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spk01: Hello, and welcome to the Fulton Genetics Q4 and Fiscal Year 2022 Earnings Conference Call and Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Melanie Solomon, Investor Relations. Please go ahead.
spk04: Thanks, Kevin. Good afternoon and welcome to the Fulgen Genetics fourth quarter and full year 2022 financial results conference call. On the call are Ming Hsieh, Chief Executive Officer of Fulgen, Paul Kim, Chief Financial Officer of Fulgen, and Brandon Perthews, Chief Commercial Officer of Fulgen. The company's press release discussing the financial results is available on the Investor Relations section of the company's website, www.FulgenGenetics.com. A replay of this call will be available shortly after the call concludes on the Investor Relations section of the company's website. Management's prepared remarks and answers to your questions on today's call will contain forward-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. 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 and 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 31st, 2021, and subsequently filed reports which are available on the company's investor relations website. Management's prepared remarks, including discussions 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 and full year of 2022 for more information, including the description of how the company calculates non-GAAP income and earnings per share and a reconciliation in these financial measures to income and earnings per share, the most directly comparable GAAP financial measures. With that, I'd now like to turn the call over to Ming.
spk05: Thank you very much, Mellie. Good afternoon. And thank you for joining our call today. I will start with some comments on the quarter and the year. Then Brandon will review our product and go-to-market updates from the first quarter. And Paul will conclude with the financials and our 2023 outlooks before taking your questions. Looking at the fourth quarter, we exceeded our revenue guidance, reflecting 97% growth in our core business compared to 2021. We have integrated our recent acquisitions and are seeing those benefits in our annual results. For 2022, our core businesses will cross all diagnosis segments, precision diagnosis, anatomic pathology, and the pharma services. With the momentum in oncology, and reproductive services. With the informed diagnosis businesses, both of our capabilities in anatomic pathology and adding secretion and remedy, we will see pressure on our bottom line in the near term, which Paul will address. However, in long term, we believe this acquisition will make a good strategy stand for us. We continue to be the leader in precision diagnosis due to our NGS platform capabilities. An example of our successful COVID-19 testing program. Between 2020 and 2022, led by our $40 million CDC NGS wiring tracking contract, Fulgine delivered 19.3 million RT-PCR COVID-19 tests generated over $1.7 billion in revenue for Fujifilm. With the pandemic largely behind us, we're not anticipating additional COVID revenue in 2023. We are proud of what we've skilled our business so quickly and contributed so minimally to the testing efforts to fight the pandemic. We're seeing a similar opportunity to scale our platform to drive the growing demand by our customers for our beacon carrying screening test. Today we announced the expansion, Beacon 787, which Brandon will talk more about it. And we are anticipating associated annual growth of more than 300% in beacon sales as we grow this portion of our business. We believe this activity will further secure our leadership position in NGS, and it is an important factor in our annual guidance provided today. For 2023, a revenue guidance of $240 million, assuming 32% growth in our core business. driven by continued growth across all the areas of our diagnostic disease, including expansion and un-oncological carry screening through Beacon 787 announced today. Through our internal efforts and those of our lab partners, we are leveraging our proprietary NGS platform to broad application Fueled by our ongoing R&D effort, we have a long runway of opportunity in the core business and have seen Bangalore as a continued and dependable source of revenue and growth for Fulgine in the years ahead. In the first quarter, we announced the acquisition of Fulgine Farmer. We believe this acquisition has the potential to gradually transform forging from a genetic diagnosis services business into fully integrated precision medicine company focused on oncology. We joined by our team of talent individuals integrating our company to address the continual care that we believe begins with diagnosis and the patient care and the monitoring. Folgen Pharma has developed a novel nanoencapsulation and target therapy platform technology designed to improve therapeutic window and the pharmacokinetics profile for both new and existing cancer drugs. Our lead drug candidate, FID-07, has achieved a proof of concept for the treatment for numerous cancers, including head and neck ampullary, pancreatic, lung, and the breast. We continue to encourage the early data from these programs and are working on clinical paths forward, including additional clinical trials toward approval where fully we have full control of our manufacture process and can be very efficient. Given the current We have fully invented the GMP nanomaterials production plant, operating with experts and scientists who are now integrated into our organization. We have submitted updated clinical phase one B data to ESCO for presentation at the 2023 annual meeting in June. We look forward to share additional programs on the pharma business as we move throughout the year. We ended 2022 with a strong cash position, affording us the flexibility to pursue additional strategic opportunities as derived. Earlier this year, we were pleased to expand our board of directors with an addition of Reggie Growth. Reggie possessed a device business skill set and the global perspective that we believe were invaluable to our board. We entered a new chapter in precision medicine with our current acquisitions. Her expertise as a leader and an officer in various senior roles and with clinical and regulatory functions, particularly from her 13 years at the Mass Clinic, will add important insights into our business as we advance our mission to build a holistic platform that provides comprehensive solutions and services across cancer care continuum. From early detection, diagnosis, monitoring, drug discovery, and development, over the years, we have expanded and strengthened our report, adding additional expertise in diagnosis, therapeutic drug development, and commercialization. Now I'd like to thank our employees and shareholders for your support. That was a transitional and transformative year for 4G. I look forward to the years ahead and the momentum we are creating within our combined business. I turn over the call over Brandon, our Chief Commercial Officer, to talk about our diagnosis business results during the fourth quarter. Brandon?
spk08: Thanks, Ming. With COVID-19 mostly behind us, as well as our integration efforts for our acquisitions, we are able to intensely focus our efforts on our base business. We exceeded our expectations for the fourth quarter, driven by an outperformance in our reproductive health business line and our pharma services division. At a high level, our core revenue was $55 million in the fourth quarter compared to $28 million in the same period the prior year and $56 million in the third quarter of 2022. Starting with our Beacon expanded carrier screening product. For some time, we knew we had a successful product in service. Backed up against competitive products in the field, Beacon frequently excelled as it relates to detection rate, our ability to discern pseudogenes, reliable copy number calls with our proprietary CNV exon algorithm, plus other features. Our optimized workflow for variants with pseudogene interference has been validated and externally published as a method for analysis of genes with pseudogene interference and or sequence homology issues, allowing for improved testing accuracy. This method also optimizes the turnaround time and reduces the need for unnecessary confirmatory testing to identify point mutations, copy number variants, and gene conversion events in genes with pseudogene interference that other labs may not be able to detect. Using this pipeline, we can quickly distinguish positive and negative cases with NGS sequence misalignment, avoiding testing delays due to redundant confirmatory testing. Most bioinformatics methods do not discriminate genomic regions with extensive homology. This can lead to false negative or false positive variant calls and or produce incorrect copy number calls due to misalignment of reads. Our bioinformatics algorithms compare read depth between homologous regions to identify sequence misalignment. In terms of the panel content, we have been offering one of the largest terror screening panels on the market, customizable up to approximately 430 genes. Included in our panel are all of the American College of Medical Genetics and Genomics ACMG Tier 3 genes, which ACMG published in their last practice guideline for carrier screening, recommending that all pregnant patients and those planning a pregnancy be offered this set of genes as an equitable pan-ethnic screening approach. The ACMG list includes genes with a carrier frequency of greater than 1 in 200 for autosomal recessive conditions, and disease prevalence of greater than 1 in 40,000 for X-linked conditions. This totals 113 genes. Our Beacon Panel includes all of these, with most major competitors typically only covering between less than 60% to 90%. Historically, we were not able to fully leverage our Beacon product without managed care contracts. However, now armed with in-network coverage, we are seeing tremendous momentum. Our monthly carrier screening volume is setting company records only second to what we saw with COVID-19 testing. In addition to our direct sales, we have also partnered with other large national labs to outsource some of their carrier screening tests to Fulgent. And finally, we announced this afternoon, we have launched the new Beacon 787. This further expands our capabilities and provides the most comprehensive tests available today. Turning to pharma services, another area with big momentum. While we do not discuss our client names due to confidentiality and competitive reasons, we are proud to say that we now work with six of the top 10 pharma companies in the United States. In addition, we are working with three of the largest global CROs to perform NGS testing. With the acquisitions of Informed Diagnostics and CSI, we were able to further broaden our offering to our pharma clients by adding tests such as IHC, FISH, flow cytometry, et cetera. Recently, our pharma services launched a powerful solution for spatial phenotyping using multiplex immunofluorescence. The speed and accuracy of advanced digital imaging technology combined with the precision of multiplex immunofluorescence allows you to quickly assess phenotypes in a variety of cell types. This technology, along with our experienced scientific team, allows for more custom solutions for our clients and their drug programs. We anticipate continuing momentum in this space as we build new partnerships, drive deeper relationships with existing partners, and continue to launch new services. While slightly tangent to pharma services but in a similar scope of work, we have partnered with a large DTC testing company to sequence thousands of human genomes. We believe our quality, test menu, turnaround time, and cost structure make us an attractive solution for B2B relationships, as well as our core pharma services clients. We are pleased to report that Fulgent Oncology, recently launched in the second quarter of 2022, has become one of the fastest growing segments of our business. Our oncology portfolio, launched under the brand name Lumera, includes our marquee products LUMERA expanded NGS for solid tumors, LUMERA comprehensive hematology profile, a full menu of pathology and molecular assays, and a suite of NGS germline tests. This full-service approach gives Fulgent a unique one-stop-shop provider position in the space of precision diagnostics. To further differentiate our offering, we will be expanding the LUMERA menu in a few weeks to include a comprehensive team NGS profile, Lumira heme NGS will be positioned as a disruptive 670 gene profile that will include analysis across mutation types and simultaneous analysis of DNA and RNA, allowing for optimal detection of fusion genes in addition to NDELs and SNVs. This panel recently received MOLD-DX approval, robust coverage determination, and a CMS reimbursement rate of approximately $2,850. Our new heme profile will further position Fulgent Oncology as a leader in its dynamic space, giving us a competitive advantage over the many single assay or single technology providers in precision diagnostics. We anticipate continuing to expand our oncology portfolio throughout 2023, and Fulgent Oncology aims to be the undisputed leader in oncology, specialty testing, and precision diagnostics in the U.S. A quick update on the sales team, the overall headcount remains mostly unchanged. However, we have done intense training so that our national sales team is better able to handle multiple product lines and to look for opportunities to cross-sell. This is showing early signs of success as we have seen legacy Fulgent sales reps be able to close anatomic pathology sales, for example. We remain open to expanding the sales team over time and are always looking for key additions to our team as talent presents. One area that may expand a bit more rapidly is reproductive health. We have a small team there, however, we are seeing huge momentum in the space. In addition, we have ongoing R&D to launch new products and services for reproductive health. Depending on the near-term momentum and the timing of our product launches, there is a possibility we could do an expansion in the summer. Coming out of the pandemic, we believe we find ourselves in a very strong position. As we continue to see consolidation and even some demise of companies in our space, our position continues to get stronger. Still armed with a healthy amount of cash, we continue to look for both opportunities for organic growth as well as M&A. We are excited to enter 2023 with the wind in our sails, and we look forward to another great year. I'll now turn the call over to Paul Kim, our Chief Financial Officer. Paul? Thanks, Brandon.
spk07: Full-year revenue totaled $619 million compared to $993 million in 2021, exceeding our overall guidance of $611 million. GAAP income was over $143 million at $4.63 per share. Revenue in the fourth quarter totaled $68 million compared to $252 million in the fourth quarter of 2021, exceeding our overall fourth quarter guidance by approximately $60 million. We are no longer reporting billable tests as we believe that revenue is a better measure of how the business is progressing rather than volume. Breaking down revenue a bit further, roughly $13 million came from COVID-19 testing in Q4 compared to our guidance of $8 million. Revenue from our core business totaled $55 million, which exceeded our guidance of $52 million and grew 97% year over year. Gross margin was 19.2%, down 56 percentage points year over year, and down 24 percentage points sequentially. The reduction in gross margin was, again, due to test mix, including higher costs associated with our core genetic testing portfolio, including pathology testing, and also due to inventory reserves and our accelerated equipment depreciation related to COVID-19. Now turning to operating expenses. Total gap operating expenses for $49.5 million for the fourth quarter, up from $45.7 million in the third quarter of 2022. Non-gap operating expenses totaled $38.7 million, up from $37 million in the third quarter of 2022. Non-gap operating margin decreased 45 percentage points sequentially to a negative 34%. While the expense structure of our legacy Fulgent business remains lean, we have incurred a number of incremental expenses as a part of our recent acquisitions as expected. We have made significant investments in people, infrastructure, and operations to support our growth, and these investments are putting pressure on our operating margins. We remain confident that these investments will translate into demonstrable ROI and drive outside future growth of our core business. At the same time, we're pleased with our ability to still generate positive cash flow during this transformative time for our business. Adjusted EBITDA for the fourth quarter was a negative $15.1 million compared to a positive $158.8 million in the fourth quarter of 2021. On a non-GAAP basis and excluding equity-based compensation expense, intangible asset amortization, restructuring costs, and acquisition costs related to Fulgent Pharma, The loss for the quarter was $14.2 million, or 48 cents per share, on a 29.6 million weighted average shares outstanding. Now turning to the balance sheet, we ended the fourth quarter with approximately $872 million in cash, cash equivalents, and marketable securities, including investments pending settlement. We generated $33.2 million of cash from operations during the quarter, despite the significant investments we made in our business for the quarter. I would also like to highlight that we were active with our share repurchase program in the fourth quarter. We repurchased over 815,000 shares of our common stock at an average cost of 35.65 under the stock repurchase program announced in March. As of December 31st, 2022, a total of approximately 175.7 million remained available for future purchases. of our common stock under the repurchase program. Now, moving on to our outlook for 2023, we will now be guiding total revenue for the company without COVID testing revenues. In other words, the guidance that we have provided, that $240 million, as well as the guidance for the first quarter, is solely for core revenues. We expect total revenues to be approximately $240 million in 2023. representing core growth of 32% year over year. Given the tough comps this year for revenue, we want to provide more information on what we have been calling core revenue or the rest of the diagnostics business ex-COVID. We expect growth this year in all areas of our core business, including precision diagnostics, anatomic pathology, and pharma services. We will reference these three areas of our business going forward as we talk about our revenue trends. Precision diagnostics include all of our clinical NGS revenue, oncology, reproductive services, rare disease, neurogenetics, B2B relationships with labs and our business in China. Current strengths in this segment point to reproductive services and oncology, as Brandon and Min both discussed. Given certain lab arrangements, there may be variability from quarter over quarter. Anatomic pathology includes the business we have integrated from informed diagnostics, which has strong growth in 2022, so we expect to continue in 2023, particularly in urologic and dermal pathology, including digital pathology. Pharma services include sequencing as a service, which we sell to our pharmaceutical business partners, and it's dependent on these relationships, so it may be lumpy from quarter to quarter. We've been building on this business and expect consistent growth. The expected 2023 revenues from these three areas are estimated as follows. $114 million from precision diagnostics, $113 million from anatomic pathology, and the remaining $13 million from pharma services. Given the nature of these businesses and our guidance provided today, we're comfortable with the growth projection we have given. Looking at margins going forward, Given the non-COVID and the acquired revenue profile of the company, we will see gross margins coming down. This is due to the absence of revenue from COVID-19 testing, as well as a larger contribution from anatomic pathology revenues, which are lower margin than our corporate average. We expect to see lower operating margins in the quarters ahead as we integrate and further invest resources in our recent acquisitions. Long-term, our foundational technology platform supports a strong margin profile, and we will continue to manage our spending with discretion to drive operating leverage. For the full year 2023, utilizing an estimated 28% tax rate and a share count of $31 million, we expect non-GAAP loss of approximately $1.25 per share for our shareholders, excluding stock-based compensation, amortization of intangible assets, restructuring costs, as well as other one-time charges. Last quarter when we acquired the pharma business we said we would report on this business separately. Revenue from this business is not anticipated in our 2023 guidance and we expect associated cash burn for this business of approximately 15 to 17 million dollars this year which is included in our EPS guidance provided today. Overall we have strengthened our core business and bolstered our portfolio through strategic acquisitions and we see good momentum ahead. Thank you for joining our call today. Operator, now you may open it up for questions.
spk01: Certainly. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question is coming from Dan Leonard from Credit Suisse, your line is now live.
spk03: Hi, this is Luli Ahn for Dan Leonard. Thank you for taking my questions. I think first question on the guidance. I think previously we were talking about a 200 million baseline revenue for core fortune. So just wondering what is the difference, like what are the growth drivers on the 23 guidance of the 240 million?
spk07: Yeah, that's an excellent question. So I'll first comment on the numbers and I'll turn it over to Ming and Brandon who can talk about where they see growth and penetration within certain markets based on our overall capabilities. So we talked about having a core revenue base of approximately $240 million. And given what we're seeing based on the prospects of a core business, our guidance is $240 million for the year. Now, one of the things that actually surprised us during the fourth quarter is the stickiness of our core revenues. And that's giving us additional confidence in our ability to achieve a 240 million. And, you know, the other thing that happened right during the quarter and we stripped out completely is COVID revenues. You know, we think that there will be some COVID revenues that we get in 2023, but for the purposes of this earnings call and the strategic focus of our company, We stripped that out. A little bit more color from a numbers perspective on our core revenues. We anticipate Q1, as we stated in the press release, to be approximately $56 million for the core revenues. And regardless of seasonality that we might have for the parts of our business, we see the momentum behind our core revenues increasing throughout the course of the year. But I'll turn it over to Brandon, who can talk more about the areas that we're excited about. that gives us confidence within the 240. Yes, certainly.
spk08: Thanks, Paul, and thanks for the question. We're seeing strength across all business lines as we've now broken them out a bit to give some more granularity. But in particular, we're seeing strong growth in reproductive health as well as our Fulgine Oncology. Now, granted, Fulgine Oncology is coming off a base of essentially zero. It's a new product launch for us that happened in 2022. But the reproductive health space we've been in for some time However, we didn't have the contracts we needed to really penetrate that market. So we are seeing tremendous momentum in reproductive health. There's been some market dynamics that have opened up some tremendous opportunities for Fulgent. But both of those areas are showing tremendous momentum. So I think we have a lot of confidence in the guidance for 2023 and look forward to delivering on it as the year progresses.
spk02: That's very helpful. Sorry, go ahead.
spk05: Yeah, adding the comments from both Paul and Brandon, I do see the long-term investment from Fortune's R&D team into the artificial intelligence and data mining technique. I do see the continual benefit for us to provide the leadership in the NGS space and the continual field of technology which provides our gram-nucleotide.
spk03: Got it. That's super helpful. Brennan, I think just one follow up on the contracts. So do you have any updates on the contract roll up? I think in the last call, you expect everything to be done by end of 2022. Is that still on track? Or like, can you give give us any color on that?
spk08: It's not entirely done. We've made tremendous progress there, but it was an incredible amount of contracts we had to work through. So it will still be some time before 100% of those are rolled up. That said, the momentum we're seeing in the business is closely tied to the progress we've made around the contracts. As Ming mentioned, we're expecting, it's safe to say, explosive growth in 2023 as it relates to carrier screening. That would not be possible if not for the leverage we now have with those contracts. So rolling them up, merging them together with the different entities, still a work in progress, but the progress we've made has been meaningful and has really helped us grow business in the back half of the fourth quarter, and Q1 is off to a fantastic start.
spk03: Got it. One final question for me. It's very exciting to see you guys launching a new Hispanic carrier screening panel, but at the same time, we also heard from the industry that there was some uptake in denials from some of the commercial insurers on the reimbursement. So wondering if you have any color on that, or do you see that trend happening, or do you expect any pressures in 2023?
spk08: Well, you know, I want to make it clear that, you know, we offer expanded carrier screening panels or care screening panels that range from one gene all the way up to the new large panel of 787. And we allow our clients to customize anywhere in between. However, we do see a trend towards more larger panels as we want to look across, you know, pan-ethnic populations for rare diseases where the couples may be a carrier. Certainly, there are some payers that consider expanded care screening as investigational, experimental, or unproven, but we think that's very temporary. Certainly, clinicians have embraced expanded care screening. It is, for the most part, standard of care in a reproductive setting. The payers perhaps are a bit behind as it relates to some of the coverage. But it's a minimal amount of payers out there that, you know, have not embraced expanded care screening. And there's multiple organizations and companies that continue to educate and work with the payers, as well as multiple academic societies that continue to update the guidelines around expanded care screening. So any changes in the future should all be upside as coverage broadens.
spk03: Got it. Thank you so much.
spk01: Thank you. Thank you. Next question today is coming from Andrew Cooper from Raymond James. Your line is now live.
spk09: Hi, everyone. This is Liam on for Andrew. Thanks for taking the question. I guess just to start out on capital allocation priorities. Now, what we saw in the quarter you acquired, you repurchased a number of shares, and obviously we had the recent Fulgen Pharma acquisition. Going forward, what do you think the balance is between looking for more tuck-in acquisitions or more focused on share repurchases? Appreciate some color there.
spk05: Yeah, I'll take the answer from the CEO's position, and definitely Paul will add in his color from the CFO's position. I do see that the 4G still have a lot of capabilities in terms of addressing this boring space in terms of NGS and the diagnosis. We see a lot of opportunities arising during the last year. So all our options are open. We continue to evaluate the companies, which is adding our capabilities in terms of technology or broaden our offerings. But in addition, we're also looking for, in this space, we see the consolidation. But meanwhile, we also continue using our funds or capabilities to internally develop the technology, which will fuel our long-term growth. The test we announced today, which is the largest of the gym panels for the carrying screen space. From previous questions, certain companies, of course, now feel capable to exist in this space, so that we feel that even with this largest gene panel, we can offer the efficiency and we can offer the more quality test and to address the market demand. So our funding will be allocated to continue in terms of the R&D to boost the allocatabilities. We're looking for the space and looking for the consolidation, but the addition of how can address some to share a repurchase program.
spk07: I think your question is excellent because, you know, at the end of the day, you know, our unallocated cash position on a relative basis is as strong as ever. We've been very aggressive doing stock buyback. We've acquired a number of businesses. We feel, you know, so comfortable with our, you know, business capability and the prospects for the future. We still have a sizable cash balance. I think that you've seen that, you know, Even with the losses for the quarter, excluding investing and financing activities, we still generated cash during the quarter. The other thing is we talked about revenues and the color around revenues. And yes, we're guiding towards losses for the entire year. And part of that is because of the reduced growth in the operating margins. But underneath that, if you take a look at the dynamics for the fourth quarter, which included a number of charges that were COVID related. And then it's, which also included like anatomic pathology, which, you know, typically has a lower margin profile. But when we take a look at the, you know, micro dynamics of what we believe will happen in 2023, you know, aside from the confidence that we have with the core revenues, we do anticipate an uptick in growth as well as operating margins. In other words, you saw the low gross margin in the fourth quarter of 2022, In the first quarter of 2023, the gross margins can be as high as, you know, seven, eight or nine points off, you know, what you've seen in the fourth quarter. And, you know, that kind of increase in the gross margins, we anticipate it to, you know, increase throughout the course of the year. And then, you know, similar thing for the operating expenses. You saw a number of charges and things that were COVID-related in the fourth quarter. On an absolute dollar basis, you should see lower operating expenses in each of the quarters than what you saw in the fourth quarter. Aside from one time and other kind of like anomalous charges, we do see containment within our cost structure. And if you combine that with our capabilities and what we laid out in the core, yes, we're not projecting profits for 2023, but the cash burn should be significantly reduced, which kind of gets us back to You know, what are we going to be doing about cash? I think all of those options are still very much open for the company.
spk09: Appreciate the significant color there. The one thing I have a question on there, talking about OPEX moving lower, I believe Brandon mentioned we might see some S&M ads to the commercial team over the summer. Could you maybe discuss some of the dynamics there and what we can expect in terms of dollar impact?
spk07: Yeah, yeah. So I'll... I'll kind of like frame it and I'll turn it over to Brandon. You know, you know, the thing that you saw in the fourth quarter, which we kind of, you know, you know, began, you know, prior to that was a wind down of COVID. So, you know, there were a number of, you know, alignments that we made, reductions, right, that, you know, was related to COVID. And then, you know, that pivot has started, right, you know, over a quarter ago as to how we look at 2023. So, you know, aggressive hiring and what we can do to, you know, further bolster our entire commercial organization has been built into the 2023 plan. So now I'll turn it over to Brandon, you know, who can talk about, you know, where he, you know, sees his focus and expanding the team and spending for us to achieve these targets.
spk08: Yeah, certainly. I echo what Paul said. You know, I mentioned in my section that we may expand this summer. That's purely, you know, driven by the opportunities we're seeing. Um, you know, Fulton was presented a fantastic opportunity to grow our reproductive health space by one of the larger competitors exiting the marketplace. Um, we scaled up our operations incredibly fast as we did with COVID-19 to take on this new volume and we're hitting our turnaround time. We're hitting our quality matrix. Clients are happy. Um, you know, we started this late last year, so we're a couple months into it so far. The reimbursement, the ASPs we're seeing, we're very happy with. And there's still a lot of opportunity out there. So we think we're very well positioned to win in this space. Thus, hiring the right salespeople to help us capitalize that is a good investment for the company.
spk09: Perfect. Really appreciate that. And then just last one for me would be, so far, how have you seen – Fulgen Pharma come into the fold. Just curious on the integration status there. It sounds like there's a lot of exciting pieces working in that business and would appreciate more color. Thanks again.
spk05: Yeah. Thank you for the question. The integration is in process. We are converting the employees to the Fulgen, and we are still building up more robust GMP manufacturing capabilities So literally, we're making all the polymer GMP in-house. So that's one of the very important components for the polymer manufacture process. We also started to line up another contract manufacturer to provide the polymer and the drug mixing filtering and the localization. So that process is also in place, which will make another few thousand of the drugs for clinical trial. So in general, the integration is pretty successful. In addition, we are getting additional clinical data from the Phase 1b trial. The data has been submitted to the ESCO for presentation in June later this year. Due to the ESCO's requirement, we could not release data before they release the data. So that's why the data would be presented at the ESCO. This is a continuation effort. We provide the ESCO data in 2021. Now, two days later, we provide an additional update. So by then, you will see the additional data, which you will feel very good about.
spk09: Great. Thanks again. I'll hop back in the queue.
spk05: Thank you.
spk01: Thank you. Next question is coming from Tyler Anderson from Piper Sandler. Your line is now live.
spk06: Sorry about that. Hi, this is Tyler Anderson from David. I mean, I'm representing David Westenberg at Piper Sandler. Thank you for taking my questions. I was wondering, what are the expected margin outlooks for the new business segments that you're breaking out? And what levers are you going to be pulling to improve them? And specifically, how is the farm spending looking throughout the rest of the year? And do you see any opportunities to further expand your menu? And if so, do you think you're going to be taking an inorganic or an organic approach to that?
spk07: Okay. So, I'll kind of tee it up. There were a lot of different questions that were built on there. We'll take several follow-up questions from you because I want to make sure that we hit all those points. First and foremost, on our guidance for the overall business, when I was talking about operating margins, that actually includes the $15 to $17 million of spending for pharma. So even if that is not commercialized, that's fully built into the model. And then we'll kind of lead into the three areas of our business. the anatomical pathology, the precision, as well as the pharma services. And I'll kind of tee it up and share the answers with Brandon from a margin perspective. I think it goes without saying that the margin profile for precision, as well as the pharma services, it remains highly attractive for the company. I think for the anatomical pathology, that market traditionally has a lower margin profile And although we're doing everything possible to gain efficiency for that marketplace, utilizing the systems that we have, it is going to take time. It's not something that is going to happen overnight. That was not our expectation. And our anticipation is that the margin profile for that business, although it's low, will slowly begin to look more favorable throughout the course of time. But come the precision as well as the pharma services, both the margin profile for those businesses are attractive to begin with. But I'll turn it over to Brandon who can talk about the margin profile in those markets.
spk08: No, I don't have a whole lot to add there. Maybe I'll just move on to your second question, which was menu expansion. I'm unaware of any company that's launched as many tests as Fulgen has in the last several years. I mean, we clearly... have an ability to rapidly launch tests and commercialize them at scale. We're continuing to do so. We talked about a few on the phone call today. We launched our largest ever carrier screening panel today. We talked about launching our new heme NGS profile, which we actually have mold VX approval for with a really attractive reimbursement rate. And we're going to continue to launch new products in essentially all the areas of our business, precision medicine, as well as pharma services. Also, we talked about launching today new pharma services that we can better serve our clients. So we certainly see it as part of our mission to continue to expand our testing portfolio via more of a one-stop shop for all of our clients. And our R&D and our technology really allows us to do this with modest investment in R&D. So I think the short answer is yes, you can expect continued menu expansions. And then the third question you asked is about organic versus inorganic growth. What we're seeing in the back half of last year and early into this quarter is fantastic organic growth. We are capitalizing on market opportunities with products and technology we had available at Fulgent, and we are seeing fantastic organic growth in the company. That said, we continue to look at M&A as an option, and this leadership team consistently evaluates companies and assets. So I think as Paul mentioned on the call, the growth is likely to come from a mixture of organic and inorganic, but all of the above is certainly in play, and we think we have that optionality for 2023 and beyond.
spk06: Thank you for taking my questions.
spk01: Thank you. Thank you. We return to our question and answer session. Ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.
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