Centogene Uncertain on “Going Concern”; Shares Tank 19%

Shares of Centogene N.V. (CNTG) were down 19% on November 24 and closed at $7.20, after the global leader in genetic diagnostics for rare diseases reported poor Q3 results and expressed concerns regarding the company’s ability to continue as a going concern.

Centogene is a commercial-stage company focused on transforming clinical, genetic, and biochemical data into medical solutions for patients. The company generates data-driven insights to diagnose, understand, and treat rare diseases.

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Q3 Results

The company reported an adjusted loss of €0.96 per share, significantly higher than the loss of €0.27 per share reported in the prior-year quarter.

Furthermore, revenues declined 17% year-over-year to €30.2 million compared to €36.3 million. The decline was mainly due to a reduction in Commercial COVID-19 testing revenues, from €27.4 million to €20.2 million in Q3 2020. Additionally, there was a 28% decline in the Pharma revenues that offset the 43% increase in Diagnostics revenues.

Concerns as a Going concern

Concurrent with the earnings announcement, the company mentioned that the company’s cash and cash equivalents were €25.7 million as of September 30, 2021, against €34.8 million at the end of the previous quarter. The company added, “There is uncertainty about the Company’s ability to continue as a going concern.”

2021 Financial Guidance

Based on Q3 results, the Company updated its revenue guidance for FY2021.

Driven by COVID-19 related revenues, the company forecasts total revenue to grow between 30% and 40% year-over-year .

The company stated that the percentage of total revenues derived from COVID-19 testing has declined over the past three quarters and is anticipated to decline more in the fourth quarter. Ultimately, it will phase out by the end of Q1 2022.

In FY2021, the company expects its Core Business to achieve growth in the mid to high single digits. However, Core Business has seen a decline of 20% in FY2020 as compared to FY2019.

Management Weighs In

Centogene CFO, René Just, commented, “While the business team’s full focus is on the Core Business, we are also prudently managing the phaseout of our ancillary COVID-19 testing business. We will leverage this process to also streamline the operational footprint for the Core Business and fully align with the strategic framework unveiled to the shareholders in June.”

He added, “This is expected to lead to savings of up to EUR 15 million annualized excluding restructuring costs, predominantly reflecting a reduction in personnel-related and operational expenditures and will reduce the Company’s cash burn rate.”

Wall Street’s Take

The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 2 Buys. The average Centogene NV price target of $19.50 implies 170.83% upside potential to current levels. However, shares have lost 38% over the past year.

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