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Operator
Good day and welcome to the fourth quarter 2021 Fulgent Genetics earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Nicole Borsha with Investor Relations. Please go ahead.
Nicole Borsha
Great, thank you. Good afternoon and welcome to the Fulgent Genetics fourth quarter 2021 financial results conference call. On the call today are Ming Hsieh, Chief Executive Officer, Paul Kim, Chief Financial Officer, Dr. Larry Wise, Chief Medical Officer, and Brandon Perthews, Chief Commercial Officer. The company's press release discussing its financial results is available in the investor relations section of the company's website, ultragenetics.com. An audio replay of this call will be available shortly after the call concludes. Please visit the investor relations section of the company's website to access the audio replay. Management's prepared remarks and answers to your questions on today's call will contain four looking statements. These forward-looking statements represent management's estimates based on current views and assumptions, which may prove to be incorrect. As a result, matters discussed in any forward-looking statements are subject to risks, uncertainties, and changes in circumstances that may cause actual results to differ from those described in the forward-looking statements. The company assumes no obligation to update any of the forward-looking statements it may make today to reflect actual results or changes in expectations. Listeners should not rely on any forward-looking statements as predictions of future events and should listen to management's remarks today with the understanding that actual events, including the company's actual future results, may be materially different in what is described in or implied by these forward-looking statements. Please review the more detailed discussions related to these forward-looking statements, including the discussions of some of the risk factors that may cause results to differ from those described in these forward-looking statements contained in the company's filings with the Securities and Exchange Commission, including the previously filed 10-K for the year ended December 31, 2021, which is available on the company's Investor Relations website. Management's prepared remarks, including discussion of earnings and earnings per share, contain financial measures not prepared in accordance with accounting principles generally accepted in the United States or GAAP. Management has presented these non-GAAP financial measures because it believes They may be useful to investors for various reasons, but they should not be viewed as a substitute for or superior to the company's financial results prepared in accordance with GAAP. Please see the company's press release discussing its financial results for the fourth quarter of 2021 for more information, including the description of how the company calculates non-GAAP income and earnings per share and a reconciliation of these financial measures to income and income per share, the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Ming.
Ming Hsieh
Thank you very much, Nicole. Good afternoon and thank you for joining our call today to discuss our fourth quarter 2021 results. We finished the year in a very strong note with continued growth in core revenue and re-acceleration in our COVID revenue. I will cover some of the highlights from the year and the fourth quarter before taking the call to our Chief Commercial Officer, Brandon Perthews, to discuss products and ongoing market updates. And Paul will discuss our financial results and outlook in detail. Take a look at our fourth quarter results, which exceeded our guidance in both core and COVID revenue. Revenue totaled at 252 million compared to 295 million in the fourth quarter last year, and up 10% compared to third quarter in 2021. We delivered approximately 2.5 million tests in the quarter, up 13% compared to third quarter 2021, and slowed down from 3.2 million in the fourth quarter last year. Paul will cover the breakout between our core and the COVID business in more detail in a moment. But on the highlight, our core business grew 234% year over year to $41 million. Strength in our core business was driven by the momentum across the key areas, including CSI, our JV in China, and the contribution from our NGS COVID contracts with the CDC. We continue to drive strong profitability. It generated $3.34 per share in GAAP EPS and $77.1 million in operating cash flow in the quarter. The first quarter capped the year with tremendous growth for Fortune. We finished the year with just shy of $1 billion in revenue, up 135% year-over-year, and generated $16.38 per share in GAAP EPS. and $538.6 billion in operating cash flow. 2021 was truly a transformative year for our business. What will always be genetic business at our core will now have a very wide pathway of opportunity to grow and expand our business. into new and exciting area of genomics. Leveraging large cash position, we have built over the last two years. We remain active in our COVID-19 test business as much demand dictates, but our long-term work vision for the company have never been more exciting with the opportunities We have evaluating and executing on the broader genomic testing market. The acquisition of CSI, Folgen's first significant acquisition, has become a bright spot of our business. We'll still have a very early stage of integrating the scaling, the operation, and the capabilities of CSI. but we feel very good about the early progress we had seen and the opportunity for the future. Our investment in helio health has also been good progress with the official launch of the HelioLiver, which is now commercially available in the U.S. exclusively through 4Gen Genetics. We are We're very early in learning our partnership with the Helio Health. The role of the Helio has only just beginning. We have additional development and the commercialization opportunities for the other disease with Helio in the future. We also announced the exciting strategic investment and the partnership with Spatial Genomics today. We believe Spatial is taking a novel and innovative approach to sick fish technology, and we look forward to adding their capability to our platform to further expand our portfolios of genome testing solutions. Brandon will elaborate on the progress of this initiative in a moment. As we look ahead, remaining focused on two areas to drive growth. The first is integrating and scaling our existing partnership with acquisitions, and the second is pursuing additional MA opportunities. We have a significant amount of dry powder at our disposal and plan to broaden and more aggressive on future acquisitions and partnership initiatives. As we look at the acquisition, we remain disciplined in our approach and are seeking generally the tangible ROIs and the driving real synergies while being efficient with the capital deployment. We have been very successful in executing our M&A strategy this year. As our acquisition of CSI and the investment HILO and the spatial genomics fit well within our M&A philosophy and we're very proud of what we accomplished in 2021. Our strategy to expand and grow our core business is playing out nicely as the access with our organizations are all performed well. We believe there is meaningful opportunity to expand into different areas in genomic testing and build a partnership that established our go-to one-stop shop for genomic testing needs for the future strategic move. Throughout the COVID pandemic, we have proven our ability to scale our operations and the infrastructure will support our customer through period of fluctuating demands. We are ideally suited to replicate this model in our core genomic testing business. We are really just getting started on this long-term opportunity in the growing market for genomic testing. The future is bright for 4G. We have a great team in place and have a momentum on our side as we head into 2022 and beyond. Now I'll turn over the call to Brandon Precious, our Chief Commercial Officer. Brandon.
Nicole
Thank you, Ming. Our fourth quarter brought yet another unexpected COVID-19 surge, and perhaps more so than previous surges, stress tested our systems, technology, and operation. These massive swings in testing demand present significant operational challenges. However, we have proven we can be nimble enough to adapt in real time. While it's incredibly difficult to predict where COVID-19 goes from here, we can say clients all over the United States know and trust Fulgent will be here to help. While the pandemic has challenged us all in many ways, It has been an opportunity for Fulgent to step up and forge deep, strong relationships with many organizations across the U.S., and we hope to build on these relationships with additional partnership opportunities in the future. In addition to these commercial relationships, we have increased brand recognition and awareness of our consumer-initiated platform, Pitcher, with hundreds of thousands of patients and consumers who have used the platform for COVID-19 testing. Starting with an update on our HelioLiver liquid biopsy test for hepatocellular carcinoma. HelioLiver is a multi-analyte blood test that utilizes both cell-free DNA methylation patterns and protein tumor markers to detect early stage HCC with high accuracy. HelioLiver has the potential to reduce morbidity and mortality in HCC patients as there are more curative treatment options when the cancer is found at early stage. A highly sensitive blood test can drive patient adherence to surveillance programs and provides a more convenient and cost-effective way to detect HCC. We were excited to launch the test clinically in the fourth quarter. We first announced our investment in HelioHealth in April, and just eight months later, we were able to complete the technology transfer, the CLIA validation, and commercial launch. Also during the quarter, FoldHIT and HelioHealth presented data at the liver meeting in a late-breaking presentation. Data presented showed HelioLiver to have a sensitivity of 76% in early-stage HCC and 85% in overall HCC, demonstrating superior performance over alpha-fetoprotein alone and the GALAD model. It also showed significantly better sensitivity than ultrasound, which is considered standard of care today. Published data suggests ultrasound has an early stage sensitivity of around 47%, much lower than the 76% we presented. As part of the launch, we needed to hire a specialized sales team since the call points are a new market to Fulgent. While HelioLiver is an oncology test, it's ordered upstream of the oncologist by hepatologists and gastroenterologists. We now have this foundational sales team and regional managers in place. The data presented thus far has been part of our OnCore clinical trial, which was a case-controlled study. However, we are making significant progress with our CLIMB study, which is a prospective clinical trial comparing helioliver to ultrasound in a real-world prospective study. The size of this study is 1,500 patients, of which 1,100 have been enrolled. We aim to complete patient recruitment in the third quarter of this year. We are excited to bring this novel test to market in changing the way HCC is diagnosed and monitored. We will continue to update the investment community as we make progress with HelioLiver. Turning now to progress with CSI. During the fourth quarter, we continue to focus on expansion of the sales team to support company growth goals. Three new sales representatives were hired to focus on hospital pathologist-based sales, and their onboarding was successfully completed. Additional positions are expected to be filled in the first quarter with hires with extensive experience in hospital-based sales. With the projected opening of our new oncology-based lab in El Monte, California in the second quarter, we will further expand our sales team with the addition of a sales leader and additional sales representatives. This team will focus on oncologist-based sales in the Western markets initially with the potential to expand into new markets as the laboratory ramps up. Adding new sales representatives coupled with the expansion of in-network contracting has opened up 15 states that legacy CSI did not have a sales presence in. All legacy and new sales team members are operating on our existing CRM platform for tracking and logging of contacts and opportunities in our sales pipeline. CSI is also continuing to focus on turnaround time across all testing methodologies. Turnaround time is an important measure of performance, and our turnaround time has remained constant or even improved in some areas throughout the pandemic. We continue to see competitor laboratories with worsening turnaround time, which is causing frustration for their existing customers, and opening new opportunities for CSI to gain market share that we hope to capitalize on in 2022. We announced today an equity investment and strategic partnership with Spatial Genomics. Spatial Genomics Sequential Fluorescence In-Situ Hybridization is a revolutionary technology that merges imaging with molecular barcoding. SeqFISH can decode complex molecular identities and locations directly within single-cell and intact tissue microenvironments. SeqFISH enables highly multiplexed single-cell analysis of RNA, DNA, and proteins beyond the capabilities of other types of spatial analysis. SeqFISH determines cell types, dates, and relationships by detecting and identifying dozens to tens of thousands of biomolecules while preserving intact single cells in spatial tissue organization. SeqFISH allows researchers to identify novel cell types, map genomic organization in nuclear architecture, and analyze cell trajectories. SeqFISH enables combined approaches for direct multi-omic analysis using RNA SeqFISH for transcriptomics, DNA SeekFish for genomic organization and nuclear architecture, and sequential immunofluorescence for proteomics. Areas this technology can be used include neuroscience, developmental biology, oncology, and immunology. We are very excited about this brand new area for Fulgent, and we look forward to layering on our expertise in clinical genomics to deliver what we believe to be a transformational product for our company. Switching to COVID-19. For much of the fourth quarter, we saw cases trending down as we recovered from the Delta wave. However, in early December, the United States was hit hard by the Omicron variant. This highly infectious variant drove tremendous demand for testing at a pace we hadn't seen before. On December 1st, the seven-day average for cases in the U.S. was approximately 85,000, and by the end of December, it rose to nearly 400,000. For the fourth quarter, we performed approximately 2.3 million COVID-19 tests, of which approximately 924,000 were in the month of December. While much of the demand was in symptomatic testing, we also saw our screening programs increase the percentages of employees and students being tested. In the midst of this demand spike, we also rolled out a program with LA County offering our pitcher kits directly to consumers at no cost to them. By the end of December, this unprecedented demand for COVID-19 testing challenged our capacity for the first time since the beginning of the pandemic, specifically with our pitcher test kits. We were forced to pause ordering for pitcher test kits for a couple of weeks, but we were quickly able to ramp up production and fulfillment and get back on track. This capacity issue wasn't due to lab staffing shortages and didn't impact our commercial testing business, This was really a function of not being able to ship kits fast enough as we were receiving the orders. We are optimistic that the meaningful role Pitcher has played in COVID-19 testing and the large user base we've amassed will lead to opportunities in the future as we transition to focusing on delivering genetic testing through Pitcher. Finally, on the NGS side, it was a robust quarter for NGS COVID-19 testing with the positivity rate being driven higher by the Omicron variant. We continue to be one of the top sequencing producers for the CDC's genomic surveillance program, and we appreciate the opportunity to contribute to these important studies. As Ming mentioned, we plan to be aggressive with M&A to expand our business and reach new markets and technology. While we are very excited about our investments in CSI, HelioHealth, and spatial genomics, we are still just getting started. I think it's safe to say that the intense Omicron wave of the fourth quarter forced us to focus on our COVID-19 business more than M&A. However, it also provided us with additional capital to fuel our M&A strategy going forward. Over the course of 2022, we intend to diligently assess assets and deploy capital in areas that will fuel growth for Fulgent. Armed with technology, scale, multiple large addressable markets, capital, and a team from top to bottom dedicated to growing our business, we believe the Fulgent story is just getting started. I'll now turn the call over to our Chief Financial Officer, Paul Kim.
HelioLiver
Thanks, Brandon. Revenue in the fourth quarter totaled $252 million compared to $295 million in the fourth quarter of 2020, while exceeding our guidance of approximately $189 million. Available tests in the quarter totaled 2.5 million compared to 3.2 million in Q4 of last year. The decline was due to COVID testing dynamics we saw in the fourth quarter, as Brandon mentioned, the testing surge resulting from the Omicron variant starting December 1st. Evidence spikes in COVID testing will continue to be unpredictable in the future, and we remain a leader in the market with customers who value our accuracy, turnaround times, and hands-on service. Breaking down the revenue a bit further, roughly $212 million came from public PCR testing, which exceeded our expectations. Revenue from our core business totaled $40.1 million, which exceeded our guidance of $32 million and grew 234% year over year. Just as a reminder, our core revenue includes our NGS business contribution from our Chinese JV and contributions from CSI. It also includes contributions from our CDC COVID NGS test agreement, which was again elevated due to increasing COVID positivity rates amid the Omicron variant outbreak. Going forward, we plan to give core revenue guidance, which exclude NGS COVID testing from the CDC. If we exclude the impact of the revenue from the CDC in the quarter, Our Q4 core revenue totaled $28.2 million, an increase of 134% year-over-year compared to Q4 of 2020. As the demand for COVID testing remains volatile and unpredictable, we continue to take a conservative stance on expected revenue from COVID testing. We remain focused on executing on our post-COVID growth opportunities, which include expanding the reach of CSI's capabilities executing on additional investment and partnership opportunities such as spatial genomics, which Brandon discussed, working with Helio on our joint commercialization opportunities and the growing footprint of our China operations. Our ASP in the fourth quarter was $103, slightly lower than the $105 on the third quarter. Our ASPs remained relatively stable over the past few quarters, fluctuating higher and lower as COVID testing ebbs and spikes. Cost per test for the quarter was $25, slightly higher than the third quarter due to shoring up reserves and the write-off of some excess inventory at year end. Gross margin was 75.3% down 710 basis points year over year and 560 basis points sequentially. Now turning to operating expenses. Total GAAP operating expenses were $38.7 million in the fourth quarter, up from $25.1 million in the third quarter. Non-GAAP operating expenses totaled $34 million, up from $20.9 million last quarter. Our operating expenses increased primarily due to ongoing investments in strategic headcount across our organization, fees and services associated with our heightened M&A activity, and shoring up reserves at year-end. Our non-GAAP operating margin decreased 10 percentage points from the third quarter to 62.3%. Our fund structure remains very lean, enabling us to drive significant profitability from revenue outperformance. That being said, our investments in people and business integrations impacted our margins in the fourth quarter. Ultimately, we believe these investments will drive outsized future growth in our core business and remain pleased with the consistent operating leverage we're able to demonstrate even through M&A. Adjusted EBITDA for the fourth quarter was $159.8 million, compared to $230 million in the fourth quarter of 2020. On a non-GAAP basis and excluding equity-based compensation expense and intangible asset amortization, income for the quarter was $108.7 million or $3.48 per diluted share based on 31.2 million weighted average shares. Turning to the balance sheet, we ended the fourth quarter with $935.5 million of cash and cash equivalents and marketable securities. We generated 77.1 million of cash from operations during the quarter, further adding to our cash balance. Overall this year, we have invested more than 81.9 million in partnerships and strategic investments to expand our core genomic testing business. Adding these investments, we would have ended the year achieving our goal of reaching a billion dollars in cash and cash equivalents. Now moving on to our outlook for 2022. Starting with the COVID revenue, as we discussed, COVID revenue continues to be volatile due to many factors outside our control. We saw unprecedented demand for testing in the beginning of the first quarter as Omicron variant spread. However, we're expecting the testing to return to more normalized levels as a surge subsides. With that, we expect COVID revenues for the full year to be at least $480 million, with more than 45% of the revenue expected in Q1. Going forward, our total COVID revenues will include revenues from both RT-PCR COVID testing as well as NGS COVID testing, which is conducted primarily through our CDC relationship. We recognize that NGS COVID testing has similar volatility as PCR testing, and including these tests within our COVID revenues gives a better indication of the true performance of our core non-COVID business. While demand for COVID testing will remain hard to predict, we do believe we'll see a modest floor for testing demand for the foreseeable future as COVID-19 becomes more of an endemic and regular testing programs remain in place. Moving on to our core revenue guidance, which now includes revenues from NGS testing, CSI, China, JV, and Helio. We expect our core revenues will total approximately 120 million for 2022, representing a growth of 28% year-over-year on an apples-to-apples basis, excluding COVID-19. With 480 million in COVID revenues and with 120 million in core revenues, we expect the total revenues will be approximately 600 million for the year. We expect there will be continued volatility with COVID testing and remain focused on executing our strategy to drive momentum in our core business. From a profitability standpoint, we remain focused on investing in our business to drive sustainable long-term growth. As we integrate acquisitions and ramp our new initiatives, we will see some fluctuations in our margins and incremental expenses. That being said, our foundational technology platform supports a strong margin profile and we will continue to manage our spending with discretion to drive operating leverage in the long term as we have done in the past. For full year 2022, utilizing a 27% effective tax rate and a share count of $32.9 million, we expect non-GAAP income of approximately $230 million or $7 per share for our shareholders, excluding stock-based compensation. For the first quarter of 2022 specifically, We expect total revenues of $245 million. This breaks down into core revenues of $22 million, excluding NGS COVID test volumes, representing a growth of 39% year-over-year on an apples-to-apples basis, excluding COVID NGS testing. And we expect approximately $223 million in COVID testing, which includes approximately $10 million in revenue contribution from COVID NGS testing from the CDC. While we are forecasting a year-over-year decline in Q1 revenues, this is due to the dramatic drop-off we're expecting in COVID testing demand. Our updated guidance is posted in the slides in our investor relations website, which shows a detailed breakout I just discussed. We're pleased with our ability to execute on our strategic initiatives this year to drive growth in our core business while capitalizing on cash generated from COVID testing. We're well positioned to extend this momentum and grow into 2022 and beyond. Operator, now you can open it up for questions.
Operator
Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. Please ensure that the mute function of your telephone is switched off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. And our first question comes from Kevin DeGieter of Oppenheimer.
Kevin DeGieter
Hey, guys. Congratulations on the quarter. Maybe just a question on 2022 core guidance. I think if I adjust 4Q, it's kind of like 28.2, excluding, you know, the CDC work. You're kind of guiding the 120 for the full year, I think. you know, off that 28-2, we might have expected a more aggressive guide. So, just kind of walk us through, you know, sequentially kind of what else might have been in 4Q that we should be thinking about that's impacting, you know, that base core run rate going into 2022.
HelioLiver
Sure. So, you know, first and foremost, we did experience Omicron both here in the U.S. as well as internationally. Omicron is still out there, and until we're fully back to business from this variant, we believe that it's more prudent to be conservative in giving this guidance. The other point that I'll make is this is just the first guidance that we're giving, given the fact that it's February. And as we get additional comfort behind how the COVID environment is going to look, Combined with getting additional comfort behind the synergistic aspect of some of the acquisitions that we made, we believe that the $120 million conservative guidance is the right way to approach it at this point in time. We have been known to beat estimates in the past, and that certainly is in the cards in the quarters to come.
Kevin DeGieter
The spatial genomics equity investment, you know, is very attractive and interesting. Can you just kind of maybe just walk us through really two things, kind of, you know, how that product may fit into the, you know, specifically from a commercial testing perspective to, you know, the Fulgen portfolio in the future? And, you know, at least your own assessment as to, you know, a timeline as to when that technology, you know, might be, you know, viable from a commercial perspective, you know, in a Fulgen lab.
Nicole
Hey, Kevin. It's Brandon. I'll tee it up and turn it over to Dr. Weiss here. But, you know, our biopharma business has become a meaningful portion of our revenue and, more importantly, a meaningful focus for us. We think the special genomics technology is going to further open up opportunities for us in that market. When will it be commercially available for biopharma? We think sometime in 2022, maybe on the back end of 2022. Clinical applications are probably a bit further out, but we do see it becoming available to market to our biopharma clients sometime in 2022. We're incredibly excited about the investment. We do believe it's a new frontier in molecular biology. We invested in Spatial Genomics based on their technology, incredibly impressive technology, their superior resolution, their ability to have much higher multiplexing, the multi-omic facets of the technology. You know, so it's going to be an exciting area for Fulgent with a lot of applications in the future. Larry?
Kevin
Well, as you know, next generation sequencing has dominated at least the last five years of genomic testing. We think the next generation, the next wave of interest is going to be within the area of spatial genomics. With this technology, it identifies, as Brandon said, dozens to tens of thousands of biomolecules while preserving the architecture. So you can do this with single cells and in tissues. And what biomarkers are you looking at? RNA for transcriptome, DNA for looking at mutations and organization of the genome, as well as immunofluorescence for proteomics. So it's really the complete package. It's almost the holy grail. as we were just as excited for next-generation sequencing five to ten years ago. I think it'll be a very powerful tool for drug discovery for pharma. As for clinical applications, it remains to be proved, but these always will follow the discovery that goes on in pharma, and I have no doubt that there will be clinical applications, if not in the next year or so at some point.
Ming Hsieh
So, Kevin, you probably know my background as an entrepreneur. I'll be sitting on the board with Spatial Genomics, work hand-in-hand with the team, and try to bring this product to the market. So I'm very, very excited with this opportunity. And Professor Kai Long is still working at Caltech, which is a few minutes away from our headquarters. So we are very excited with this opportunity and looking very much forward to bring this innovation and the product to the market.
Kevin DeGieter
Thanks for taking my questions. Thanks, Kevin.
Operator
And the next question comes from Sunji Nam of BTIG.
Brandon
Hi, thanks for taking the questions. Paul, could you break out, I know you broke it out for the fourth quarter. Could you break out what the COVID NGS testing was for the full year 2021? Sure.
HelioLiver
The COVID NGS testing for the full year was approximately $30 million. So if you take out the COVID NGS testing for the entirety of the year, the, you know, revenues for the core X that amount was approximately $93 million. And the initial guidance that we're giving for 2022 is $120 million.
Brandon
Great. That's super helpful. And then for HelioLiver, obviously very exciting there with the launch and then also the ongoing prospective trial climb. Would you be kind of able to talk about what, you know, the commercial strategy as you've launched as an LDT and then what the timeline might be for, I know you talked about the enrollment being completed by the third quarter. but when this might, you know, the data might be available from the prospective trial and also your thoughts, you know, behind how to, you know, whether this will be an IBD product down the road or if you could talk about that.
Nicole
Yeah, certainly. This is Brandon. So we brought the product to market as an LDT. Most genomic tests are LDT. So we certainly see value long-term in taking the product through an FDA path. but that doesn't prevent us from going to market as an LDT. So I think we've executed at a high level regarding our go-to-market strategy. We believe hepatocellular carcinoma is an area that's underserved. The fact that ultrasound diagnosis hepatocellular carcinoma so few times early stage is just an unacceptable tool for monitoring this disease. We know the survivability of HCC is much, much higher in stage one and stage two. However, it's just not diagnosed frequently enough at stage one and stage two. Ultrasounds aren't sensitive enough. We know that. There's a lot of variability amongst ultrasounds. So we've created a much better tool for clinicians to monitor and diagnose HCC. But like any test that's changing the way medicine is practiced, you know, it's a marathon. But the feedback we've received from our key opinion leaders, our early adopters, has been fantastic. A simple blood draw that is markedly better than the current standard of care has been a powerful message for our sales team to take to market. So we still have a lot of work to do ahead of us. Make no mistake about it. As we expect our CPT code to be published here in the near future, as we expect to wrap up our CLIMB study, But I think we are exactly where we want to be. As I mentioned earlier, the call point for this is hepatologists, so we had to go out and build that specialized sales team, but we were able to recruit some amazing talent, and we'll continue to build that team over time. So I think HelioLiver is going to be an important test for Fulgent going forward, and we really look forward to improving patient outcomes in the future.
Kevin
One additional point is that ultrasound may not have the best compliance. But a simple blood draw, we expect to have better compliance.
Brandon
Gotcha. Super helpful. And then just on the spatial genomics side, does that technology have its own proprietary instrument or instruments?
Ming Hsieh
Shanzi, yes. It does have its own instrument. will be from the Spirogy Genomics. They will release these products in this year, and forging genetics will help them to commercialize through our clinical space.
Brandon
Got it. If I might be able to squeeze one more question. The antibody testing that you guys launched sounds obviously very interesting. I was curious how that's tracking, whether there is demand for that.
Nicole
Thanks, Anjie. It's Brandon. We do see demand. You know, I think it's not yet to be fully implemented like we believe it should be. Obviously testing is incredibly important. It has been since day one. But I think we're getting to a point where we need to think about what does an endemic state of this virus look like. And we believe monitoring your antibody levels is going to be an important aspect, whether that's through acquired immunity from infection or from vaccines. We believe antibody testing can help guide people when they should get boosters. Globally speaking, we haven't seen the adoption yet, but perhaps to come as we learn more about this virus and the best way to fight it going forward.
Brandon
Great. Thank you so much.
Operator
Thank you. And we can go to David Westenberg of Piper Center.
David Westenberg
Hi. Thank you for the question, and congrats on the numbers. As we're dealing with the tail end of the Omicron variant, Can you talk about maybe some of the exits you're seeing from competitors that are refocusing on their existing business and whether there's an opportunity to capture market share from some of them?
Nicole
Yeah, I can take that one. Thanks for the question. You know, Fulgent never stops focusing on their existing business. So to the extent other companies have to refocus on it, you know, too bad for them, I suppose. We've continued to focus on our base business. Our base business has been healthy throughout the pandemic, and we were able to respond in a big way to the pandemic without losing that focus. As I mentioned earlier, at least on the oncology side, we have heard from the field, competitor labs not performing as well as they should in the area of turnaround time, for example. We do believe there is a window of opportunity for Fulgen to execute on the commercial side to gain market share from some of our competitors. So we'll see how quickly they're able to, I guess, as you mentioned, kind of pivot back to the focus. But we're certainly being aggressive on the commercial front, as you've seen with our hires, and we're hoping those hires, coupled with this window of opportunity, will allow us to gain further market share.
HelioLiver
I think backing what Brandon said, David, if you take a look at Fulgen, our business ex-COVID, even if you strip out NGS, we have grown our base business throughout this whole pandemic. I think from a strategic standpoint, that focus has never stopped, actually probably accelerated with the additional capital that we have been able to garner through the COVID experience. So a number of things that we have announced last year, a CSI being one of them, We have almost completed the integration, and now we're at the synergistic stage of really capitalizing on incorporating that asset. So from a strategic focus basis, it's always been a mainstay throughout the COVID environment that we focus on expanding our core capabilities. If you take a look at where we sit right now from a capital structure standpoint, So on top of the cash balance that we have, we are guiding the year initially at $600 million. So that will produce additional capital on the balance sheet. And what we have noticed is on the strategic side, we have a number of different projects that are happening right now, but the valuations are becoming closer aligned to real business prospects rather than some of these long-dated assets with colorful stories. The other thing is we have shown to the street our ability to execute with precision and efficiency of scaling up a business from $30 million pre-COVID to close to a billion dollars within two years. Now with the M&A journey, we are ready to capitalize and get more active on that front. And we are looking forward to showing the street that we do have just as much ability to integrate assets and show synergies, not just from the expense side, but from the revenue side as well, all leading to our reach into wider and bigger markets.
Ming Hsieh
Yeah, I didn't pause the answer. I think there was probably a review of what we did in 2021. In April last year, we announced our contracts for CDC. $43 million contracts. There's two phases, phase one and phase two. Not only we executed the contract, we delivered solid revenue last year. So the CDC made this a competitive bid. We competed with all the institutions, top-end institutions, nonprofit organizations, hospitals, and the genetic testing company, we won the competition. Not only we won the competition, we delivered our results. So with our own technology, we designed this multiplex PCR to help the CDC to detect the pandemic's variations. It's become a very, very successful project. Now we reach the end by March that the contract will be recompeted again. We will be compete in that space again. As we got the results, we'll update the street with what is the upcoming year in 2022, what that revenue will be for the NGS services. So we're very much looking forward to continue to bring the innovation to this space as we walk into the post-pandemic world. Definitely with our new entry into the spatial genomics, we're very much looking forward to bring the new challenges and the new solutions to this market. So we're excited for the opportunity.
David Westenberg
I appreciate all the color. Maybe I'll just ask one more. Sorry if I missed this, but I do think it needs a little bit more attention if I did miss it. That's on the gross margin. It was down, it looks like, close to 600 basis points from Q3 to Q4, despite the fact that the revenue was up. Even if we look at the low point of Q2, you're still off from there. You might have given a little bit of commentary, but if you can give us maybe a more complete bridge or a lengthier kind of bridge on why that step down, you know, in my opinion, at least optically, pretty big. Thank you.
HelioLiver
Yeah, so the gross margins throughout the course of last year was almost running like a software company, you know, close to, you know, 80%. I think the focus of the company, you know, throughout the COVID experience was to make sure that our customers were satisfied, you know, as much as possible. You know, given the fact that, you know, given the fact that utilizing our technology and our, you know, operational platform, that it was pretty clear that, you know, our margins, whether it be gross or operating, would be at a pretty high level. So as we kind of, you know, shore that up, you know, towards the end of the year, there were some reserves and some write-offs that we had to take within our inventory balances that impacted that. Going forward, since you're asking questions about the gross margins, we anticipate that the gross margins will eventually normalize and get a little bit closer to what the gross margins are for our traditional genetic testing business. So as we get into each of the quarters in 2022, if the COVID situation continues to dissipate, we anticipate that the gross margins will get, you know, slightly lower in each one of those quarters. The other thing is we continue to invest in our operations as we have a larger scale company, which is, you know, also impacting the growth margin somewhat.
spk00
Appreciate it. Thank you very much.
Operator
As there are no further questions, that now concludes the fourth quarter 2021 Solgen Genetics Earnings Conference call. We thank you for your participation. You may notice.
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