Why I Am Bullish On GenMark Diagnostics

| About: GenMark Diagnostics, (GNMK)

The worldwide market for molecular diagnostics is expected to grow at a robust pace over the next few years. While there are several big companies currently involved in the molecular diagnostics space, I believe that innovative smaller molecular diagnostic companies will be the ones that will generate significant return for shareholders. I already have a significant stake in one such company, Arrayit Corporation (OTC:ARYC). However, today I want to focus on another molecular diagnostics company, GenMark Diagnostics Inc. (NASDAQ:GNMK), which has bright prospects, primarily due to its innovative technology and a management team and Board of Directors with excellent track record.


GenMark Diagnostics is based Carlsbad, California. The company is focused on the development and commercialization of its proprietary eSensor® detection technology, which is an electrochemical technology enabling fast, accurate and highly sensitive detection of up to 72 distinct biomarkers in a single sample.

GenMark has developed the XT-8 system, which employs the company's proprietary technology. The XT-8 system is an automated molecular diagnostic system that allows reference laboratories and hospitals to perform fast, accurate and easy-to-use molecular diagnostic tests. The system has already received 510(k) clearance from the U.S. FDA.

GenMark has also developed eight tests for use with its XT-8 system, four of which have already been cleared by the FDA. The company is currently focused on the development of its next-generation instrument, or NexGen system. With NexGen system, the company is looking to further simplify workflow and provide powerful, cost-effective molecular diagnostics solutions. If the company is successful in its efforts with NexGen systems, it will substantially expand its market.

The Molecular Diagnostics Market

As I said earlier, the molecular diagnostics market is seeing significant growth. In its 10K filing, GenMark notes that the global market for molecular diagnostics is currently valued at around $5 billion. GNMK, citing leading market research firms, further says that the market is expected to growth at 15% per year over the next several years.

According to MarketsAndMarkets, the worldwide diagnostics market will be worth $8.1 billion by 2017. The research firm expects the market to grow at a CAGR of 9.1% over the next five years. It notes that the growth in molecular diagnostics market will be driven factors such as increase in awareness and acceptance of personalized medicine, advancements in molecular techniques, and increasing investments in proteomics and genomics research.

Why I am Bullish

One of the reasons why I like GenMark Diagnostics is the outlook for molecular diagnostics market. However, what makes me extremely bullish on GNMK is the fact that the company has the technology and a capable management team to capitalize on this anticipated growth. In addition, the company is developing its NexGen system, which could significantly expand its market opportunity.


GenMark's eSensor technology is based on the principles of competitive DNA hybridization and electrochemical detection, and offers several advantages over other signal detection platforms. The technology gives a robust signal due to the fact that its capture probes are highly target specific. This lowers the possibility of binding of non-target DNA. The technology also has very high sensitivity and accuracy. The technology has shown an impressive 100% accuracy in the company's Cystic Fibrosis Genotyping Test, Warfarin Sensitivity Test and Thrombophilia Risk Test in clinical studies.

The technology allows users to perform hybridization and detection in a low-cost system. Lower costs will expand GNMK's market opportunity. The technology is also highly flexible. The company notes that the eSensor technology enables it to add new diagnostic tests to its menu or to add new content to existing diagnostic tests without modifying the system platform. As a result, the company can focus its R&D efforts on the development of new commercial test products.

GenMark has already developed eight tests for use with its XT-8 system. Virtually all of the company's revenue is currently generated from the sale of consumables, which are based on the eSensor technology.

Four of GenMark's 8 tests have received clearance from the FDA. These include Cystic Fibrosis Genotyping Test, Warfarin Sensitivity Test, Thrombophilia Risk Test, and Respiratory Viral Panel (RVP) Test. The remaining four tests developed by the company are currently for research use only. In addition, the company is developing infectious disease test panels and oncology test panels. According to Research and Markets, the fastest growing segment in molecular diagnostics is infectious disease, followed by oncology.

Management Team Capable of Delivering

GenMark has the technology as well as a management team that is capable of delivering. The company's Board of Directors is also very experienced.

Christopher Gleeson, who serves as the Chairman of the Board, was previously the President, CEO and a Director of Ventana Medical Systems Inc., a supplier of automated diagnostic systems to the anatomical pathology market. In 2008, Swiss pharmaceutical giant Roche acquired Ventana for $3.4 billion to expand its diagnostic offerings. Following the acquisition, Gleeson became a member of Board of Directors of Roche Diagnostics, the diagnostics division of Roche. The acquisition created significant value for Ventana Medical Systems shareholders.

Another member of the Board, James Fox, Ph. D, served as Managing Director of Vision Systems Ltd., a leading cancer diagnostics company. Vision Systems was acquired by Danaher Corporation (NYSE:DHR) in 2007 for $520 million.

It was Gleeson and Fox who bought Hany Massarany on board as CEO of GenMark. Massarany was appointed as CEO in 2011. Prior to joining GenMark, Massarany served as President of Ventana and Head of Roche Tissue Diagnostics. Between 1999 and 2009, Massarany held several global leadership positions with Ventana.

NexGen System to Expand Market Opportunity

Finally, the NexGen system GenMark is currently developing has the potential to expand its market opportunity. With the system, the company is looking to provide a complete sample-to-answer solution for its customers. The system has been designed to retain all of the benefits of the existing XT-8 system, and integrate automatic nucleic acid extraction and amplification processes. The new features will make the process of testing easier and faster. According to GenMark, NexGen has the potential to make the eSensor technology attractive to a broad range of institutions because of its simplicity.

Impressive Revenue Growth and Strong Cash Position

GenMark will release its third-quarter financial results on November 12, 2013. For the second quarter of 2013, the company had reported a 44% increase in revenue on a year-over-year basis. The increase in revenue reflects an increase in the number of systems placed at customer sites, growth in test menus and increase in the number of tests sold by the company.

At the end of the second quarter of 2013, the company had $36.5 million in cash and investments. During the third quarter, the company sold 7,622,000 shares of its common stock in a secondary offering, which has further boosted the company's cash position.

Risk Factors

One of the risks facing GenMark is the failure NexGen. In order to achieve its medium to long-term growth projections, GenMark will need the successful development and commercialization of its NexGen system. The system will enable the company to widen its market opportunity. Having said that, GenMark's NexGen development efforts remain on schedule, as noted by CEO Massarany in August.

The second risk is the loss of a significant customer. Currently two customers, NMTC and Companion Diagnostics, account for a significant portion of GenMark's revenue. For the fiscal year ended December 31, 2012, the two companies accounted for 68% of the company's total revenue. GenMark will have to diversify its revenue sources going forward. Successful development and commercialization of NexGen system will certainly help in this regard.


GenMark shares have had a solid run this year, gaining more than 31%, year-to-date. The successful development of NexGen could be a major catalyst to boost stock price in the medium term. The stock is also expected to continue to benefit from the growth in molecular diagnostics market. However, with GNMK, the bet is not just on the horse but also on the jockey. The capable management team and Board of Directors is certainly one of the major reasons why I think GNMK is an attractive proposition.

Disclosure: I am long GNMK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.