Q3 2022 Chembio Diagnostics Inc Earnings Call
[music].
Good afternoon, ladies and gentlemen, and welcome to the <unk>.
<unk> third quarter 2022 earnings conference call and webcast.
This time, all participants have been placed on a listen only mode.
It will be opened for questions after the presentation.
It is now my pleasure to turn the floor over to your host Philip Taylor, Sir the floor is yours.
Thank you operator before we begin let me remind you that the company's remarks made during this conference call. Today November three 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. They are 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 in its annual report on Form 10-K for the full year 2021, and its quarterly reports on Form 10-Q for the first quarter and second.
<unk> 2022, and in subsequent SEC filings <unk> results may differ materially from those projected can bio undertakes no obligation to publicly revise or update any forward looking statements made today.
Heard you to review all 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, we will review our strategy.
And our progress scaling growth improving operational efficiency and further developing our test portfolio.
Larry will then cover the third quarter financial results and.
To provide a detailed update on our global competitiveness program.
I will then conclude and open the call for questions.
First I want to provide a brief description on the current priorities.
Guided by our strategic pivot over the year.
Across the business profitable growth remains the top objectives.
In prior quarters, we've announced several initiatives to pursue higher margin business and reduce operating expenses.
Not all of these changes are reflected immediately and our financial results, but we expect their impact to be significant in the coming quarters and for the company long term.
Your attention toward O T C markets, which provide similar structural benefits.
We believe winning business with a regular cadence of frequent smaller orders should allow us to be more efficient with resource planning.
Apply chain management and product manufacturer.
To further improve our operating efficiency.
We have advanced our manufacturing cases capabilities by leveraging both expanded automation and contract manufacturing in Malaysia.
Both solutions combined with tighter cost controls are expected to improve our cost of product revenue.
Over the medium term, we plan to develop products to broaden our portfolio with differentiated tests that command premium value.
Now I will outline our third quarter performance and growth drivers.
And the third quarter, we generate a total revenue $11.2 million and.
Including product revenue a $10.8 million.
Product revenue grew 16% compared to the prior year period.
Product revenue in the third quarter was primarily driven by $4.8 million of sales in the United States.
Growth year of 361%.
Impaired to the prior year period resulted mainly from increased Covid antigen detect rapid test.
The self test version of this test was received and EUA and we have initiated a direct to consumer launch the service the OTC market through an e-commerce platform.
One of our featured core products. The DPP HIV syphilis system also contributed to sales in the United States.
We continue to believe this differentiated test will be a meaningful growth driver upon receipt of a clear waiver.
Third quarter, Latin America sales or $2.3 million.
Sales in the region transitioned back to core product sales from Covid sales as in the prior year period sales in the region. We're predominantly for DPP source code to test under the large beer mcgeeney disorder.
Approximately $2 million, a TPP HIV test where shifted <unk> in the quarter.
In Brazil, we are now focused on marketing are sure check and HIV self testing.
We continued to believe that is the most promising commercial opportunity supported by our current product portfolio in the region.
The health care system in Brazil is currently promoting self testing through the ministry of health and awareness campaigns.
As a reminder, our product <unk> resides on the shell and three out of the five largest pharmacy chains in Brazil, and we have just launched R. E Commerce sales channel.
It Omega in Asia.
<unk> revenues in the third quarter groups, 43% compared to the prior year two $3.8 million.
In Europe like Brazil, we've heightened distribution efforts of the sure check HIV self test.
We continued to expand shipments to pharmacies across Europe .
And are now on the shelf and approximately 35000 pharmacies through the excellent work of our distribution partner in France.
Within the UK, we have launched our direct to consumer channel through Amazon and are also in pharmacies in the region.
We continue to seek opportunities for expansion of our HIV self tests across applicable markets in Europe .
Turning to Africa. This quarter can <unk> completed its tender with Ethiopia for shipments of the HIV, one too stackpath asset.
This tender had generated margins below our expectations and now we are actively pursuing opportunities and market seeking higher margin premium solutions.
Shifting now to our product and regulatory development pipeline.
On the DPP HIV surplus test we continue our work to address the Fda's request for additional data to achieve a CLIA waived.
Our EUA submission for the DPP source code to imaging test continues to be under active review by the FDA and we are encouraged by the progress made over the past quarters.
[noise] late in the third quarter, we announced the company was awarded a 3.2 million dollar contract from the centers for disease control for the development and clinical validation of a rapid pointed care diagnostic test for syphilis.
We are actively developing a surplus treponemal non treponemal that we're branding TNT.
Leveraging our Dole path platform or DPP technology, and proprietary DPP microreader too.
We expect that the assay will be able to simultaneously and separately the tech to detect treponemal and non treponemal IGN and agg antibodies.
We anticipate that grant revenue will begin in the fourth quarter and will be milestone based through the regulatory submission.
We are excited to expand our portfolio as we endeavor to develop a highly sensitive and specific test where we can anticipate a large need for physicians to quickly and accurately confirm active or prior syphilis infections.
We also announcement third quarter development of a rapid plenty care diagnostic tests for Lyme disease.
Lime disease caused by the bacterium borrelia port Dorothy is transmitted to humans via an infected tick bites.
Recently, the CDC is updated its guidelines for <unk> lime disease diagnosis with a new algorithm termed M. T T T.
Modified to tier testing.
These two steps are methods that are labor intensive take a long time to run and required trained professional laboratory personnel.
The DPP lime IGN Agg test is designed to be a rapid multiplex 20 care test and combine the two tier testing algorithm into one DPP tests cassette utilizing our GPP microreader too for objective test results.
We are currently collecting preclinical data four hour GPP line test and development.
We are hopeful this data will underpin a productive pre-med presubmission meeting with the FDA.
Our intention is to complete the pre submission meetings.
Both the DPP T N T and the line to us to discuss guidance on the structure and requirements for potential pivotal clinical trials.
I will now hand, the call over to Larry to detail the third quarter financials and provide more details on our operational improvements under the global competitiveness program.
Thank you Rick.
Three months ended September 30th 2022, total revenue was $11.2 million, representing a decline of 7% compared to the prior year period.
Product revenue for the third quarter of 2022 was $10.8 million, an increase of 16% compared to the prior year period.
Government Grand income license and royalty revenues and R&D revenues combine for the three months ended September 30th 2022.
$4 million compared to $2.7 million the prior year period.
The decrease was due to the expiration of previous partner development agreements.
Revenues were in compliance with the quarterly 12 months Rolling minimum total revenue Covenant credit agreement.
Gross product margins during the three months ended September 30th 2022 decrease of $1.2 million compared to $1.5 million in the prior year period.
Gross product margin percent with 11% in the quarter compared to 16% in the third quarter of 2021 and.
Impacted by inventory reserves taken in the third quarter of this year.
R&D cost decreased by $1.6 million compared to the prior year period, the $1.9 million third quarter of 2022.
Primarily associated with completion of development work from prior partnership development agreements.
Selling general and administrative expenses decreased by point $4 million compared to the prior year period.
Five $6 million in the third quarter of 2022.
Net loss into three months ended September 30th 2022 was $6.7 million or loss of 21 cents per diluted share <unk>.
Compared to a net loss of $6 $4 million or a loss of 2004 cents per diluted share in the prior year period.
On the balance sheet cash and cash equivalents as of September 30th 2022 total of 20.
<unk> $21 $1 million.
And the third quarter of 2022, the company received net proceeds of approximately $4 million from sales of its common stock as part of its ongoing ATM offering.
Networking capital as of September 30th 2022 was eight $7 million.
Looking forward given the substantial nature of the Covid revenues over the past three quarters as expected revenue for the year will be first have waited and we anticipate challenging sales growth comparisons in the fourth quarter of 2022.
Line of sight on orders is a major priority for the final quarter of the year, especially with regards to our large customers and markets.
I will now provide an overview of the progress we're making on a global competitors program, which.
Which we launched in the first quarter of 2022.
We continued to prioritize higher margin options within key markets that the organization is identified as prime growth opportunities.
We are focusing on both our core products and non core products that have potential to be profitable.
We have identified a global opportunity for a short check HIV self test.
Have allocated resources to support its adoption and distribution.
Additionally, actively lowering our manufacturing cost through increased adoption the automated manufacturing.
Believe automation and Labour reductions are required to improve product gross margins in scale unit volumes to support new initiatives.
We have executed on a previously communicated strategy to have all our product platforms on an on demand line by end of Q3.
Bolstering these efforts.
Is our contract with Verizon diagnostics international to oversee the manufacturing efforts of our H I V. One to step back SA at our <unk> diagnostics, Malaysia facility.
They are now up and running and we have initiated production facility.
An effort to reach reduced infrastructure expenses, we conducted an internal audit of our business and external spending to reduce costs.
We've reduced our organizational head count from 290 to 211 employees as of September 30th.
We expect to continue to increase our automation capabilities and further reduce our head count and dependency on manual labor.
Our path to profitability as clear as.
As we realign our organization to reduce costs and prioritize efficiency we.
We believe the company as well positioned for long term growth.
Keeping our customers at the forefront of our vision.
We believe our organization can deliver the initiatives necessary to achieve expansion both domestically.
And internationally.
We look forward to providing more updates and are excited for the future of Campbell.
I will now turn the call back to Rick for concluding remarks.
Thank you Larry [noise].
We are pleased with our results from the third quarter of 2022.
Over the course of this year, we have improved efficiency identified in initiated commercialization.
Promising market opportunities and reduced our operating infrastructure.
We improved visibility on our top line and sales efforts have been refocused on our core products and key growth markets.
With advancements in our pipeline supported by a new contract with the C. D. C. We're excited by the opportunities that lie ahead to propel can bio too long term profitable growth.
With that operator, please open up the call for questions.
Thank you ladies and gentlemen, the floor is now open for questions and if you have any questions or comments. Please press star one on your phone at this time.
We asked of my posing your question. Please pick up your handset missing on speaker phone to provide optimum same quantity.
Please hold while we pull for questions.
Thank you you have a <unk>.
Question from <unk> with cream colour. Please go ahead.
Thank you good afternoon, guys <unk>.
I'm going to start out with the future revenue number candidly I was pleasantly surprised here I I had been sort of.
While not officially having an estimate we have talked and you've talked about the second have been.
Lighter than the first half and I.
Kind of assume that with a couple of contracts being fulfilled earlier in the year that we would see a sequential stepped down so I was happy to see that number be so strong here in the corner was there anything unusual as far as.
Bullets in order stocking orders somewhere that.
Wouldn't have otherwise wouldn't otherwise recurrent or is this simply a function of the growing depth of product and geography that you are you have at your disposal.
Yeah <unk>. Thank you for that question and I'm I'm glad you were happily surprised [laughter] [noise].
You know as we talk over the last several quarters.
Our strategy has really been to diversify.
The business by region and by product.
It become less dependent on large government tenders or large government orders, whether they come from Brazil, as we've experienced over the last year or global fund countries in Africa. So.
This quarter I think was a good indication that we're getting good balanced revenue from you know tremendous growth in the United States from our sales team in the investment we've made in the U S.
South America same thing are balanced attack in Brazil now is it.
Beyond Covid, we're focused on our core products in Brazil.
And our.
Our strategy in Brazil is multifaceted not dependent upon the government or Ministry of Health <unk>. We now have a retail strategy, where our pharmacy partners are now selling our sure check HIV self test online on their websites as.
Well as an e-commerce platform we've setup.
So that's a retail strategy our other strategy in Brazil is now going out to the states and local.
Areas like Rio and Sao Paolo.
To work with this the state and city governments, where they're putting together programs as well for rapid testing.
And then we're going into the traditional markets in Brazil, as well through our distribution partner.
In Brazil, who calls in hospitals and clinics and so forth throughout the country. So I would say, it's a balanced approach strategically we continue to maintain excellent relationships with the ministry of health.
As well as being a genius in Brazil.
So we're working on with them on a on a well detailed forecast.
Four 2023.
And then over to Europe , I think we're beginning to see the fruits of Ah Ah.
A strong investment in our distribution partner in France, who now as in almost every western European country in 35000 pharmacies with our HIV sure check products. They are launching into new eastern European countries, we're talking about the middle East.
Strategy as well for that product.
So we're getting good contribution from Europe , and then in the UK, we've invested time.
Time, and energy with our distribution partner in the UK to get Amazon up and running as well as the.
The boots pharmacy, it's now on the shelf in the U K through our pharmacy partner in.
In the UK, So I think it's a <unk>.
Long winded answer pair, but I think we're beginning to see a really good distribution of product revenue.
In our core products.
As well as by regions around the world where in the history of <unk>. They were largely focused on Africa.
In Southeast Asia, where there's tremendous pricing pressure tremendous competition.
From the South Asian, South Asian manufacturers rapid test so.
So.
That's that's where we're at.
I can I can perfectly accept a long winded answer when when when some of these other regions are starting to contribute so.
Thank you for going into that detail as we look at one of those higher.
Value markets that I think are is foundational to to what you're trying to accomplish going forward. The last that was a nice number here in the quarter.
Rick I think you've called out the the detector Covid test as well as HIV syphilis as I'm meeting the key drivers there. So two questions related to the U S. One.
I would hazard, it's safe to say, but I'll, let you say it is it safe to say that even with the HIV simplest contribution that you've seen already you are bare.
Barely scratching the surface of the opportunity given ethically away, we're still in front of you and then a number two on on that as you talk about some of the O T C D DTC type opportunities globally.
It stands to reason that there is a logic for you to have a retail opportunity here domestically as well, whether it's the walgreen's is or minute clinics and that sort of thing here is that something that you're pursuing and what are the gating factors to penetrating that on.
<unk>.
Yeah. So pair are we do have a strategy for the U S.
R. H I V civil assess we've talked a lot about we're at the end stages with the F D. A.
In terms of getting nuclear waiver, we're hopeful that you know as in queue for early Q1, we talked about the market in the U S. Most most of the HIV simplest combination testing.
And the U S is is point of care isn't a physician opposites, an obgyn office.
Where they want to get a quick results for both HIV and syphilis.
So treatment can be you know.
Immediately implemented upon testing.
So the the CLIA labs in the United States, We just did some analysis on how.
How many clear labs now exist in the United States Post Covid.
And it's 250000, CLIA waived labs, which are mostly urgent care centers.
Physician offices, and so forth. So we are really optimistic that once we get clear waiver that will see tremendous growth in the United States and the other thing I would say about HIV surplus.
As in this sexually transmitted disease community one of the reasons. The C. D. C is concerned is there seeing a growth and co infections.
So if you're infected with syphilis the risk of your partner being infected with HIV if that patients HIV positive is five to six times.
The risk so the cdc's pushing for additional simplest testing.
<unk> is growing up potentially in the United States and the C. D C is tracking that.
So the CDC part of the 3.2 million dollar grant to <unk>.
Bio was because they saw the value of our multiplex DPP product, allowing a physician to diagnose and treat immediately in one visit.
Before the patient leaves the office and maybe is is not back for a second or third visit especially during pregnancy.
Very very important.
So we're very very delighted that the CDC has committed to us that kind of funding to take this product.
The simplest screen and confirm the TNT products through full development and clinical trials.
Which will be happening in 2023.
[noise] regarding O T C in the United States for R. H I V home test or self test.
We're seeing again tremendous interest in the C. D C. They just announced I Wanna say three weeks ago, a 42 million dollar program.
To make tests available for people to test at home discreetly and that's what we're seeing the city's interest is that a lot of times people are reluctant to get tested in a physician to authors or urgent care centre, because it's not discreet.
But the home test the self test will allow discrete testing for an individual in the privacy of their homes.
So the CDC is also very interested in supporting us.
Because we have a very very.
Proven.
Sure check product because it's been it's been on the market since two.
2018 in Europe , and it's W. H O certified or approved.
C E Mark and visa approved in Brazil. So we got a really good performance track record and that's what they are seeing with our sure check product is that they're seeing the performance is extremely good compared to the competition. It's extremely easy to use it has the world's smallest.
Full blood fingers sticks sample, which is basically 2.5, microliters, which is a drop of blood.
And so we are in the early stages of discussions with the F D. A and a C. D. C. On how we can accelerate an abbreviated clinical trial in 2023 to get that O T C product for H I V onto the market in the U S.
So we are going after the higher value markets. The other thing I would add pair that we haven't really talk a lot about.
Is that we are now selling a flu product and a respiratory image and product in the United States. We branded by the name of status. So if we do have a flu season, and we're beginning to see an uptick in flu fluid incidents in the United States.
Coming up in the South and moving North So if we do have a pretty typical flu season, we're in a position of great position with a flu product standalone flew product as well as a respiratory energy brought it that's a tax COVID-19 flew a and flew big.
So that's where we're moving higher value markets higher average selling prices and hopefully that's another long answer your question, but it's it's imperative to our strategy is.
As we move into 2023.
That makes sense I ask one question. So logged upon your answers are perfectly logical.
That's gonna sound odd going back away from higher higher margin and higher value testing, but as you roll R. As you as you have the Malaysia agreement in place you have automation more or less fully in place of long Island. You know the company is thank you.
Characterize it as in the past kind of chasing revenue for revenue sake.
Are you in a position.
Do you have any desire to change any of that business now that you.
You actually could probably make a little more money on it then the company historically is.
Yup here, we are we're not focused on the high volume low margin business meeting.
We're we're already in certain algorithms and.
Seven countries in Africa.
There is always changes the algorithms it changes from year to year for example, Ethiopia algorithm that was a three year contract.
They started in 20 and a 2018.
And so again it was it was it was gross margins below our expectations.
We've said, Larry and I, both said, we want to get into the 40% to 60% range for gross margins and and although that high volume business.
Can have a contribution margin two two chronic margins you know it takes resources to go after that business.
<unk>.
You know we are in a position now, though with Malaysia in our Malaysian partner that.
If there's opportunities that come around for Stat pack in southeast Asia, like Indonesia, Malaysia, Thailand Vietnam.
Our cost of production is in a position where we can compete.
But it's.
It's not our focus you know the commercial organization as I said is is extremely focused on higher margin products reviewing that business is opportunistic.
If we can if we can win some.
Some business in some of the algorithms in Africa.
We're pursue it.
But we're not going to compete on price.
With manufacturers from Korea, and China, where we're seeing price erosion be incredible.
So.
Against that pack is a great track record a great performance.
Uhm among the W. H O and global funded countries, it's been out there for many many years <unk>.
And we also raised our price recently.
So.
Again, it's an opportunistic view on on that business at this point.
Okay. Good uhm I liked that answer.
Sales into the last my last one I promise I won't have to call further.
Mmm.
The elephant I guess in the room as you know the the death and the and the.
Revenue covenants and as Larry noted in your in full compliance.
What's the trailing 12 months and I think back of the envelope would lead me to believe.
It won't take you Hercules herculean effort to get their hearing Q4, but when Q1 of 22 rolls off X a fairly big number of that.
Goes away and I think while we all appreciate it I'm not chasing revenue for revenue sake.
The covenant I suspect ends up you could end up being an issue you know maybe in Q1 or two 223.
Is that short of short of paying off some or all of that debt is there are there discussions in place to try to reconfigure that.
Situation or relationship so that.
You know, maybe you're not feeling like you're forced to go and chase bad business just to make a number.
Yep Yep parents married I'll answer that so yeah. We we are proactively searching all options, we do have and that's one filing out there. So that is certainly an option and now we're where you want to address this year.
<unk> quarter as we look out we we want to be able to start to minimize our cashback.
And then address our capital structure can we we feel it is a major overhang to our our company and evaluation. So as we will get through the next month's we would look to update everyone on where we are either with the kappa raise or other options and certainly speaking to your lender.
So more to come an absolutely a major priority for us as a company to to get through that that that agreement.
Fantastic. Thanks for the color all of it. Thank you Yep Mmm. Thank you bear.
Gentlemen, after appear to be no further questions in the queue and the back to Rick for any closing comments he has to finish with.
I want to thank you for your time today.
Really appreciate you know the the questions from here [noise]. So again, thanks for your time and have a good evening.
Thank you, ladies and gentlemen, and this does conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation.