Q2 2022 Chembio Diagnostics Inc Earnings Call
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Good afternoon ladies and gentlemen and welcome to the Chem Bio 2nd quarter 2022 earnings conference call. At this time all participants have been placed in a listen only mode and the floor will be open for questions after the presentation. It is now my turn, my pleasure to turn the floor over to your host Philip Taylor, Sirth Floor Resures.
Thank you operator. Before we begin, let me remind you that the company's remarks made during this conference call today. August 4, 2022 may include predictions, estimates, or other information that might be considered forward looking. These forward looking statements represent Ken Bios current judgment for the future. They are, however, subject to numerous assumptions, risks, and uncertainties, many of which are beyond Ken Bios control, including risks and uncertainties described from time to time and Ken Bios at PC5.
concerning these and other matters. With that, I'd like to turn the call over to Rick Aberley, President and Chief Executive Officer.
Good afternoon and thank you all for joining us.
But today's call, we will review our commercial performance.
and provide updates on our product pipeline.
Larry will cover the second quarter financial results to provide detail on our global competitiveness program.
Then I will then conclude and open up to call for questions.
To begin, I would like to highlight our second quarter performance.
In the second quarter, we generated total revenue of $9.2 million.
including product revenue of $8.9 million, representing growth of 42% and 125% respectively, compared to the prior year period.
Along with our strong revenue growth, we improved our cash firm rate in the quarter. We improved our cash firm rate in the quarter.
Reducing cash utilization in the second quarter to $1.6 million as a result of accounts receivable collections and tiger cost controls under the global competitive cash program.?? data is filled five by 14 Delete Relay confirmed community protects wholesalella and SaaS and SEL Z program.
which we will touch on later on the call.
Strategically, across every function in our organization, we have prioritized profitable growth and are pleased to begin to see the impact of these actions and how they're having impact on our financial results.
To remind you, we are focusing our commercial efforts on our core products.
Like sure check HIV self test.
Specifically directing our efforts and resources towards higher value opportunities in higher growth markets.
by focusing on our product sales mix and on the channels that support higher average selling prices. and on the channels that support higher average selling prices.
We can increase product growth margin contribution.
At the same time, we intend to continue to be opportunistic.
with respect to other nine core products, specifically our COVID work flow. Specifically our COVID work flow.
To further increase mortgages and profitability, we are currently finalizing our two main initiatives to increase efficiency.
First, we are continuing our automation expansion, which should reduce labor requirements and result in lower manufacturing costs. And result in lower manufacturing costs.
Second, we have signed an agreement with Red Zone Diagnostics International for contract assembly manufacturing of our HIV STAT Act assay at our ChemBio Diagnostics Malaysia facility.
Finally, tight cost controls and one-gun evaluation of operating expenses will be critical in the back of the year.
Revenue in the second quarter was led by product sales in Africa, where we recognized $3.1 million of product revenue.
Cells are driven by shipments of the HIV-12 staff act, as they to be the opium, completing most of the previous purchase were supported by the Global Fund. The HIV-12 staff act was approved by the Global Fund.
The United States product sales in the second quarter total $3.4 million, growing 208% compared to the prior year period. The United States product sales in the second quarter total $2.2 million, growing 208% compared to the prior year period. The United States product sales in the second quarter
In the US, we are offering a diverse portfolio of core ChemBio products and distributing third-party COVID tests.
Sales in the quarter were driven by distribution, the beginning bias.
Go to Antigen detect rapid test.
As we announced in June , the self-test version of the test has received a new way and we are initiating a direct consumer watch.
COVID testing demand has migrated toward at-home self-testing solutions, and we are pleased to expand access for consumers through an e-commerce platform available on ChemBio's website.
Given the unpredictable spikes in infection rates,
Test demand is fluctuating rapidly.
Among our core products, the DPP HIV syphilis system supplemented sales in the United States.
We continue to believe this differentiated test can represent a meaningful growth driver upon receipt of a clear waiver.
We'll take you over where we are focused on distribution of the search engine HID self-test.
We are experiencing early success with efforts to penetrate pharmacies in France for our established distributor.
We will continue to pursue additional opportunities to expand HIV self-testing in additional markets in Europe .
As part of our efforts in the UK, we launched additional direct-to-consumer channels.
We are now operating SureCheck HIV self tests through Amazon.
on the shelf in a major pharmacy chain.
and from their website in the UK.
Product sales in Latin America region were $835,000, with the completion of the purchase order from PMAgenios for DPP SARS-CoV-2 tests in the first quarter, we are now focused on accelerating the adoption of record products in the region.
Like Europe , we see Shirtcheck and HIV self-testing as the most attractive opportunity for a resilient subsidiary. For a resilient subsidiary.
The healthcare system in Brazil is currently promoting self-testing through the Ministry of Health in several awareness campaigns.
We kill pharmacies or beginning to carry test inventory.
We're pleased to now have product on the shelf and three of the five largest pharmacy chains in Brazil.
We are approaching the market through other channels as well, through e-commerce platforms, and our distribution partners who are pursuing traditional hospital and clinic customers.
Ship Brazil experienced a respiratory infection season. We have laid the groundwork for distributions of our approved DPP respiratory panel test in the traditional healthcare market and pharmacy testing clinics.
We will also submit the test for add-on approval in Brazil.
Now transitioning to discuss our regulatory and product development pipeline.
On the regulatory front, we are actively working with the FDA to secure approval for two tests.
We are pursuing a CLIA waiver for the DPP-HID syphilis test.
At this point, we are working to collect additional data requested by the FDA.
The EUA submission for the DPP SARS-CoV-2 Imaging Test remains under active review by the FDA, and we are encouraged by the progress that has been seen over the past months.
Given the innovative features of the DPP platform, like multiplexing and numerical results,
We are selectively investing in product R&D where we can leverage these unique capabilities to address high value unmet clinical needs.
We have identified two potential products that are now the top development priorities for Ken Bynum.
Both are in relatively similar stages collecting preclinical data to use in pre-submission meetings with the FDA.
Our intention for these meetings is to discuss guidance on the structure and requirements for potential pivotal clinical trials.
Today, we are happy to introduce the DPP Syphilis Screen and Confirm Assay and the DPP Lyme Assay.
DPP syphilis screening confirmed would be complementary to our core sexually transmitted disease portfolio and serve as a reflex test to the DPP HIV syphilis combination test.
For example, when patients test positive for syphilis with the HIV syphilis combination test. with the HIV syphilis combination test.
They could confirm, they could confirm that result and determine whether the syphilis infection is an active infection or a prior infection with a syphilis screen and confirmed test.
DPP-line would also be a screening confirmed six-plex test.
For the detection of both IgG and IgM antibodies, for the three most common antibodies, developed by the body were infected with Lyme disease.
As development is in early stages, we do not have timelines for commercialization of these tests, but as we make material advances, we will share additional details.
I will now hand the call over to Larry to detail the second quarter of financials and provide more details on our operational and programs under the global competitors program.
Thank you, Rick.
For the three-month ended June 30, 2022, total revenue was $9.2 million, and the remaining growth of 42%, compared to the prior year period.
Product revenue for the second quarter of 2022 was $8.9 million, an increase of 125% compared to the prior year period.
Government grant income, license and royalty revenues, and R&D revenues combined for the three months ended June 30, 2022 were $0.3 million, a decrease of 88% compared to the prior period due to the expiration of previous partner development agreements.
Our revenues were in compliance with the quarterly 12-month rolling minimum total revenue covenant in our credit agreement.
Gross product margins during the three months ended June 30, 2022 increased to $0.8 million compared to negative $0.1 million in the prior year period.
Gross product margin percent was 9% in the second quarter of 2022 compared to negative 3% in the second quarter of 2021.
R&D costs decreased by $.8 million compared to the prior year period to $2 million in the second quarter of 2022, primarily associated with completion of development work from prior partnership developing agreements.
Selling, general, and administrative expenses decreased by $0.8 million compared to the prior year period to $5.2 million in the second quarter of 2022, primarily attributable to lower legal costs.
Net loss in a three month ended June 30, 2022 was $6.9 million for a loss of 23 cents per diluted chair.
compared to a net loss of $9.1 million or a loss of 45 cents per diluted share in the prior year period.
Here we know impairment, restructuring, severance, or related costs for the second quarter of 2022, compared to $2 million, or 10 cents per share, in the part of your period.
On the balance sheet, cash and cash equivalent as a June 3, 2022 total of $22.8 million.
We are able to reduce cash usage in the quarter to $1.6 million through tight cost controls on spend and working capital management.
The company did not sell any shares of common stock as part of the ATM offering in the second quarter of 2022.
Now at Workman Capital, as of June 3, 2022, was $27.1 million.
Looking forward, given the substantial major of the COVID revenues over the past two quarters, we expect revenue for the year will be first half-weighted, and we will face challenging sales growth comparisons in the third and fourth quarters of 2022. Looking forward to the year will be first half-weighted, given the substantial major of the COVID revenues over the past two two. Looking forward to the year will be first half-weighted,
Line of sight on orders is a major priority for the second half of the year, especially with regards to our large customers and markets.
I will now provide an overview of the progress air making on our global preparedness program, which we launched in the first quarter of 2022. We will now provide an overview of the progress air making on our global 2022. 2020-22.
First, we are laser focused on higher margin business in both markets.
This includes our core products and being opportunistic with non-core products when these opportunities state our profitability criteria. One of these opportunities state our profitability criteria.
Notably, as Rick discussed, we see a significant global opportunity for our short-check HIV self-test. The
and have aligned resources to support adoption of this product across markets.
Second, we're taking action to lower manufacturing costs.
Automation and labor management are essential to increasing product gross margin and for scaling unit volumes to support new opportunities.
Our third automated manufacturer line is now up and running.
Line 4 has been installed and we have the mission production on a new semi-ordinated line.
Furthermore, our contract manufacturing agreement, Frizon, should also provide a pathway to drive down manufacturing costs.
We currently are facing a major margin headwind as high inflation is causing material supplies and logistics price increases.
As a result, we have incorporated the assumption of longer lead times for materials into our manufacturing algorithm.
We're evaluating appropriate price increases and delivery schedules for our products to offset these industry-wide impacts.
Third, we're working to reduce infrastructure costs.
This includes an in-depth analysis of all our support functions and external standards to reduce costs. This includes an external standard to reduce costs.
Mainly for nutrition, our organizational head count is out to 200 and 90 employees.
from 337 at the end of 2021.
We plan on further head cap reductions in the second half of the year to adjust with automation efficiencies and lower volumes. To adjust with automation efficiencies and lower volumes.
Fourth, we have completed the majority of work related to the strategic review of non-port business-toothed assets. We have completed the majority of work related to the strategic review of non-port business-toothed assets.
Our focus has been on our subsidiaries in Brazil and Germany with the intent to develop independent task profitability for each business. Our focus has been on our subsidiaries in Brazil and Germany
We have completed the restructuring over a German subsidiary, including employee reductions at the local business.
We believe that these pillars would take in together, provide a clear roadmap for our trajectory towards profitability.
Successful execution of these pillars is dependent upon a number of critical factors, such as delivering on the top line, key relationships with cost-murs and distributors, expansion in large markets such as the US and regulatory approvals.
We are committed to adhering to these pillars and look forward to providing updates as we continue to execute.
On now, turn the call back to Rick for concluding remarks.
Thank you, Larry. We are pleased with our results from the first half of 2022 and are excited to build upon this positive moment.
We've experienced strong year-over-year revenue growth and proved our growth margins and are beginning to see the positive impacts of our global competitiveness program.
We've increased our commercial efforts on the distribution of our higher value core products which we offer in high growth markets such as the US, France, the UK, and Brazil.
Progress on the regulatory and product development front. Will increase our opportunities to drive more profitable growth in the years to come.
With that operator, please don't go up the call to questions.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality.
Please hold where we pour for questions.
Thank you. Your first question is coming from Per Oseland.
with Craig Hallam. Sir, please pose your question.
Thank you, good afternoon guys.
Start with.....................
Might be a bit of a dumb question to start with, but I think it might be a little bit foundational nevertheless. So as we've talked in recent quarters about COVID-19,
You've talked increasingly about refocusing around the core portfolio. And I guess maybe my first question is
Internally, how do you define and how do you think about your core portfolio? The reason I asked the question is
Because there are...
Always these other things that come up, whether it's been a Zika outbreak or obviously COVID and now monkeypox is the virus cure, that can be opportunities for you as well, whether or not they actually qualify as CORE is a certainly an open question. But I look at DPP as a Zika. But I look at DPP as a Zika.
relatively product development friendly platform and it's easy to use.
So when these things come up, whether they're not, whether they're core or potentially core or not, how do you evaluate?
kind of opportunities you want to pursue as you're refocusing around the core. I know it's kind of a mysterious way to get to that.
Let's start there if we can.
Sure, Eric, thank you. This is Rick. You know, certainly we're defining our core products as, you know, the products that we've had on the market. Pre-pandemic during the pandemic and post-pandemic that have the greatest potential to drive, you know, revenue at higher, average selling prices and higher margins. So if you look at the US, you know, we have, you know, three.
primary HIV products on the market under three different platforms. Our SureCheck is a self-test platform for HIV. Our StatPak is a traditional lateral flow platform for HIV. And then our DPP HIV simplest combination test. So that is our core product. Certainly we have a Zika, DPP Zika, IgM product on the U.S. market as well. So when we look at core products and evaluate...
new opportunities, our fundamental principle underlying analysis is the market opportunity. Right? Where do we see growth coming from? So the products that we announced today, Per, as an example, DPP Syphilis Screen and Confirm, is a multi-flux product that has high clinical value in the United States in confirming syphilis infections.
The other example we talked about today was our DPP Lime multiplex product, where Lime is a growing clinical concern in the United States. So you can see from our product development pipeline, we're very focused on innovative products that utilize DPP's multiplexing capability to deliver high-value clinical need. So I think that's an example relative to other opportunistic.
disease states. Certainly, you know, everyone is aware that today the U.S. government declared a public health emergency for monkey box. The WHO also declared a public health emergency when July 23rd. The states of California, New York, Illinois have followed suit in terms of declaring a public health emergency. So...
We were monitoring that. Certainly if you look at our history, back in 2017 we rapidly developed a Zika, rapid Zika product for the US market when the Zika outbreak was impacting the United States. We went on to get an EUA for that product and then followed on and got a 510k approval for DPP Zika. So there were certainly clinical needs and for Zika.
The following year there was an Ebola outbreak. So we developed a DPP Ebola test to help with the outbreak with Ebola, which that product as of today still has a birth to use authorization in the United States.
And then in 2020, obviously, when the pandemic hit with COVID, you know, rapidly developed COVID tests. We got funding from the US government of around $13 million to develop a portfolio of COVID tests. So we're a lot of training the Mochi-POP situation very, very closely. We're in very closely. We're in very closely.
You know, we know that globally there's now 26,000 cases in over 80 countries in the United States. There's now 6,600 reporting cases. So this is a growing problem.
We see that as, you know, an area where we can provide value because we've done it for other outbreaks. The interesting thing with monkey boxes that the symptoms are very similar to other sexually transmitted diseases, like herpes and cipols, as well as other healthcare issues like scabies and Xima. So it's...
Beginning to show like it's a very difficult disease to diagnose because of the similar symptomology with other viruses. So we're gonna lock this closely. We have a great network of individuals at the NIH, the CDC, as well as Barta, who funded our code development. So we already conversation that in consultation.
with our colleagues, the NIH, the CDD, and BARTO, to see what is beneath the current federal available today for monkey profs or PCR, which you have to take a sample for any open simulations, we're very painful if we call to obtain very, very good samples for PCR. So we're monitoring this listly, all lines are open for us, and if we just have a growing...
consistent clinical needs and the ability to utilize our productologies as we did with the Bola and COVID will make a decision and move forward or not. So, um,
But I want to come back to the fundamental premise of our analyses for making a decision on a core product. It's really, do we have a high-level need? Is there a good need for that product? And is there commercial opportunity for the company? Along our global competitive guidelines, which is, by what we see on higher-wing growth in higher markets?
So you're talking a lot about our HIV SureCheck self-test because that is a perfect example of we are utilizing much higher margins on that product in the countries where we've got direct-to-consumer OTC pharmacies in place, and we're really driving that for our future growth. I hope that's a long answer, Bear, but I hope it clears up how we're evaluating this monkey fox opportunity. Thank you.
No, absolutely, it's very comprehensive. We feel free to have a long answer. That's very helpful. It's a bit too, you kind of ended there talking about margin.
So the growth product margin in the second quarter here was I think about 9%, first quarter was 18%, and fourth quarter was...
You know, single digits and somewhere. So there was a, you know, a stark improvement and a little bit of a
Come back here in the second quarter.
How much of that is just the logic of
Having that that uh...
The only greener is order being fulfilled and to not having that big chunk revenue to absorb some overhead and that sort of thing or where there are mixed factors that it contributed to going from 8% to 9%. Just trying to think of the considerations there.
Yes, Mira, I'll take a quick shot at that and then turn over to Larry to provide any additional details. Certainly, it's prognics and volume relief. If you look at our revenue in the first quarter in the Gratis Martins was largely due to high-bond product mix compared to the second quarter, where more of our product mix was the HIV product for UPOB. So you combine those two factors as well as some of the other inflationary measures that Larry was talking about.
But we have made progress in automation, so now as you can see from our headcount, is going down our attrition and the automation now is getting up and running. So that will continue. So really another transformation order of moving on the labor annual production to automate it. So that's been our trajectory. And once we get to Q3.
all these product platforms will be on an automated line. So the journey for ChemBio automation, we're coming to the end to really drive the higher volume to get even more drop through from the margin.
I lost to them for a second or are you still?
Yeah, I can hear you fine now about that. Okay.
Okay, so that was helpful. And clearly that's kind of what I thought. Since you mentioned in just one last, last put on me, you have referenced the possibility of price increases in the past to tackle that. And I tend to think that the price on a lot of your tests are low.
which would make me think that a little bit of an increase you know wouldn't be so owner as you do have some end markets and customers that are more sensitive to that. So I guess I'm wondering do you see pricing because there are potential pricing which is kind of a cross-support goal? It gets more, in some of these higher margin markets like the US, like you know, like France and the rest of Europe or your end markets with SureCheck that you have a unique product that you just, you really feel like there's absolutely margin.
every price series we can probably get and yet get positioned to maintain our current customers. So certainly in the U.S. we've seen better options for price increases across our product lines because we don't have the same competition in the United States as we do from Asian supplies and markets like Arco.
So it was a part of our strategic plan, the Global Competence Program, the Commercial Organization across the boat, to try and maximize any opportunity for a price increase, and get well-balanced and being competitive. The Global Competence Program will be a part of our strategic plan, you
That makes a lot of sense.
All right, I lied. I will ask, I guess it's a question that's as much as a question too, that
The cascosa here in the corridor was...
Very negligible, very impressive, considering where it was not really that long ago, during million dollars. You did mention cost control, and I think that would be one thing that you would clearly have continued to implement time and have that be a contributing factor to lowering usage. And have that be a contributing factor to lowering usage.
AR collection by David.
collection side of it.
I suspect when you had R and then you collect it, then it's no longer a factor to help you get cash usage.
and not necessarily trying to ask you to guide this by any stretch of the imagination, but when you look at the next quarter and quarters, there was a million and change used in second quarter.
reflective of where you think he can be. You're one of the next couple of words. I think it's more, was this a little bit of a liar and maybe it's something missing? And the, you know, call it four and a half, I think Millino was in the first quarter, does it sort of reside in there? I guess I'm just, I guess I'm just,
Kind of forget to handle around it was obviously a, to me it was a fairly eye-popping number considering where it's been. I mean, encouraging number. You just kind of want to get that just inability of it. You just kind of want to get that just inability of it.
Yeah, very excited. So from the quarter, I mean, the teams from the large winners and the collection on those receivables was a primary factor. So the tight controls will, what were the place will continue to be in place. As we look at a second half of the year, you know, don't expect having at that same level. We have cost associated with the trials and products innovation. So there will be a higher.
on that right-wing of call-in and again we're going to be stuck in relation to the long-term year we know it's wrong.
Okay, excellent. I appreciate all the answers and I apologize for keeping on firing away. Thank you.
Thank you. Thank you, Peter.
There appear to be no further questions in queue so I'll hand it back to management. Any closing comments?
Thank you, Aubrey. I want to thank everyone for taking time out of here today for our second quarter, Ernie. And have a wonderful evening. Thank you.
Thank you, ladies and gentlemen. This does conclude the conference call. You disconnect your lines at the time and have a wonderful day. Thank you for your participation.