Co-Diagnostics Inc

NASDAQ:CODX

Earnings Call Analysis

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and welcome to the Co-Diagnostics Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, today's event is being recorded.

I'd now like to turn the conference over to Andrew Benson of Investor Relations. Please go ahead, sir.

[Andrew Benson, executive]

Thank you, and good afternoon, everyone, and thank you for participating in today's conference call.

On the line today from Co-Diagnostics, we have Dwight Egan, Chief Executive Officer; and Brian Brown, Chief Financial Officer.

Earlier today, Co-Diagnostics released financial results from the quarter ended September 30, 2023. A copy of the press release is available on the company's website. We will begin the call with management's prepared remarks, and then open up the call to analyst Q&A.

Before we begin, we would like to inform the listeners that certain statements made by Co-Diagnostics during 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 testing platform, which requires regulatory approval for diagnostics use is subject to U.S. FDA and local regulatory marketing authorization status and is currently not 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 contains reconciliations of 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, executive]

Thank you, Andrew. Good afternoon, everyone. Thank you all for joining Co-Dx's Third Quarter 2023 Earnings Call.

Today, we will provide an update on our third quarter financial performance and discuss recent developments of the company as we have continued to make progress towards our long-term goals. These developments have included building out capacity in a new manufacturing facility for the Co-Dx PCR platform instruments and test cups, initiating a third-party evaluation on our tuberculosis, or TB assay, and most importantly, completing the clinical evaluations for our COVID-19 assay on our new platform, which will support an EUA filing before the end of the year.

Notably, we were pleased to also recently announced a nearly $9 million grant from the Bill & Melinda Gates Foundation for the tuberculosis assay under development to be run on the Co-Dx PCR platform. This grant follows three other grants received in July to support our development initiatives. The first of these was a $1.2 million grant from the National Institute of Health's RADx tech program, which is being used to support our upper respiratory multiplex test development. The second and third grants were awarded by the Bill & Melinda Gates Foundation in the amounts of $1.33 million and $987,000 to support the development of respective tests for TB and human papillomavirus, or HPV.

Both funding organizations conducted extensive independent diligence prior to the execution of these grants covering our technology, research approach, scientific team and manufacturing capability. Recognition from global thought-leading organizations highlights the disruptive nature of our technology, and the value we believe our company can provide to a global health care infrastructure.

This last quarter, we also appointed Ivory Chang as our Chief Regulatory Affairs Officer. Ms. Chang has years of experience working at global diagnostic companies, and we are confident that her expertise in regulatory affairs, including regulatory submissions for point-of-care and in vitro diagnostic products, will be invaluable to Co-Diagnostics' future regulatory submissions.

Amidst the work that we have continued to put into our platform since our last call, we participated in a number of industry and investor conferences, sharing Co-Diagnostics' vision for increasing accessibility of PCR diagnostics worldwide, our unique value proposition and updates on our new platform. We also showcased our platform at other trade shows and expos, where our presence has reinforced the global unmet need for an easy-to-use, accurate and affordable point-of-care diagnostic platform.

Overall, it has been a busy time at Co-Diagnostics, and we anticipate the next several months to be an exciting time for the company as well.

As we look ahead, I'd like to discuss the reasons why we are so excited about the near future. Co-Diagnostics is a leading diagnostics company, developing high-quality, real-time PCR solutions across multiple infectious diseases to be delivered at-home and at point-of-care settings. We have designed and developed a platform technology, including a simple, easy-to-use, real-time PCR instrument that uses a disposable test cup and delivers PCR results to a user's mobile device in approximately 30 minutes.

The assays or tests that run on our new platform utilize our patented CoPrimers PCR technology, developed by Co-Diagnostics, which improves the quality of test results by dramatically reducing the occurrence of amplification errors, known as primer dimers, which can lead false-positive results.

These assays provide reliable PCR diagnostics results, which can drive improved health care outcomes. Additionally, because our platform is real-time PCR, it is better suited for multiplexing or testing for multiple disease indications within the same sample and reaction when compared to other technologies.

When combined, our CoPrimers technology and multiplexing capabilities augment the already disruptive nature of the Co-Dx PCR platform. Co-Diagnostics has taken additional steps to evaluate the Co-Dx platform through third-party studies prior to initial grant awards from the Bill & Melinda Gates Foundation.

In July, the Apollo project, organized by Seattle-based path and funded in part by the Gates Foundation, performed an analytical and usability study on the Co-Dx PCR platform. Data from this study with Pat demonstrated the performance and ease-of-use of the COVID-19 test on the new platform, which confirmed our belief in the potential effectiveness of the test in both at-home and point-of-care settings.

More recently, another third party initiated a study to evaluate the performance and usability of our new tuberculosis test. Both studies have been insightful and have substantiated the quality of our point-of-care PCR technology, and we are pleased to have additional evidence from third parties that supports the value and utility of our platform.

With the clinical evaluations for the COVID-19 test now complete, we are currently on schedule to submit our EUA for FDA review by the end of this year, as previously projected. In the meantime, clinical evaluations will continue in order to gather requisite data for a future 510(k) submission as well. We plan to introduce the Co-Dx PCR platform initially for COVID-19 detection and later for other diseases.

COVID-19 is a prevalent disease, and it is believed by experts that it will remain so as it moves toward an endemic stage. And we believe we have identified many environments, where our platform represents a compelling solution for ongoing COVID-19 testing. Research and premarket feedback indicates that high-volume point-of-care settings, like skilled nursing facilities, should be diligently testing patients, visitors and employees to reduce the spread of respiratory infection, justifying the need for reliable point-of-care COVID-19 testing solutions.

Over time, we expect to also focus on other institutional settings, where some of the most vulnerable patients reside, such as assisted living centers. This will be in addition to physicians' offices, clinics, schools and the at-home setting. Ultimately, we believe that our COVID-19 test will serve as the first in a series of indications that will open the diagnostics market opportunity for other tests on the Co-Dx PCR platform.

Co-Diagnostics has been developing a menu of assays across several indications that we believe will bring significant value to patients and health care providers. As we discussed on our last earnings call, we are also developing a multiplex upper respiratory test, with support from the NIH's RADx tech grant, which will test for flu A and B, COVID and RSV. We believe this test will provide extensive value across many end markets, including those we initially plan to target with our COVID test.

Another important goal for the near future is the development of the HPV test. HPV is one of the most common STIs in the world, and one of the greatest risk factors for cervical cancer, which is the fourth most common cancer in the world. More than 85% of the estimated 264,000 cervical cancer deaths each year are in low and middle-income countries, all of which the World Health Organization, or WHO, believes can be dramatically reduced by access to diagnostics, vaccinations and cancer screenings. We believe that point-of-care testing for HPV could be of significant value to the HPV and STI testing markets, and look forward to providing you with further updates on the role Co-Diagnostics could play in these efforts.

One of the most important initiatives for the company at this stage is the TB test for our new PCR platform. We believe that a significant opportunity exists for Co-Diagnostics within the global TB market, given the speed and quality of our platform, as well as our CoPrimers. A lack of accessibility to TB testing is a global problem, and we believe the Co-Dx PCR platform will play a key role in the solution.

This belief has been reinforced by the nearly $9 million of additional grant funding recently awarded to us by the Bill & Melinda Gates Foundation. This grant will be applied towards regulatory and clinical validation activities for our test, increasing manufacturing capacity and additional platform software development. We anticipate beginning clinical evaluations for the TB test sometime within the first half of 2024.

The commercialization strategy for the TB test includes plans to accelerate development, while also increasing our manufacturing capacity, both domestically and in India, through our joint venture, CoSara. We are confident that CoSara has the capacity to effectively manufacture and support the commercialization of our TB test.

In addition to providing manufacturing support, CoSara will distribute the Co-Dx PCR point-of-care platform throughout India, where TB currently takes the lives of two people every 3 minutes, and which Prime Minister Modi is committed to eradicating. We expect the demand for our platform in India will be robust, and we plan to utilize our most recent grant to offset additional costs.

Since 2019, CoSara has received approval from the Indian CDSCO for 14 in vitro diagnostic tests that utilize our CoPrimers technology, which gives us additional confidence in our regulatory and commercialization approach in that country.

In response to broader international efforts to eradicate TB, an important element of our TB strategy includes receiving a recommendation from the World Health Organization. A WHO recommendation is a requirement for sales in many regions across the world, including countries in Africa, which bear disproportionately high TB burden and where we anticipate introducing the platform with our TB test. We plan to initially pursue a regulatory pathway for this test through the Australian regulatory authority, the TGA, which will be followed by a submission to the CDSCO in India, as authorizations from both the TGA and CDSCO are recognized by the WHO when it makes recommendations for diagnostics. We will look forward to providing further updates as we continue to make progress on these fronts.

While we plan to initially target point-of-care settings with the tests that are under development, we believe that our platform also has the potential to serve as the cornerstone of a local, regional or national health care monitoring infrastructure. One of the most exciting features of the Co-Dx PCR platform will be direct real-time HIPAA-compliant integration into the EMR, creating additional use cases for our platform, including outbreak monitoring.

In the wake of the COVID pandemic, disease monitoring has become a focal point for government health officials around the world. Officials are actively looking at solutions to ensure epidemiological data can be collected and sorted efficiently to identify and monitor disease clusters and outbreaks.

Ultimately, in part due to cloud-based analytics, the device is expected to include the capability to automatically report de-identified test results, whether from an assisted living facility, physician's office or the home directly to regional public health officials.

Over the past few months, we have also had initial conversations with government entities in the United States about how this technology could be used to help slow or even prevent large outbreaks of infectious disease in the United States and abroad. We are particularly encouraged by the Pandemic and All-Hazards Preparedness and Response Act, or PAHPARA, in which the federal government is contemplating a significant set of initiatives in the context of outbreak and monitoring capabilities.

The proposed act further supports the use and need for real-time PCR testing and a device with technology that can support outbreak and disease monitoring. Over time, we believe the new platform's ability to support these initiatives will become another competitive differentiator for our end users.

To close, we remain confident that the quality, ease of use, affordability and quick turnaround time of our platform will deliver an impact to patients and communities around the world. We are excited about the future of Co-Diagnostics and the value that our disruptive technology can provide to a global health care infrastructure.

In the near term, we look forward to the potential FDA authorization for our COVID-19 test on the Co-Dx PCR platform. Our company is well funded with $63.4 million in cash and equivalents on the balance sheet, grant support from notable international leaders in health care and with more funding potentially available via additional grants. We look forward to providing future updates on our development, regulatory and commercial progress in the coming quarters.

With that, I will turn the call over to Brian to discuss our third quarter financials in greater detail. Brian?

[Brian Brown, executive]

Thanks, Dwight, and thanks to everyone who joined today's call.

For the third quarter of 2023, total revenue decreased to $2.5 million as compared to $5.1 million in the prior year same period. Grant revenue for Q3 2023 was $2.3 million, recognized from a portion of our grants announced earlier in the quarter. Product revenue was $0.2 million, which declined year-over-year due to the impact of decreased global demand for COVID-19 testing.

Gross profit for the quarter decreased to $2.2 million compared to $4.3 million in the prior year comparable period. The reported gross profit percentage in the third quarter of 2023 increased to 89.6% compared to 84.9% in Q3 of 2022 due to a mix shift in type of revenue reported.

Total operating expenses for the 3 months ended September 30, 2023, were $11.1 million compared to $10.9 million in the third quarter of fiscal 2022. In the third quarter, we continued to increase our investments in research and development to further support the development, regulatory and commercialization processes for our forthcoming Co-Dx PCR platform.

Research and development expenses in the third quarter were $5.8 million compared to $5.0 million in the comparable prior year period. This increase primarily reflects continued investment in our Co-Dx PCR platform as well as other company initiatives. With clinical evaluations for our COVID-19 test completed and ongoing development of the previously discussed menu of tests, we continue to invest additional resources to bring our revolutionary diagnostic testing platform to market.

For the third quarter of 2023, income before taxes decreased to a loss of $8.1 million as compared to a loss of $3.5 million reported in the prior year same period. We experienced an income tax benefit for the third quarter of $2.1 million, representing an effective tax rate of 26.1%. We have previously discussed that 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 third quarter of 2023 was $6.0 million or a loss of $0.20 per fully diluted share compared to a net loss of $1.4 million or $0.04 per fully diluted share in the prior year same period. Adjusted EBITDA for the third quarter of 2023 was a loss of $6.5 million compared to an adjusted EBITDA loss of $4.1 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. We ended the quarter at $63.4 million in cash, cash equivalents and marketable securities. As Dwight mentioned earlier, we were selected to receive another grant from the Bill & Melinda Gates Foundation. Funds from this grant are not reflected in the ending balance of cash, cash equivalents and marketable securities at September 30, 2023.

Thus far, during Q4, we have received $3.5 million under this new brand. Revenue recognition for the cash received is currently being evaluated based on the terms of the grant agreement and current accounting standards. Additionally, in the quarter, we repurchased approximately 150,000 shares of common stock, at an average price of $1.12 per share through our $30 million share repurchase program. As of September 30, 2023, we have just under $15 million remaining within our share repurchase program and plan to strategically repurchase shares as we see opportunities.

We are committed to maintaining a strong cash position through diligent expense management to ensure Co-Diagnostics is well capitalized to execute our long-term growth initiatives. As we approach commercialization, we will remain conservative when evaluating future opportunities.

As we discussed on our second quarter earnings call, we believe our success should be measured in terms of progress made toward our development and our operational goals. As such, we will not be providing financial guidance at this time.

In summary, Co-Diagnostics is well capitalized and disciplined in its capital allocation strategy, while also receiving support from world-class organizations who are aligned with our long-term strategy. We are closer to a commercial launch for our Co-Dx PCR platform and continue to make progress towards our development goals. I look forward to updating you further on our next earnings call.

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

[Dwight Egan, executive]

Thank you, Brian. Before opening for Q&A, I want to take a moment to extend our thanks to all of our shareholders as well as the whole Co-Dx family of employees, distributors and consultants. We look forward to talking with you again after the next quarter.

We will now take calls from our analysts. Operator?

[Operator]

[Operator Instructions] And we do have a question from Jade Montgomery from AC Wainright.

[Unknown Analyst]

So I was just wanting to know how soon could the FDA complete the review of your EUA submission once it's submitted? Do you have any idea?

[Dwight Egan, executive]

Thank you for the question. The FDA has their own time line. So we don't really have an estimation of what kind of time they're going to take to review the application. All we can tell you is that we believe our application is a very solid application when we make it, and so we're enthused to be to that milestone. But as the timetable for the FDA to respond, we don't have a way to predict that.

[Unknown Analyst]

Okay. And would you be able to provide an estimate of the initial amount of the order size once the product is launched?

[Brian Brown, executive]

That's an interesting question. We don't have any way. And we haven't provided any guidance, as we said in our script, that there's no guidance that we're providing. So we don't have information to provide to the public currently on orders that would be placed. We -- I mean the product isn't on the market, so we can't take orders at this point anyway. No.

[Dwight Egan, executive]

Yes.

[Unknown Analyst]

All right. And so primary markets, then -- I mean, you're looking at more sort of like nursing homes, that sort of market or...

[Dwight Egan, executive]

Yes, the markets that give us an opportunity to have significant throughput from each device placed are areas of first concern in our marketing plans, and that includes things like skilled nursing facilities.

And there are lots of those around the country. It's one of our primary targets. They have a very strong need to continue to test patients and employees for COVID. And of course, as we increase the menu over time, they're a prime market for that as well.

But the point-of-care where there's a larger opportunity for throughput per device is our initial traction from a marketing standpoint.

[Operator]

Thank you. And this concludes the question-and-answer session as well as the call. Thank you so much for attending today's presentation, and you may now disconnect your lines.