Q3 2019 Earnings Call
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And gentlemen, you're currently on hold for the bio Nam Nano genomics third quarter 2019 conference call. At this time, we heard many additional participants and shouldn't get underway in approximately two minutes. We do thank you for your patience and if you. Please continue to remain on the line.
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Good day, everyone and welcome to the by only in our genomics third quarter 2019 earnings Conference call. Today's conference is being recorded at this time it would like to turn the conference over to actually Robinson from Investor Relations. Please go ahead Sir.
Thank you on that and thank you operator, and good afternoon, everyone welcome to the about energy third quarter 2019.
This conference call, leading the call today will be Dr. Eric.
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Unlike ward chief.
Chief Financial Officer.
The market close today I don't know issued a press release announcing its financial results for the third quarter 2019, a copy of the release can be found on the Investor Relations page of the company's website.
Before we begin I would like to remind everyone that certain statements made during this conference call may contain forward looking statements, including statements about our strategic and commercialization plans expectations regarding the rate an extent of adoption of the Sapphire system and decided genetics segment.
2019 sales pipeline anticipated benefits of improvements to the Sapphire system conclusions as to sapphires potential as a powerful new tool inside of genomics.
The advantages of the Sapphire system, Overcurrent technologies, and our expectations regarding timing and content of study results anticipated benefits of these studies in driving adoption of just Sapphire system such forward looking statements are based upon current expectations and there can be no assurances that the results contemplated in these statements will do realize.
Actual results may differ materially from such statements due to a number of risk factors and risks some of which are identified in our press release and our other reports filed with the FCC use forward looking statements are based on information available to bio nano today and the company assumes no obligation to update statements as circumstances.
Change and audio recording a webcast replay for today's conference call will also be available online in the Investor section of the company's website for the benefit of those who maybe listening to the replay or archived webcast. This call is held and recorded on November seven 2019.
I will turn the call over Eric Holmlund Eric.
Thank you Ashley and good afternoon, everyone I'm very pleased to have any join us today for an update on our progress this past quarter with me on the call today is our Chief Financial Officer, Mike Ward, who will review our third quarter financials.
After our prepared remarks, we will open the call free question answer session.
Let me begin today with review the highlights from our third quarter, starting with our revenues.
Our revenue grew 17% for the nine months ended Septemberthirty 2019, as compared to the same period in 2018 and it was primarily driven by strong sales performance in North America revenues grew in Q3 2019 by 50.
2% over the second quarter of this year, which is consistent with the seasonality in our business.
In North America revenues grew by more than 100% for the three months ended September Thirtyth 2019, as compared to the same period in 2018.
For the nine months ended September Thirtyth 2019 revenues grew in North America in Europe .
Slide 13 parse per cent combined as compared to the same period in 2018.
Our revenues, particularly in North America reflect the impact of investments in our commercial team AD market development since our IPO. We have added for direct salespeople in North America, and two in Europe as well as key leaders in marketing who are supporting our efforts.
To drive broad market understanding of sapphires utility in our chosen and markets human clinical translational research and cytogenetics in China, our revenues were down on a year over year basis, both for the third quarter and year to date the sluggish sales in.
China reflect in numerous factors, including some were able to address and others that are out of our control. For example, the geopolitical climate has introduced headwinds coming in the form of additional terrorists imposed on our consumables and instruments that are imported into China buyer distribution.
And partners and you end users.
Although recent developments suggest that relief in these tariffs maybe coming.
What are the items, we can manage in China is our commercial footprint earlier. This year, we added a country general manager in China, we reorganized our distribution channels in the region and established a local team of sales personnel, who support our distributors in identifying and.
Cultivating sales opportunities.
Finally, we have established a laboratory in China, where we can process samples in pilot projects, which is often a required step in our sales process due to restrictions relating to Chinese samples, leaving the country. We had previously limited.
Our been limited and our ability to provide pilot project access there since we cannot process the samples outside China. We believe our efforts to address these challenges will contribute to accelerated sales in China.
Moving on from our Hot financial highlights I'm excited about our progress in executing our strategy to establish sapphire as the leading platform to streamline and modernize cytogenetic testing.
Cytogenetics is the analysis of genetic abnormalities that happen on a chromosome whole level as opposed to the single based car level common for sequencing analysis, nearly 90% of blood cancers, and roughly half of solid tumors have some type of.
Cytogenetic abnormality that as inches up driver of the disease.
Diagnostic testing in Cytogenetics labs has historically relied on for methods.
Dish karyotyping micro raise and southern block.
Which in turn rely on complicated expensive laborious and slow workflows and cytogenetics labs are seeking to replace these workflows.
Sequencers are not useful in detecting.
Kinetic abnormalities.
Sapphire on the other had offers a single platform capable of replacing all for traditional cytogenetic methods, giving labs, a four in one solution.
A key step and readying sapphire for adoption by Cytogenetics labs has been validation by outside investigators that satisfies sapphire is a suitable replacement. This quarter, we announced findings that supports sapphires benefits that were presented by researchers at scientific conferences.
Around the country.
Adoption of Sapphire by key players in the industry.
And saw the Sapphire system continued to be highlighted in a growing number of peer reviewed journals. Let me take a moment to go into a bit more detail on these items.
American Society of human Genetics annual meeting this year, we saw presentations by key scientists from top institutions and diagnostic companies highlighting a series of new findings and validation results that does that support their adoption of sapphire as a complement.
Sequencing for variant discovery and as a replacement for traditional cytogenetic message. There was a total of 22 oral and poster presentations highlighting their progress in clinical studies with updates from Perkin Elmer Mayo clinic.
During the X. MD Anderson cancer Center.
General Hospital, Emory University, George Washington University add others, the quality of the studies in a wide variety of applications for Sapphire continues to increase data show that investigators are using sapphire to help answer difficult.
Questions in complex genetic diseases that have historically been very challenging.
A natural extension of the growing body of evidence supporting Sapphire as a routine tool in research and clinical settings wouldn't be to see growing adoption at key institutions, which is in fact, what we're seeing.
This quarter Perkinelmer genomics and the University of Iowa announced they were adopting sapphire for use in their clinical genomics laboratories. These institutions are using our technology to develop assays for genetic tests assessing diseases associated with crew.
Miserable abnormalities their lead indication is FX, HD, which is a highly prevalent form of muscular dystrophy.
Traditional cytogenetic methods used to detect fs HD are in price and precise labor intensive and involve dangerous radioactive labeling methods, which are being phased out by laboratories due to safety concerns. The sapphire system. In contrast is safe fast.
Reproducible and very easy to use.
In China, as well, we announced the adoption by major global service providers, such as Grandevo mix and know that gene that are using the sapphire system to offer services to their clients for research and clinical applications.
In this quarter. We also saw another impressive number of publications featuring Sapphire. So far this year, we have exceeded the numbers publications in all of 2017 and we are believe we're on track to exceed the total number of publications in 18 as well a major focus of our pub.
Application strategy is on key independent clinical studies designed to establish sapphire as the platform to replace the outdated technologies such as fluorescent since its you hybridization or fish karyotyping micro raise and southern block.
In light of the growing validation in publication of Sapphires benefits.
Its wide use and.
A variety of applications, we believe other applications and broad adoptions will follow.
Now it is my pleasure to turn the call over to Mike for an update on our financials Mike.
Thank you Eric and good afternoon, everyone.
I will now briefly review some of the highlights from our third quarter 2019 financials.
During the third quarter bounty Anna recorded total revenue of $3.3 million compared to $2.2 million last quarter and $2.8 million in the third quarter of last year.
Revenue compared to last year benefited from strong sales in North America.
Impacted by lower contributions from Asia and Europe .
US demand remains strong as we see our sales and marketing efforts gaining traction.
Regardless of the geography, however, our business is very seasonal with the first half of the year traditionally being significantly lower than the second half.
And with quarterly revenues tending to increase as the year progresses.
Total cost of revenue decreased by zero point $7 million were 23% to $2.4 million for the three months ended September Thirtyth 2019, compared to $3.1 million for the same period in 2018.
We incurred a 1.3 million dollar expense to write down the carrying value of Iris instruments on hand to zero. During the three months ended September Thirtyth 2018.
Total cost of revenue decreased for the three months ended September Thirtyth 2019, compared to the same period in 2018 due to the Iris write down in 2018, which was partially offset by an increase in cost of revenue from the increase in sales in this years period.
Third quarter 2019, operating expenses increased by zero point $9 million or 16% to $6.6 million for the three months ended September Thirtyth 2019.
Compared to $5.7 million in the same period last year.
The increase was mainly attributed to higher selling general and administrative expense due to increased employee compensation costs, resulting from headcount additions to our global sales and marketing teams.
As well as back office support to assist with the growth of our worldwide product distribution.
Finally as of September Thirtyth 2019, our cash balance was $8.2 million.
Since the quarter end, we announced that we completed the public offering.
Of our exit equity securities, resulting in gross proceeds to us.
$18 million before underwriting discounts and commissions and offering expenses.
This cash has bolstered our balance sheet, we expected to help to support our efforts as we execute on our strategy in 2020.
Thank you I will now turn it back over to Eric before going into Q inning.
Thank you Mike as I mentioned earlier, we are pleased with the interest we are seeing an optimistic that our execution. In these core markets will continue to build demand some of the things you'd expect to see from us throughout the rest of the year included continued focus on our global commercial expansion improvements to the Sapphire.
System and execution on our strategy for market development and validation of Sapphire and clinical applications.
With that I'll open up the call Fourq Una operator.
Thank you if you would like to ask a question. Please signal by pressing star one in your telephone keypad, you're joining us today using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Again. This is starkey followed by the digit wanted to give a question or comment well pause for just a moment.
At this time, we do have a couple of colors into Q1 that is the Starkey followed by the district wide well take your first question from Jason Mccarthy from Maxim Group.
Hi, guys. Thanks for taking the questions.
And a good quarter as well I want to ask more of a broad broad scopes question, Eric can you talk or kind of applied a little bit about the importance of.
Changing molecular testing right because you had mentioned that.
This could really replaced other blocks that could really replace karyotyping eventually microarrays and there are other examples historically, where we've seen a dramatic change in testing like on the western blots.
Different but the analogy I think is there and can can you talk a little bit about the importance of Sapphire now you could shift.
Testing on the cytogenetics side.
Sure.
I would say is that.
You know sapphire is offering.
A fairly significant.
Upgrade updating modernization of this traditional workflow that has been exist in existence.
For for decades, now and the labs that right. It's the traditional cytogenetics workflow.
Our eager to replace it and new labs that are being built are unable to adopt some of the traditional methods and especially the ones that rely on radio activity and so when we look at western blot, which was.
Streamlined dad industrialize fly protein simple when we look at.
And since you hybridization.
Monoclonal antibodies, stating, which was in industrialized by Ventana, we see the Sapphire system.
During the same thing for Cytogenetics, where we are consolidating multiple laborious.
Manual subjective workflows into a streamlined.
Single.
Passe.
That is that as digital and so that is going to benefit the laughs because it. It is a tremendous cost savings it's an improvement in the results because it's a much more stable.
And regular workflow, but there's a huge benefit that comes as well now is that the SAP. Our system is scalable and so I think it's safe to say that there are going to be continuously more and more biomarkers that are discovered and added into these testing panels and with Sapphire you can add those buyer.
Markers without any additional product development or assay development, because you get all of those markers in a single asset and so we've seen this type of.
Transition take place in labs before it's just that the Sapphire is the first one to go in and offer this kind of.
Transformation to cytogenetics.
Great and can you give us an update or do you know when the next update on the study.
In the Netherlands will be and the other studies that I think those are.
Are going to be keys in.
Really helping the space understand.
Independently, what the Sapphire machine can bring.
Sure. So we have.
I would say really now three flagship studies that are better underway and ongoing. The first is that right out University Medical center, which is the Netherlands, and they're very far along in a 150 patient study I would say there about two thirds of the way through we've seen some interim report.
It's over the course of this year and we would expect data collection to be wrapped up by the end of this year. We're also expecting there to be an interim publication. So it wouldn't be on all 150.
Patients, but it would be on a large subset of the patients who have been studied so far this year and.
We are hoping to get that published by the end of this year or very very early.
In the beginning of next year, but the Rad out data collection should wrap up this year Columbia University has organized under the leadership of Dr. Britain Levy.
A consortium to validate sapphire in a number of hematologic malignancies rat doubt also looks at hematologic malignancies.
And that study is also progressing we expect data collection, which is in in.
Full bore now going well to wrap up.
Ideally by the end of year, but we can see some signs that there might be a little bit of.
Data collection still going on in early.
Next year, but.
The publication as always intended to come out in the first quarter of 2020 and I believe we're on track for that Thats, The Columbia study and.
Very recently MD Anderson cancer Center.
Which is part of the consortium that that is led by Dr. bring levy at Columbia.
Yes.
Initiated a study we together have initiated a study and.
In Mds, which is a precursor to AML and Mds Anderson is a leader in Mds testing and so we will be validating the system for Mds analysis.
Beginning this quarter and we would expect that data collection to wrap up probably early next quarter.
Okay, and just one last quick one on the on the Perkinelmer.
Deal and them coming on board.
As of the testing provider that they are they tend to service the pharma and biotech industry.
Do you believe that Fsh de they asked say they developed is just the first do you expect them to continue to layer on.
Additional testing beyond Fs HD.
Yes, yes, we do they intend to develop a full menu of asset base.
Which they described it's their term for assays that are not easily addressed the sequencing, which is a primary work horse for them in their clinical and CRM business.
This.
Turning to day uses.
Markers or tests that are refractory to sequencing and so they simply though.
You know comply with the sequencing analysis and the SAP. Our system is perfect for those types of assets and so FX HD is one example of a repeat expansion contraction deletion disorder and there are others.
Fragile X.
And other Dystrophies and these fit in neuromuscular panels and other indications fragile X is tested for.
Autism.
Patients and so these indications will be added to a growing menu of tests that perkinelmer and other diagnostic labs that are adopting sapphire will be building.
These will be provided to patients.
They are validated as laboratory developed tests.
And to.
Pharmaceutical companies using the test results to guide their drug development and guide enrollment of patients for clinical trials.
Great. Thank you guys were taking the questions.
Thanks, Jason.
Well hear next from Scott Henry from Roth Capital. Please go ahead.
Thank you and good afternoon.
A couple of questions.
First to.
Yes, the revenue model changed at all.
From the standpoint.
Customers taken placements as opposed to.
To outright purchases in might that any impact what your would be reporting as revenues in any changes or is it still pretty similar.
Well.
Theres no fundamental change in the model, we have always had a little bit of a mix of what I would call direct sales and.
And reagent rental.
And so.
That mix has.
Persisted.
We are seeing though.
Is that as we go into the.
Space where adoption.
Is by clinical labs to develop an asset and validated as a laboratory developed test those labs are more accustomed to and then therefore see too.
Adopt under the reagent rental model.
So for some deals that ends up taking the.
200, $240000 of revenue attributed to a sapphire sale and spreading it out over time.
The upside in that kind of a model is that.
The sales cycle once we get passed the validation stage goes a little bit faster and so consumables revenue start a little bit sooner so economically for the company.
It's.
Probably more beneficial, but it does spread some of the initial system sales revenues out overtime.
Okay, Thanks for that color and.
When we look at the first nine months of 2019 versus 18 revenues or.
Our call it flat, which which is not what we want to see in it and a growth company could you talk a little bit about your expectations for Q4.
I mean are you expecting a record quarter I mean, obviously, you don't know yet, but I just want to get your thoughts.
On the outlook for Q4.
Sure well when we look at the nine months I think you know and this is why we.
Breakout the geographies.
Yes, I think what you see.
Geographic breakout as.
Yup.
The differences between what we're.
Executing and seeing the benefit of in North America add in Western Europe , where we sell directly.
And.
Those geographies are progressing very nicely North America is leading the way.
And that's probably not by surprise since that's that's where we start our initiatives and China is lagging fairly significantly so I think that really the principal.
Headwind for the revenues as a whole.
Coming from China, and as I mentioned in my prepared remarks, but will reiterate.
China has has.
Faced some challenges for other companies in our industry and its related to some of the ongoing.
Uncertainty around tariffs and different.
Trade impediments that are that have been put in place.
And so.
We are hopeful that.
Recent news around those impediments clearing up.
We'll break free.
In addition, we have begun to.
Implement corrective actions on the commercial strategy side in China that we also believe will accelerate the returned to growth there and so I would say that.
You know everything is progressing well and North America and Europe .
And.
China has been our challenge when we look to the fourth quarter.
That's traditionally our biggest quarter of the year and we have that full expectation this year.
Last year, our fourth quarter was a record quarter and it's our expectation to have another record quarter in the fourth quarter of this year.
And.
I think that the total amount of growth is somewhat dependent on.
How quickly we're able to.
Restore.
That that growth in China, but we had very good signs this quarter in the third quarter that growth is coming back and so.
Hopefully we can we can get that caught up by the end of the year.
Seeing a 100% year over year growth in this third quarter in North America for example is a.
Very positive side, and we we take that as feedback that the.
Things that we're doing on the commercial side from a strategic and execution standpoint are working.
Okay, Great and I appreciate that color kind of final question is it a little more of a a big picture question Eric.
Obviously, the the market.
Have become more challenged.
For.
Company that are not turning a profit as it is getting a little harder to raise capital. So when we think about 2020 and from a big picture.
You kind of had a fork in the road either revenues are going to have start reaching an inflection point or alternatively, maybe you have to tweak the business model a little bit.
How do you think about 2020, and we do you think the inflection point is right around the corner, which will kind of grow out of.
Or grow into the expense base or at some point do you have to start evaluating the expenses.
Well I mean look I, we are very.
Careful and conscious about how we have constructed the company and the investments that we make having said that.
More investment.
Is.
The investments that we are making are required to to generate the growth that we expect.
And what what we believe is that.
The work that is going on in the field to validate the system for use in.
Clinical laboratories will be that source of accelerated growth and those validations are progressing extremely well.
They are on track from a timing perspective and.
There there the results of those Validations will be.
Out in time to have an impact on 2020, when we think about profitability overall, we want to make sure that rebalance the timing to get profitable.
Against the the.
Efforts that were making to conduct market development in favor of growing the business and so we would never want to I think short changed the full potential of Sapphire.
And that's our current attitude and we believe that that.
Inflection point is around the corner as you said.
Okay, great. Thank you for taking the question.
You're welcome.
Okay.
That does conclude the question and answer portion of today's call at this time I would like to hand, the call back over the air Comm, one for any additional or closing comments.
Thank you operator.
That does.
Concludes our remarks for today and so thank you very much for joining.
That does conclude today's teleconference. We thank you all for your participation you may now disconnect.