LumiraDx Limited (NASDAQ:LMDX) Q4 2022 Earnings Call Transcript

LumiraDx Limited (NASDAQ:LMDX) Q4 2022 Earnings Call Transcript March 21, 2023

Operator: Good day and thank you for standing by. Welcome to the LumiraDx Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Melissa Garcia. Please go ahead.

Melissa Garcia: Hello, everyone. We’d like to welcome you to today’s call to discuss LumiraDx’s fourth quarter and 2022 full year financial results issued earlier today. With us are LumiraDx’s Chairman and CEO, Ron Zwanziger and Chief Financial Officer; Deputy CEO, Veronique Ameye; 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 lumiradx.com. 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 provisions of the Private Securities Litigation Reform Act of 1995. Please be aware that all such forward-looking statements involve risks and uncertainties such as those detailed in our annual report on Form 20-F for the year ended December 31, 2021, which was filed with the SEC on April 13, 2022, and our reports on Form 6-K that was filed with the SEC on August 16, 2022, and in other filings that we make with the SEC.

Any forward-looking statements that we make must be considered in light of these factors. Actual results may vary materially. Also, during today’s call, we may refer to certain non-IFRS financial measures. 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 schedule showing the reconciliation of these non-IFRS financial measures in our press release issued earlier today which can be found on our website at lumiradx.com. I will now turn the call over to Ron Zwanziger for opening remarks. We will then provide financial and business updates before answering questions. Ron?

Ron Zwanziger: Thanks, Melissa. Good morning, everyone and thank you for joining our fourth quarter results call. As announced this morning, we continue to make progress commercializing new products to drive near term growth, as well as progressing our pipeline to deliver our high value products. These efforts advance LeMuraDx’s strategy, transformed point of care diagnostics while strengthening our financial position. As planned, we continue to adapt and shift the business in response to changing (ph) market dynamics, leveraging new product innovation and introduction of combinations to retain and grow market share. At the same time, we are working actively with customers to redeploy instruments to support broader community based testing.

We continue to remain focused on expanding and diversifying our customer base, thanks to widely recognized performance and cost advantages over competitors. As we begin manufacturing multiple non-COVID test strips using common materials, we are realizing the benefits of our single, highly automated manufacturing process across our menu of assays. Fourth quarter results were approximately $41 million, mainly from COVID sales. This performance was achieved with higher volume but lower average selling price based on market mix compared to the third quarter. We shipped approximately 1,500 platforms during the quarter, primarily in Europe. Next, I would like to share progress against the key priorities we have communicated for advancing our strategy and driving financial performance.

Our key priorities are to commercialize our newly authorized CE product portfolio in Europe and other international markets, to progress our U.S. revenue pipeline and 510K plan, to accelerate the development of the high sensitivity troponin molecular assays on the platform and to shape our organization and cost base to support strong innovation and commercial success. First, we continue to deliver on our priority of commercializing new products in Europe and other international markets. We commenced commercial shipments of our NT-proBNP test in Europe into key accounts. This is the first of its kind product delivering quantitative results from the example in 12 minutes and designed to allow immediate detection and referral of heart failure in primary care.

Initial key opinion leader and customer feedback for this test has been very positive. The HbA1c roll out, which began in Q3 is progressing well and together with the CRP have capitalized our instrument consolidation strategy. As a reminder, our current test menu is designed to enable customers to consolidate three different instruments that are currently using into a single LumiraDx platform and workflow right now with the opportunity to consolidate up to six instruments in the next 18 to 24 months. Earlier this month, we also achieved (ph) certification in Europe for our HbA1c test, which now opens up many more tender opportunities in key European markets. Finally, Europe is not a huge respiratory market. However, innovation in the overall respiratory portfolio such as COVID flu, COVID RSV combos together with differentiated products such as COVID pooling and COVID Ultra five minutes have enabled us to defend our market share and serve COVID customers in the region.

Shifting to the United States, we are growing our U.S. revenue and pipeline and remain focused in the near term on respiratory tests. We’re actively been working on our 510K submissions for both COVID Ultra and COVID Flu combination tests. We initiated clinical studies earlier this year and plan to submit our 510K application for the COVID Ultra in Q2. This enables us to continue sales after the public health emergency end. We’re still on track to complete the HbA1c and start clinical studies this year. With the respiratory system ending acquiring sufficient clinical samples to complete COVID and Flu 510K requirements may be at risk. However, we are working with the Independent Test Assessment Program, ITAP €“ the ITAP established by the National Institute of Health, rapid acceleration program , tech program to achieve accelerated FDA EUA review for our COVID and Flu combination product.

Next, our commitment to accelerate the development of high value assays and the capability to perform both antigen and molecular tests on our platform. We’ve made progress on two key programs since the start of Q4, Troponin and Strep A. Molecular. In preclinical studies, our Strep Molecular A test is demonstrating high sensitivity equivalent to the leading point of care molecular tests in the market, we anticipate starting clinical studies during the 2023, 2024 respiratory season with an IVDL submission in Europe and 510K submission in United States in the first half of next year. We have a strong molecular pipeline following this product, including COVID TB, Flu A/B and , where we have already demonstrated feasibility of the chemistry developed from our Fast Lab technology.

We have made good progress with our Troponin test and follow-up update. In preclinical studies, the test has high sensitivity, equivalent to laboratory analyzers within 12 minute test time from finger stick blood and venous blood and plasma samples. We expect to commence initial clinical studies in the fall with an IVDR submission in Europe and a 510K submission by mid next year and faster access to select strategic markets, such as the UK. We continue to be excited about both programs which are of high interest to our customers. 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?

Dorian LeBlanc: Thanks, Ron. For the 2022 fiscal year, LumiraDx revenue was $254.5 million compared to 2021 full year of $421.4 million. Fourth quarter revenues in 2022 were $41.1 million. COVID antigen test scripts from the LumiraDx platform contributed $25 million and Fast Lab Solutions COVID revenues were $8 million for the quarter. Non COVID specific revenues in Q4 2022 were $8 million or 20% of total revenues, including $3 million of non COVID specific point of care platform related revenues. This is the first quarter that we’ve had a meaningful percentage of non COVID specific revenues. As Ron mentioned, while COVID test volumes increased from Q3 to Q4, the geographic mix yielded a lower average selling price. As we progress in Q1 2023, we have seen both the change in customer utilization of COVID only tests and a weak respiratory season lead to a volume decline in test sales.

We expect Q1 2023 total revenues between $18 million and $20 million as COVID testing declines and inventory at customers is consumed. We anticipate continued growth in the non COVID portfolio outside of the U.S. and we expect strong contributions from our flu COVID products for both the point of care platform and the Fast Lab Solutions for the 2023-2024 respiratory season. Total adjusted gross margins for 2022 were $63.2 million or 25%. Adjusted gross margins exclude amortization, stock based compensation, restructuring and impairment charges, but do include approximately $12 million of depreciation expense recognized as cost of sales. Core point of care test strip margins continue to exceed 80% for the quarter and the full year. In the quarter, the company recognized impairment charges on inventory and fixed assets related to the decline in COVID testing demand and the decision to forgo the commercial launch of the Amira COVID test.

The impairment included reducing the accounting carrying value for manufacturing equipment not currently in use and not currently installed of $23 million for Amira and $27 million for the uninstalled platform test strip manufacturing equipment. An impairment on the accounting carrying value of our inventory was recorded for $8 million for Amira, $7 million for Fast Labs and $32 million for raw materials and testing accessories associated with our COVID antigen test. The installed base of instruments at the end of 2022 was approximately 28,000 instruments, an increase of more than 1,500 in the quarter. Our installed base includes approximately 6,000 instruments previously identified as located in nontraditional point of care settings, specifically for COVID testing and 5,500 instruments in Africa mainly under the grant we received from the Bill & Melinda Gates Foundation.

We expect limited testing utilization from these instruments in 2023. The transition of our European installed base from COVID specific use cases to broad menu adoption has been one of our core successes for launch of the new menu in Europe. Our high value customer installations in the U.S. also provide us an excellent growth opportunity for our COVID Flu multiplex test for the 2023-2024 respiratory season and beyond. As discussed in our third quarter earnings call, we implemented additional restructuring activities late in 2022 to reduce the costs associated with the excess capacity in our manufacturing facilities and to right size the organization. The full impact of these restructuring activities will be realized in Q1 2023. Nonetheless, fourth quarter adjusted R&D expenses were $19.3 million compared to $29.2 million in Q3 2022.

And fourth quarter adjusted SG&A expenses were $23.1 million compared to $27.9 million in Q3 2022. Both as a result of our restructuring activities earlier in 2022 and the early impact of the changes we started implementing in the fourth quarter. We continue to focus on managing our cost basis across the company, have the ability if necessary to realize further savings as we progress in 2023. Finally, in our results for the year, the net finance expenses of the company in 2022 include non-cash foreign exchange losses of $81 million resulting from the internal accounting revaluation of intercompany loans which has no present or future cash flow impact on the consolidated company. At December 31, 2022, our cash balance was $100 million. We announced in February an amendment of our senior debt facility to waive financial covenants through the end of June.

The value proposition of LumiraDx’s combination of performance, highly scalable, low cost test strip production, and our expanding menu continues to resonate with customers and partners. We are especially pleased with the customer response in Europe for our expanded menu. I’m happy to hand over to our Deputy CEO, Veronique Ameye to provide a commercial update on recent developments. Veronique?

Veronique Ameye: Thank you, Dorian. We’ve been hardening to see the customer traction continue as we have commercially rolled out the new products over the last few quarters. The combination of lab comparable performance, menu and usability has opened up new cases for diagnosing and managing respiratory conditions, diabetes, heart failure, suspected deep pain thrombosis, as well as managing vitamin K antagonist therapy in community based settings. I’d like to provide some details for two of our largest markets: one in the U.K. and the other in DACH, which compromises Germany, Austria and Switzerland, where the strategy is being played out and currently accepted in healthcare systems and by healthcare professionals and providers.

Early in the pandemic, the UK Department of Health and Social Care procured 1,500 instruments for fast accurate COVID testing in the community. These instruments were deployed in testing hospital emergency departments, hospital discharge. The variety of use cases enabled the users to experience the impact of last comparable results in minutes. By moving testing from laboratory based molecular testing to our platform, they were able to triage patients completely reliably. As the pandemic waned, the NHS has been redeploying these instruments for broader community care application. We believe this is a testament to their confidence in our platform. The LumiraDx platform has been recommended in all NHS sites for implementation in the virtual ward program, which is intended to minimize hospital presence in the UK by proactively managing COPD, inflammation and fail patients at home and in other community settings and for ruling out deep vein thrombosis and pulmonary embolism.

Our portable easy to use fully connected platform is ideal for nurses and healthcare practitioners to take testing into the community, including care homes and home visits immediate action near the patient. The platform is also being used in community settings and primary care offices across the U.K. for fast, accurate and early detection of heart failure. A total of approximately 800 instruments have been requested by the NHS sites to be reallocated for these use cases since the assets repurchasing started and we are working to deploy them to the designated sites and begin testing. The opportunity in Germany, Switzerland and Austria is very different. COVID testing was more centralized in these markets and our opportunity was of RNA STAR Complete reagents, due to their speed and performance, as well as the platform, but mostly non-clinical applications.

Now, with the launch of INR, CRP, D-Dimer, NT-proBNP and HbA1c, we are seeing instrument placements and utilization grow. In the past year, our customer base has grown from 100 to 350 plus with customers ordering multiple tests. A year ago, only 20% of customers in Germany were ordering two or more tests. Today, that number is more than 50%. A year ago, less than 5% of our customers in Germany were ordering three or more tests. Today that number is 20 — more than 20%. Although harder to quantify with overall market volumes dropping, menu expansion with differentiated respiratory products has helped us retain COVID revenue, driving short term value for the company. If we look at our major COVID markets, namely the UK, Italy and Japan, in the past year platform revenue contribution from the 12 minute COVID antigen test has declined from over 62% down to just below 35%.

The two-thirds of our respiratory revenue is coming from new and differentiated products such as COVID Ultra Pooling, five minute COVID Ultra and combination tests such as COVID Flu and COVID RSV. The initial response to our recent launch of our Fingerstick assay for NT-proBNP has been extremely encouraging and the product has been rapidly adopted by many of our primary care accounts and work has started to introduce the products into secondary care. A recent community voluntary healthy heart check exercise in cooperation with Medtronic at a city in England included our Fingerstick NT-proBNP test on a small number of patient volunteers. This resulted in a detection of 2% of patients with significantly elevated values and 10% of patients with intermediate values, showing the incredible power of an effective screening to detect early heart disease and take immediate action.

In summary, we are very pleased with how the products are contributing to the overall commercial strategy and early success. We will now open the call for questions.

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Q&A Session

Operator: And our first question will come from Jeffrey Cohen of Ladenburg. Your line is open.

Jeffrey Cohen: Hi, good morning. How are you? Thank you for taking our questions. So a few from our end. Firstly, you walked through some of the European business with INR, D-Dimer, CRP, proBNP. Could you also talk about HbA1c? And could you talk about some of the past driving commercialization in Europe as far as tenders and geographies and some of the governments there?

Ron Zwanziger: Well, that’s a very broad question. We’ve started winning tenders, but some of them take — when you win them, it takes a while before they get implemented as they run out from previous — the previous . So that started happening in a number of countries. A1c is of a great deal of interest and now with the new certification that we mentioned in our prepared remarks, we’re able to bid on more tenders. The combination of CRP and A1c in particular, that pair is finding a great deal of interest with customers in quite a number of the countries, actually, essentially, everywhere. So pretty much everywhere — whichever country in Europe you’re looking at, you can see that sort of in different ways but similarly the combination of these various tests is helping to drive acceptance.

And up until now because we’ve been launching one test at a time, we didn’t have enough sort of combination test to be of interest to large — very large number of locations, but that’s clearly changing. And the Virtual Ward program, which Veronique described is showing the power of actually having a now on the platform, we have the essential ingredients for community testing. So I don’t know if that answers your question.

Jeffrey Cohen: Yes, that’s helpful, Ron. So — and generally speaking on the tenders versus one-off sales, they may take longer to get through the system, but they tend to be larger size and longer duration? Is that a good assessment?

Ron Zwanziger: Yes. I mean, that’s true. But generally speaking, even most business is not tender supported, but once a product goes in, once you’ve gone through the stage of working with both key opinion leaders within the country and the specialists within the hospital unit or the district where it’s been looked at, once you go through that, the sustaining power of these instruments tend to be very long. So it tends not to be that — once they are it doesn’t tend to be that different to tenders even though the tenders are contractually long. There’s not really that a difference between them.

Jeffrey Cohen: Okay, got it. That’s helpful. And then on the instrument placements for 2023, any sense of what you’d anticipate? I know that it was very strong for 2022. Do you expect further fall through for 2023? Or would you expect instruments placements to slow down?

Ron Zwanziger: Well, we certainly wouldn’t expect them to slow down. I mean, the response on the — which I just commented to your previous question of the link with CRP and A1c was part of the drive to the placement of the unit in fourth quarter and the recent launch in the NT-pro is also driving a tremendous amount of interest. So no — by no means do we think they will slow down. I think we’ll have a — as I suspect, we’ll have a really pretty good year for placements, simply based on the products we’ve recently launched in Europe.

Jeffrey Cohen: Okay, got it. And thanks, Dorian, for calling out some of the various revenue components. And any commentary on — it sounds like most of your restructuring concluded during the fourth quarter and it sounded like although you made some commentary about some further on restructuring into the first quarter. Could you elaborate if you may?

Dorian LeBlanc: Yes. The second set of restructuring that we did, the full impact didn’t take place until the end of February. So in the first quarter, we still won’t have quite the full impact of some of the restructuring, especially the restructure took place in our UK facilities. So we’ll have an additional decline in the overall operating expenses, including the portions that go through cost of sales. Stepping down from Q4 to Q1 and then again from Q1 to Q2 just based on the timing of those restructuring activities.

Jeffrey Cohen: Okay, got it. That’s helpful. Thank you for taking our questions.

Operator: One moment for our next question. And our next question will come from Matt Sykes of Goldman Sachs. Your line is open.