The 180-day lockup period for the Fulgent Genetics (NASDAQ: FLGT ) IPO is scheduled to expire on March 28, 2017.

At this time, the pre-IPO insiders will be able to sell their 12,846,256 restricted shares, which represent 75.3% of the total shares outstanding. If insiders elect to sell their shares, it could cause the stock price to drop due to the increase in supply. 

Our firm has found share price drops in the days (-11, +9) surrounding the lock-up event (day 0). We expect to see a similar price dip for Fulgent Inc., and recommend investors consider shorting and selling shares ahead of March 28th.

We expect to see strong downward pressure on Fulgent's share price around the lock-up expiration given the large percentage of total shares outstanding which are restricted, as well as the large percentage held by an independent investor (Xi Long Inc. holds 11.9% of the total restricted shares). Xi Long may be motivated to free up capital for other investments, as well as cash in on gains, and is therefore, likely to sell shares once restrictions are lifted.

We previously highlighted Fulgent Genetics Inc. ahead of its IPO on our IPO Insights Platform.

Business summary: Comprehensive genetic test provider

Fulgent Genetics is a biotechnology company that offers a full menu of genetic tests for doctors. It has its own proprietary technology platform that allows data analysis and diagnostic tools to help doctors improve their practices. The company reports that it offers more than 18,000 single-gene tests to diagnose more than 7,500 genetic disorders. The company reported that it had $9.6 million in total revenues and $8.3 million in net losses in 2015. It also reported $7.4 million in revenues and $5.1 million in net losses for the first six months of 2016 that ended on June 30, 2016.

Executive management

Ming Hsieh is the founder of Fulgent and has served as its manager since its founding in June 2011. In May 2016, he was appointed as the chief executive officer, president and director of Fulgent Genetics when it was incorporated. He previously served as the chief executive officer, chairman of the board and president of Cogent Inc., a company that he co-founded in 1990. Hsieh graduated with his Bachelor of Science in electrical engineering from the University of Southern California in 1983 and his Master of Science in electrical engineering from the school in 1984.

Paul Kim has served as the chief financial officer of Fulgent LLC since Jan. 2016 and as the CFO of Fulgent Genetics Inc. since its incorporation in May 2016. Previously, Kim was retired from 2011 to 2015. He served as the CFO for Cogent Inc. from Jan. 2004 until 2011. In the past, Kim has served in executive positions for JNI Corporation, Datafusion Inc., Interlink Computer Sciences Inc. and Coopers and Lybrand LLP. Kim holds a Bachelor of Arts in economics from the University of California at Berkeley and is also a certified public accountant.

IPO Performance

Fulgent priced its shares at $9, which was the low end of its marketed price range of $9 - $11 on September 28, 2017. The stock increased just 2% on its first day of trading. Since then, the stock price has ranged between $7.59 and $13.90. The stock reached its high of $13.90, on Jan. 13 and has been trending downward since then. Current stock price is $10.99 (pre-market session 3.13).

The company reported fourth-quarter earnings on February 27. The company beat analysts' estimates for earnings per share, but fell below estimates on revenue. Earning highlights include:

• Quarterly revenue of $5.9 million, up 102% from the $2.9 million in revenue from the same quarter the previous year.
• Annual total revenue of $18.3 million, which was almost double its reported revenues of $9.6 million in 2015.
• Adjusted EIDBTA grew to $2.3 million in the fourth quarter and the company reported $1.3M in cash flow from operations.

Conclusion

At the time of Fulgent's IPO we recommended investors steer clear as the company was overpriced compared to peers and lacked patented technology to protect it from competitors.

The stock price has remained flat since its IPO, indicating other investors seemed to share our concern.

With lock-up period set to expire on March 28, we predict pre-IPO shareholders will be eager to sell shares and cash in on gains from their early investment in FLGT. We anticipate a price dip and recommend investors consider selling their position or shorting shares before lock-up restrictions are lifted on 3.28.