Q3 2019 Earnings Call
Could you help <unk> third quarter 2019 earnings call EM business uptick.
At this time all parties accounts or you know these and only about.
Following managements prepared remarks, there will be acumen they session.
As a reminder, this conference is being recorded today.
Terrific 2019.
Before we begin I would like to Cushing you stopped comments made during this conference call. It <unk> management may contain forward looking statements regarding the operation self and future results Oh can accurately stanzi.
I encourage you to review options filings with the Securities and exchange couldn't region, including without limitation. The company. Its most recent Form 10-K and 10-Q.
Which identifies specific factors that may cause actual results or events to differ materially from tells describes the forward looking statement.
Factors that may affect the company's results include but are not limited to the completion of the business combination, which you're right. It's Andy.
Persist Heftier clearance 40 Act, which says Hey, Embolic gene panel for years, but that's yearly isolates.
To use of proceeds from the October 2019 public offering.
Activities related to the company's products and services.
Fair enough adoption, if its products and services by hospitals, you know their health care providers.
The success of its commercialization efforts see effect going its business ethics. This thing and you regulatory requirements in older economic and competitive factors.
[noise] took incentive for just conference call contain time sensitive information that is accurate only after the date of Thislife call.
Number six 2019.
The company undertakes no obligation to revise or update any statements to reflect events or circumstances. After the date of this conference call, except as required by law.
I would like to turn the call over two cabin Jones, Chairman and CEO Okay.
Thank you operator, and thank you everyone for joining us this afternoon.
On today's call, we will review, our third quarter 2019 financial results.
Provide an update on business operations and discuss recent corporate actions and our progress towards meeting key objectives by the end of the ER and our plan business combination with cure riders.
We had a solid first nine months to the year.
Total revenue for the nine month period, ending September 30 increased 22% to $2.7 million compared to $2.2 million in 2018.
Third quarter revenue was $648000 compared with 552000 in the prior year period.
17% increase.
In September we announced the planned combination of options business with the cure right as group.
As a reminder, we entered into an implementation agreement with cure writers NV.
Hey, Dutch publicly listed company on Euronext under the ticker cure.
Under which we agreed to purchase all of the outstanding shares and acquire all of the related business assets, a pure write us Gmbh.
Hey subsidiary of your writers and the to create a combined business within option for approximately 2.7 million shares as the consideration.
You're right as has been a pioneer in the development of some sample to answer molecular diagnostics for infectious disease.
The company's goal is to become a leading provider of innovative solutions for molecular microbiology diagnostic.
Designed to address the global challenge of detecting severe infectious diseases, and identifying antibiotic resistance and hospitalized patients.
The Q write us unit Vero test for lower respiratory infections or L. R. T.
It was the first L.R.T. test to be cleared by the F.D.A. in the United States.
The L.R.T. test is marketed directly in the U.S. by Q writers.
And the portfolio of currently five CE marked in vitro diagnostic IDBD products are marketed through Q write us distribution partners in Europe , the middle East and some Asian markets.
You're right. This is wholly owned subsidiary Aries Genetics Gmbh together with strong partners in the life science diagnostics and pharmaceutical industry.
Is developing and commercializing next generation molecular microbiology solutions for life Science Research public health drug development and infectious disease diagnostics.
Areas genetic solutions are based on areas DB likely one of the most comprehensive databases on the genetics of antibiotic resistance and the Aries technology platform with advanced bio informatics, an artificial intelligence tools and algorithms.
We anticipate the combined company will have a broad commercial stage diagnostic portfolio of CE, Ivy, Denmark, and U.S. FDA cleared products and platforms as well as their proprietary ngs based and AI powered technology and knowledge base for the rapid molecular prediction of.
Mark.
The two initial FFO side for the company will be first rapid diagnostics for lower respiratory infection, and urinary tract infection, and second bio informatics and Ngs services.
Our prediction by areas genetics as well as Bioinformatic services based on the Acuitas lighthouse am our knowledge base by option.
Key elements of the company's combined strategy include continuing to gain regulatory clearances and approvals and establishing a market position for proprietary molecular diagnostic test and platforms capitalizing on unique technology platforms leveraging global.
Commercial capabilities and partnerships pursuing development collaborations.
Capitalizing on financial leverage and operational and research synergies to improve return on capital and achieving future profitability.
I would now like to highlight options business activities in the third quarter of 2019.
During the third quarter upturn continued to execute on one of our highest priorities to bring our novel Acuitas margin panel and Acuitas lighthouse software to market.
In May we filed a five 10-K submission seeking FDA clearance the acuitas margin panel product for the detection and in microbial resistance genes in bacterial.
We received our first formal request for additional information from the agency in July and we've been working towards a response to the agency through an interactive review process.
To date, we have provided the agency with responses to approximately two thirds of the requests and are working to address the remaining items in a formal submission to the FDA.
By the early January 2020 response deadline.
Through this interactive review process, we seek to align our responses with FDA expectations to facilitate the timely and successful completion of the clearance process.
In early November we will begin sample testing for the Acuitas Margene panel your end de Novo FDIC submission.
The start date is later than originally planned as a result of the incorporation of feedback from the FDA received through the Q sub process.
There are nine sites under contract for the trial that will involve collection of approximately 1500 clinical remnants samples and testing of additional contrived specimens.
In advance of FDA clearance, we are beginning to transition to acuitas products being the growth driver for the company.
In the first nine months of the year are you also Acuitas am our gene panel and Acuitas lighthouse related revenue represented 43% of total revenue or $1.2 million.
Up from less than 5% of revenue in the comparable 2018 period.
This encouraging trend was the primary driver behind the 22% growth we've seen year to date.
I would now like to turn the call over to option CFO , Tim deck Tim.
Thank you Evan on today's call I will touch on the highlights for the third quarter.
And the nine months ended September Thirtyth 2019.
Revenue for the third quarter of 2019 was $648000 compared with 552000 in the third quarter 2018.
Operating expenses for the third quarter 2019 were 4.1 million compared with 3.8 million in the third quarter 2018.
The increase in operating expenses was primarily attributable to $538000 of transaction cost associated associated with the proposed business combination with curated.
R&D expenses were $1.1 million down from $1.3 million in 2018.
DNA expenses were $1.6 million down from $1.7 million in 2018, and sales and marketing expenses were flat quarter over quarter at $400000.
The net loss for the third quarter, 2019 was $3.5 million or $3.95 per share compared with a net loss of $3.3 million or $10.67 per share in the third quarter of 2018.
Total revenue for the first nine months ended September Thirtyth, 2019 was $2.7 million compared with $2.2 million for the nine months ended September Thirtyth 2018, as Ed mentioned, an increase of 22.4%.
Total operating expenses for the nine months ended September 32019 were 12.4 million compared to $11.7 million for the nine months ended September Thirtyth 2018.
The increase in operating expenses was attributable to two items.
538000 of transaction cost associated with the greatest business combination.
And a $521000 impairment charge in Q1 of this year associated with the abandonment of our Woburn facility.
R&D expenses.
Were $4.1 million up from $3.8 million in 2018.
Gionee expenses were $4.9 million down from $5.4 million in 2018, and sales and marketing expenses were flat year over year at $1.1 million.
Net loss for the first nine months of September Thirtyth, 2019 was $9.9 million for $13.32 per share.
Compared to $9.6 million or $36, a nine cents per share for the period ended September Thirtyth 2018.
We closed the quarter with roughly $1 million of cash. This amount was augmented on October 20, Eightth of this year when we closed a public offering of 4.7 million units at $2 per unit.
You offer you raised gross proceeds of $9.4 million.
In terms of NASDAQ, we recently heard from them that we have regained compliance.
With the shareholder equity requirement early in the quarter, we had regained compliance with NASDAQ minimum minimum bid price rule and are currently in compliance with all continuing listing requirements.
At this point, everyone is aware of the exciting business combination of option right.
As a reminder, we will be issuing roughly 2.7 million shares at the time of closing and we expect to meet other customary closing requirements.
We've been actively working on integrating the two team since the deal was announced in early September .
If you ride. This team has been to Gaithersburg, a number of times and high with other members of the option team will be travelling in Germany next week to continue the integration efforts.
This will be our primary focus until the combination has been approved and completed which we expect to occur by late January early February 2020.
In terms of the combination there are few items I would like to touch on.
In the transaction announcement, we estimated combined pro forma 2019 revenue would be in the five to 6 million dollar range.
We expect revenue to grow to 10 to 15 million in 2020, a potential two to three times increase in our topline revenue.
Our integration efforts are focused on operational efficiencies and financial discipline.
Key saving opportunities to note.
Sure I guess as a state of the art robotic manufacturing facility with historical capital investments approaching $10 million.
This facility has the potential to save millions of dollars of future Capex when scaling up manufacturing and help expedia the ability to bring our am our gene panel to market.
You're right us as a strong us sales and marketing team something that we were looking to build will no longer be necessary.
I just also has a dedicated European commercial partnership 14.
Utilizing these teams will save us millions of dollars in operating expenses going forward.
Or use Salesforce is currently selling into the same accounts that are rapid pathogen I'd and our acuitas am our products are or will be.
Once clear sold to.
Curious with Airbus genetics as advanced bio informatics capabilities that can be leveraged to integrate both companies am our databases and data analytics and reporting platforms and venture into next generation sequencing based infectious diagnostics in the future.
We will certainly look across all other areas of the combined company to look for ways to reduce both our net loss and cash burn.
As we work through our integration efforts over the next two to three months our primary focus will be on identifying and then capturing the financial synergies associated with this combination in 2020 and beyond our preliminary annual cost saving estimates are in the 15% to 20% range.
Potentially even higher.
Overall, we are committed to the critical objectives, we laid out to beginning of the year and we will continue to do everything in our power to improve shareholder value.
With that I'll turn the call back to Evan.
Thank you Tim.
As noted earlier on the call, we're making good progress developing our Acuitas margin panel and Acuitas lighthouse business in advance of FDM clearance.
We are honored to be participating in the New York State infectious disease Digital Health initiative.
Demonstration project.
Conditional clip approval was received by the Wadsworth center over the summer and as additional conditional clip approvals are received we are beginning the hospital testing phase of the project.
We successfully completed the third project milestone and we anticipate completing the fourth and fifth milestones in the fourth quarter and Q1 of 2020, respectively.
I would like to share some of the strategic thinking behind the plan business combination with the curious group.
The combination with curators will bring multiple strategic benefits to the combined business.
These include creating a market leader position to capitalize on global opportunities in infectious disease, and any microbial resistance detection.
Proprietary molecular diagnostic tests and platforms.
Premier AI powered bio informatics solutions for multi drug resistance diagnostics.
Global commercial channel capabilities and partners.
And financial leverage operational synergies and a positive growth driven business outlook.
In addition to the recent progress at option like to highlight several key operational and business development milestones that have recently been accomplished by Q riders.
First in September to write Us NV announced that its wholly owned subsidiary areas genetics has entered into a multi phase collaboration with an undisclosed leading global in vitro diagnostics Corporation to jointly develop diagnostic solutions for infectious disease testing based on net.
Next generation sequencing technology.
The company signed and R&D, an option agreement for the first phase of the collaboration.
Under the current agreement the collaboration partner will fully fund the areas genetics research and development activities for the genotypic and phenotypic characterization of additional bacterial strains to augment Aries DB.
And the development of optimized algorithms for predicting antibiotic resistance.
Furthermore, in return for an undisclosed upfront option fee. This collaboration partner obtains a right of first negotiation for an exclusive human clinical diagnostic use license to Aries DB and the Aries technology platform.
Following this important announcement in October areas genetics announced the launch of an early access program for its not novel artificial intelligence powered next generation sequencing based molecular antibiotic susceptibility status.
Areas Genetics has received commercial orders were more than 1000.
The new areas you P.A. tests.
An order volume exceeding 500000 euro.
Together with advanced bio informatics, and artificial inter intelligence services leveraging areas DB for the diagnostics and pharma industry as well as access to certain rights areas genetics has contracted for and received orders amounting to more than 2 million.
Euro in 2019 to date.
The core unit Vero, a 50 LR T. testing business is also progressing nicely with the solid funnel of sales opportunities and a focus on early adopter accounts.
As of the end of Q3 2019.
15 unit Vero, a 50 analyzers are installed in the United States.
Numerous commercial evaluations are ongoing.
And the first evaluations have been successfully completed.
Anticipated 2020, corporate milestones for key right as include.
FDA clearance for expanded unit Barrow L.R.T. indications.
Unit Vero partnering transactions.
China, and M.P.A. approval and launch of the unit Vera HP and test in China.
And progressing Aries genetics is collaboration with the global Ivy Corporation and potential licensing of the technology for human clinical diagnostic use to such partner.
In addition to these important anticipated developments Upton anticipates completing the planned business combination with Deritis in the first quarter of 2020.
Obtaining FDA clearance to market the Acuitas Edmar gene panel for use with bacterial islands'.
Completing clinical studies and filing de Novo submissions with the FDA for the Acuitas Margene panel urine and Acuitas lighthouse software for rapid testing of urine specimens and prediction of antibiotic resistance to frontline antibiotics.
And completing the data collection phase for.
The New York State infectious disease Digital Health initiative demonstration project.
We're pleased with our progress so far this year and we're very excited about the company's future as we transition and combine our business with curious.
We appreciate your support and your time this afternoon.
I'd now like to turn the call back to the operator for questions.
Thank you Evan we now have time for a few questions. Please press star tend to number one key on your top falling to ask a question.
Your first question comes from the line of key Chan from H.C. Wainwright.
Ken Your line is now open.
Hi, Thank you for taking my questions. So once the.
Earlier this month gene panels has four bacteria isolates obtain Steve five thank you clearance how soon can the commercialization starts and the weather down what depend.
The completion of the combination was congrats thank you.
Thanks for your question you we appreciate it.
The timing of the clearances little hard to pinpoint, but we're clearly getting close to the finish line.
And.
Just on the commercialization side I think the key milestone as the announcement of the clearance and then it will take us.
Following that date likely another month or two to work through the labeling with the FDA and the incorporation of changes that will be.
Required to our software.
And that should dovetail well with the.
Merger with Spiritus and.
This being a new product to launch into their salesforce.
I see could you also provide some color on the potential timeframe for the completion of the clinical studies for the year in panel is it.
In the middle of 2020 or towards second half of 20 Twond.
So back to the urine trial, one of things that's occurred over the recent months as we've put gun analytical testing we've also.
Work to do the verification work to begin the study and that has more complexity to it than you might imagine there's a third party site, that's doing all the microbiology for us and.
As we begin the accruals here shortly.
That testings envisioned to take.
We believe just into the early winter.
And then there will be.
Additional.
DNA sequencing analysis to be required. So if all goes well will be done with those phases during the first quarter.
Okay great.
So.
Can you remind us when the New York stay deal H contract is will be over.
During 2020, and what the next step could possibly be after you complete that data collection.
Sure. So our original contract was for one year to develop infrastructure to support a of rollout and testing in the the infrastructure is to deploy both in conjunction with the New York State Department of Health and Merck's alone.
Subsidiary.
That work has largely been completed and.
Including adaptations to our lighthouse software.
The last six months of the contract involve a prospective data collection phase.
And based on that data collection phase.
The authorities that New York State will work to determine.
Potential funding in future years.
Okay got it.
Thank you.
Thank you.
Your next question comes from the line of Max J codes from Edison Investment Research Max Your line is now open.
Hi, Kim at high Evan Thanks for taking my calls is actually Victoria O'hare on behalf of Max Jacobs.
Can you mention cost savings as a result of the merger how much of a financial runway what the combined company house.
So.
Factoring in the raised that we just completed and the fact that we're currently looking into ways to augment that amount.
We'd expect to see that reach potentially into Q2 of next year.
Okay great.
And then you also mentioned that there are some remaining conditions for closing the transaction with curious.
So could you go over what they are meeting conditions are and what you would say if the probability of the transaction closing successfully.
Sure Victoria this is evident answering.
The first critical milestone was completing the financing that was just completed.
I guess last week.
So that was a very very significant milestone the next major milestone will be gaining the shareholder approvals.
And that will follow the.
Distribution of appropriate meeting materials.
By both companies to their shareholders.
And that will then lead you to a timing of let's just say January February .
And currently we are.
Optimistic that the transaction will close successfully.
Okay and window for shareholder approval slotted for.
So just to give you a little more color on the process up Gen. We'll be filing what's called an S. Four.
And that as for will have a review by the FCC as soon as the FCC declares effectiveness for the S. Four.
Then we can provide meeting materials for our stockholders.
And that will tee up the vote.
To approve the tree the merger.
And then.
As I've been touched on.
We're welding well into the us four.
Preparation and hopefully conclusion here in the next few business days do we.
Okay, Great Evan Tim. Thank you so much for time I appreciate it.
Thank you for thing.
Again, ladies and gentlemen, if you have a question at time. Please press Star then the number one key on your touch on telephone.
Your next question comes from the line of Ben Haynor from Elias Global partners than your line is now open.
Good afternoon, excuse me good afternoon, gentlemen, thanks for taking the questions.
First off for me just looking at your results through Q3, and then I'll security. This is.
I'll now through June as well as the announcement that they've already booked 2 million euros of contractual order volume I mean, it would appear that you're already almost at the five the at least the bottom end of the range, although you've got to two for the combined firms this year and for both firms this year I guess.
I should say.
How should we read this I mean should we read this is implying that Q4 revenue will be relatively minimal.
Should we read it as a reflection of different revenue recognition policies should we read it as conservatism how should we think about this.
I think in looking at our Q4 revenue, which fair to say that you should look at fairly Conservative fleet. We do have a another milestone with New York State that we anticipate meeting in the fourth quarter as well as the legacy fish business that we have.
So you should see an uptick.
In terms of the revenue based on Q3 results.
You can see on the face of the Pn held in our collaboration revenues only 75000.
We reached another milestone with New York and should increase increased by at least another hundred 75000.
Yes, again again, a modest quarter.
Okay. So usually you're thinking that if you reached the milestone on Q4 looks something more like 250000.
For the for the.
Fortunately, we've been in New York State this yet.
Okay, Great and then just just thinking about the the FDA is questions on the isolates submission.
Similarly, it's our Wally I guess, you've said that it that saw impacted how you're conducting a year in trial can you talk a little bit more about that and and the any major changes to what you had expected that.
I have taken place as a result of the questions you've gotten from the FDA.
Sure well, let me first give a little color on the isolate submission.
Through the interactive review process, we received questions from the agency there's over 100 of these questions.
And then.
Many of them are quite technical.
Relating to DNA sequencing results and methods or looking at study results there've been no questions in terms of requiring us to do do new clinical studies.
And.
Then we respond to the agency the agency in some cases and a number of them.
Acknowledges that your response is adequate so that supports and ultimate clearance decision and a fast one when they've.
Basically gone through all the 100 questions.
There are some where we are following up with additional information and then the last questions to be answered are.
A block of data questions that were just finishing off too.
Get back to the agency, but these are very large studies, you can think of them having thousands of samples.
And literally.
Many data points on each one ranging from whole genome sequencing too.
Our multiplex DNA test to microbiology results and so.
It's just a lot of exacting work to get that done properly. So we're as I mentioned, we are approaching the finish line there and encouraged by that the impact on the.
You are in trial has in many ways been just refining the methods that need to be done.
And.
Turning in the trial.
For instance, the use of a third party site and the verification there and.
A number of analytical studies.
And that some of that we've learned over the last period of time, and we think we're now in a position too.
Execute that trial successfully.
And.
And get that submission going.
Okay. That's that's very helpful color and then on the R&D spending do you expect that to ramp up from Q3 now that you've started to the urine panel trial I would imagine and then and then.
Hi, what's a good way about to think of that tracking for the next quarter or too.
Yes, so as I mentioned, we started really this month, so you should see.
You know a modest increase in Q.
Four of this year, maybe in the 100000 dollar range.
Then you will see it increase.
More significantly in Q1 of next year.
And then.
Piece in Q Q2.
Probably in the.
Post a million dollars range in aggregate.
Over those.
Three quarters.
Okay.
Excellent and then I just lastly from me just kind of a housekeeping question.
Presumably with the recent offering a lot of those prepaid warrants for were already exercised or is that correct and if so and you can answer or can you answer how many.
Yes, they have been exercise.
Okay, great. Thanks, a lot for taking the questions gentlemen.
Thanks, and thanks Ben.
Thanks.
Thats all the time, we have today I will now turn the call back to Mr. Jones for closing remarks.
Thank you everyone for joining today and.
We look forward to updating you as we continue to progress the business and for more information. Please visit the investor section of our website or our FCC filings.
Free to give Tim or myself a call.
Thank you very much thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for participation in half a wonderful day you may all disconnect.
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