ILIU: Q2 2012 Results
INTERLEUKIN GEN (ILIU): Free Stock Analysis
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By Brian Marckx, CFA
Interleukin Genetics (
reported financial results for the second quarter ending June 30,
2012 on August 14th. Top and bottom line results were very
much in-line with our numbers, with revenue coming in a hair below
our estimate but net income beating on better gross margin and
lower than modeled operating expenses.
On the operational side, the big news, which came just days prior
to the earnings release, is that top-line data from the PST study
is positive. The next step, which is being driven by U of M,
is to have the full data published. In the meantime,
Interleukin will work with their commercialization partner Delta
Dental to finalize their business relationship and plan relative to
commercialization and reimbursement of the PST test.
Management noted on the call that Delta is very excited about the
possibilities for the PST test and remains very much behind
it. As a reminder, Delta injected $3 million of capital into
ILIU in late June, which we think is an obvious vote of confidence
for the opportunity that the PST test holds.
Q2 revenue of $799k was flat yoy and just missed our $829k
estimate. We had previously modeled genetic testing revenue
to grow sequentially throughout the remainder of 2012 based on the
assumption that ILIU continues to see tangible traction in scoring
corporate customers for its weight management test. We now
think that's less likely and have trimmed our revenue estimates for
Q3 and Q4. Management noted on the call that without
additional clinical data to support a robust manuscript, a
peer-reviewed publication of WM test data is not likely to happen -
which, as noted in the past, was expected to help drive additional
interest in the test from corporate customers (i.e. - weight loss
clinics). With ILIU's attention now clearly focused on the
PST test (which is slated as the long-term driver of revenue), the
WM test is now back-burner. Nonetheless, we still model
single-digit revenue growth in 2012 and a much steeper ramp in 2013
when we think the PST test could launch.
GM / Operating Expenses / EPS
GM was 50.8% versus our 47% estimate. We continue to model
full-year GM of about 50%. Management continues to do a good
job with managing expenses. Operating expenses were just
$1.49 million, down $89k sequentially (despite an 18% increase in
sales from Q1) and well below our $1.61 million estimate. Net
loss and EPS were $1.23 million and ($0.03) compared to our $1.35
million and ($0.03) estimates.
The other big news, aside from the PST test results, was that ILIU
raised $3 million (gross, $2.7 million net) in financing in late
June from the sale of convertible preferred stock (see our Investor
Note below) to Delta Dental and extended the maturity of the Pyxis
credit line from June 30, 2012 to November 30, 2012.
Cash used in operations in Q2 was $1.2 million, up from $999k in
Q1. Cash balance at the end of Q2 was $3.8 million, which
includes the $3 million net from the preferred sale and the final
$1.3 million draw on the Pyxis credit line. ILIU notes that
they believe they have enough cash to fund operations until January
2013 assuming they can continue to extend the maturity date of
Pyxis line. ILIU has been successful in extending the
maturity date several times since the original maturity in August
OUTLOOK / RECOMMENDATION
Other than the above noted updates to revenue in the second half of
2012, our model remains largely unchanged following Q2
results. We continue to model only modest revenue growth
until after substantial commercialization of the PST test. We
look for revenue and EPS of $2.94 million / ($0.13) and $7.46
million / ($0.05) in 2012 and 2013, respectively. We are
maintaining our $1.30 price target and Outperform rating.
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