Q3 2020 Genmark Diagnostics Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to today's conference call to discuss Genmark diagnostics third quarter 2020 financial results. My name is safe and I will be operator on this call. After the presentation. We will conduct a question and answer session instructions will be provided at that.
Time, if at any time during the conference you need to reach an operator. Please press the star key followed by zero. Please note that this call is being recorded today Wednesday October 28, 2020 at 130 PM Pacific time, and I will be available on the investors section of Genmark supposed site at www.
Dodd Gen Y K D X or Genmark Dx Dot com I would like to turn the meeting over to Lee Solvable Gilmartin group.
Thank you fade and thank you all very much for joining us today before we begin I would like to inform you that certain statements made by Genmark. During the course of this call may constitute forward looking statements any statements about our expectations beliefs plans objectives assumptions or future events or performance are forward looking statements for example statements concerning.
2020 financial and operational guidance the development regulatory clearance commercialization and features new products plans and objectives of management and market trends are all forward looking statements. We believe these statements are based on reasonable assumptions. However, these statements are not guarantees of performance and involve known and unknown risks and uncertainties that may cause the actual results to be materially.
Really different.
From any future results expressed or implied by such statements important factors, which could cause actual results to differ materially from those in these forward looking statements are detailed in genmark filings with the FCC.
Mark assumes no obligation and expressly disclaims any duty to update any forward looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events.
I'd now like to turn the conference call over to Scott Mendel, President and CEO of Genmark Scott.
Thank you Lisa good afternoon, everybody and thank you all for joining us I'm joined on the call today by Tony Our CFO.
Today I'll start the call by discussing the COVID-19 impacts on our industry and the positive long term impact for Jamere.
I'll then review our recent performance and thoughts on the remainder of 2020 and beyond and then Johnny will provide a deeper review of our recent financial performance and we'll finish off with Q.
Undoubtedly 2020 has been an extraordinary year on many fronts and the COVID-19 pandemic has changed everything.
From an industry perspective diagnostics has been brought into the spotlight.
These days everyone's talking about diagnostic testing from the National news, the conversations with our family and friends.
From a customer perspective.
All community hospitals large health networks are all investing in new testing platform that enable better patient outcomes through rapid diagnosis.
Syndromic panels like E class can provide the highest clinical value, especially for critically ill patients, where it's crucial to determine if saars koby to or some other bug is causing there.
And finally from a supplier perspective, the urgent need for Cobi 19 diagnostic testing has sparked many new entrants into the space.
But it's very important to break down testing by tight, meaning ampligen versus molecular versus antibody and within molecular low class versus multiplex for syndromic.
I'll take a minute to quickly frame up these different test categories and their typical use case.
Antigen test are primarily being used for testing on asymptomatic or lower but symptomatic patients.
Antigen tests are often used in screening scenarios such as universities for nursing homes.
Antibody test can be used to determine if a patient has been previously exposed to stars koby to by looking for the immune system response to a previous infection and does not have preferred approach for diagnosing active infection.
We're patient diagnosis the gold standard it's PCR for molecular tough.
How are you flex platform is they syndromic molecular solution that can detect the presence of many targets often 20 or more from a single patient sample.
Eat flexes value proposition is built upon delivering rapid actionable result for the most critically ill patients.
An easy way to think about when a syndromic molecular tests would be used to this.
Syndromic tests are used in a hospital setting to address critically ill patients. If you drove yourself to a parking lot.
Or to your local pharmacy to get a covert today, it's highly unlikely you are being tested with the rapid molecular tests like E books.
[noise] I spent time laying out the different types of tough because it's important to understand that eplex is well positioned in the highest clinical value segment within the diagnostic testing spectrum.
This understanding provides the foundation for appreciating the highly visible and recurring nature of our consumable revenue.
I think the following quote Dr., Greg Barry director of molecular diagnostics at Northwell health, which utilizes the eplex RP to panel that sums up the extraordinary value that syndromic molecular tests delivered to customers and their patients.
Dr., Barry said that quote testing for upper respiratory infections, using larger panels is essential, especially during flu season.
It's very challenging based on symptoms to narrow down the Cogs.
It's a big step in the right direction to be able to identify a pathogen without going on a fishing expedition.
It helped us pick the right treatment and make the most appropriate bed management decisions, including who needs to be put on special precautions and isolate isolation measures and equipped.
This value proposition is what drives adoption of syndromic panels independent of the COVID-19 pandemic.
Now that I've highlighted how and where he plexus use let's turn to the supply side of the equation.
Several research reports are publishing capacity details by vendor and type of test utilizing these reports we estimate that the capacity for sample to answer Syndromic testing continues to be less than demand and this is consistent with what we are hearing directly from our customers.
Narrowing in on what this means for Genmark COVID-19 has accelerated the adoption of our Eplex platform well ahead of our pre pandemic expectations.
This rapid increase in Eplex placements at customer sites combined with multiyear contracts that include committed purchase volumes has created an enduring and predictable revenue stream.
And here's what it means and easy to understand metrics.
This year, we have secured over 115, new genmark customers and increased our eplex installed base by 195 analyzers through the third quarter.
Earlier in the year, many eplex placements were only utilizing our COVID-19 test, but I'm very pleased to report that approximately 95%.
Year to date placements have now signed multiyear agreements with committed volumes for RP too and RBC I'd.
The transition from Eplex COVID-19 to the RP to panel accelerated through <unk> through the third quarter as planned and we expect fourth quarter revenue from our COVID-19 task of only a few hundred thousand dollars.
Be on respiratory testing, we're continuing to drive the adoption of RBC I'd panels, albeit at a slightly lower rate than originally planned as resources shifted towards supporting COVID-19 initiatives.
We are encouraged by the implementations completed thus far and the growing number of customers contracting for BC idea adoption.
In fact more than 40% of 2020 year to date placements include BC I'd.
Our term teams are working closely with our customers to plan and complete those implementations.
I will conclude my commentary on top line growth with a look forward to 2021.
With multiyear contracts and committed volumes, we have secured a highly visible and predictable revenue base and.
In simple terms, we are tracking to exit 2020, with an eplex installed base of approximately 775 at the high end of our guidance range.
Applying an annuity per placement in the range of 175000 to $190000 to this installed base result in Eplex consumable revenue between 135 million to nearly $150 million next year, which represents eplex consumable revenue growth of 12, and a half the 25% versus 2020.
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On top of this highly visible eplex based revenue, we expect additional eplex placements and the associated capital and consumable revenue as well as consumable revenue from our legacy XT eight installed base.
Given these building blocks, we are well positioned to drive overall revenue growth in 2021, even though 2020 was an extraordinary year driven by the COVID-19 pandemic.
We expect to provide 2021 guidance on our fourth quarter earnings call per typical practice, but our focus on driving enduring and recurring revenue streams has resulted in a strong and highly visible revenue Foundation.
Moving onto the manufacturing front, we remain committed to exiting 2020 with Eplex gross margins of approximately 40% inline with our prior communications.
Well, we have been prioritizing eplex capacity to supply our customers. The teams have been able to implement direct material savings and drive increased volumes to remain on track to achieve our 2020 gross margin goals.
And at the same time, we're also on track to increase our Eplex manufacturing capacity.
We completed the construction phase for our fourth and fifth manufacturing lines in early October which is an amazing result, getting them. We began construction on this new 73000 square foot facility in July.
The teams are on track to complete the set up and validation the equipment to enable production later this quarter on the fourth line with plans to complete the fifth line for the first quarter of 2021.
Given our commercial success and the visibility we have to future demand last week, we formally approved our plans for the six Eplex consumable line.
We anticipate our teams will transition to this effort as soon as they're finished with line five, thereby providing additional capacity in the second half of 2021.
[noise] additional manufacturing capacity is also a key component in delivering future eplex menu.
Our pivot to Twoq, two COVID-19, and then the RP too as well as the rapid increase in commercial demand had to be balanced with menu expansion.
Well, we have experienced some delay NRG I development timeline versus our initial 2020 plans. We have recently increased the size of our assay development team to leverage the increasing capacity with a focus on completing G.I. development as well as other panels.
We expect to have a better assessment of G.I. launch timeline, shortly and we'll communicate more details on future calls.
I covered a lot of topics today and I want to leave you with three key highlights first.
First eplex is a sample to answer syndromic solution that delivers high value to critically ill patients.
While the COVID-19 pandemic accelerated are you plex installed base, we're not a COVID-19 testing company.
Second sample to answer Syndromic test continue to experience demand in excess of supply and therefore, we are investing in multiple manufacturing lines to address the expanding market opportunity and third by executing multi year contracts with committed volumes our visibility to predictable.
And recurring revenue streams continues to increase.
With that I'll turn the call over to Jonny for a deeper review of our third quarter financial results.
Thank you Scott.
In the third quarter of 2020, our commercial team placed 70 net new Eplex analyzers, taking our total eplex placements to 722 as of September Thirtyth 2020, total revenue was $42.6 million, an increase of 104% in the third quarter versus 29.
Team and on a year to date basis total revenue has increased by 100%.
Eplex revenue grew by 187% versus the third quarter of 2019, and 163% on a year to date basis sales to U.S. customers continue to represent the vast majority of our revenue.
Average annuity per eplex placements for the quarter was $193000 an increase of 82% over the third quarter of 2019.
Third quarter gross profit was $16.5 million for a gross margin of 39% of revenue versus $7 million or 34% of revenue in the third quarter of 2019 Red.
Representing an increase in gross profit contribution of $9.5 million or five percentage points.
The continued gross margin improvement results from driving down material costs as we minimize scrap improved total yield as well as source materials from alternate vendors we.
We are maximizing our direct labor efficiencies through continuous training and process audits.
The <unk> production of a record number of consumable units has also driven strong overhead absorption.
We remain on track to achieve our goal of 60% gross margin over the next two to three years.
Total operating expenses were $17.8 million for the quarter, representing an increase of $471000 compared to the third quarter of 2019.
The majority of the increase was driven by investments in R&D.
Our net loss per share for the third quarter of 2020 was five cents, representing an improvement of 15 cents from the third quarter of 2019.
Moving to the balance sheet.
We ended the quarter with $137.3 million in cash and investments an increase of $4.5 million over the second quarter of 2020.
We invested more than $6 million, expanding our manufacturing facilities during the current quarter.
The increase in operating cash in the current quarter came in part from a $1.5 million decrease in net loss compared to the second quarter, driven by revenue and gross margin growth with stable operating expenditures.
Changes in working capital drove the remaining increases in cash.
The third quarter a quarter of 2020 represents the second consecutive cash flow positive quarter for Genmark and gives us confidence in our ability to fund our continued growth through operations.
Turning to the remainder of 2020, we are increasing our revenue guidance range to 165 million to $168 million for the full year.
This updated revenue guidance reflects our visibility to recurring revenue coming from our system placements to date and the corresponding consumable purchase commitments.
We are maintaining our eplex system placement guidance range of 230 to 250, net new analyzers as well as our average annuity per analyzer range of 175 and $200000, but expect to deliver at the upper end of those ranges.
We anticipate full year gross margins full year 2020 gross margins to be in the upper end of the previously stated range of 38% to 40% and inline with our plans to achieve our gross margin goal of 60% by the end of 2022.
We expect operating expenses to come in at the top end of our range of $70 million to $75 million for the year.
We continue to expect cash usage, excluding any impact from financing activities to be approximately 10 million to $15 million. This guidance includes approximately 10 million to $15 million of investment undertaken to increase manufacturing capacity in our new facility.
The strong operational results have improved our cash flows from operating activities for the year to approximately breakeven and will assist in funding this manufacturing capacity expansion to support our continued growth.
This concludes our prepared remarks, so at this time, Scott and I would like to open the call for your questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press. The Star then the number one key on your Touchtone telephone. If your question asked and answered or you wish removed himself from the queue. Please press the pound key.
Your first question is from Doug Schenkel from Cowen.
Your line is open.
Okay.
Hello.
Hi, Doug.
Hi can you hear me Hello, Yes, Yep, Hi, sorry. This is art Ryan on for Doug. Thanks for Thanks for taking my questions common and thank you for all of the.
All that detail in your prepared remarks, maybe just starting with it with a near term one so the the high end of your guidance for placements for the full year, we would still imply about.
Do you guys have got in place and during the fourth quarter versus Q3 have you seen any deceleration in place from a momentum thus far in Q4 or are you baking in some conservatism given what we see in.
In Q4 with Verizon.
We we hi, Brian It's Scott we are continuing to see very strong demand from our customers for additional placements. If you remember one of the things we're being very thoughtful about is pacing that growth with our consumable capacity, we want to make sure we take care of our customers and.
Don't create a negative experience. So I was really governing our guidance for placements in the fourth quarter is that consumable capacity. It's why we're so focused on bringing up the fourth line in the fifth line and as I mentioned, even the six line has now been approved.
Got it very helpful and then.
If I could ask a longer term BC I'd questions question.
Really really encouraging update on that front.
Can you give us a sense of how meaningful you expect BC I'd be in your growth in 2021, and then longer term.
Is this is this a 50 million dollar annual revenue test category for Genmark over the next three years or so.
Sure so from a B C I'd perspective, thinking a little bit more near term, we do believe BJ de will be a very strong.
Variable in our 2021 growth, especially as it relates to placements.
As well as revenue associated with those placements.
As far as what it could get to over time, Ryan I think that sounds like something that would be achievable. We think about where we want to go with B.J.D. in terms of how much of our installed base do we expect to adopt a b C. D. Because remember that's a very valuable asset for the company as we have 722722 systems out.
There.
And adding to it every quarter, we want to make sure that those customers are utilizing not just respiratory but respiratory BC I'd as well as future panels, we would like to see that number be well north of 50% over the longer term that are adopting multiple panels.
Very helpful. And then if I could sneak one more in really really exciting to hear about your accelerating investments in menu expansion.
Acknowledging you don't want to give exact timelines can you talk a little bit about.
How you think about how long it will take for Genmark to close the gap versus your largest competitor from a menu breadth perspective and ultimately.
Looking out.
Two two or so years, how many panel do you think you could be launching per year with these increased investments. Thank you.
Yes, so from a from a G.I. perspective, we're not giving exact timelines, but I would just characterize it is.
We've we've experienced somewhere in the six to nine month delay and that correlates to the amount of time, we've been focused on Cobi did an RFP to as well as satisfying commercial demand.
And that's why I mentioned, we brought on some additional resources already in the third quarter and are continuing to bring on even more in the fourth quarter. So that as we have access to capacity, we can start to accelerate that timeline.
Well as we move through the fourth quarter will have a better idea of the progress. The team is making on G. I'll provide an update coming up on future calls about what we think the timing is on that if we made up anytime or not as far as a number of panels. I think we do have a great opportunity to start to catch up as we now have the cash flow.
Low to fund investment in capacity, we can now school up more teams on and ideally you'd like to see us yet one that one panel at least a year if not one to two out on a go forward basis.
Excellent. Thank you.
Your next question is from Brian Weinstein from William Blair. Your line is open.
Thanks for taking the question. So I know you talked about the four person six time can you just restate.
Because I don't think I heard on the call I just want to make sure everybody's career restate what those capacity numbers are today, what each one of those lines will add just to that we're on the same page here.
Absolutely so.
As we exited the third quarter.
Our teams achieved an excess of 120000 units per month, just on the first three lines. So as the fourth line comes up here in the fourth quarter, we expect to exit in that call. It 150 to 175000 units per month capacity that will step up into the 200000 range a little bit more than 1000.
In the first quarter and then as we bring a six line that should put us about at a quarter million per month and Brian. That's amazing. If you think about we were excited to that that we ended the first quarter of this year at about a 100000, so we have considerably wrung out even more.
Units on the existing lines and then investing with the additional three were more than doubling our capacity within that within a year timeframe. So that's pretty that's pretty remarkable.
Absolutely okay. Thank you for that clarification.
If you had any issues with skewing run into any kind of any hurdles. I mean is I think about you know you guys continuing to see try and get to those numbers what are the things that.
That you know you're looking out for to make sure that there's no issues.
Yes, so the first milestone that we wanted to make sure was that the actual facility got built out right. We had to have all of the environmental controls the clean room set up and that's what I mentioned in my prepared remarks that we were able to do that within a three month timeframe, which is which is really heroic and so that facility is fully built out there.
That can how's the fourth and fifth lines and then eventually the six line and beyond so that was the first milestone and so that landing on time was really important the second piece has been all the equipment, arriving and being set up and validated inside the clean room, and that's going very well that was one of the areas that was the biggest risk because we have.
The least amount of control over it a certain piece of equipment would have been delayed or not and I'm happy to report that while we've experienced a little bit here or there we had enough buffer built into our timeline on that we are still able to to hit our ultimate goal of getting that line live here in the fourth quarter. So those are the two big pieces, one was getting them ready we did that successfully and then two is.
Turning to the equipment on time, and that's going pretty.
Pretty well and we're we're still on track.
Great. Thanks for that and then Johnny for you I want to make sure that that that would help US rate you said, 60% gross margins, obviously thats a long term goal you've talked two to three years, but just want to make sure I heard you say by the end of 22 were exiting 22 at a 60% gross margin did I hear that right.
Yeah, Yeah, that's what we were shooting foreseeable to exit 22 in that 60% range. So.
So so we think so should we think about going from about 40% at the end of 20 and getting to 60% at the end to 22 should we think about next year being sort of at the midpoint there or are there some step ups that take place more in 22, so that it's not quite ratable between now and then.
It'll be pretty ratable through through 22, certainly as you've said that sort of that mid point exiting next year at sort of that mid point, we'll get ratably, there and then get there by the end of 22.
Okay, great. Thanks, guys.
Thanks, Brian.
Again to ask a question. Please press star one on your telephone.
Your next question is from Max missing teeth from Canaccord Genuity. Your line is open.
[noise] on a great quarter, so I'm just going to start with a big picture question. Here can you just give us a sense for how the RPQ panels being received by customers that may have been less convinced of the utility of multiplex panels in the past.
Do you think that you now have more believers in the utility of multiplex panels versus single target panels, now compared to say 11 months ago.
[noise], Yeah, I'll get two pieces of data that support that statement, we do agree with that that there are certainly a lot more believers to use your words and syndromic panels.
First I'll address the transition to RFP to its actually gone better than what we had expected which is why we were able to two announced end of life ing. The cobot only test by the end of October here.
The numbers that I quoted I really illustrate that as I said 90 plus percent of the placements year to date have already transitioned and signed up for multi year contracts RP to and RBC I'd. So I'm actually feel really good about that and remember a lot of our placements early in the year were driven by cobot only test so thats a testament and.
Data point that highlights people are.
Understanding the value that Syndromic test spring just based on that conversion rate and the second data point, which I think is actually as interesting is when we look at our policemen experienced thus far one of the most surprising and encouraging things is the fact that about 50% of our placements are.
We are going to customers that are new to syndromic.
Which is really remarkable it's something we didn't expect and I think that is driven by the awareness of the diagnostic.
Tools that are out there, including Syndromic tools. The pandemic certainly helps encourage some of those folks to kind of get across the finish line and maybe they were doing send out into bringing it in house. So thats. The second data point that I would that I would point to that says a lot of folks out there a lot of customers are really understanding the value of syndromic and we've seen a big and.
Increased so again about 50% of our placements were new to Syndromic testing.
Great and then the COVID-19 testing numbers generally continue to increase week over week, but can you just speak with a bit more granularity. This some of the unique demand trends that you're seeing in the hospital lab channel and how these may contrast from the COVID-19 cashing trends UBS.
Served for say high throughput testing in a centralized lab setting.
Sure. So I think Theres a couple components to this to the answer one is.
We are all looking at daily testing reports and we understand where it's running between 801.2 million a day give or take over the last month, I would say and so that the number of tests.
Being administered each day is increasing but also the capacity and that's why I took extra time today to explain that where capacity is increasing it is more in the central lab.
The high throughput tasks.
And those areas and less so in the molecular side the multiplex molecular side for sure and so what we're seeing is consistent with that Max So theres capacity increase but not necessarily in sample to answer syndromic and that is consistent with how.
Our interactions with our customers are going there there is still demand within our segment of the diagnostics spectrum. There is a lot of demand for testing continuing.
Great and then if I could just sneak one and a follow up there just can you just give us a sense for how the competitive dynamics in the hospital setting has unfolded over the past say couple of months and our customers still bring in multiple instruments from different companies to overcome test shortages in that particular channel.
Yeah, we are continuing to see that which is something new this year versus pre pandemic that.
Inside the lab in the hospital setting I, that's what I'm speaking about that's where our platform is positioned we are seeing an adoption of multiple platforms, which in the past we had not seen for the same disease state and that's because what I just talked about that there isn't enough capacity in the sample to answer syndromic space to satisfy.
By all the demand in so customers are.
Our having to adopt multiple platforms and that's consistent with what we've heard from some KNL panels.
Over the last few weeks that they are adopting multiple platforms and that has a lot to do with just what I said they have to make sure. They have adequate supply of Tas as they prepare for COVID-19 to be circulating in tandem with the flu season.
Great. Thanks for taking the questions.
You're welcome thanks back.
Your next question is from Tyco Peterson from JP Morgan Your line is open.
Hi, guys. This is Casey entre Tyco congrats on the quarter just to follow up on the previous question, how do you guys view.
Uhhuh AB and.
As koby to Kabul tests.
As it relates to.
The competitive dynamics, there and then Theres, a four and one touch that test for RSV as well.
Are those competitive threats to genmark at all.
So they're part of the molecular testing spectrum of course and their their molecular.
They do play a role in even the hospital setting, but it has to do with that.
The use case, meaning the patients that you are looking at and whether you believe that they should be tested on the Syndromic panel, which oftentimes if you present at the hospital.
That would be the choice of physician.
Physician would be to order a syndromic panels like ours.
I think one of the important examples I provided on a past call.
Rings true here and that is that Ed Graham regional we talked about the fact that.
They wanted to use a truly syndromic panel for one of their medical staff to determine whether she was positive for cobi 19, or not but as importantly, they needed to know very quickly across all the targets that are possible what what she had so that they could safely have returned to work.
And I think that just illustrates the point that yes, the three four or five target tests are important but ultimately the highest clinical value.
Comes from a syndromic tests like eclipse.
Got it that's helpful. Thank you and then maybe one last one from me is do you have the percentage of capital placements versus reagent rentals and eplex placements for the quarter and do you expect that to stay the same.
As we had before Q.
Yeah in Q through in Q3 capital represented just about 90% of the placements were on a capital basis I think it will be relatively the same in Q4 based on what we're seeing and hearing early on in the quarter here and it's one of the things we will continue to monitor throughout the rest of this year because.
It will be important as we get ready to do formal guidance in 2021, that's one of the factors that we need to nail down not just the total number of placements that we expect to have in 2021, but the ratio of capital versus reagent rental.
Operator, I think we're ready for the next call.
Sure.
Your next question is from Mike Matson from Needham and company. Your line is open.
Yeah, Hi, Scott and Johnny This is David on for Mike Thanks for taking the questions.
I appreciate the color you gave around 2021, I mean, I I guess it sounds like 150 could be sort of a four for 2021 revenue.
So you know how should we think about the magnitude of that layer of incremental eplex revenue and it sounds like manufacturing capacity won't be an issue.
Hey, David So one way to think about it is you are right I gave a range of that base layer. The foundation of the recurring revenue stream for Eplex consumable revenue and our math based on where we expect to end this year from an installed base and applying a reasonable annuity stream puts you in that 135 to 150.
Actually right and then you would layer on top of that our normal run rate for XT eight and I think you have a you can kind of look back and see what weve been generating it tends to be in that call it $20 million range or so.
And then the next piece that you would need to layer on is just some assumptions about placements per quarter, and then layer that same annuity on top of it. So yes 130 550 is the base that's exactly what I was trying to articulate and that base layer is is highly predictable for us.
Okay. Yes, that's helpful. And then I mean, just on your you are putting in place these multiyear contracts.
And you've mentioned, but just the level of visibility you have.
And you know kind of implied in the fourth quarter guidance I mean, if if my math is right you you could breakeven so just kind of given that and the visibility how are you thinking about profitability kind of I.
I guess in 2021 and beyond.
Hey, Dave is Johnny So our focus is certainly funding growth that profitability comes as a result of that but really our focus is funding growth cash flow positivity because it allows us to fund that growth into the future.
Okay. That's helpful. Thank you.
Your next question is from Andrew Cooper from Raymond James Your line is open.
Guidance.
Yeah, I'm, Scott Im glad you kind of product that example, with the nurses to one customer but.
Just as we think about sort of those use cases do you have a sense can you talk to customers, especially given you laid out hey, easy ourselves guidance as critical for the critically ill patients. You know is there a way to help us think about how much. They use if you think about Threeq fourq you et cetera is maybe similar things that aren't the traditional wheelhouse relative.
Do you know truly the critically ill patient coming in really need the answer hearse you now if we'll take pandemic shave and things are clearing up a little bit maybe you're not asking your nursery had a fever. The same way you are now.
Right. So that the nurse example is certainly just that an example, and maybe hospitals wouldn't test their medical staff with Syndromic panels, but but I think it's as important to understand that the patients presenting at a hospital from year to year has been.
Yeah.
Relatively steady if not growing and and if you're sick enough to present at a hospital you are a strong candidate for a syndromic task because you're obviously critically ill enough too because the hospital. So I I understand what you're asking and relative sample that I gave the example, I gave US just died and that's not the majority where the testing.
He is going.
I think Andrew one of the things that we Didnt, we didnt really talk about was that you know this into experts and our customers like I said they are really preparing for this this co bid to certain circulating in tandem with flu season, and it's driving their.
Their behaviors, which are they are expecting strong testing requirements consistent with a above average flu season, and so regardless of whether they are testing their medical staff or not they do believe there's going to be enough patients presenting at their hospital that.
That would be consistent with a strong flu season.
Okay. That's helpful and maybe one just on kind of the wording around contracts when I think back about the way you sort of talked about them often times. It was more hey, if they're doing any.
Syndromic molecular testing for X y for respiratory or blood culture, it's going to be on our platform is the way the contracts were structured whereas you talked about committed purchase volumes, which I think is as I recall is a little bit of a shift is that tied to you hey, we've got customers that are running both platforms in the same disease.
State and sort of how do we think about go forward contract structure as theyre going a little bit of a shift or any color there will be data.
Sure. So there has been a bit of a shift.
And its a.
As much driven by the fact that in this an unusual time a single vendor is not able always to satisfy the demands of the customer as far as respiratory as an example, and so that has led to customer having to adopt multiple platforms for the same day.
And that's why we have.
Made a bit of a shift in how we talk about our contract because we did we could not go to every customer and say, we can satisfy 100% of your respiratory gene.
That would switch to here's how much we're willing to commit to and have that agreement with the customers upfront multi year agreement with committed volumes to that they understand what we can see what we are able to supply and they can make appropriate plans, which oftentimes includes seeking another platform to supplement.
So is it is it safe to say when we think about that Dan.
More.
Pull and challenges your ability to meet to your point on that what's the constraint is.
Limiting what you're able to contract for as opposed to you going out there and trying to sell a greater volume you're kind of holding back and saying well, we're not going to promise you. What we can't deliver is that is that a reasonable way to be thinking about what the demand paradigm really looks like now and really through you know through and into 2021.
It is a really good way to think about it and it's what I've been trying to communicate which is the demand is in excess of the capacity, especially in sample to answer Syndromic and so what we have been doing is.
Being very upfront with our customers about what we agree that we can supply and agreeing in those committed volumes and that has been governed by what I can produce off our consumable line and then like I said earlier that also flow.
Flows into what we're willing to commit to you from a placement perspective. The demand is there Andrew this is about us making sure we're doing right by our customers.
Being transparent and upfront with what we can and cannot supply.
And then we're tying our expectations externally with you guys to those two those same a consumable numbers.
Okay, Great. That's it for me I appreciate it.
Thank you.
I'm showing no further questions at this time I would now like to turn the conference back to you Mr. Scott the Doe.
Thank you.
2020 continues to be an extraordinary year, and we believe genmark has been for ever transformed.
Our team reacted quickly we made personal sacrifices to develop and deliver valuable solutions for our customers and we've played an important role in the fight against COVID-19.
We delivered these results, while demonstrating resilience and commitment to our long term goals. We're proud to play a small role in fighting this pandemic and we're thankful for our customers who are on the frontlines caring for patients.
Thanks for joining us this afternoon for your continued support and I look forward to updating you on our progress in the future.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day you may all disconnect.
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