Q1 2020 Earnings Call
[music].
Corporation first quarter 2020, <unk> earnings conference call.
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Well now turn the call over to Mr. Ruben Argueta, what else director of Investor Relations. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining todays call with me today is our president and Chief Executive Officer, Dr., Brian and Randy Stewart, Our Chief Financial Officer.
Our first quarter 2020 earnings release is now available on our GAAP quite L. Dot com, our Investor Relations website.
Also post our prepared remarks on the presentations tab of our IR website. Following the conclusion of this call may six for a period of 24 hours.
Please note that this conference call will include forward looking statements within the meaning of federal Securities laws. It is possible, but actual results in performance could differ significantly from these stated expectations.
For a discussion of risk factors. Please review quite else annual report on form 10-K registration statements and subsequent quarterly reports on form 10-Q as filed with the FCC.
Furthermore, This conference call contains time sensitive information that is accurate only as of the date of live broadcast May six 2020.
What else 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.
Today quite L. released financial results for the three months ended March 31 2020.
If you have not received our news release, where if you would like to be added to the company's distribution list. Please contact me at 85864 680 to three.
Following doug's comments, Randy will briefly discuss our financial results then we'll open the call to take your questions I'll now hand, the call over to Doug for his comments.
Thank you Ruben and good afternoon, everyone.
First quarter 2020 feels like a really long time ago, we had a good quarter in terms of product development.
Manufacturing and financial performance.
I will be unusually brief though as I know there were where there will be several questions with respect to what we're doing.
With our Sars to kind of our assays.
Total revenue for Q1 was roughly 175 million.
Driven by 80 million and influenza testing revenue.
Which demonstrated the strength of our Sofia franchise and shows with leveraging 43000 analyzers looks like.
Favorability in respiratory disease testing.
It was offset by a decline at the end of quarter inpatient demand.
For our cardio metabolic products in terms of product development first the Savannah team made significant progress.
Which gives me a great deal of confidence as we exit this year.
We will have a highly competitive sample to answer molecular platform.
One that will likely begin to take significant market share and 2021.
By predicts that Savannah will become within a two to three year window.
Our next flagship product, perhaps equal to our Sofia franchise in importance.
Second the tree Arash high sensitivity troponin team prepared answer then it our pre submission package.
To the FDA and advances the dialog we will have with them shortly in preparation for the U.S. clinical trial later this year and finally, while several other assay programs remains on track.
We began the development of three code 19 product offerings, the lira reverse transcriptase PCR for high volume like complexity labs.
Sofia Sars antigen assay.
And the Sofia Serology assay.
On March 17.
We received emergency use authorization from the FDA for Lira Sars Cook to.
And began immediately solidifying our supply chain and ramping up manufacturing.
Before the is a quarter, we were able to manufacture a modest volume of PCR kits.
All of which were sold.
Sofia assays are now in the final stages of development.
We suggested the summer watch for both assets and are running slightly ahead of that timetable.
In terms of manufacturing in the quarter.
Our operations group demonstrated the strength of our supply chain and production teams.
Generating record levels of output when others in the industry, we're struggling to keep up with demand.
The proven scalability of our Sofia cartridge manufacturing lines. During this recent influence epidemic portends well for our ability to meaningfully contribute to improving us public health.
During the Cobas 19 epidemic.
Randy.
Thanks, Doug.
Good afternoon, everyone.
As we reported earlier today total revenues for the first quarter at 2020 were $174.7 million as compared to $148 million on the first quarter of 2019.
Lets 18% increase some revenue was driven mostly by growth in flu and other respiratory products.
The first quarter of 2020 rapid immuno assay grew 54% over the prior year, while molecular diagnostic solutions grew 45% and specialized diagnostic solutions grew 19%.
Foreign currency impact was minimal at $500000 in the quarter.
For the cardio metabolic immuno assay business revenue was $53.9 million, an 18% decrease in the first quarter two.
2020, or a 17% decrease in constant currency.
Of the $53.9 million in cardio metabolic revenue $28.5 million was derived from the tree us business and $25.5 million from the Pacman BMP business.
In the first quarter, we saw an atypical decline in all the major geographies as patients what chest pain, either would not work could not visit traditional testing centers as a result of the Corona virus pandemic. We believe this quarter trend will continue for the next couple of quarters.
Rapid immunoassay product revenues increased 54% to $95.9 million.
And this compares to $62.5 million in the previous year within this category Sofia products grew 52% from the first quarter 2000 $19 million to $65.2 million, while quick few product revenues increased 61% to $29.5 million both driven.
Mostly by influenza.
Total influenza revenue, which includes rapid immunoassay DHR high end molecular diagnostics grew 69% in the quarter to $79.6 million.
The influenza rapid immuno assay revenue was $73.8 billion with approximately 76% other revenue derived from the Sofia platform.
Rapid immuno assay revenue for Strep grew 22% in the quarter and RSV revenue grew 17%.
Revenue in the specialized diagnostic solutions category increased 19% in the first quarter to $16.5 million driven by 36% increase in DHR respiratory revenue and 44% growth and our general biology segment.
Our molecular diagnostic solutions category increased 45% the quarter to $8.4 million.
Due to a 41% revenue growth in Florida.
This growth was primarily driven by the respiratory season as influenza revenue grew 120% and strep a grew 24%.
Adding to the overall molecular growth lira product category grew to $1.7 million on the quarter driven by $1 million on sales of our lira Sars coal to product, which has granted eway approval by the FDA on March 17.
Gross profit in the first quarter of 2020 increased $24.1 million to $115 million, primarily driven by higher sales volumes favorable product and geographic mix and higher manufacturing overhead absorption gross profit margin in the first quarter 2020 improved.
So 65.8%.
R&D expense increased by $2.4 million in the first quarter as compared to the same period in 2019.
The increase is due to higher employee related costs increased spending on clinical trials development of a cobot 19 assays and next generation platform development projects.
Sales and marketing expense in the first quarter increased by $1.1 billion as compared to the same period last year due to higher employee related costs driven by increased revenue in the quarter.
DNA expenses increased by $900000 in the quarter, primarily due to greater employee related costs, driven by improved financial performance in the quarter.
As it relates to the provision for income taxes, we recorded $8.6 million, an income tax provision in the quarter and the effective tax rate was 17.6%.
From the statutory tax rate of 21% the effective tax rate benefited from foreign derived intangible income R&D tax credits and stock based compensation somewhat offset by state taxes and other onetime discrete items.
As of the end of March, we had $108.8 million and cash and cash equivalents.
In April we made a third annual Abbott payment and now have a 136 million dollar principal balance remaining on the deferred and contingent consideration to be paid over the next three years.
We have no outstanding debt balance on our $175 million revolving credit facility and only $13 million remaining in convertible bond that.
Which matures this to suffer.
In short, we have minimal debt access to credit and good cash flow, which places us in a great position to support our future initiatives.
And with that we conclude our formal comments for today.
Operator, we're now ready to open the call for questions.
Certainly and at this time, if you do have a question. Please press star one on your telephone keypad again that is star one on your telephone keypad and we'll pause for just a moment.
Your first question will be from a line of Alex Nowak with Craig Hallum Capital. Please go ahead.
Great. Good afternoon, everyone. Doug can you can you help us out from a market opportunity here on the cobot subsea tests have you run any scenarios thinking about what cobot testing could be as a percentage of what you're doing from flew over the next several years can think a lot of people out here and trying to figure out how frequently are going to be test.
For Cove it in the in the post Cobot World is just going to be a test that runs just this year or is this something that's going to be recurring for a longer time period.
The interesting question and I don't have an answer for you I really cant speculate on what will happen after moving for I. I would guess that [noise].
We will be doing fairly high volume.
Testing for sometime into next year.
Beyond that will this be.
A seasonal virus that we see quite often.
Well, we test where it routinely.
Well the vaccine has any impact.
On that if it's a vaccine like losing you could guess that we'll be doing testing just like we do for so today.
It's a vaccine that.
This is very very useful then and perhaps we would need to test as Rick.
As frequently so.
It's an interesting question.
I understand what you're asking it but I don't really have a good answer for you.
I I understood and when you're speaking with distributors today about preparing for the next flu season. What are you hearing from from them are they stocking up expecting a ton of flu testing in this next flu season to rule out coal that or are they somewhat expecting a light flu season.
And because we're all being told to socially distances and washer and et cetera.
We're not really hearing much from distribution in that regard.
We are preparing for is.
Some level of volume.
That we that we saw recently and.
In that regard were.
Manufacturing pretty significant volumes that will keep in inventory in advance of that recognizing that we will likely take those same manufacturing lines and begin manufacturing both to cope with antigen product as well as this rohlicek assays.
Okay got it and just last question if I can I think this pandemic really highlights the need for point of care testing for coal bid, but also just a range of diseases illnesses as you're you're talking with customers. Today are you seeing more demand in recent weeks to place in subsea and a spot you typically would.
In C. One I'm thinking the the traditional retail clinics the pharmacies, even the grocery train centers just wanted to know if this is really going to expand the scope and they use case of point of care diagnostics going forward.
I think you're right we have seen evidence of that prior to this and this is going to accelerate it.
Okay understood. Thank you.
Yes, Alex Thanks, Alex.
Can you have a question from the line of Brian Weinstein with William Blair. Please go ahead. Your line is open.
Hi, guys. Good afternoon. This is Andrew brackman on today I think sticking questions.
And maybe to start off with your commentary on the Sofia into June and through allegiances for Copel 19 could you maybe provide a little bit more color on some of the key hurdles that are still out there for bringing needs to market anything you can say on the timeline there a little bit more firmer than been summertime on when each of these will be made available and then how should we be.
Thinking about pricing true for these tests both.
The Standalone source code to it and potentially combined flew a b plus sorry scope to ethic thing.
I'm pretty sure that was more than one question [laughter] trying to keep Yankee start with timing.
We are running ahead of what we had suggested core.
And I can't be more specific than that.
Other than we are manufacturing product.
We do have an intense.
Two.
As a first step to a ship about 40000 tests into the market.
Eminently in order to do studies that would be useful and.
Demonstrating the performances this product.
And so that's that's a first step.
What we intend to do a moving forward.
It is then too.
Did they come aboard customers in the traditional professional segment.
In particular, those that would help us in addressing testing for hospital.
Health care providers.
And first responders.
And so we have a number again workstreams beyond that we'll.
Next target pharmacies in schools.
And all those things before we'll get to companies that want to do testing.
Either themselves who are through third parties.
Like our occupational health companies.
And then there's another category Dennis ophthalmologists up colleges.
And finally, the travel industry so.
In terms of timing I think more about timing in terms of ramping up manufacturing.
We will as I said will ship in an actual trash that we use for tests.
With key customers and then we'll be building.
To a number that is a subset of our.
Total.
A capacity.
In that regard.
We currently have capacity to do about 84 million tests per year for all the Sofia assays on top of that we.
And do another 30 million a quickie U.S. age.
We were also adding a seventh manufacturing line that will give us additional Sofia krish capacity adds another 30 million test.
And right now the manufacturing plan is to is to ramp to a number that is more like 50 to 60 million tests that we would allocate for both anshan product animal serology product.
In other words, we would get to a point within several weeks moving forward from here to.
The ability to ship.
Something north of a million tests a week.
So in terms of timing.
More concerned about us ramping up so that we can address immediately what is required.
To do those health care providers in first responders and then there's a whole series of things that we want to get too.
Moving forward, but the most important element of all that the biggest challenges.
During and locking down our supply chain and ramping up manufacturing. So that's that's where we're at I can't be more explicit sent out thing.
Andrew.
That's that's perfect. Thanks for all that color anything that you could say doing on pricing for these assets.
We've determined the price.
We will launch a nice cobot Anderson assay first at a price per test that.
Takes into consideration our increased cost of labor in raw materials for both assays in instruments.
Were first looking at what our opportunity costs have been because we move people.
Other projects over to these projects.
Well look at the performance of the product relative to other point of care assay products that are currently in market and other factors and and then our price will become well known as soon as we start selling it.
Okay, and then being a modeling.
[laughter].
I completely understand but appreciate that color and then just sort of last one from me I'm there seems to be a pretty large opportunity to deploy by arena here to track Cool did went to lot wants you to any details you can provide on how we should be thinking about the business model for that capability moving forward.
Well, we've restructured the C D C.
Through our context here and make adjustments.
To allow for additional data.
They say needs to be collected that I think that will increase the value.
Of.
That information, we provide which will then provide significant value to our overall product offering.
Which will help with placements and secure our Sofia franchise, I think it'll be an added value that others.
Going to struggle to mimic I know, there's a lot of expectation around whether we should be charging folks for data.
And is there a a means of monetizing what we've done and I would just say that at this time, we want to do the best Republic Health.
We can and right now we don't have an attempt to charge for data. That's collected we will provide that to the CDC to state County, and Citi Public health departments as they require and we'll do that.
At no charge.
The benefit to us from a from a monetary perspective, what would obviously be.
That we would hope to be a preferred.
Supplier these types of products and that's I think that's how we will recoup the investment we've made there I do recognize there's a lot of people are saying boy that don't fit those data are valuable.
Is there a way that you can monetize that adds.
Maybe there is moving forward, but right now I just don't feel like that's the thing that's the right thing for us too.
I got you think that.
Thanks, Andrew.
Your next question will be from a line of Tycho Peterson with JP Morgan. Please go ahead.
Hey, good afternoon, Doug can you talk little bit about lira, you did a million you said you still have all the PCR kick you can manufacture them out doing kind of 500000 tests per week, how do you think about the trajectory of that.
Going forward.
Yeah.
What an exercise that was for us.
I will admit it.
The bill of materials on these essays are as long and there's a lot of components and we struggled them at the outset.
To secure our supply chain. So we only made.
A handful of assets are in March we made I think 103000 tests.
The first million got sold and March and then.
The remainder of those kids were sold early April.
And then we've ramped to about a million and a half test that we did in April.
And we're going to be moving forward.
Yes, effectively a thousand kits.
<unk> day, which is 480000 test per week.
Some folks are going to say well can you manufacture Saturday Sunday.
My answer there would be we are but for manufacturing our other stuff.
On Saturdays and Sundays so.
Like I suppose we could make more if we had two but 480000 test.
Is where we're at now and it's pretty solid.
Early on we had trouble getting props and primers our principal supplier of enzymes said they forgot our order.
No [laughter] lock down all sorts of chemicals and components.
This process the guys.
Hi, or that are manufacturing this product did a tremendous job for us we're now solid.
Good day 400 gig test this week as we exit June in the last week, our forecast, which has put together a by customer basis.
At this up roughly two thirds of our manufacturing capacity. So we think by the end of June will have a run rate of what we're shifting on a weekly basis that would be roughly two thirds.
That 480000 test that we would have manufactured that that week. So that's what we think we're going to be I like the fact that we'll have a little bit the inventory that was a concern of ours, we didn't want to start up customers that we couldn't supply routinely and sustainably.
So that's kind of where erad it should spend it's been a great experience for us a lot of people I think we're surprised that we could do all this in short order.
But we've got a great team in terms of scientific count, but also in terms of our.
I can supply chain or operations guys. So.
Nice little additional.
Business that we've added onto our or overall infrastructure.
And then it's we think about Cynthia I. Appreciate you don't want to talk explicitly about pricing, but yeah. We think about new pricing is there any reason it should be materially different pretty antigen test he did about $10 Jewish visitors on specifically.
It'll be higher.
In a volumes will be dramatically higher.
And maybe lastly, I mean I know you have the question before about you know how you think about the market involving but you've got actually but many scratch reversing hologic scaling up you've got never Syndromic players. How do you think about how much of this market ends up getting centralized versus decentralized and can you talk.
Look a little bit about how you see that you know Sofia test stacking up versus some of the syndromic panels that you know probably will be attitude.
Good this market will become extraordinarily democratized in and if you just follow the flu example.
More than 90% of flu tests are done by rapid test because they can't be done by molecular methods.
And.
You know I do respect with the molecular players are doing and trying to increase their capacity.
And and.
I'm glad you're doing it but at the end of the day the constraint on the molecular side, it's more on a lab than it is to manufacturers.
So I think it will be beneficial to public health that these large panther systems not just the Panther fusion can run the assays and a and I'm appreciative of what that company is doing.
But at the end of the day, if we're going to be doing a million test today, we can't get thereby molecular methods and so it's gonna be useful not only that I enter the market with the volume that we're talking about but we need be d., we need habit, we need Roche we need all the players to beat.
Developing rapid Ashton tests and rapidly through all GE tests as well otherwise, we're not going to get everybody tested.
In a meaning we are.
In a meaningful number that that will be useful to get people back to work.
So this is a huge task.
But it's not just on the Ivy de manufacturers. It's also on the people have to run that people have to do the swabbing accessing samples in the samples to where they need to be.
Theres extreme value and being able to test on the spot and not have to wait I know for my own company that I'm thankful that we're going to be able to test everybody.
Under 15 minutes, and we'll be able to tell on whether they can enter the building and stay working.
Lastly, just any anything you can say on especially your sensitivity <unk>. Some allergy test obviously, they've been press reports about mix quality of the tests you know that were brought to market earlier I assume you're constantly much higher but any any number he can give us on performance.
Sure, but let me talk with Hanjin first.
What we've done which is.
What a all of the rapid engine folks will have to do is you'll have to look at samples that you know our positive.
By TCR for patients and then you'll need to run those tests.
As you as you have the samples against your own products and when we do that even in that diluted format, which is not how we would do the test in the field.
Even after that diluted sample we are of a sensitivity that meets the hurdle required.
ER and exceeds actually noticeably with the FDA would expect once we actually run those samples clinically on patients in that field on dry swaps weeks, we expect an improvement in a fellow D of about eight falls and so we will see a an assay with.
Sofias that effectively is equivalent to an ISO thermal.
Methodology, even though it's a molecular but still short of what PCR tests are.
In terms of specificity the specificity there will be will be quite high up as we go up into the markets. There. This is also why we're focused early on and getting up 40000 Chester show out there. So we can rent a lot of actual patient samples in order to get people confidence that this product is as good.
I would ask what you see out there today.
On the Serafini side.
I had a lot of concerns about serology, because even if I manufacture product, it's 99% specific and 90% sensitive which I think.
Most of us are going to be able to do.
Positive predictive value is really I know.
I don't know what the prevalence out there is so if the problems is only 1% I know you know how to do the math posturepedic value.
But if you if you take on a thousand samples.
With 90% sensitivity, 99% specificity I'm dividing nine by 19 and coming up with 47%, which is less than a coin flip a positive sample that you're going to test for now is right where at 10% then the math changes and now I'm at 91% so.
The test main be baby put together very well and we need to be able to demonstrate.
In our hands that were highly specific and highly sensitive, but if the problems is low.
Yeah, there's going to be a time that these tests are not going to be as useful so I see a world, where we're going to be doing both for a while we're gonna be doing antigen and we're gonna be doing sharell cheap.
Now the resin benefit of having less raw geos actually determining what the prevalence, yes, right, but it's kinda that's gonna be some sometime before we actually understand.
With that with that prevalence is so.
As I look at it I'm more concerned about what the prevalence is not a the performance of our assay and the other assays that I see her out. There now you are you did refer to athletes that werent validated.
And but you know I'm not even a comment that I think that was a mistake.
To allow essays to be imported into the United States that have not been validated.
And you know I, but I really don't want to speak more about that.
Understood. Thanks for the color.
Sure and again.
You can actually do you have any questions or comments. Please press star one on your telephone keypad at this time I get notice star one for any questions or comments.
Your next question will come from the line of entry Cooper with Raymond James. Please go ahead.
Hey, Thanks, a lot of lots already been asked but I guess, just kind of one one piece looking maybe a little bit beyond just kind of at 19 as we think about.
Flu, obviously I think there was a lifted as early on in the process. You were looking to rule out you know anything that that could have looks like Tobin 19, and that's sort of changed as things progress. So are your new volumes still elevated because though.
I don't if I understand amicable or have those sort of sort of started to tail off more like your typical seasonality that you might see in that in Matt.
They have tailed off Andrew I will say that that's the beginning of second quarter, though was was reasonably strong.
So if you take our typical second quarter.
And you're trying to model you probably a.
Ratchet that up just a bit but but it has now tails off and we're not seeing anything in may.
Okay.
Okay, that's helpful and.
I guess <unk>, maybe you know maybe jumping into they could kind of discussions in terms of Sofia and you talked about potentially some incremental demand that you know other other avenues of care. What's your capacity from an instrument perspective, you know if you get this time.
Yes launched at the timeline you expect in your.
As far as far as you know the first you know kind of first rapid antigen with any scale coming to market. What's your ability that to ramp that 43000, just something higher by you know whether its end of year, just sort of how you think about how you think about that trajectory.
Yeah instruments active in the U.S. right now to be very accurate or right at 36000.
We have on hand.
Something approaching 5000, and then we've got 1000 are being built right now.
Our monthly normal.
Manufacturing would be at about a thousand.
Moving forward, but we've also added another party, that's helping us out and we.
Hope to ramp to about 7000 analyzers a month of beginning in September.
So we firmly believes that the number of analyzers, giving all those workstreams that I talked about are gonna be are going to be necessary.
And ER.
We're going about as fast as we can't make sure we have.
All those analyzers.
Out there before.
Certainly before the fourth quarter.
Okay, Great. That's that's really helpful. And then maybe a little bit longer term as you think about sort of those dynamics and.
Yeah, there's there's players out there talking about home based testing I think with what you can do it with Sofia three years sniffles kind of.
Has that changed the way you think about that product in how it could be used in deployed out into kind of the real world or any comment around that.
Would be an interest thanks.
We always thought that a combination of tele health and what we're doing a sniffles makes sense. This.
[noise] experiences is just confirming that we would causing us to thing or are we gotta go faster here [noise].
The number of patients that are now enrolled and tele health.
Increase dramatically in the first quarter.
And so I think moving forward.
It's going to be increasingly.
Access point to health care.
So I love. The fact that we've got the product can develop Matt it's on schedule for year end.
We are thinking through how we partner with others to make this happen.
I'm staying away from they at home testing, so much because I don't know.
What the tolerance will be for this particular virus.
In terms of.
That's how the FDA thinks about testing at home.
But certainly under the care of physician.
Through telehealth I think sniffles.
Is going to be important.
Well.
Okay, I guess that was yeah. So is there another question or.
He is not in the queue any longer.
Okay, perfect perfect well before I say, thanks, everyone and see later all that I I will mention step.
This is really been an interesting.
Start to the year, we certainly have had to change direction and all that but at the same time.
We have stayed focused on the things that we've been working on and in particular I have to say that if it weren't for the cobot discussion I would be spending a lot of time right now talking about Savannah.
We are now more convinced.
We're going to do well with this product we've made significant progress over the last several months our thermal recycling times now are down to 10 seconds for cycle. We think that we can do a reverse transcriptase assay, our RVP or respiratory viral panel, which more than likely will include coven 19.
We think we can do in 18 minutes tops.
We're working out actually decreasing that.
And for DNA assay those panels.
We think we can get that down to 13 minutes. So.
Isothermal speed and footprint with Savannah, but were PCR performance.
We think that we're going to make significant progress.
Whether a molecular franchise once we introduce Savannah and 2021, so if it weren't for this other distraction.
We would be spending a lot of time talking about because I really do think that that's right next franchise. That's our next flagship products. So with that I'll say, thanks, everyone for your support and your interest in our company.
We did have a strong started here and we're in really good shape to achieve our objectives over the next few years. Thanks again.
Thank you. Thank you again for joining today's conference you may now disconnect.
[music].