Q1 2021 Chembio Diagnostics Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to the <unk> diagnostics first quarter 2021 earnings conference call and webcast. At this time all participants have been placed on listen only mode, but we will take your questions and comments. After the prepared remarks. It is now my pleasure to turn the floor over to your home.
Brian Johnston, Sir the floor is yours.
Thank you operator before we begin let me remind you that the company's remarks made during this conference call. Today May six 2021 may include predictions estimates or other information that might be considered forward looking.
These forward looking statements represent <unk> current judgment for the future. They are however, subject to numerous assumptions risks and uncertainties many of which are beyond <unk> control, including risks and uncertainties described from time to time in <unk> SEC filings, including those under risk factors and elsewhere in the <unk> filings with the SEC, including its annual report.
On form 10-K for 2020.
<unk> results may differ materially from those projected <unk> undertakes no obligation to publicly revise or update any forward looking statements made today.
Courage you to review all of the company's filings of the SEC concerning these and other matters with that I'd like to call turn the call over to Rick Eberly, President and Chief Executive Officer.
Thank you.
Good afternoon, everyone and thank you all for joining us this afternoon.
Good day bye.
I look forward to reviewing our first quarter performance and discussing the progress made with our strategic repositioning.
Neal will detail the financial results and then I will conclude.
On the call for a question and answer session.
In the first quarter, we generated total revenue of $8 7 million.
Including product revenue of 4.0 of million dollars.
Representing growth of 27% and the decline of 30% respectively.
Compared to the prior year period.
The strong total revenue growth resulted from achieving the milestones as part of the $12 $7 million of award from the Biomedical Advanced Research and development Authority BARDA, which is part of the department of health and human services for the development of an issuance of emergency use authorization applications for the.
DCP respiratory panel and the development and receipt of five 10-K clearance for the rapid point of care of PPP Sars COVID-19 two image of test system.
We will touch on these in more detail later in the call.
The strategic repositioning that we wanted to when I joined <unk> last year, the scope of upon leveraging our DPP technology and other test platforms. The targeted diagnostic disease states that meet three criteria.
First rapid diagnosis impacts patient treatment and outcomes.
Existing current diagnostic products underserved the clinical need due to the performance or availability and number of three new product opportunities are available regionally demographically for clinically.
Combined these criteria of our focused on products and markets that have the potential to deliver higher average selling prices and from.
<unk> path of profitability.
We are focused on current and new test solutions on our technology platforms.
Our product portfolio is marketed globally to acute care hospitals reference labs, outpatient clinics, including urgent care centers and physician offices, Ngo's and ministries of health.
Our range of products, such as share JAK stat, Pak and DPP have secured meaningful market share globally.
Going forward, we will focus on internally developed products and pursue external opportunities to license novel technologies and products with the intent of leveraging our growing commercial infrastructure.
We are currently operating for targeting the development of rapid diagnostic test solutions for infectious diseases respiratory.
The respiratory diseases.
Transmitted diseases Gastroenterology and in fact factor of diseases.
The market for rapid diagnostics infectious disease test is being driven by the high prevalence of infectious diseases globally and.
An increase from geriatric population growing demand for rapid test results and advancements in multiplexing.
Through a combination of understanding the broader market growth drivers the <unk>.
All of the market needs and market research, we are identifying and evaluating opportunities for the application of the unique features and benefits of our technology.
We expect that this disciplined product development strategy, we will continue to create growth opportunities for <unk> through a broader high value of product menu that expands our current and future customer base.
We are confident we have the strategy and of the team in place to take market share and well established high average selling price diagnostic channels.
The COVID-19 pandemic of Shine a light on the many advantages of rapid diagnostic testing on a decentralized basis at the point of care.
The.
As simple as test system.
As of the value of that debt test and tree can have on saving lives.
<unk> management is focused on delivering health care providers actionable diagnostic information rapidly while patients who remain under their care.
How do we do that.
The technology the DPP platform offers highly precise rapid diagnostic results with within 15 to 20 minutes.
Is it easier to collect specimens like the single drop of blood extracted from the fingertip for nasal swabs.
The DPP platform is capable of accurately detecting up the eight specific test results for the use of advanced multiplexer.
Which is unique compared to other rapid tests most.
Most rapid test platforms are limited to one or sometimes to the results with a single patient sample.
Where applicable.
The newest portable DPP micro reader delivered the results of roughly 15 seconds the.
The system is well suited to fit the needs of the decentralized testing sites, where real time results enabled patients to be quickly accretive on site.
Overall, the DPP micro reader delivers objective results.
Our at reduced risk of being influenced by human error, which can can occur through visual analysis required by many rapid test the.
The DPP technology platform is highly versatile and can support different content from the form of different assays for the detection of different biomarkers for various clinical purposes.
In prior years, Ken by a leverage government grants and other NGO sponsorship to develop tests that proof of TPP is differentiated capabilities.
These early lead us legacy cash focus of fever, and tropical diseases present outside the United States, including one debt targeted diseases that recur only periodically resulting in less consistent revenue streams.
And some of the related target markets of the average selling prices for these tests were not profitable enough to support sustained commercial activity for a U S manufacturer of <unk>.
Now for the proven technology, we are focused on developing tests for endemic recurring diseases prevalent in developed markets like the U S and Europe for a profitable pricing can be realized.
Our overarching goal is to gain market share by selling of broad menu of tests of the customers that use our DPP micro readers across the many decent the decentralized testing markets.
There is significant potential for value creation for establishing recurring test orders from the installed base of accounts using micro <unk> to produce test results.
To support this model, we have built a comprehensive U S commercial team.
We now have the marketing sales and distribution management technical support and customer support professionals.
We're capable of servicing customers across testing markets.
The complement our internal sales force, we are deepening our distributor relationships in applicable markets.
Our expanded use of commercial footprint is increasing our customer reach and frequency and should enable us to scale of the U S market efficiently.
Well the diversity of synergies within our product portfolio for attractive to customers of distributors alike, and they represent a meaningful growth opportunity following new customer acquisition.
The application of our strategy is being spearheaded by the two newest additions to our product portfolio. The.
<unk> HIV simple of system and distribution of an <unk> license rapid point of care EUA approved status of COVID-19 flu AB test we.
We are starting to see traction with our DPP HIV simpler systems and are beginning to see new customer adoption of the status quo with flu AB test.
As a reminder, we are distributing the status of COVID-19 fluid a day test to capitalize on the demand for our respiratory panel product and leverage our expanded U S. Commercial organization, while our DPP respiratory balance system is under development.
It is being sold across the same overlapping decentralized market as our currently available point of care of HIV tests and other plant COVID-19 products.
First quarter product revenue was impacted by declines in Latin America, the U S and to a lesser extent Asia, but benefited from growth in Africa, and Europe and the Middle East.
Given the dynamic state of the pandemic and its management in Brazil, the demand for our legacy products decreased.
We are focused on several opportunities in the country being pursued by our both our subsidiary in Brazil for the private pharmacy at state markets and with our long standing partner of <unk> for the federal market.
Recently, we received regulatory approval of approval for the DPP Sars COVID-19 two antigen test system from visa Brazil.
Brazil's health regulatory agency in collaboration with <unk>, which is a subsidiary of theirs Waldo Cruz Foundation that is responsible for the development of production of vaccines diagnostics and Biopharmaceuticals, primarily to meet demands of Brazil's national public health system.
Our commercial strategy in the United States for 2021 is to drive the already underway commercialization efforts of the status quo with fluid at the panel pursuit of clear waiver for the PMA approved DPP HIV syphilis test that will significantly expand the potential customer base for the.
Net product and complete our ongoing work supported by BARDA to achieve FDA EUA approval.
For both the DPP respiratory panel and COVID-19 antigen test and subsequently a five 10-K clearance for the DPP COVID-19 antigen test.
Starting with our DPP HIV syphilis test.
<unk> been awarded FDA PMA approval to market. This test in the United States in the back half of 2020.
Requiring only a single finger stick blood sample the test is to able to qualitatively to tax flow of HIV and syphilis.
High level of sensitivity and specificity in just 15 minutes, making it the first U S. U S approved rapid test capable of detecting both infections.
Access of surplus testing is becoming increasingly important as the CDC has found the primary and secondary of simple its infections have risen to 178% from 2015 to 2019.
Additionally, congenital of surplus of infections have recent 291% between 2015 and 2019.
Untreated surplus in pregnant women, resulting stober or infant debt and 40% of the cases.
In addition to the patients with active surplus of infections are 2% to five times more likely the contract HIV when exposed.
As we have previously mentioned we are currently pursuing a clear waiver for our DPP HIV syphilis test for <unk>.
It would be the first step in expanding our market and the traditional HIV testing locations, allowing us to take share in the USA JV testing market.
The test is clinically differentiated and as Joel reimbursement under wealthy to volume CPT codes.
We are currently targeting the 15000 moderately complex physician office hospital and clinical labs across the country.
We have launched marketing programs with National distribution partners in the United States to promote and supply of our rapid DPP HIV syphilis test system across decentralized healthcare markets.
The excitement for this product has been encouraging.
Most of our preliminary of constant conversations of CLIA waive product is of high interest debt public health departments.
The one in clinics planned parenthood urgent care clinics and small to medium sized hospitals the.
The need for this product is especially resonating with public health departments that regularly manage the downstream impact of these infections.
Later in May of the National Coalition of SPD directors is hosting a webinar titled Colombo fighting the surplus of HIV epidemics voices from the field unquote with presentations by leaders of clinics, who will share their experiences using the DPP HIV simple system.
Based on the pilot programs with nearly 20 state departments of health across the country.
While not yet realizing the returns we are starting to see traction being generated by our U S. Commercial team across our current and expanded product portfolio, including the sure check HIV Stat Pak HIV DPP HIV syphilis, and the status of COVID-19 <unk>.
Product.
As one example, we have secured a multiyear commitment from the department of health of the large state in the United States and we will start using our sure check HIV test in addition to our competitors' product.
The U S version of the sure check HIV test uses the same platform that is easy to use including having been both CE Mark and approved by the World Health organization for HIV self testing.
So we look forward to seeing how the professional settings, such as the state clinicians gravitate to X patient and clinician friendly design and ease of use.
Sure check HIV tests uses the world's smallest blood sample required by any rapid test for HIV and produces results of 15 minutes.
The unique design of the sure check HIV test integrates the capillary device that draws both of the blood and the reagent solution eliminating.
The eliminating the need for separate collection devices and reagent solution bottles required by other HIV self tests bottom line. The sure check HIV test design requires the lease number of steps and the required the least amount of blood drawn making it the easiest rapid HIV test on the market.
Now transitioning to our international HIV business.
In 2016 of the <unk> recommended HIV self testing as a safe accurate convenient and confidential option for HIV testing.
And that is a way to reach people, who may not test otherwise, including simple from key populations men and young people.
<unk> can perform of HIV self test reliably and accurately and achieved performance comparable to that of the trained health care workers.
In 2019 of the <unk> reported that <unk>.
32 randomized controlled trials showed that compared with standard facility based HIV testing.
<unk> HIV self test increases the uptake of HIV HIV testing unquote.
Based on this market opportunity and with the benefits of share check that I've described we began an ex U S marketing and regulatory approval initiative to position share check for HIV self testing adoption.
We obtained whr Prequalification in November of 2019.
Because of share checks unique features and benefits and the valuation of the enhanced promotion for the expanded HIV self testing, we're now beginning to see movement in the market.
I am pleased to report the best work is beginning to generate financial returns in the form of improved product margins.
Volume from <unk> ability to command of two to three times higher average selling price of our stat Pak HIV test in those markets.
We have completed registrations and received the initial purchase orders for multiple countries in Africa.
Southeast Asia for shipments of sure check HIV self test in the second and third quarters of 2021.
Turning now to our COVID-19 test systems portfolio, which includes three products for COVID-19 antigen test for COVID-19 antibody test and the status of COVID-19 flu a b test.
COVID-19 testing is the perfect example of why rapid diagnostic testing is valuable not only for the health of those infected but also for controlling the spread of of Iris.
The clinicians the ability to administer our test and quickly determine the infection status of the patient is crucial for medical decisions that are made while send patient is on site.
In contrast lab based PCR tests, which are run of Central lab, often take days for results to be produced.
This lag between testing of diagnosis complex patients and their close contacts at risk.
While the regulatory environment and path to receive FDA EUA for COVID-19 diagnostics has been dynamic we remain.
<unk> committed to this market.
Our view is that the pandemic will eventually shift into an endemic phase given the mass vaccination underway and that COVID-19 will then be around similar to the flu for years to come.
As our marketing team announced recently, we have begun to use the distribution of the status test, which is able to simultaneously to qualitatively detect antigens for Sars COVID-19 two flu a flu b.
The required new instrumentation. The rapid immunoassay test is approved for use in porting care locations that produces test results in 15 minutes.
We believe that this test will be useful even after the pandemic has subsided and will become an indispensable tool during future of respiratory virus seasons because of the common symptoms that patients experience for each of the viruses.
As I described earlier of the status of tasks will be sold across overlapping decentralized market as our other HIV test in the future COVID-19 products.
In addition, the pending EUA approval of the TPP respiratory panel together with the status test, we will be able to offer both a reader and of non rigor based solution for the wide diversity of customer needs for the combined COVID-19 and fluid of disease States.
As we previously outlined we have received two awards from BARDA for the development and regulatory submissions for both our <unk> antigen cell system, which we will refer to as our COVID-19 antigen test and the DPP respiratory panel.
For the first award was for roughly $630000 for the development and receipt of EUA authorization for the COVID-19 antigen test.
The second award total is up to $12 $7 million for the receipt of of five 10-K approval.
For the COVID-19 advantage of test as.
As well as for the development and receipt of EUA authorization for the DPP respiratory panel.
The DPP respiratory panel test system is intended to provide simultaneous discrete and differential detection of index of.
Of the influenza day influenza b as far as current advantages from a single patient respiratory assessments, such as the nasal our nasal pharyngeal swab.
It is expected to provide results in approximately 20 minutes and be run on <unk> DPP micro reader analyzer.
The system is intended to enable appropriate clinical management of patients with suspected of respiratory infections and assistant of the containment of COVID-19 cases during the flu season the.
U S centers for disease control and prevention has recognized that contemporaneous testing for the three viruses will provide public health officials with information to help limit the spread of viruses, while conserving scarce resources.
Our relationship with BARDA has been thoughtful and collaborative throughout this process their advice and support has been invaluable and we look forward to continued partnership between our organizations.
Recall from our last quarterly earnings call, our regulatory goals for the year include achieving EUA approval in five 10-K clearance for the DPP COVID-19 antigen test.
Any way of approval for the DPP respiratory panel and securing authorization for the submitted CLIA waiver file for the DPP HIV syphilis test.
Our previous EUA submission of our COVID-19 image of test was not prioritized for review by the FDA.
Achieving approvals for the COVID-19 antigen test and the DPP respiratory advantage of panel under the BARDA Awards remains a top priority and we are laser focused on debt the.
COVID-19 regulatory environment remains dynamic and subject to change.
We are confident that we present with the technical capabilities required to achieve the EUA as I shared during our last earnings call given the uncertainty regarding the processes, we will not be providing any status update our estimated timelines regarding the EUA process.
Our workshop paying five 10-K regulatory approval for the cover they can advantage of test with dogs with BARDA support the fund the clinical trials further evidences our long term commitment to the point of care market.
This permanent cleared for use in anticipation of when COVID-19 testing there is no longer considered an emergency it becomes the standard test use of upper respiratory diagnostics.
While not yet approved in the United States of our COVID-19 antigen test received CE Mark for distribution in the EU in January 2021, as well as the visa approval for distribution in Brazil by a wholly owned subsidiary in Brazil, and through our long term partner share for federal programs PMA game.
As we've highlighted previously we are seeking to build new relationships with distributors across Europe, South America and elsewhere to fully capitalize on these approvals.
Our team has evaluated the market dynamics across Europe.
The self certification mechanism of CE, Mark, which is very different from the FDA process has opened the market to many lower quality high volume of foreign manufacturers.
That combined with large competitors that are being debt are benefiting from government subsidies and flooded the market with supply and created pricing pressure.
Average selling prices are not attractive for us in many areas of Europe.
In select markets, we are working with our team to identify opportunities, while continuing with our plans to expand distributor relationships.
I'll wrap up my comments by reiterating the thoughts of share during our 2020 year end call because they continue to be relevant.
Much has been revenue about what the future of COVID-19 testing looks like given the vaccine programs in varying rates of adoption current downward trend in cases.
Possible future needs for booster shot and overall of testing demand in the United States. So as I said before <unk> committed to the broader point of care testing business for the long haul.
Our product portfolio strategy is to distribute the cash status COVID-19 flu a flu b test pursue CLIA waiver for the PMA approved DPP HIV syphilis test and complete our ongoing dedicated work required on the DPP respiratory panel and the COVID-19 antigen test at.
As discussed the COVID-19 antigen test is funded by BARDA, the complete clinical trials and achieve of $5 8-K regulatory approval, providing a permanent clearance beyond the COVID-19 is no longer an emergency and become the standard test used at upper respiratory diagnostics.
That transition from emergency use to routine patient care illustrates why we are focused on our market and channel positioning strategy in the United States.
While others are pursuing multiple markets, including over the counter and at home testing <unk> staying focused on the health care channels, where we can maximize both of our expanded U S. Commercial organization, the Permian differentiated capabilities of our DPP platform and taking market share with our DPP HIV syphilis test, which.
As we have discussed today is highly differentiated and addresses an unmet need in the marketplace.
The basis for the strategy is compelling and clear. We believe this is where the long term sustained market will exist for each of the disease States I listed including our current products those presently under development and in clinical trials and future products that we will develop in these areas.
We believe that while tangential markets may develop all of these disease states will continue to be diagnosed and treated in traditional decentralized point of care clinical markets.
From our current market position, we can drive the company towards profitability of sustained growth with incremental market share gains in these high average selling price well established diagnostic channels.
I will now turn the call over to Neal for details on the 2021 financials.
Thanks, Rick.
For the three months ended March 31, 2021, total revenue was $8 $7 million.
COVID-19 pandemic.
We also continue to implement manufacturing automation in order to reduce our reliance on manual labor and improve our product margin the.
The zero point $9 million decrease in gross product margin was comprised of an unfavorable product margin percentage due to the impact of geographic product mix and fixed manufacturing overhead and unfavorable product sales volume.
The over the past year, we have been taking steps to automate our test manufacturing process. The entirety of which is now based in the us.
Our goal for doing the so is that we believe that will add capacity improved product margins and reduce variable costs, including headcount, which was lower as of March 31, 2021 that it was on December 31 2020.
R&D costs increased by zero point $9 million, primarily related to pursuing the EUA in five 10-K for the Dpp's are the code to antigen test system ended EUA for the DPP respiratory antigen panel each pursuant to awards from Barbara The Rick described.
Selling general and administrative expense.
Fences increased by $1.9 million, which principally reflected increased cost in two areas first increased fees for legal services relating the shareholder litigation and for internal audit services and the second compensation costs related to our expanded use commercial team.
Net loss and the three months ended March 31, 2021 was for $5 million or 22 cents per diluted share compared to the net loss of five zero million dollars or 29 per diluted share in the prior year period.
On the balance sheet cash and cash equivalents as of March 31, 21 total of $14 $4 million net working capital as of March 31, 2021 was 22 $8 million.
During the three months ended March 31, 2021, we executed changes representing approximately $2 million of cost savings on an annualized basis.
Our operations used seven $2 million of cash during the three months ended March 31 2021.
Primarily due to the net loss of adjusted for non-cash items of $3 2 million of $2.2 million increase in inventory related to supply chain timelines, including materials for COVID-19 systems that were order, but could not be cancelled following the previously disclosed replication of it the way from the FDA and in anticipation of regular.
Tori approvals of.
One $6 million decrease in accounts payable with other of crude liabilities and of $1.2 million decrease in deferred revenue.
Those uses of cash for offset in part by of $1 million from by decreasing accounts receivable deposits and other assets.
I will now turn the call back to Rick for concluding remarks.
Bigger deal to wrap up we believe that came Bios decision to take share in the point of care diagnostic test the market based on the strategic repositioning the relaunch last year.
We'll continue leveraging our GPP technology and other test platforms with the benefit of of flying an additional product menu and markets that have the potential to deliver the higher average selling prices and provide the path to profitability.
And the first quarter of 2021, we made progress on commercial price development and operational initiatives that will position of the company for future success.
We were highly confident in our DPP testing platform and our ability to expand its testing menu, which we believe will lead to growing adoption across decentralized health care of markets.
Looking forward, we remain committed to delivering profitable growth are leveraging our growing customer base and expanded commercial team will also focusing on gross margin expansion for manufacturing automation and operational excellence.
Finally, as I share during the previous quarterly call given the uncertainty of the continuously changing regulatory process and priorities we.
We will not be providing any commentary or guidance for.
On any submissions timelines for achievement of Resubmission.
We will look forward to providing updates when we have more visibility into this map.
With the operator, please open up the call for questions. Thank you.
Thank you ladies and gentlemen, the floor is now open for questions. If you would like to ask the question at this time you meet Princess Star one on your telephone keypad once.
Once again, ladies and gentlemen, it'll be star one on your telephone keypad to ask the question at this time.
And the first question today is coming from per Austin from Craig Hallum.
For your line of his life and you may ask the question.
Great. Thank you good afternoon, Rick and Neil.
Want to start out with a question on.
Product revenue, specifically, so I'll stipulate up front I know that my forecast was probably a little higher than others, but.
Given that.
The pandemic seems to be still kind of running unabated in Brazil.
I guess I was kind of figuring that the first quarter product revenue could look a little bit more like you know third and fourth quarter product revenue, especially in light of the N. B. So approval of the Endogen testing system late last year.
So just curious if if you might be able to kind of circle back and and talk about what market dynamics might be of play their debt that have resulted in the lower demand out of Latin America here this corner.
Yeah for sure.
Thank you. Thank you for the question.
Obviously, we we were following the market dynamics in Brazil, very very closely.
We actually have a number of strategic initiatives going on I think.
The the the biggest opportunity for US is to continue to work closely with our longstanding partner for you to make any news.
Our history with them dates back 15 years.
And we have a very good relationship with them.
Certainly one of the things we had a work of through with being of Guyot switch.
Basically supplies the federal health care system in Brazil.
With vaccines and diagnostics was to get the product approved.
True their organization when is the and visa regulatory body in Brazil.
So we have been working and supporting them in that effort for some time so.
As you know, we just released that today as the recent approval.
So we are working very very closely for the end user to monitor.
What other tests needs for the balance of this year.
We've been in dialogue with them for a number of months.
Leading up to the end of visa approval of the be the making of those.
DPP products so at the.
Federal well, we are very closely engaged would be the making us at the state and local hospital and clinical markets.
We were approaching them through our distribution partner that we have in Brazil, the services that market as well as of the retail over the counter pharmacy. So we have launched the DPP Amgen test for the over over the counter pharmacy market in Brazil, and we're beginning to see.
Some traction and movement through that particular strategy.
Finally, we are expanding our commercial infrastructure in Brazil to.
To be able to support of blue.
Water distribution strategy in Brazil, as you know of Brazil.
A huge country.
With many many states.
And so we're in dialogue with the with some potential distribution partners that of access to upwards of 26, the 28th sub distributors in the country to get our products out into the various states and local.
Health care providers, so look for a little early in the strategy in Brazil, certainly may have a massive of problem with cases.
The COVID-19 and the number of tests are very very high.
We have seen a little bit of of what.
I would characterize as.
A little bit of of chaotic response to the pandemic in Brazil.
So what we're doing of staying very very close to be of making you. So.
When they are ready to move where there to support.
Okay. Thank you for it that's helpful. I'll I'll I'll I'll pivot for my my follow up question to the the.
Margin side of the equation, obviously I I assume that that is a a relatively high priority that the.
The the.
Single digit low teens product margin situation isn't sustainable forever and I know that.
There's been a fair amount of puts and takes.
Recent quarters, given the replication last year and.
Returns coming in and out of the P&L and some of inefficiencies like that but how.
How how how far can you go I guess on the business today.
Where do you think you could go versus the 12% profit margin today and and how much of it simply just has to be.
Getting a more substantial U S business and a more substantial.
All of a multi analyte tests that are out there commanding higher esp's.
So bear I'll I'll take a shot at the end then I'll, let Neil the whole provided additional input.
You can probably tell from my prepared remarks.
Hello focused I am at the senior leadership team is here in terms of getting revenue growth in markets and with products that has the higher margins.
You could give the 12% gross margin in Q1, just is not acceptable.
And so.
The team is very focused on driving HIV simple as we've talked a lot about.
The the much higher average selling price in the United States for that product because you get to CPT codes in terms of reimbursement. So I mean, the the U S. Commercial team HIV simple. It's right now is the number one priority because it's going to deliver.
Much higher.
Product murders.
Side of the United States, we talk a little bit of out today sure check HIV self tested.
And although this is this is.
Probably of two to three year initiative, that's been underway.
<unk> or international sales team.
But by increasing our average selling prices for the self testing and countries like Malaysia add Kenya, and even South America to a certain extent.
Drives are gross margins higher and so this is about changing our product mix. This is about changing our geographic mix of.
And getting away from what you saw play out in Q1.
So.
Obviously, we talked a lot today about getting our COVID-19 manager and respiratory panel end of the U S market.
Because of the higher average selling practices.
Everyone's talking about the price pressures, they're seeing X U S.
For the floor of of COVID-19 products coming in from foreign manufacturers Indian manufacturers.
And so.
You see the price is that the government or for paying for very very high volume.
COVID-19 within the three to $5 range.
So that doesn't solve the gross margin problem. So we're very focused line as the two.
The answer your question period of the U S market.
And selling what we have in the U S market and selling what we have outside of the United States with higher average selling price opportunities and.
And we're going to change that product mix in the geographic mix over time.
It's not going to happen overnight, but you've got the commitment of me and Neil and the senior leadership team as can via the change that the only any of them.
I think thats of really good summary, Rick the only other dimensions that I would reference, though number one number two and number three of our average selling prices.
The the other piece of the puzzle is certainly the impact of driving volume and of course price of times volume gives you of revenue.
Is driving volume through our facility and the benefits of our automated operations to be able to.
Allocate the overhead in a manner of that is favorable.
And we're similarly to the the average selling price for focused on driving the volumes debt can achieve that as well as you heard me mention we of.
Already made changes and.
Seeing the benefits C of totally in the numbers as you described could of where they are but it is nevertheless sequential progress by no means of the destination, but sequential progress.
In that regard and for.
Very very focused on on that end of the entire team.
Very good thanks for the color of both of those things.
Thank you bear.
Thank you.
The next question is coming from Bruce Jackson from Benchmark company.
Bruce you. The line is lightning may I ask the question.
Good afternoon, and thank you for taking my questions with the the H I V syphilis combo of tests and the the clean the waiver maybe you can just remind us the the major steps you have to go through to get that clear labor and where you are in that process.
Yeah for us.
Thank you for the question.
The the clear waiver I think we just we disclosed in the queue for a year and.
Earnings call that.
We submitted that.
Shortly after the PMA approval so the credit of labor is the statutory process.
So the FDA does publish their statutory timelines.
In terms of.
How quickly they review the application.
How quickly to get back with the questions and so forth that they might need to clarify the application.
So we are not estimating of timeframe because the even though there is a statutory process for clea waiver approval.
The the timing on that can stretch out.
Given given the Fda's profit so at this point.
We are we are not providing any guidance of timing the.
The other than I'd say, we submitted the application and we will be in that statutory review cycle.
Okay. So to the past race, then you've done everything that you're you you were supposed to do on your end and now we're into the the entered his discussion part of the the process is that is true characterization.
Yeah for expenses Spence fair.
Cause during the the statutory.
Review process. It is it is it the roof.
The questions they ask us questions and we have to answer them.
It goes back and forth until they get all of your questions answered. So that's a fair description of the process.
And prepare.
Jimmy Hyper is Neil adding to what Rick said it already for you back to some of the things he said and be prepared remarks as the while that's going on our commercial team. The number one priority is the Hh the DPP HIV of surplus product there are about 15000.
Moderately complex labs in the United States that they are targeting both directly as well as with our distribution partners as rich said and as we mentioned in the.
Released today, we've launched marketing programs with them around that and I know that day as well as a lot of registered participants are looking forward to the webinar that we are co sponsoring with the National Association of STD Directors later this month, because as you well know of.
The the clinical need is is very serious and we believe we are of differentiated products that can eat that neat.
Okay.
Okay.
Uhm one other question I'll hop back in queue the.
So you provided the information on the the cumulative spending from the bar of the contract. Thank you for that.
What's the other.
Major Greens that you've you've got out there with them and stuff can you just remind us how much those might be valued at how much might be potentially gained from those those two contracts.
Bruce Thanks This is Rick.
With the board of contract.
It is milestone driven.
As the deal mentioned in the queue for year end the call.
We started grouping that out of his government funding and the.
And the and the revenue prescription.
So it gives you some visibility into what our government.
Income is relative to the part of contract.
In terms of the UNICEF after that the customer and.
And of revenue generating customers. So we don't break that out by of per customer basis.
So the only thing to add to the.
Yes, so that's right. So while we don't break it out of our per customer of basis. You may remember that we negotiated an upfront payment from UNICEF for that program last spring just just about a year ago.
And the thought of that cash of sitting on the balance sheet and the other side of it is sitting in deferred of revenue most of the effort revenue not necessarily all of it but most of the deferred revenue and as we recognize.
Through shipments of of the product, we recognize that revenue out of deferred revenue. So that can give you a sense of what the under that program and as we said when we launched debt those get those ship is rescheduled the run through Q3 of this year.
Okay, and then UNICEF has the the bully to extend that relationship if they wish.
Yes, they do.
Okay. Okay. Thank you very much.
Thank you for years.
Yeah, the only other thing to keep in mind as it relates to the program. Bruce In addition to the UNICEF extending it is let's talk briefly about the reason UNICEF funded that program, which.
For everyone's benefit is for two multiplex products. The first is the Dpp's Zika ICM agg product.
And the second is a multiplex dpp's Zika daily Chikungunya IGN my duty product that deliver six results from a single blood sample and the reason UNICEF in their donor agencies funded this program was to see the use cases and the development of these markets.
Where they are needed around the world.
And the the the.
Hope in addition to the opportunities you mentioned for UNICEF to extend that is that day would create other funding opportunities in these markets based on how those the address the critical need because those three diseases are all spread about the same mosquito and not unlike blue and COVID-19 day present with the same symptoms, but the <unk>.
Treatments are very very different and have life threatening differences and that's why they are they are important and compelling products.
And by the way our off the web favorable average selling prices to Rick's comments earlier.
Thank you.
Your next question is coming from.
Kyle Kyle Bauer from Collier Securities.
Kind of your line. This library May I ask you a question.
Great. Thank you Rick and Neil for all of the update ticket can you hear me okay.
Yes, we verify cough thanks perfect.
Great. So so it looks like you've made some investments in additional automated manufacturing lines I think in the in the K.
I saw something there how should we envision.
The manufacturing operations to look and say the next 12 to 24 months and they will will always be of hybrid of manual an automated mind.
Or 10, and other way do you have any kind of goals for what percentage of product output.
<unk> come from each type.
File a lot of great question, and I'll I'll tackle the sort of got the.
Higher level of that and have the old address.
The the spending side of the average the capital investments.
Have made tremendous progress Kyle over the last by the same two three months.
The automation of investments the company made over the last year for too.
So.
The the automated production lines are fully operational that was step one.
So that has been completed the second step and that was the validate certain products on those automated lines and that has been largely accomplished.
For our high volume anticipated products and then the third part of that is to get the regulatory approval of that are necessary, depending on the proud of and depending on the regulatory body in the world, whether it's W. A joe oriented visa or FDA that requires a change of production approval.
So we are well down the path.
Are actually.
Haven't establish of goal.
For greater than of 85% of our COVID-19 products to be manufactured for fully automated behind behind one of mine too.
For this year and the the operational team has set that goal for the organization as well as the operation of manufacturing team. So we're very focused on that we're driving the organization by achieving those of us high levels of automation.
Of course, there's a few products that we will have to continue manufacturer manually because of the regulatory bodies require for.
Early extensive conversion invalidation plan to move them from manual to automated lines for also taking into consideration volume some of the lower volume products that dog, so I'm really justify going through the fully automation process and the cost involved in that.
We will assess the keep those.
Under a manual production process. So the answer your question, it's it's going to be a mix of of fully automated production and some small volume.
Manual production as we move forward and hopefully over time go to complete for auto nation. So you'll be wanted to add anything of that.
I think that's the great overview of the only other thing I would share to sort of the the back half part of your question. Kyle is the ongoing investments are tied to our supplier of the.
A customized automated equipment hitting their milestones as it relates to the performance of the equipment.
So.
That's how that's how the costs and the cash will flow accordingly, and as always we are we're focused on managing of measuring those those investments along the way.
Got it the I appreciate that it's helpful and and then I'm just kind of curious he talked about how the head count has changed over the past 12 months kind of where you know compared to a year ago I know you're built out the commercial operations Rick.
But maybe you can talk about couch trended and how you imagine that.
The trend in the coming quarters as well.
Yeah sure Kyle.
The opening Neil can provide the.
Any additional information on that but.
We we will continue to evaluate our head count.
Based on.
A couple of average wanted certainly the more we automate and the left me the manual production battle of dictate what our head count as in manufacturing and operations and so certainly we're trending down in terms of head count and I think Neil gave that number of $2 million in Q1.
The the annualized impact of the headcount reductions. We made in Q1 is 2 million will continue to evaluate the as we move throughout the year based on the volume of sales and units that we manufacture.
But I think his spirit of say that we will continue to look at that closely and make the necessary decisions.
To keep the trend going down.
Okay, great. Thanks for all of the updates and for taking my questions.
Thank you Bob.
And there are no further questions in queue at this time.
Okay, operator, thank you for the.
The time today and I wish everyone of very good evening and again, thank you for your time.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
[laughter].