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CORRESP
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  CORRESP

    3580 Camel Mountain Road

Suite 300

San Diego, CA  92130

858 314 1500

mintz.com

  January 9, 2024

  VIA EDGAR

  Division of Corporation Finance

  Office of Industrial Applications and Services

  United States Securities and Exchange Commission

  100 F Street, N.E.

  Washington, D.C. 20549-3628

  Attn: 	Tracey Houser

  Terence O’Brien

  Re:	Fulgent Genetics, Inc.

  Form 10-K for Fiscal Year Ended December 31, 2022

  Filed February 28, 2023

  File No. 001-37894

  Dear Ms. Houser and Mr. O’Brien:

  On behalf of Fulgent Genetics, Inc. (“Fulgent” or the “Company”), we are submitting this letter in response to the written comments of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”), dated November 21, 2023, with respect to the Company’s Form 10-K filed with the Commission on February 28, 2023 for the fiscal year ended December 31, 2022 (the “2022 Form 10-K”) (File No. 001-37894).

  During 2023, the Company continued to advance its therapeutic development business with ongoing clinical data for the Company’s lead drug candidate, FID-007. The advancement included engaging a clinical research organization in the fourth quarter of 2023 to initiate Phase II studies of FID-007 in head and neck cancer in the first quarter of 2024. Although the therapeutic development business is still at a pre-revenue stage, the business did and does incur expenses related to research and development (“R&D”). Given the trajectory of the therapeutic development business, the Company made certain changes that included the bifurcation of financial information for the Company’s budget and forecast planning process that began in December 2023. Additionally, starting in December 2023, the Company’s Chief Operating Decision Maker (“CODM”) Package has been updated to include discrete financial information for the clinical diagnostics business and therapeutic development business in addition to consolidated financial information. The Company’s CODM is the Chief Executive Officer (“CEO”) and going forward, the CODM will manage the operations of Fulgent and review financial information to make

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  resource decisions for its two businesses/components separately and therefore, the Company expects to have two operating segments as of December 31, 2023.

  The Company has evaluated its clinical diagnostic business and its therapeutic development business as its two operating segments. These two operating segments do not meet the aggregation criteria under Accounting Standards Codification (“ASC”) 280-10-50-11, but both do meet quantitative thresholds in accordance with ASC 280-10-50-12. As such, the Company expects to have its therapeutic development business and its clinical diagnostics business as its two reportable segments as of December 31, 2023. The Company expects to report both reportable segments starting with its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 10-K”). The Company also expects to identify its reporting units for the purposes of its annual goodwill assessment at its operating segment level and reassign goodwill to its two reporting units using the relative fair value approach.

  As discussed in its prior response related to the Staff’s comments on the Company’s 2022 Form 10-K, the Company had identified its clinical diagnostics business and therapeutic development business as its two components. Based on the Company’s evaluation of the operating segment characteristics as of December 31, 2022, the Company determined its operating segment identification at the consolidated level and not at the component level. ASC 280-10-50-1 characteristic b. was NOT MET at the component level, therefore operating segment identification was NOT MET at the component level (details of this analysis were provided in the first response on November 14, 2023).

  The following information is included to facilitate a comprehensive understanding of the structure of the Company’s business and layers below the component and operating segments and conclusions reached for the 2022 Form 10-K:

  Clinical Diagnostics Business:

  The clinical diagnostics component engaged in business activities from which it recognized revenues and incurred expenses. Discrete financial information below the component level was at the entity level and at the revenue stream level as follows (also illustrated in a table below):

  1.Inform Diagnostics, Inc. (“IDx”) (Entity)

  a.Precision Diagnostics (Revenue Stream)

  b.Anatomic Pathology (Revenue stream)

  2.Cytometry Specialists, Inc. (“CSI”) (Entity)

  a.Precision Diagnostics (Revenue stream)

  3.Fulgent Therapeutics LLC (Entity)

  a.Precision Diagnostics (Revenue stream)

  b.Pharma Services 1 (Revenue stream)

  c.COVID-19 (Revenue stream)

  4.Fujian Fujun Gene Biotech Co., Ltd. (“FF Gene”) (International Entity)

  a.Precision Diagnostics (Revenue stream)

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  Therapeutic Development Business:

  In 2022, the therapeutic development component was early in its development efforts, with only one therapeutic candidate having entered clinical trials (“FID-007”) as of its acquisition date on November 7, 2022. The therapeutic development component engaged in business activities from which it incurred expenses related to R&D activities; however, it was pre-revenue and did not recognize any revenue. The only discrete financial information below the component level was at the entity level for Fulgent Pharma, LLC (“Fulgent Pharma”).

    Component

    Entity

    Revenue Stream

    Precision Diagnostics Revenue

    Pharma Services Revenue

    Anatomic Pathology Revenue

    COVID-19 Revenue

    Clinical Diagnostics

    Fulgent Therapeutics LLC

    X⃰

    X

    X

    Cytometry Specialists, Inc.

    X⃰

    Inform Diagnostics, Inc.

    X

    X⃰

    Fujian Fujun Gene Biotech Co., Ltd.

    X⃰

    Therapeutic Development

    Fulgent Pharma, LLC

    No Revenue Streams (Pre-Revenue)

    X⃰ - Revenue stream represents the entity’s primary revenue stream

  For the 2022 Form 10-K, the Company evaluated whether operating segment identification should be at the entity level or at the revenue stream level in accordance with ASC 280-10-50-1, which states that an operating segment is a component of a public entity that has all of the following characteristics:

  a.It engages in business activities from which it may recognize revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same public entity).

  Entity level:

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  Characteristic a. was considered, and the Company determined it WAS MET at the entity level. The Company evaluated and identified all its entities listed above engaged in business activities.

  Revenue stream level:

  Characteristic a. was considered, and the Company determined it WAS NOT MET at the revenue stream level. The Company’s revenue streams are types of diagnostic tests that the Company offers. The revenue streams recognize revenue; however, expenses, resources, workflow, and reporting systems are not distinct between revenue streams.

  b.Its operating results are regularly reviewed by the public entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

  Entity level:

  Characteristic b. was considered, and the Company determined it WAS NOT MET at the entity level.

  Entity level operating results are not regularly reviewed by the CODM to make operating decisions about resources allocation and assessment of business performance. The CODM reviewed the CODM Package to assess the overall consolidated business performance. The CODM may receive entity level financial information as needed for significant fluctuations against budget, which may occur once or twice a year. He did not receive this financial information for every reporting period.

  The budget was prepared bottoms up at the entity level, however, the CODM reviewed the budget at a consolidated level. Compensation was determined at the consolidated level and managed by a centralized human resources team. The consolidated budget along with compensation and resource allocation were presented to the Board of Directors of the Company (the “Board”).

  The CODM was held responsible for the Company’s overall performance. The Company did not have any individual officers, executives or employees that were held accountable for the operating results of the individual components or at a level below the components. All of the CEO’s direct reports, officers, and employees are compensated based upon the Company’s overall performance at the consolidated level.

  Revenue stream level:

  Characteristic b. was considered, and the Company determined it WAS NOT MET at the revenue stream level.

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  Revenue stream results were regularly reviewed by the CODM, however, the revenue by stream did not include cost of service or any measure of profitability and was not sufficient to make operating decisions about resources allocation and assessment of business performance.

  The budget was prepared bottoms up at the revenue stream level on an annual basis.

  c.Its discrete financial information is available.

  Entity level:

  Characteristic c. was considered, and the Company determined it WAS MET at the entity level.

  Discrete financial information was available at the entity level in the Company’s financial systems. The entity level discrete financial information was utilized in the variance analysis performed by the Chief Financial Officer (“CFO”) and his financial accounting team as part of internal controls over financial reporting. The CODM Package reviewed by the CEO did not include entity level discrete financial information. As described above, the CEO may have received entity level financial information as needed for significant fluctuations against budget, which may have occurred once or twice a year. He did not receive this financial information for every reporting period.

  Revenue stream level:

  Characteristic c. was considered, and the Company determined it WAS MET at the revenue stream level.

  Discrete financial information consisting of revenue financial information was available at the revenue stream level in the Company’s financial systems. The revenue stream did not include cost of service or any measure of profitability.

  Conclusion:

  The Company concluded its components were not operating segments and also concluded there were no operating segments at a level below the component as follows:

  Entity level

  Based on the Company’s evaluation of the operating segment characteristics, the Company determined its operating segment identification at the entity level WAS NOT MET at the level below the component level. Characteristic b. WAS NOT MET, therefore operating segment identification was NOT MET at the entity level.

  Revenue stream level

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  Based on the Company’s evaluation of the operating segment characteristics, the Company determined its operating segment identification at the revenue stream level WAS NOT MET at the level below the component level. Characteristic a. and b. were considered, and the Company determined each WAS NOT MET at the revenue stream level, therefore operating segment identification was NOT MET at revenue stream level.

  Given the Company’s sales outside of the United States (within the FF Gene entity), and material revenues since 2020 from COVID-19 testing (within the Fulgent Therapeutics LLC entity), the Company also considered whether its operating segments identification might exist on a geographic basis or specifically for the COVID-19 revenue stream level. The CODM did not make resource allocation decisions based upon foreign locations outside of the United States, or specifically for COVID-19 testing. Additionally, FF Gene revenues were not material to the overall consolidated financials. The Company concluded that COVID-19 testing is merely another type of diagnostic test that the Company offers, consistent with its other revenue streams. The resources, workflow, and reporting system for its COVID-19 tests are generally the same as the resources, workflow, and reporting system for its regular genetics testing. Therefore, the Company concluded that it did not have any geographic operating segments (note the Company did comply with the entity wide geographic disclosures in accordance with ASC 280-10-50-41). The Company also concluded that COVID-19 testing was not a separate operating segment.

  Set forth below are the heading and text of each comment, followed by the Company’s response.

  Form 10-K for Fiscal Year Ended December 31, 2022

  Note 2. Summary of Significant Accounting Policies
Reporting Segment and Geographic Information, page F-15

  1.We note your response to prior comment 5. Please further address the following regarding your analysis of ASC 280-10-50-1.

  •The title and description of the role of each individual who reports to the CEO, who you identified as the CODM.

  Response:

  The following roles report directly to the CEO:

  •President and Chief Operating Officer - responsible for daily business operations of the Company.

  •Chief Financial Officer (“CFO”) - responsible for managing the financial activities of the Company.

  •Chief Scientific Officer - responsible for overseeing scientific and laboratory operations.

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  •President and Chief Scientific Officer, Fulgent Pharma – focused on providing scientific advice regarding the R&D activities of Fulgent Pharma.

  •Chief Commercial Officer - responsible for managing certain commercial aspects of the Company’s operations.

  •Chief Medical Officer - responsible for supervising certain medical personnel and the services provided by the Company’s affiliated professional corporations.

  •Vice President, Business Development and Sales - responsible for driving new business initiatives and identifying partnership and collaboration opportunities.

  •How often the CODM meets with his direct reports, the financial information the CODM reviews to prepare for those meetings, the financial information discussed in those meetings, and who else attends those meetings.

  Response:

  The CODM meets on a weekly basis with his direct reports (as listed above). However, the CODM also meets formally on a quarterly basis with his direct reports and senior management (Vice President, Finance (“VP Finance”); General Counsel & Chief Privacy Officer; Vice President, Human Resources; Vice President, General Manager (IDx and CSI); Vice President, Operations and Compliance; Vice President, Strategic Partnerships and Managed Care; Chief Information Security Officer; Vice President, System Applications & Integration; and Vice President IT Infrastructure).

  During the weekly meetings with direct reports, the discussions are primarily focused on cash management and revenue forecasts at the consolidated level. Other topics, such as capital expenditures and business growth initiatives through organic means and acquisitions, are key topics that are discussed. The only financial information provided to the CODM for the purposes of these meetings is information supporting the above topics, which include cash management, revenue forecasts and capital expenditures information.

  The financial information provided to the CODM and discussed in the quarterly management meetings generally includes the following for the applicable annual or quarterly periods to be reviewed at the meetings:

  •consolidated income statement presenting revenue, cost of sales, gross profit (loss), operating expenses, net income (loss), and earnings per share;

  oRevenue streams (Anatomic Pathology, Pharma Services, Pr