GeneDx (WGS) is among the best performing small cap stocks for 2024, posting over 2600% gain. The company analyzes the complete DNA of a person, also known as the genome, composed of approximately 20,000 genes. Then, it examines the protein-coding sections of these ~20,000 genes, referred to as the exome, which is believed to hold a vast majority of disease-causing genetic variations. GeneDX then translates the comprehensive genomic data into clear-cut diagnoses for patients. The company has scratched the surface of what it estimates is a $30 billion market opportunity.
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While the jump in share price means the stock is trading at a premium, the upside potential may warrant a rich valuation. Investors may want to watch this one as we transition into 2025.
Pioneering Genetic Diagnosis
GeneDx is a pioneer in delivering personalized medical care through genetic diagnosis. Its primary focus is translating complex genomic information into understandable and applicable clinical answers that aid in crafting customized health plans and enhance the drug discovery process and the overall health system efficiency. The company firmly holds one of the world’s most extensive rare disease datasets, which provide the foundation for exome and genome tests. These insights are critical in diagnosing diseases, suggesting appropriate treatments, and improving drug discovery.
The company recently launched GeneDx Discover, a new data visualization tool that provides biopharmaceutical companies access to deidentified and aggregated genetic data. This tool is designed to improve drug development at every stage, addressing the challenges of high drug development costs, lengthy timelines, and high failure rates.
GeneDx’s Dataset and Patient Access Program
The firm’s dataset, comprising over 700,000 clinical exomes and genomes, can now be utilized by biopharmaceutical companies to understand the genetic basis of diseases and accelerate the development of targeted therapies. This self-service tool combines disease prevalence, phenotypic information, and variant-level details, providing a comprehensive view of genetically-defined disease cohorts.
GeneDx launched a Patient Access Program earlier this year to broaden access to genetic testing for pediatric patients with unexplained epilepsy. The company announced partnerships with Biogen (BIIB), Praxis Precision Medicines (PRAX), and Stoke Therapeutics (STOK) for its Patient Access Program, which aims to increase access to whole exome sequencing for pediatric epilepsy patients. Because getting a definitive genetic diagnosis in pediatric epilepsy often takes between 5-8 years, this program could expedite this process and improve care across pediatric epilepsy populations.
Early Profitability
GeneDx recently announced its Q3 2024 financial results, exceeding top-and-bottom-line expectations. The firm reported $76.9 million in revenue, marking a 52% year-over-year growth. This was driven by a 77% growth in revenue derived from the exome and genome tests. Further, the company recorded its 10th consecutive quarter of cash flow improvement and has achieved profitability ahead of its target.
The adjusted gross margin grew to 64% from 48% in Q3 2023 to 62% in Q2 2024. Adjusted operating expenses were $46.6 million. GAAP net loss stood at $8.3 million. The total net cash use was $5.0 million, improving by 88% year-over-year.
Management has revised its full-year 2024 guidance with anticipated revenues between $284 and $290 million, an increase from the previously estimated $255 to $265 million. The company also forecasts an expansion of its adjusted gross margin profile to at least 62%, up from the earlier prediction of at least 60%.
Analysts Remain Bullish
The stock is no stranger to volatility, sporting a beta of 2.99. It trades near the high end of its 52-week price range and shows ongoing positive price momentum as it trades above significant moving averages. The stock trades at a premium, with a P/S ratio of 7.72x, sitting well above the healthcare sector average of 3.69x.
Analysts following the company have been constructive on WGS stock. For instance, Craig-Hallum’s William Bonello, a five-star analyst according to Tipranks’ ratings, recently raised the price target to $95 (from $70) while maintaining a Buy rating on the shares, noting the significant Q3 beat and achieving profitability several quarters sooner than it had expected.
Based on four recent analyst recommendations, GeneDx is rated a Strong Buy overall. Their average price target for WGS stock is $85.00, representing a potential upside of 11.00% from current levels.
WGS in a Nutshell
GeneDx has made massive strides in personalized medical care through genetic diagnosis. The company’s analysis of whole genomes, exome, genetic variations, new data visualization tool GeneDx Discover, and Patient Access Program all point to tremendous upside potential. With a solid Q3 2024 financial performance, the company has surpassed revenue expectations and achieved profitability ahead of schedule. Despite trading at a premium, analysts remain optimistic about GeneDx’s potential, making it one to watch as we move forward into 2025.
