Earnings Call Transcript - FLGT Q2 2021

Operator, Operator

Good day, and welcome to the Fulgent Genetics 2Q 2021 Earnings Conference Call. At this time, I would like to turn the conference over to Nicole Borsje with Investor Relations. Please go ahead.

Nicole Borsje, Investor Relations

Great. Thanks. Good afternoon, and welcome to the Fulgent Genetics Second 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, the company's Chief Commercial Officer. The company's press release discussing its financial results is available in the Investor Relations section of the company's website. 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 events, including the actual future results may be materially different than 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 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, 2020 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 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 measures prepared in accordance with GAAP. Please see the company's press release discussing its financial results for the second quarter of 2021 for more information, including the description of how the company calculates non-GAAP income and income per share, and a reconciliation of these financial metrics to income and income per share, the most directly comparable GAAP financial metrics. With that, I'd now like to turn the call over to Ming.

Ming Hsieh, CEO

Thank you very much, Nicole. Good afternoon and thank you for joining our call today to discuss our second-quarter results. We have a number of exciting items to highlight. I'm pleased to be joined by our recently appointed Chief Medical Officer, Dr. Larry Weiss, who will present today discussing our emerging strategy around molecular diagnostics and oncology testing. To that end, we had two very exciting strategic announcements today, with the acquisition of CSI Laboratories and the commercial partnership with Helio Health, which we will cover in detail shortly. Taking a look at our second-quarter results, revenue totaled $154 million, up 790% compared to the second quarter of 2020 and down sequentially from the first quarter as we expected. The volume of the quarter was almost nine times the volume of the second quarter last year. The sole driver of revenue and volume sought in the quarter was faster than expected demand for the RT-PCR test for COVID-19. This dynamic was broad-based across the testing market and not specific to Fulgent given the accelerated pace of vaccination and the decreasing need for testing across the country. We fully expect to see a slowdown in test demand, but the drop was somewhat faster than anticipated. That being said, our NGS revenue, which we now call core revenue, exceeded our expectations in the second quarter and grew 296% year-over-year to $25.7 million. Paul will cover in detail the vast majority of our core revenue was not related to COVID-19 testing. We also remain very profitable in the quarter, generating $2.59 per share in GAAP EPS and $76.1 million in operating cash flow. While we are disappointed that our top-line results fell short of our expectations in this quarter, we are looking at our opportunities beyond COVID and are very excited about what the future holds. While we still have several agreements in place for COVID testing across the country, both for PCR and NGS testing, we remain well positioned to capture demand for COVID testing as the market dictates. That said, we are focused on expanding our capabilities and commercial adjacency in other areas of genomic testing. We believe our response to the COVID-19 pandemic has demonstrated our ability to scale and execute with a high level of precision and excellence and we hope to translate these capabilities into other areas of genomic testing with our core business. The acquisition of CSI Laboratories is a prime example of how we plan to strategically expand our business for long-term sustainable growth. With the acquisition of CSI Laboratories, we are excited to add a diverse menu of oncology testing and molecular diagnostic solutions to our offerings. CSI has operations in Georgia and Florida and will add approximately 400 unique tests to our already expansive NGS test menu. In addition, CSI has very strong relationships in reimbursement, which will open up our menu to cover 160 million incremental covered lives across the United States. We brought Dr. Weiss on board to manage and oversee this operation and we look forward to leveraging his expertise in conjunction with our next-generation sequencing platform and our best-in-class execution capability to scale our presence in this market. Dr. Weiss will discuss this opportunity in more detail shortly. Another exciting announcement is the commercial partnership agreement and the strategic investment we've made in Helio Health, an emerging liquid biopsy company focused on early detection of cancer. With this partnership, we are gaining a foothold in the early detection liquid biopsy space in both the U.S. and China market. We'll maintain exclusive commercial rights to Helio's test distribution in North America, which could translate into a very large opportunity for us going forward. Finally, we announced today that we have completed the acquisition of our joint venture in China, taking majority ownership of the entity as discussed in the past. This JV gives us direct access to the large growing genetic testing market in China, with an established presence and operational excellence of our labs in the U.S. We are excited about this opportunity to expand our pipeline in China in the years ahead. I am very excited about this investment and the opportunities they are creating for Fulgent in the post-pandemic world. Throughout this period, our value has remained unchanged. We continue to be disciplined in our spending and remain focused on driving efficiency across our business while delivering the best-in-class products and services to our customers and partners. We look forward to what the future has in store. With that, I'll turn over the call to Dr. Weiss to further discuss our initiative on the molecular diagnostics and oncology front with his recent investment. Dr. Weiss?

Larry Weiss, Chief Medical Officer

Thank you, Ming. I am very pleased to be here today and excited to be a part of the expanding Fulgent team. I joined Fulgent because I saw what they were doing in NGS and COVID testing and was very impressed with their operational strength and IT expertise. It was no fluke that Fulgent was able to pivot from a germline NGS company to rapidly become among the leaders in COVID testing. When you combine Fulgent's operational strengths with its leadership in NGS, it makes for a very powerful combination. I believe that this will allow Fulgent to quickly transition to become a leader in somatic oncologic testing. Somatic mutation testing is different from germline testing in several aspects, but the processes are essentially the same and are those that Fulgent has already mastered. I'm excited to oversee the operations and integration of CSI Labs into the Fulgent platform. CSI gives Fulgent an anchor into cancer testing as it combines a strong platform of traditional cancer testing with superb customer service. With this acquisition, we plan to leverage CSI's base of cancer testing and access to specimens to quickly develop a West Coast state-of-the-art cancer testing laboratory. This new lab will complement CSI's Southeast location and quickly establish a national presence for Fulgent's oncologic testing platform. I'm also excited about the strategic partnership we announced with Helio Health. Our relationship with Helio gives us access to large markets for early cancer screening, expanding Fulgent's footprint in cancer testing. My past experience at NeoGenomics taught me the value of providing a full range of testing options for oncologists combined with excellent customer service. With CSI's base of cancer testing and Fulgent's operational capabilities and expertise in NGS, we hope to differentiate ourselves relative to companies that provide primarily NGS testing without expertise in other areas of oncologic testing, as well as companies that provide a wide range of oncologic testing but lack the focus and operational excellence necessary for providing optimal NGS services. With the acquisition of CSI, Fulgent is well positioned to execute on our goal of developing a complete package of cancer testing solutions on a national level with particular expertise in NGS combined with a superb customer experience. I am very excited about this opportunity and look forward to developing Fulgent's oncologic testing program in the years ahead. I'll now turn the call over to Brandon Perthuis, our Chief Commercial Officer. Brandon?

Brandon Perthuis, Chief Commercial Officer

Thanks, Larry. While the dramatic improvement in the pandemic led to lower than expected COVID testing, we are seeing our country progress in fighting the pandemic. At the same time, much of this progress is being threatened by the spread of the highly contagious Delta variant. While COVID-19 testing came in under expectations in the second quarter, our core business shattered records in terms of cases, accessions, and total revenue. Our ability to handle the incredible amount of COVID-19 testing volume with no turnaround time or quality issues along with new records for our core business really highlights the power of the Fulgent technology platform. This is not something that could have been done with systems that were bolted together or off the shelf. This level of execution gives us tremendous confidence in our ability to continue to expand and play a role as a consolidator in this space. The growth in our core business continues to be driven by clients taking advantage of our expanded test menu, new opportunities created by more competitive pricing, and continued expansion of our commercial partnerships for both sequencing as a service in our core testing menu and COVID-19 genomic studies. In the quarter, we had core business orders from over 400 unique institutions, many of which are not using Fulgent for our full services, rather for some of our unique tests. Therefore, we see this as a significant opportunity for further client penetration and will be a focus as we expand our sales team. As Ming mentioned, we made our first-ever acquisition with the purchase of CSI Laboratories. CSI offers 400 unique tests in molecular oncology, flow cytometry, FISH, cytogenetics, and histology. We believe the combination of Fulgent and CSI creates an industry-first by being able to offer traditional cancer tests, NGS cancer tests, liquid biopsy, MRD, hereditary cancer tests, and comprehensive test menus for rare disease and adult genetics. By combining Fulgent's NGS cancer test with CSI testing platform, we become a true one-stop shop for oncologists and pathologists. From a commercial perspective, our focus will be on expanding CSI's reach beyond the Southeast of the United States with a small sales team. We plan to dramatically expand the sales team and build out a specialized oncology testing lab on the West Coast to establish a national footprint for CSI. We believe CSI's menu, turnaround time, quality, and medical professionals combined with Fulgent's technology platform, operational excellence, and presence in Houston and Los Angeles is poised to make a disruptive impact in this market, which has historically been dominated by only a few companies. One other area that the acquisition of CSI really benefits Fulgent is with managed care contracts. We have only recently begun putting more emphasis on securing these contracts, but that will be essential for success with institutions and other cash pay clients. However, our managed care team has been successful in expanding our coverage network, and the acquisition of CSI brings our reach to over 180 million covered lives in-network. This essentially opens a new market for Fulgent as we can more effectively sell into those accounts that require insurance billing, be it hospitals, private clinics, OB-GYNs, maternal fetal medicine, neurologists, and many other subspecialties. Our existing sales team now has many more clients to call on. And as we onboard new sales team members, they will be able to sell without the limitation of minimal insurance contracts. In addition to the acquisition of CSI, Fulgent has made a $20 million investment in Helio Health, an emerging liquid biopsy company for early cancer detection. This investment gives Fulgent an exclusive license to Helio's commercial LBT products, which are currently in clinical development. The first product we plan to bring to market will be a liquid biopsy test for liver cancer. This is a large market considering liver cancer is projected to be the third leading cause of cancer death by 2030. It is the sixth most commonly diagnosed cancer in the world and the fourth leading cause of cancer death in the world. Additionally, there has been a 1.5-fold increase in liver cancer in the United States over the last 15 years. While the existing guidelines for the surveillance of liver cancer recommend an ultrasound every six months, ultrasound lacks the sensitivity and is dependent on a variety of factors. We believe Helio's new approach will be a paradigm shift in the way liver cancer is diagnosed and monitored. Multiple studies have confirmed the survival benefit of liver cancer screening in a cirrhotic population, and surveillance is associated with improved detection and overall survival. We will be working diligently to bring this exciting new test to market with an initial launch goal of later this year. In addition, Helio has ongoing clinical studies in the United States and we are excited to be a partner. Switching to COVID-19, testing decreased from the highs we saw in the first quarter. However, it is still a very meaningful revenue contributor, and we continue to secure significant contracts. Along these lines, we are excited to announce that Fulgent was chosen to continue testing for New York City schools for the fall semester. This decision came after New York City put the fall semester out for competitive bid. We believe our web-based platforms, turnaround time, quality, and medical staffing all contributed to the decision. We are honored to be chosen and look forward to doing our part to keep New York City schools safe. In addition to the New York City schools, we are securing significant contracts on the West Coast and Southeast related to back-to-school testing. We have seen states mandate testing for healthcare and government workers, which are also significant opportunities for Fulgent. While we saw significant improvement in COVID-19 during the second quarter, there’s still much uncertainty, especially around the rapid emergence of the Delta variant. As of August 6, the seven-day average of new cases in the United States was 106,000 compared to 55,000 one year ago, with daily new cases recently as high as 168,000, which is equivalent to the previous November time period. Recently, we have seen a significant increase in our testing volume and positivity rates across our customer base. During the second quarter, we saw positivity rates dip as low as 0.5%. However, in recent days, we have seen rates rise as high as 8%. We are monitoring the situation closely and expect COVID-19 testing to remain a meaningful part of our revenue for the remainder of 2021. We look forward to aiding local and state agencies, colleges, K-12 schools and companies with testing where we can, as well as contributing meaningfully to the CDC's efforts to track and monitor variants with genomic testing. This continues to be a dynamic time at Fulgent, and we are very excited about the trajectory of our business. With the CSI and Helio transactions complete, we have dramatically broadened the footprint and addressable market of Fulgent, and we look forward to continuously investing resources to expand our capabilities and fuel long-term growth and success. I'll now turn the call over to Paul Kim, our Chief Financial Officer. Paul?

Paul Kim, Chief Financial Officer

Thanks, Brandon. The revenue in the second quarter totaled $154 million, an increase of 790% compared to the second quarter of 2020. Billable tests in the quarter totaled almost 1.6 million, growing almost nine times the volume of Q2 last year. While the majority of this revenue was related to COVID-19 testing, our core revenue, which we previously called NGS revenue, was up 296% year-over-year. As Ming and Brandon mentioned, we were disappointed that our overall revenue came in below our expectations, and this was due to rapid vaccinations and drop-off of demand at drive-thru sites, particularly in California. Demand for COVID testing has been volatile, and as a result, we have generally taken a conservative stance on future revenue expectations from COVID testing. But the drop in Q2 was more drastic than we anticipated. That being said, we have invested significant time and resources laying out the foundation for a successful post-COVID-19 growth opportunity through bringing on senior talent, investment, and M&A, and we're well on our way to achieving this goal. Our ASP in the second quarter was $99, slightly higher than the $95 we saw in the first quarter. While our ASP has largely remained stable over the last few quarters, the modest increase is due to the increasing mix of core tests that we saw in the quarter. The cost per test in the quarter was $23, slightly higher than the first quarter due to the increased mix of NGS testing. Gross margins ticked down slightly in the quarter to 76.7% compared to Q1 as expected given the lighter volume we saw. Looking over to operating expenses, total GAAP operating expenses were $18.9 million in the second quarter, up from $18.4 million in the first quarter. Non-GAAP operating expenses totaled $16 million, down from $16.1 million last quarter. Our operating expenses increased primarily due to investments in strategic headcount across our organization, as well as an increase in legal and accounting costs associated with our M&A activity. Non-GAAP operating margin declined eight percentage points from the first quarter to 66.7%. Adjusted EBITDA for the second quarter was $105 million compared to $4.3 million in Q2 2020. On a non-GAAP basis, excluding equity-based compensation expense, income for the quarter was $78.7 million or $2.55 per share based on 30.8 million weighted average diluted shares outstanding. This takes into account a tax effect for stock-based compensation in the quarter. Now turning over to the balance sheet. We ended the quarter with $777 million in cash, cash equivalents and marketable securities. We generated $76.1 million of cash from operations during the quarter, fueling our cash balance. This cash balance includes the impact from our investment in Helio, which was $20 million in Q2 and our investment in the China JV, which was $19 million. This does not yet include the impact of the CSI acquisition, which could be up to $60 million in cash and which also closed in early August. Now, moving on to our outlook. We are making a small change in how we discuss revenue guidance due to the moving parts we are taking into consideration, including the dynamic COVID testing landscape, our acquisition in CSI, and the consolidation of our China JV. We will break out our guidance by COVID and core revenue in the future, with core reflecting what we previously called NGS revenue, with the addition of CSI's contribution. Our COVID revenue will include all revenue from RT-PCR testing, including at-home COVID tests. Our core revenues will include our traditional NGS business, contribution from our China JV, contribution from CSI, and our revenues from our NGS COVID tests. While these revenue segments haven't really changed, it better reflects our non-COVID business given the addition of CSI and Helio. Starting with COVID revenues, we saw a sharper than expected decline in testing volume in Q2 due to rapid vaccinations and lower demand from drive-thru sites. We expect the volume will continue to decline through the balance of the year. However, the proliferation of the Delta variant has created additional complexities for our guidance. We have seen test volumes trend higher with new cases, while governmental agencies and schools are seeking more regular testing amid a more uncertain environment. We believe that ongoing assessment of vaccine effectiveness could drive incremental testing. With that, we expect COVID revenues for the year will be at $690 million, down slightly from our previous guidance of $730 million. This reduction of $40 million is essentially due to our Q2 shortfall, but we believe testing volumes in Q3 and Q4 are still on track to meet expectations. Moving on to our core revenue guidance, we expect our core NGS business will be strong as we continue to build momentum with customers and capitalize on investments in recent key hires. We expect core NGS revenues will total $80 million, up from approximately $70 million in previous guidance. For COVID NGS revenues from the CDC, we are lowering our guidance from $15 million to $30 million. Though we are optimistic about this contract, it appears volume is largely predicated on positivity rates, which fell to a record low during the quarter. Given the fluidity of the COVID situation and the Delta variant, we are taking a conservative view as it relates to revenue from the CDC contract. Finally, we anticipate CSI will contribute approximately $15 million of revenues for the remaining part of 2021. Altogether, we expect total core revenues of $110 million for the year. With the $690 million in COVID revenues combined with $110 million of core revenue, we expect revenues will be approximately $800 million for the year, down slightly from our previous guidance of $830 million. From a profitability standpoint, we continue to expect ongoing leverage in our business, which drops to the bottom line and drives cash flow generation. We continue to rely on our foundational technology for operating our business, which has produced superior growth in operating margins. We still anticipate that to be the case though those percentages will likely be slightly lower as we get more active in M&A, hiring, and internal investments. Therefore, for the full year 2021, utilizing a 27% tax rate and a share count of 31 million, we expect net income to be approximately $387 million, or $12.50 per share for our shareholders excluding stock-based compensation. This EPS estimate is unchanged from our previous guidance from Q1, even with us lowering our revenue estimate by $30 million to $800 million. For the third quarter specifically, we expect total revenues to be in the range of $125 million to $150 million, with core revenues growing to approximately $32 million, and COVID revenues to be in the range of $93 million to $118 million. We hope the detail we're providing today is helpful and reflects the confidence we have in our outlook for the year. We have posted slides on our Investor Relations website that outlines our guidance in detail. This quarter has proven the viability of our business model and the power of our technology platform, given the ability to drive nearly $100 million of cash flow in a single quarter. We have demonstrated our ability to execute on strategic initiatives through M&A with our investments in China, Helio and CSI, all of which should bear immediate fruit from a strategic perspective. We intend to get bolder and more active in M&A in the future and are evaluating a range of companies and technologies. We feel very good about our positioning as we expand our platform to drive sustainable growth in the post-COVID world. Operator, you may now open it for questions.

Operator, Operator

We will take our first question from Kevin DeGeeter with Oppenheimer.

Kevin DeGeeter, Analyst

Hey, guys. Thanks for taking my question. Maybe just three for me. On CSI, I mean interesting transaction, maybe you can just talk a little bit about buy versus build for those assets, it would seem that that's a capability that might have been able to be built out in-house but perhaps done more quickly through M&A. Paul, I think you highlighted at the end, continued high interest in M&A. Maybe you can frame for us a little bit in terms of how we should think about focus being – is it primarily oncology? Are you interested kind of broadly outside of oncology any perspective there? And then just with regard to reimbursement, which I think to us is maybe one of the more interesting topics for today. How do you sort of leverage CSI's infrastructure for reimbursement to gain perhaps broader reimbursement footprint for some of the NGS testing?

Ming Hsieh, CEO

Yes. Thank you, Kevin for the questions. I think I will cover at a more broad level, strategic level. We do believe the cancer diagnostics market is significant, valued at about $80 billion. Fulgent Genetics has been represented in the germline testing market. We do have capabilities in liquid biopsy, but we're missing other aspects of molecular diagnostics. By adding CSI and Helio, together we cover a broad spectrum in the cancer diagnostics space from early cancer detection to germline to solid tumors to minimal residual disease monitoring. This market is much larger than what Fulgent initially targeted with our IPO focused on the rare disease market. We're not overlooking rare diseases, but we aim to be a major player in the cancer diagnostic market. With that I ask Dr. Weiss to add a little more detail regarding CSI.

Larry Weiss, Chief Medical Officer

As you heard, our intention is to get involved in the cancer market. We have plans to develop our own laboratory on the West Coast, but the acquisition of CSI really jump-starts our entry into the cancer market. They have a base of clients and an extensive test menu in areas such as immunohistochemistry, flow, FISH, and cytogenetics. We’re going to emulate that on the West Coast. More importantly, for our West Coast lab, they have access to specimens that are typically challenging to find when starting a laboratory. They have an established sales team that we will dramatically expand. While it is possible we could have built out these capabilities on our own, the acquisition of CSI gives us a significant jump start to become a major player in the cancer business.

Brandon Perthuis, Chief Commercial Officer

Yes, Kevin. It's Brandon. I'll just add a little bit there, which relates to your third question. Why do we buy versus build? In addition to what Larry detailed, building would have been much more difficult, especially concerning managed care contracts and reimbursement. So, I think Larry's spot on. This acquisition allows us to address the insurance and network landscape effectively. In addition, we are highly confident we can expand that business. They have a successful customer base, but it's geographically focused with a small sales team. We think that with a national presence and a much larger sales team, we can grow significantly. So, we justify our buy versus build approach based on these reasons.

Ming Hsieh, CEO

Thank you for the comments.

Operator, Operator

Moving on, we'll go to Steven Mah with Piper Sandler.

Steven Mah, Analyst

Hi guys. Thanks for taking the questions. I have a question on Helio. The commercial exclusivity, is that going to cover all of their LBTs, not just liver? Because my understanding is they are also developing tests for colorectal cancer, breast and lung.

Ming Hsieh, CEO

Yes Steven, that's a very good question. We are starting with the commercialization of Helio's liver cancer test. We are already taking action on that. Their methylation technology and biomarkers are indeed applicable to liver, colon, and lung cancers, so they are slightly different, but we do have opportunities to add more tests in the coming quarters.

Steven Mah, Analyst

Okay. Got it. And does your partnership with Helio, can you talk about the potential of launching these tests through your China JV? Liver cancer and lung cancer are significant problems in China. Is there a way to leverage your China JV with Helio?

Ming Hsieh, CEO

Yes, that's a very good question. Actually, Helio's independent study for the liver cancer test in China is slightly ahead of the U.S. We do expect that the launch in China will be sooner than the launch in the U.S.

Steven Mah, Analyst

Okay. But your exclusivity is just for U.S. testing, or is it also for China testing for commercialization?

Ming Hsieh, CEO

Exclusivity covers North America, which includes both the U.S. and Canada. In China, we will work together. Fulgent Genetics will provide our laboratory services, and Helio is already in the process of finalizing its CFDA approval process for its liver cancer test. It’s a slightly different cancer test using qPCR instead of the methylation technology used in the U.S. Both technologies will be available for both China and the U.S.

Steven Mah, Analyst

Okay. So in China, it's more of a collaboration then, okay.

Ming Hsieh, CEO

Yes.

Steven Mah, Analyst

Okay, got it. And then maybe a question for Larry and welcome to the team.

Larry Weiss, Chief Medical Officer

Thank you.

Steven Mah, Analyst

Could you let us know what percent of CSI revenue is molecular that can be migrated over to Fulgent's NGS platform? My understanding of CSI, and I may be a little outdated, is that they were mostly traditional non-molecular tests like immunohistochemistry, FISH, cytogenetics, and flow. So maybe just give me a sense of the potential synergies with Fulgent?

Ming Hsieh, CEO

Yeah. Steven, I will cover a bit. CSI currently offers some genetic testing, but it's all sourced through third parties. With this transaction, CSI will direct all its genetic tests to Fulgent. Historically, they have not emphasized liquid biopsy and genetic testing much as a stand-alone unit, but we do plan to accelerate that process and strengthen our digital pathology capabilities.

Larry Weiss, Chief Medical Officer

To clarify, CSI is primarily a traditional pathology provider. Its assets are in immunohistochemistry, flow, cytogenetics, and FISH. They do a fair amount of single-gene testing, but their NGS is outsourced presently. This complementary acquisition allows us to provide NGS and molecular testing, supplementing CSI's strengths. We see it as a win-win for both CSI and Fulgent. Traditionally, CSI's clients have been pathologists, but with our molecular background, we can tap into the larger oncology customer base.

Paul Kim, Chief Financial Officer

Yes, this is Paul. We intend to put our full resources behind the CSI acquisition, and we wouldn’t be surprised if that business grew considerably. We considered various options. This was the one that aligned philosophically. They have operated longer than we have. The quality of their customers, the sample flow, and their structured operations are appealing. Unlike other smaller firms, they are profitable. All these aspects make it align with our ambitions. I think Ming and Larry and Brandon have talked about the reasons and synergies already. It's our intention to fully capitalize on this asset and grow the business.

Steven Mah, Analyst

Okay. Great. If I could ask one last question, do you have any insight into the second half of the year as we approach flu season? We've noticed some RSV cases emerging in the Southern Hemisphere. Additionally, can you tell us if you are planning to develop a combination test or a broader respiratory panel that includes RSV along with flu A, flu B, and COVID?

Brandon Perthuis, Chief Commercial Officer

Hi, Steven, it's Brandon. Yes, thanks for the question. We are developing a full respiratory pathogen panel. It will cover about 20 to 30 respiratory pathogens, including COVID-19, flu A, B, RSV, and other pathogens. This will be delivered on the same automation and equipment as our COVID tests, allowing for significant scalability while maintaining our best-in-class cost structure for our PCR-based assays.

Katie Tryhane, Analyst

Hi, thanks for taking my questions. About the return to work and return to school testing, could you speak further on outside of the New York school system how you can participate there? How are those conversations progressing? We heard it might be a bit slower than expected, but with the Delta variant, is that starting to pick up? What are the implications for the back half of the year?

Brandon Perthuis, Chief Commercial Officer

Katie, thank you. It’s Brandon. We're not revising COVID guidance for the back half of the year. Q3 and Q4 remain unchanged, which reflects the strength of the opportunities we see. Outside New York, we're seeing significant progress in the Southeast, notably Texas, Louisiana, and Florida, with schools coming online in the Midwest. On the West Coast, back-to-school opportunities are plentiful. Our experience in New York is crucial, and districts look to us as they've faced significant success. I am confident that we’ll continue back-to-school testing significantly in the months ahead. I believe COVID testing will remain significant in the second half of the year.

Katie Tryhane, Analyst

Okay. Great. We've discussed several of your investments in Helio and CSI, but I'm curious about the FF Gene Biotech joint venture. You mentioned your intention to invest further last quarter. Can you provide more insight into how that JV has performed since you invested, particularly in the second quarter?

Paul Kim, Chief Financial Officer

That's an excellent question, Katie. During Q2, we booked $2 million in genetic testing revenues from China as a result of that consolidation. We believe that in the second half of the year, we could record an additional $5 million to $10 million in new business from that market. I'll hand it over to Ming for insights on our strategic intent and market potential in China.

Ming Hsieh, CEO

Yes, Katie. Recall that we owned around 30% of this JV structure about four years ago. Our role was mainly to provide our technologies and products while our partner managed the sales and operations. With growing demand in China in oncology, women's health, and rare diseases, we decided that Fulgent should concentrate more on the China market. Our partner was willing to relinquish control, and we're commencing operations now. We’ll focus on growth requirements and are adding executives for management, including matters related to Helio's operations in China. It is competitive there, but we see significant demand and opportunity to expand.

Operator, Operator

And this concludes today's call. Thank you for your participation. You may now disconnect.