GenMark Diagnostics Reports Second Quarter 2011 Results

Reagent Revenues Grow 104% and Placements Increase by 17 to 119

CARLSBAD, Calif.--(BUSINESS WIRE)-- GenMark Diagnostics, Inc. (Nasdaq:GNMK) today reported financial results for the second quarter ended June 30, 2011.

Revenues for the three months ended June 30, 2011 were $901,000 and net loss per share was $0.39 per share compared with $665,000 and a net loss of $0.60 per share during the second quarter of 2010. The 35% year-over-year increase in total revenue reflects an increase in the number of systems in the field, growth in the company's test menu and a significant increase in the number of tests sold. Reagent revenues for the second quarter grew 104% year-over-year to $825,000 from $404,000, while instrument and other revenues decreased $185,000 due mainly to lower partnering contract revenue. The Company placed net 17 analyzers during the quarter.

The gross margin loss of $393,000 for the three months ended June 30, 2011 as compared to a loss of $84,000 for the same period in 2010 and a loss of $743,000 in the first quarter of 2011 was driven by the transfer and expansion of manufacturing operations to the company's new facility in Carlsbad. The gross loss improvement compared with the first quarter of 2011 was primarily due to the now completed closure of duplicative manufacturing facilities in Pasadena. All operations are now consolidated in Carlsbad, CA.

Operating expenses increased $265,000 to $5.3 million during the second quarter of 2011, due primarily to increased clinical trial costs and spending for new product development, specifically our Hepatitis C genotyping and Respiratory Viral Panel tests.

The Company ended the second quarter with $43.5 million in cash compared with $18.3 million at year-end. The Company raised net proceeds of $31.7 million through a follow-on equity offering in June 2011 and used $8.0 million in cash flow from operations during the first six months of 2011 compared with $9.1 million in the first six months of 2010. The Company intends to use a portion of the offering proceeds to invest more heavily in its sales force, research and development, and other infrastructure improvements during the second half of 2011 compared with spending levels in the first half of the year.

During the first six months of 2011, depreciation and amortization expense was $622,000; capital expenditures and other investing activities were $974,000; and the Company drew $2.0 million on its loan facility.

"The second quarter of 2011 was another strong quarter for GenMark Diagnostics," commented Hany Massarany, GenMark's President and CEO. "During the quarter, we significantly grew revenue, particularly in our core reagents, expanded our installed base, as well as advanced key product development programs. Our successful follow-on fundraising will allow us to accelerate product development and commercial activities during the remainder of 2011 and then next year as we look to execute our high growth strategy," Massarany further stated.

INVESTOR CONFERENCE CALL

GenMark will hold a conference call to discuss second quarter 2011 results and the outlook for the current year at 9:00AM ET today. The conference call and webcast can be accessed live through the company's website under the Investor Relations section and will be available for replay through August 25, 2011. To listen to the conference call, please dial (877) 312-5847 (US/Canada) or (253) 237-1154 (International) and use the conference ID number "83859663" approximately five minutes prior to the start time.

ABOUT GENMARK

GenMark Diagnostics is a leading provider of automated, multiplex molecular diagnostic testing systems that detect and measure DNA and RNA targets to diagnose disease and optimize patient treatment. GenMark's eSensor® XT-8 system supports a broad range of molecular diagnostic tests with a compact, easy-to-use workstation and self-contained, disposable test cartridges. GenMark tests that are FDA cleared for IVD use include the Cystic Fibrosis Genotyping Test, Warfarin Sensitivity Test, and Thrombophilia Risk Test. A Respiratory Viral Panel (RVP) is currently undergoing a clinical trial and tests for HCV Genotyping, 2C19, and KRAS are in development. For more information, visit www.genmarkdx.com.

SAFE HARBOR STATEMENT

This press release includes forward-looking statements regarding events, trends and business prospects, which may affect our future operating results and financial position. Such statements, including, but not limited to, those regarding continued growth in sales of our diagnostic tests, the expansion of our diagnostic test menu, and the continued development of our technology, are all subject to risks and uncertainties that could cause our actual results and financial position to differ materially. Some of these risks and uncertainties include, but are not limited to, risks related to our history of operating losses, the need for further financing and our ability to access the necessary additional capital for our business, inherent risk and uncertainty in the protection of intellectual property rights, regulatory uncertainties regarding approval or clearance for our products, as well as other risks and uncertainties described under the "Risk Factors" in our public filings with the Securities and Exchange Commission. We assume no responsibility to update or revise any forward-looking statements to reflect events, trends or circumstances after the date they are made.

GENMARK DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
(Unaudited)
					As of June 30, 2011							As of December 31, 2010 (A)
Current assets
Cash and cash equivalents					$	43,517						$	18,329
Accounts receivable, net of allowance of $87 and $39 at June 30, 2011 and December 31, 2010, respectively						640							678
Inventories, net						1,206							897
Other current assets						495							2,193
Total current assets						45,858							22,097
Property and equipment, net						3,195							2,702
Intangible assets, net						1,403							1,460
Other long-term assets						80							55
Total assets					$	50,536						$	26,314
Current liabilities
Accounts payable					$	2,866						$	823
Accrued compensation						1,288							1,172
Other current liabilities						1,575							1,945
Total current liabilities						5,729							3,940
Long-term liabilities
Loan payable						2,000							—
Other non-current liabilities						1,083							1,307
Total liabilities					$	8,812						$	5,247
Stockholders' equity
Common stock, $.0001 par value; 100,000,000 authorized; 20,474,570 and 11,723,512 issued and outstanding as of June 30, 2011 and December 31, 2010, respectively						2							1
Preferred stock, $0.0001 par value; 5,000,000 authorized, none issued						—							—
Additional paid-in capital						198,951							166,009
Accumulated deficit						(156,715	)						(144,493	)
Accumulated other comprehensive loss						(514	)						(450	)
Total stockholders' equity						41,724							21,067
Total liabilities and stockholders' equity					$	50,536						$	26,314

(A) Includes adjustment to 12/31/10 balance sheet-see accompanying tables and footnote 1

GENMARK DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
			Three Months Ended June 30,									Six Months Ended June 30,
			2011				2010 (B)					2011 (B)				2010 (B)
Product Revenue			$	866			$	523				$	1,559			$	907
License and other revenue				35				142					100				168
Total revenue				901				665					1,659				1,075
Cost of sales				1,294				749					2,795				1,189
Gross loss				(393	)			(84	)				(1,136	)			(114	)
Operating expenses
Sales and marketing				1,220				1,285					2,439				2,454
General and administrative				1,810				2,015					3,933				4,195
Research and development				2,292				1,757					4,856				3,226
Total operating expenses				5,322				5,057					11,228				9,875
Loss from operations				(5,715	)			(5,141	)				(12,364	)			(9,989	)
Other income
Other income (expense)				174				—					186				(1	)
Interest income (expense)				(27	)			4					(21	)			9
Total other income				147				4					165				8
Loss before income taxes				(5,568	)			(5,137	)				(12,199	)			(9,981	)
Provision for income taxes				(12	)			—					(23	)			(5	)
Net loss			$	(5,580	)		$	(5,137	)			$	(12,222	)		$	(9,986	)
Net loss per share, basic and diluted			$	(0.39	)		$	(0.60	)			$	(0.93	)		$	(1.28	)
Weighted average number of shares outstanding				14,366				8,539					13,076				7,830
Condensed consolidated statements of comprehensive loss three and six months ended June 30, 2011 and 2010
Net loss			$	(5,580	)		$	(5,137	)			$	(12,222	)		$	(9,986	)
Foreign currency translation adjustment				(64	)			—					(64	)			(35	)
Comprehensive loss			$	(5,644	)		$	(5,137	)			$	(12,286	)		$	(10,021	)

(B) Includes reclassifications between certain cost pools-see accompanying tables and footnote 2

GENMARK DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
			Six Months Ended June 30,
			2011					2010
Cash flows from operating activities:
Net loss			$	(12,222	)			$	(9,986	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization				622					468
Share-based compensation				1,227					812
Changes in operating assets and liabilities:
Trade accounts receivable				38					(268	)
Inventories				(275	)				(128	)
Other current assets				1,673					(224	)
Accounts payable				1,443					(802	)
Accrued compensation				92					455
Accrued and other liabilities				(591	)				564
Net cash used in operating activities				(7,993	)				(9,109	)
Investing activities:
Payments for intellectual property licenses				(365	)				—
Purchases of property and equipment				(609	)				(575	)
Net cash used in investing activities				(974	)				(575	)
Financing activities:
Proceeds from issuance of ordinary shares and common stock				34,532					27,600
Costs incurred in conjunction with public offering				(2,377	)				(4,752	)
Proceeds from borrowings				2,000					—
Proceeds from stock option exercises				—					4
Net cash provided by financing activities				34,155					22,852
Effect of foreign exchange rate changes				—					(47	)
Net increase in cash and cash equivalents				25,188					13,121
Cash and cash equivalents at beginning of period				18,329					16,483
Cash and cash equivalents at end of period			$	43,517				$	29,604

TABLES AND FOOTNOTES
GENMARK DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS-See Footnote 1
(In thousands, except par value)
(Unaudited)
			As Reported					(1)					As Corrected
			December 31, 2010					Adjustment					December 31, 2010
Current assets
Cash and cash equivalents			$	18,329					-				$	18,329
Accounts receivable, net of allowance of $87 and $39 at June 30, 2011 and December 31, 2010, respectively				678					-					678
Inventories, net				897					-					897
Other current assets				2,193					-					2,193
Total current assets				22,097					-					22,097
Property and equipment, net				2,702					-					2,702
Intangible assets, net				71					1,389					1,460
Other long-term assets				55					-					55
Total assets			$	24,925				$	1,389				$	26,314
Current liabilities
Accounts payable			$	823					-				$	823
Accrued compensation				1,172					-					1,172
Other current liabilities				1,250					695					1,945
Total current liabilities				3,245					695					3,940
Long-term liabilities
Loan payable				-					-					0
Other non-current liabilities				613					694					1,226
Total liabilities			$	3,858				$	1,389				$	5,247
Stockholders' equity
Common stock, $.0001 par value; 100,000,000 authorized; 20,474,570 and 11,723,512 issued and outstanding as of June 30, 2011 and December 31, 2010, respectively				1					-					1
Preferred stock, $0.0001 par value; 5,000,000 authorized, none issued														0
Additional paid-in capital				166,009					-					166,009
Accumulated deficit				(144,493	)				-					(144,493	)
Accumulated other comprehensive loss				(450	)				-					(450	)
Total stockholders' equity				21,067					0					21,067
Total liabilities and stockholders' equity			$	24,925				$	1,389				$	26,314

GENMARK DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -See Footnote 2
(In thousands, except per share data)
(Unaudited)
			As Reported										Adjustments					As Corrected
			Three Months Ended										Three Months Ended					Three Months Ended
			June 30,										June 30,					June 30,
			2011					2010					2010					2011					2010
Product Revenue			$	866				$	523				$	-				$	866				$	523
License and other revenue				35					128					14					35					142
Total revenue				901					651					14					901					665
Cost of sales				1,294					862					(113	)				1,294					749
Gross loss				(393	)				(211	)				127					(393	)				(84	)
Operating expenses
Sales and marketing				1,220					1,204					81					1,220					1,285
General and administrative				1,810					2,002					13					1,810					2,015
Research and development				2,292					1,724					33					2,292					1,757
Total operating expenses				5,322					4,930					127					5,322					5,057
Loss from operations				(5,715	)				(5,141	)				-					(5,715	)				(5,141	)
Other income
Other income (expense)				174					-					-					174					0
Interest income (expense)				(27	)				4					-					(27	)				4
Total other income				147					4					0					147					4
Loss before income taxes				(5,568	)				(5,137	)				-					(5,568	)				(5,137	)
Provision for income taxes				(12	)				-					-					(12	)				0
Net loss				($5,580	)				($5,137	)			$	0					($5,580	)				($5,137	)
Net loss per share, basic and diluted				($0.39	)				($0.60	)									($0.39	)				($0.60	)
Weighted average number of shares outstanding				14,366					8,539										14,366					8,539
Condensed consolidated statements of comprehensive loss three and six months ended June 30, 2011 and 2010
Net loss				($5,580	)				($5,137	)									($5,580	)				($5,137	)
Foreign currency translation adjustment				(64	)				—										(64	)				—
Comprehensive loss				($5,644	)				($5,137	)									($5,644	)				($5,137	)

GENMARK DIAGNOSTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-See Footnote 2
(In thousands, except per share data)
(Unaudited)
			As Reported										Adjustments (2)										As Corrected
			Six Months Ended										Six Months Ended										Six Months Ended
			June 30,										June 30,										June 30,
			2011					2010					2011					2010					2011					2010
Product Revenue			$	1,559				$	907				$	-				$	-				$	1,559				$	907
License and other revenue				106					143					(6	)				25					100					168
Total revenue				1,665					1,050					(6	)				25					1,659					1,075
Cost of sales				2,937					1,430					(142	)				(241	)				2,795					1,189
Gross loss				(1,272	)				(380	)				136					266					(1,136	)				(114	)
Operating expenses
Sales and marketing				2,350					2,262					89					192					2,439					2,454
General and administrative				3,921					4,169					12					26					3,933					4,195
Research and development				4,821					3,178					35					48					4,856					3,226
Total operating expenses				11,092					9,609					136					266					11,228					9,875
Loss from operations				(12,364	)				(9,989	)				0					0					(12,364	)				(9,989	)
Other income
Other income (expense)				186					(1	)				-					-					186					(1	)
Interest income (expense)				(21	)				9					-					-					(21	)				9
Total other income				165					8					0					0					165					8
Loss before income taxes				(12,199	)				(9,981	)				-					-					(12,199	)				(9,981	)
Provision for income taxes				(23	)				(5	)				-					-					(23	)				(5	)
Net loss				($12,222	)				($9,986	)			$	0				$	0					($12,222	)				($9,986	)
Net loss per share, basic and diluted				($0.93	)				($1.28	)			$	0.00				$	0.00					($0.93	)				($1.28	)
Weighted average number of shares outstanding				13,076					7,830					13,076					7,830					13,076					7,830
Condensed consolidated statements of comprehensive loss three and six months ended June 30, 2011 and 2010
Net loss				($12,222	)				($9,986	)			$	0				$	0					($12,222	)				($9,986	)
Foreign currency translation adjustment				(64	)				(35	)				(64	)				(35	)				(64	)				(35	)
Comprehensive loss				($12,286	)				($10,021	)				($64	)				($35	)				($12,286	)				($10,021	)

(1)		Subsequent to the issuance of the 2010 audited financial statements, the Company concluded that a contract for the purchase of certain intellectual property rights should have been recorded as both an asset and a liability in the financial statements for the periods ended December 31, 2010 and March 31, 2011. The Company has recorded this contract which results in an increase of Intangible Assets and corresponding increases in current and long-term liabilities of $1,389,000 for the year ended December 31, 2010.
(2)		Subsequent to the issuance of the 2010 audited financial statements, the Company further concluded that certain expenses were classified incorrectly in its Consolidated Statements of Operations for the periods presented herein, with no net impact to operating income, net income, statements of cash flows or balance sheets. The Company has corrected these immaterial misstatements. These corrections result in reductions to cost of goods sold of $113,000 and $241,000 in the quarter and six-month period ended June 30, 2010 and $142,000 in the six-month period ended June 30, 2011 and corresponding increases to sales and marketing and research and development expenses.

GenMark Diagnostics, Inc.
Paul Ross
Chief Financial Officer
760-448-4318

Source: GenMark Diagnostics, Inc.

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