Q3 2022 Quotient Ltd Earnings Call
[music].
Greetings and welcome to quotient limited third quarter fiscal year 2022 financial it does conference calls.
At this time, all participants are in listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
And I'd like to turn the conference over to your host Mr. Liedtke Boral, Chief Financial Officer of quotient limited, thank you and over to yourself.
Thank you Vikram good morning, everybody and welcome to quotients third quarter fiscal year 2022 financial results as well as the business update trading.
Joining me today is Manuel O Mendez, our Chief Executive Officer.
Today's conference call is being broadcast live through an audio webcast and a replay of the conference call will be available later today at Www Dot quotient BD dotcom.
During this call quotient will be making forward looking statements, including guidance and projections as to future operating results and expected development and commercialization timelines.
Because such statements deal with future events actual results may differ materially from those projected in the forward looking statements.
Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements can be found in quotients filings with the U S Securities and Exchange Commission as well as in this morning's release.
The forward looking statements, including guidance and projections provided during this call are valid only as of today's date and quotient assumes no obligation to publicly update these forward looking statements.
With that I'd like to turn the call over to Quotients, Chief Executive Officer Manuel O Mendez.
Thanks, Lee and good morning, everyone.
Thank you for joining us today for our third quarter of fiscal 2022 the results and business update.
We'd like to thank the entire cogent team for their dedicated support and resilience this quarter. Despite disruption created by the Covid <unk>.
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Today, we will be updating you on three pillars, the mosaic solution above by quotient and <unk> financial position.
First pillar is our mosaic solution will begin with highlights on our transfusion pipeline.
We are very pleased to share the notified body completed the assessment of the technical those yet and advised it will recommend the mosaic expanded email hematology microarray for CE, marking approval. We're excited to offer the mosaic solution and the expanded immuno hematology microarray to our customers once we received.
The CE, marking expected in first quarter calendar 2022 .
Shifting beyond development. Our focus has also been on Mosaiq commercial execution.
As previously communicated our diversified global presence is key to our go to market strategy. We continue to make progress on both our commercial growth initiatives tenders and distribution strategy.
We have identified more than 20 immuno hematology tenders in the EU, which are expected to become available over the next 18 to 24 month also we are actively preparing for tenders and the rest of the world, where CE, marking approval or acceptance.
Additionally, we're actively discussing commercial distribution offered with potential partners to build a commercial network across the EU Middle East and Africa for the Mosaiq solution.
In order to support these commercial efforts.
Last month, we attended for the first time, the Arab health at Metlife Middle East Conference.
There, we met with potential commercial partners from the Middle East The EU Asia Pacific where expressed an interest in partnering with quotient.
As a result of the team's efforts were engaged in commercial negotiation process with more than 10 distribution partners.
In parallel to our commercial activities are manned.
Factoring in operations team continues to make progress to drive scale up to fulfill anticipated customer demand. This will be led by our new chief manufacturing operations Officer.
What are you out there who joined US earlier this month based in Switzerland.
Switzerland.
We all look forward to working closely with him on the advancement of our strategic initiatives to better serve our customers.
Last quarter, we placed orders for additional Mosaiq instrument for the second half of 2022, we currently have enough instruments to fulfill the initial expected customer demand.
At the last earnings call, we communicated our scientific and medical Affairs priorities, which include the innovators Circle Scientific Advisory Board and research program initiatives led by Dr. Chris <unk>, our chief scientific and medical Officer. The innovators circle is designed to be a global community of experts invited to participate.
Ladies and open discussion to demonstrate the operational value of the mosaic solution.
Strengthen scientific and medical evidence.
We are pleased to announce that we have exceeded the number of targeted innovators circle participants communicated last quarter.
We weren't targeting fortified institutions and we are now in communications with seven institutions currently in the contracting phase.
One of those institutions.
Assurance signed a partnership contract with US this month to advance the innovators circle initiatives. We're very excited about this collaboration as blood assurance is a full service regional blood Center based in Tennessee, serving health care facilities in five states in the south eastern portion of the U S.
I'd like to conclude our update on the mosaic solution and the value. We can provide with an update on our clinical diagnostics program with.
We plan to leverage Knowhow acquired through our Mosaiq instrument and micro rate development to address the needs of clinical diagnostic customers.
We have expanded our clinical R&D team to gain access to the clinical diagnostics market with particular focus on the estimated 4 billion allergy and autoimmune addressable market.
We're exploring third party collaborations in this field to develop the first wave of panel in allergy, we intend to initially focus on the identification of the tailored airborne allergy panel in auto immune we intend to initially focus on differential diagnosis of connective tissue diseases Pal.
Now I'd like to connect and update you on the second pillar Alba by quotient.
The company submitted the first IDI filing this quarter for Alba by quotient reagents.
In addition, new distributor partners for mosaic are expected to also sell alba by quotient portfolio, thereby expanding our vast geographical footprint.
Lastly, the third pillar I would like to update us on <unk> financial position last quarter, we achieved $10 $2 million in revenue and 16% growth over prior year. This increase is mainly related to a larger than anticipated shipments of product in our OEM portfolio.
Our cash and cash short term investments as of December 30 <unk>.
2021 was $103 8 million, which enables us to continue to support the mosaic pipeline development and commercialization efforts.
And now I will hand, it over to our lead to provide our financial update.
Thank you Manuel.
Fiscal third quarter product sales were $10 2 million, an increase of 16% from last year's third quarter.
How 'bout by cushion sales increased by 21% year over year, while Mosaiq COVID-19 antibody test decreased by 96% versus the prior year.
Within the Alba by quotient business OEM sales of $7 2 million represented 71% of all product sales.
Year over year, OEM sales increased by $1 6 million or 30% versus prior year.
Correct and distributor sales of $2 $9 million increased 5% year over year and represented 29% of product sales.
In the third quarter gross margins on product sales was 22% compared to the gross margin of 43% reported in the third quarter of the prior year.
Excluding the impact of a $2 5 million impairment of Mosaiq inventory gross margins would have improved to 47% versus 43% in the prior year.
Year to date total product sales of $28 5 million increased by 9% versus prior year with Alba by quotient sales increasing by 13%.
Most margin on product sales year to date is $10 9 million or 38% compared to $11 3 million or 43% for the prior year to date comparison.
The difference is mainly due to the write down of inventory in the third quarter. Excluding the write down gross margins would have increased by $2 5 million% to 47%.
In the third quarter, we recorded an operating loss of $31 3 million compared to $21 6 million last year.
The difference is driven by higher cost of revenue due to the inventory write down as well as higher operating expenses.
Operating expenses were $33 5 million in the third quarter of fiscal year 2022.
An increase of $8 1 million over the prior year.
Research and development expenses were $13 3 million or $1 $1 million decrease year over year.
General and administrative expenses were $17 4 million, an increase of $8 6 million compared to the prior year.
The increase in total G&A costs is mainly driven by $3 8 million of banking and legal fees associated with the amendment to the company's senior notes indenture, and a $4 2 million of stock based compensation and transition costs associated with the executive management team.
Included in G&A stock based compensation expense of $2 3 million, which increased by $1 1 million versus the prior year.
Sales and marketing expenses of $2 9 million increased 595000 from the prior years third quarter, reflecting.
Reflecting the preparation of the commercial launch of the Companys extended immuno hematology IH menu for donor labs.
Net other expense was $13 1 million compared to $8 8 million in the third quarter of last year and net other expenses consisted of interest expense of $9 6 million and a $3 3 million loss related to the change in fair value associated with the derivative liabilities.
And at zero point $2 million loss in foreign exchange losses arising on monetary assets and liabilities denominated in foreign currencies.
This compares to interest expense of $9 4 million and a foreign exchange gain of <unk> 6 million in last year's third quarter.
Our net loss for the quarter was $44 8 million or <unk> 44 per ordinary share compared with $31 7 million or <unk> 31 per ordinary share in the prior year's third quarter.
Year to date net losses reached $99 2 million or 98 per share compared to $71 7 million or <unk> 81 per share one year ago.
Net cash used in operating activities totaled $96 2 million in the first nine months of fiscal 2022, compared with $56 7 million in the prior year's first nine months the.
The increase of cash used in operations is driven by a number of factors mainly the increased level of R&D spend G&A expenses and movement in working capital. In addition, last year's cash flow was positively positively impacted by the ortho upfront payment of $7 5 million.
Yeah.
Capital expenditure in the third quarter of fiscal 2022 was <unk> 6 million compared with $1 5 million in the prior year.
And the first nine months capital expenditures totaled $2 $3 million, primarily relate to the purchase of manufacturing equipment and information technology.
Moving to the balance sheet available cash and short term investments at 31 December 2021 was $103 8 million compared to $111 $7 million at the start of fiscal year 2022.
In addition, we held $8 3 million restricted cash reserves related to our senior secured loan and rent deposit for our Swiss facility.
Our short term investments include investments in two credit Suisse supply chain finance funds as previously discussed credit Suisse suspended redemption announced liquidation of those funds in March 2021.
During the third quarter of the fiscal year, the company received a payment of $2 $2 million.
The total remaining investment as of December 31.
2021 was $21 4 million.
These funds continue to be subject to evaluation uncertainties and the company is definitely maintained an impairment of $2 $3 million on the outstanding amount.
Now turning to guidance.
For fiscal 2022, we are increasing our full year revenue forecast from product sales of Alba by quotient reagents to the range of 36 million to $37 million.
No milestone related or other revenues are expected.
Capital expenditures for fiscal year, 2022, I expect it to be in the range of 5 million to $8 million.
We estimate that cash used from operations for the fourth quarter of fiscal year 2022 will be in the range of $6 5 million.
To $7 $5 million per month.
Excluding debt service cost and capital expenditures.
We are not providing guidance on the size of the operating loss that.
That we expect to report for the current fiscal year.
And with that let me now turn the call back Commonwealth.
Thank you Lee I would like now to share our upcoming priorities for the three pillars I mentioned a few moments ago.
With the mosaic solution and transfusion pipeline, we believe the expanded immuno hematology microarray is on track to receive the CE Mark in the first quarter of calendar 2022.
<unk> locked loaded and ready to commercialize.
Regarding our serological disease screening micro arrays, we continue to focus on panel development completion on field trials of targeted submission for CE, Mark and FDA approval in the second half of the current calendar year.
The STS program continues to cover both the expanded Sds donor micro array as well as the plasma microarray.
On the Mosaiq commercial execution, we will continue to monitor tenders and look forward to participating in more than 20 upcoming tenders over the next 18 to 24 months, we look forward to expanding our distribution network by closing the commercial contracting process to expand into rest of the world markets.
In Marquis.
The mosaic solution manufacturing and operations priorities, we finalized the decision on a second manufacturing line based on the market access and anticipated market demand. We aim to have the second manufacturing line operational within the next 18 to 24 months.
On our scientific and medical Affairs priorities, we will continue to drive our scientific medical studies and publication initiatives.
Our focus will be on value creation with clinical outcomes and workflow.
Net in clinical diagnostics diagnostics will continue to drive internal product development with the support from external partnerships to accelerate our mosaic menu development.
Moving onto our second pillar Alba by quotient will continue to leverage commercial execution and geographical expansion opportunities.
Onto our third and final pillar finance will continue to drive growth in Alba and support our R&D priorities and commercial launch efforts for the Mosaiq solution.
Lastly, im optimistic about our mosaic expanded immuno hematology CE, marking approval and commercial launch efforts to continue to bring value to our customers now I'd like to hand, it over to <unk> to open the Q&A session.
Thank you very much up at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for questions.
Our first question comes from the lineup Josh Jennings from Cowen. Please go ahead.
Hi, good morning, Thanks, Manuel in Italy.
Gratulation ome update from the notified body.
Maybe with great to start start on that topic and just ask.
It seems like the CE, marking process has been almost fully de risk just want to make sure I'm interpreting this correctly.
Are the remaining steps before you have CE Mark approval in hand is it just the European Commission, taking this recommendation from the notified body and stamping stamping the approval or are there any further steps that are required on your side where are the notified bodies.
Yes.
Thanks, Josh good to hear from you.
So I think where are we.
And at this point is that we've had conversations in that.
Regarding.
Got it.
The submission.
Answered all of your questions.
They have all the information that they need in order to put the recommendation for approval.
So we've cleared this language with them.
We feel very comfortable in that regard next steps already put the recommendation and then it should follow by the <unk>.
E marketing staff up approval.
So we look forward to that completion in the next couple of weeks again.
And we don't have a specific timeline that we know is that it's early.
Completion of this report that would be submitted.
And then once that's submitted then stamping.
She'd funnel so.
Again, we don't have any further information on that but again, we're very optimistic and we believe that that is certainly going to be as we've committed to in the past within the next couple of weeks.
Excellent.
And then it's my understanding that your clinical team has been focused on CE.
<unk> submission.
While the team now focused on the U S field trials and any update on when <unk> could be initiated and timelines for submission.
Yes. So thanks for the question, yes, certainly our teams have been very focused on the on this EU submission and completing all the necessary steps to do that.
Behind us.
<unk> has been focusing on the U S.
The mission in clinical trial, so thats ongoing.
We do expect to.
That completed within the next.
Sure.
Within the first six months of this year so.
That there'll be a product that is serving the U S market, which will include additional specificities.
We believe.
Important for that market and then again.
<unk> is very excited with the possibilities also to continue to drive continuous improvement and the different products that we offer so that's very exciting for us.
Excellent and then just one last follow up on that.
Commercialization once CE Mark is in hand.
A number of positive updates on the distributor front and with the tenders that your team is tracking.
Is there any.
I guess way to breakdown.
<unk> term tenders that will within the within calendar 2022, do you expect to be participating in tenders and you talked about ordering additional mosaiq instruments for the second half of this year to fulfill initial customer demand are you can you help us understand how many systems you you may have ordered.
Just thinking about modeling and thinking about potential mosaiq revenues in calendar 2022 versus calendar 2023 win.
Clearly there'll be a bigger.
Bolus of Mosaiq.
Jose driven revenues, thanks for taking all the questions.
Yeah. Thanks, Josh No look I think there is.
Gonna be tenders that are going to be starting.
In.
As soon as the March for example, or just.
Just shortly thereafter, which we are ready to participate in our teams are are working.
I'm assuming on the assumption that we get this approval like we said in the next couple of weeks that we will participate in those standards. So we're.
We're not waiting the team has mobilized very quickly so I'm not going to happen in the first half of this year and it's all going to happen in the second half.
As I said more than 20 of them that we've identified.
Some large ones are going to be.
And towards the first half of the year and then Thats a couple of other large that aren't going to be in the second half will be sort of in conversations thats doing what is the right moment to share specifically country location and so and so on I think again, we have all the details.
The team is really prepared so on the tender front I think that looking.
We're very excited about that and we're very well prepared.
Likewise on the distribution front as I continue to emphasize that.
So it will be.
Very nicely.
And we expect.
Those two.
And at the right time, we'll communicate what does that mean in terms of revenue for this year and the timing of that so we will communicate on that on that front and then.
In terms of go live.
I think that different countries different tenders are going to be a little bit longer or a little bit shorter.
Their go live.
So we're going to be again assessing that as they close the tender process that they get the.
Those tenders are awarded and then go lives.
<unk>.
Within 'twenty two 'twenty three we will be getting those in the.
The weeks to come and we don't want to.
Get too ahead of ourselves.
You have information because again tenders are evolving.
Which is good thing for us because that means that we will have an opportunity to participate once the CE marking is.
Received so.
I'm sorry.
And it's not very specific but in terms of revenue and timing.
I'm trying to understand.
What is the right time to communicate but I'll leave that I don't know if anything you want to add to that.
I think we will have better clarity and as we've shared previously we will continue to provide guidance as we're thinking through it we don't have anything for this quarter as you can imagine as we wait for the CE marking to be approved as we get it and as we then look forward we will definitely.
<unk> some way for us to think of what are the different inputs. So there'll be more to come not for this quarter, though as we've said in our <unk>.
Remarks here.
Understood. Thanks, Thanks for the until sales. Thank you.
Thank you.
To ask a question box events from our press Star then one on the attached on for now.
We have next question from the line of Matt <unk> from Goldman Sachs. Please go ahead.
Hi, Good morning, Manuel Congrats again on that.
The CE Mark pending CE Mark.
I just wanted to ask about the commercial agreements it seems like you've been able to kind of lupin Alba as well with some of your commercial agreements and as you expect that to take place is that an acceleration that could occur when a mosaic of solar or could you see additional acceleration from those agreements earlier than that.
Alba.
Yes.
I think again.
Put those contracts in place.
It doesn't require CE, marking just going to be automatic floor for them too to take both on.
So we are again expecting that increased access to give us some level of.
Incremental sales of course in those geographies of course.
Great and then just any update on Covid related impacts you mentioned at the outset.
Yes, it still remains an overhang maybe in the U S or other areas just any commentary on that and what the environment's like at this point.
Yes, I think we've seen as of late.
And through the last week, there was a lot of.
People I mean, it just seems like every day somebody.
Their kids have it and then.
Five people out so they did impact us.
Last quarter and then.
But we see hopefully that some of these things are going to improve in the next few weeks I think we see the cadence is going down but it certainly did impact.
People for instance.
Some of the areas of our business in different functions.
That's why again I thought again despite of that dose interruptions, our teams sort of continue to drive on so yes, I think again.
It did impact some of the timelines, particularly.
The U S and then.
The Sts.
Some delays there but.
But we've already reflected that in my commentary in my remarks, we don't anticipate that.
Forward any further impact, but certainly it was not convenient for anyone.
Great and just my last question just on supply chain. It sounds like you're anticipating demand and ordering ahead, which will probably be helpful. But just any supply chain related issues in terms of.
Of the instrument manufacturing.
No not at all.
In conversations with our partners' drafting on that we believe that again.
We've already told them our needs from an instrumentation perspective.
So that should be.
On track, we don't expect any disruption there.
And also regarding other areas of our business I think the supply chain and manufacturing team operations team. They do a nice job in making sure that we have all of the things we need in order to meet the anticipated market demand for the Mosaiq immuno hematology products.
Great. Thanks, very much for the color appreciate it thank you Mike.
Thank you.
Our last question comes from the line of Brendan collect from Jefferies. Please go ahead.
Hey, good morning, guys.
Just in terms of following up on jonathan's questions kind of around the commercial launch can you help us understand so the initial 20 IH tenders that you talked about.
While market.
Does that account for maybe how many donations to these labs process a year and would it be your expectation that these are just primarily IH customers and that kind of the initial sds panel won't necessarily be part of that conversation.
We interpret it.
Yes, Brendan thanks.
Good morning to you as well.
So look I think again when we look at the tender is what we are discussing is really immuno hematology specific tenders. These are not joint tenders for any of the other modality, which is good for us because.
That gives us an opportunity to enter into.
Into this other blood centers.
Through other modalities in the future.
Just to clarify that.
In terms of the tenders.
And timing.
How about this.
All of the vendors that we have a spreadsheet is really clear what are the node nature.
But do we expect within our capture rate.
<unk>.
Again, the goal that we expect so all the specific details.
Reviewed and discussed with the team.
We're hesitant to share those things currently just because we don't want to set the.
The expectations of that sort of be.
The slate to though.
And so we'll be communicate those.
Near future.
When we have such specific.
Participation in that.
We can start communicating the progress we're making there also again it depends of the CE marking approval in the next couple of weeks.
So but.
Again now.
We're very.
Focused on it the teams are ready to go.
We are preparing for those tenders as soon as March there is a couple of tenders that we expect to participate that assuming we get the CE marking.
So then the go live.
I am determined that afterwards.
Vendors that can get evaluated awarded and then.
Conversations when they want to go.
<unk>.
I hope that answers your question or do you want something again.
Do you have a follow up on that.
Yes.
Maybe.
Shifting gears a bit.
Can you update us on where your micro array manufacturing yields are today, not necessarily capacity, but kind of what the yields are and where do you think that would be in a year and then.
How much Capex do you think would be needed to build out the second manufacturing line.
What do you think yield capacity sort of it looks like at that point in time, I think you said 18 to 24 months ago.
Yes, it's difficult to speak about yields because at the end we are.
We're really focused on.
Development runs as well as then clinical trial run so it's difficult to assess what I can say is that when.
When we were developing COVID-19 .
The Covid tests that were launched on antibody tests in 2020.
Yields were 90.
95%, so they were very high.
On those yields.
<unk> did a very nice job in that.
So with all of that.
Good learning for the team.
But I can say is we have again.
We can mitigate it in the past we have.
With our current line of capacity of.
About $30 million.
On paper.
What we can say is that again as we ramp up and scale up depending on the different micro arrays, then we'll learn from that process, but we certainly understand that.
When we look at the map that we believe do we get generally in the next 18 to 24 months.
We need to invest in the second line as I've mentioned before which again.
We are very.
<unk> committed to doing to ensure that we have.
Satisfying the customer needs in this area, but Ali do you want to comment on the second line.
Investments or timing, if we wanted to communicate that now I am not sure.
Yes, sure. So I think what we've said is that.
The second line that we need to put together we've looked at different options. There we know it's going to cost us.
I think if we look at the first thing that we did it's going to cost us over $50 million.
And what we are looking at just so you understand as well is how we build it. So we're not building at exactly the same way we did with the first line. We're using a modular approach we're looking at upgrades to what we currently have so that's going to give us a range of potential values of how we build it but.
But we do expect that it's going to cost us over $50 million by the time, it's complete.
Okay.
Gotcha Okay.
When do you think we'll see some initial commercial distribution agreements and what's kind of the optimal number of channel partners do you ultimately see.
Ambition.
Supporting.
Well look we're.
We hope to be closing some of these contracts.
Soon.
I think again, we're ready with some of these activities as we speak so anytime now.
Certainly that's that's all dependent on the CE marking.
We received that in the next couple of weeks, but again, those conversations but not stopping on those contracts should be.
<unk> fairly soon.
And then in terms of.
Deal in a number of distributors I think it is going to depend on the different geographies.
Around the World I can tell you we're in conversations with more of that.
50, some distributors.
In the right locations.
We will prioritize again, what's the right number I think again.
That is going to depend on the different geographies of the access we went out there, but it could be.
Upwards.
Sure.
The way, we're targeting 2025 distributors, depending on timing not all immediate but.
Throughout the next 12 to 18 months.
Okay, and then just lastly could you just elaborate a little bit more on the mosaic inventory charge that you absorbed in the third quarter kind of what that was related to exactly. Thank you.
Yeah.
Sure so.
Our inventory typically book it at the.
Lower of cost or its net realizable value. So now as we're getting close to launching.
Our mosaic.
Micro Ray here for immuno hematology.
We are required under the accounting rules to essentially do a comparison.
With our inventory is held at the lower value of its cost or the net realizable value. So when we do that analysis. It requires us to write down some of the work in process that we had because of the cost that we have it was lower than what we expect to realize when we commercialize the product and really this is it.
A reflection of the fact as you can imagine that.
Our production is still not at scale, because we have not launched and so our cost is higher than.
What we are expecting to sell those micro arrays that and so we have to write down.
The raw materials and inventory that we have here in the quarter. So that's where it is.
We have to book that into the cost of sales because we expect to start selling them here pretty soon so thats, what youre seeing flowing through our cost of sales.
Gotcha, Okay, alright, thanks for the comments one I appreciate it.
Thank you Brian Okay.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Mr. Manuel O Mendez CEO for closing remarks over to yourself.
Thank you vikram. Thanks.
Thanks for the questions were very excited.
I think our teams are highly focused on.
<unk>.
Receiving the approvals and number two the commercial execution as you hear from our conversation again, thanks for your time and we'll keep you updated with any.
News in the next couple of weeks. Thank you have a good day.
Okay.
Thank you very much.
And gentlemen, this concludes today's conference call. Thank you for joining US you may now disconnect your lines.
Yes.
[music].