NeoGenomics Chief Executive Mark Mallon stepped down Tuesday as the company announced its first-quarter results would likely miss expectations, and NEO stock tanked.
The company said Mallon's exit isn't due to any disagreements, inappropriate action, violation of company policy or accounting problems. But Mallon will leave his roles as CEO and a member of the board less than a year after accepting the positions, Needham analyst Mike Matson noted.
"We believe that this was not a voluntary decision and may have been driven by NeoGenomics' poor stock performance and the significant decline in NeoGenomics' gross and (earnings before interest, taxes, amortization and depreciation) margins during his tenure," Matson said in a report to clients.
On today's stock market, NEO stock crumpled 29.8%, closing at 12.49.
NEO Stock: Light First Quarter Expected
NeoGenomics' products help identify the genetic drivers of cancer. But Matson says Mallon may have invested too heavily in its minimum residual disease test. These tests scout for signs of cancer in a patient's blood after treatment. The investments decreased NeoGenomics' earnings before interest, taxes, depreciation and amortization, or EBITDA.
As a result, NeoGenomics says its first-quarter will likely come in light. The current outlook is for $118 million to $120 million in sales and EBITDA losses of $12 million to $15 million. NEO stock analysts forecast $117 million in sales and a $17.8 million loss, according to FactSet. That would be the third quarter of accelerating EBITDA losses.
The company blamed the higher EBITDA loss on high cost of goods sold in its clinical services unit. This is where NeoGenomics helps look for drivers of a patient's cancer. It also has a pharma services division that helps drug companies identify genetic targets for experimental treatments.
NeoGenomics also pulled its full-year guidance.
Future Cloudy For Residual Cancer Test
The company is now looking for a new CEO. In the meantime, a team of three executives will lead the company. The interim office of CEO includes Chief Financial Officer William Bonello, Chief Strategy and Corporate Development Officer Douglas Brown and Chief Culture Officer Jennifer Balliet.
Current Chair Lynn Tetrault will become executive chair of the board.
Matson kept his buy rating on NEO stock, but cut his price target to 19 from 29.
"We expect the CEO search to take time and believe that any significant strategy changes are unlikely until a new CEO is appointed," he said.
The new CEO could invest deeper in the minimum residual disease test or try to boost profitability, he said. In the latter instance, NeoGenomics could shut down or sell that project. NeoGenomics could also become a target for an activist investor in NEO stock or become an acquisition target.
"In particular, we believe that an activist could push for improved profitability and/or a sale of the company," he said.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
