Q2 2021 Chembio Diagnostics Inc Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the Chem Bio second quarter 2021 earnings conference call and webcast.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Philip Taylor with Investor Relations, 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 August 5.2021 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.
The 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 <unk> filings with the SEC, including its quarterly report on form 10-Q for the first quarter of 2020.
The 1 in the current report on form 8-K filed with the SEC on July 19.2021.
<unk> results may differ materially from those projected <unk> undertakes no obligation to publicly revise or update any forward looking statements made today I encourage you to review all of the company's filings with the SEC concerning these and other matters with that I would like to turn the call over to Rick Eberly, President and <unk>.
<unk> Executive officer.
Thank you for a little.
And thank you all for joining us today.
For today's call I'm excited to share of business updates across our product development regulatory commercial and operational objectives.
Neil will address the second quarter financials in detail.
I will conclude and open up the call for question and answer session.
Before we dive into the second quarter I want to begin by highlighting recent commercial and financial achievements that we believe position <unk> for success in the second half of 2021, starting with our opportunities to support the urgent needs of Brazil's Ministry of health in addressing the COVID-19 pandemic.
We have already made initial shipments of our DPP Sars Covid 2 antigen test to be to make interest under the largest order in company history.
$8.3 million.
Supplier of Covid antigen test for delivery during 2021.
We also received a $4 million of HIV test purchase order supported by the global a lot of of for shipment to Ethiopia.
Importantly on the financial side to date, we have raised $36.9 million of gross proceeds through and at the market equity operating program, we launched in late July.
Our net proceeds from this ATM operating provided working capital, which we are deploying to support our future product development initiatives at the <unk>.
All of the established commercial traction.
Since the quarter, Ed we have meaningfully strengthened our balance sheet.
During the call we will dive deeper into these accomplishments and what they mean for the business going forward.
Now on to the second quarter, where.
Where we generated total revenue of $6.4 million, including the product revenue of $3.9 million.
Representing growth of 26% and 4% respectively compared to the prior period.
Government grant of income license and royalty revenue and R&D revenues.
By the end of second quarter of 2021 for $2.5 million.
While results for the second quarter were below our expectations due to delays in receipt of a long anticipated orders and the timing of achieving milestones under the BARDA of awards. We are pleased with having received the 2 April mentioned large purchase orders with our recent clinical trial progress.
<unk>, we remain committed to our previously outlined strategy to leverage the unique features and benefits of our DPP technology and other types of platforms to provide innovative and differentiated differentiated diagnostics for application in areas that create attractive opportunities for <unk>.
We focus our product development and commercial efforts were number 1 rapid diagnosis impact patient treatment outcomes number 2 the existing current diagnostic products underserved of clinical need due to performance of our availability and number of 3 new product opportunities arise rejoined demographically.
Clinically.
With profitability of mind. These criteria are aimed at products and markets that have potentially higher average selling prices.
With that of the backdrop, we market our products globally for a wide variety of customers such as acute care hospitals reference laboratories, outpatient clinics, including urgent care centers and physician offices, Ngos and administrator of health.
Of note our branded products, which include share check stat, Pak and DPP have obtained meaningful market share.
We've expanded our commercial infrastructure with plans to increase our focus on commercializing internally developed products and the.
The United States.
Currently we're operating we're considering operating rapid diagnostic test solutions for a wide variety of infectious diseases, which include respiratory diseases sexually transmitted diseases, gastroenterology and insect vector of diseases.
Many factors are propelling the infectious diseases point of care of rapid testing market. These drivers include the high prevalence of infectious diseases globally, but growing geriatric population high demand for rapid test results and advancements in multiplex it.
We are leveraging our deep understanding of the market growth drivers our customers of patients' needs and analyzing our internally the conducted research the actively evaluate new applications for our products we.
We anticipate that our calculated without a methodical approach to expanding our menu of differentiated high value technology in the U S Europe and other markets with higher average selling prices for existing disease states will allow us to gain access to a broader customer base.
The broad based adoption of point of care testing on a day.
The centralized basis throughout the COVID-19 pandemic, we've experienced the value of that rapid point of care diagnostic testing provides the broad health care providers and patients.
Anyone who has submitted to a lab based PCR test.
Our acutely aware of the downfall of the slow turnaround testing.
At the height of the pandemic PCR results could take days, if not weeks for results to be communicated leading to many patients not receiving the urgent care of the need for the spreading of the virus rapid test on the other hand upper near immediate results, providing health care workers the opportunity to start on patient management.
We are committed to operating a portfolio of rapid point of care COVID-19 tests internationally. We are managing an antibody test approved for sale under CE, Mark and <unk> and visa approval for marketing of Europe, and Brazil, respectively.
On the regulatory front, we are committed to earning the ways from the FDA the market, our DPP based antigen test and respiratory panel in the United States.
We're also actively engaged in clinical trials of the GPP Sars Covid, 2 antigen test and pursuit of of 5 zinc.
Beyond COVID-19, we are experiencing exciting interest at our DPP HIV syphilis test system for similar reasons. The test of trade approach is ideal for management and treatment of infectious diseases.
We currently view these as the most attractive opportunities for our business.
Our main avenues for achieving this goal is through <unk> DPP technology platform.
For the prescribers of proprietary DPP platform provides high quality rapid diagnostic results at 15 to 20 minutes using a small drop of blood from the fingertip for alternative samples the.
For the advanced multiplexing, the DPP platform, because the tax up to 8 distinct test results from a single patient sample delivering greater the clinical value of that other rapid tests.
For certain applications <unk> easy to use highly portable battery operated DPP micro reader optical analyzer been reported objective results in approximately 15 seconds, making of well suited for decentralized testing, where real time results enabled patients to be clinically assessed while they are still.
On site.
The objective results produced by the DPP micro reader.
Most of the possibility of the types of human errors that can occur with visual interpretations required by many rapid tests.
Our strategy is designed around operating our customers a comprehensive portfolio of tests to be used on our DPP micro reader is decentralized markets. We are confident that our teams the ability and our products potential the gain market share as we establish recurring test orders through building an installed base of customers with micro readers.
Early in the pandemic, we began discussions with BARDA the biomedical advanced research and development authority, which is part of the U S Department of health and Human services office of the assistant Secretary for preparedness and response regarding the capabilities of our technology and potential testing of solutions the.
The result of the discussions produced 2 development awards and.
In July of 2020, we received an initial award for Florida for 628000.
To assist in developing submitting and obtaining an EUA for of COVID-19 point of care engine test system using DPP technology.
Subsequently in December of 2020, we received the $12.7 million grant for BARDA to develop and submit for EUA of rapid DPP respiratory imaging paddle and support preparations submission and approval of an FDA 5.10-K clearance for the DPP Sars Covid 2 antigen system.
We have completed the clinical trial for the DPP respiratory pathogen panel, which were initiated in April 2021.
Although we completed development of the DPP of respiratory advantage of paddle on time relative to the plans and the second award for BARDA, we encountered delays during the clinical trials principally from the near absence of influenza in the United States and also from rapidly declining positivity rates for COVID-19 throughout the United.
States at that time, including in areas surrounding our clinical trial sites due to the impact of vaccination programs.
Delays of the clinical trials for the DPP respiratory antigen Pal constrained our ability to achieve milestones at some of its submit invoices under the second award to recognize the government grant income and the realized cash flows to fund ongoing development of clinical trial work.
We are following the review and approval by the BARDA incorporating into our clinical data for the DPP respiratory management paddle foreign sourced influenza of positive samples, which we expect will mitigate the impact of the extremely low incidence of influenza in the United States.
We are working to finalize the EUA submission materials for the DPP respiratory antigen Pal internally and with BARDA and the FDA. After the pathway for manufacturers such as kind of bio that do not have acquired by Teekay approved influenza test we.
We are not however, aware of the FDA, having awarded to any such manufacturer an EUA for influenza test and the FDA may not consider the review of our application for the DPP respiratory advantage of panel as a priority and therefore it may decline to review the EUA application.
That said, we are optimistic about the market opportunity for of GPP respiratory panel in late July the CDC issued guidance that encouraged as clinicians to choose a multiplex test that can be used to detect and differentiate sars COVID-19.2 from influenza viruses that as per.
The <unk>, what the DPP respiratory respiratory panel was designed to achieve.
This past year's flu season was almost non existent.
Now with much of the global economy, reopens and immunity immunity to flu viruses weakened due to minor flu season last year. The CDC is preparing for <unk> of our circulation to return to pre pandemic levels given the circulation of some respiratory viruses is already returning to prepay debt.
The pre pandemic levels, potentially making such multiplex test valuable tools, when evaluating patients suspected of COVID-19 and or the flow.
This is consistent with our thinking the infection identification will be even more critical as flu season approaches.
Because of the infections for example of similar symptoms for the treatment and management protocols differ greatly.
We hope to be able to position the DPP respiratory image of panel is a critical component of managing the pandemic through the respiratory infection season, and as the pandemic evolves either with the digital variance for into an endemic stage.
As a reminder, timber on the CPP respiratory panel of this design when do you think the action with the DPP micro reader optical analyzer to provide simultaneous discrete and differentials of detection. The source code to influence the influence of the antigens from a simple nasal swab and about 20 minutes.
The test system is intended to enable appropriate clinical management of patients suspected respiratory infections and assistant of the containment of COVID-19 cases during the flu season.
Moving on to the DPP Sars Covid 2 advantage of test system.
The FDA notified us of June 2021 that it was again declining to review of the EUA submission for the test based on the FDA has been effective prioritization guidance under which the review of the Texas. It was not a priority because of the anticipated resources needed by the FDA to continue to review of our EUA request the <unk>.
Volume in the volume of because of the EUA request, the FDA and received for.
The of other factors.
Similar to the respiratory panel, our clinical trials and the related timeline and achievement of related milestones under the initial BARDA award for the DPP Sars Covid 2 antigen test system for it.
Delayed by the same factors that I outlined earlier on the call the <unk>.
Perhaps of the changing population of COVID-19 infection rates were reflected in our clinical results and create the complexities of the data.
And for the FDA in connection with the EUA application for the DPP Sars Covid 2 antigen test system.
As a result in June 2021, we work with BARDA to extend the initial awards contract period of performance at no additional cost of the cost of BARDA in order to provide us the opportunity to submit the new EUA to the FDA to address the fda's additional priorities and incorporate additional data collected for international.
Populations with higher positivity rates, we are in the process of collecting such samples in order to address the complexities in our dataset that we believe resulted for the FDA decision to prioritize our second EUA application.
We then intend to incorporate the collected samples of our clinical data for any new EUA application for the DPP Sars Covid 2 antigen test system.
There can be no assurance that the FDA will prioritize the review of our new EUA application. It made for that with the FDA does determined to review the new EUA application that the submitted materials will satisfy the performance criteria and other FDA review standards and requirements being considered are being considered and applied by the FDA.
Regarding the pursuit of the 5.10-K clearance from the FDA for the <unk> 2 of 2 imaging system. These clinical trials are also ongoing.
The timeline for the trials and our achievement of related milestones were delayed by the evolving U S populations with low COVID-19, positivity rates triggered by vaccination of rollout the impact of those evolving populations on the rate of enrolling subjects. The absence of guidance from the FDA regarding how to treat low positivity rates within our clinical of.
Study and the FDA as yet uninsured 5.10-K guidance regarding COVID-19 antigen tests.
On July 14, 2021, Florida of amended the $12.7 million contract in order to subdivide the effect of retrospectively certain previously specified milestones with respect to the clinical trial for the DPP sort of co 2 antigen system in order to reflect the effects of the the delays.
We experienced in the clinical trials, which were outside of our control.
As of June 32021, we had achieved certain of the newly defined milestones.
We've begun to incorporate into the quite frankly.
<unk> clinical trials foreign sourced samples similar to the plan the EUA resubmission for the DPP Sars Covid 2 antigen system with the objective of mitigating the impact of low of COVID-19, positivity rates, resulting from the vaccination of rollout in the United States. We are confident we have the capability to produce the data.
The required for permanent regulatory approval. This pursuit represents our commitment to the point of care testing market over the long term.
The final component of our internally developed Covid testing portfolio is our antibody test.
We believe that the global proliferation of COVID-19 vaccination programs may create opportunities for the DPP COVID-19, IGN IGT system.
We continue to pursue those opportunities of regions, where the test that's been approved.
All of our policies of individual countries related to the monitoring of the viral loads and other use cases are added or at an early stage and we are seeing evidence of overcapacity among suppliers of competing tests, these regulatory and market conditions could adversely affect the demand for and pricing of our COVID-19 antibody test.
Side of the United States.
Transitioning to our commercial efforts the.
Around 2021, we've been actively pursuing sales opportunities for <unk> management system with government agencies nongovernment organizations and distributors in countries, where the test systems is approved and registered.
We are especially pleased with the recent $28 million purchase order for <unk> Juniors for the purchase of PPP Sars Covid 2 antigen tests to be of look to be delivered in 2021.
<unk>, which is a subsidiary of the Waldo of Cruz Foundation noticed the of cruise is responsible for the development and production of the vaccines diagnostics and Biopharmaceuticals primarily to meet the demands of the Brazil National Public health system.
<unk> is the longstanding relationship with BMI of genius, having previously supplied multiple products for reported for reporting care detection of COVID-19 antibodies HIV and other infectious diseases.
The <unk> received regulatory approval from Andy at the in March of 2021, following and visa approval for the test for Tim Violet Brazilians subsidiary in November of 2020.
In anticipation of orders from countries, where gpp's towards kind of 2 antigen system is approved and registered we had invested in finished goods and work in progress inventory to be prepared to meet the timing of requirements of any potential awards, our ability to deliver the full number of tests covered by the purchase order.
Maybe affected by limitations of our supply chain staffing and the liquidity and other matters outside of our control.
Reflecting our business conditions earlier in the year, we both actively downsized our workforce of January and have continued to manage down our overall head count.
Therefore, the compressed timetable to produce and ship the test for the substantial orders as required less of rapidly expand our workforce and a range of manufacturing and other operational areas. Also an addition of utilizing inventory on hand, we're closely working with our supply chain partners to shorten lead times and deliberate.
Material requirements.
Amidst the development of our PPP respiratory panel, we initiated distribution of our rapid point of care EUA approved COVID-19 flu AP test branded stats, we continue to pursue our strategy to sell the products across the same decentralized markets. We are targeting with our other point of care products. We believe there is.
Desire among different customers to have the option to choose between the visual re status product and potentially our reader enabled panel debt operating both tests will expand our customer base in the United States.
Customer needs have been generated and we look forward to demand increasing as we enter of the flu season.
Pivoting now to our commercial activity with our legacy products.
Starting with the DPP HIV syphilis test system, which is the multiplex testing minute test simultaneously detects antibodies to HIV types of 1 and 2 and treponema palate of the bacteria that cause of the syphilis and it's designed to be used in combination with the DPP micro reader optical analyzer the.
Cash uses of 10 microliter sample of finger stick whole blood venous whole blood or plasma.
The test system is highly sensitive and specific of the building procedure of control and maybe stored at room temperature it.
In May we sponsored a webinar on sexually transmitted disease testing hosted by key opinion leaders among other topics the need for increased simplest testing was discussed.
Several of the panel members use the DPP HIV and HIV syphilis test in the clinics and the highlighting the clinical utility and benefits offered by the test.
1 of the benefits identified the clinic by the clinical sites with the ability to test patients on site when warranted and provide rapid treatment, thereby avoiding the risk of continued transmission of the diseases.
We feel this is a strong indication of the market fit for the test and are excited about its potential.
We submitted an application for a CLIA waiver from the FDA for the DPP HIV syphilis test in January of 2021.
Our commercial objective for <unk> for obtaining the CLIA waiver of simple with the PMA approval. We received from the FDA last October the test is authorized for moderately complex labs and there are about 15000 of them in the United States.
We received CLIA waiver from the FDA, we estimate that opens up the target market to a range of 40000 to.
For the 50000 CLIA waived sites in the United States that have a history of running tests or prescribing treatment for HIV syphilis.
Among the into our planned Parenthood and state and local public health clinics, which can be the go to providers for prenatal and STD health services.
We are in active discussions with the FDA regarding the review of our CLIA waiver submission, but there can be no assurance that the CLIA waiver will be granted with respect to the DPP HIV syphilis system.
<unk> also offers numerous HIV test of our customers 1 of which is the HIV 1.2 stat Pak assay. The WHI prequalified rapid point of care assay for the detection of HIV HIV, 1 and HIV, 2 antibodies and finger stick whole blood venous whole blood serum or plasma.
A version of the HIV, 1.2 step back for the U S market as receive PMA and CLIA waiver from the FDA.
Most of the recently, we announced the $4 million purchase order from the partnership for for supply chain management.
Supported by the Global fund for the purchase of our HIV, 1.2 stat Pak assay for shipment to Ethiopia, Ethiopia in the early 2022.
We were.
We're awarded of the frontline testing algorithm position in Ethiopia, and 2018 to screen for HIV with this latest purchase order <unk> continuing that important role now under the contractual auspices of the global fund and expanding its long long standing relationship with partnership for supply chain management.
Which leverages, the planning and logistics resources for clients government and non government organizations and over 85 countries.
As 1 of the large order for Brazil or delivery of the full number of tests covered by the purchase order may be affected by limitations of our supply chain staffing and liquidity and other matters outside of our control.
It's important to note the testing for HIV across Africa, and Asia fell by 41% during the period from April to September 2020, compared to the same period of 2019. According to in April 2020 wide reported by the global fund on the disruptive impact of the COVID-19 pandemic.
To that end the joint United Nations program on HIV AIDS.
<unk> has identified 90.90, 90 day targets intended for 90% of HIV positive people to know their status.
The 90% of HIV positive people, who know their status will be on HIV treatment of 90% of people on HIV treatment will have achieved viral suppression and have funded tactical levels of HIV in their bodies the.
The 90%, 90% 90 targets for a vital global public health initiatives and we remain focused on addressing this market need with the <unk> portfolio of HIV tests.
I will now touch on our operational infrastructure before turning the call over to Neil.
Year over the past year as mentioned, we have taken steps to automate our test manufacturing processes.
With our final decision related to the Malaysia facility, which Neil will discuss in a bit the entirety of our test manufacturer of operations R&D United States we.
We will continue to take steps intended to increase manufacturing efficiency out of appropriate capacity.
Product margins and reduced variable costs.
As we scale of our production to meet the significant orders that we just received our production schedules and resources will be managed to ensure support of our customers and their needs.
I will now turn the call over to Neil for details on the financials.
Thanks, Rick for the 3 months ended June 32021, total revenue was $6.5 million.
Presenting a growth of 26% compared to the prior year period.
Product revenue for the first quarter of 2021 was $3.9 million.
An increase of 4% compared to the prior year period.
Government Grant income license and royalty revenues and R&D revenues combined for the 3 months ended June 32021 were $2.5 million, an increase of 92% compared to the prior year period of.
Of this $2.5 million to.
$2.3 million was earned by achieving milestones under our $12.7 million program as part of bringing our cumulative government Grant income under this program for the second quarter of 2021 to $7.2 million.
Our revenues were in compliance with the 12 month rolling minimum total revenue covenant in our credit agreement.
Both government grant income and R&D revenue are related to the timing and cadence of program performance obligations, which do not always occur in a certain period, but we continue to incur certain of the expenses.
Gross product margins during the 3 months ended June 32021 increased by approximately $1.8 million compared to the prior year period the.
The gross product margin during the 3 months ended June 32021 was unfavorably impacted by a zero of <unk> $9 million charge related to the write down of inventory.
Product margins in the prior year period were impacted by a number of factors that we covered at that time, and which are summarized in the press release.
R&D costs increased by <unk> 9 million.
Primarily associated with clinical and regulatory work related to pursuit of an EUA and 500.10-K from the FDA for the DPP Sars Covid 2 antigen test system and an EUA for the DPP respiratory panel H as part of the awards from BARDA.
Selling general and administrative expenses increased by $1.6 million in the second quarter of 2021 compared to the prior year period.
The increase in selling general and administrative expenses, principally reflected increased costs associated with professional fees and our expanded U S commercial team.
As per diluted share compared to of net loss of $7.8 million of 42 cents per diluted share in the prior year period.
The net losses reflected acid impairment restructuring severance and related costs of $2 million or 10 per share for the second quarter of 2021 compared to the zero point $3 million or 2 cents per diluted share for the prior year period.
On the balance sheet cash and cash equivalents as of June 32021, total is $5.6 million.
Our cash balance as of that day was in compliance with the minimum cash covenant in our credit agreement.
On July 19th 2021, we entered into and ask the market equity offering agreement for ATM, enabling the company the cell from time to time at the board of discretion of to an aggregate of $60 million of shares of common stock.
Subsequent to the of at the end of the second quarter as of July 26, $2021.36.9 million of gross proceeds have been raised for the companies ATM program.
From the issuance of 8 million 323242 shares of common stock at a weighted average price of $4.43.
Net of the placement fee and other transaction costs. The company realized estimated net proceeds of approximately 30 for $7 million.
Net working capital as of June 32021 was $15.9 million.
As you're likely saw from our press release. This afternoon, we have determined the current and potential conditions, many of which are outside our control range of substantial doubt about the company's ability to continue as a going concern within 1 year. After the date that our second quarter of financial statements are to be issued which we are planning to.
Yes, we will.
The Bill on this recent positive momentum as we enter the second half of the year.
We also look forward of working with the FDA as well as other key stakeholders such as BARDA as we work our new products through the regulatory channels.
With that operator, please open up the call to questions. Thank you.
Thank you, ladies and gentlemen of the floor is now open for questions. If you have any questions or comments you May press star 1 on your phone at this time.
And the Q.
For your question has been answered and you no longer wish to ask it you May press star 2 to withdraw your question.
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Our first question today is coming from per Ostlund at Craig Hallum Capital Group. Your line is live.
Great. Thanks, and good afternoon everybody.
I wanted to start out with the the the the sizeable orders that you've announced here over the last couple of weeks and so first and foremost congratulations on those.
Maybe a big picture I guess philosophical question, if I I'll use that word for it given the order out of Brazil, specifically, the $28 million order there.
That's obviously gigantic when juxtaposed against other orders you've received in the past and frankly, just yearly revenue that you generated.
Companywide across geographies when you when you take an order like that how much do you consider.
Or I guess bill you need to consider your ability to fulfill it and the reason I guess I asked that is you called out some of the caveats from that press release.
Supply chain and staffing and liquidity I have to think that was such a large or a longstanding partner and be on the greenhouse that you wanted the extra careful to get that right and not take on too much.
I guess generally speaking what are your thoughts around that first and foremost.
Yes, Peter Thank you for your congratulations.
We certainly are delighted at the company.
For for a couple of reasons.
1 is as you know and many of though.
The the Brazilian <unk>.
The organization has been a longstanding partner dating back 15% to 20 years.
What kind of bio's history. So we were absolutely the right to play a part in the Brazilian government's response to the <unk>.
<unk>, that's going on in Brazil.
Some of the considerations, we took into place per wear.
Our investments.
For the last 1 to 2 years and automation.
As well as the infrastructure, we've put in place in the organization.
To increase our efficiencies and so forth.
We did talk in the prepared remarks about some of the.
The decisions we haven't made the in the early part of the year relative to the downsizing.
Manufacturing organization.
But we were in anticipation of.
The large orders.
We've been in discussions with BMA gaming of since.
In the December of 2020 around their needs.
It obviously took them at a very very long time.
Debt to the point of.
The actually committing to a contracted of purchase order.
So we had to make some decisions as management.
To continue production and produced for finished goods.
As well as keep our supply chains going during the first half of the year. So we consider that and we considered how fast we could ramp of combi.
Combination of our ongoing automation production.
Production of the product as well as the ability to scale up.
Our manual production of that product as well.
So we as soon as we got the purchase order.
And in EBIT prior to that we have put plans in place.
To look at how can we scale the organization through a combination of our automated lines as well as adding manual production 2 possibilities of orders. So that plan was well vetted by our operations team of our regulatory team and now we have initiated already as of.
That's true Brazil that we mentioned in the press release, and we are rapidly scaling our production to fulfill the orders so philosophically.
Is 1 way to look at it but we looked at it as a.
Can we can we deliver on this if we get it and so the plan was put together well thought out we're now working very very closely with our supply chain partners to ensure.
Their supply of the.
Needed materials.
From cassettes to biologicals to swaps et cetera, et cetera is in line with our of expansion and production schedules.
And then compare that to me I'll, just add on to that and Thats why you.
Currently talking about and you can read in the press release.
And yes, you will out of the 10-Q, when that's filed on Monday about why there are a number of factors that are outside of our control.
A copy of the control that ramped up this quickly to be able to respond to the orders like this and it's our responsibility to highlight those along with all of the opportunities that they create for the company.
For those guys the price.
Product margin for this particular order.
Obviously for competitive reasons, because we do have some competition in Brazil that we've been competing with for quite some time.
So we haven't disclosed the pricing and the product margins.
Largely due to the number 1 we didn't want our competitors to to see that.
2 of the Brazilian health.
Ministry, it's very sensitive to the.
Commitments that they're making relative to the.
The manufacturers that they're choosing to do business with whether it's vaccines are diagnostics.
So we wanted to respect the Brazilian the Ministry of health in that regards as well.
Okay. That's that's fair that's kind of what I figured you'd say, but I figured I had to ask the question too.
1 last 1.
Share it with the.
With the proceeds raised here in in July.
I know you you mentioned working capital of Bronx development, and commercial traction is sort of focal points there is that.
Is there anything further I guess, you know specifically from a near an investment standpoint.
You know being in supply chain beat in.
[noise] inventory or you know what what have you that you're that you're really focused on her or was the nearest in issue just showing up the balance sheet first and foremost.
Okay I'll take the tail, so certainly showing of the balance sheet as part of that but as you can go and review and the prospect of supplement that we file related to the at the market agreement at the describing the use of proceeds is working capital of the other purposes and are you.
For the proceeds are aligned with that.
As we highlighted in the prepared remarks and richest touch on we've made a conscious decisions and we've talked about the the prior calls related to investing in inventory.
Anticipation of of both of these large orders as well as our continuing business for our customers and our ability to rest of responding for them to them as we have done we believe validates those decisions.
Caroline your updates today.
Maybe I'll start with with gross margin.
We had some previous inventory write downs in past.
Quarters.
And I was thinking.
We could actually going forward potentially see 100% gross margin on a GAAP basis.
On the product that you're capped how should we think about the gross margins I guess in general and in being able to get back above a zero percent or I guess are there any other write downs expected in subsequent quarters.
I guess, just any sort of guidance on how we should be thinking of that thank you.
Well I'll start with the state of the absolute patterns, the obvious which is zero percent there's no bar.
And all the other means that there.
If there were other things that we thought the we need to be recognized and we wouldn't be recognizing them now that's the.
All of this process works in the.
This particular case.
There were some products debt.
Had some regulatory approval opportunities associated with them.
Internationally.
There were of product.
Dating and explorations of associated with assets still represented opportunity of the commercial opportunities related to them.
Like any.
Like any assessment of inventory that happens from time to time you change. Your estimates are associated with the change in the circumstances that occur and that's what happened in this case of <unk>.
For a simple.
As you can tell from a product margin standpoint are our overall product revenues during the quarter were down relative to levels at which they had been historically. So certainly there is a dimension of this related to simply be absorption of overhead and the unit cover that manufacture.
The fixed manufacturing overhead the plays a factor into those amounts.
Hopefully that helps clarify some things for you.
Got it that's helpful and.
Maybe switching to the respiratory product offerings, how has how has the traction been how sales band for the in licensing of the Princeton Biomet of tech respiratory test them.
Presumably traction of this product will allow you to kind of understand what the demand in the marketplace looks like ahead of your own respiratory panel. So just kind of just kind of wondering you know.
How how things are going within the licensed product.
Yeah, Kyle for them from a strategic reported of you know as we talked about on prior calls our.
<unk> here of what it could be in the market.
Early on are ahead of the flu season it.
To be able to see.
See the market generally of customer interest certainly we're not in the flu season of right now.
So you know there is some limited.
For the market uptake based on the fact that we're not experiencing the flu season right now, but for our strategy point of view, we wanted to be in a position to have the product.
Our in our portfolio and began the start selling it. So we are seeing interest and we've seen orders and most importantly, now with the Cdc's guidance that just recently came out within the last couple of weeks.
We're seeing a lot of physician office labs urgent care centers, beginning to think about as we head into the flu season, how is it going to be positioned to be able to differentiate between COVID-19 and.
So we're beginning to see that interest level increase and I think as we approach the flu season, we will see the market begin to.
Transitioning from Covid antigen, formerly of testing.
For a multiplex.
The 3 panel.
Right got it.
I appreciate that and then just lastly on the CLIA waiver.
And maybe you can provide a similar cover the color on how discussions have been going have you needed to answer questions submitted the data I know timing is tricky here, but maybe what are some of the gating factors left before achieving that waiver.
Yeah.
The trial I think of it.
We're excited about is that we're in active discussions with the FDA.
We certainly can.
Talk about what the actual discussions are but the fact that we're in active discussions with them.
And answering the questions.
We believe the processes of moving forward and as soon as we.
Have any any decision.
For a clear waiver of word or not we'll communicate that but.
I think we're all pretty excited that we're in that part of the review.
And hopefully.
Hopefully, we'll have some news in the very near future.
The green none of this it sounds good and I appreciate all the detail here I'll jump back in queue.
The next call.
Thank you our last question today is coming from Bruce Jackson at the Benchmark Company. Your line is knives.
Thank you.
Couple of questions about Brazil, they've been a very good customer for.
For a tropical disease testing tropical fever testing.
Are they still going to be needing those test or it has the focus shifted over to COVID-19 in terms of the immediate needs.
Yeah, so sort of Bruce thanks, Thanks for the question.
You know obviously, the the COVID-19, pandemic and Brazil has taken a lot of the retention.
In terms of out of dealing with it.
So you know the other the other tropical diseases dengue Zika and chikungunya.
They still exist in the country, but.
But we do see them seeing less attention right now given the the seriousness of the of the COVID-19 pandemic.
So most of our discussions with them over the last 6 months.
7 months as.
The largely been around COVID-19.
Continue to talk with them about HIV, because they've been a very large HIV customer of <unk>.
<unk> for a long long time.
But it appears Bruce that most of the attention is drawn to and funding.
The fight against the COVID-19 situation.
So I can't tell us that.
Through the pandemic there has continued to be the.
The some level of which for obvious reasons I won't get into quantifying it that level of granularity for there continue to be some ongoing level and continues to be an ongoing level of other infectious disease tests that they're ordering and debt were making and shipping to the routinely.
Okay. Good.
And then in terms of the the $28 million order you were able to ship some of that how does the.
The inventory.
How much how long will that hold them and how much time do you have to get production ramped up the until they're going to need another shipment.
At the risk as you might imagine.
The amount of.
Except the product do their QC testing of release the product from.
From the bank in years of that process goes smoothly. So.
We've we've sync up our scale of plan with their ability to accept product.
In Brazil as well so it's been a very collaborative process and we feel we feel good about.
The partnership would be of making is in both of their operational scale of an hour operational scale up will the will be an army as we progress through the rest of the year and as you might imagine that's included both personnel from our team here in the U S as well as our team are located at our subsidiary in Rio.
Alright, that's it for me thank you.
Thank you for the interest.
Thank you we have no further questions in the game at this time.
Okay. Thank you for.
The operator for your help there.
That concludes our call today and I just want to thank you for your time and.
We will go forward to the next call have a good afternoon.
[noise]. Thank you ladies and gentlemen. This does conclude today's event you may disconnect at this time and have a wonderful day. Thank you for your participation.