Q1 2022 Chembio Diagnostics Inc Earnings Call
[music].
Good day, ladies and gentlemen, and welcome to the Chem Bio first quarter 2022 earnings conference call and webcast. At this time, all participants have been placed on listen only mode.
Floor will be opened for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Mr. Ma'am the floor is yours.
Thank you operator.
While we began.
Remind you that the company's remarks made during this conference call. Today May five 2022 may include predictions estimates or other information that might be considered forward looking.
These forward looking statements represent <unk> current judgment for the future.
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 <unk> filings with the FCC, including its annual report.
Form 10-K for the full year 2021.
<unk> results may differ materially from those projected can bio 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 Chief Executive Officer.
Good afternoon, and thank you all for joining us.
On today's call I will discuss our commercial performance provide an update on our current product development and regulatory pipeline.
And touch upon our operational priorities for the year.
Larry will cover the first quarter financial results.
Based on the global competitiveness program.
I will then provide closing remarks and open the call for a Q&A session.
To start off I would like to highlight our strong first quarter performance.
In the first quarter, we generated total revenue of $18 8 million reps.
Representing growth of 116% compared to the prior year period.
Total revenue included new record quarterly product revenue of $18 5 million.
Representing growth of 360% compared to the prior year period.
We also we also significantly improved our gross product margins.
Cash burn as a result of improved operational productivity and working capital management.
Our performance in the first quarter was driven by completing the shipment of the remaining units under the $28 3 million purchase order from Vienna, and Juniors for DPP Sars Covid two antigen tests in Brazil strong.
Growth in the United States and continued shipments under the purchase orders supported by the Global fund for HIV, one two stat Pak assay shift to Ethiopia.
And the more detail revenue was led by product sales in the Latin America region of $12 5 million, primarily consisting of a DPP Sars COVID-19 two antigen tests.
Shifting engineers and strong growth in product sales by <unk> diagnostics, Brazil.
We are pleased to have completed this entire purchase order in the first quarter.
<unk> has been a strong partner and a longtime customer of <unk> bio and we look forward to continuing to deepen our relationship and explore opportunities to address their testing needs.
At the same time, we will continue to prioritize marketing our tests to be sold through our Brazilian subsidiary and distributors that targets the retail state and local health care systems rounding out our comprehensive footprint across the country's health care markets.
In the United States, we are leveraging our field sales representatives and distributor relationships to offer our diverse portfolio across health care end markets.
Traction with the distribution of the third party manufacturer of COVID-19, the tax antigen test.
U S sales of $4 5 million in the first quarter, representing 530% growth compared to the same quarter last year.
U S sales were supplemented by the DPP HIV syphilis system, which we continue to see is potentially our most attractive market opportunity pending CLIA waiver.
In EMEA and Asia, we recognized $1 $5 million of revenue driven by sales of the HIV one two stat Pak assay shipped to Ethiopia as part of the order supported by Global Fund.
In Europe , we are excited to be working with new distributors.
<unk> expanded our distributor relationships in Europe to supply the sure check HIV self test in the UK and France.
There are two main takeaways from the quarter I would like to highlight.
The learnings from scaling test manufacturing to full capacity.
Courted by optimize automation to complete the <unk> order, we will enable further manufacturing efficiency in the future.
With these learnings we were able in the face of a tight labor markets and supply chain challenges to drive significant sequential product gross margin improvements relative to the fourth quarter.
Second as we expect waning demand for Covid testing internationally.
We are refocusing our commercial efforts around the core product portfolio.
And we have shared our commercial resources are focused on our core products that represent higher value opportunities in higher growth markets.
Our recent portfolio analysis supports our strategy to prioritize commercial efforts around DPP HIV syphilis in the United States and globally on the sure check HIV <unk> assay and self test products.
In the United States sure check HIV, one two is CLIA waived.
In EMEA and Asia Africa sure check is W. Ijo pre qualified as a self test.
And in Brazil, the sure check HIV self test that was recently achieved approval for over the counter sale and retail pharmacies through our Brazilian subsidiary.
And Brazil sure check is now carry in the top two major pharmacy chains.
We are excited about the potential to expand our HIV self testing business in Europe focused on France, and the UK and across Africa, and Brazil is a top priority for 2022.
As we entered the summer in the United States, Brazil.
Brazil will enter the respiratory season.
Separately with and visa approval of the DPP respiratory panel through our Brazilian subsidiary, we are in great position to serve the local state and retail pharmacy needs and the effect of any COVID-19 poor flu outbreaks.
In addition to our current portfolio of existing point of care products.
Believe that our product development and regulatory pipeline will expand our available market opportunity.
As we leverage our improved commercial infrastructure.
The strategy for our portfolio expansion has two main objectives.
To develop novel solutions for high value growth markets on our DPP platform and to register our existing products.
Additional geographies geographies.
Where we already have established commercial operations.
As we mentioned previously we continue to believe that the receipt of the CLIA waiver for our FDA PMA approved DPP HIV syphilis system with.
Would open up a significant market opportunity by providing access to 40 to.
With 50000 clinics that conduct regular STD testing.
This opportunity is compounded by the fact that there are no. Other combination tests currently on the market. Despite the recent rise in infection and co infection rates.
Our team is making progress on providing data requested by the FDA as part of the CLIA waiver application.
On DPP Sars Covid, two antigen test, which has received a CE mark as well as Amitiza South African approval has been submitted to the FDA for an EUA and 500 10-K.
That remains under active review for.
For EUA approval.
On the product development side.
We are engaged in feasibility work to potentially develop additional test.
For sexually transmitted diseases.
And in second born disease States.
We have identified large unfilled market needs for each disease state, which we believe can be addressed through the development of advanced multiplex point of care tests in these categories.
We are making progress on our pipeline.
Our investments in R&D will generate profitable revenue in the long term.
Now I will hand, the call over to Larry to detailed our first quarter financials and provide more details on our operational progress under the global competitiveness program.
Thank you Rick.
Three months ended March 31, 2022, total revenue was $18 8 million representing growth of 116% compared to the prior year period.
Product revenue for the first quarter of 2022 was $18 5 million, an increase up 360% compared to the prior year period.
Government Grant income license and royalty revenues and R&D revenues combined for the three months ended March 31 2022.
$3 million.
A decrease of 94% compared to the prior year period.
To the exploration of previous partner development agreements.
Our revenues were in compliance with the quarterly 12 months Rolling minimum total revenue covenants in our credit agreement.
Gross product margins during the three months ended March 31, 2022 increased by approximately $2 $8 million compared to the prior year period.
$3 3 billion.
Gross product margin percent was 18%.
The first quarter of 2022 compared to 12% in the first quarter of 2021.
Sequentially gross product margin percent for the first quarter of 2022 increased by 27 percentage points relative to fourth quarter of 2021.
The gross product margin increase was driven by increased product volume sold in the U S and Latin America at higher average selling prices and operational productivity.
R&D costs decreased by $1 $2 million compared to the prior year period to $1 $7 million in the first quarter of 2022.
Primarily associated with the completion of development work for prior partnership development agreements.
Selling general and administrative expenses increased by $9 million compared to the prior year period to $6 9 million in the first quarter of 2022.
Net loss for the three months ended March 31, 2022 was eight $8 million or 29 cents per diluted share compared to a net loss of $4 $5 billion or 22 per diluted share in the prior year period.
The net loss includes impairment restructuring.
<unk> and related costs of $3 million or <unk> 10 per share for the first quarter of 2022.
Paired to a de minimis amount in the prior year period.
On the balance sheet cash and cash equivalents as of March 31, 2022 totaled $24 4 million.
We're able to reduce cash usage in the quarter to $4 $4 million through operational efficiencies and working capital management.
The company did not sell any shares of common stock as part of the ATM offering in the first quarter of 2022.
Net working capital as of March 31, 2022 was $34 6 million.
Looking forward given the substantial nature of the Covid revenues over the past two quarters. We continue to expect revenue for the year will be first half weighted and we will face challenging sales growth comparable to the third and fourth quarters of 2022.
I will now touch on the global competitiveness program.
Here, we are focused on four foundational priorities to guide our execution efforts as we forge a path to profitability.
First we are focusing on higher margin business in growth markets.
We continue to pursue growth in markets with higher selling prices and have recently concluded an in depth analysis of our product portfolio and profitability on both the product and geographic basis.
The insights gained from this review is providing us with more visibility to support customer pricing.
Marketing strategies that allows us to more accurately evaluate opportunities to increase our selling prices.
In the first quarter, we undertook a reorganization of our international business, including appointing Chuck Queso as our senior Vice President of global commercial operations and establishing a new distributor relationship.
We have identified a strong opportunity for our sure check HIV self test in France, the UK and Brazil have dedicated increased resources to this product.
Second we are looking to lower manufacturing costs.
Automation and labor management are critical to our strategy of scaling unit volumes. In addition to other levers we have at our disposal to lower our manufacturing costs.
In the first quarter, we achieved greater productivity with tighter controls on labor overhead, including reduced overtime hours.
It is worth noting that we continue to experience the impact of inflation, resulting in price increases from suppliers and are planning to accommodate the longer lead times for materials.
And Terry we are evaluating appropriate price increases for our products to offset these impacts.
Third we are working to reduce infrastructure costs.
<unk> number of infrastructure costs includes an in depth analysis of all our support functions and external spend to reduce costs.
Our investments in research and development will be more closely aligned with the innovation strategy centered around the DPP system and the expansion of our product pipeline.
Our goal is to be more disciplined in our approach to cost benefit analysis targeted markets and competitive landscape and to have every dollar we spend go towards more profitable revenue generation.
Fourth we are actively proceeding with the strategic review of noncore businesses and assets.
We are focusing on our subsidiaries in Brazil, and Germany too.
To reorient those businesses to achieve independent path profitability more closely aligned with our long term strategic roadmap.
In Brazil, we have enhanced our operations bolstered our low cost manufacturing resources to bring costs in line with local market dynamics.
Specifically in Brazil, we have OTC packaging capabilities to maintain appropriate sure check supply levels.
We are confident that taken together these initiatives can place can buyout on an improved trajectory towards profitability.
We are firmly committed to the global competitiveness program and we look forward to providing updates as we execute this comprehensive plan.
I'll now turn the call back to Rick for concluding remarks.
Thank you Larry.
Before I conclude.
We'd like to say a few words about Wesley T. So wiechmann.
Who has been nominated for election to the board of directors at the upcoming annual shareholder meeting on May 24th 2022.
As described in the proxy statement, we have followed for the annual meeting.
The diagnostics industry veteran with over 20 years of healthcare finance leadership experience.
<unk> <unk> senior Vice President and Chief Financial Officer of <unk>, a medical device company.
Previously she held roles as senior Vice President Finance, and Treasurer of Roche diagnostics, Hematology, and Vice President and controller a whole logic.
We believe her experience and skill set maker an excellent fit for the <unk> at this phase in our growth.
To wrap up we're off to a strong start in 2022 generating record quarterly product revenue.
Improved product gross margins and increasing our capital efficiency.
We continue to refocus and reposition our resources domestically and internationally to execute on our most valuable nearer term opportunities while at advancing our strategy to drive more profitable growth over the long term.
With that operator, please open up the call to questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We ask that while posing your question you. Please pickup your handset is listening on speakerphone.
Provide optimal sound quality.
These hold a moment, while we pull for questions.
Thank you.
First question is coming from Bruce Jackson.
Please announce your affiliation.
Then pose your question.
Hey, good afternoon questions about just maybe parse out the revenue a little bit so Brazil had $12 5 million.
If my math is correct $10 five of that was the remainder of the big purchase order is that right.
Yes, that's right. So we completed the purchase of the remaining revenue in Q1.
And then the remaining revenues for Brazil, what was the product mix on that.
Still shipping.
Shipping the tropical fever tests like dengue and chikungunya.
Yes, Bruce this is Rick.
Our product mix in Latin America.
As Larry said was that the majority of that was finishing up the COVID-19 test to be making those.
The balance of that revenue was a mix of a number of products.
We are excited about the growth of <unk>.
Our subsidiary in Brazil.
As you know Bruce we enhanced our commercial leadership of the Brazilian subsidiary.
Over the course of the last couple of months, we've made some significant process progress in getting our HIV sure check self test.
On the shell.
<unk> and the pharmacies in Brazil.
As I said, it's exciting now being two of the four largest pharmacy retail chains in Brazil.
So we had good growth from our Brazilian subsidiary as well as.
Good growth coming from being a genius.
Okay. Okay.
And then.
Moving over to the HIV syphilis combo test and the CLIA waiver can you.
Maybe remind us what are the remaining steps in the process.
Where are we right now.
Yes Bruce.
Where we stand today is.
As we talked about in the fourth quarter 2021 earnings call.
The FDA did request some additional data to supplement our data submission for the CLIA waiver application.
And so we've been in the process of gathering that additional data and.
Once we are completed we will submit that to the FDA and then hopefully.
Have a CLIA waiver approval.
Okay, and then would you care to hazard, a guess as to when data might be stumbles.
Yes, Bruce is ongoing we haven't projected any timing on that were announced any timing on that.
And so.
That's where we're at.
We're working very very aggressively.
Aggressively and as quickly as possible to get the additional data.
And once it's complete.
We'll submit it to the FDA and then we don't know what the turnaround time will be at the FTA given their workload.
So.
The timing on this is a little bit on certain Bruce because of those factors.
Okay all right.
One last question for me and I'll hop back in queue. It's about your.
Manufacturing, it's so flexible arrangement and Scott.
Some automation in some annualized is.
Is the <unk>.
Automation setup for any particular product or can you swap the different product lines in and out.
Yes.
<unk> Bruce is to have automation capabilities for every product format, we have which that includes our DPP platform.
<unk> DPP multiplex platform as.
As well as our sure check HIV self test platform and as well as our stat Pak HIV platform. So that's our goal. So we have built into that strategy a lot of flexibility in terms of.
Production of those product formats on automation options.
The only thing I would say in addition to that Bruce is that.
Because of the regulatory approvals that we have around the world, including FDA till uhm.
And visa in Brazil, CE Mark for Europe .
Do have to go through in some cases a validation.
And registration of a change in production so.
The bottom line is we're maximizing though every.
Every bit of opportunity to automate our manufacturing.
Okay got it great. Thank you very much for taking my questions.
Thank you Bruce.
Our next question comes from per Ostlund.
Thanks, Good afternoon everybody.
Let's go back to the Brazil order now that its fulfillment.
Rick you mentioned that.
Brazil would be coming into its respiratory season here in the not too distant future do you have a sense.
As the order has been fulfilled over the last couple of quarters how.
How the product has been used up and sort of an inventory burn centers. If you will so.
Just trying to get a handle I know, there's other channels in that country that youre going to pursue besides.
But curious.
<unk>.
If you if you have a feeling of how well stock they may be going into the summer season, and whether that presents a nearer term opportunity for you.
Yes, Peter.
Great question.
We don't have a lot of visibility into.
Where we are making.
As shipping the product.
In terms of timing and volumes what we do know is <unk> has been supplying all the federal health care providers in Brazil.
With their testing needs for COVID-19.
So.
That it gets distributed to multiple <unk>.
Federal health care clinics and hospitals across the country.
And but we they don't give us visibility into where they ship it the quantity of what theyre shifting in the timing.
Or their inventory.
I was in Brazil, a few weeks ago to meet with <unk>, CEO and CFO and their leadership team.
And the goal of our meeting was to continue to number one.
Build a relationship a strong relationship with our number one customer in the world.
And number two was to begin to.
Discussions around getting better visibility into their future tests it needs whether that be our core products like HIV sure check and <unk>.
DPP HIV.
Sure.
You're testing needs around the respiratory season, that's coming up.
For them and so we have discussions around.
What do they think their thoughts were on the respiratory season, we talked about the trending of Covid down in Brazil over the last several months.
But the relationship is strong and we're trying to move to.
Back to where we were before the pandemic and that is having better visibility into our core products and their testing needs as they move forward.
Sure, Okay that makes a lot of sense.
You mentioned.
Sure check.
HIV self test I would say.
I think on this call it's probably the most.
Heard self test reference, perhaps in the history of covering <unk>.
I've always kind of wondered about the potential for the product given I think it's one awards.
In self test is always felt like a very logical extension.
For HIV.
Has there been something of an aha moment internally where.
You and the team have realized that there may be a technical advantage to your product that you can press it sounds like you are.
Making a more concerted effort globally on this product.
Now than perhaps you've ever had before.
Yes.
<unk>.
Shortly.
Core product for us.
We've had HIV sure check self tests.
For quite some time, but what we're seeing recently post pandemic and it actually started.
Probably during the pandemic as self testing began to be more well accepted.
Covid antigen test is one example.
So we saw the WH O <unk>.
We've seen the CDC take.
Take renewed interest in self testing for HIV.
Just because of the need to.
Reduce the overall incidence of HIV, especially in some countries, where the incidence is higher.
So as soon as we saw some of that NGO and government support as.
As well as in Brazil, and visa to approve this just recently for self testing. So it's a relatively new development.
And getting our self test approved in the U K, France, and Brazil, and we're going to continue to pursue other countries, where they are beginning to support the governments are beginning to support and endorse self testing for HIV because theres. Many many more treatments today for HIV.
So the question is.
Get tested and if youre positive get treated because of the treatments are extremely effective.
That's one the second thing is we've extended we've expanded our distributor relationships.
One example, in Brazil, we have a very strong distributor.
And we're also selling direct through our subsidiary in Brazil, which is what enabled us to get.
Into the to the Port largest pharmacy chains in Brazil was largely through our marketing effort, our commercial effort through our subsidiary there. So what we're seeing is.
That momentum growing and I think that's why.
We're talking more about that because we're excited about.
The growth potential for the average selling prices are higher in the retail market as well so it fits into our global competitiveness program, where we're really going after much higher selling prices to improve our gross margins.
Can't blame you there at all.
I think that maybe dovetails into I'll ask one more here.
So the product gross margin improved starkly in the quarter.
From from December quarter to now.
You said 27 percentage points I think it might have been.
How much I think in some of the recent quarters, we've had product write downs and returns in some some of that sort of one off stuff.
I would hazard is probably mostly churn through at this point.
When we talk about 'twenty, seven percentage point increase quarter to quarter.
Is there a way to parse through or strip away, maybe something that might have.
Artificially for lack of a better word impacted December quarter, and how much of the improvement is straight up organic efforts like higher priced tests and better ASP geographies like the U S.
Yes, yes it is.
So I can take that one.
To that point, so as we disclosed in the last earnings release, there was $2 $5 million of an inventory adjustment in the Q4 period.
That is.
For from that earnings release, so for that comparability.
We don't have any one off in Q1, we really just had a strong overall operational performance and it was just tighter controls on on the labor mainly.
Previously we had.
A lot of money.
Our premium that we had to pay to complete the order.
And then I think as Bob lessons learned with the automation as well so we've got.
Scott to point, where we know how that scale.
And now that the key drivers to be able to continue to generate.
Higher margins.
And then to continue that trend for the rest of the year.
That's a one off item I'd point out from from the Q4.
Okay excellent looks like some good progress thanks for taking the questions.
Yes, Thank you Peter.
Our next question comes from Jason Mccarthy.
Hi, This is Joanne Lee on the copper Jason Mccarthy. Thank you for taking the question.
I wanted to ask regarding your starting to koby two antigen.
10-K filing with limited near the end of last year could you.
Some color on how the discussions with regulators leading up to the submission and if there were similar or in line with the feedbacks from ex U S regulators prior to receiving approval for the tasks such as in Europe in detail. Thank you.
Thank you Joanne.
The 10-K that we submitted.
As we have received fairly limited.
Feedback from the FDA because at the very at around the same time, we submitted the DPP Sars Covid two antigen test for an EUA.
So the ways as we see right now are getting a priority review by the FDA over.
<unk> case submissions.
That's the trend that we currently see so.
Our anticipation is the 500 10-K process is going to take much longer.
Because the FDA is still reviewing and approving and prioritizing.
Submissions.
Alright, thank you for that and Joseph.
Regarding the Covid program could you discuss some of the steps the company has undertaken a plant's carryout can you trust.
Challenges that may have been merged given where we are in terms of COVID-19 cases, and the fluctuation that can occur.
Jeremy by the emergence of a new Bern.
Yes.
So what we're seeing is.
Over the last 14 days, we've seen somewhat of a surge in cases in hospitalizations.
Read an article in the New York Times today about.
The rates, increasing again due to the omicron variant.
So we're watching that very very closely.
As you know a lot of our revenue in Q4, and Q1 was COVID-19 related.
So we're getting ourselves in a position commercially and from a manufacturing perspective to respond very quickly.
Testing demand surges, whether it's in the United States, whether its in South America.
<unk> in Europe , So we see it as something as an opportunity.
If.
Covid continues to.
B out there and fluctuate and positivity rates.
The patient population I.
I think we're in a better position today than ever based on what we were able to do in the first quarter to scale our production.
And meet the PMA can you just order, which happens to be the largest customer order in the company's history.
The team here at <unk>.
Did a fabulous job combining.
Automation capacity manual production, where needed to meet that demand. So if the demand increases wherever it might be I think we're in a good position to to help.
With whatever demanded testing is out there.
Alright, I really appreciate your insights and all the updates thank you again.
Thank you Joanne.
Sir there appears to be no further questions in the queue do you have any closing comments that you would like to finish with.
I would just like to thank everyone for their time today.
We were very encouraged by the first quarter results.
And.
We will keep moving forward and.
Stay focused on the global competitiveness program.
Which is really designed to drive us as quickly as possible to profitability.
Thank you for your time today, everyone have a good day.
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.