Q3 2020 Co-Diagnostics Inc Earnings Call
EMS are often similar to those COVID-19, which means that while many of these cases may Fortunately turned out to be the common cold physicians, we'll only know that patients are free from influenza or the corona buyers after testing for both.
By offering an ABSSSI reverse transcriptase PCR test co diagnostics has entered the high demand upper respiratory test space in the us on worldwide patients need to know whether the symptoms. They are experiencing are a result flu colder COVID-19 or co infection.
The flu is more lead from the children on the elderly while elderly adults or in the highest risk group for COVID-19.
The U.S. alone is estimated to have up to 56 million cases of flu last year going forward, those cases will need confirmation and differentiation.
56 million flu cases is more than five times. The COVID-19 burden. So far this year in the US alone worldwide approximately 8% of the population are well over half a billion are infected with flu every year, we anticipate broad acceptance of our SBC test, which the company began shipping on on Oreo basis. During the first week of October.
On overlooked reality is that current that currently antigen tests are typically used to detect flu antigen tests are known to be considerably less accurate then reverse transcriptase PCR test. According to the CDC sensitivities of rapid influenza diagnostic tests are generally approximately 50 to 70.
Percent, but a range of 10% to 80% has been reported compared to viral culture or PCR. Moreover, the CDC also states that the risk of complications for healthy children is higher for flu compared with cold at 19.
Our ABC test utilizes the gold standard of detection for all three pathogens rather than the lower standard of detection imaging tests low.
While we're on the subject of antigen test I'd like to quote Jeffery Baird. The acting laboratory Medicine chair at the University of Washington, who told the Atlantic last month, the point I'm trying to make here and ill be blunt is that antigen testing will not and cannot work for asymptomatic screening and it will probably kill a lot of people. Dr. Barrett is widely respected in the diagnostic.
Failed on his sentiments were bolstered by Alexander Mcadam, the director of the infectious disease diseases diagnostic laboratory at Boston Children's Hospital, who told the New York times that deploying the current antigen test to screen populations, where the buyers are scarce is a bad idea and I'll die on that Hill.
The problems experienced by the use of antigen tests are widespread.
On the state of Nevada, and Vermont are illustrative of potential problem loans and despite serious skepticism from scientists the country barge the head with average and tests and now find themselves in a mouse from a COVID-19 cases as auto Yang infectious disease expert at U.C.L.A. recently applying to the industry Journal Science earlier this year I missed.
Diagnosis is worse than no diagnosis, essentially some experts dispute not only how antigen test should be used but whether they should be used at all especially for asymptomatic patients.
Keep in mind that antigen test on amplify their protein signals. So they are inherently less sensitive to make matters worse that signal gets diluted when samples are mixed with liquids needed to enable the material the flow across the test strips as a result, most antigen tests have a sensitivity of anywhere between 50% to 90%.
In other words, one and two infected people might incorrectly be told they don't have the virus add to this that antigen test cannot provide a true negative result.
I'll leave it to epidemiologists and infectious disease experts to prognosticate, where widespread use of antigen test may be leading us, but we believe the new stories and initial data are troubling and that the potential negative unintended consequences of antigen testing may yet be realized and have to be reckoned with.
The New York Times also reported to getting an antibody test to see if you had COVID-19 months ago is pointless. According to guidelines issued by major Medical Society. Many antibody tests are inaccurate somewhat for the wrong antibodies and even ride on a body stayed away set expert at the infectious disease, a society of America, which issued the new guidelines.
'cause current test cannot determine assignment is immune to society said, they cannot informed decisions to discontinue physical debt distancing or less on the use of personal protective equipment.
As the vaccines, we believe safe and effective vaccines will be a critical tool in the fight against COVID-19, but will likely not be a panacea in a recent story on CNBC headlined Dr. FAOD. She says help is on the way with vaccines, but doubts coded can ever be eradicated is quoted as saying I doubt we are going to eradicate.
This I think we need a plan that this is something we may need to maintain control over chronically.
Scott Gottlieb.
Former Trump administration at FDA Commissioner, who sits on Pfizer's bore told the Washington post that even if the vaccine is approved before the on 2020 that the general public would not have access until late spring or summer of next year.
How soon vaccines make it to the domestic and international markets remains to be seen and if the experience with the flu in the U.S. is any indication the effectiveness of the vaccine and controlling the virus in a real world setting is likely on certain last.
Last year, the flu vaccine was given to 45% of us adults from 63% of you as children under 18, notwithstanding this level of vaccination. The U.S. still experienced approximately 56 million cases of the flu with a vaccination effectiveness of about 30%.
Maybe the experience will COVID-19 will be different but the medical community has decades of experience with flu and flu vaccines that still result in tens of millions of cases of flu in the U.S. annually.
Manufacturing issues, which is the hardest part of the vaccine business and distribution in an extraordinary cold chain conditions represent additional challenges to vaccinating, our way out of this pandemic.
We note the statement.
From a hot crop to molecular epidemiologist at Switzerland University of burn quoted in the Wall Street Journal, saying, a little bit more realism about the timeframe for Vaccinating the population would be helpful and.
And even once the vaccine is widely available it will still be an open question exactly how long. It remains effective we believe that physicians will continue to or to COVID-19 test for the foreseeable future even for patients that have been vaccinated, but are exhibiting covered like symptoms out of an abundance of caution.
I will now turn to the development of our recently announced technical advance and testing for COVID-19, using non extracted saliva samples. The company has successfully demonstrated that the co primer platform technology can be used to identify the presence of stars Coty two in human saliva samples without first requiring aren't extraction of the sample and can do.
So while providing low limits of detection. This technology is a significant advance has eliminating the costly and time consuming on a extraction step allows for even greater speed on economic advantages. We believe this discovery speaks to the strength innovation and flexibility of our co primer platform not just as it relates to creating improved testing technology.
You for COVID-19, but also additional possibilities to income that co primers and various other diagnostic applications from point of care to high throughput centralized lab settings. Our next steps include incorporating extraction priests alive, a direct test into the company's product offerings, including those for Coca 19, So they can be available to our customer base worldwide.
Right.
Our CLIA lab customers have made important strides in saliva based testing using co primaries. For example, clinical reference laboratory is now selling its CRL rapid response saliva based COVID-19, RT PCR test directly to consumer.
On the CRL announcement states that the test uses coal price approach and primers developed by co diagnostics with high degrees of sensitivity and specificity and a simple saliva collection device that lets this test the administered in virtually any setting with results typically available on 24 hours. After the lab receiving the sample delivered via a secure online computer or mobile device.
Yes platform.
CRL has been an invaluable customer and partner in providing high quality molecular diagnostic co the test to individuals and organizations across the country, helping to facilitate the safe reopening of schools business on other organizations. We are pleased that its CRL rapid response test will now be even more widely available to consumers on line.
Next I would like to provide an update on our regulatory status. We were notified just this morning that our Sars koby to RDR P. EG multiplex test on our agency multiplex test for influenza a influenza B Cove at 19.
Have both been granted CE, IBT clearance, which will allow them to be sold as in vitro diagnostics in areas of subsea markings as valid regulatory approval. The CDC on India has also informed the company's joint venture that we should expect to receive formal notification of approval for the co Sarah Sars Koby to already RPG multiple gene test in the next few days.
This test was engineered to facilitate greater adoption in India, and other jurisdictions, where world Health organization recommendations of a test with multiple genes have significant influence on health care policy.
Accordingly, we believe this accommodation on the company's part could materially increase the sales opportunity in those markets.
The company will continue to distribute the Navy C test to research enterprise in the US market on on are you on basis, including clinical laboratories that form the backbone of our us based initiatives, while we pursue regulatory clearance through a five 10-K submission to the FDA.
Finally work continues in our other important verticals. In addition to the company's test menu for COVID-19 test we have received various regulatory approvals for other molecular diagnostic tests, including tuberculosis malaria hepatitis C. hepatitis D human papilloma virus and attract flex test for Zika dengue and chikungunya we.
We look forward to increasing the availability of these tests to dozens of new markets facilitated by an increased distribution network of more than 50 organizations around the world. The company employs to full time regulatory specialists, who facilitate the clearance of our chest in foreign healthcare markets. The acceptance of certain of our products in more than 50 countries represents an important.
Asset of the company as we seek to expand our test menu to markets around the world.
Co diagnostics agricultural vertical is also gaining traction, especially in our work with Bayer crop services and LGC. The company is under contract with Bayer pursuant to an ongoing proof of concept project using our patent pending Ngs Library Prep technology. The company is also successfully marketing mosquito vector control products throughout the U.S., where the list.
Diagnostics that include West Nile virus, eastern equine encephalitis, western equine encephalitis, and Saint Louis and settle on us.
The mosquitos the deadliest creature on the planet and the co primary platforms capabilities in this area enable mosquito related products, including those from malaria, Zika dengue and chikungunya, which constitute an important ongoing market around the world.
Our liquid biopsy test development continues as we position the company to take part in this historic development in human Health care.
Liquid biopsy is sampling and analysis of non solid biological tissue, primarily blood like traditional biopsy. This type of technique is mainly used as a diagnostic and monitoring tool for diseases, such as cancer with the added benefit of being largely non invasive. Therefore, it can also be done more frequently which can better track tumors mutations.
Over a duration of time.
It may also be used to validate the efficiency of cancer treatment drug by taking multiple liquid biopsy samples in the span of a few weeks. The technology may also prove beneficial for patients after treatment to monitor relapse.
Recently announced multibillion dollar transaction between Illumina Grill exact sciences, and thrive as well as the successful IPO of garden help demonstrate the importance of this market for asymptomatic cancer screening therapeutic selection recurrence monitoring and therapeutic development co primaries have been shown to have excellent capabilities on the detection of cancer.
Patients present in human blood and the company is developing diagnostics to detect the number of relevant mutations relating to the most pervasive in deadly cancers.
Our high margin profitable operating profit profitable operations this year and healthy balance on she'd have allowed the company to expand in both staff and facilities space and move development of the company's agricultural liquid biopsy infectious disease diagnostics initiatives forward aggressively.
In summary at the beginning of the second quarter co diagnostics received emergency use authorization from the FDA for its logic smart till the 19 test since that time. The company has successfully launched an internationally recognized business and brand.
We agree with the experts that despite the emergence of antigen antibody test PCR remains the gold standard for COVID-19 testing.
While upcoming vaccines will play an important role in addressing the pandemic, we believe the need for accurate reliable high throughput testing and even rapid point of care devices will remain for the foreseeable future further.
Furthermore, we have laid the groundwork for future beyond the pandemic on the strength of our patented technology platform with clients in more than 50 countries more than 25 us states and Validations of test accuracy from numerous regulatory and reference institutions from around the world. The company has established a durable production and distribution platform designed to continue.
New sales and profitability as our technology has gained widespread acceptance in the market I.
I will now turn the time over to read Benson CFO for a discussion of the financial results and condition of the company Reid.
Thank you Dwight.
In the third quarter of 2020 total revenue was 21.8 million. In addition, we recorded $3 million of revenue in our India joint venture Coursera diagnostics.
Year to date revenue was 47.4 million with an additional $4.4 million from co Sarah.
Third quarter net income was $15.7 million and year to date net income was 29.6 million. This represented fully diluted net income per common share.
53 cents for the third quarter and a one dollar seven for the year to date on.
Our operating leverage continues to contribute to our success as our growth gross profit margin on sales is 73% and our net income margins year to date, our 63% of sales. This includes a onetime benefit of $2.9 million from recording net deferred tax assets since we have determined debt.
Our net operating losses will be realizable then.
The net income also includes our share of the net income from a co Sara which was $750000 for the third quarter.
We continue to strengthen our balance sheet as we ended the quarter with over $50 million of current assets compared to $1.6 million on January one 2020.
We generated over $8 billion in cash from operations for the nine months ended September Thirtyth and had $27 million in cash and marketable securities on hand at the end of the quarter, our stockholders' equity increased to $52.7 million compared to $1.7 million at the beginning of the year.
The improvement in our balance sheet was driven by strong revenue growth and healthy gross margins even after the increased operational expenses in the second quarter, resulting from explosive growth, we've experienced and our desire to invest in new products and initiatives in the coming months.
That concludes our prepared remarks for today, and we'll turn the time back over to the moderator.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
Please limit your questions to two with a single follow up at this time, we will pause momentarily to assemble our roster.
Our first question comes from Theodore O'neill with Litchfield Hill Research. Please go ahead.
Thank you very much.
Really really impressive from income statement here.
The question I have is pretty much general Dwight is it I mean, given what's going on out out of the world I Wouldnt have expected sales to have gone up dramatically not just for you but for other providers of.
On the diagnostic tests can you talk a little bit about what's going on there in the marketplace.
How are you doing fee on thanks for the question.
You know.
As from the beginning of our foray into code that COVID-19 tests the company has.
Had opportunities worldwide. We were the first to US company to have a test approved by the European Union with the CE, Mark and that's where we began marketing the tests on them course April 3rd we got our EBITDA from the FDA.
And then of course as you know there have been a plethora of other companies that have come into the marketplace and the recent.
Introduction of both antibody antigen tests.
So we actually feel like we've done a very good job holding our own weve been careful to make sure that the business that we sell is good business.
You know when you're dealing with an international marketplace. One of the ways you are able to detect the credit of the companies that you are dealing with is to get them to pay money upfront as much as possible and I think anyway. It looks on our balance sheet and sees how well we care for our.
Our balance sheet and context of receivables and such can see that we're not dragging people on payables and we're getting our money collected.
When we're selling good accounts to good clients that can do durable business in the future. When this business first started in coated space everybody in the world was acting like they were going to buy billions and billions of dollars worth of test that only certain of them had actual credibility. Many people were trying to shore up.
The ability to get tests.
And then once they were able to try and shore that up then we go out and look for a client we on the other hand of soul to very high quality, CLIA labs, or CLIA lab equivalents and such around the country and around the world. We have a very broad base of CLIA labs, and other kinds of laboratories around the world and are very pleased with the kind of.
The sales momentum that we have been able to maintain we believe that the introduction of our APC test in our multiple gene test for coated will also greatly expand potentially this market around the world. So yeah. You know we would all like to have more we've concentrated on making sure. We have a very good quality type of sale.
One that we can collect the money on one that's going to be durable in the future in terms of increased and and consistent business.
And we think we've done an excellent job doing that as evidenced by the.
The gross margin that we're delivering and as also evidenced by the earnings per share that we're delivering.
Thank you.
My follow up question is about the APC tests will that be a saliva based test that you can do at home as well at some point.
Yes, it will be.
Thank you David.
On the agency test is incredibly great test.
I want everybody on the call to understand that this is a.
Multiplex test that is very powerful interrogate is about 41000 different strains of flu a 12000 strength flu b and the two genes that we've mentioned with respect to cold at 19.
Hi, I got a recent communication from one of our customers that said we are just in love with this assay. It's a very good asked a very clean anybody knows on being about co primaries in our elimination of primer diners and such I understand that the products that we deliver our easy to use easy to interpret and that's why we have business.
That is such a high level of repeat business from our customers and why were able to replace other tests in the market from time to time.
Thank you.
The next question is from Yi Chen with H.C. Wainwright. Please go ahead.
[noise] hi, Thank you for taking my questions.
My first question is.
During the call on the second quarter.
That was in the Middle of August you mentioned that the company at that point has recently.
Year to date.
50 million or so owners from into two koby 19 diagnostic products. So looking at the topline revenue so far for the first three quarter.
It has yet to receive a yet to reach 50 million. So does that mean there is a.
Bottleneck assets.
At the [noise].
Manufacturing side or the packaging and shipping side or how do we how should we understand that.
Okay.
Thank you need the.
The first thing to recognize that the number we really using that you mentioned also includes the revenue and sales orders rather from cars Cosier joint venture in India.
So when we show the topline on our third quarter results.
India topline revenue is not shown on the income statement, but secondly on.
I would just tell you that the momentum that we have in the.
Fourth quarter. So far for example is about the same as we've had at the same time of the quarter that we had in Q2.
On Q3, so it's a it's a similar momentum and.
And I think in terms of getting a sense or how the company is doing what to expect from a revenue standpoint.
As you if you look at what we did in Q2 on you to the Q3, what we're looking for in Q4 is on a consistent pathway and of course, we hope that well.
With our new introduction of our multiple gene KOVA test and also our a b C test the weekend have even greater sales as we're meeting some additional needs there, particularly in the international markets.
Does that give you some additional color there you.
Yes, yes, yes.
So.
Is the company ready to announce on number of the number of year to day orders. So far at this time on.
We're not we're not really in a position to do that except to tell you that our our momentum.
From is similar to what we would have reported at the same time last quarter. So on it.
It's a similar lists a similar looking situation right now.
Okay got it so.
So low.
Our next question is regarding these two new products when this latency test and the other one is the Sars cobi too.
Two day test so.
First of all can you tell us how the second one is differentiated from the current logic Smartcast and also do you expect your current customers too.
Starting from starting from now going forward of Star on <unk> bees to test to replace the current orders for large exporters.
Okay.
Yeah most of the tests.
That we're selling today continue to be the original Cove at 19 test.
We just you know this.
This morning got regulatory clearance for the CE, Mark and also been notified by the CDC on India clearance. So we're well just now be able to begin selling the two gene test.
I think in the international markets. It will only have a chance to.
Potentially materially increase the level of sales that we experience overseas U.S. customers have been very happy with the existing cobot test and I don't think that our coffee to test will be high driver for U.S. cells. As we think it will be in international sales and the World Health organization promise.
Certain guidelines and they have tended to emphasize on multiple gene.
The.
Sort of criteria and the reason that we did this new reengineering of the test was to make it. So we can drive more sales in those international markets.
So I think the U.S. market will continue to order the existing coal to test the international markets are probably swing to the the cobi too.
But you know I think we'll just sell more of them internationally because were now complying with the kinds of guidance that the world Health organization has promulgated with respect to that end the way. It's different is that it has not just the Rd ERP gene, but also the EG in the.
In the sequence so.
As a company we didn't view it as a necessary you know quote on quote upgrade but we think it helps the sales go down a lot easier in the international markets with respect to the ABSSSI test. This is a test that we think more and more of our customers will migrate to the APC test from the.
Direct original KOVA test overtime.
We don't have any problem with that Cannibalizes. The original test because it's sold at about a 30% higher you know.
Price so that has a chance to yes sure cannibalize the original test and bring in more revenue. So we're we're okay with that we.
We still have very brisk cells in the co that our original co. The 19 test and we expect that to contain.
Continued for at least the next little while while these other tests have a chance to get traction.
Got it thank you.
This concludes our question and answer session I would like to turn the conference back over to his Dwight Inc, and for any closing remarks.
Thank you we thank our analysts for their coverage and for their questions today and for our shareholders and others have listened to the call. We're very excited about our progress as a company. We think were on very solid footing.
We think we've approached our business with.
Very.
Sort of.
At from an eye to durability, let me put it that way because we have been able to foresee the need for things like a multiple gene test we've been able to foresee the need for an APC test well in advance of when it was going to be required. So that we are able to now supply the market with those critical tools.
We also believe that weve attached ourself to the right technology with the reverse transcriptase.
PCR that is the gold standard as indicated by the CDC as recently as September this year. So we're very proud to be provide.
Providing the tests with some very good partners such as clinical reference laboratory that are doing a serious innovation and important to client servicing throughout the United States and throughout the world.
We appreciate our shareholders. We appreciate our employees our Phd talent base that have made these products available and available to our customers, it's and it's on all hands on deck environment around here and as you know and as I articulated in my prepared remarks, we have not let the.
All drop on our other initiatives that are involved in agriculture and involved in liquid biopsy and mosquito vectors.
Products and others were building a company for the future intending to make co primers a technology of choice in many different parts of the world because it it deserves to be there in terms of how this technology works.
As you know during the quarter. We also received an additional patent protection on the co primary technology, where we actually got the actual molecule.
Patented and so we're very happy about the preservation of our intellectual property. We look forward to some very interesting times over the next year as we take these various markets various verticals to Mark and appreciate your support.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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