Q1 2020 Earnings Call
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Question and answer session to ask a question during the session you would need to press star one on your telephone please be advised that todays conference is being recorded.
If you acquire any further assistance. Please press star Zero, Oh, now like to hand, the conference over to your moderator today.
Hi, Salvo Investor Relations. Thank you. Please go ahead ma'am.
Thank you for the ice and thanks very much joining us today.
Well, we began I would like to inform you that certain statements made by Genmark. During the course of this call may constitute forward looking statement.
Any statements about our expectations beliefs plans objectives assumptions or future events.
Formats are forward looking statements.
Example, statements concerning our 2020 financial and operational guidance the development regulatory clearance commercialization and features of new product that's been objectives of management and market trends are all forward looking statements. We believe these statements are based on reasonable assumption. However, these statements are not guarantees that performance and involve known.
And then the unknown risks and uncertainty that may cause the actual results to be materially different from any future results expressed or implied by such statements important factors, which could cause actual results could differ materially from those in these forward looking statements are detailed in genmark filings with the FCC.
And like assumes no obligation and expressly disclaims any duty to update any forward looking statements to reflect events or circumstances occurring after this call because the occurrence of unanticipated events.
In addition, the company will discuss certain non-GAAP financial measures during today's call.
Non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results.
We refer you to the Companys earnings release out shortly before this call which contains reconciliations of the non-GAAP financial measures presented to their most comparable GAAP results.
I'd now like to turn the conference call over to Scott Mendel, President and CEO of Genmark Scott.
Thank you Lee good afternoon, everyone. Thank you all for joining us.
Our last earnings call was just 60 days ago, but during that short time, so much has changed.
The cobot 19 pandemic has affected at all in many ways and this global crisis has demonstrated the importance of diagnostic solutions in treating infectious disease.
Our Eplex platform is designed to provide rapid and actual results to treat critically ill patients.
Cobot 19 has highlighted the overall importance of molecular diagnostics in the critical role that are Eplex platform plays in fighting infectious disease.
Beyond respiratory testing bloodstream infections are an important area of focus for our company and we will be a key driver of revenue growth over the longer term.
Similar to covert 19 bloodstream infections also require rapid and actionable diagnosis to effectively manage patient care.
Each year, approximately 270000 Americans die as a result, as subsys and since the mortality rates associated with Subsys increases approximately 8% for every hour and effective therapy are eplex BC I'd panels are positioned to be a key weapon and this battle as well.
During the cold 19 pandemic, a couple of bright spots of emerged that I would like to highlight.
One has been the role that Florida is playing to fund products designed to improve patient outcomes, our interactions with our BARDA term imports have been excellent and we thank them for their help and partnership.
In addition, the FDA emergency use authorization process has been helpful. On fast tracking solutions that address cobot 19, and we appreciate the flexibility they've been providing during this critical time.
On our last earnings call. We announced initial are you all shipments of our Eplex coated 19 test and we were granted emergency use authorization on March 19th.
Well a departure from our typical approach and addressing infectious diseases with syndromic or multiplex panels, we developed our Eplex Kogan 19 tests to detect only the Sars koby to virus.
We chose this path to provide a test to our customers as quickly as possible in case this new corona by a strain rapidly spread around the world.
And as we all know that's exactly what happened with a global pandemic being declared on March 11.
So what we designed as a stopgap measure for our existing respiratory customers has become an important part for the fight against Cobot 19.
In our earnings pre announcement, we highlighted that are Cobiz 19 test was a key driver and 80% of placements in the first quarter.
While our installed base grew by 54 analyzers, our commercial teams placed 109 analyzers on a gross basis, but we repositioned 55 previously placed analyzers to fulfill orders and provide access to cobot 19 testing to as many customers as possible.
With.
And to note that we evaluated placement opportunities based upon their potential to drive enduring and recurring revenue streams from our respiratory pathogen and blood culture I'd panels, not just coded 19 testing.
About half of the refi 55, repositioned analyzers would have been addressed throughout the year and one for coming from customers, who had decided not to complete their eplex implementations.
The other half was opportunistically driven by our commercial team and were from customers that have begun the implementation process, but were delayed due to shifting priorities for resource constraints, including the impact of Kobin 19.
We intend to circle back and Reengage with these customers in the future.
The result of these actions was that our team placed eplex analyzers with more than 40, new customers and we finished the first quarter with 581, Eplex analyzers placed at customer sites.
Total revenue was $38.7 million, an increase of 80% versus the first quarter of 2019.
Reflects revenue was $34.3 million up 119% from prior year period.
Our cobot 19 test drilled a modest amount of revenue in the first quarter, representing approximately 5% of overall eplex revenue.
It much more significant driver of first quarter revenue growth was increased demand for our respiratory pathogen panel.
Our customers typically utilized our RP panel first and if negative reflex to our Eplex Cobot 19 test.
This is what we envisioned when we decided to develop this single target test.
However, as the disease rapidly spread and under the shortage of coded 19 tests globally, we saw higher than expected demand for a cobot 19 test, which has continued in the second quarter.
Our development teams are now focused on incorporating our coded 19 assay into our existing 20 target RP panel with expectations for a June launch.
This updated Syndromic panel is consistent with our strategy to engage diagnosis of critically ill patients providing as much information as quickly as possible.
Once completed our updated RP panel will include five strings of Corona virus as Sars koby to join the for other strange already on the Eplex RP panel.
We previously announced BARDA funding for up to $749000 in support of this development work.
Although the cobot 19 pandemic was a key focus for Genmark and our customers you still achieved some important success with respect to adoption of RBC I'd panels.
During the quarter 13 customers completed their implementation and went live on 25 BCD panels.
While not as many as we had originally planned we are happy with this level of progress considering the impact of covered 19 on priorities and resources.
We have incorporated our current BCD adoption expectations, along with increased respiratory and cobot 19 testing volumes in the revenue guidance disclosed today.
In parallel we are continuing to make progress on energy I panel development. However, we offered up prioritizing our production capacity for on market panels, including coated 19, and the development work on our updated RP panel I previously mentioned.
Depending on the duration of the elevated demand for both RFP and Cobot 19 test we could experience experienced some JCI development delays with modest impact to our goal beginning clinical studies by end of year I will provide additional updates on future calls.
On our last call I highlighted three key priorities for 2020, which were one strong revenue growth to making significant steps towards cash flow positivity through gross margin improvements and operating efficiencies.
And three menu and technology development.
In spite of a profoundly different environment than existed in early March these goals remain intact and we have made significant progress in the first quarter.
In fact, the updated guidance ranges that Johnny will cover highlights that we have fast forwarded about a year ahead of our prior expectations across many metrics.
Because of the very strong placement and revenue growth, we've accelerated our manufacturing capacity expansion efforts, which were originally scheduled for 2021.
We'll provide much more information on capacity expansion as appropriate.
Before I hand, it over to Johnny I wanted to thank all those involved inviting this pandemic.
First responders healthcare workers as well as our employees and our suppliers have worked tirelessly to help those in need we are proud to have played a part in this battle.
Johnny Thank you Scott.
As Scott mentioned, our first quarter financial results demonstrate the value of the Eplex system in providing critical solutions to our customers and patients in the first quarter of 2020 total revenue was $38.7 million, an increase of approximately 80% versus the first quarter of 2019 with Eplex.
Selling by 119% compared to the prior year.
Sales to us customers continue to represent the vast majority of our revenue.
The impact of the covert 19 pandemic drove an increase in the number of total tests run per installed analyzer in the first quarter for both our existing respiratory panel and the newly developed Sars code Koby to test, which drove an average annuity per diem flex placement to $214000.
A 29% increase in annuity over the first quarter of 2019.
First quarter gross profit was $16.2 million or a gross margin of 42% of revenue versus $5.9 million or 27% of revenue in the first quarter of 2019, representing an increase in gross profit contribution of $10.3 million or 15 points of.
Gross margin, reflecting steady progress towards our goal of 60% gross margin over the next two to three years.
The gross margin expansion has been driven by strong manufacturing yields and record production volumes to support our first quarter sales.
We expect the ongoing initiatives related to direct material reduction and manufacturing process improvements over the next several quarters to provide continued gross margin progress.
Total operating expenses were $21.2 million for the quarter, representing an increase of $4.4 million compared to the first quarter of 2019.
However included in the first quarter expenses were $4.6 million in one time charges related to certain organizational changes made in January including the departure of the former CEO.
Excluding these nonrecurring expenses, we approach to operating breakeven in the first quarter was an operating loss of approximately $400000.
Our net loss per share for the first quarter of 2020 was 12 cents, representing an improvement of nine cents from the first quarter of 2019.
After excluding the nonrecurring charges that I mentioned previously non-GAAP net loss per share in the first quarter of 2020 was four cents or an improvement of 17 cents per share from 2019.
Moving to the balance sheet, we ended the quarter with $47.1 million in cash and investments we used approximately $7.6 million of cash in operations. During the first quarter due mainly to a net increase in accounts receivable of approximately $9 million, resulting from the timing of sales.
During the quarter.
The use of cash in working capital was partially offset by cash inflows from finance and financing activities through the sale of $2.2 million worth of shares under our ATM.
Additionally, we achieved the revenue milestones under our existing credit facility, which has extended the interest only period on our $70 million term loan until March of 2022.
Turning to 2020 expectations, we previously announced an increase to our full year revenue guidance to 112 million to $122 million.
We are further increasing the revenue guidance to a range between 120 million and $130 million.
This update as based on greater visibility that we now have into how the second quarter is shaping up including the volume of coated 19, and RP testing coupled with the expected volumes that we anticipate will come from the Eplex systems placed so far in 2020.
We expect these revenues to be partially offset by the impact of revised timing of system go lives as a result of external and internal resource constraints due to covert 19.
We are also increasing our annual Eplex placement guidance to 175 to 200 analyzers and maintaining our average annuity per analyzer of 130 to $135000.
Additionally, we are increasing our full year 2020 gross margin guidance to be in the 38% to 40% range. While operating expenses are expected to remained unchanged at approximately 65% to $70 million for the year.
As a result of the increases in revenue and gross margin guidance. We now expect operating cash usage for 2020 to be between 5 million and $10 million.
Our first quarter and expected full year results demonstrate a rapid acceleration on our path to operating cash flow positivity.
This concludes our prepared remarks, so at this time, Scott and I would like to open the call for your questions.
Your first question comes from Milan of Doug Schenkel with Cowen.
Hey, good afternoon, guys and thanks again for all you're doing to move things, along and playing a role in helping diagnostics in the crisis.
My first question is just regarding some reaching positive developments.
Over the past several days for the use of respiratory syndromic panels, specifically on eight the reimbursement and ordering side.
These include CMS issuing an interim policy that seemingly allows any healthcare professional to order cash that simultaneously out safe Blue and Cobot 19, and then also organizations such as an PMC IP advocating for Medicare national coverage decisions.
For respiratory panel testing, what's your view on these developments and what steps are you taking to meet demand for broader in an outpatient use heading into the fall I am going and answering that question I don't want to limit you I'd like to you or any color you are willing to provide but but specifically I'd love. It if you were.
Willing to address whether or not you see a path to be able to produce more than 100000 test per month.
Sure. Thanks, Doug.
As far as reimbursement goes in the developments along the reimbursement front.
To date reimbursement has not been in any conversations that we've been having its really been around our ability to supply tasks in the supply of many test as possible to deal with the pandemic.
Certainly positive reimbursement rates.
I would be a health and we welcome Matt and I think it reflects the fact that we need to bring as much technology as much diagnostic solutions to market as possible and starting to demonstrate that there's a broader understanding of the value of our diagnostic solutions, whether inpatient or outpatient testing so I treat that as a positive our view that as a positive Doug.
I am sure similar to what you think.
From a capacity perspective, whether we are supporting supplying inpatient or outpatient is a key focus. So it's very interesting to note that like I said in my prepared remarks within a really a month timeframe, we jumped quite a bit ahead into levels of E. Plus consumable sales that were really projected for 2020.
One timeframe so we've already secured.
Of facility that.
Additional facility and we are ordering equipment.
To build another two lines that typically takes somewhere in the nine month timeframe, but we've been able to accelerate some of the longer lead time items and we feel that we'll be able to have additional capacity on line, meaning producing eplex consumables towards the end of this year.
Between here and the ended the year, Doug we are focused on process improvements that should generate another 20% or so of additional production capacity across our existing lines. So thats profit improvement value stream mapping.
Just some tweaks here and there that our manufacturing teams are implementing which we believe will yield.
Roughly a 20% or so improvement on our capacity between here and getting another line up and running.
Okay. That's super helpful and maybe building off of that I mean, we estimate plex consumable gross margin increased into the high thirtys in the first quarter up from the low Twentys in Q4, our we have a REIT neighborhood and and if so if you're already in the high Thirtys.
Did you just think about increasing guidance for the year to more than 30% to 40% and if it's possible you actually exit the year above 40% Eplex consumable gross margin.
Asked this as a follow up because I wonder if part of the recent you didn't get more aggressive is exactly what you just described just some of the inherent.
Error bars around what happens when you add new lines.
Yes ill handle and Johnny can jump in if I, if I Miss anything.
Our math was probably in the mid 30% range from an eplex.
Perspective, but consumable perspective as far as.
How we progressed through the rest of the year in our guidance. He married our guidance up with our best estimates of revenue and the mix of that revenue Doug. So one of the things to think about is as we move into second quarter and we're seeing the flu season drop off and mix is shifting slightly within eplex towards the coded Standalone test only which is.
A slightly lower price points, there is a little bit a margin headwind.
We are feeling and factoring in in Q2.
And then as far as the rest of the year, we tried to marriott's to the best of our abilities to how we think the mix will change throughout the summer months, and then back into the back half of the year.
And we'll continue to monitor that as as we progress I would say it's less.
Impacted by the additional capacity as that comes on the back half of the year. We of course would have to absorb that over habit that overhead. The additional overhead costs are amortized over quite a long period of time as far as the machinery lives and or the facility term.
So thats, probably less of an impact it's more of US just trying to estimate and calculate the mix of revenue through the upcoming quarters correctly.
As far as our exit rate you're exactly right. We had communicated we wanted to exit 2020 at a 40% gross margin on E class and yes, we've made significant progress here in the first quarter and that sets us up nicely to achieve that if not the ability to update that as we move through the year again.
Okay Super helpful. One last one just building off of my my original question in some of those observations that I'd that I noted.
As we look ahead and start to think about the next normal have you heard anything that would suggest some of the recent ordering and reimbursement changes that are being put in place could have some durability or is it just too early to have those discussions how given how rapidly. Thanks a revolver.
It's probably a bit early but what we do know.
Is critical for us to have enduring revenue streams are two things number one is to GAAP the.
Sars Koby to virus included on our Syndromic panel that is our strategy that's our investment thesis.
And Thats, what we think is really important to address the upcoming flu season. There has been a lot of discussion around the upcoming cool season.
Going to probably be a little bit more elevated than typical and definitely will need to incorporate this new string a car buyers. So thats been our approach to trying to figure out what the quote unquote new normal as.
Regardless of what level volumes, we know that is imperative that we have this new strain on our Syndromic panel that we can address the most critically ill patients on and again as far as reimbursement goes and whatnot I think thats just it depends on how we want to approach it but for right now we're staying focused.
On the inpatient segment there are other technologies and solutions that are more positioned towards point of care and outpatient versus eplex.
Okay makes sense. Thanks again.
Thank you.
Your next question comes from a line of Brian Weinstein with William Blair.
Hey, guys. Good afternoon. Thanks for taking the questions first can you talk a little bit about eplex placements.
Were sold versus actually just placed and within that can you discuss where they're being placed in what type of institutions, you're seeing and what that means for potentially longer term utilization of the system.
Sure. So from a placement perspective important to remind everyone that about 80% of the placements were driven by interest in co bid 19, but thats not how we determine what opportunities we prioritize we did prioritize them based upon.
The ability to generate revenue beyond koby, 19 testing, whether that be respiratory panel testing or bloodstream infection or combination of both of which was actually most common.
For the placement that we did in the first quarter it actually with very much tilted towards capital. So we sold somewhere around 80% of the placements in the first quarter, which is quite a bit higher than what historical norms had than we've historically sold somewhere in the 20% to 30% of inside.
Drummond.
Placements.
As far as the type of customers are very very much typical to what we've done in prior quarters across all different sizes of hospitals are usually in the 200 bed hospital and above.
And we did do some additional business with existing customers, especially some of our customers in the New York area and along the West coast as well as they were particularly impacted by the Kobin 19.
Pandemic.
Okay and then how are you positioning this kind of in the market given the higher price point that you guys have versus others for it cobot 19, only product I mean when.
Just being used more with labs that really don't have other options, but FX.
Or how is it being.
Prioritized or utilize when there are labs that might have additional testing options didn't have a lower price point.
Yep Thats changed over time, so at the beginning because we were one of the very first on the market.
It was certainly used anytime that we could supply.
Just to our customers they will utilize it and that's evolved as we moved into the April timeframe and then certainly more recently you are seeing additional supply single target task.
Our low flex taps come on to the market and so thats changed.
That them the priorities are some of the ways that our customers are utilizing our testing and we factor that appropriately into our guidance I as I said in my prepared remarks in spite of there being additional supply there's not enough right there and wants to be there needs to be a lot more testing capacity than currently exist, even though it is on on the rise and so we have.
Still been selling quite a bit of our cobot 19 test in spite of the fact that it is priced slightly higher.
Then that other solutions.
And there's been no pricing change on that your pricing is still what was discussed previously.
Correct Theres been no pricing change.
Okay and then the last one for me on can you talk about the NP versus the standard six bay in how the placements were re with respect to that and I'm curious are there any plans for the three bay NP system or maybe even a single based system to be able to get even closer to the patient to help with things like.
Doing pre surgical checks back to office I know you answered Doug's question by saying there were other products that might well be better suited for for more point of care and I'm not necessarily talking about true point of care, but getting closer to patient with the NPV able to solve some of that another any plans for that.
And so the the NP is typically utilize outside the U.S., where the tends to be smaller testing volumes and then also inside of us where maybe they smaller that size hospitals et cetera.
No major change and ratio of towers mix, the towers NP versus a six base tower Brian.
And certainly didn't skier results in any any fashion.
As far as addressing surgical centers or.
Other areas with that would require a lower throughput instrument that certainly one of the reasons we.
Came up with the configuration for a three day of the NPV and so thats, how we can serve both low end lower volume hospitals, but also other opportunities right now we're not on CLIA waived and we don't have any immediate plans to do that although we do think our workflow could facilitate achieving a CLIA waiver, which would potentially allow.
Just to go into those types of opportunities more rapidly, but again, our primary focus is continuing to build out our menu.
And sticking to the inpatient setting for the for the near term.
Okay. Thank you.
Uh huh.
Your next question comes from a line of Max Suji with Canaccord Genuity.
Hi, Thanks for taking the questions and thanks for all of your efforts in fighting the pandemic.
So I just wanted to confirm from the prepared remarks that you expect to have the next Gen. RP panel with Sars code to target added in by by June.
Then would the addition of the single target cast onto the next Gen. RP panel will that free up an extra say 510 or 15% of the manufacturing. That's currently dedicated to the single target test.
Good question so.
You are correct. Our target is to have the RFP version two panel, which includes Sars koby too on market in June.
And we are pleased with the progress the teams have been making.
To to make that happen and as far as how much capacity that would potentially free up.
It depends how quickly customers that are utilizing the single target test want to move to RPV to our assumption as many will want to do that but we need to time that with with their needs as well we want to make sure. We continue to satisfy their demand and if that means that they can't move over right away, we would take that in consideration obviously.
But if if it goes according to probably our estimates, it's probably in that 10% to 20% three up of capacity.
And with a estimating how many would move over to the RFP version, two and therefore free up line space, because you're not going to separate test, so probably thats about right, 10% to 20%.
Great all right. So maybe another bigger picture question. So I guess, how is the companys competitive positioning and specifically you plexus value proposition changed versus other multiplex infectious disease competitors under the current environment and what's different on the other side of the pandemic and.
If you could just touch on some of the competitive dynamics that will determine the sustainability of the elevated utilization you've been seeing in our opinion in the near term that would be great.
Sure so from a multiplex molecular standpoint, the competitive landscape really hasn't changed all that much.
Other than I believe it's it's showcase molecular diagnostics as a total.
And I think created additional awareness on the importance of managing infectious disease through having very strong diagnostic solutions in place as opposed to waiting for our pandemic to happen. So I think those are all positives for the general molecular diagnostics industry and then for multiplex molecular I think it also has benefited.
From the increased awareness.
As far as the enduring revenue streams and how how we position our company for future growth I think the most important thing.
The coated 19 has done for the company is it's really allowed us to very rapidly expand our footprint. So as I mentioned, we secured 40 brand new customers to genmark within one quarter I talked about the number of placements as well and that really helps the.
Progression against our business model, because we are recurring revenue stream business. So getting those placements out there and then to your question getting them to utilize not just on respiratory but on DC I'd helps drive that annuity stream and those two things combined are very valuable for us as a company and so thats the real importance of cobot 19 pre.
During the awareness number one for the general industry, but number two allowing us to very rapidly increase our footprint that drives recurring revenue streams in the future.
Great I'll leave it there and congrats on the permanent appointment.
Thank you.
As a reminder to ask a question you need to press star one way or telephone once again that star one on your telephone to ask a question.
Your next question comes from the line of Mike Matson Needham and company.
Hi, Thanks.
So I just wanted to start the guidance for annuities. So why isn't that higher just given how strong your annuity was in the first quarter given.
The trends that you're seeing from a pandemic here.
Yeah. Thanks.
So really if you think about that annuity is kind of the outcome of the increase revenue guidance and the placement and guidance that annuity changes quarter over quarter.
We had a strong annuity in Q1 naturally we see that annuity come down in Q3, and really just averaging across that year. We think that annuity is reasonable on the guidance that we have given the revenue and placements.
Okay.
And then when you launched a new.
Panel that we'll have the co the test built and the new respiratory panel.
Are you going to continue to tell the old panel and what we're pricing strategy be will you may be sold both but then have a higher price for the sort of Toby the panel that puts cobot 19 test.
Hi, Mike It's Scott ill answer that one so from a transition perspective will work very closely with our customers and make sure. We are understanding what their needs and requirements are ideally for if it was all up to us we would rather.
Move everybody over to our Tbtu as quickly as possible. It goes back to that question earlier on frees up capacity for us and makes it makes it a bit easier for us to address the demand levels that were seeing.
So will our preference is to move everybody over but we have certainly worked very closely with our customers make sure we're addressing their needs as far as pricing goes really good question on certainly the RPD two pound delivers more value because it adds the krona virus.
Straining to to the existing panel and therefore lab don't have to run separate panels, especially as you get into flu season, and you're going to want to task for all the other types of respiratory illnesses as well as Sars koby too and it doesn't eliminate costs from hospitals from running two different tests and therefore synta delivery.
And higher value and potentially eliminating costs it should be at or above our current pricing levels from our perspective.
So, we havent announced pricing, yet, but our position would be it should be at or above current pricing levels.
Okay, Great. That's all how thank you.
Thanks, Mike.
Your last question comes from a line of Tycho Peterson with JP Morgan.
Hi, guys. This is casey onto Tyco congrats on the quarter.
Most of my questions have already been answered, but maybe just one last one here can you provide some color on what exactly the reason reimbursement level is for the cobot 19 at say under the DRG code and then maybe if you can talk a little bit about the reimbursement landscape for the RP panel now versus.
The Sars koby too.
I will target is added to that would change at all thanks.
Sure so from a reimbursement rate perspective, the reimbursement for.
Hi, good 19.
Test is $51 currently.
And that's on an outpatient best basis as far as DRG.
It's hard to underneath the entire DRG, there's not a specific necessarily reimbursement rate. So I just want to make sure we're clear on that to $51 for outpatient.
And so that's what the current reimbursement rates are and again, we'll see how it all plays out as far as RPV too and if they could make any other suggestions for reimbursement.
Adjustments.
Okay. Thank you.
There are no other questions on one I'd like to turn the call bet to Scott Mendel CEO.
Well. Thank you all for joining us this afternoon and thanks for your continued support we look forward to updating you on our progress in the near future have a good day.
Okay.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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