Q1 2020 Earnings Call
Good day and welcome to accelerate diagnostics.
2020, <unk> results conference call all participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions.
Please note that is being recorded I would now like to turn the conference over to lock their sense of accelerate diagnostics. Please go ahead.
Before we begin it is important to share that information presented during this call may contain forward looking statement within the meaning of section 27, eight other security the active 1933.
<unk> 21, other Securities Exchange Act of 1934.
Forward looking statements include projections statements about our future and those that are not historical facts.
Forward looking statements that are made during this conference call are subject to risks uncertainties and other factors that could cause our actual results could differ materially.
These are discussed in greater detail and our annual report on form 10-K for the year ended December 31st 2019, and other reports we filed with the FCC.
It's my pleasure to now introduced the company's President and CEO Jack Philips.
Thank you Laura good afternoon, everyone and welcome to our first quarter 2020 earnings call on today's call will review, our Q1 progress prior to the covert shutdown.
<unk> insight into the subsequent impacts of the pandemic on our business and detailed the steps we're taking to mitigate these impacts.
Before we begin I would like to send a word of gratitude to our global accelerate team in the span of only a few days we plan to in fully executed a transition plan that allowed us to conduct our business with a limited onsite team and 90% of our workforce working remotely.
For our central onsite production team, we have implemented social dismissing measures staggered shifts and cross trained our teams to ensure their safety and continuity of production.
Thanks to our team's relentless dedication our system supply chain and overall ability to service our customers has not skipped a beat and I am excited about the progress that we continue to make as a company during this pandemic.
In addition to these majors to protect the health and safety of employees, we have taken a number of additional steps to mitigate the financial impact other pandemic on our business, which Stephen I will provide more detail on later in the call before discussing this progress I will briefly review our financial results during the quarter in the.
First quarter, we recorded revenue of $2.3 million, which was weighted heavily towards test kit revenue.
It was Asian within our existing base of life Pheno instruments continue to prove both durable and predictable through the first quarter.
It's worth noting that during the month of April we began to see a decline in test order volume from certain customers, while a number of large hospitals remaining capacity and have continued their normal pace of ordering other hospitals had been experiencing record vacancies driving lower test volumes that those facilities how.
However, while it's difficult to predict a specific timing we remain fully confident that those testing volumes will return to normal levels as elective procedures and overall inpatient admissions begin to ramp back up again.
New contracts and go lives were progressing as anticipated through February and March However hospital shifted their focus to preparing for and treating cobot 19 patients in place meaningful restrictions on hospital visitors. This abrupt change limited or access to customers, which in turn.
Let you significantly lower than expected new contracting go lives for the quarter.
We were very pleased with the strength of our annuity for the first quarter, along with our progress in bringing contracted customers like through the first too much of the year. However, the ensuing delays and go lives and the potential for lower customer testing volumes will have an impact on our revenue over the balance of two.
2020, and as previously announced we have withdrawn or revenue guidance for the full year.
Despite these disruptions we are far from standing still while we continue to sharpen our site by site strategies for bringing contracted customers live getting new customer side. We have also lead into the opportunity provided by cobot 19 and are in the process of commercializing a new fully automated can be limited.
Essence, immuno assay analyzer, and Sars Coke to test for the detection of Ige, He and I G M antibodies.
Before providing additional operational details from the quarter and an update on our three focus areas for the year I would like to handed over to Steve to review, our first quarter financial results Steve.
Thank you Jack and good afternoon, everyone.
Net sales were $2.3 million in the first quarter compared to $1.8 billion for the same period in 2019.
For a 34% year over year growth.
Nearly all of first quarter's revenue at all of our year over year growth was the result of higher consumable sales.
This is driven by increasing the number of like customers.
The capital revenue deals we anticipated for the quarter, we are forecasted to close at March.
And these were delayed due to pandemic related disruptions.
Cost of goods sold were $1.3 million in the first quarter, resulting in gross margins of 45%.
This compares to cost of goods sold of $916000 or gross margin of 48% from the same period in 2019.
Gross margins remained relatively unchanged over these periods as scrap charges in the first quarter offset benefits from lower fixed costs per unit derived from higher production volumes.
Selling general and administrative expenses were $12.9 billion for the first quarter compared to $12.7 million for the same period in 2019.
This small increase was the result of increases to noncash stock based compensation expense.
Excluding this non cash increase to expense cash spend in selling general and administrative expenses reduced by over 1 billion over this period, driven by reductions and discretionary spend like travel.
Research and development costs were $5.8 million for the first quarter compared to $6.9 million from the same period in 2019.
That's approximately 1 million dollar reduction was the result of increase efficiencies.
Lower external studies bad.
Our net loss was $21.3 million for the first quarter, resulting in a net loss per share a 39 cents.
It's not lost contained $4.2 million and noncash stock based compensation expense.
Net cash use was 16.4 million put the quarter.
The company ended the quarter with cash and investments of 92 million.
The first quarter is typically the highest cash burn quarter of the year annual premiums that subscriptions are paid at eight P.M. payroll timing leads to a shift of cash clearing related to December expenses into January.
Due to these timing factors and ongoing efforts to carefully manage expenditures, we expect reduction net cash burn the subsequent quarters of a year.
After evaluating a range of different scenarios. We believe we are on track to be favorable to our net cash burn guidance of 49 billion for full year 2020.
I'll now hand, it back to Jack to review, our first quarter results in greater detail.
Yeah.
Thanks, Steve.
As outlined previously we have three focus areas for the year driving U.S. commercial excellence continued focus geographic expansion and growing our product portfolio. While these priorities remain unchanged after considering the impact of the pandemic our near term tactics have evolved to also include our efforts.
To maximize our commercial relevance in the current Kobin 19 focused healthcare environment.
Turning first to our U.S. commercial results. We added 17 net new instruments. During Q1. These closes occurred in the first two months to the quarter and we're tracking with our internal forecast traditionally we see the vast majority of new signings in the last two weeks ever given quarter. However, as I met.
And earlier our progress in March was essentially halted its customers turn their focus to cope with 19.
And this usual quarter end phenomenon simply did not occur in Q1.
We also brought 33 instruments live in the quarter, which through February was tracking in line with our expectations. We ended the quarter with 197 revenue generating instruments with another 239 in the process of being implemented at customer sites and not yet generating revenue.
We have not lost any U.S. revenue generating accounts and our U.S. annuities were in line with our expectations during the quarter.
However in April we started seeing certain customers lowered their order volumes, which is the result of lower admissions and occupancy rates as elective surgeries were postponed and patience.
In general have been more inclined to avoid the hospital.
While we're pleased with the durability and predictability of our test kit utilization in the first quarter, we do expect to see a negative impact to our annuity stream until admissions and occupancy rates return to normal.
Although these headwinds on placements and go lives have continued to the first several weeks of the second quarter. We are beginning to see anecdotal evidence of the go live in sales process starting to move forward at certain institutions. While these green shoots are certainly encouraging it's too early.
To call them, a trend and we expect these headwinds to continue over the near term.
However, while the specific timing is difficult to predict we do believe that these negative effects will wane as hospitals began to ramp back towards normalized levels of activity.
Turning now to some of the key initiatives, we undertook to further U.S. commercial excellence.
During the first quarter, we rolled out a number of new tools, including new return on investment calculator, incorporating recent outcomes data a formalized customer reference program and a new customer implementation process. We saw early signs of success with these in the first two months of Q1.
Prior to the Cobot 19 shut down in mid March. We also continue to see engagement from external parties advancing and tap in C.P.T. reimbursement initiatives and C.L. aside guidelines and we still expect these to conclude within the year.
In addition to advancing these projects we initiated prior to the pandemic. We have quickly adapted to the current environment maximizing our productivity and potential for near term commercial relevance.
First our sales and implementation teams are engaged in detail account by account strategy reviews to ensure readiness once our prospective customers and implementation sites Reengage. We're also launching a new awareness program, which educates health care professionals on how fee knows rapid I.D.A.S.T. delay.
<unk> proven length of stay outcomes, resulting in improved bed capacity.
Managing I see you bad shortages has been a key issue for hospitals and the criteria for easing restrictions moving forward.
Moving now to our second area of focus international expansion.
Our me a team began experiencing pandemic related disruptions in February and these impacts have persisted through April in the first quarter no new customers were added in EMEA and four instruments removed were removed from pre selected sites as part of our initiative to redistribute instruments to.
More productive sites to existing commercially contracted customers drove rapid go lives during the quarter to reduce lab staff exposure to patient samples and to increase bed capacity.
Despite this encouraging small when we continue to expect pandemic related impact to our EMEA business to be significant at least through the second quarter.
Moving on to China, China is a promising market opportunity with significant steps. This challenge a large population and a government focused on health care last quarter. We described at our ongoing registration and local trial process for Pheno was on hold due to covert 19.
We recently received word that are application to the trial were accepted and we're currently in the queue to begin the initial analytic going safety testing portion of the trial.
However, it remains unclear as to when this will begin accordingly, it remains difficult to estimate how long the registration trial process will actually take.
In the meantime, we will continue partnering with key opinion leaders throughout 2020 to conduct studies and plant seeds for commercialization in this market.
Our third focus area is advancements in product innovation and portfolio expansion.
First we are in the later stages of a multi site clinical trial to add new antibiotics. It features to our current Pheno blood test kit.
These new drugs are important to de escalation agents that further differentiate us from old line S. T providers, who are often slow to add new drugs to their panels.
Additionally, we recently filed for F.D.A. emergency use authorization for our Pheno respiratory test kit positioning its benefits for ventilated covert 19 patients. If approved this authorization will provide accelerate an avenue to reengage perspective, and current customers obtained.
Useful analytical and clinical data on this new test and help some affected patients.
Pheno 2.0 is also progressing with sample testing on initial prototypes across multiple sample types now occurring daily.
Lastly, throw recently signed collaboration agreement with bio check limited we have begun commercializing the M.S. fast fully automated can mean luminescence immuno assay analyzer and Sars Coke to test for the detection of IBG Eni GM.
This partnership has the potential to provide both an avenue to reengage for prospective customers on pheno as well as a near term revenue uplift.
Performance data for these assets are best in class with sensitivity and specificity estimated as exceeding 95% for both assays based on over 100 samples collected at the source of the pandemic flu on China.
Since announcing the partnership on April 15th we have received several indications of interest across the global business.
We are continuing to work with the F.D.A. on our emergency use authorization for commercialization in the U.S. and we have taken initial orders in EMEA.
While we are tremendously excited about this collaboration agreement and are eager to play a role in fighting. This pandemic. It remains too early to estimate the revenue potential of this opportunity.
In my 30 years in diagnostics I have never experienced a period of such profound disruption. However, with this disruption comes the creation of new opportunities the near term impact from this pandemic to accelerate and most other health care companies is significant while at the same time shining.
A brighter light on the value of rapid diagnostics for infectious diseases.
Governments around the world are making unprecedented investments into cobot 19 testing and it is my belief that these investments will soon broadened to other areas and infectious disease testing.
You know NMS fast our position incredibly well to take advantage of both immediate and intermediate tailwinds.
Lastly, I would like to recognize our customers and other health care professionals, who are battling this pandemic on behalf of our global accelerate family. We sincerely. Thank you for your heroic efforts I would also like to extend my sincere gratitude to our Chief Scientific Officer, Romney Humphries, who is.
Returning to a roots in the microbiology lab to run the clinical Microbiology Department at Vanderbilt University.
During her three years that accelerate diagnostics Romney has been a tremendous asset and helping us navigate a number of complex and clinical regulatory pathways.
And we wish her all the best in her next endeavor.
And with that we would be happy to answer questions from our analyst should others on the call have questions not addressed we would welcome you to send these questions or request for a follow up on meeting to investors at a acts Dx dotcom.
Thank you.
We will now begin a question and answer session. The first question today comes from Stephen Mom with Piper stand <unk>. Please go ahead.
Hey, guys. Thanks for taking the questions.
So first question.
Yeah married and first question given that your sales force doing in that account by account analysis of prospects.
And you know one thing start opening up do you expect there's going to be a gradual ramp back up and in a potential customers signed customers up or you know if they're going to be a kind of a.
Big or immediate uptake based on kind of pent up demand in backlog.
So thanks for the question Steven So a couple of things on that front first of all at the two things. Our sales force is really been focused on number of things. The two things it's been around a building their regional strategies out and then as I mentioned the more specifically.
Account by account strategies and what we expect from that as we come out is is really you continue on where we left off if you will so we had going into the pandemic, we had a very strong.
Funnel of opportunities that were looking great for for 2020, and and lots of momentum building in many many sites across the U.S. and in Europe.
And so as we as we look at this really what we've been doing is staying in close contact the best we can with our clearly our current customers and our opportunities as well obviously a majority of that has been on the phone and through email and so you know what I can't say.
Right now is these opportunities haven't fallen off they we fully expect them to get back on track, but they will get back on track and no started advancing them.
Pretty much where where they left off.
Okay, great. Thanks for the color and maybe just one more question for me.
On your buyout on that Boucek collaboration.
Oh My understanding is Sta has revised their policy for serology testing a couple of days ago I haven't haven't read that actual new policy, but my understanding is that.
You know they're requiring.
Somewhat cross reactivity.
Data specificity data sensitivity data.
And.
Yeah, requiring that the you know that the test should have been run out on human specify specimens wasn't was confirmed covert 19 infection.
You know given that you know the samples were collected in China.
Maybe give us a little bit a sense, a you know where the FDIC stands on your submission that there's been any changes.
Thank you.
Yes, so I'm I'm. Thank you for that question too I'm aware of the new guidance that just came out a we are you know we are actively engaged with the FDA right now.
Vis a vis <unk> new guidance really hasn't changed anything for where we're at today.
We have an easy way off submitted a as I mentioned for.
AG and GM combo test, we're also going to be submitting an easy way for individual test for both I'd Gigi and I GM.
Over the next couple days.
The FDA.
Has already come back to us with up a few pieces of data that we need to follow up on which is pretty standard and we're working on that now and in addition to that I would say that.
We are submitting for a five 10-K for the M.S. fast instrument.
More we're working on that currently as well with the consultant.
Accelerated the authorized legal agent for bio check ins so were.
We're basically spearheading all of the dialogue between between the F.D.A.M. This opportunity, which is a good thing because of the vast experience we have with the FDA already.
And so so our expectation is again I guess to be clear there's been no set back at all relative to our submission and the new guidance. It that has come out.
None the last thing I would say is the performance data that we have already submitted with the FDA is is excellent data and it it already meets the requirements that they they have called out our sensitivity and specificity.
For both the I Gigi anti GM test or are both you know very solid and and again, we're we're continuing to work with the FDA and hope to hear some positive outcomes here over the next couple of weeks.
Oh, great. That's a that's a fantastic update Jack I appreciate it. Thank you so much.
Thank you.
Your next question comes some Brian Weinstein with William Blair. Please go ahead.
Hey, guys. Thanks for taking the question just to follow a since we were talking about the biotech thing I mean, just in general.
In a higher level Jack what what's your collaboration signal about the long term strategy here I know that you're taking advantage.
I have an opportunity that's been presented to you both in working with bio check and more broadly around the pandemic, but but is there anything that this collaboration signals about kind of the long term strategy of the business and other things that you may consider at some point.
Thanks, Thanks, Brian for the question really really appreciate it.
So from a long term strategy standpoint, I mean, the the primary thing we have on or off our eye on with regard to this biotech partnership and really the opportunity long term.
His opportunities in other areas of infectious disease that would complement what we do today.
So some key markers like potentially a pro calcitonin CRP I IL six other cyto cytokine type markers potentially again that would be offered on the M.S. fast system potentially some of those are already on the city.
Some outside the U.S. and so as we looked at our business. I mean, this is something that could very much compliment our core business. It's in no way shape or form an indication that were moving away for one second from our from our primary area of focus which is rapid I'd ask Pete but if.
If you look at our overall kind of purpose of the company and in helping patients with serious infections or something like this could very much complement what we do long term and then clearly I've talked before in the immediate short term a this is a tremendous opportunity.
To maximize.
Maximize utility of our sales and support organization, it's an opportunity to help during the pandemic up more broadly helped health care, a with our experience our vast experience in commercializing diagnostics. We can play a big role here and then obviously you know from a short mid term.
Standpoint, it does present, a revenue opportunities that that will also take advantage of.
Yep.
Understood. Okay, and then on the decline that you saw in April from some customers on utilization just be a little bit more specific about kind of the magnitude that you were seeing in some of those accounts and conceptually obviously, we've heard a patient to have things that you would think.
Still be going to the hospital for that are not things like my and.
Even stroke in ER and excellent.
Word with the sales process in evaluating Pheno and you know looking at pricing and so forth and so on so while it's it's it's obviously very much load. There's a lot of good indicators that you know we are we are going to see a return to.
You know a focus in other areas. Besides just covert testing and I think again, a large part of this is just dependent on you know whether or not you're in a hot zone or not and and that's and the basically the the what's going on in each individual hospital.
As to as to the activity that's taking place I do expect Alex one last thing that you know as we continue to move out of this I mean hospitals, you know will be you know evaluating what they learn from the pandemic.
And and a big part of this will be in my opinion will be around you know how do you better manage infectious disease crises, how do you better manage secondary infections, how do you better manage bad utilization and staff utilization and those are all things that Pheno <unk>.
<unk> addresses I mean, Pheno, you know gets patience on optimal therapy much much quicker to three days quicker and gets patients out of the hospital two to five days quicker in some cases, and so with that I mean as as health care providers look at these things.
I mean, we fully expect them to be to be really having a heightened sense of interest in in what we're doing in this space.
And I appreciate that Jack that's very helpful Empire covert in March the business was tracking to a pretty good number of placements and U.S. go lives in the new operating plan that you're into letting right now what was working in January and February and what still need some improvement.
Yeah. So so the things that in January and February what.
What was really showing a positive signs it or the the new tools that I've talked about we have a new economic or a white tool that's been implemented and it was implemented really at the start of the year. So it it hasn't <unk> is something that's fairly new.
In addition to that we've made a tremendous progress in building up building, our customer data and even since over over the locked down in the pandemic, we've really move forward with a.
Customer data portal that we now have that will be going live that.
Centrally houses all data from the standpoint of clinical outcomes data patient cases and customer stories.
That was going very well again before the shut down in January February as well combining that data with our why tools.
And so.
You know what needs to improve and I think the areas that we still need to improve as we just need to build a commercial excellence around all these things I mean, we have to develop continue to we had great momentum coming into the year that was pause because of covert 19, and I think our big.
Opportunity coming out of this Alex is that we you know continue to build that high level momentum across all territories in regions.
And I think if we do that we'll we'll see you know we'll continue to see great success.
Okay understood and then there's one last question if I can she just provide some more information on the the respiratory test kit that your file for A.U.I. is this the same respiratory test that you were developing originally and <unk> essentially allow you to get the F.D.A. approval for this product more expert.
Fashion or are you still seeking to know or 510 k. for that product.
Yeah. So so yes, the the eat so we haven't you a per respiratory filed as you indicated and in that that filing is really for this the purpose of what the product is which is to really help patients.
Help clinicians basically better care for patients with secondary bacterial pneumonia.
And and so that that he weighs still active the F.D.A. been back and forth with us with questions. The F.D.A. spoke is clearly right now is on Cove, it and they have come back to us so that will not in in of itself.
Allow us not to have to worry about eight formal submissions. So beyond the way will still need to once we get the way approval for respiratory I think the other side benefit is we're going to learn a lot from that but we will still have to submit.