Q1 2023 Quotient Ltd Earnings Call
Greetings and welcome to the quotient limited first quarter fiscal year 2023 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the call. Please press star.
Zero on your telephone keypad as a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Ali Gebara Chief Financial Officer of quotient Limited. Please go ahead Sir.
Thank you.
Good morning, everybody and welcome to quotients first quarter fiscal year 2023 financial result as.
As well as the business update.
Joining me today is Manuel O Mendez, our Chief Executive Officer.
Today's conference call, we broadcast live through an audio webcast and a replay of the conference call will be available later today at Www Dot quotient BD Dot com.
During this call.
We will be making forward looking statements, including guidance and projections as to future operating results.
Expect the 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.
Forward looking statements, including guidance and projections provided during this call.
Rallied only as of todays date August nine 2022.
<unk> assumes no obligation to publicly update these forward looking statements.
With that I would 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 the first quarter of fiscal 2023 results and business update.
During today's call I will provide an update on the progress we have made in the months since we had our last earnings call and our key priorities to fiscal 2023.
As many of you will know earlier this year, we received CE mark for our extended immuno hematology microarray.
Then we have made progress on maximizing the commercial potential for this product by growing our distribution network participating in tenders and increasing awareness of the Mosaiq solutia.
We are simultaneously focused on leveraging the potential of our mosaic platform with new micro arrays.
The one closest to commercialization.
Standard serological disease screening microarray altra.
Also immune microarray and the extended immuno hematology U S micro array.
I am pleased to report we remain on track with our development work and regulatory filings for all three micro arrays.
Also we have been exploring ways to lower R&D costs to bring new products to market and decrease the time to commercialization pursuant to this initiative, we recently announced new strategic alliances with Infinity Biomarkers and thorough Diack. We believe these alliances will enhance our development of infectious disease screening.
And clinical diagnostic products.
In addition, we have made advancements in our scientific and medical affairs activities with the expansion of our innovative circle completion of workflow study and development of White papers.
I am pleased with the execution of our key priorities since our last call just over a month ago and I look forward to our continued progress in fiscal 2023.
Let's begin with a review of Mosaiq commercial execution in the first quarter of fiscal 2023, we secured $1 $4 million in bookings and generated zero point $4 million in revenue for our recently CE marked extended immuno hematology mosaic solution the <unk>.
Commercial team continues to focus on expanding our global distribution footprint across major geographies.
We have signed 10 distributor agreements and last month, we hosted our first annual distributor network meeting.
The meeting was held at our headquarters in Switzerland, with 12 participants from over 10 different countries, who shared best practices and clinical use cases for mosaic.
Dispense we're enthusiastic.
One of the participants Teresa <unk> from Croatia total C is impressed with the mosaic system ease of use and she is excited for her customers who experienced the mosaic solution.
I'd like to thank III sat and all other participants we look forward to our continued collaboration.
Turning to our European immuno hematology donor tender opportunities, we continue to actively participate in and prepare for the 20 European immuno hematology tenders expected over the next 18 months.
Turning to our transfusion diagnostics pipeline the extended immuno hematology U S. Micro array is on track for FDA submission by year end.
We continue to make progress in the development of the extended serological disease screening microarray panel. We're on track for an expected commercial launch in calendar year 2023.
Our recently announced partnership with Infinity Biomarkers serves as an opportunity to enrich the mosaiq Sds and infectious disease clinical immuno assay menu.
And reduce time and cost to commercialization.
Infinity Biomarkers as proven expertise in infectious disease diagnostics and we are excited about this collaboration as it expands our innovation network, allowing us to further accelerate our development timeline.
We're also pleased with the early benefits, we're seeing from the thorough diarch clinical diagnostics partnership.
The collaboration team has confirmed technical feasibility of the extractable nuclear antigen antibody is eni on the Mosaiq microarray, we're confident to make continued progress in our development eventual commercialization of the connective tissue disease. This panel, which will include the EAA and anti <unk>.
<unk> antibodies.
This panel will provide us with access to part of the $1 $8 billion autoimmune market and entry into the clinical diagnostic segment.
Like the Infinity collaboration this partnership allows us to accelerate our time to commercialization and reduce cost of development.
Next I would like to update you on the scientific and medical affairs activities. We.
We are very pleased to add three members during the quarter on the Mosaiq innovative circle initiative. We now have a total of 11 members. Most recently the central <unk> Amazon as Jan <unk> in Spain.
I'm joined this initiative.
As a reminder, the goal of the innovative circle is to create a community of experts in institutions across the world, who focus on transfusion medicine and clinical diagnostics.
<unk> partners with quotient to create innovation and evidence generation to improve patient care and laboratory efficiency.
Lastly, we are pleased to announce we have completed.
Our analysis at multiple sites.
These analyses include current and future time, and motion studies, which we expect will underline the efficiency and effectiveness of the mosaic solution.
We expect to submit papers for publication later this year.
We're continuing to build an experience and collaborative executive management team Stephen.
Steven So two week joined caution on July one and the role of Chief strategy and business development officer prior to joining our company Steven served as Vice President of Philips, leading global strategy and business development and execution and the precision diagnostic business.
Prior to Philip Steven led teams across Europe Middle East at Boston Consulting group, BCG developed corporate and commercial strategies for leading financial institutions and executed several post merger and integrations of turnarounds Steve.
Stephen brings great experience and energy to help our teams drive business growth portfolio expansion market access and broaden global strategic partnerships.
Welcome Steven.
Finally on the operations front, we were awarded ISO 14, 001 certification, reflecting we meet requirements for environmental management system.
This certification exists to help organizations minimize our operations negatively affect the environment too.
To qualify quotient went through a series of external audit validating the mosaiq microarray manufacturing facility.
Now, let me turn the call to <unk> for more details on our financial results Ali.
Thank you Manuel.
Fiscal first quarter sales were $8 8 million a.
A decrease of three 3% from last year's first quarter.
The alber reagent business generated product sales of $8 4 million in.
In the first quarter of fiscal year 2023.
One by 6% year over year.
Sales in the quarter decreased mainly due to a change in the ordering cycle of one of our products from an OEM customer.
We expect the ordering pattern to normalize by year end discussed.
This customers ordering pattern for other product has not changed so we believe this is isolated to a single product.
In the quarter as Manuel discussed we had our first sales for mosaic post our immuno hematology CE Mark approval.
Sales of Mosaiq product increased by <unk> 3 million for the quarter ended June 32022.
In the first quarter gross margins on product sales were 31% compared to gross margins of 47% reported in the first quarter of the prior year.
The decrease in gross margins was primarily driven by lower sales in the quarter.
Europe was $4 million in write offs for stock at the end of its shelf life.
$2 million of write downs of raw materials and in process inventory associated with mosaic to net realizable value and.
And <unk> 3 million in increased cost for logistics production costs.
The increased costs, we see in UBS logistics costs and production costs.
<unk> utilities is roughly a 3% to 4% headwind on gross margin.
Adjusting for the write offs or gross margins would have been between 37% and 41% for the quarter.
In the first quarter, we recorded an operating loss of $25 8 million compared to $21 $9 million last year.
Operating expenses were $28 5 million in the first quarter fiscal 2023 and.
An increase of $2 3 million or 9% compared to the first quarter of the prior fiscal year.
This increase is driven primarily by an increase of <unk> 9 million in general and administrative expenses to $11 million in the first quarter the.
The increase is primarily attributable to legal costs incurred in the senior secured debt modification first quarter of fiscal year 2023.
Sales and marketing expenses were $3 3 million in the first quarter, representing a <unk> 8 million increase compared to the prior year's first quarter the.
The increase was primarily driven by the increase in sales and marketing activities over the past year as we ramped up for the planned commercial launch of Mosaiq.
Research and development costs were $14 1 million.
Zero point $6 million increase year over year the.
The increase in research and development cost is driven by expenses to support upcoming field trials and product development and transfusion and clinical diagnostics.
Net other expenses was $12 $9 million in the current quarter compared to $4 7 million in the first quarter of last year.
The change year over year is due to a combination of items, including interest on the convertible notes issued in May 2021.
An additional $1 million impairment on the credit Suisse supply chain fund a benefit in the royalty cost estimate in Q1 of last year.
And a gain in the fair value of our derivative liabilities this quarter.
This was offset by a FX loss in assets and liabilities denominated in foreign currencies in the same period.
Net loss for the first quarter was $38 9 million or <unk> 37 per share compared to $27 3 million or 0.2 dollars $7 per share in the prior year.
Net cash used in operating activities totaled $35 5 million for the first quarter compared with $32 1 million for the prior fiscal year.
As you May recall operating cash in the first quarter is higher than other quarters due to annual or semiannual items paid out in Q1.
Of the $35 $5 million of operating cash tenant.
$10 5 million pertains to interest on our outstanding debt.
Of the remaining $25 million, a little over $7 million pertains to our fiscal 2022 employee annual incentive plan and our annual insurance renewal premiums.
Normalizing for these annual costs.
Our underlying operating cash flow was $6 $5 million per month during the quarter.
We continue to remain vigilant and actively engaged in all aspects of spend head count for the company.
Okay.
Moving to the balance sheet available cash cash equivalents and investments as of June 32022 was $63 2 million compared to $83 2 million as of March 31 2022.
Of the $63 2 million in cash and investments $17 1 million relates to investments.
Credit Suisse supply chain fund.
In the first quarter, we determined a further impairment of $1 million was required related to an updated estimate of litigation costs.
Projected by credit Suisse, which credit Suisse communicated will be deducted from future investor recoveries.
Our total depth as of June 32020 to $236 3 million.
This morning, we are confirming our fiscal year 2023 guidance. We expect total sales in the current fiscal year will be in the range of $39 million to $42 million.
We expect capital expenditures for fiscal year 2023 to be in the range of 5 million to $10 million.
Finally, we expect cash used for operations for fiscal year 2023 will be in the range of $6 5 million to.
To seven 5 million per month.
Excluding debt service costs and capital expenditures.
And with that let me now turn the call back to Manuel.
Thank you Ali I am pleased with the progress, we're making on our key priorities for fiscal 2023.
We are further validate our strategic vision and are steadily growing our distributor network and increasing awareness of our mosaic solution through our commercial activities.
We're in active conversations to expand the number of distributor partners globally.
Our new distributors are broadening our installed base into new geographical territories, and we are poised to ramp up production in the coming quarters.
Turning to our European immuno hematology dano tender opportunities.
We continue to actively participate in the 'twenty European immuno hematology tenders expected in the next 18 months.
One final decisions are made we look forward to communicating successful tender outcomes.
Our transfusion diagnostics pipeline continues to progress as we focus on submitting the extended immuno hematology microarray for U S approval by year end and bringing the extended <unk>.
Microarray panel to an EU commercial launch in calendar year 2023.
Next our scientific and medical affairs team will be presenting performance data on CE, Mark mosaic immuno hematology donor extended micro array at the annual <unk> meeting in October of this year.
Regarding clinical diagnostics, we are energized by our successful collaboration with our innovative partners third AIG to accelerate our time to market and reduce cost.
Mosaic platform, we will be communicating other collaboration agreements and partnerships to further strengthen our R&D pipeline.
Finally, I would like to thank our global teams for their contributions this past quarter.
Our whole team is laser focused on delivering on our commitments to all stakeholders.
And to empower our customers to meet their needs.
For your time today, and we look forward now to taking your questions.
Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is into question. Kim you May press star two if you'd like to remove your question from Mccann.
Disciplined using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
In the interest of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of Josh Jennings from Cowen. Please proceed with your question.
Hi, Good morning, gentlemen, and thank you for taking the questions.
I wanted to start with just the great to hear that Youre on track to submit.
In the U S with the FDA.
By the end of the year.
Just wanted to better understand.
Our team is on the.
<unk>.
Development process, just in terms of expanding.
The number of specificities and improving the performance of some specificities. Thank you gave some color on the earnings call in June around that progress, but is there more work to be done or is that were completed and you're moving right into U S field trials in the coming months.
Thanks, Josh and good good to hear from you.
Thanks for the question. So look I'm happy to say that we've made that the development process is completed we actually have completed also our verification validation and clinical drive protocols with the FDA. So in conversation with the FDA.
The sites are up and up and live ongoing currently our teams are working with the iqs or Qs which is.
Qualification process.
We start the clinical trials. So yes, we're in very good shape and we're excited with the progress we're making.
Then performance from our submission as we have communicated previously by year end. So it's very exciting times for us.
Any anything you can chairman.
Just in terms of.
Increased performance on some specificity.
Build out of the menu that is.
It's going to be evaluated in the us field trials.
Yes, so we will have additional specificities beyond the ones that we had in our current CE Mark product.
As I have communicated previously we will be bringing some of that data back and then gaining some additional approvals.
But we would expect with the data and the performance back into the EU, but what I'm happy to say is that we've completed the three different lots, which are required as we enter clinical trials and the performance is.
Incredible I mean, 100% of our better in most of the specificities, including the ones we've added.
For the U S.
Market, which will later on and bring back to the EU market and certainly we can share that.
<unk>.
At a later time one on one of your life.
And then the other thing that is also exciting for US is the fact that.
Again, the sites are ready teams already.
And everything points to a very successful.
Completion of the clinical trials and then a good solid submission to the FDA I think the key for us was <unk>.
These pre FDA meeting pre submission.
Completed, which we did with the FDA and they have agreed and confirmed all the verification and validation and clinical trial protocols. That's a really good outcome for us going forward. So we expect again.
US expedite approval as part of that process.
And excited about that.
Excellent and just one last follow up on you guys have had some success with partnerships with Teradata and infinity.
I'm wondering.
If you could share just any other.
Other partnership channels that they could potentially lead to some non dilutive cash.
Capital.
Contributions to the balance sheet.
Whether there are any active discussions on that front. Thanks for taking the question.
Yes, so I think that's it.
Thanks for that.
For the question so regarding the partnerships I think the Sarah Dai AG and the other partnerships that we've communicated are really working on infinity.
Working towards the faster development, it's real.
Really about saving R&D cost because we save time, and then commercialization much more quickly.
In terms of aspects on the strategic collaborations that we're evaluating to be able then to either.
<unk>.
Capabilities or access in terms of other specific markets or some type of collaborations like the one we have communicated in the past with ortho. That's ongoing we have some great conversations as we speak.
And we will continue to explore those in the next weeks and months to come so as soon as we have these other collaborations agreements in place where there is on the R&D capabilities.
Our other type of relationships.
Our collaborate collaborations or partnerships around.
Markets are investments then we will be communicating those in next weeks into months to come.
Thanks again.
Yes.
Thank you.
Thank you. Our next question comes from the line of Brandon Couillard with Jefferies. Please proceed with your question.
Hey, Thanks, good morning.
Just a question on the distributor channels.
Got 10 partners. So far you still expected to reach 20 by the end of the year and I'm curious you've kind of what happens next or are you stocking that was the initial inventory and I'd be curious to hear kind of how many systems you are getting inbound.
<unk> tec either per month or per quarter, just kind of what those levels look like.
Yes, Thanks, Brendan and good to hear from you.
Distribution conversations are going extremely well I think we've communicated to you guys that our target is 20.
We already have 10, and I think with the success that we've shown in our ability to execute against this this milestone and this strategic goal I think we're going to probably exceed that.
And our goal is to be able to achieve that and not by year end, but much much quicker than that in terms of what that means in terms of to us for revenue opportunities.
There are some minimum commitments.
On this.
Distributor relationships that we expect to have not necessarily to stop but to go into market into customer accounts.
So that's ongoing.
So then we can then start putting up some.
Some conversions of customers that's going to be determined again from from a timing standpoint, there'll be some level of evaluations that occurs in some of these are customer accounts and we're working through those that sort of tied also with the innovator circle as you saw in our press release and on my remarks that we've been able to.
Successfully enlist additional folks.
Two of them that are really high hitters.
In Europe Central de <unk> in Spain.
And also the transfusion center the there.
<unk> Suisse, which is basically the Swiss Red Cross.
Our main site in Bern, who has.
So signed up for our innovative circle, Dr. Christoph Niederhauser.
Actually as a matter of fact, he has joined <unk> scientific Advisory Board. So I think all these things in place whether it's the distributor activities and the innovators circle activities.
Valuations that some of these distributors sites.
That are going to be then creating this momentum we believe to meet the expectations. We have for the second half of the year.
Okay and then just.
One question for Ali on the gross margin line you had a few quarters here, we had some small inventory write offs should we expect those to continue.
To trickle in.
Cogs line and then I think you mentioned logistics and production cost maybe two to 300 basis point headwind to expect that.
To pick up.
Yes.
These larger from here or is it in the run rate.
Yes.
Thanks, So yes couple of things that you've seen going through the gross margin line.
Part of the change as you can imagine is because as we said we are starting to get closer to the launch of.
Actually we have launched already our IH and so part of what Youre seeing going through that gross margin line over the last three quarters.
<unk> has been the net realizable value, which we've been booking to that line that's been the big one going through there.
What we thought would be important to understand as well is where we see write offs like we did this quarter four.
Red blood cells and other items that are onetime in nature, we're calling those out.
And then on the last one which is really the cost items.
Those for US I think we quantified them in my earlier comments, we think Thats, maybe a 3% to 4% headwind that we're seeing and part of what we're seeing there is on the logistics side and we're also seeing increases in costs on things like utilities and some of the inputs that we're buying.
We expect that in the near term that 3% to 4% to continue but we just thought it was important to call out those components. The net realizable value one will continue as we.
Commercialize on Mosaiq and as we said previously that really as we start to get to scale and as that picks up that number will change over time, but in the near term I would expect that net realizable value that we've been writing down our work in process inventory will continue and some of this headwind of 3% to 4% at least in the near term we.
That to continue as well.
Got you that's helpful. Thank you.
Youre welcome.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad.
Our next question comes from the line of Matt <unk> with Goldman Sachs. Please proceed with your question.
Hey, good morning, Manuel and Ali Thanks for taking my questions.
Maybe just kind of start off along the lines of <unk> question on distribution agreements.
Targeting 20% by the end of this year in terms of how you think about managing those relationships.
Obviously more agreements could potentially lead to more sales, but how do you plan to actively manage those distribution agreements over time, meaning optimize those that might have particular success in particular regions or are you kind of spread out regionally. So that you have few few distribution agreements per region I'm, just wondering how youre thinking about managing those relationships.
<unk> given it'll be close to 20 by the end of the year and how you'll look to optimize that over time.
Yes, so thanks, Matt good to hear from you. So look we have is Mohamed El <unk>, our chief commercial officer, He set up a nice network of.
Internal folks. So we now have somebody who is leading the middle East Africa somebody Who's leading Asia Pacific.
The person who is going to be leading Latin America, and it's not just one person that's going to managed distribution, but it's also going to start setting up service and support along with the distributors that we that we that we select.
The way we thought top through distribution is there is an agreement.
In order for that exclusive rights that theyre going to have without geography. There is a commitment that is than.
Initial startup.
<unk> order and then commitments throughout the different years now we're going to work on of course, the demand we know the market sizes. The donations per geography, and then what it should deliver and we know when those contracts that are related more to.
Donations and donor centers.
So we have a good visibility on that with the distributors. So we're putting incentives in place to be able then to achieve.
Achieved those target opportunities in the short term and then others as we develop and ramp up then it will be up.
Appropriately incentivized and resource so thats sort of the way we're looking at it.
Of course, there are some sales commitments attached to that like I said.
And we expect those to sort of ramp up.
As some of these evaluations that I mentioned before are completed.
We then have all of this further proof sources from the innovator circle I mentioned in my remarks, and then also in our press release earlier today.
That we've completed some workflow studies, which we're very excited about because these workflow studies not only are going to be able to show the value of the mosaic.
Being in a site. So we actually one of the size that we just that is eight a virtuous circle two of those sides actually did a workflow study one in Europe , one in the U S.
The initial data shows us that we have some significant we can benefit from a technical perspective.
From with.
With our mosaic solution, so as we compare against their current.
User scenario. So I think again this is more on the development of what we see we're going to be publishing some papers, whether it's white papers or official qualifications as we finalize that data, but the indication is the initial data is that mosaic is going to be significantly more valuable as we look at efficiency effectiveness.
And those sites. So all of this together again speaks to the distributor network. The distributor growth strategy and then of course the strategy is going to allow US also to win as we continue to participate in tenders.
Great. Thanks for that Manuel and Ali maybe one for you.
You outlined sort of your opex trends for the balance of the year and I apologize if I missed it just capex came in a little bit lower than what we saw it and lower than the previous.
Previous.
Fiscal first quarter of last year could you just maybe talk about sort of capex trend I assume given the ramp of Mercedes that you've done perhaps that could come down versus historical I just wanted to get a sense for how capex is trending over the course of this year.
So the guidance, we've given math really builds around what we are doing in terms of investments that we've talked about from everything to the second manufacturing line to other improvements that we've talked through doing so that's how we've thought about it is we've been prudent here in the near term you can see we're not spending it right.
But it is in our outlook was things that we will consider through the balance of the year.
So that's how I would think about the capex, it's probably going to be later in the year than upfront here as how England I would size it but even so I would say that.
It's probably more towards the low end and the high end of what we've.
Guided given where we are today.
What would the way we see going forward.
Got it thanks very much I appreciate the questions.
Thank you guys.
Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to management for any final comments.
Well I just wanted to say thanks again for your support and listening for the questions and we look forward to updating you guys against our goals in the next quarter. So have a nice day. Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.