Turnaround For This Cancer Genetics Testing Firm Could Take Years, Analyst Says While Downgrading Stock

Needham has downgraded NeoGenomics Inc NEO from Buy to Hold, citing that NEO's turnaround will likely take several years and believes its recently announced Project Catalyst is only an initial step.
With Project Catalyst expected to last 18 months, Needham expects 2023 to be a transition year and believes consensus revenue estimates are too high for 2023 and 2024.
NEO's new precision medicine sales force, which will sell RaDaR along with its other NGS tests, had 19 reps at the end of 2Q22. Management has put new hires on hold until the new CEO starts.
While NEO's RaDaR minimal residual disease (MRD) test could be accretive to NEO's growth, the analysts expect sales to be limited in 2023.
The MRD testing market is potentially huge, with a $15 billion US total available market (TAM).
"At this point, we think the best case would be for RaDaR to generate around $10M of sales in 2023 (based on $400-500K per rep assuming 20-25 reps), which would add ~2% to NEO's 2023 revenue growth," Needham said.
It was believed that when NEO originally announced the departure of its former CEO and suspended its 2022 guidance, it was vulnerable to a takeover.
But NEO has now named a new CEO, Chris Smith, making the potential acquisition less likely.
Price Action: NEO shares are down 7.05% at $10.36 on the last check Monday.

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