Q4 2020 Accelerate Diagnostics Inc Earnings Call
Good day and welcome to the accelerate diagnostics fourth quarter 2020 earnings call all participants will be in listen only mode.
Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be the opportunity to ask questions. Please note. This event is being recorded.
I would now like to turn the conference over to Laura Pierson. Please go ahead.
Before we begin it is important to share that information presented during this call may contain forward looking statements within the meaning of section 27, a of the Securities Act of 1933 and section 21 E of the Securities Exchange Act of 1930.
For.
Forward looking statements include projections statements about our future and those that are not historical facts.
All forward looking statements that are made during this conference call are subject to risks uncertainties and other factors that could cause our actual results to differ materially.
These are discussed in greater detail in our annual report on form 10-K of the year ended December 31st 2019, and other reports we filed with the SEC. It is my pleasure to now introduce the company's president and CEO Jack Phillips.
Thank you Laura good afternoon, everyone and welcome to our fourth quarter and for year 2020 earnings call on today's call. We will review, our fourth quarter and full year financial results discuss the ongoing impacts of the pandemic on the business and describe our 2021 areas of focus in the fourth.
Quarter, we reported global revenues of $3 1 million, which contributed to full year revenue growth of 20% and resulted in full year revenue growth of $11 $2 million in the U S revenue grew by 54% over the same period driven by a 63% increase in the revenue.
Generating instruments installed base during the year. In addition, a high rate of contract extensions in the U S provided additional capital revenue.
Limited hospital access and competing pandemic related priorities, particularly hospital decision makers high level of focus on Covid testing continued to impact on new contracts. Despite these headwinds we added 21 instruments in the fourth quarter, representing our best new placement contracts.
<unk> since the beginning of the pandemic, we continue to see growing interest in the upcoming fino product extension launches and are adding new prospects to the sales funnel as a result.
Our three year strategy for the company is to aggressively grow market share, thereby establishing rapid ASP as a trusted clinical standards and then significantly expand our available market by adding new geographies partnerships and launching pheno to point out.
In 2021, we will advance this strategy through optimizing the selling implementation and robustness of our current product offering accelerating placements through new product launches and progressing key market expansion initiatives.
Before providing additional details on our operational results for the quarter and our plans for 2021, I would like to hand, it over to Steve to review, our fourth quarter and full year 2020 financial results Steve.
Thank you Jack and good afternoon, everyone.
Net sales were $3 $1 million in the fourth quarter and.
Kind of 11 $2 million for the year.
This compared to $3 $5 million and $9 3 million for the same periods in 2019.
The year over year sales decline in the fourth quarter is the result of a large capital deal in EMEA in 2019 that did not repeat in the current year.
While 2020 consumable kit revenue continue to grow meaningfully year over year during the fourth quarter.
Global revenue growth for the year was 20% driven by strong growth in the U S, which was partially offset by declines in EMEA revenue as we restructured operations in that geography.
The 54% year over year growth in the U S for the full year was principally driven by higher consumable sales from a larger revenue generating install base of.
Along with capital revenue captured as a part of contract extensions.
We did however see of decline in the annuity per instrument in the latter part of the fourth quarter.
As a result of fewer consumable purchases as hospitals began scaling back on elective procedures, which reduced the number of blood samples being taken.
We currently anticipate that this trend will continue in the first part of 2021, and then improve just as we saw on the summer of 2020 as hospitals return to a more normalized level of activity.
Cost of goods sold for $2 million in the fourth quarter and $6 $7 million for the year.
Resulting in gross margins of 37% and 40% respectively.
This compares to cost of goods sold of $2 million and for $9 million for gross margins of 44% and 47% respectively. During the same periods in 2019.
The decline in gross margins year over year resulted from the ongoing pandemic related impacts to manufacturing costs restructuring costs in EMEA.
And dilution from capital deals book during the year.
We believe that many of the factors leading to gross margins will persist in the first part of 'twenty, one and then improve steadily as pandemic related factors of side.
Selling general and administrative expenses were $11 $2 million for the fourth quarter.
The $46 $9 million for the year.
Compared to $13 $6 million and $51 $9 million during the same periods in 2019.
This degrees is the result of cost cutting measures implemented during the year.
And natural cost reductions, resulting from the pandemic.
Including decreased spending on travel and trade shows.
Research and development costs were $5 $1 million for the fourth quarter.
And $21.3 million for the year.
This compared to $6 $2 million and $25 $4 million during the same periods in 2019.
This reduction was the result of improved internal efficiencies and lower expenses tied to external studies.
Our net loss was $18 9 million for the fourth quarter and $78 $2 million for the year.
The resulting in net losses per share of 33 cents.
And the $1 40, respectively.
Net losses for the fourth quarter and the year after excluding the impacts of noncash stock based compensation expense were $14 $7 million and $61.7 million respectively.
Net cash used was $9 $2 million for the quarter and $42 million for the year.
The company ended the quarter with cash and equivalents of $68 $3 million.
A combination of efforts to improve internal efficiencies and decreased expenditures as a result of the pandemic led to a materially lower cash burn than was originally expected.
While we expect the efficiency gains to be durable the contribution of the pandemic related support received in 2020 will not repeat in the current year, leading to a year over year increase in net cash burn.
During the fourth quarter, we executed a $32 million financing round with five of our directors.
This capital will be drawn down in three equal tranches in February March and June of 2021.
With these funds we begin the year with approximately 100 million in cash available to fund ongoing operations and we believe that these funds will be sufficient to achieve our near term objectives.
I will now hand, it back to Jack to further review, our fourth quarter and full year 2020 results.
Thanks, Steve as we highlighted throughout the year nearly every aspect of our business was impacted by the pandemic in 2020, our lab and clinical stakeholders in infectious disease had to onboard unprecedented volumes of new COVID-19 testing as a matter of national priority suppliers of components.
Two our test kits became focused on supplying COVID-19 testing components and the FDA delay communication on key product development initiatives.
Despite these challenges our team collapsed working to advance our goals for the year and we continue to serve our customers without interruption.
We maintained three areas of focus for 2020, driving U S. Commercial excellence focused on geographic expansion and delivering new content for fino, while also materially advancing our next generation platform Pheno to point out.
Now that the euro has come to a close I would like to take a moment to review the progress we made in each of these areas before detailing our key areas of focus for 2021.
Turning first to the steps we took to improve U S. Commercial excellence in 2020, our most marked area of progress was in our go live execution.
From a near standstill in late spring our team was able to deliver a record number of go lives in the fourth quarter contributing to a 63% year over year increase in our revenue generating installed base in.
In addition, while the number of new contracted customers in the year was underwhelmed being and further impacted by some of our customers coming out of our backlog.
Our team delivered 21, new contracted instruments in the fourth quarter.
We also converted a substantial portion of customers who are on initial short term contracts into long term committed agreements in the third and fourth quarters validating the value our customers are seeing from the Pheno system.
We exited the year with 268 clinically live and revenue generator generating instruments and another 133 and the backlog of pending go live.
In summary, our U S commercial team substantially improved our go live process significantly increase our installed base of clinically live in contractually committed customers and delivered 54% year over year revenue growth of.
All of the successes are result of our team working together to realize meaningful progress despite the challenging conditions of 2020.
Moving now to the focused geographic expansion, we completed our efforts to restructure EMEA operations in 2020 in order to focus our commercial efforts and reduce cost.
This geographical targeting enabled us to reduce the size of our EMEA operations by half and prioritize growing our annuity stream of number of customers in southern Europe, and the Middle East where the challenge of antibiotic resistance is the greatest.
In China, we hired a head of Asia Pacific in advance the first phase of our clinical trial, which is required to obtain approval to access the Chinese market. We also identified opportunities for early access to seed the Asia market in advance of obtaining approval.
Lastly, we achieved many of the product development milestones, we set forth at the beginning of the year and added new product development programs in order to advance our new product strategy.
We launched software updates in the third quarter, which added new content and enhanced performance in several key areas. We initiated achieved feasibility and progressed development of phenyl Asti and female per rep, and we completed a key feasibility milestone for Pheno too.
No. We're a new prototype delivered rapid and accurate <unk> results for a predetermined set of cornerstone challenged cases.
We will cover the current status key development and regulatory steps remaining and expected launch timelines of these ongoing product innovation programs as part of our 2021 priorities discussion later in the call.
In summary, 2020 was an unexpected and challenging year and yet much was accomplished we grew our base of enthusiastic customers in the U S have position of our business for more meaningful results internationally and made tremendous progress on our key research and development initiatives.
Before I begin to describe our focus areas for 2021 and be on let's take a moment and take stock of the current market environment.
On the EBIT the pandemic in March 2020, the department of Health and Human services issued a report detailing the burdens of sepsis on the U S. Healthcare system. In this report they highlighted two X increase in the direct cost of sepsis in just the past three years, bringing the total.
It'll to a staggering $62 billion per year and while the cost in 2020 have not yet been tallied with 73% of COVID-19 patients being placed on unnecessary antibiotics and anti microbial resistance on the rise the problem is getting worse.
Yes.
Experts agree the one of the most immediate ways to address the problem of sepsis is to get patients on optimal therapy sooner pheno customers have demonstrated days of improvement in the time to optimal therapy, resulting in day shorter length of stay reduced usage of antibiotics.
Cost savings and most importantly improved patient outcomes as a result, these trends in <unk> leave us extremely well positioned as the market environment begins to normalize.
However, we begin 2021 much in the same way that we ended 2020 with the high degree of uncertainty as current and prospective customers remain focused on Covid, we anticipate the pandemic related effects to the new contracts delays with the FDA and other adverse impacts on the business we'll pursue.
<unk> through at least mid year 2021, after which we anticipate an improving environment buoyed by new product launches and renewed market focus on sepsis and anti microbial resistance.
Our three year strategy is to substantially grow the number of new customers receiving the proven benefits of rapid asti to establish a new clinical standard we will advance this part of the strategy in 2021 through optimizing our current processes and Beano, one point of <unk> offering and <unk>.
Celebrating adoption through the launch of phenyl Asti and Pheno prep, our expanded offering will allow us to operate from a position of strength and an expanded available market and improve the financial profile of the company through the launch of <unk> two point out.
While we have come a long way in our commercialization of <unk>, we continue to see an opportunity for improvement of our sales tactics implementation process and product performance on.
On the sales front, we are becoming more formalized and systematic in our customer referral and regional strategy programs.
And we are already seeing these tactics payoff, while few new customers were added in 2020, those we did contract where often as a result of existing customer referrals.
Further we are rolling out new tools for accessing and selling to our customers remotely. However, the most important factor for improving our rate of contracting in the immediate term is a more normalized hospital environment, which we expect within the year as.
As we have discussed previously throughout the year, we of overall to our implementation process and began seeing positive returns following the change in our implementation process. In 2021, we are working to achieve our target go live of six to nine months for customers contracted within the year.
Another benefit we have realized is an improvement in our ability to forecast the go live timelines for accounts.
Due to the pandemic driven delays our current forecast indicates a modest number of go lives in the first half of 2021, and an improving cadence in the back half of the year.
We will continue to invest to optimize our integrated <unk> products performance and robustness with a focus on total customer experience. We are working to ensure that all customers adopt our new software version, which contains a suite of product enhancements that we began rolling out.
In the third quarter. In addition, we are focused on expanding our antimicrobial susceptibility testing menu with new drugs updating algorithms to address evolving resistance patterns, reducing site to site variability and report ability and finally, reducing waste and overhead associated.
With shipping and storage of our test kits.
Our second area of focus for 2021 is accelerating global market penetration of fino through the launch of Fino, Asti and Pheno prep.
You will recall that these product extensions complement the current integrated <unk> offering by providing an avenue for customers to adopt rapid susceptibility testing on fino, regardless of existing workflows or prior investments and identification testing.
<unk> is a new assets test kit, which runs on the current pheno platform, the pheno, except electronically or manually and identification test result from an existing system loads the appropriate antibiotic panel and delivers rapid assay results and about <unk>.
Seven hours.
We know of prep as a new instrument, which automates the front end steps to deliver multi identification result, while providing substantial improvement in time to result, and workflow benefits.
Initially pheno prep will launch to be used with the existing multi systems.
As a piece of our multi product strategy, we have entered into an exclusive collaboration agreement with the ascend diagnostics to commercialize the proprietary bench top multi platform to be used in conjunction with Pheno prep on.
Our third and final area of focus for 2021.
Is to expand our available market through targeted geographic expansion partnerships and the launch of our new generation platform Pheno to point out.
While we don't anticipate meaningful revenue in 2021 from our international business. We believe the continuing to establish a presence in key markets in Europe, the Middle East and Asia Pacific is important we have targeted countries with high rates of antibiotic resistance, which would benefit most from <unk>.
And Pheno two <unk> offering.
Our goals for our international business in 2021 include increasing the annuity per customer in EMEA completing the first phase of our clinical trial in China, and adding our first revenue generating customer in Asia Pacific.
I also like to say healthcare is a team sport and having the optimal impact in a large and growing market like microbiology will come from coupling our innovation engine with synergistic partnerships. We executed on two of these partnerships in 2021 to deliver Covid <unk>.
Antibody testing and the other consisted of an exclusive option to evaluate and commercialize a multi bacterial identification system.
We expect to execute additional agreements in 2021 based on a handful of interesting opportunities in our business development pipeline.
The ultimate cornerstone of our market expansion strategy is the development and launch of our next generation rapid susceptibility system. The Pheno, two <unk>, which incorporates a decade of susceptibility market and technology learnings into its design base.
Based on recent prototype testing this system will deliver results equivalent Lee fast and accurate to fino at a 10th of the cost and footprint. This will allow us to launch the product in multiple configurations across different sized labs and across various higher volume sample types.
As we look to the remainder of the year, we believe pandemic related challenges will persist in the first half leading to modest topline growth in 2021. Additionally, we expect the consequential year for building our funnel of contracted customers for both our current integrated IV Asti Fino.
Cash and Pheno Asti Pheno prep product extensions. This funnel will set the stage for improved revenue growth in 2022 and beyond we also anticipate unveiling a working prototype of our Pheno two <unk> system by year's end.
Yeah.
On January 27th of New York Times article detailed how changes in medical practice during the pandemic have led to a worsening antibiotic resistance challenge, but we are just beginning to understand and quantify the effects. While it has been difficult to predict how and when the hospital environment.
Normalized we are confident of our strategy will put us in a position to lead in the next crisis that many believe will be there when the fog of Corona Corona virus subsides.
I would now be happy to answer questions from our analysts should others on the call have questions not addressed we would welcome you to send these questions or request for a follow up on meeting to investors at <unk> Dot com. Thank you.
We will now begin the question and answer session.
First question is from Brian Weinstein from William Blair. Please go ahead.
Hey, guys. Good afternoon, thanks for taking the questions.
Hi, Brian.
So I guess, we'll just start with conversations.
That you might be having with.
Your customers or potential customers can you give us just some additional color on what those conversations of look like about when.
When you you think you might be able to get back and I know you talked about kind of.
Mid year.
The more of a normal environment, but is there anything else that you can add as far as kind of your ability to to try and work with them.
Ahead of that time framework or conversations that you have that gives you confidence debt that even that timeframe is the right one here.
Yes sure Brian. Thanks for the question I guess first of all I would say that every day, we're having dialogue with customers is just in the different way than we did it in 2019. So many of these conversations are still remote using zoom.
But we've we've invested in this area and we've adapted to.
Really kind of the new way of selling over the past year. So.
With that we continue to advance opportunities with new new customers with customers that of contracted with us that are pending go live.
I would say what we're seeing so far as we start the year of two months in is some pockets of of the U S and some institutions are opening up while other still or not.
We're seeing again in some areas good progress.
And we expect like I said, we fully expect since again recent news about.
Herd immunity.
And the increased vaccinations, we're still cautiously optimistic that by mid year, we're going to get back to more of a normalized call point.
And then the last factor I would say is.
What's important as well as debt is at the the key stakeholders across our customer base have time and bandwidth.
To take on new projects that they really have the time to seriously look at other areas of of health care in this case, specifically tackling sepsis.
We are again as as we see good declines thankfully in hospital admissions and in bed utilization across the U S. This is where we're really hoping to see an optimistic to see.
The increased access across the board.
Yes, okay.
As we think about I think it was forgive me for probably get the number of wrong here, but something like a 130 of 140 systems that so we're kind of all of.
The contracted that we're awaiting go lives how should we think about the inc.
Mentation of those you had talked about kind of of six to nine month timeframe is kind of where you had expected things to be.
All of those 133, what percentage of those would you expect to be converted or go live in 2021, considering all of the kind.
Kind of broader headwinds that are out there with COVID-19.
Yeah. So it's 133. So you had you had it right there Brian we have of 133 pending go lives.
The to answer your specific question is our expectation for those 133 as the majority of them most of them.
Not all of them will be live in 2021.
I will say that as we have really honed. The go live process. The implementation process, it's clear to us at the first half of the year is going to be soft as it relates to go lives, we had a record quarter for and go lives.
And we have good line of sight for for all of these customers relative to where they're at in the funnel and where theyre going to be prepared to go live we expect.
Again, most of these if not all of them to get live in 'twenty, one, but it will be a <unk>.
Graduated schedule that will that will be more in Q3 and Q4.
Got it and then.
Last one for me is on <unk>.
So you know ASTM prep can you just talk about some of the kind of pre commercial launch plans that you have there and some of the efforts that you are having to just make sure people are aware of what's going on there and then anything that you have on kind of price discovery and how we should be thinking about modeling those products contribution here this year.
Even any talks with the updated on kind of the longer term outlook for what those can contribute to the top line and to growth of the business.
So.
Couple of things on Pheno as.
We continue to progress that program and your question about actually getting out in the market and speaking about this our sales people are already talking about the product.
We are.
Again very excited about the the interest that we have for the product in that segment.
That is that that segment that where our win rate has not been where we want it to be in that segment of our specifically those customers that have the very well rooted automated invested in.
I'd platform, that's working for them and so the excitement level I would say is.
I am very positive about the interest that we have in Pheno ASD up to this point and again, we continue to expect we expect to be launching the product this year.
Pheno prep again, a lot of interest for those multi customers about half of the U S. Microbiology laboratories have of multi platform. The reality is as many of those platforms, though the utilize slow it'd be very few of those those multi platforms in the U S have a hub.
The rapid way to produce the idea off of multi fino prep answers that problem and really automates. The front end. So in that segment. We continue to have interest as well there. So in short both product extensions that we're talking about here, we're excited about and we believe.
We will definitely lead to.
A broader market share capture.
The last part of your question Bryan I'm going to go ahead and turn it over to Steve and it was really around the financials and how these products are going to impact our overall financial picture Steve.
Thank you.
We're still doing work on that front like Jack mentioned, we're going through a systematic process to build the funnel and using that early funnel to evaluate the pricing debt will be there by the market.
One thing we know and this is not a surprise, but the S. T only or the Pheno asked the version will be less of the integrated kit.
But one of the things that we're seeing is a lot of a lot of interest from accounts that are higher volume than our current average account. So that would say that despite the lower price there's going to be some degree of offset with higher volume and exactly how that will shake out.
The C and as we get closer to launch we will provide more information.
Alright, guys. Thank you so much.
Thanks, Brian.
The next question is from Steven Mah from Piper Sandler. Please go ahead.
Thanks.
Thanks, guys for taking the questions.
Uh huh.
So maybe just to dig in the a little bit more on Bryan's question on on the.
S T and Pinot prep could.
Could you give us a little bit more detail on on.
The launch.
Should we think of it more as of mid year or back half of 2021, and then secondly.
You said before on the prior earnings call that you wanted to add some specialists sales reps for.
For Pheno proppant.
And if so where are you at in that process.
Yeah. So so.
So of timing for <unk> T is more we're optimistic.
About middle of the year this year for launch of the Pheno Asps for.
For Pheno prep.
Still anticipate the launch in 'twenty, one, but it'll be towards the back end of 'twenty, one and as I indicated of Brian were really both products were out marketing them now.
But we expect the launch their mid and back half of the year for Pheno Prep and then.
As far as your other question about how we're planning on marketing.
Of these two products and so I may have misspoken and of prior interview or on an earnings call. We are not actually adding or do we need debt to add specialist for.
For these products. These are clear product extensions to what we do today, our sales force is very well equipped to <unk>.
To really cover and speak to.
The solutions that we're providing with ASD pheno, Asti and with Pheno prep, so and our coverage across the U S and EMEA is strong already we've retained through the pandemic we've retained our sales organization.
We're in good shape as far as coverage and.
It'll be a very successful launch with the great team that we have in place already.
Okay, great. Thanks for that color and then the final one for me on.
On the regulatory process in China I think you said you are in the first phase of that could you give us a better sense of timing on them.
That'll be completed and when we could expect the launch.
Yes, so right we're in the middle of the first phase, which is type testing in China, it's going on.
Very well today, we have a live instrument actually in Hong Kong, we're able to gain access in Hong Kong.
Different than mainland China, and we are of live customer there we're looking at additional targeted accounts in.
In Hong Kong as well and then for mainland China as well we are building in specific provinces.
We're building a.
Thought leader group and working with them already to us.
As far as timing goes for when actually we will have.
The FDA approval, it's really hard to say it is a long process I don't really want to speculate at this stage.
But again, we continue to move things forward, and it's going very well and as we get through.
True this kind of first phase of of the the regulatory.
Regulatory phase within China, then I'll definitely update on where we're at at that time.
Okay, great. Thanks, I appreciate it.
The next question is from Mark Massaro from BTG. Please go ahead.
Hey, guys. Thanks for taking the questions I guess.
You certainly made nice traction in Q4 in terms of placing new systems and.
Converting new new instruments from the backlog I guess.
Could you help me understand for the 133 that you have in the backlog to what extent is just managing the COVID-19 pandemic to blame for one of the reasons why.
People are not converting are going live and then.
Would you be able to expand on some of the other reasons are they workflow related staffing related training related I think that would be helpful.
Thanks Mark.
A large portion of those are directly related to.
The delay in the large portion of those is directly related to.
The management of Covid and and so these customers of continued to.
Voice that hey, they definitely plan on going live with fino, and getting optimized with Pheno and it's simply a.
Simply of workload I mean, it's simply the ability to focus on.
Training on validation and verification on on getting our system.
Laughs integrated.
And so that's why as we talk to these customers and we're in we're in constant communication with them. That's why we're very confident that as.
As we as we go through the year and we moved from a pandemic to an endemic and we start to.
Managed COVID-19 in a different way.
From what our customers are telling us as well, we believe that we'll be able to get a significant number of those customers live throughout 'twenty one.
The other challenges that debt.
We see and have with go lives are really quite predictable we've dealt with them and we've we've successfully really advanced solving those challenges through our new implementation process. The examples of those are.
Laughs connectivity working with it.
It's validation verification processes.
So we have a new program there working with customers to help expedite that all of those are I think well underway and the success of that has been demonstrated in Q4.
Terrific.
Didn't hear you guys provide full year 2021 revenue guidance.
Just want to confirm that you did not guide and do you have any thoughts on consensus is looking for a doubling of revenue. This year. Just curious if you have any commentary there.
Yes, Mark.
Given the three principal drivers of our of our revenue cycle are all big impacted the one degree or another by Covid.
Don't feel it's prudent to put out guidance at this time, we really need to see.
How things emerge in a more normalized environment.
As for the estimates that are out there today I mean, I would expect based on the clarity we provided at least qualitatively.
The first half of the year is going to be very modest from a growth perspective year over year.
And depending on how and when we emerge from the pandemic it should build progressively from there but again.
We need to see more here and really need to understand what it looks like before we provide guidance.
Okay and then.
I wanted to ask about Fino asps.
Targeting of mid 2021 launch can you share any feedback you are getting I know you've been marketing it.
But what type of receptivity is this getting what are you hearing.
What are some of the benefits you think some of your early customers might get from this product.
So.
We have received this feedback from our customers on the interest for a fino ASP type test kit really since since we launched fino. So this is not and one of the reasons why we came to this this new product strategy as customers from a while ago from way back when we log.
On the product initially the ones that did not adopt Pheno really said hey, we want we have a major need here to bring in the turnaround time for Asps, but.
But we have a but we havent I'd result that we get in say an hour and a half for two hours and so what we're able to do with the Pheno Asti test kit is give those customers.
The solution that they need which is in their case, they absolutely still need a rapid antibiotic susceptibility tests the majority of clinicians.
Clinicians will not adjust patient therapy until they have actionable results from an ASP.
ASP result.
And so the feedback that we're getting is like I said.
Quite quite positive.
We have a very clear funnel, a very clear target market that we're going after and I also.
I guess I also want to say that our rapid <unk> test kit, which is our flagship product.
Remains a key product and the biggest product or for our portfolio for the majority of customers out. There. This will be the pheno Asti and fino prep is going to be a nice product extension for a piece of the segment and again, we're excited to get the products launched this year.
Okay. Thank you.
The next question is from Tycho Peterson from Jpmorgan. Please go ahead.
Hi, guys.
The on for Tycho.
Just to follow up on the.
How should we think about the margin impact of both of these products as they launched in 2021 of them.
Into 2022, especially on the gross margin side.
Yes.
Referenced a bit in the response to one of Brian's questions. A lot of that is going to be determinant on the picture of mix, which is the size of the account.
Based on what we see so far of the average size of a <unk> plus Pinot prep accounts should be larger than the current accounts.
On average and.
And then we'll have to see how pricing shakes out so those of the two principle.
The levers if you think about the cost side of that equation.
We would expect that the cost of the kit to be marginally lower on the ASP.
The ASP side, and then also we're pretty happy with the cost of goods sold on the Pheno prep consumable as well so again, depending on where the price plans in the mix of accounts lands.
It should be reasonable gross margins.
Okay.
In 2021 or are you expecting any material revenue from the Covid serology test does that for them.
On the upside to your guidance sort of internal model, there or how should we be thinking about that.
So I just I mean, yes.
Still believe that of <unk>.
Serology antibody testing is something thats going to take off in the overall management of.
Of Covid I was on the call yesterday with Carol Johnson Who's the new National testing coordinator in the Biden administration.
And and you know she.
And I was on with other industry leaders as well.
And she acknowledged the fact that this is an area that the administration that her debt her new role the cheese very excited to look deeper into and assess and get feedback on.
On the opportunities for antibody testing so that was just yesterday again, a lot of change there in Washington.
But it's I think.
It's optimistic to no debt. The new administration is also thinking about thinking about this as well as we'd be as we advance in more and more people get vaccinated.
What is the role of antibody testing.
I think it's going to be an important one and with that.
We would expect to see.
Some opportunistic revenue from EMS fast in our serology test.
Got it.
Last one for me on cash burn you reduce the from $60 million annually to around 40 in <unk>.
<unk> you mentioned that there is going to be a step up here in 2021 can you give any more color as to sort of what we should be modeling.
And where that step up will be.
Okay.
Yes, we haven't put that out there in concrete terms.
One on one of the key considerations as debt.
The government assistant that we received in 2020, which was about $4 million to $5 million will not be repeating in 'twenty. One. So if you annualize that impact into the run rate.
And then you assume most of the rest of the reductions are durable that should give you some color on it but.
Not not a not a dramatic increase outside of that factor.
Okay. Thank you.
The next question is from Alex Nowak from Craig Hallum Capital Group. Please go ahead.
Great. Good afternoon, everyone. Jack as you speak with lab directors today, the virology piece of the lab got the massive upgrades with Covid.
They are taking any of the learnings from Covid and the automation that day.
Pointing to the labs now on looking at the Microbiology lab thinking about making upgrades there to bring that piece of the.
A piece of the lapping of the 20th for centuries. Its a bigger picture question, but I'm just curious if we could see a wave of upgrades in other parts of the lab once COVID-19 starts to normalize.
Yes, Thanks, Alex it's a really good question.
The feedback I've received and the administrators of that I talked to us.
Testing Laboratory medicine has never been more on their mind than it is today for.
For obvious reasons.
Administrators are now taking note of laboratory medicine the value of of.
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The information in that information really starts with effective diagnostics and diagnosis of of.
Through through testing and so to be more specific I do believe that.
As we move through the pandemic debt one of the outcomes is going to be a much larger appreciation and therefore investment in laboratory medicine.
A.
Even more appreciation for infectious disease management.
Clearly oncology and cardiology and those kind of areas of testing.
Have always received a level of attention because of the oncologists because of the cardiologist, but but this next phase that we're moving into that infectious disease dock is now going to be and is already <unk>.
Much more highly respected and has much greater voice in healthcare and with that we fully we fully expect to see and we're seeing it I'm seeing it my discussions more of a more of a focus moving forward in these areas.
No that's great and then maybe speak to the annuity you mentioned the annuity came down in December as cases started to go up I'm sure. It was down still in January somewhat but.
Should we expect very much of the same in February and March and into April like we saw last summer when cases starts to decline do you see that annuity pretty much reflect that on the inverse basis one of the one.
Yeah, I mean, we saw a very similar pattern I think we discussed that on the Q2 call that.
Certainly in April and May if I recall, we saw the annuity come down and its biosimilar margin to what we saw in November and December.
And frankly into January.
So, yes, I mean, we.
We would expect right now the best information we have is that we should see some level of rebound similar to what we saw into the summer of 2020 relative to the decline. We saw initially in in March and April of our April on Mei.
Okay got it and are there any big studies that are actually on going today, you've read out of couple of prior to the pandemic I'm sure some more where in the works, but these studies in pretty much all the or are there any big studies, we shouldn't really be watching for in 2021.
Yes, there's actually three separate abstracts that will be coming out.
Are being submitted to akhmed, they're very important and in the reason why they are important as they are actually the outcome of a very lengthy registry that we have put together which is for.
For hospitals, it's actually five hospitals, but one hospital due to Covid is still in putting their data so because of timelines and submissions they will not be in the data set but for other hospitals or are in this dataset. The reason why it's I think very meaningful is it.
Very very comprehensive.
Data points for the patients across those for hospitals and the outcomes that.
That we're seeing in the in this registry study or <unk>.
Very significant so.
The patient impact is very positive and like I said, Alex so as youre going to be submitted I think the may already be submitted two akhmed and then X metal.
It is in July of this year is when that'll be that'll be published.
Okay, Great. We're looking for that and then how are you modeling EMEA of placements and sales in 2021, obviously, you've got the same hospital restrictions as you do on the U S. But you've also restructured that business pretty dramatically in 2021 any thoughts there.
Sure Yeah, like we said in the prepared remarks.
I still think that in 2021, we're not going to see a whole lot of revenue.
From the EMEA geography, and nor for China, given the early stage of development of that geography.
The good news is that we have brought the cost down considerably in the EMEA region.
And their focus is not so much on growing on adding new accounts of this year, but too.
To implement of very specific strategy to increase the rate of you to usage of utilization at existing.
And those of those accounts are focused in the middle east in the Mediterranean European countries, where the antimicrobial resistance is the real issue and we've got a nice playbook for going after that there.
Okay understood. Thank you.
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