What happened
Shares of NantHealth Inc (NH -95.00%), a diagnostics startup founded by billionaire Dr. Patrick Soon-Shiong, fell about fell 10.9% as of 2:55 p.m. during Tuesday's session. A startling discrepancy between company reported orders of a pricey test and the amount insurers would confirm had actually been paid for is dragging the stock down today.
So what
The scathing report is the last thing the fledgling startup needs after several allegations of questionable funding practices surfaced recently. At the time of writing, the stock has fallen about 38% this April, and about 82% since its IPO last June.
Image source: Getty Images.
During the second half of last year, NantHealth reported 670 orders for its flagship diagnostic, GPS Cancer. After checking with each insurer that covers the test, though, Bloomberg could only confirm six were ordered and paid for. It's not unusual for diagnostics manufacturers to generate interest with free tests, but NantHealth seems to be taking the practice to a questionable extreme.
Now what
You don't need an investigative report to know NantHealth would have trouble marketing a cancer screen that costs around $11,000 per person. Early detection generally leads to less expensive cancer treatment, but the average American switches insurers too frequently for any insurer to expect a return on such a big investment.
Luckily, the company derives the vast majority of its revenue from healthcare related software solutions. In fact, last year NantHealth's sequencing and molecular analysis segment contributed less than 1% of $100.4 million in total revenue.
Despite a fairly robust top-line for a healthcare diagnostic startup, the company lost $184.1 million last year. Those hoping the GPS Cancer test would fill the gap between revenues expenses should probably get used to disappointment, and brace for another share offering. NantHealth finished 2016 with just $128.3 million in working capital. Given the company's present burn rate, and less than thrilling sales of its flagship diagnostic, that won't last very long.
