Feb 23, 2022
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 Borsje with Investor Relations. Please go ahead.
Nicole Borsje
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 Weiss, Chief Medical Officer; and Brandon Perthuis, Chief Commercial Officer.
The company's press release discussing its financial results is available in the Investor Relations section of the company's website, fulgentgenetics.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 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. 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 results, including the Company's actual future results may be materially different and 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 risk factors that may cause actual 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 in 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 this 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 to most directly comparable GAAP measures.
With that, I'd now like to turn the call over to Ming.
Ming Hsieh
Thank you [indiscernible]. Good afternoon, and thank you for joining our call today to discuss our fourth quarter 2021 results.
We started the year with very strong note, there’s a continued growth in core revenue and re-acceleration in our core and COVID revenue. I will cover some of the highlights from the year and the fourth quarter before turning the call to our Chief Commercial Officer, Brandon Perthuis 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 $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 third quarter 2021 and through down – and though down from 3.2 million in the fourth quarter last year. Paul will cover the break up between our core and the COVID business in more details in a moment.
But on the highlight, our core business grow 234% year-over-year to $41 million. Strength in our core business was driven by the momentum across the key areas included CSI, our JV in China and contribution from our NGS COVID contracts with the CDC.
We continue to drive strong possibility, it generates $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 Fulgent.
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 million in operating cash flow. 2021 was truly a tremendous year for our business, but will always be genetic business at our core.
We now have a very wide pathway of opportunity to grow and expand our business into new and exciting area of genomics leverage. And there is large cash position we have built over the last two years will remain active in our C0-19 test business as much demand quickly, but our long term work vision for the company has never been more exciting with the opportunities we have evaluating and executing on the broader genomic testing market.
The acquisition of CSI Fulgent's first significant acquisition has become a bright spot for our business. We still have a very early stage of integrating the scaling, the operation and the capabilities of CSI, but will feel very good about the early progress we have seen and the opportunity for the future.
Our investment in Helio Health has also been good progress with the official launch of the Helio Liver, which is now commercially available in the US exclusively through Fulgent Genetics. We are very, very early in our partnership with the Helio Health, -- has only at the beginning.
We have additional development and commercialization opportunities for the other disease with Helio in the future. We also announced the exciting strategic investment and a partnership with Spectral Genomics today.
We believe Spectral is taking a novel and innovative approach to seek FISH technology and we look forward to adding their capability to our platform to further expand our portfolios of genomic testing solutions. Brandon will evaluate a little bit on the progress of this initiative in a moment.
As we look ahead, remaining focus on two areas to drive growth. The first is integrating and scaling our existing partnership with acquisitions.
And the second is pursuing additional M&A opportunities. We have a significant amount of dry powder at our disposal and plan to broaden in a more aggressive future acquisitions and partnership initiatives.
As we look at acquisition, we remain disciplined in our approach and are seeking generally the tangible ROI and driving real synergies, while being efficient with capital deployment. We have been very successful in accessing our M&A strategy this year, as our acquisition of CSI, and the EMS [ph] in Helio and the Spectral Genomics fit well within our M&A philosophy.
And we're very proud of what we accomplished in 2001. Our strategy to expand and grow our core business is playing off nicely as the access with our organizations all performed well.
We believe there is a meaningful opportunity to expand into different area in genomic testing and to build a partnership that establish our as go-to one-stop-shop for genomic testing needs for the future strategy -- strategic move. Throughout the COVID pandemic, we have proven our ability to scale our operation and infrastructure, while support our customer through period of fluctuating demands.
We are ideally suited to replicate this model in our core genomic testing business. We are very -- we are really just getting started on this long term opportunity in the growing market for genomic testing.
The future is bright for Fulgent. We have a great team in place and have a moment on our side as we head into 2022 end of the year.
Now, I'll turn over the call to Brandon Perthuis, our Chief Commercial Officer. Brandon.
Thank me. Our fourth quarter brought yet another unexpected COVID-19 surge and
Brandon Perthuis
Thanks, 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 could be nimble enough to adapt in real time.
While it is 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 US 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 in 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 Helio Health 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, Fulgent and Helio Health 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 in the galette 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, its ordered upstream of the oncologist by hepatologist and gastroenterologist. We now have a foundational sales team and regional managers in place.
The data presented thus far has been part of our ENCORE 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 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 and changing the way HCC is diagnosed and monitored. We will continue to update the investment community as we make progress with HeliaLiver.
Starting now with the progress in 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 pathologists base 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 our sales leader and additional sales representative. This team will focus on oncologist base sale 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 laboratory 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 in equity investment in strategic partnerships with Spatial Genomics.
Spatial Genomics sequential fluorescence in situ hybridization seqFISH, is a revolutionary technology that merges imaging with molecular barcoding. seqFISH, can decode complex molecular identities and locations directly within single cells and intact tissue micro environment.
seqFISH, enables highly multiplexed single cell analysis of RNA, DNA and proteins beyond the capabilities of other types of spatial analysis. seqFISH, determine cell types, dates and relationships by detecting and identifying dozens to 10s of 1000s of biomolecule, while preserving intact single-cell and facial tissue organization.
seqFISH, allows researchers to identify novel cell types, map genomic organization, and nuclear architecture and analyze cell trajectories. seqFISH, enables combined approaches for direct multiomics analysis using RNA seqFISH for transcriptomics, DNA seqFISH for genomic organization and nuclear architecture and sequential immunofluorescence for Proteomics.
Areas of 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 with 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, 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 1, the seven day average for cases in the US 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 program 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 Picture kit directly to consumers at no cost to them. Into December this unprecedented demand for COVID-19 testing challenged our capacity for the first time since the beginning of the pandemic, specifically with our Picture test kit.
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 kit fast enough as we were receiving the orders.
We are optimistic that the meaningful role, pitcher has played in COVID-19 testing in a 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 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, Helio Health and spatial genomic, we're 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 market 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.
Paul Kim
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.
Durable 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've done in the fourth quarter as Brandon mentioned the testing surge resulting from the Omicron variant starting December 1st.
Spikes in COVID testing will continue to be unpredictable in the future and we remain a leader in the market what customers with now more accuracy turnaround plans and hands on service. Breaking down the revenue bit further, roughly $212 million came from COVID 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 contribution from CSI.
It also includes contribution from our CDC COVID NGS test agreement, which was again elevated due to increasing COVID positivity rates, have met 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 includes expanding the reach of CSI’s capabilities, executing on additional investment and partnership opportunities such as spatial genomics, which Brandon discussed, working with Helios 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.
Earnings remain relatively stable over the past few quarters, fluctuating higher and lower as COVID testing actually 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 your 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 total $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 the heightened M&A activity and showing up reserves at year end. Our non-GAAP operating margin decreased 10 percentage points from the third quarter to 62.3%.
Our expense structure remains very lean, enabling us to drive significant profitability from revenue out performance. That being said, our investments in people and business integrations impacted our margin in the fourth quarter.
Ultimately, we believe these investments will drive outsize feature growth in our core business and remain pleased with the consistent operating leverage we're able to demonstrate even through M&A. 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 a core genomic testing business. Adding these investments, we would have ended the year achieving our goal of reaching a $1 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 of science.
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 code 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 of 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 20% year-over-year on an apples-to-apples basis, excluding [indiscernible]. With $480 million in COVID revenues and with a $140 million in core revenue, we expect the total revenues will be approximately $600 million for the year.
We expect there will be continued volatility with COVID testing and we 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 integrated acquisitions and ramp on new initiatives, we will see some fluctuations in our margins at incremental sale phase. That being said, our foundational technology platform support 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 full quarter of 2022, specifically, we expect total revenues of $245 million.
This breaks down in the core revenues of $22 million excluding NGS covered test volumes, representing a growth of 39% year-over-year on an apples-to-apples basis, excluding current 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 on 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 respond to this momentum and grow into 2022 and beyond. Operator, now you can open it up for questions.
Q - Kevin DeGeeter
Hey, guys, congratulations on the quarter. Maybe just a question on 2022 core guidance.
I think if I adjust 4Q, it's kind of 28.2 excluding the CDC or you're kind of guiding to 120 the full year. I think off that 28 here we might have expected a more aggressive guide, so just kind of walk us through sequentially kind of what else might have been in 4Q that we should be thinking about that's impacting that base core run rate going into 2022?
Paul Kim
Sure. So, first and foremost, we did experience Omicron, both here in the US as well as internationally.
Omicron is still out there and until we're fully back to business from those scenarios, and 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 and the quarters to come.
Kevin DeGeeter
And then the spatial genomics equity investment is very attractive and interesting. Can you just kind of maybe walk us through really two things kind of how that product may fit into the -- specifically from a commercial testing perspective to the Fulgent portfolio in the future?
And at least your own assessment as to a timeline is the one that technology might be viable from a commercial perspective in a Fulgent lab?
Brandon Perthuis
Hey, Kevin, its Brandon. I'll tee it up and turn it over to Dr.
Weiss here, but our biopharma business has become a meaningful portion of our revenue and more importantly, a meaningful focus for us. We think the space special genomics technology is going to further open up opportunities for us in that market.
When we'll 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 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 facet of the technology. So, it's going to be an exciting year for Fulgent with a lot of applications in the future.
Larry?
Larry Weiss
Well, as you know, next generation sequencing is 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, tens of thousands of biomarker molecules 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 10 years ago.
I think it will 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.
Kevin DeGeeter
Thank you.
Ming Hsieh
So, Kevin, and you probably know, my background as an intrapreneur. I'll be sitting on the Board with spatial genomics, work hand-in -hand with the team and tried to bring this product to the market.
So, I'm aware already excited that with this opportunity, and the professor Kai Long is still working at the Caltech which is in 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 DeGeeter
Thanks for taking my questions.
Nicole Borsje
Thanks, Kevin.
Operator
And the next question comes from Sung Ji Nam of BTIG.
Sung Ji Nam
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?
Paul Kim
Sure. The COVID NGS testing for the full year was approximately $30 million and if you take out the COVID NGS testing for the entirety of the year, the revenues for the core X that amount was approximately $93 million.
And the initial guidance that we're giving for 2022 is $120 million.
Sung Ji Nam
Great, that's super helpful. And then for Helio Liver, obviously very exciting there with the launch and then also the ongoing prospective trial clim, would you say 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, when this might, you know, the data might be available from the prospective trial and also your thoughts, behind how to, you know, whether this will be an IBD product down the road or just if you could talk about that?
Brandon Perthuis
Yes, certainly, it’s Brandon. So, we brought the product to market as an LDT.
Most genomic test were LDT, so we started to see value long-term in taking the product to 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 – that's underserved. The fact that you know, 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 1 and Stage 2. However, it’s just not diagnosed frequently enough at Stage 1 and Stage 2, ultrasounds aren't sensitive enough, we know that.
There's a lot of variability among ultrasound. So we've created a much better tool for clinicians to monitor and diagnose HCC.
Like any test that's changing the way medicine is practiced. You know, it's a marathon.
But the feedback we 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 the market.
So we still have a lot of work to do ahead of us. Make no mistake about it, you know, as we expect our CPT code to be published here in the near future, as we expect to wrap up our clients study.
But I think we are exactly where we want to be. As I mentioned earlier, the call point for this is hepatologist.
So we had to go out and build that specialized sales team but we were able to recruit some amazing talent. And we can – we'll continue to build that team over time.
So I think Helio Liver is going to be an important test proposing going forward and we really look forward to improving patient outcomes in the future.
Ming Hsieh
One additional point is that ultrasound may not have the best compliance, but a simple blood draw. We expect to have better compliance.
Sung Ji Nam
Got you. Super helpful.
And then just on the spatial genomics side, does that technology have its own proprietary instrument or instruments?
Ming Hsieh
Sung Ji, yes, it does have its own instrument, so from the spatial genomics, they do will reduce release of this products in this year. And Fulgent Genetics will have to commercialize through our clinical related to spatial.
Sung Ji Nam
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 -- there's demand for that.
Brandon Perthuis
Hi, Sung Ji. It’s Brandon.
We do see demand. 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.
But 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.
Sung Ji Nam
Great. Thank you so much.
Brandon Perthuis
Thank you.
Operator
We can go to David Westenberg of Piper Sandler.
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 is an opportunity to capture market share from some of them?
Brandon Perthuis
Yeah, I can take that one. Thanks for the question.
Fulgent never stopped focusing on their existing business. So to the extent other companies have to refocus on it, 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.
So we do believe there is a window of opportunity for Fulgent 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. We're hoping those hires coupled with this window of opportunity will allow us to gain further market share.
Paul Kim
I think backing what Brandon said David, if you take a look at 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, but 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, 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 got focused 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 $1 billion 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 David will probably review what we did in 2021.
In April last year, we announced our contracts for CDC $43 million contracts. There are two phases, phase one and phase two.
Not only we executed the contract, we delivered solid revenue last year. So the CDC -- were competitive bid.
We compete with all the institutions, top end institutions, nonprofit organizations, hospitals, and the genetic testing company. We won the competition.
Not only we won that completion, we delivered our results. So with our own technology, we designed this multiplex PCR to help CDC to detect the pandemic variations.
It's become a very successful project. Now we reach the end by March that the contract will be recompete again.
We will be compete in that space again as we got the results will 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 bringing the new challenges and new solutions to this market. So we're excited for the opportunity.
David Westenberg
I appreciate all the color. So maybe I'll just ask one more and sorry if I missed this, but I do think that needs a little bit more attention.
If I did miss it and 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. And even if we look at like the low point of Q2, you're still off from there.
And, 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 stepped down -- in my opinion, at least optically, pretty big.
Thank you.
Paul Kim
Yeah. So the gross margins, throughout the course of last year, was almost running like a software company, close to 80%.
I think the focus at our company throughout the COVID experience was to make sure that our customers were satisfied as much as possible, given the fact that utilizing our technology and our operational platform, and that it was pretty clear that our margins, whether it be gross or operating would be at a pretty high level. So as we kind of shore that up towards the end of the year, there were some reserves and some write off 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 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 was also impacting the gross margin somewhat.
David Westenberg
Appreciate it. Thank you very much.
Operator
There are no further questions. That now concludes the fourth quarter 2021 Fulgent Genetics earnings conference calls.
We thank you for your participation. You may now disconnect.