purchases from Natural
Molecular Testing Corporation (NMTC) during the current quarter, offset by
significant growth from other customers. NMTC accounted for 66% of total
revenues in the quarter ended September 30, 2012 and 26% of total revenues in
the quarter ended June 30, 2013. NMTC did not make any purchases in the third
quarter of 2013. Reagent revenues for the third quarter declined 22%
year-over-year to $4.0 million from $5.1 million. Instrument and other
revenues increased by 314% year-over-year to $651,000 from $158,000, due
mainly to sales of XT-8 instruments. The Company placed 41 new analyzers
during the current quarter to support its base business and removed 50
analyzers from NMTC, the majority of which were placed in 2012, bringing its
total installed base to 375, all in end-user laboratories within the U.S.
market.

“Our base business, which excludes NMTC, demonstrated impressive revenue
growth on both a year-over-year and sequential basis, growing by 159% in the
third quarter of 2013 compared with the third quarter of 2012, and growing
approximately 21% quarter-over-quarter ahead of the flu season. We believe the
significant growth of our base business confirms the increasing implementation
of our eSensor technology across a growing customer base and validates its
unique value proposition in advance of releasing our sample-to-answer NexGen
system,” stated GenMark’s President & CEO Hany Massarany. “On October 2^nd, we
filed a law suit against NMTC seeking the collection of past due amounts from
earlier product sales and for damages resulting from unsatisfied contract
purchase commitments. On October 21^st, NMTC filed a voluntary petition in the
United States Bankruptcy Court seeking relief under Chapter 11. As a result,
this quarter we have made appropriate adjustments to our financial statements
to account for NMTC’s bankruptcy filing.”

Gross profit for the quarter ended September30, 2013 was $0.5 million, or 11%
of revenue, compared with a gross profit of $2.2 million, or 42% of revenue
for the same period in 2012. During the current quarter, the Company reserved
$0.9 million of inventory made for NMTC and impaired $0.3 million of
manufacturing equipment procured to support NMTC’s previous purchasing
volumes. On a non-GAAP basis, which excludes the effect of NMTC related
adjustments during the current quarter, gross profit for the quarter ended
September30, 2013 was $1.7 million, or 36% of revenue.

Operating expenses increased $4.3 million to $12.8 million during the third
quarter of 2013 compared with the third quarter of 2012. Sales and Marketing
expenses increased $3.4 million year-over-year mainly due to a one-time
increase in the Company's allowance for doubtful accounts reserve of $2.5
million related to NMTC and continued expansion of our U.S. sales force ahead
of the launch of our NexGen system. Research and Development expenses
increased $0.9 million due to Company's NexGen platform and assay development
activities. On a non-GAAP basis, operating expenses for the third quarter of
2013 were $10.3 million.

Loss per share was $0.30 for the third quarter of 2013, compared with a loss
per share of $0.20 in the third quarter of 2012. The loss per share in the
current quarter included a one-time realized gain of $1.4 million from the
sale of preferred stock in a private company that was acquired by a third
party in July 2013, as well as $3.6 million in reserves and one-time
write-offs due to NMTC. On a non-GAAP as adjusted basis, which excludes the
effects of this one-time gain and NMTC related adjustments during the current
quarter, the Company’s loss per share for the third quarter of 2013 was $0.24.

The Company ended the third quarter of 2013 with $112.5 million in cash and
investments. The Company intends to continue utilizing its cash balances to
invest in new product and menu development, mainly the development of its
NexGen platform and related test menu, and for infrastructure improvements and
general corporate purposes.

"Based on prolonged reimbursement challenges and the recently published CMS
rates for the new pharmacogenomics (PGX) test codes, we expect the emerging
PGX sector to experience additional downward pressure in the near term.
Consequently, we are adjusting our 2013 revenue guidance to approximately $27
million and now expect more modest PGX purchasing patterns in 2014. Despite
these short term headwinds, we remain very optimistic about our future,” added
Massarany. “Our NexGen development efforts remain on schedule and we continue
to be confident that we will bring to market the most competitively
differentiated sample-to-answer system. We’re on track to complete its
development in the second quarter of 2014, and as a result of the excellent
progress made by our R&D organization, last week our Board of Directors
approved the funding for two additional assay development teams to accelerate
our NexGen menu expansion beyond our initial five panels. This week in
Phoenix, we will show an advanced prototype of our NexGen system at the
Association of Molecular Pathology meeting. This will be the first time future
NexGen customers will have an opportunity to review the system and, based on
early indications, we expect an excellent response."

YEAR-TO-DATE 2013

Revenue for the first nine months of 2013 was $21.0 million, compared to $11.0
million for the prior year period, an increase of 90%. Reagent revenue for the
first nine months of 2013 was $20.0 million, compared to $10.4 million for the
prior year period, and instrument and other revenue for the first nine months
of 2013 was $1.5 million compared to $0.5 million for the prior year period.
Our base business grew by 173% for the nine months ended September30, 2013
over the previous year.

Gross profit for the nine months ended September30, 2013 was $8.6 million, or
41% of revenue, compared with a gross profit of $4.1 million, or 38% of
revenue for the same period in 2012. During the current period, the Company
reserved $1.2 million of inventory made for NMTC and impaired $0.3 million of
manufacturing equipment procured to support NMTC’s previous purchasing
volumes. On a non-GAAP basis, gross profit for the nine months ended
September30, 2013 was $10.1 million, or 48% of revenue.

Operating expenses increased $11.7 million to $33.2 million during the first
nine months of 2013 compared with the first nine months of 2012. Sales and
Marketing expenses increased $5.6 million year-over-year mainly due to an
increase in the Company’s allowance for doubtful accounts reserve of $2.7
million related to NMTC, and additional sales personnel costs. Research and
Development expenses increased $6.3 million due to the Company’s NexGen
platform and assay development activities. On a non-GAAP basis, operating
expenses for the nine months ended September30, 2013 were $30.5 million.

Net loss for the first nine months of 2013 was $23.0 million, or $0.69 loss
per share, compared to net loss of $17.4 million, or $0.71 loss per share, for
the prior year period. The loss per share included a one-time realized gain of
$1.4 million from the sale of preferred stock in a private company that was
acquired by a third party in July 2013, as well as $4.2 million in reserves
and one-time write-offs due to NMTC. On a non-GAAP as adjusted basis, the loss
per share for the nine months ended September30, 2013 was $0.60.

INVESTOR CONFERENCE CALL

GenMark will hold a conference call to discuss third quarter 2013 results and
the outlook for 2013 at 4:30PM EST today. The conference call and webcast can
be accessed live through the Company’s website under the Investor Relations
section and will be archived for future reference. To listen to the conference
call, please dial (877)312-5847 (US/Canada) or (253)237-1154 (International)
and use the conference ID number 94463692 approximately five minutes prior to
the start time.

ABOUT GENMARK DIAGNOSTICS

GenMark Diagnostics is a leading provider of automated, multiplex molecular
diagnostic testing systems that detect and measure DNA and RNA targets to
diagnose disease and optimize patient treatment. Utilizing GenMark’s
proprietary eSensor^® detection technology, GenMark’s eSensor^® XT-8 system is
designed to support a broad range of molecular diagnostic tests with a
compact, easy-to-use workstation and self-contained, disposable test
cartridges. GenMark currently markets four tests that are FDA cleared for IVD
use: Cystic Fibrosis Genotyping Test, Respiratory Viral Panel, Thrombophilia
Risk Test, and Warfarin Sensitivity Test. A number of other tests, including
HCV Genotyping, 2C19 Genotyping, and 3A4/3A5 Genotyping are available for
research use only. For more information, visit www.genmarkdx.com.

SAFE HARBOR STATEMENT

This press release includes forward-looking statements regarding events,
trends and business prospects, which may affect our future operating results
and financial position. Such statements, including, but not limited to, those
regarding our expected 2013 financial performance and the timely completion of
our NexGen system and related assay development projects, are all subject to
risks and uncertainties that could cause our actual results and financial
position to differ materially. Some of these risks and uncertainties include,
but are not limited to, third-party payor reimbursement to our customers, the
loss of a significant customer, risks related to our history of operating
losses, the need for further financing and our ability to access the necessary
additional capital for our business, as well as other risks and uncertainties
described under the “Risk Factors” in our public filings with the Securities
and Exchange Commission. We assume no responsibility to update or revise any
forward-looking statements to reflect events, trends or circumstances after
the date they are made.

ABOUT NON-GAAP FINANCIAL MEASURES

GenMark's management believes that non-GAAP financial measures provide
meaningful supplemental information regarding the Company's performance by
excluding certain expenses and other items that may not be indicative of core
business results. To supplement the Company's financial results for the third
quarter of 2013 presented in accordance with GAAP, GenMark uses the following
financial measures defined as non-GAAP by the SEC: non-GAAP cost of sales,
non-GAAP sales and marketing expenses, non-GAAP operating expenses, non-GAAP
gross profit, non-GAAP net loss, and non-GAAP loss per share. GenMark’s
management does not, nor does it suggest that investors should, consider such
non-GAAP financial measures in isolation from, or as a substitute for,
financial information prepared and presented in accordance with GAAP. GenMark
believes that both management and investors benefit from referring to these
non-GAAP financial measures in assessing GenMark’s performance and when
planning, forecasting and analyzing future periods. These non-GAAP financial
measures also facilitate management's internal comparisons to GenMark’s
historical performance and our competitors' operating results. GenMark
believes these non-GAAP financial measures are useful to investors in allowing
for greater transparency with respect to supplemental information used by
management in its financial and operational decision making. Further, our
reconciliations of non-GAAP to GAAP operating results, which are included on
the attached tables, are presented solely to assist a reader in understanding
the impact of the various adjustments to our GAAP operating results,
individually and in the aggregate, and are not intended to place any undue
prominence on our non-GAAP operating results.

                                                              
GENMARK DIAGNOSTICS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
                                                                  
                                                As of             As of
                                                September 30,     December 31,
                                                2013              2012
Current assets
Cash and cash equivalents                       $  63,274         $  51,250
Investments                                     48,478            —
Restricted cash                                 758               1,343
Accounts receivable - net of allowances of      2,355             3,190
$2,733 and $53
Inventories                                     1,965             1,993
Other current assets                            682              226        
Total current assets                            117,512           58,002
Property and equipment, net                     7,948             7,074
Intangible assets, net                          3,048             1,832
Other long-term assets                          106              1,108      
Total assets                                    $  128,614       $  68,016  
Current liabilities
Accounts payable                                3,029             2,445
Accrued compensation                            2,453             3,076
Current portion of loan payable                 111               638
Other current liabilities                       2,790            3,015      
Total current liabilities                       8,383             9,174
Long-term liabilities
Loan payable, net of current portion            49                63
Other noncurrent liabilities                    2,280            2,329      
Total liabilities                               10,712           11,566     
Stockholders’ equity
Common stock, $0.0001 par value; 100,000
authorized; 41,492 and 32,753 shares issued     4                 3
and outstanding as of September 30, 2013 and
December 31, 2012, respectively
Preferred stock, $0.0001 par value; 5,000       —                 —
authorized, none issued
Additional paid-in capital                      331,899           247,449
Accumulated deficit                             (213,577    )     (190,566   )
Accumulated other comprehensive loss            (424        )     (436       )
Total stockholders’ equity                      117,902          56,450     
Total liabilities and stockholders’ equity      $  128,614       $  68,016  
                                                                             
                                                                             

GENMARK DIAGNOSTICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, except per share data)
                                                
                     Three Months Ended             Nine Months Ended
                     September 30,                  September 30,
                     2013          2012           2013          2012
Revenue
Product revenue      $ 4,521         $ 5,194        $ 20,627        $ 10,876
License and other    116            62            325            150       
revenue
Total revenue        4,637           5,256          20,952          11,026
Cost of sales        4,138          3,027         12,373         6,878     
Gross profit         499             2,229          8,579           4,148
Operating expenses
Sales and            4,916           1,485          9,830           4,264
marketing
General and          2,476           2,510          7,572           7,743
administrative
Research and         5,398          4,467         15,786         9,437     
development
Total operating      12,790         8,462         33,188         21,444    
expenses
Loss from            (12,291   )     (6,233   )     (24,609   )     (17,296   )
operations
Other income
(expense)
Interest income      203             5              413             17
Interest expense     (3        )     (21      )     (17       )     (73       )
Other income         1,297          (2       )     1,232          (15       )
(expense)
Total other income   1,497          (18      )     1,628          (71       )
(expense)
Loss before income   (10,794   )     (6,251   )     (22,981   )     (17,367   )
taxes
Provision for        (23       )     (1       )     (30       )     (43       )
income taxes
Net loss             $ (10,817 )     $ (6,252 )     $ (23,011 )     $ (17,410 )
Net loss per
share, basic and     $ (0.30   )     $ (0.20  )     $ (0.69   )     $ (0.71   )
diluted
Weighted average
number of shares     35,987         31,751        33,331         24,370    
outstanding, basic
and diluted
Other
comprehensive loss
Net loss             $ (10,817 )     $ (6,252 )     $ (23,011 )     $ (17,410 )
Net unrealized
gains on             21             —             12             —         
available-for-sale
investments
Comprehensive loss   $ (10,796 )     $ (6,252 )     $ (22,999 )     $ (17,410 )
                                                                              
                                                                              

GENMARK DIAGNOSTICS, INC.
UNAUDITED RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
                                               
                  Three Months Ended               Nine Months Ended
                  September 30,                    September 30,
Adjusted
Financial         2013            2012           2013          2012
Data:
                                                                   
Cost of sales     $  4,138          $ 3,027        $ 12,373        $ 6,878
Inventory         (852        )     —              (1,182    )     —
reserve^(1)
Impairment of
production        (302        )     —             (302      )     —         
equipment^(2)
Non-GAAP cost     $  2,984         $ 3,027       $ 10,889       $ 6,878   
of sales
                                                                   
Gross profit      $  499            $ 2,229        $ 8,579         $ 4,148
Inventory         852               —              1,182           —
reserve^(1)
Impairment of
production        302              —             302            —         
equipment^(2)
Non-GAAP gross    $  1,653         $ 2,229       $ 10,063       $ 4,148   
profit
                                                                   
Non-GAAP gross    36          %     42       %     48        %     38        %
margin %
                                                                   
Total
operating         $  12,790         $ 8,462        $ 33,188        $ 21,444
expenses
Inventory         (19         )     —              (19       )     —
reserve^(1)
Allowance of
doubtful          (2,472      )     —             (2,702    )     —         
accounts^(3)
Non-GAAP
operating         $  10,299        $ 8,462       $ 30,467       $ 21,444  
expenses
                                                                   
Total other
income            $  1,497          $ (18    )     $ 1,628         $ (71     )
(expense)
Preferred         (1,383      )     —             (1,383    )     —         
stock sale^(4)
Non-GAAP other
income            $  114           $ (18    )     $ 245          $ (71     )
(expense)
                                                                   
Net loss          $  (10,817  )     $ (6,252 )     $ (23,011 )     $ (17,410 )
Inventory         871               —              1,201           —
reserve^(1)
Impairment of
production        302               —              302             —
equipment^(2)
Allowance of
doubtful          2,472             —              2,702           —
accounts^(3)
Preferred         (1,383      )     —             (1,383    )     —         
stock sale^(4)
Non-GAAP net      $  (8,555   )     $ (6,252 )     $ (20,189 )     $ (17,410 )
loss
                                                                   
Net loss per
share, basic      $  (0.30    )     $ (0.20  )     $ (0.69   )     $ (0.71   )
and diluted
Inventory         0.02              —              0.04            —
reserve^(1)
Impairment of
production        0.01              —              0.01            —
equipment^(2)
Allowance of
doubtful          0.07              —              0.08            —
accounts^(3)
Preferred         (0.04       )     —             (0.04     )     —         
stock sale^(4)
Non-GAAP net
loss per          $  (0.24    )     $ (0.20  )     $ (0.60   )     $ (0.71   )
share, basic
and diluted
                                                                             
^(1) Reflects nonrecurring charges related to inventory specifically made for
NMTC
^(2) Reflects nonrecurring charges related to the Company's procurement of
additional manufacturing equipment to support NMTC's prior purchasing patterns
^(3) Reflects nonrecurring charges related to outstanding amounts owed by NMTC
^(4) Reflects a nonrecurring realized gain on sale of Advanced Liquid Logic,
Inc. preferred stock to Illumina. Inc.

The Company makes reference in this release to “non-GAAP” results, which
exclude the impact of adjustments associated with NMTC’s bankruptcy, and
“non-GAAP as adjusted” results, which exclude NMTC related adjustments and the
one-time gain realized upon the sale of the Company’s investment in a private
company. The Company believes that excluding these items and their related
effects from its financial results reflects operating results that are more
indicative of the Company’s ongoing operating performance while improving
comparability to prior periods, and, as such, may provide investors with an
enhanced understanding of the Company’s past financial performance and
prospects for the future. This information is not intended to be considered in
isolation from, or as a substitute for, statement of comprehensive loss, net
loss, net loss per share or expense information prepared in accordance with
GAAP.



GENMARK DIAGNOSTICS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
                                             
                                               Nine Months Ended September 30,
                                               2013             2012
Operating activities:
Net loss                                       $  (23,011  )     $  (17,410  )
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization                  1,912             918
Amortization of premiums on investments        133               —
Stock-based compensation                       2,697             1,509
Provision for bad debt                         2,720             (45         )
Non-cash inventory adjustments                 675               563
Changes in operating assets and liabilities:
Accounts receivable                            (1,885      )     (9          )
Inventories                                    (216        )     (402        )
Other current assets                           (263        )     92
Accounts payable                               570               907
Accrued compensation                           29                871
Other liabilities                              (861        )     523         
Net cash used in operating activities          (17,500     )     (12,483     )
Investing activities
Change in restricted cash                      585               (3,594      )
Purchase of available-for-sale securities      (52,841     )     (1,000      )
Payments for intellectual property licenses    (888        )     (1,306      )
Purchases of property and equipment            (3,273      )     (2,919      )
Proceeds from sales of marketable securities   4,250             —
Maturities of short-term investments           800              5,000       
Net cash used in investing activities          (51,367     )     (3,819      )
Financing activities
Proceeds from issuance of common stock         86,247            48,300
Costs incurred in conjunction with public      (5,180      )     (3,226      )
offering
Principal repayment of borrowings              (706        )     (1,608      )
Proceeds from borrowings                       166               835
Proceeds from stock option exercises           364              52          
Net cash provided by financing activities      80,891           44,353      
Net (decrease) increase in cash and cash       12,024            28,051
equivalents
Cash and cash equivalents at beginning of      51,250           25,320      
period
Cash and cash equivalents at end of period     $  63,274        $  53,371   
Non-cash investing and financing activities:
Property and equipment purchased with          $  —              $  109
capital lease
Transfer of systems from property and          $  431            $  124
equipment into inventory
Property and equipment costs incurred but      $  308            $  249
not paid included in accounts payable
Intellectual property acquisition included     $  556            $  —
in other noncurrent liabilities
Offering costs incurred but not paid           $  330            $  —
included in other liabilities
Supplemental cash flow disclosures:
Cash paid for income taxes, net                $  8              $  4
Cash paid for interest                         $  17             $  73
                                                                             
                                                                             

Contact:

GenMark Diagnostics, Inc.
Hany Massarany
President/Chief Executive Officer
760-448-4358
 
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