Q1 2020 Centogene NV Earnings Call
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This conference call.
All participants.
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The speaker presentation, there will be a question secession to ask a question during this session.
Hello.
This conference is being recorded today Monday the 15th.
He 20.
Kim Please go ahead.
Thank you.
Hello and welcome.
Thank you for joining us to discuss our Q1 2020 results, which were issued earlier today.
You can view this presentation and the related press release on 10th of genes website.
For those not able to view the webcast you can find the relevant slide on www dot investors Dot central gene Dot com.
Our speakers today I tend to genes Chief Executive Officer Professor Art role.
And Richard stolen Centurions, Chief Financial Officer.
Before we begin please refer to slide two of our presentation, which provides information about certain statements to be made today that maybe considered forward looking statements within the meaning of the U.S. securities laws.
Including those regarding our strategic plan development programs and future financial results.
Statements made during this call that are not historical statements, maybe forward looking statement and as such maybe subject to risks and uncertainties, which if they materialize could materially affect our actual results.
The forward looking statements in this presentation speak only as of today and we undertake no obligation to update or revise and yoga statements to reflect future events or developments.
Except as required by the law.
Additional information regarding these statements appears FCC filings.
Following our presentation. We will also open up the call to Q anyway, we kindly ask that you ask only a maximum of three questions.
I'll now hand, the presentation over to aren't please turn to slide three.
Thank you saw and Hello, everyone. Thank you for joining our call today, especially during this unprecedented times.
We have I wouldn't want is staying healthy unsafe and our thoughts out where there was affected by the cold with 19 can damage.
Before we dive into our Q1 Twentytwenty performance, let me quickly update you on the current situation regarding cope with 19 plus engine.
As we publicly announced in April we if we opened our offices into carefully measure men are providing all of our employees with Weibo testing twice per week gives us confidence that we have better management over the situation. That's our employees have begun to retrench with the office.
We also striking some safety protocols to be extra careful and for the most part synergy and is fully operational now let US told you about Q1 Twentytwenty performance and also provides you with a pool to update on our business.
I'll start by touching upon key aspect of our business and then Richard will take you through the financials.
Let's turn to slide four.
Before we get into the performance of the business. Let me take this opportunity to remind you of centered genes to go.
I think it is always good to put things into context and for me that means looking at recent achievements with our long term goal in mind.
Oh Ultimate goal is to provide precise medical diagnosis up inherited diseases.
Oh list, possibly moment by transforming medical expertise in that logistical information into actually have a resource for precision patient and pharmaceutical partner.
As Joe where are we accomplished this by using a multidimensional approach to analyze patient data and by harnessing all a knowledge of rare diseases to help physicians more easily diagnosed patients and support biotech and pharma companies did you all up new treatment options.
We want to send judging remain passionate about achieving this goal and this why this soda awarding to be a part of this company.
Let's dive into today's presentation, starting on slide five.
During the first quartile, we continue to the live on multiple fronts, while making important adjustments in the phase of a global pandemic that has affected our industry and many others.
Yeah.
We have demonstrated strong financial operational performance, we grew our topline by approximately 13% in Q1 Twentytwenty.
Segments farmland diagnostics exhibited double digits. So.
This is despite facing some headwinds in late March caused by Cobot 19.
Second we are proud of how its into gene has responded to the co with 19 crisis internally, we have reacted quickly to keep well once safe, what's driving our operations with minimal disruption.
In addition, we have quickly they awarded to resources to do well up Cobiz 19 testing capabilities.
Finally, I would like to make a few comments on the impact to covert 19 began to have on our business toward the end of the first quarter and as we entered the second quarter.
Let me first say that the fundamentals of our business remains strong.
And we are increasingly being looked at by partners as a leader in providing molecular insights in order to accelerate trucks development for rare diseases.
And guides patient stratification identification and monitoring.
With that that similar to or appears in the product business community. We began to observe the slowdown in our business toward the end of March that became more pronounced in April as the restart of cobot 19.
More specifically, we began to see a decrease in sample volume and pharma business starts to clinical trials Richard will provide additional details when we it takes you through the financial revenue portion of the presentation.
While our business continues to react accordingly to the cobot 19 situation I also wanted to highlight that we began commercial cobot 19 testing and the second quarter and we expect this may help offset some of the lost revenue as a result of the pen damage.
That does not just got these parts in more detail.
In Q1, Twentytwenty would through our rapidly by approximately 30% compared to Q1 29 team to approximately 12.1 billion euros.
It was driven by approximately 10% growth and the pharma segment and 15% growth and the diagnostic segment I will let Richard walk through this in further detail in the financial wrap your section.
I think at this particular note worth it to mention that the 13% growth was despite the headwinds we start to see at the end of the first quarter, resulting from the covert 19 situation.
I would know like to discuss the operating metrics that's drove our strong financial performance. Please turn to slide seven.
Let me first focus on our promise segments. The first metric is the number of pharma collaboration which increased by 11 over the last 12 months.
Just want to note that why we're pleased that we were able to fall new pharma collaborations as compared to the same time period last year, we would not expect this figure to always increase as some collaborations will and when key milestones are completed.
The second metric is the number of disease areas under partnership.
As I've mentioned in the past only 5% of rare diseases, Evan approved therapy, and we need to accelerate our knowledge into new disease areas in order to help improve the development of therapies for patients.
As of March 31st Twentytwenty, we were pleased to expand into eight new rare disease indications compared to 12 months ago. The third metric I would like to percentage and the number off the biomarker partnerships.
Compared to 12 months ago, the number of biomarker partnerships increased by five to 33, it's off the end of Q1 Twentytwenty.
Biomarkers to remain a crucial element of how we can how pharma partners because they generate the molecular insights that can be used to inform the development of targeted treatment options at centered gene. We continue to work on the discovery of numerous biomarkers.
Please turn to slide eight well will speak about the brokerage made in our diagnostics segment.
Now shifting gears to all our diagnostic segment, which is a critical part of our business that is fundamentally in enabling us to access data from which we then gain extremely valuable knowledge that is why wall him. So it's still meaningful for us as you can see from the chart on the left we have added 20 35000.
Patients to what we already believed this largest data base of rare disease patients.
Some of this growth comes from the pharma segment.
We're also expanding our reach with the traditional diagnostics business in order to keep expanding the breadth of our database.
The acceleration of our volume show to spread the depicted on the right 10 sites, which were all volume by 10% in Q1, Twentytwenty compared to Q1 2019, but they also want to add to this 10% true it's Mike tempered given the reduction our noninvasive prenatal testing volume as we shift.
Focus to our core genetic testing business.
I believe it was and still isn't good reference point to think about in terms of testimonial.
Oh, Please turn to slide nine for close to look at our response to the Cobot 19 pandemic.
As the covert 19 situation began to impact companies around the world toward the end of the first quarter, we moved quickly to ensure a business continuity percentage.
First we took the necessary steps so that approximately 75% our employees could work from home with exception of those needed to keep laboratory operations running.
In order to support customers that are critical to the house to Echo system.
This is required to various adjustments ranging from I.T. systems to facility operation policies.
Mortality asleep, we modified our lot operation to be able to provides testing for covidien launching.
We initially provided testing to our employees and we laid out expanded to provide testing for essential workers in the local area as well as the economy has begun to reopen this testing capability has proven to be a vital assets.
Not only can we manage our operation more safely by providing testing to employees twice a week, but do we have also starting to support local schools and nursing homes by providing testing services.
Please turn to slide 10 to see what do we have done to provide cobot 19 testing.
There were several critical steps, we had to take to be able to provide cobot 19 testing.
The first example is deliberate choice space in Hamburg, which we acquired from Throwbacks medical.
While our testing capability, what do you well up in house developer to allowed us to expand our testing capability without taking resources from our core business and research efforts.
No I have to capacity to perform several dollars until with 19 test a date.
Securing necessarily reagents and supplies was another critical step for instance, testing swaps well one of the key supplies that needed to be secured we were able to secure a stable supply of new product cost central swap, which is all validated CE labeled solution.
For Cobot 19 testing and we now have the ability to source over 100000 swaps, which.
It is also worth noting that co working our cobot 19 testing capability into commercial testing was not an easy task.
We didn't have often awarding a portion of our commercial resources to a different customer base and completely reinventing old whale working.
Extremely proud of the sales teams achievements in such a short period of time.
Let me know handed over to Richard who will discuss our financials in detail.
Thank you aren't now please turn to slide 12.
Looking at our performance in Q1, Twentytwenty, we've grown our topline by the 30% compared to Q1 2019 with the diagnostics business growing at approximately 15% and the pharma business growing at approximately 10% compared to Q1 2019.
While we were pleased with that performance the growth rate was somewhat tempered due to the slowdown we observed in the latter part of March as a result of cobot 19.
On the profitability side, you will notice adjusted EBITDA for the diagnostic segment improved yet the pharma segment adjusted EBITDA decreased as compared to the same time last year.
The pharma business is clearly to more profitable segment and the small decrease in margin is in line with the observations in the prior quarter.
Our pharma business profitability will always be a balance between the revenue coming in and the cost of services that we provide and this may fluctuate to a degree.
At this point in time, we believe the profitability of the pharma segment has converged to steady state.
Now, let's look at the revenue performance in more detail in Q1 Twentytwenty on slide 13.
On the pharma side, we wanted to give you a breakdown of the revenue that comes from new and existing contracts revenue from new contracts was approximately flat in Q1, twentytwenty compared to Q1 2090.
We look at a portion of total revenues coming from new contracts approximately one fifth of total Rep pharma revenue comes from new contracts, we believe that demonstrates our ability to bring in new business. Despite headwinds due to the cobot 19 pandemic, let's maintaining a solid revenue base generated by existing contracts.
On the diagnostic side, if you focus on core genetic diagnostics, excluding IBT our growth rate was approximately 25% in Q1 twentytwenty compared to Q1 2019.
As we have mentioned before the end equity offering is not central to our business or our mission of generating medical insights around rare diseases, and we are clearly focused on growing our core genetic diagnostics business.
In summary, we are growing even faster in those areas of focus that will generate future growth for the company, both and monetary terms as well as medical knowledge.
This positions us very well for our business to continue to advance once the world gets passed to covert 19 pandemic.
Now please turn to slide 14.
Slide 14 shows our Q1 2019, and Q1 Twentytwenty PML our results for Q1 Twentytwenty were impacted by a few drivers, which I'll briefly review now.
Firstly with improvement in the product mix gross profit increased by 28% year on year.
Secondly, DNA expenses increased by approximately 2 million euros, mainly due to increase in personnel cost and operating expense as a result with the expansion.
Cost of operating as a public companies such as additional legal accounting corporate governance, and Investor relations as well as higher insurance premiums also contributed to DNA expense increase.
Thirdly, an increase in R&D investments of approximately 1 million euros represents an acceleration of efforts such as Biomark development and data generation, we just directly linked to the future growth to come.
In summary, our cost base grew foster the topline as discussed on previous earnings calls, we're continuing to make investments to accelerate our growth and we're confident that this is the right strategy.
Now please turn to slide 15.
Now, let's have a closer look at the cash flow and balance sheet.
Cash flow used in operating activities increased compared to the same period last year.
Mainly due to do additional purchase of inventories in response to covert 19 pandemic.
Cash flow from investing activities represent investments and intangible assets and laboratory equipment and were flat compared to Q1 2019.
Cash flow from financing activities reflects a repayment of loans lease liabilities and interest payments.
As you will recall on the balance sheet as of December 31st 2019, our cash and cash equivalents included the proceeds from the IPO.
As mentioned in a full year earnings call depth outstanding now accounts for the lease liability for the next eight years. According to our for 16 and accounting policy effective from January 1st of this year.
This represents roughly 20 million euros.
Taking all these factors into account you can see that our balance sheet as robust as a CFO, having a robust balance sheet as it reliable Esa, especially during uncertain times such as these.
Please turn to slide 16.
Well, we're not providing any financial guidance for the year ending December 2031st 2020, as a result of Cobot 19, I did want to provide transparency into what we have been observing with the business.
Beginning at the end of March we started to see a slowdown in our business on the diagnostic side sample volume decreased considerably and in late April one of the slowdown was at its worst December volume fell below 50% of debt before the crisis.
Since that time sample volume has been on a modest recovery trend.
The pharma business is composed of different types of partnerships. As you know obviously, there is little impact to fixed fee type partnerships, but clinical trial related services have slowed.
For your information roughly one third of the pharma revenue is clinical trial related.
Thats Arent mentioned previously we have initiated commercial covert 19 testing and such additional revenues may help offset to slow down in our core business.
Recent developments have been encouraging but it is simply too early for us to fully quantify the commercial impact we understand that the cobot 19 situation is weighing on investors' minds, and we will come to you to update you what's the potential impact on our business becomes clearer and more quantifiable with that I'll turn the call back to art.
Thank you Richard Please now turn to slide 18.
Easily summarize today's discussion.
Vintage in delivered a strong quarterly growth both from a financial and operating metrics perspective, despite the challenges from the cobot 19 situation.
In light of the challenges associated with Cobot 19, we acted quickly to keep core operations running and initiated cobot 19 testing to hubs society begin to return to a new normal and mitigate the impact on our core business. We will continue to rise to the challenge and.
Further builds on our efforts to date on Cobot 19 testing.
We will also continue to execute against our strategy to build on our core business of helping pharma companies improved therapies for rare disease patients.
Also the situation it's difficult for many of these companies now go with 19 will pass one Dave.
Well that day comes pharma companies will be looking to reaccelerate. Their development brokers centered gene is uniquely qualified to head, though is in the rare disease space and we want to make sure we're ready to do just that.
Let me end by thanking all authentic genes employees pricing up and meet the challenge.
Never been prouder of our company, they're not being in the past few months.
I would also thank you all for joining our call and supporting our accompanied these are challenging times, but no will come out stronger and more resilient on the other sides. Thank you again for all the actions you are each taking to support the wellbeing of us all with that ill now turn the call over to though.
Operator for the Q in a portion of our.
Thank you.
As a reminder, ladies and gentlemen should you wish to ask a question. Please press star one on your telephone keypad.
And when should you wish to ask a question on today's call.
Your first question comes from the line of.
Please go ahead. Your line is now open.
Hi, Thanks for taking the question.
Firstly, just wanted to make sure was there any.
Benefits from cobot testing in the first quarter.
That was a very small amount of revenues.
Really at the Minimis in Q in Q1 synergy.
Okay.
And then Richard you talked about obviously some impact on the clinical trials cited the pharma business.
I was curious.
To the extent possible would you share kind of whats kind of trends are you seeing throughout may and June to date are you seeing option recovery, there as well or kind of curious thank you.
Yes, thank you for asking that.
Thats question.
Some gate, we saw a a very nice rise again.
Subsequent to the slowdown it still model to the the prior level.
But it's it's going up nicely for every project that we that we do in depth index here.
Okay.
And then lastly would you be able to share what's the testing capacity in your Hamburg facility for cobot testing.
And also the sense is what is that just youre use where can that be.
Deployed for rubber laboratories as well.
Interesting question. Thank you for asking.
The capacity, we have depends very much on demand that we are to meet we can scale at a very rapidly.
So it's it's not necessarily a number that we can give you today.
Because we can scale up so so quickly given the hembrick left that we established but it is more than 5000 already per day that we can easily do and we could.
Quadrupled that relatively easy.
When you talk about the central swap that is a swap that can be used by other labs as well and does not limited to us we have just make sure that indeed pandemic at its highest.
Position that we were able to make sure that we can actually keep on running the test because there was a shortage of any at testing materials, particularly to consumables and then discounts also such as well is obviously a consumable because you can only use at once.
Great. Thank you so much.
Pleasure.
Your next question comes from the line of funny.
Leerink. Please go ahead. Your line is now open.
Yes, hi are rich.
Thanks. So first question is.
I appreciate your providing the trough impact in late April, but just trying to understand in terms of improvement and clinical trials. Since then anything you anything youre seeing that gives you a sense.
These trials should continue to improve.
Or.
Likely do continue to see a rare disease trials impacted for the near term just help us understand.
Sort of what's your expectation there maybe even qualitatively.
Thank you for awesome to question Puneet as it is an unprecedented situation. It is difficult to predict exactly how this will evolve, but we have seen a very nice pickup and actually an accelerated pickup in the last two weeks in particular.
Both into clinical trials as well as the into Dx.
Also in the defies our TTR project.
So we feel that it will pick up completely again and then.
The exact timing cannot be determined as of this unprecedented. So there is not another timetable on all the graph that we use as a comparison.
Okay. Okay. That's very helpful and then on the 11.
For a pharma collaborations that you had noted.
Can you walk us through through those and help us just to understand what what were added and sort of what's your expectation of those.
Turning into revenue.
And the next couple of quarters.
It's a it's a variety of collaborations and maybe it would be best to hand that to son Who's the interim also leading our BD efforts in that respect. So Sun would you please give a little bit more color.
Let me, let me get back to you puneet separately on that specific.
Collaborations, we do not disclose specific collaboration but by name.
But on the overall trend there are always.
Truck deals that and because we meet the milestones.
But we vote, we also continue to.
Signed new deals and in particularly in quarter, one we did sign new deals despite the.
The slowdown that you observed through the covered.
But specific details.
Of each partnership.
For the variety of reasons, we can't disclose over this call.
We need to microphone you might recall in earlier conversations that we always need to specifically ask for permission to share such details, which we don't always always do because very often it's an expansion of an existing contract so not a new partner, but still a new collaboration with a partner.
Okay. Thanks for that.
Aren't if I could ask on cobot testing and how much.
Center gene this participating.
In Germany can you give us a view of maybe the where the market for.
Our GPCR military you could see are currently stands and.
What's your contribution into that market at this point.
It appears that.
Spread testing is and asymptomatic testing is already being conducted a wide lead there in Germany has managed to.
This well so just wanted to get a sense of.
What's your contribution into that is and tell us if you could at the two to 3 million that you pointed out here in the coming months should we assume all of that is going to lend into this and to the next quarter.
And if there's potential for upside here and I'm asking a few more questions I and I. Appreciate you providing on that if you could also give us any SP in Cogs trend, maybe even nationally there appreciate it. Thank you. Thank you at retail would you like to start a level second thoughtful question.
Given the two to 3 million yeah. The de anticipation is indeed that will be mostly in Q2.
The be coming to fruition in our revenues.
And then I hand back to you aren't well thank you.
Thanks for the question I guess, you're totally right, Germany is doing rather well it because in Germany has no significant impact although significant increase of the number of past that often develop learning quickly at the beginning on the one side.
And on the other side also by the understanding of the importance of the provocative testing, which means and all around the standing testing even off at symptomatic individuals will offer sure spreading around mobile viral and that's exactly the focus of centering chain and based on that strategic positioning welcome to me.
A lot of collaborations with decorum powerful.
Thank you, Dan not yet able to announce poorly and Thats directionally, but all of these collaborations I expect the based on the understanding on the importance of the understanding what the provocative testing allows the companys took on bulk to normalcy exceptional underway a sensor genes doing this in the Meanwhile, as.
Cancels in my short interest rate swaps story, but we are in the Meanwhile, working completely normally based on the operational and based on the twice per week testing and that's exactly the model while continuously developing with our strategic partner.
Okay. Thank you.
Well I can.
Thank you and your next question comes from the line.
Evercore ISI. Please go ahead. Your line is now open.
Thanks, Hey, guys.
Real quick so Richard you talked about pharma it'll become a steady state can you just give us an idea of the kind of puts and takes there that that there is ultimately give me that type of confidence. This early in the game.
The thing we are mentioning and referring to in that sense is the the margin in that business. We believe that we have a relatively.
Stable.
Basis, now as a mix of fixed fees upfronts.
Knowledge transfer versus clinical trials, obviously, it is very hard to exactly say what will come in one quarter, but nonetheless, we believe that this is a fair reflection of what one could expect India in the future to come.
Okay.
And then so it goes out at 11, new collaborations you've talked briefly on that can you just give us an idea the overall impact to your business development.
Side on the Biopharma piece, so how much of that is moving away from face to face interactions.
What do you guys are doing there to keep the funnel open and.
And clicking.
Well first of all obviously, a travel and face to face had been embratel massively independent make not the least in U.S. recently.
Given that we all saw that contamination, obviously is highest when people meet.
So we've had less the face to face interaction.
But that also led to a situation, where we had a couple of hundred Pfizer salespeople in a video coal in training them for the TTR screening program, which we would never have had as an option or a possibility. If these people have been on the road all the time, so you'll see some negatives you see some positives.
People are a bit distracted, but after a very short period. Most people got used to working from home and video Commerce racing proved to be very effective in that in keeping the the line open.
As we've always seen obviously the the number of partnerships towards the end of the year increases more than one would expect in in Q1.
Yes, Okay, and then I guess last one as you think about the new facility that you guys are building after the covert testing.
And I'll add two to 3 million I guess over the next like you said next couple of months.
Well as you think about the long term growth rate of that 20% to 25% that you guys talked about how does this factor into into achieving that was this something that was already in the plans use decided to accelerate maybe a year or two.
Unfortunately art, let me put it better Fortunately nobody was able to predict this pandemic nobody had expected it.
So we did not predict opening a cobot left in the past we did not plan for it we did not schedule. It and we had hoped that would never have been unnecessary.
Now did it came to fruition, we've acted swiftly yes, very decisive on setting up this testing capability first being able to do to test to begin with to define the test and then to be able to to do it in the in a high volume.
Which then let us to open did lap so to us.
It would be a situation that is only cost.
By the pandemic and that we only expect to continue throughout the pandemic and resolving it.
Okay, it's understandable.
So for me thanks.
Thank you.
And gentlemen should you wish to ask a question. Please press star one.
Your next question comes from the line of Catherine Shota. Please go ahead. Your line is now open.
Hi, everyone. This is actually Jon Petersen on for Catherine.
Fair amount of my questions, particularly related to covert testing has been asked I'll keep it short.
I was just curious from a margin standpoint, I know you guys had called out sort of steady state on from a.
Just wanted to know if there any other onetime items.
And how we should thinking of be thinking about the co bid testing impact on margins. Just just generally how do how do you think that trends over the next couple of quarters.
Well, we are not at Liberty to share any future look good looking statement because of the unprecedented nature of this pandemic, we can give you a little bit of perspective.
As you you've seen in the past us this closing materials on various contracts as well as margins related to the various contracts.
It is difficult to say exactly what contract will be signed a neat and what quarter with what margin because a knowledge transfer a sole knowledge transfer would be close to 100%, whereas a clinical trial would be would be much more costly to us under a much lower margin overall life addressed a question before why we expect a steady state so that should address.
Thats a concern if you look at the the margin in the ended the excess segment, we've alluded to the margin improving due to the.
Lowering of number of an IP t. samples, which historically have had a very low margin.
And we believe that the covert commercial testing will have a positive contribution to the margin of the DXA segment.
Okay great.
And then just just trying to get an idea on.
On the demand side of things from a covert testing perspective at this point I know you guys have said that you have the capacity to ramp up quickly.
Now the market is little bit more flux with testing are you seeing a little bit of a normalized normalization between supply and demand or do you do you still think at this point that demand is just kind of outstripping things from from your perspective.
Again, let me rephrase once more that at this unprecedented.
So one can read a lot about demand when can read a lot about potential supply.
They don't appear to be balanced out yet.
And we cannot see that it is balanced out yet heater. That's all I can say at this stage based on the on general market information.
Presentations as well as our own observations.
All right helpful guys. Thanks appreciate it.
Thank you.
Question. Please continue.
Great. If they are no more questions you want to thank all the folks who dialed in for this fall and.
Wish everyone. Good health in these times and once again. Thank you. Thank you for joining our.
Q1 2020 call.
Thanks very much thank you.
That does conclude our conference call today, thanks for participating.
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