Co-Diagnostics, Inc. (CODX) Q1 2023 Earnings Call Transcript

Co-Diagnostics, Inc. (NASDAQ:CODX) Q1 2023 Earnings Conference Call May 11, 2023 4:30 PM ET

Company Participants

Andrew Benson - Head, Investor Relations

Dwight Egan - Chief Executive Officer

Brian Brown - Chief Financial Officer

Conference Call Participants

Theodore O'Neill - Litchfield Hills Research

Operator

Good afternoon and welcome to the Co-Diagnostics’ First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded today. I would now like to turn the conference over to Andrew Benson, Head of Investor Relations. Please go ahead.

Andrew Benson

Thank you. I am Andrew Benson. And joining me this afternoon are members of the Co-Diagnostics management team, including Dwight Egan, Chief Executive Officer; and Brian Brown, Chief Financial Officer. We will begin the call with management’s prepared remarks and then open up the call to questions from our analysts.

Before we begin, we would like to inform the listeners that certain statements made by Co-Diagnostics during the course of this call may constitute forward-looking statements. Any statement about company expectations, beliefs, plans, objectives, assumptions of future events or performance are forward-looking statements. For example, statements concerning 2023 financial and operational guidance, the development, regulatory clearance, commercialization and features of new products, plans and objectives of management and market trends are all forward-looking statements.

This includes statements concerning the company’s forthcoming Co-Dx PCR Home testing platform, which is subject to FDA review and is not yet available for sale. The company believes these statements are based on reasonable assumptions. However, these statements are not guarantees of performance and involve known and unknown risks and uncertainties that may cause the actual results to be materially different from any future results expressed or implied by such statements. Important factors which could cause actual results to differ materially from those in these forward-looking statements are detailed in Co-Diagnostics filings with the SEC. Co-Diagnostics assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events.

In addition, the company may discuss certain non-GAAP financial measures during today’s call. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. We refer you to the company’s earnings release out shortly before this call, which may contain reconciliations to the non-GAAP financial measures presented to their most comparable GAAP results.

At this time, I would like to turn the call over to Co-Diagnostics’ Chief Executive Officer, Dwight Egan. Dwight?

Dwight Egan

Thank you, Andrew and thank you all for joining us. Today, we would like to share our perspective on our recent performance, discuss progress against our long-term strategy and discuss actions we are taking to position the business as we navigate near-term headwinds. Afterwards, we will take questions from analysts.

We remain confident in our strategy and have established several goals to help guide and measure our progress for the remainder of the year. First, we are targeting completion of the clinical evaluations for our initial Co-Dx PCR Home product and device and submission to the FDA by the end of the calendar year. Next, we expect to commence clinical evaluations for our ABC plus RSV tests in this coming flu season. Here I am referring to both the tests that will be utilized on the new platform as well as that which will be sold to our centralized laboratory customers and distributor base. We believe the high throughput clinical laboratory market will continue to play a significant role in diagnostic testing for some time. We intend to continue to develop products to service that sector, of which the ABC plus RSV test is only one. Other tests are currently in various stages of design and development.

A mainstay of our mission for the last decade has been reduction of healthcare costs around the globe by democratizing infectious disease testing. Soon this vision will be made possible by bringing a platform with a high degree of quality and diagnostics directly to both the developed and less developed world. We are now closer than ever to achieving our goal of preventing the spread of infectious disease by making high-quality PCR diagnostics accessible to communities all around the world. Thanks to the progress and the clinical trials for our Co-Dx PCR Home platform and its initial test.

Now an update on clinical trials. There are currently 5 sites conducting clinical trials for the new platform in 4 different states. We anticipate the evaluations and subsequent FDA submission will be concluded by the end of the year. And while we can’t discuss at this time the details of the study results that we have seen thus far, we are pleased to report that the usability scores for overall ease of use as reported by trial participants are all near the top of the scale. We believe an easy-to-use device will facilitate authorization by the FDA and help play a key role in giving patients and physicians the power to know and to make informed timely healthcare decisions whether at the point-of-care or at home.

The first test on the Co-Dx PCR Home undergoing this regulatory procedure is our standalone COVID-19 test. But I would like to underscore that we are not simply demonstrating that the device and chemistry are effective in detecting COVID-19. We are proving to the world that this highly advanced, but simple to use first-of-its-kind testing platform has a role in the post-COVID shift in diagnostics from the laboratory to the point-of-care and even the home. These trials validate the technology and the format that we have already begun applying to other diseases, including a respiratory disease multiplex panel, with ABC plus RSV and a test for tuberculosis.

I now want to highlight the recognition the new platform is already receiving from governmental and non-governmental organizations alike. Recently, we were notified that we had been selected to receive multiple grants for our respiratory multiplex and tuberculosis tests on our new platform. While we are unable to announce the details of these grants, we believe the recognition from these prominent organizations is a testament to the platform technology we are bringing to market, including the new device and our patented CoPrimer technology. One grant is related to the ABC plus RSV respiratory panel on the Co-Dx PCR Home platform as well as additional platform enhancements and was a monumental task that involved a thorough investigation by industry experts into every aspect of the platform. It’s design, history, the chemistry of the reagents, and the individuals responsible with making our vision a reality.

Other grants relate to a tuberculosis product being designed and verified on the Co-Dx PCR Home platform in preparation for validation and clinical trials. Tuberculosis abbreviated MTB or just TB has been highly endemic in certain geographic regions for generations. And despite all advances in modern medicine still took the lives of 1.6 million people in 2021. Some of the uptick in TB incidences and death since 2020 may be the result of funding that might otherwise have been allocated to TB being re-appropriated to COVID-related concerns. This has created an urgency among NGOs to slow the spread of the disease to increase access to gold standard real-time diagnostics, exactly in line with our mission and our new platform.

The global addressable TB diagnostics market is expected to grow from 2.07 billion in 2022 to 3.13 billion by 2029. We believe the interest among NGOs and our new platform partially reflects their refocus on eradicating TB. We regard these grants as being in lockstep with the natural evolution of our vision and strategic plan. The company’s first CE marking received 5 years ago this July was for our Logix Smart MTB test built using our CoPrimer’s technology. The difference between then and now is we have grown beyond mere aspirations and now find ourselves fully in execution mode. With internationally recognized technology, world renowned experts and a point-of-care platform different from anything the world has ever seen, I want to emphasize that our new platform has been designed and engineered to be versatile and durable, with long-term disruptive potential as a diagnostic medical device. Harnessing the power of our patented battle tested CoPrimer’s technology coupled with other proprietary IP, we believe this platform sets a new benchmark for compact point-of-care testing that unlocks the multiplexing potential of real-time PCR.

Our research and planning indicate that multiplex tests can overcome a major price and convenience hurdle with respiratory disease testing, allowing patients to test for multiple diseases with a single sample for a single affordable price. The innovative sample collection cup and sample processing design is also ideal for other multiplex testing panels, such as our planned sexually transmitted infections test. One of the most important innovations over the last year was the ability to test and go, where an end user does not need to maintain proximity to the device or return to it following the runtime and instead receives their result on their smartphone from the cloud on the fly.

The secured cloud-based real-time epidemiology data also provides opportunities for Departments and Ministries of Health to quickly identify and track outbreaks and to provide resources and information where they are needed before diseases spread among a community or region. The cloud-based data system or analysis takes place also allows patients to send test results to their physician or other authorized parties as directed by the end user and in the case of point-of-care locations directly to regulatory authorities as required by law. Our commercialization strategy is being guided by ongoing analysis provided by our respective field marketing research firm that has not only helped us focus in on what we believe will potentially be the most accessible high throughput locations for our initial launch, but has also provided invaluable usability feedback for the device itself, on everything from the price to the packaging, as we better understand the size, scope, and needs of the platform’s total addressable market.

3 years ago, our agility allowed us to quickly develop, test and receive clearance for our Logix Smart COVID-19 test meant to achieve record financial results by providing gold standard PCR diagnostic testing at a time when the need was greatest. As we move into our next stage of growth, we believe the advancements in our at home point of care real time PCR testing platform team of experts working diligently to achieve our shared company vision, growing product pipeline, strong cash position, future grant funding support, and our practice of letting financial intelligence drive our cash management has positioned Co-Diagnostics to execute against our strategic growth initiatives and to pave the pathway for continued success.

We already have several manufacturing lines built for the new device and testing cups and have recently signed a new lease to add to our production capacity. Headcount has grown over 66% compared to prior year quarter. Our investments in talent and R&D remain positive indicators of the progress we are achieving to drive further value for our shareholders. This is facilitated by our strong cash position that reflects our success to this point, and provides the necessary flexibility as we remain in the forefront of the challenging diagnostic landscape.

This concludes my initial remarks. Let me now turn things over to Brian Brown for a review of the key metrics and numbers. Brian?

Brian Brown

Thanks, Dwight. And thank you everyone for joining today’s call. The declining global COVID testing had an unfavorable impact on sales of our Logix Smart COVID-19 tests and resulted in a decline in our financial results compared to the prior year period. For the first quarter of 2023, revenue decreased 97.3% to $0.6 million as compared to $22.7 million in the prior year same period. Gross profit for the year decreased to $0.1 million, compared to $19.4 million in the prior year comparable period. Our gross margin percentage of 16.6% for the first quarter decreased from 85.5% in the prior year period, reflecting a larger percentage of fixed costs in our cost of revenue as compared to recognize revenue.

Total operating expenses for the 3 months ended March 31, 2023 were $10.1 million and approximate increase of 5% compared to $9.6 million in the first quarter of fiscal 2022. The increase was driven by elevated research and development expenses as we work towards achieving our 2023 company goals and initiatives. This increase in research and development expenses was partially offset by a decrease in variable compensation and third-party commissions.

Research and Development expenses in the first quarter were $5.0 million compared to $3.8 million in the prior year period. The increase primarily reflects continued investment in our at home and point of care Co-Dx PCR Home platform and other company initiatives. With clinical trials for our platform ongoing we continue to invest additional time and resources to bring our revolutionary diagnostic testing platform to market. For the first quarter of 2023, income before taxes decreased to a loss of $8.0 million, as compared to income of $13.1 million, achieved in the prior year same period. The loss can be attributed to decrease global demand for COVID testing. We experienced an income tax benefit for the first quarter of $2.3 million, representing an effective tax rate of 28.2%.

As stated on previous calls, our effective tax rate will differ from the U.S. federal statutory rate of 21.0% due to state taxes, permanent items, and discrete items. Net loss for the quarter – for the first quarter of 2023 was $5.8 million, or a loss of $0.20 per fully diluted share, compared to net income of $11.7 million or $0.34 per fully diluted share in the prior year, same period.

Adjusted EBITDA for the first quarter of 2023 was a loss of $7.2 million compared to an adjusted EBITDA gain of $14.7 million in the prior year period. We continue to be deliberate in our actions as we manage the health and flexibility of our balance sheet to ensure positioning for long-term growth. As we make further progress on clinical trials of our platform, we remain deliberate and discerning while we evaluate opportunities that enhance our capabilities, or the timing to bring our platform to market.

Cash, cash equivalents and marketable securities ended the quarter at $75.3 million, down from at $81.3 million on December 31 2022. As was highlighted in Dwight’s remarks, we were recently notified that we were selected to receive multiple grants, which will provide us with additional financial resources and flexibility as we continue to progress on bringing our new at home and point of care platform to market.

Our balance sheet remains solid and we remain committed to maintaining a strong cash position, while also preserving the health and flexibility of our balance sheet. Our highly liquid, no debt balance sheet enables us to utilize our resources to achieve short and long-term goals, and enables us to opportunistically allocate capital, with the goal of maximizing long-term value for shareholders.

Turning now to our guidance, our near-term focus will be concentrated on maximizing the use of cash and cash preservation in order to allow us the greatest opportunity to achieve our 2023 and future company development and our operational goals. Internally, company’s success will not be based on income statement captions, rather it will be measured on achievement of the development and operational goals discussed in our call. As a result, we will not be providing financial guidance at this time.

Our solid cash position provides us with the foundation to navigate near-term uncertainty and deploy capital in a disciplined manner in support of our long-term strategy, including our at home and point of care Co-Dx PCR Home platform. 2023 will be a monumental year for the company, and one that will position us for the long-term future. We continue to consider additional ways to increase returns and create greater value for shareholders.

With that, I will now turn the presentation back over to Dwight.

Dwight Egan

Thank you, Brian. We will now take calls from our analysts. Operator.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Theodore O'Neill with – I am sorry. The first question is from Yi Chen of H.C. Wainwright. Please go ahead.

Unidentified Analyst

Hey. I am Jade on behalf of Yi Chen. I used to have a couple of quick questions. The first one being on the current clinical evaluations, is it specific to COVID-19 or any other infections and also subsequently the eventual FDA filing would that be infection diagnostic, or would it be specific to COVID-19? And the second question being around readouts, would you be able to provide any clinical readouts during the year as you get some data from your ongoing clinical evaluations? Thank you.

Dwight Egan

To the first part of your question, the current clinical trial is in support of an FDA submission for emergency use authorization on the COVID-19 test only. As I have stated in my remarks, we anticipate having a multiplex test, which would include Flu A, Flu B, COVID-19, and RSV in conjunction with the upcoming flu season. Those are the current contemplated EUA submission trials that we are going to execute.

Unidentified Analyst

Thank you. Any color on the readouts, potential clinical readouts this year?

Dwight Egan

We are not giving any other guidance with respect to the interim results, than we gave in our prepared remarks. We are in the middle of gathering data from five different locations throughout the United States. And we are very pleased with what’s been happening with the user study element of that. And we will provide some guidance on some of the other metrics as appropriate in the future.

Unidentified Analyst

Good. Thank you.

Operator

The next question is from Theodore O'Neill of Litchfield Hills Research. Please go ahead.

Theodore O'Neill

Thanks very much. Dwight, on multiple grants that you are getting for the development, is this funding, the PCR platform and particular diseases or certain disease diagnostics for that platform or both?

Dwight Egan

It is – it’s really targeted to both of those elements Theo. Certainly, we have a large focus, as I have stated in my prepared remarks. One of the grants is specifically targeted to the multiplex Flu A, B, COVID, and RSV panel. That’s just a very critical panel in terms of everything that we plan to do with this new platform. But there it is contemplated that these – this device will handle a large number of different pathogens. This is real time PCR. So, just kind of think in your head, what can you diagnose with real time PCR, and it gives you an idea of the scope of what this device we would be able to undertake. Another grant is specifically targeted in the TB realm, for example. And TB is just an awful situation in so many different countries of the world. As we are able to give you more detail on these grants, we will do so in future press releases. And we are just so pleased to see this recognition from both government and non-government entities that have recognized how much work and an innovation has gone into this product. As we said in our prepared remarks, this is something that the world has never seen before, in terms of the device. So, we think it’s going to have a broad impact in COVID on an ongoing basis, but eventually COVID will be tested in conjunction with our multiplexed upper respiratory panel, and tuberculosis, sexually transmitted infections and other things in the future.

Theodore O'Neill

And it sounded – I think I heard this on your prepared remarks that you are going to be building these yourself, but is there if this runs the way you hope it will next year, will you have the facilities in place, and/or how will you if you need to outsource some of the manufacturing?

Dwight Egan

With respect to our capacity, we already have a number of lines that have been built for both the instrument and the collection cups. We just committed to another large facility to greatly enhance that production capability. And I think Theo, that that will handle us for the foregoing future, the next step will be, probably some kind of outsourcing. But we have a lot of – we are building a lot of capacity, just right here in Salt Lake City to handle our anticipated needs in the near and interim-term.

Theodore O'Neill

Okay. Thank you very much.

Operator

There are no additional questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Dwight Egan for closing remarks.

Dwight Egan

So, for some time now, we have shared our confidence in the experts opinions that the post-pandemic world would eventually arrive at a new normal, where we will have to learn how to co-exist with COVID. Simply put, COVID will continue to persist along with influenza, RSV, and other respiratory diseases, including the common cold and tuberculosis. And in just the same way, as much of the world has had to reset its expectations in this post-pandemic reality, we believe it is important for Co-Dx to do the same. The worldwide shift to at home point of care testing for a wide array of pathogens is well underway. And we envision Co-Diagnostics being a major player in this new space. We recognize that this shift in the diagnostics landscape is occurring as well as the reduction or elimination in COVID testing mandates. And the need to redefine what success looks like for Co-Dx on a short and long-term basis, as we not only navigate, but embrace the new normal of diagnostic testing. It is our versatility beyond COVID that we believe has attracted so much attention to the Co-Dx PCR Home platform to address pathogens that were endemic before COVID as well as others that may yet arise. It also forms the foundation upon which we will build our future as we achieve the milestones we lay out for ourselves, whether for the new platform, or for our existing and successful centralized laboratory vertical. Thank you to our shareholders as well as to the whole Co-Dx family of employees, distributors and consultants for joining us in this broad and significant undertaking. We look forward to talking with you again after the next quarter.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.