Luminex Corp (LMNX) Reagent Rentals Boost Long-Term Growth
Seeking Alpha Analyst Since 2014
- Strong demand in long-term (3 to 5 years) reagent rental agreements.
- 3 FDA EUA approved covid-19 assays.
- 2 additional covid-19 assays awaiting approval.
- $480M potential annualized revenue from assay sales.
- $415M projected 2020 revenue, 24% growth over 2019.
Luminex Corp (NAS:LMNX) has finally recovered from losing LabCorp’s NuSwab business. Announced in mid-2018, Luminex’s profitability and earnings per share were negatively affected and resulted in significant market cap loss through the end of 2019. CFO Harriss T. Currie stated on the Q1 2020 earnings call, that the effects of the LabCorp order loss were finally behind them.
On the Q4 ’19 earnings call back in February, Mr. Currie stated Luminex was looking for 2020 revenues to be between $352 and $362 million. Since then covid-19 became a global pandemic and placed Luminex in a prime position to make the most of a terrible situation, and their projected 2020 revenues are now expected to be at least $415 million.
Despite reworking their business model to primarily revolve around MDx (molecular diagnostic systems), the market has lumped Luminex together with other “covid-19 testers”. These include Co-Diagnostics (CODX), Opko Health (OPK), Quidel (QDEL), and Fluidigm (FLDM). I believe this is a mistake on the market’s part, as Luminex’s business does not rely on simply providing swab kits and does not offer test processing itself. Instead, Luminex sells or leases MDx to labs, hospitals and research institutions. They have openly stated there’s a clear preference towards reagent rental agreements, as it provides the company additional revenue over time versus a one-time capital sales payment.
Since the beginning of August, however, the market has given Luminex an undue beating, dropping from a high of $41.69 to the $30 range. This was in spite of their most recent ER for Q2 20 realizing beats on both earnings and revenue, with 0.27 EPS vs. 0.08 consensus, and revenue with 109.5M vs 107.4M consensus. Covid-19 has been providing them with positive tailwinds thanks to molecular diagnostic revenue, which was $64.9M for the most recent quarter, up more than 100% compared to same quarter 2019. The issue for Luminex’s stock is clearly not one of revenue or future earnings, but rather the categorical placement with “covid-19 testing” stocks. Case in point, Luminex fell to the low $25 range on August 27th, with the announcement of Abbott’s $5 15-min rapid test. At one point on that day, Quidel was down nearly 40%, Fluidigm was down 30%, and both Opko Health and OraSure were down over 20%. GenMark Diagnostics, which is Luminex’s most direct competitor in the MDx space, was also down nearly 20%.
Going forward from here, it’s anyone’s guess as to how the market might treat Luminex. There could be a massive correction to the upside, since Luminex is now trading at a meager 10% increase over its pre-covid price around $24. Luminex has been around since 1995, and are not reliant on covid-19 related sales, although they have been selling their FDA authorized (under EUA) covid-19 tests. The first of which was the NxTAG Extended Panel assay approved in late March, while the second was their SARS-CoV-2 Assay designed for use in Luminex’s ARIES Molecular Diagnostics Platform, approved early April. More recently, Luminex announced FDA EUA approval on July 16th for their third covid-19 test, their xMAP serology assay.
The CEO, Nachum “Homi” Shamir, also stated on the recent ER call that their fourth covid-19 assay has been submitted to the FDA for EUA clearance. Specifically, it is a combo NxTAG RPP + covid-19 assay which will replace either NxTAG RPP or NxTAG Covid-19 assay. Luminex also plans to submit a VERIGINE II respiratory assay w/covid-19 target to FDA for EUA approval soon as well. As of this writing, there has been no further announcement yet on status of either submission.
Regarding future growth, Luminex placed 120 MDx in Q1 and an additional 162 MDx in Q2, seeing 80% and just over 50% as reagent rentals, respectively, with the majority being ARIES. While some of these systems were capital sales, which provided short-term revenue, the placement of the 282 MDx will continue to generate additional revenue for the foreseeable future, with Luminex anticipating conversions as customers see how easy to use the MDx are. Beyond the capital sales, the majority were reagent rentals which consist of three to five-year long-term commitments.
With these MDx comes the need for assays and cartridges, and Luminex has ramped up production to now operating 3 shifts, 24x7 to manufacture what they anticipate to be 3 million assays per quarter. The more MDx Luminex can place, the more assay revenue will increase. Case in point, Q1 assay revenue was $43.7 million, a 26% increase over same quarter 2019, while Q2 assay revenue was up 95% to $61.2 million. It is expected that Q3 revenue will be in the same ballpark as Q2, and as the 2020-2021 flu season begins Q4 assay revenue may increase even further.
Already FDA EUA approved for covid-19:
3/27 NxTAG Extended Panel assay
4/03 ARIES® SARS-CoV-2 Assay
7/16 xMAP serology assay
Awaiting FDA EUA approval (not factored into sales projections, since they cannot say they will make sales on something not yet approved):
7/22 "ABC Test" (Flu A, Flu B, Covid-19 assay) combo NxTAG RPP (19 viral+2 bacterial targets, which will replace either NxTAG RPP or NxTAG Covid-19 assay)
- VERIGENE I covid-19 assay
Plan to submit to FDA for EUA approval soon:
- VERIGINE II respiratory assay w/covid-19 target
- 1.8m to 3m assays per quarter ($40 each * 1m/mo = $480 million potential annualized revenue)
-- VERIGENE product line is additional and not included in above figures
- Scaling up serology manufacturing capacity (no figures provided)
- MilliporeSigma's flow cytometry portfolio, including their Guava easyCyte line, purchased in early 2019 for $75M
- VERIGENE II respiratory solution awaiting FDA approval (submitted Q4 2019)
- xMAP INTELLIFLEX (formerly Sensiplex) rolled out to Merck, Thermo Fisher, and "a couple of KOL"
Where Luminex stock heads from here, after an unexpected drop earlier in August from a high of $41.69, is likely dependent on market sentiment regarding the need for continued covid-19 testing. For better or worse, Luminex has been labeled as a covid-specific biotech and bundled with other companies offering tests including GNMK, CODX and OPK. While the increase in revenues for the first half 2020 have been directly attributable to covid-19, the reagent rentals will provide continued longer-term growth and serve to drive additional revenue for the next few years at a minimum. As more customers get their hands on ARIES, NxTAG, xMAP INTELLIFEX, VERIGENE, and eventually the VERIGENE II systems, revenues for both capital sales, rentals and assays will climb.
At the current stock price of $25.64, using the $415M anticipated 2020 full year revenue, Luminex is trading at 2.77 price to sales. Compared to GenMark diagnostics, a direct peer which trades under GNMK at 6.94 price to sales with a current stock price of $11.94, Luminex is undervalued by 138%. If LMNX traded at GNMK p/s, the share price would be $62.00. A more conservative price target might be one recently initiated by Piper Sandler, targeting $38 as of August 18th. Since most analysts have not updated their price targets for Luminex since the coronavirus pandemic began, the older existing targets are irrelevant to changing times.
With their new product lines, expanded manufacturing capabilities and additional FDA EUA approvals in the pipeline, Luminex has positioned itself with an enviable opportunity to take advantage of growth through much needed MDx reagent rentals. The future looks to be cementing itself squarely for strong growth, as these systems will continue to be used for years with the numerous assays Luminex and their partners offer.
Analyst's Disclosure: I am/we are long LMNX.
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