Fulgent Genetics (FLGT) Q3 2025: Lab Services Margins Rise to 44.3% on AI and Digital Pathology Gains
Fulgent Genetics delivered another quarter of margin expansion as its lab services business leveraged AI and digital pathology for operational efficiency and product innovation. The company’s core diagnostics and biopharma testing segments posted robust double-digit growth, while new offerings in rapid whole genome sequencing and expanded carrier screening sharpened its competitive edge. Management’s upward guidance revision signals confidence in both near-term execution and long-term platform leverage, even as therapeutic development investments ramp toward pivotal milestones in 2026.
Summary
- Lab Automation and AI Drive Margins: In-house digital pathology and AI tools boosted lab productivity and gross margin profile.
- Precision Diagnostics and Biopharma Growth: Core segments delivered consistent double-digit revenue gains, supported by new product launches.
- Therapeutics Pipeline Progresses: Strong clinical data and efficient R&D spending set the stage for pivotal trial investment in 2026.
Performance Analysis
Fulgent Genetics’ third quarter results underscore a business model shift toward higher-value, technology-enabled lab offerings and disciplined operating leverage. Laboratory services revenue grew sequentially and year-over-year, with precision diagnostics up 16.4% YoY and biopharma services up a striking 83.4% YoY, reflecting new test launches and expanded capabilities. Anatomic pathology saw a modest sequential decline due to billing software transition, but still posted healthy annual growth.
Gross margin rose to 44.3% (non-GAAP), a direct result of automation, AI-driven workflow, and centralized lab operations. Operating expenses declined both sequentially and YoY, aided by lower marketing and improved collections, which translated to a narrower operating loss and positive adjusted EBITDA. The company’s cash position strengthened further, with $787.7 million on hand, supporting future R&D and clinical trial commitments.
- Operational Efficiency Gains: Streamlined lab processes and proprietary digital pathology drove margin expansion and cost discipline.
- Revenue Mix Shift: Biopharma and precision diagnostics now represent the bulk of growth, offsetting negligible COVID-19 testing revenue.
- Cash Generation and Balance Sheet Strength: Operating cash flow improved, enabling continued investment in product and pipeline without diluting shareholders.
Fulgent’s ability to scale new offerings and maintain rapid turnaround times positions it well for continued share gains across high-growth segments.
Executive Commentary
"Our laboratory services is greatly benefited from our investment in AI technology, which makes our services more efficient and more precise... We have shown both sequential and year-over-year growth and efficiency in laboratory services."
Ming Hsieh, Chief Executive Officer
"Gross margins have improved year over year due to streamlined operations and enhanced efficiency as a result of our investments in scaling and centralizing lab operations... Our strategy for success centers on the continuing to scale efficiently and driving innovation across our service offerings."
Paul Kim, Chief Financial Officer
Strategic Positioning
1. AI-Enabled Lab Operations
Fulgent’s proprietary EZO Path image management system (IMS) and digital pathology investments are transforming lab throughput and diagnostic accuracy. By digitizing slides and integrating AI, the company is reducing manual bottlenecks and enabling faster, higher-quality reads. This technology not only boosts internal efficiency but also creates a data asset for future AI-driven reimbursement and product development.
2. Portfolio Expansion in Precision Diagnostics
Launches of ultra-rapid whole genome sequencing and the Beacon K 1,000-gene carrier screening panel represent meaningful advances in product breadth and clinical relevance. Rapid whole genome sequencing targets the neonatal intensive care unit (NICU) segment, offering outcomes and cost benefits for hospital partners. Beacon K cements Fulgent’s leadership in reproductive carrier screening, with best-in-class turnaround times and analytical performance.
3. Biopharma Services Diversification
Biopharma services revenue surged as Fulgent expanded beyond next-generation sequencing (NGS) into a broader array of tests. This widened addressable market and improved win rates on RFPs, although management notes the segment remains lumpy by nature. The pipeline of new test launches and positive partner feedback suggest sustainable demand as pharma clients seek comprehensive, high-throughput lab partners.
4. Therapeutic Development Platform
Progress on clinical candidates FID-007 and FID-022 demonstrates efficient R&D execution and platform leverage. Positive Phase II data for FID-007 in head and neck cancer supports advancement to Phase III, with a pivotal trial planned for 2026. R&D spending remains disciplined, and the company expects to fund a $60 million Phase III trial from internal resources, underlining the strength of its balance sheet and operational cash flow.
5. Commercial Execution and Market Expansion
Fulgent’s expanded salesforce and targeted investment in pediatrics and reproductive health are driving customer wins and deeper market penetration. Fast turnaround and high analytical performance are differentiators in both hospital and fertility clinic settings, supporting continued double-digit growth in core segments.
Key Considerations
Fulgent’s Q3 performance reflects a company executing on multiple fronts, but investors should weigh both the sustainability of recent gains and the capital requirements of its evolving business mix.
Key Considerations:
- AI and Digital Pathology as Margin Levers: Proprietary systems and automation are translating directly into gross margin gains and operational scalability.
- Product Innovation Drives Growth: New rapid genome and expanded carrier tests are opening new markets, especially in NICU and reproductive health.
- Therapeutic Pipeline Progress: Positive clinical data and efficient R&D spending set up a pivotal Phase III trial, with funding in place.
- Segment Volatility Remains: Biopharma and anatomic pathology revenue can be lumpy due to timing and billing transitions, though underlying demand is solid.
Risks
Fulgent faces execution risk as it scales new products and transitions to larger clinical trials, with timing of reimbursement and billing collections remaining a potential source of volatility. Biopharma services, while growing, are subject to lumpiness and competitive pressure. Regulatory changes, payer adoption of expanded genetic testing, and the outcome of pivotal clinical trials will be critical to sustaining long-term growth and margin expansion.
Forward Outlook
For Q4 2025, Fulgent guided to:
- Continued revenue growth in laboratory services, driven by new product adoption and improved collections in anatomic pathology.
- Further margin improvement as AI and digital pathology scale across operations.
For full-year 2025, management raised guidance:
- Total revenue of $325 million, representing 15% YoY growth.
- Non-GAAP gross margin expected to exceed 40%.
- Non-GAAP EPS revised to positive $0.30 per share, up from a prior loss forecast.
Management cited strong operating momentum, robust cash generation, and a healthy pipeline of new products and clinical milestones as drivers of the improved outlook.
- NICU and reproductive health launches expected to accelerate adoption.
- Therapeutic R&D spend to rise in 2026 as Phase III trial begins.
Takeaways
Fulgent Genetics is demonstrating the operational and financial leverage of a technology-driven lab business, while laying the groundwork for a high-impact therapeutic platform.
- Margin Expansion Momentum: Proprietary AI and digital pathology are enabling sustained gross margin improvement and cost control, positioning the lab business for scalable growth.
- Pipeline and Product Breadth: Rapid innovation in diagnostics and strong clinical progress in therapeutics provide multiple levers for future value creation.
- Execution Watchpoints: Investors should monitor the ramp of new lab offerings, the transition to pivotal clinical trials, and the timing of reimbursement or billing cycle normalization.
Conclusion
Fulgent Genetics delivered a quarter marked by operational discipline, margin gains, and strategic product launches, while maintaining a robust cash position to fund future growth. The company’s focus on technology-driven lab services and disciplined R&D spending positions it well for continued share gains and long-term value creation, though execution risk remains as the business scales and diversifies.
Industry Read-Through
Fulgent’s results highlight a broader industry trend toward automation, AI integration, and rapid test development in clinical labs. The success of digital pathology and proprietary informatics platforms sets a new standard for efficiency and turnaround times, raising the bar for competitors. The rapid adoption of expanded carrier screening and whole genome sequencing in the NICU suggests accelerating payer acceptance and clinical demand for high-complexity testing, with implications for reimbursement policy and market consolidation. Lab operators and diagnostic innovators should expect continued pressure to invest in automation, data analytics, and clinical utility to remain competitive.