Q3 2022 LumiraDx Ltd Earnings Call
Speaker 1: You you.
Speaker 2: All right.
Speaker 3: Good day and thank you for standing by. Thank you for joining Numerics DX third quarter 2022 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hands raised.
Speaker 3: Please be advised that today's conference is being recorded. I would like to turn the call over to Colleen. Please go ahead.
Speaker 4: Hello everyone, we'd like to welcome you to today's call to discuss Lumiere DX's third quarter 2022 financial results issued earlier today. With us are Lumiere DX's Chairman and CEO , Ron Zwanziger, and Chief Financial Officer, Dorian LeBlanc. The press release announcing our financial results is posted on the investor relations section of the company's website at lumieredx.com.
Speaker 4: Before we begin, I would like to caution listeners that any statements we make today, other than historical facts, are forward-looking statements made pursuant to the Safe Harbor provision of the Private Security Mitigation Reform Act of 1995. Please be aware that all such forward-looking statements involve risk and uncertainty. Texas's details and our annual reports on Form 20-S for the year ended December 31, 2021.
Speaker 4: which was filed with the FCC on April 13, 2022, and our report on Form 6K that was filed with the FCC on August 16, 2022, and in other filings that we make with the FCC. Any forward-looking statements that we make must be considered in light of these factors. Actual results may vary materially. Also, during the course of today's call, we may refer to certain non-IFRS financial measures.
Speaker 4: Non-IFRS financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with IFRS. There is a reconciliation schedule showing the IFRS versus non-IFRS results currently available in our press release issued earlier today, which can be found on our website at LumiereDX.com. I will now turn the call over to Ron Zwansiger for opening remarks.
Speaker 5: We'll then provide financial and business updates before answering questions. Ron? Thanks, Colleen. Good morning, everyone, and thank you for joining our third quarter 22 results call. As announced this morning, we continue to make progress commercializing new products to improve our growth. At the same time, we've achieved substantial cost savings from restructuring with Featherscope to exceed our original target.
Speaker 5: these efforts advance our strategy to transform point of care diagnostics while strengthening our financial position.
Speaker 5: As the overall market for COVID testing has dropped after the surge at the beginning of the year, we have realigned our operations to address customer needs efficiently. We also strengthened our market positions for expansion and diversification of our customer base thanks to widely recognized performance and cost advantage over competitors.
Speaker 5: As we begin manufacturing multiple non-COVID test strips using common materials, we're realizing the benefit about single highly automated manufacturing process across our menu of assays.
Speaker 5: Third quarter revenues were about 42 million mainly with COVID sales. This performance was supported by expansion of our installed base and use cases in key markets including the
Speaker 5: New product launches will contribute significantly to complementing COVID revenues in the next few quarters, which I'll cover shortly.
Speaker 5: We shipped 900 platform instruments in Q3, primarily to the US, Germany and Japan.
Speaker 5: Instrument shipments to Germany and Japan represent opportunities in border, respiratory, and cardiomycotic testing.
Speaker 5: I want to highlight that approximately 5% of test trip volume shipments in the third quarter were for non-COVID tests such as INR, CRPD diamond, flu combo.
Speaker 5: These volumes are enabling customers to evaluate and pilot new use cases for point-of-care diagnostics.
Speaker 5: Now sharing our progress and the four key priorities we've been looking at for advancing our strategy to drive financial performance.
Speaker 5: to shape our organization and cost basis to support strong innovation and commercial success.
Speaker 5: to commercialize our newly authorized CE marked product portfolio in Europe and other international markets.
Speaker 5: to progress our revenue pipeline and 5KK plan.
Speaker 5: and to accelerate the development of our highly sensitive component of molecular assays on the platform.
Speaker 5: First, we take very seriously the task of strengthening the company's overall financial position.
Speaker 5: And this is where awareness is resulting in advancements towards that goal in 2.3.
Speaker 5: Cost reduction has been a significant focus and we have strong results to show from those efforts.
Speaker 5: We accomplished our initial plans targeting operating expense savings of $16 million per quarter and have already implemented further cost reductions to bring this expected savings to approximately $18 million per quarter.
Speaker 5: We can further reduce our cost base if necessary to ensure sufficient cash resources throughout 2023.
Speaker 5: As previously discussed, we reshaped the organization and cost basis to focus resources on the schemes and strategic priorities I've highlighted.
Speaker 5: We are exploring strategic partnerships, as we mentioned on the 2CORE, to provide additional avenues for development.
Speaker 5: developing and commercializing our platform, and look forward to updating you on these opportunities.
Speaker 5: We continue to deliver on our priority of commercializing new products in Europe and other international markets.
Speaker 5: We commenced commercial shipments of hemoglobin A1c, a new fingerstick assay for screening and monitoring diabetes that delivers results in under seven minutes. The rollout started with Europe , which is a key market for achieving our platform consolidation strategy at primary care.
Speaker 5: Our initial test menu is designed to enable customers to consolidate three different instruments they are currently using into a single ZMIR-DS platform and workflow right now and the opportunity to consolidate up to six instruments in the next 18 to 24 months.
Speaker 5: We are scaling manufacturing of hemoglobin A1c implant to launch additional countries in the next few weeks.
Speaker 5: Early customers include hospitals, pharmacies and enterprises that are looking to repurpose the Lumere DX platform for its broader testing capabilities.
Speaker 5: We're also on track to launch the NT-pro BMP by the end of this year. Positive initial feedback from key opinion leaders despite the value of diagnosing congestive heart failure.
Speaker 5: in patients at community care settings using NT-ProBNP Fingerspin example that delivers accurate results in proptments.
Speaker 5: We commence commercial shipments of our new 5-minute COVID Ultra test, COVID Ultra Pool and the COVID and flu combination test.
Speaker 5: Offering a comprehensive respiratory menu on a single platform delivers a critical advantage during this stage of the pandemic, given the need for customers to quickly and easily differentiate COVID from other widely circulating traditional respiratory viruses that are prevalent in the patient population this season.
Speaker 5: We see significant demand from existing customers in Italy, UK, Germany and Japan to convert some COVID testing to these new products.
Speaker 5: In addition, we're seeing growth opportunities from new customers for COVID and flu tests, especially in Japan, with early orders fulfilled for the current respiratory season.
Speaker 5: We believe this demonstrates the value of innovation in our respiratory portfolio and will aid in retaining and gaining market share and customer adoption.
Speaker 5: Shifting to the United States, we're addressing the opportunity
Speaker 5: to progress our U.S. revenue pipeline.
Speaker 5: In 2022, we more than double our testing size and diversify our customer base for COVID testing across health systems, primary care, pharmacy and enterprise settings.
Speaker 5: As previously shared, we're actively working on 510K submissions for both COVID Ultra and COVID plus flu combination tests. We plan to initiate clinical studies during the current respiratory season.
Speaker 5: We plan to focus the rest of the year of next year, that is, on accelerating and completing these programs and then initiating HbA1c ion-on strep molecular clinical studies and registration plans in the first half of next year.
Speaker 5: Next, our commitment is to accelerate the development of high-value assays and the capability to perform the test on our platform.
Speaker 5: Our first molecular product in development is a TruePoint of Care TB test, which delivers results in 20 minutes from an easy-to-collect tongue swab sample.
Speaker 5: We're close to finalizing the strip design, having started manufacturing test strips, and are just initiating a pre-mechanical study in the field.
Speaker 5: In summary, we continue to progress on our strategic milestones, enabling us to deliver our mission for improved health outcomes at lower cost through fast, accurate, and comprehensive diagnostic information at the point of need. I'll now hand over to the next speaker.
Speaker 5: things over to Dorian to go deeper into our financial performance. Dorian?
Speaker 6: Good morning. As Ron said, we have made significant progress this quarter to position our company for growth while strengthening our financial position.
Speaker 6: We believe that our focus on the four priorities Ron discussed, our experience scaling production quickly during the pandemic, and our manufacturing advantages position us to successfully grow new product volumes.
Speaker 6: on the four priorities Ron discussed, our experience scaling production quickly during the pandemic, and our manufacturing advantages positioned us to successfully grow new product volumes in 2023.
Speaker 6: Total revenues for the quarter were $42.2 million.
Speaker 6: This represents a $2.5 million decline from our prior quarter, which was primarily due to the impact of the strong US dollar versus the British pound and the euro.
Speaker 6: Excluding the impact of foreign exchange, revenues in Q3 2022 declined 2% from Q2 2022.
Speaker 6: Our point of care platform test trip revenues were $26.9 million and the total volume of test trips shipped within the quarter was equal to the total test trips shipped within Q2 2022.
Speaker 6: Sales of instruments, accessories, and other items related to our point of care platform will 1.7 million.
Speaker 6: Our Fast Labs revenues were $9 million in Q3.
Speaker 6: substantially all of the revenues for test strips and fast labs were derived from our COVID-19 products.
Speaker 6: Finally, our third party distribution revenues were 4.6 million for the quarter.
Speaker 6: Our gross margins for the quarter were 20% compared to 11% in Q2 2022. While core test strip margins remain strong, we recorded an additional inventory reserve of 9 million related to excess COVID-related inventory in the quarter and will continue to review the carrying value of that inventory for COVID-related items as we understand testing demand better while progressing through this respiratory season.
Speaker 6: Depreciation expense included in cost of sales for the period was $3.6 million.
Speaker 6: Excluding non-cash items in the period such as depreciation, amortization, stock-based compensation, and the inventory reserves, total adjusted gross margins were 52%.
Speaker 6: Again, our core test strip margins continue to exceed our target of over 80%.
Speaker 6: The adjusted gross margins are reduced by the impact of instrument placements.
Speaker 6: revenue from instrument sales, FastLab reagent sales, and our third-party distribution sales, all of which have lower gross margin profiles than our point-of-care test strips.
Speaker 6: We have a strong inventory position for instruments, reagents, and test strip raw materials, which are common across our point of care.
Speaker 6: testing products. As we manage down our inventories and operate with a reduced manufacturing expense base after our global restructuring, we anticipate revenues in the coming quarters to carry a high cash contribution.
Speaker 6: Our non-IFRS R&D expenses for Q3 were $29.2 million, a decrease of 35% from the second quarter of this year.
Speaker 6: As previously discussed, we incurred higher R&D expenses in Q2 2022.
Speaker 6: achieving European CE marking of the new products that we are now launching.
Speaker 6: In addition, the Global Restructuring Plan implemented during the third quarter reduced expense.
Speaker 6: expenses. Our non-IFRS SG&A expenses for Q3 were $27.9 million or a decrease of 10% from the second quarter.
Speaker 6: The reduction was partially from our global restructuring program, but was also impacted by the strong US dollar as our European expense base for both R&D and SG&A translated into two and a half million lower expenses in US dollars for the quarter versus Q2 exchange rates.
Speaker 6: While we maintain a portion of our cash balances in pounds and euros, the net impact of a continued strong US dollar is a benefit to the company as our foreign currency expense base exceeds our foreign currency revenues.
Speaker 6: While we cautiously guided there would be minimal impact in Q3 from our restructuring program, we were able to accelerate our plans in several areas and fully implement the program to realize our committed $16 million per quarter of savings from our first half 2022 expense base.
Speaker 6: As Ron noted, we have recently implemented additional cost reductions that will bring the overall quarterly savings to approximately $18.
Speaker 6: As we progress through 2022 and move into 2023, we will continue to take measures to manage our cost base while focusing on our near-term commercialization activities and assay launches and on our US 510K submissions.
Speaker 6: The non-IFRS operating loss for Q3 2022 was $47.9 million, representing a $22.6 million reduction in the operating loss from Q2 2022.
Speaker 6: We anticipate the impact of our global restructuring program to continue this improving trend.
Speaker 6: At the end of Q3 2022, we had cash and cash equivalents of $135.3 million and we have the ability to ensure our existing cash position can fund the company throughout 2023.
Speaker 6: Thank you and we are now ready to take your questions.
Speaker 3: Thank you. As a reminder, if you have a question, please press star 11 on your telephone.
Speaker 3: One moment while we compile the Q&A roster.
Speaker 3: The first question that I have is coming from Vijay Kumar of Evercore. Please go ahead, your line is open.
Speaker 7: Hi, this is Alexandra on for Vijay. I have a couple of questions here. Maybe we can just start at the top with the HBA1c launch. And if you could talk about the reception and feedback you've seen there and when we're going to see the revenues ramp for that and the NP.
Speaker 5: Well, the response we have had even before
Speaker 5: we started shipping was excellent. And customers, everything where we have the platform in Europe and elsewhere, including where we don't have registrations, have been asking for the product. So the product performance is, as we've always said, that we provide lab performance in the point-of-care setting. We had some early studies with the testing agencies that look at the...
Speaker 5: product from a performance, not from a regulatory standpoint and showed that we had exceptional performance and so customers are picking it up and we expect to see significant growth.
Speaker 5: Throughout next year and well beyond, we think it's going to be one of the.
Speaker 5: important, most important products in our portfolio.
Speaker 7: Great. And then if I could just have a couple follow-ups on the troponin test. When are we or when can we expect to see data being published and then also what is the timeline on the EU filing and then I have a couple on the financials for Dorian as well.
Speaker 5: Well, it's taking a little while. It's been partly affected by the cost-cutting that we've implemented. So I can't be extremely definitive about exact timing. I will comment that the performance we're seeing on the product is outstanding.
Speaker 5: So, I'm afraid I can't be more definitive than that because of the cost basis, but we're continuing to move the product forward.
Speaker 7: Okay, and then just on the financials, I guess two things for the margin growth margins coming in slightly above 20% in the quarter, were there any one time impacts? And then from the restructuring that jumped from 16 to 18 million, does this change your path to profitability at all? The implied force drop-ex is around 60 million. Is that going to be a run rate that we can apply to 23?
Speaker 6: All right, so on the gross margin, the largest – As NBC News analogue triumphantote Liz
Speaker 6: You know issue that we've dealt with is the inventory reserves. So a 9 million dollar inventory reserve. I think that the strength of the respiratory season will determine whether we have additional inventory at risk and we'll continue to assess that.
Speaker 6: But that was the largest one-time item in the gross margin.
Speaker 6: the reductions, the $18 million quarterly reduction is off of the expense base from the first half of the year.
Speaker 6: So we should see that continue to.
Speaker 6: to get the full impact here in the fourth quarter. Sustentially all of those measures have been taken and completed.
Speaker 6: And then going into next year, the path to profitability is a question both on the expense base and on the revenue ramp and the impact of COVID. But we do anticipate at these revenue levels that we'd be approaching break even as we exit 2023. Thank you.
Speaker 7: Okay, thank you.
Speaker 3: One moment while we prepare for our next question.
Speaker 1: Thank you.
Speaker 3: The next question that we have will be coming from Jeffrey Cohen of
Speaker 3: Your line is open.
Speaker 8: How are you?
Speaker 6: Very good, Jeff.
Speaker 9: Good morning.
Speaker 8: Tell us more specifically what types of tests were going out and was that Q3 shipments and was that Q3 shipments and what was the
Speaker 8: specific to those three countries?
Speaker 5: Dorian, you probably have more of the detail, but the shipments into Germany and Japan were primarily driven by non-COVID. They were driven by flu and A1C or preparations for A1C and other tests. Dorian, do you have a better answer?
Speaker 6: Yeah, the Japan were driven largely by the flu test and then for You know Germany in that area of Europe it really is our strategy of selling the multi analyte solution You know by combining the respiratory with INR d-dimer CRP a1c and soon NT pro We can displace three of the leading competitive instruments in a single customer location with a single solution
Speaker 6: So that value proposition of being able to displace multiple instruments.
Speaker 6: with higher performing and cost competitive content.
Speaker 6: is really beginning to take hold here and really just starting to take hold at the very end of Q3. And that's what has us excited about the momentum in Q4 and heading into 2023. Uh, able to.
Speaker 6: adopt that commercial strategy that we've been waiting to adopt with the launch of A1C in particular.
Speaker 8: Okay, got it. And then, Doreen, any further color on......
Speaker 8: forward looking on the the OpEx expenditure was your 18 million dollar reduction call out off of Q3's 57 million on an OpEx front.
Speaker 6: The 18 million is off of the expense base from the first half of the year. So we did realize a portion of that within Q3. We did have the benefit of the foreign exchange.
Speaker 6: So, if that if the dollar stays where it is, obviously that will endure. But you should think of it as an $18 million reduction off of the expense base in the first half of the year.
Speaker 10: Got it.
Speaker 8: Any further color on the finance expense taken for the third quarter? I know that a fair amount of it was labor related and staffing.
Speaker 6: The finance expense below operating income?
Speaker 6: Yeah, so none of that was related to the restructuring. We included those costs within the core operating expenses.
Speaker 6: And we may break those out in Q4. In Q3 they weren't substantial. The largest expense in finance expenses is just the internal revaluation of intercompany balances between the group that are long term balances. So we have a lot of pound functional currency entities and they have intercompany balances with our US dollar entities.
Speaker 6: And as the currencies move, that's just a non-cash revaluation internally. It will never lead to any cash impact for the company.
Speaker 6: We call that out for high-press adjustments.
Speaker 8: And then finally for us, can you talk about the Ultra platform a little bit as far as number of tests now on it currently and any other of the tests out there, whether they are respiratory or metabolic that you plan to...
Speaker 8: get faster with the Ultra platform.
Speaker 5: Well the Ultra platform which gets even increased performance
Speaker 5: even though our first test already achieved lab comparable performance and reduces the time of the test considerably, is gradually going to become the standard for our product over time.
Speaker 5: And so we currently have the COVID on it, but the flu and flu beyond Europe is going to be on it. But over time, all our tests will be on it.
Speaker 8: Okay, so we'll hear more about that happening test by test going forward, I suppose. Yeah, we'll give you a constant update. Sure. Okay, so we'll give you a constant update.
Speaker 10: Okay, that's perfect. And then...
Speaker 8: One more question on the.
Speaker 8: Fast Labs were primarily COVID related, the Fast Lab revenue for the quarter. And any outlook there on how that might look through the balance of this year and next year on Fast Labs, or should that largely kind of follow the path with regard to general COVID testing.
Speaker 5: Well, that's a complicated question because we are starting to put additional tests onto the platform. So that brings an assessment of regulatory issues into play by countries. But we are in the process of turning what originally was supposed to be a product was supposed to help in the pandemic.
Speaker 5: But it's taken such a hold in the labs that we are turning it into a fully-fledged product line. There will be a bunch of other tests going through the usual procedures.
Speaker 8: Okay, perfect, got it. Thanks for taking our questions.
Speaker 3: Thank you. One minute while we prepare for the next question.
Speaker 3: I have the next question is coming from Mark Massario of BTIG. Your line is open.
Speaker 4: Hey, guys. This is Vivian Anand from Arts Prince for taking the question. So I was wondering if we could revisit the long-term revenue target of exiting 2025 at a run rate of $1 billion in revenue. Is that still your thinking? And any thoughts you could share on your updated view for endemic COVID or flu contributing to the 15 to 20%-ish range of revenues? Thanks.
Speaker 5: Well, taking the last question, your second part of your question first.
Speaker 5: Um
Speaker 5: We had taken the view.
Speaker 5: pretty early in the pandemic.
Speaker 5: that we thought that...
Speaker 5: that the most likely outcome would be an endemic phase which would essentially move the respiratory.
Speaker 5: part of our business from about 10% long term.
Speaker 5: to maybe more in the range of 15 to 20 percent. And I don't think there's anything we've seen recently that changes that view. I'm talking about 15 to 20 percent has changed our view on that.
Speaker 5: so
Speaker 5: So, I think that's pretty much the same. So, we haven't changed. On the first part of your question about our target revenues,
Speaker 5: Because our focus at the moment is very much on the short term and the current test that we have in Europe are launched, and we're making sure that those get launched in the US next year. Our focus is very much on those and part of the impact of cost cutting.
Speaker 5: inevitably hits some of the R&D programs longer term. So, although we haven't sort of looked at the specific question you asked, given sort of the nature of being much more careful about investing in R&D as a result of us being very focused on cash and utilizing cash more effectively in particularly in the short term, I guess I'll just ignore of my one CL
Speaker 5: We haven't thought that through specifically in detail, but I have to say I think it'll be impacted
Speaker 5: because of our focus on cash.
Speaker 4: Could you also remind us, following the restructuring, what the highest priority near-term R&D pipeline assays are, the stage of development they are in, and any updated outlook on when you might resume development of the MIRA.
Speaker 5: Well, on Amira we're not rushing into that. So I don't think, we certainly don't have a date on that. That's more pandemic related and let's hope the pandemic doesn't recur vigorously because that would certainly cause us to go back to it. But in terms of in the short term, we're not going to be able to get into that.
Speaker 5: The fastest way to get revenues up, of course, is to not only...
Speaker 5: focus very hard on the test that we have now in Europe , because we've now, as we launch the anti-probe BMP in Europe , which is imminent, we will have the base business for community-based testing. And so we have a wonderful set of tests that replace three instruments at the moment. So that's our focus. And that's why we're very focused next year on working the regulatory aspect to bring those.
Speaker 5: into the US. But in terms of some of the items that are in the pipeline that we're focused on, molecular strep A, which I think we mentioned, is those that we are focused on near term as well. A strep in general is one of the missing.
Speaker 5: items in our portfolio, so we're pretty focused on that. So that's one example of something that we're focused on in the short term, but it's not already in the immediate launch.
Speaker 11: Great, thanks for taking the question.
Speaker 3: Thank you.
Speaker 3: One moment while we prepare for our final question.
Speaker 3: And we have our final question will be coming from Andrew Cooper of Raymond James. Your line is open.
Speaker 12: Hey, everybody. Thanks for the questions here. Maybe just circling back on the pipeline and on the trajectory there, when you first talked about these prospects, the language was doing so in a way that didn't necessarily slow down some of the higher priority launches. We're sitting here today thinking about troponin coming a little bit later and potentially because of that. I think you had said group A strep, you were going to run this trial this respiratory season. So I guess is that still the case?
Speaker 5: we have real solutions in those settings, whether it's...
Speaker 5: in doctors' offices or the pharmacy. And so our willingness to let troponin slip is because it doesn't, it's a separate target. Obviously you don't need troponin testing in the community. It's a ER-based test. And although we have quite a number of ERs, the vast majority of our installed base and where we're heading remains in the community. So as we're being careful.
Speaker 5: we can let that slip, but in the case of groups, of the Strep A, group A Strep, as you called it, test, that's community based, so we're working on that, and we're working on other tests as well, which are community based in the short term.
Speaker 5: for the short term.
Speaker 12: Okay, and then maybe 1 more last call. I think you had talked about.
Speaker 12: ongoing discussions for potential strategic partnerships. Ideally, I think you had said you'd like to have something by the end of the year. So just, can you give us an update on how those conversations have gone, where you're sort of focused in those conversations, whether geographical or in different parts of the market and what we should be expecting from the communications standpoint around that initiative.
Speaker 5: Well, I won't go into, for obvious reasons actually, exactly where the nature of them are. But we've got to the stage now where we're talking particular details with several of the strategic. One or two have got a bit complicated because they're more interested in a full acquisition.
Speaker 5: We remain focused on working a strategic relationship. We hope to narrow the field down by the end of the year to two and at the most three, and then hope and then finalize something soon thereafter.
Speaker 12: Okay, great. I'll stop there. Thanks for the question.
Speaker 5: Thank you for your questions. I would now like to go ahead and turn the call back over to CEO Ron Zemweger for closing remarks. Okay, thank you Lisa. Let me just conclude by saying we took timely action to right-size our business as the COVID demand shifted to an endemic stage as we near the end of this year and looking ahead to the coming year.
Speaker 5: We're in a position of strength in which to address customer and market opportunities efficiently.
Speaker 5: Indeed, while focusing our financial operations and strengthening the company's financial position, we've reinforced our market position with customers and advanced our product and pipeline strategy for transforming the $50 billion point-of-care market. We look forward to updating you on our progress and appreciate your continued support. Thanks very much.
Speaker 3: Thank you all for participating in today's conference call. You may all disconnect. Everyone have a great day. The conference will begin shortly. To raise your hand during Q&A, you can dial star 1 1.
Speaker 1: You
Speaker 1: you
Speaker 3: Good day and thank you for standing by. Thank you for joining Numerics DX third quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand.
Speaker 3: Please be advised that today's conference is being recorded. I would not like to turn the call over to Colleen Mullins. Please go ahead.
Speaker 4: Hello everyone, we'd like to welcome you to today's call to discuss Lumiere DX's third quarter 2022 financial results issued earlier today. With us are Lumiere DX's Chairman and CEO Ron Zwanziger and Chief Financial Officer Dorian LeBlanc. The press release announcing our financial results is posted on the investor relations section of the company's website at lumieredx.com.
Speaker 4: security of the Safe Harbor provision of the Private Security Litigation Reform Act of 1995. Please be aware that all such forward-looking statements involve risk and uncertainty.
Speaker 4: which was filed with the FCC on April 13, 2022, and our report on Form 6K that was filed with the FCC on August 16, 2022, and in other filings that we make with the FCC. Any forward-looking statements that we make must be considered in light of these factors. Actual results may vary materially. Also, during the course of today's call, we may refer to certain non-IFRS financial measures.
Speaker 4: Non-IFRS financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with IFRS. There is a reconciliation schedule showing the IFRS versus non-IFRS results currently available in our press release issued earlier today, which can be found on our website at LumiereDX.com. I will now turn the call over to Ron Zwansiger for opening remarks.
Speaker 4: We'll then provide financial and business updates before answering questions. Ron?
Speaker 5: Thanks, Colleen. Good morning, everyone, and thank you for joining our third quarter 2022 results call. As announced this morning, we continue to make progress commercializing new products to drive home growth.
Speaker 5: At the same time, we've achieved substantial cost savings, like restructuring with further scope to exceed our original target. These efforts advance our strategy to transform point-of-care diagnostics while strengthening our financial position.
Speaker 5: As the overall market for COVID testing has dropped after the surge at the beginning of the year, we have realigned our operations to address customer needs efficiently. We also strengthened our market positions for expansion and diversification of our customer base thanks to widely recognized performance and cost advantage over competitors.
Speaker 5: As we begin manufacturing multiple non-COVID test strips using common materials, we are realizing the benefit of our single highly automated manufacturing process across our menu of assays.
Speaker 5: Third quarter revenues were about 42 million, mainly with COVID sales. This performance was supported by expansion of our installed base and use cases in key markets, including the US.
Speaker 5: New product launches will contribute significantly to complementing COVID revenues in the next few quarters, which I'll cover shortly.
Speaker 5: We shipped 900 platform instruments in Q3, primarily to the US, Germany and Japan.
Speaker 5: Instrument shipments to Germany and Japan represent opportunities in border, respiratory, and cardiomy metabolic testing.
Speaker 5: I want to highlight approximately 5% of test-trip volume shipments and third quarter work for non-COVID tests such as INR CLPD Diamond Foo Combo. such as INR CLPD Diamond Foo Combo.
Speaker 5: These volumes are enabling customers to evaluate and pilot new use cases for point-of-care diagnostics.
Speaker 5: Now sharing our progress and the four key priorities we've created for advancing our strategy to drive financial performance.
Speaker 5: to shape our organization and cost basis to support strong innovation and commercial success.
Speaker 5: to commercialize our newly authorized CE marked product portfolio in Europe and other international markets.
Speaker 5: to progress our revenue pipeline and 5KK plan.
Speaker 5: and to accelerate the development of our highly sensitive component of molecular assays on the platform.
Speaker 5: First, we take very seriously the task of strengthening the company's overall financial position.
Speaker 5: And this is where awareness is resulting in advancements towards that goal in Q3.
Speaker 5: Cost reduction has been a significant focus, and we have strong results to show from those efforts.
Speaker 5: We accomplished our initial plans targeting operating as Mance Evans of 16 million per quarter, already implemented for further cost reductions to bring this expected tailings to approximately 18 million per quarter. We've been expecting tailings to approximately 18 million per quarter.
Speaker 5: we can further reduce our cost base if necessary to ensure sufficient cash resources throughout 2023.
Speaker 5: As previously discussed, we've reshaped the organisation and cost-base to focus resources on the scheme's strategic priority that I've highlighted.
Speaker 5: We are exploring strategic partnerships, as we mentioned on the 2CORE, to provide additional avenues for development.
Speaker 5: developing and commercializing our platform, and look forward to updating you on these opportunities.
Speaker 5: We continue to deliver on our priority of commercializing new products in Europe and other international markets.
Speaker 5: We commenced commercial shipments of hemoglobin A1c, a new fingerstick assay for screening and monitoring diabetes that delivers results in under seven minutes. The rollout started with Europe , which is a key market for achieving our platform called consolidation strategy at primary care.
Speaker 5: I'm in charge of tests and menus designed to enable customers to consolidate three different instruments that are currently using into a single-demarides platform and workflow right now and the opportunity to take some of the entire after six instruments in an S18 to 24 months. And the opportunity to take some of the entire after six instruments in an S18 to 24 months.
Speaker 5: We are scaling manufacturing of hemoglobin A1c and plan to launch additional countries in the next few weeks.
Speaker 5: Early customers include hospitals, pharmacies, and enterprises that are looking to repurpose the Lumeria DX platform for its broader testing capabilities. We are also on track to launch the NT Pro BMP by the end of this year. Positive initial feedback from key opinion leaders fights the value of diagnosing congestive heart failure.
Speaker 5: in patients at community care settings using NT-Pro BMP Fingerspin Example that delivers accurate results improvements.
Speaker 5: We commence commercial shipments of our new 5-minute COVID Ultra test, COVID Ultra Pool and the COVID and Flu combination test.
Speaker 5: Offering a comprehensive respiratory menu on a single platform delivers a critical advantage during this stage of the pandemic, given the need for customers to quickly and easily differentiate COVID from other widely circulating traditional respiratory viruses that are prevalent in the patient population this season.
Speaker 5: We see significant demand from existing customers in Italy, UK, Germany, and Japan to convert some COVID testing to these new products.
Speaker 5: In addition, we're seeing growth opportunities from new customers for COVID and flu tests, especially in Japan, with early orders fulfilled for the current respiratory season.
Speaker 5: We believe this demonstrates the value of innovation in our respiratory portfolio and will aid in retaining and gaining market share and customer adoption.
Speaker 5: Shifting to the United States, we are addressing the opportunity
to progress our U.S. revenue pipeline.
In 2022, we more than double our testing size and diversify our customer base for COVID testing across health systems, primary care, pharmacy and enterprise settings.
As previously shared, we're actively working on 510K submissions for both COVID Ultra and COVID Plus Flu combination tests. We plan to initiate clinical studies during the current respiratory season.
We plan to focus the rest of the year of next year, that is, on accelerating and completing these programs and then initiating HbA1c, INR, strep molecular clinical studies and registration plans in the first half of next year.
Next, our commitment is to accelerate the development of high-value assays and the capability to perform an electrical test on our platform.
Our first molecular product in development is a True Point of Care TB test, which delivers results in 20 minutes from an easy-to-collect tongue swab sample.
We're close to finalizing the strip design, having started manufacturing test strips, and are just initiating a pre-mechanical study in the field.
In summary, we continue to progress on our strategic milestones, enabling us to deliver our mission for improved health outcomes at lower cost through fast, accurate, and comprehensive diagnostic information at the point of need. I'll now hand things over to Dorian to go deeper into our financial performance. Dorian? I'm Chris Ramaswami from the
Good morning. As Ron said, we have made significant progress this quarter to position our company for growth while strengthening our financial position.
We believe that our focus on the four priorities Ron discussed, our experience scaling production quickly during the pandemic, and our manufacturing advantages position us to successfully grow new product volumes.
in 2023.
Total revenues for the quarter were $42.2 million.
This represents a $2.5 million decline from our prior quarter, which was primarily due to the impact of the strong US dollar versus the British pound and the euro.
Excluding the impact of foreign exchange, revenues in Q3 2022 declined 2% from Q2 2022.
Our point of care platform test trip revenues were $26.9 million, and the total volume of test trips shipped within the quarter was equal to the total test trips shipped within Q2 2022.
Sales of instruments, accessories, and other items related to our point of care platform were $1.7 million. Our Fast Labs revenues were $9 million in Q3.
substantially all of the revenues for test strips and fast labs were derived from our COVID-19 products.
Finally, our third-party distribution revenues were 4.6 million for the quarter.
Our gross margins for the quarter were 20% compared to 11% in Q2 2022. While core test strip margins remain strong, we recorded an additional inventory reserve of 9 million related to excess COVID-related inventory in the quarter and will continue to review the carrying value of that inventory for COVID-related items as we understand testing demand better while progressing through this respiratory season.
Depreciation expense included in cost of sales for the period was $3.6 million. Excluding non-cash items in the period such as depreciation, amortization, stock-based compensation and the inventory reserves, total adjusted gross margins were 52%. Again, our core test strip margins continue to exceed our target of over 80%.
The adjusted gross margins are reduced by the impact of instrument placements and revenue from instrument sales, fast lab reagent sales, and our third-party distribution sales, all of which have lower gross margin profiles than our point-of-care test strips.
We have a strong inventory position for instruments, reagents, and test strip raw materials, which are common across our point of care.
As we manage down our inventories and operate with a reduced manufacturing expense base after our global restructuring, we anticipate revenues in the coming quarters to carry a high cash contribution.
Our non-IFRS R&D expenses for Q3 were $29.2 million, a decrease of 35% from the second quarter of this year.
As previously discussed, we incurred higher RND expenses in q2- 2020 -two, achieving europeance marking of the new products that we are now launching. In addition, the global restructuring plan implemented during the third quarter reduced expenses.
Are non-IFRS SG&A expenses for Q3 or $27.9 million or a decrease of 10% from the second quarter.
The reduction was partially from our global restructuring program, but was also impacted by the strong US dollar as our European expense base for both R&D and SG&A translated into two and a half million lower expenses in US dollars for the quarter versus Q2 exchange rates.
While we maintain a portion of our cash balances in pounds and euros, the net impact of a continued strong US dollar is a benefit to the company as our foreign currency expense base exceeds our foreign currency revenues.
While we cautiously guided that there would be minimal impact in Q3 from our restructuring program, we were able to accelerate our plans in several areas and fully implement the program to realize our committed $16 million per quarter of savings from our first half 2022 expense base. As Ron noted, we have recently implemented additional cost reductions that will bring the overall quarterly savings to approximately $18 million.
As we progress through 2022 and move into 2023, we will continue to take measures to manage our cost base while focusing on our near-term commercialization activities and assay launches and on our US 510 case submissions. The non-IFRS operating loss for Q3 2022 was $47.9 million, representing a $22.6 million reduction in the operating loss from Q2 2022.
We anticipate the impact of our global restructuring program to continue this improving trend.
At the end of Q3 2022, we had cash and cash equivalents of $135.3 million and we have the ability to ensure our existing cash position can fund the company throughout 2023.
Thank you and we're now ready to take your questions.
Thank you. As a reminder, if you have a question, please press star 11 on your telephone.
One moment while we compile the Q&A roster. The first question that I have is coming from Vijay Kumar of Evercore. Please go ahead. Your line is open.
Hi, this is Alexandra on for Vijay. I have a couple questions here. Maybe we can just start at the top with the HBA1c launch and if you could talk about the reception and feedback you've seen there and when we're going to see revenues ramp for that and BMP. Well the response we have had even before we started shipping was excellent. We have customers everywhere we have the platform in Europe and elsewhere.
including where we don't have registrations, have been asking for the product. So the product performance is, as we've always said, that we provide lab performance in the point-of-care setting. We had some early studies with the testing agencies that look at the product from a performance, not from a regulatory standpoint, and showed that we had exceptional performance. And so customers are picking it up.
and we expect to see significant growth.
Throughout next year and well beyond, we think it's going to be one of the.
important, most important products in our portfolio.
Great. And then if I just have a couple follow-ups on the triponenanen test, when can we expect to see data being published and what is the timeline on the EU filing and financials for Dorian as well?
Well, Japan is taking a little while. It's been partly affected by the cost-cutting that we've implemented. So I can't be extremely definitive about exact timing. I will comment that the performance we're seeing on the product is outstanding.
So, I'm afraid I can't be more definitive than that because of the cost basis, but we're continuing to move the product forward.
Okay and then just on the financials I guess two things for the margin growth margins coming in slightly above 20% in the quarter were there any one-time impacts and then from the restructuring that jumped from 16 to 18 million does this change your path to profitability at all? The implied fourth drop-ex is around 50 million is that going to be a run rate that we can apply to 23?
So, on the gross margin, the largest issue that we've dealt with is the inventory reserves. So, a $9 million inventory reserve. I think that the strength of the respiratory season will determine whether we have additional inventory at risk and we'll continue to assess that.
But that was the largest one-time item in the gross margin. On the reductions, the $18 million quarterly reduction is off of the expense base from the first half of the year.
So, we should see that continue to get the full impact here in the fourth quarter. Sustentially all of those measures have been taken and completed. And then going into next year, the path to profitability is a question both on the expense base and on the revenue ramp and the impact of COVID. But we do anticipate at these revenue levels that we'd be approaching break even as we exit 2023. Okay. Thank you. Thank you.
One moment while we prepare for our next question. The next question that we have will be coming from Jeffrey Cohen of. Lattenberg, your line is open. The majority is not acquits.
How are you? Very good, Jeff. Ron, you had talked about the metabolic platforms and I think you called out a third of shipping into US, Germany, Japan were on that front. Tell us more specifically what types of tests were going out and was that 2 or 3 shipments?
you. Very good Jeff. Ron you had talked about the metabolic platforms and thank you called out a third of shipping into US, Germany, Japan were were on that front. Tell us more specifically what types of tests were going on and was that Q3 shipments and specific to those three countries?
Dorian, you probably have more of the detail, but the shipments into Germany and Japan were primarily driven by non-COVID. They were driven by flu and A1c or preparations for A1c and other tests. Dorian, do you have a better answer? Yeah, the Japan were driven largely by the flu.
test and then for Germany and that area of Europe it really is our strategy of selling the multi-analyte solution by combining the respiratory with INR, D-dimer, CRP, A1C and soon NT-Pro we can displace three of the leading competitive instruments in a single customer location with a single solution.
So that value proposition of being able to displace multiple instruments with higher performing and cost-competitive content.
is really beginning to take hold here and really just starting to take hold at the very end of Q3. And that's what has us excited the momentum in heading into 2023. Uh, able to.
to adopt that commercial strategy that we've been waiting to adopt with the launch of A1C in particular.
Okay, got it. And then during any further color on...
Forward looking on the, the off ex expenditure. Was your 18Million dollar. Reduction call out off of Q3. 57Million on an off ex front.
The 18 million is off of the expense base from the first half of the year. So we did realize a portion of that within Q3. We did have the benefit of the foreign exchange.
So, if that if the dollar stays where it is, obviously that will endure. But you should think of it as an 18 million dollar reduction off of the expense base in the first half of the year.
Got it.
Any further color on the finance expense taken for the third quarter? I know that a fair amount of it was labor related and staffing. The finance expense below operating income?
Yeah, yeah, so none of that was related to the restructuring, we included those costs within the core operating expenses.
And we may break those out in Q4. In Q3 they weren't substantial. The largest expense in finance expenses is just the internal revaluation of intercompany balances between the group that are long-term balances. So we have a lot of pound functional currency entities and they have intercompany balances with our US dollar entities. And as the currencies move that's just a non-cash revaluation internally.
plan to.
get faster with the Ultra platform.
Well, the Ultra platform, which even increased performance…
Well, the Ultra platform, which even increased performance
even though our first test already achieved a lab-cobbled performance, and reduces the time of the test considerably, is gradually going to become the standard for our product over time. And so we currently have the COVID on it, but the flu and flu beyond Europe is going to be on it. And, but over time, all our tests will be on it.
Okay, so we'll hear more about that happening. Test by test going forward, I suppose.
Okay, that's perfect. And then one more question on the...
Fast Labs were primarily COVID related, the Fast Lab revenue for the quarter. And any outlook there on how that might look through the balance of this year and next year on Fast Labs, or should that largely kind of follow the path with regard to general co-detection.
Well, that's a complicated question because we are starting to put additional tests onto the platform. So that brings an assessment of regulatory issues into play by countries. But we are in the process of turning what originally was supposed to be a product was to help in the pandemic. And it's taken such a hold in the labs.
that we are turning it into a fully placed product line and there'll be a bunch of other tests on it going through the usual procedures.
Okay, perfect, got it. Thanks for taking our questions.
Thank you 1 minute while we prepare for the next question, I have the next question is coming from. Mark of B. T. I. G. your line is open.
Hey, guys, this is Vivian Anand from our experience for taking the question. I was wondering if we could revisit the long-term revenue target of exiting 2025 at a run rate of $1 billion in revenue. Is that still your thinking? And any thoughts you could share on your updated view for endemic COVID or flu contributing to the 15 to 20%-ish range of revenues? Thanks.
Well, taking the last question, your second part of your second part of your question first.
Well, taking the last question, your second part of your question first.
You know, we had taken the view pretty early in the pandemic.
that we thought that...
that the most likely outcome would be an endemic phase, which would essentially move the respiratory.
part of our business from about 10% long term.
to maybe more in the range of 15 to 20 percent. And I don't think there's anything we've seen recently that changes that view. I'm talking about 15 to 20 percent has changed our view on that.
more in the range of 15 to 20 percent. And I don't think there's anything we've seen recently that changes that view. I'm talking about 15 to 20 percent has changed our view on that.
So I think that's pretty much the same. So we haven't changed. On your first part of your question about our target revenues.
Because our focus at the moment is very much on the short term and the current test that we have in Europe are launched, and we're making sure that those get launched in the US next year, our focus is very much on those and part of the impact of cost cutting.
inevitably hits some of the R&D programs longer term. So although we haven't sort of looked at the specific question you asked, given sort of the nature of being much more careful about investing in R&D as a result of us being very focused on cash and utilizing cash more effectively, particularly in the short term, I think the short term is very cardiovascular response to either enroll or Alternative
We haven't thought that through specifically in detail, but I have to say I think it'll be impacted because of our focus on cash.
Okay, understood. Thank you. Could you also remind us, following the restructuring, what the highest priority near-term R&D pipeline assays are, the stage of development they're in, and any updated outlook on when you might resume development of the MIRA. Thanks.
Well, on Amira we're not rushing into that. So I don't think, we certainly don't have a date on that. That's more pandemic related and let's hope the pandemic doesn't recur vigorously because that would certainly cause us to go back to it. But in terms of in the short term, we're not going to be able to get into that.
The fastest way to get revenues up, of course, is to not only...
focus very hard on the test that we have now in Europe , because we've now, as we launch the anti-probe BMP in Europe , which is imminent, we will have the base business for community-based testing. And so we have a wonderful set of tests that replace three instruments at the moment. So that's our focus. And that's why we're very focused next year on working the regulatory aspect to break those.
into the U.S. But in terms of some of the items that are in the pipeline that we're focused on, molecular Strep A, which I think we mentioned, is those that we are focused on near term as well. Strep in general is one of the missing items in our portfolio, so we're pretty focused on that. So that's one example of something that we're focused on.
in the short term that's not already in the immediate launch.
term that's not already in the immediate launch. Great, thanks for taking the question.
Thank you. one moment will we prepare for our final question.
We have our final question will be coming from Andrew Cooper of Raymond James. Your line is open.
Everybody thanks for the, for the questions here. Maybe just kind of circling back on, on the pipeline and on the trajectory there. You know, when you first talked about these prospects, the language was doing so in a way that didn't necessarily slow down some of the higher priority launches. So, so we're sitting here today thinking about troponin coming a little bit later and potentially because of that. I think you had said group A strip, you were going to run this, this respiratory season. So I guess is that still the case?
so that we have real solutions in those settings, whether it's
in doctors' offices or the pharmacy. And so our willingness to let troponin slip is because it's a separate target. Obviously you don't need troponin testing in the community, it's an ER-based test. And although we have quite a number of ERs, the vast majority of our installed base and where we're heading remains in the community. So as we're being careful...
we can let that slip, but in the case of groups, of the Strap A, group-based Strap, as you called it, test, that's community-based, so we're working on that, and we're working on other tests as well, which are community-based in the short term.
Okay, and then maybe 1 more last call. I think you had talked about.
Ongoing discussions for potential strategic partnerships. Ideally, I think you had said you'd like to have something by the end of the year. So just can you give us an update on how those conversations have gone, where you're sort of focused in those conversations, whether geographical or in different parts of the market, and you know what we should be expecting from a communication standpoint around that initiative. Well, I want to go into for provious reasons. That's exactly where.
the nature of them are. But we've got to the stage now where we're talking particular details with several of the strategic. One or two have got a bit complicated because they're more interested in a full acquisition. But we remain focused on working a strategic relationship. We hope to narrow the field down by the end of the year to two and at the most three.
and then hope and then finalize something soon thereafter. Okay, great. I'll stop there. Thanks for the question.
Thank you for your questions. I would now like to go ahead and turn the call back over to CEO Ron Zemwiger for closing remarks. Okay, thank you Lisa. Let me just conclude by saying we took timely action to right size our business as the covered demand shifted to an endemic stage as we near the end of this year and looking ahead to the coming year.
We're in a position of strength in which to address customer and market opportunities efficiently.
Indeed, while focusing our financial operations and strengthening the company's financial position, we've reinforced our market position with customers and advanced our product and pipeline strategy for transforming the $50 billion point-of-care market. We look forward to updating you on our progress and appreciate your continued support. Thanks very much.
Thank you all for participating in today's conference call. You may all disconnect. Everyone have a great day.