Co-Diagnostics Inc

NASDAQ:CODX

Earnings Call Analysis

Co-Diagnostics Earnings Show Decline in Revenue

In 2023, Co-Diagnostics faced a revenue decline to $6.8 million from $34.2 million the previous year due to decreased demand for COVID-19 testing. Their gross profit dropped to $2.6 million from $28.7 million, and operating expenses were reduced to $45.3 million from $55.7 million, thanks to a prior year's goodwill impairment offset by R&D investments. The company reported a net loss of $35.3 million, up from the previous year's $14.2 million, and an adjusted EBITDA loss of $33.0 million compared to a loss of $3.1 million. Despite these challenges, Co-Diagnostics repurchased 1 million shares for $1.41 each and ended the year with a strong cash balance of $58.5 million, positioning itself for growth and the commercial launch of its Co-Dx PCR platform upon FDA approval.

Financial Landscape and Strategic Developments

Co-Diagnostics has witnessed a decline in total revenue, dropping from $34.2 million in the previous year to $6.8 million in 2023, with grant revenue accounting for $5.8 million and product revenue $1.0 million. This reduction largely results from waning global demand for COVID-19 tests, evidenced by a decreased gross profit which fell to $2.6 million from $28.7 million in the prior year. Despite the financial downturn, the company continues to bolster its Co-Dx PCR platform, and other developmental projects leading to an increased pre-tax income loss from $18.8 million to $38.1 million year-over-year. The net loss has consequently swelled to $35.3 million, a significant jump from the previous $14.2 million, impacting the earnings per share, which intensified from a loss of $0.45 to $1.20. Adjusted EBITDA showed a similar trajectory, going from a loss of $3.1 million to a loss of $33.0 million.

Maneuvering for Future Growth

Co-Diagnostics remains optimistic about its future, ending the year with $58.5 million in cash, equivalents and marketable securities. A share repurchase program was actively pursued, with about 1.0 million shares bought back at an average of $1.41 per share, cumulatively repurchasing 4.8 million shares at an average price of $3.21, totaling $15.6 million of their $30 million program. The company is prudent in its fiscal management and continues to invest judiciously in commercial initiatives in anticipation of FDA authorization, positioning itself to capitalize on growth opportunities in 2024. However, official guidance for 2024 has not been provided, with Co-Diagnostics citing the ongoing FDA review of their products and platform as the reason for the absence of precise forecasts.

Innovation at the Forefront

2023 marked major strides in expanding industry awareness and advancing the Co-Dx PCR platform, supported by a dedicated team that contributed to a robust regulatory submission. Looking to the future, they anticipate submitting a 510(k) clearance for their Co-Dx PCR Pro and Co-Dx COVID-19 test in the first half of this year, with ongoing developments in tuberculosis, upper respiratory, HPV, and strep throat tests. Further solidifying their commitment to innovation, Co-Diagnostics has streamlined the production of oligonucleotides, Co-Primers, in Salt Lake City whilst also establishing manufacturing capabilities in India, backed by the Gates Foundation grant.

Product Development and Regulatory Progress

Efforts are on track for commercialization, with the company preparing to scale up manufacturing upon receiving necessary approvals. The Co-Dx PCR Pro system is poised to address testing needs in both the U.S. and low- to middle-income countries, targeting a broad range of care facilities where demands for such innovations remain high. As COVID-19 testing demand continues, Co-Diagnostics is gearing up for the commercial launch of their test in various regions post-regulatory clearance, including India.

Commercialization and Market Engagement

A principal factor in the commercialization strategy is the increased manufacturing capacity to meet the demands of new products and tests. The company has highlighted its achievements and garnered further confidence in its platform through attendance at prominent industry events, fostering insightful conversations with potential customers and distributors. With substantial grants from organizations tackling global health challenges, further development of crucial tests like tuberculosis, upper respiratory multiplex, and HPV has been pursued.

Market Outlook and Anticipated Trials

Co-Diagnostics is preparing to initiate clinical trials for its multiplex test, supported by a grant from the National Institute of Health's RADx tech program. This development is set in motion as they await FDA review and approvals for commercial launch, creating an anticipation for progress in the diagnostics field.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and welcome to the Co-Diagnostics Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Andrew Benson, Investor Relations. Please go ahead.

[Andrew Benson, executive]

Good afternoon, everyone. Thank you all 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 fourth quarter and full year ended December 31, 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 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 or future events or performance are forward-looking statements. For example, statements concerning 2024 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 and marketing authorization for diagnostic use is currently being reviewed by the U.S. FDA 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-Diagnostic's 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 shortly before this call, which contains reconciliation 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, executive]

Thank you, Andrew. Good afternoon, everyone. Thank you all for joining Co-Diagnostics Fourth Quarter and Full Year 2023 Earnings Call. 2023 was an exciting year for Co-Diagnostics as we expanded industry awareness of our co-primers technology and the Co-Dx PCR platform. Throughout the year, we participated in several industry and investor conferences where we spoke about the value proposition of our platform and our commercial and regulatory strategies. We also achieved several key milestones, including the receipt of several prestigious grants, the expansion of manufacturing capacity and an emergency use authorization submission to the FDA for the Co-Dx PCR Pro and Co-Dx PCR COVID-19 test kit. Today, we will provide an update on our fourth quarter and full year 2023 financial performance and discuss recent activities at the company as we continue to execute across our business and test developments.

During the fourth quarter, we were pleased to submit an emergency use authorization application to the FDA for our new Co-Dx PCR Pro instrument, mobile app an Co-Dx's COVID-19 test kit. Our easy-to-use real-time PCR platform is differentiated by several exciting features and capabilities. Tests run on our instrument utilize Co-Diagnostics unique patented Co-Primers PCR technology. Co-Primers ensure reliability by providing higher quality test results due the significant reduction of primer dimers, which often lead to false positive results. The most notable feature of the platform is our cloud-based analytics which delivers test results from the instrument to the mobile app in just 30 minutes. The nature of our app also enables Co-Dx's PCR real-time HIPAA-compliant integration into the [ EMR ] which we anticipate will allow physicians, public health officials and even governments to examine and monitor results, tracking outbreaks in communities and countries around the globe.

I am proud of the Co-Diagnostics team for their collective efforts in finalizing our EUA submission, which we anticipate will be the first regulatory submission of many related to the new platform and the importance of which is difficult to overstate. We are excited for the platform's first regulatory review, which includes several never before seen technologies and our strong clinical and analytical results.

I would like to thank our world-class team of developers and regulatory experts who contributed to a strong regulatory submission for this platform, which we believe has the potential to revolutionize how and where infectious disease diagnostics take place. We also have already collected enough samples in the ongoing clinical evaluation to allow us to pursue a 510(k) clearance for our Co-Dx PCR Pro and Co-Dx COVID-19 test, which we anticipate will be submitted in the first half of this year. We look forward to providing you with more updates on this current regulatory review process as they become available.

While we plan to initially launch the platform with our COVID test, we also have several other tests currently under development, including tuberculosis and upper respiratory multiplex followed by HPV and strep throat. We plan to begin clinical evaluations for our TB test later this year in geographies where the disease is most prevalent. Specific clinical trial testing sites will be located in Africa, Australia and India, where we have a strong operational presence with our joint venture, [ Cosara ] Diagnostics. Tuberculosis is the most deadly disease in the world and the eradication of TB remains a focal point for the World Health Organization or the WHO as well as the Bill & Melinda Gates Foundation from whom we have already received two grants to accelerate our TB platform and to expand manufacturing capacity. We plan to first pursue regulatory clearance for this test through two jurisdictions that are recognized by the WHO for Diagnostics recommendations, the TGA or the Australian regulatory pathway Authority and the CDSCO in India. After these submissions, we plan to submit to the WHO for a recommendation. A recommendation from the WHO would aid in the commercialization of our TB test across many regions of the world. Especially markets in Africa, where WHO recommendation is required before a test can be used as a diagnostic.

Importantly, India, where we have domestic manufacturing and distribution capabilities with Cosera is a large and underserved market. We believe that our platform and TB tests have the potential to dramatically improve the state of TB testing in India where there are 69,000 hospitals, over 115,000 pharmacies, and where roughly 220 million people were screened for TB in 2021, according to the World Health Organization.

In addition to TB, we have continued the development of the multiplex upper respiratory test with support from the NIH RADx tech grant. Co-Diagnostics plans to initiate clinical evaluations during the next flu season later this year in order to collect sufficient data for an FDA submission.

Another important indication of focus in our pipeline is our HPV test, which was also the subject of a Gates Foundation grant last year. HPV is an additional high-priority infection for the WHO as it remains the most common STI and the greatest risk factor for cervical cancer, which has many associated deaths in low-income countries. Our development efforts for HPV are currently focused in India, where there is a significant underserved population.

Lastly, with the Co-Dx COVID-19 test through the development stage and currently under FDA review, we have begun actively developing a strep throat test, which we believe has the potential to increase the attractiveness of the platform as a point-of-care solution. As we approach the launch of the Co-Dx PCR platform, we have begun to ramp our internal processes to ensure we are adequately prepared to serve our target markets. Over the past year, Co-Diagnostics has made substantial investments to ensure that we have the appropriate infrastructure for commercialization, and we are fully prepared to begin scaling manufacturing pending authorization. The Co-Dx PCR Pro system has been designed for the point-of-care setting, and we plan to initially target U.S. assisted living facilities, skilled nursing facilities and physicians' offices. We are prioritizing institutional settings where test volumes and overall demand remain high. We firmly believe that our highly accurate, accessible and low-cost device can drive improved patient outcomes both in institutional settings in the U.S. and in low- to middle-income countries where accessibility to testing has been a consistent barrier in health care.

While testing volumes have fallen from their peak in the height of the pandemic, COVID-19 is second only to tuberculosis in terms of lives lost every year and it remains one of the most in-demand tests worldwide. This includes for regions like India, Saudi Arabia and Australia, where we believe we will be able to begin commercializing the Co-Dx COVID-19 test following regulatory clearance or registration in those countries. We believe that our COVID-19 test will be the first of many indications on our Co-Dx PCR Pro instrument to serve the diagnostics market.

As we expand to additional indications such as tuberculosis, we plan to market our platform even more broadly outside of the United States. A principal component of our successful commercialization launch strategy is increased manufacturing capacity. We have recently completed the build-out of a new facility in Salt Lake City for both cups and instrument manufacturing with capacity to add additional lines for both, while we also continue to increase speed and efficiency.

In addition, plans are in place and activity is underway in India where Cosara is adding capacity to manufacture instruments and cup lines in country. Large-scale manufacturing in India is not only an important aspect of our global ambitions to be able to serve Asian and African markets, but it is also required in order to qualify under the [ Make in India ] initiative. The [ Make in India ] initiative was launched nearly a decade ago to promote India as a preferred global manufacturing destination, and qualification under this initiative removes roadblocks to commercialization in India. We want to highlight that we are now producing our own oligonucleotides or Co-Primers in Salt Lake City, which we believe will improve cost and efficiencies. We are also currently in the process of building in-house Co-Primers manufacturing capacity at our manufacturing plant in India with support from the Gates Foundation grant. We are excited about these initiatives and the improvements that in-house manufacturing will bring to Co-Diagnostics and to patients around the world.

Among our most prominent accomplishments in 2023 are the several grants that we received from organizations focused on solving the most pressing health issues in the world. The significant support that we received in the past year has enabled further development of testing our pipeline, including our tuberculosis test, upper respiratory multiplex test and HPV test. The support and recognition that Co-Diagnostics has received is a testament to the value proposition of our platform, including our technology, scientific team and approach and platform capabilities. We are currently in active discussions with other organizations and have implemented an internal team who is working diligently to drive the grant application process forward for Co-Diagnostics.

Before passing things over to Brian, I wanted to share a brief update with you regarding our attendance at industry and investor conferences in the fourth quarter. In November, we presented at the Piper Sandler Conference where we outlined our business strategy anchored around the development of the Co-Dx PCR platform and associated ongoing pipeline developmental efforts. Co-Diagnostics also attended the Utah Life Sciences Summit and the Association for Molecular Pathology or AMP in Salt Lake City, in which we hosted a booth displaying our disruptive technology and delivered a presentation. We also attended the Consumer Electronics Show, or CES, in Las Vegas this January, for the second time Outside the U.S., we had a very well-attended booth at [ MedLab ] Africa, where we discussed our development and commercial plans with many regional players. And earlier this year, we hosted a booth at MedLab Middle East 2024 in Dubai. Attending prominent industry events has allowed us to highlight our recent achievements and given our team further confidence in our platform and how we can address underserved areas of the market and the productive conversations we have had with potential customers and distributors provide helpful feedback on our development pipeline and commercialization strategies. In 2024, we look forward to progressing our dialogue with prominent market constituents as we work towards our common goal of making diagnostics more accessible around the world.

In closing, we are proud of our achievements in 2023 and look forward to an exciting 2024. We have developed an accurate, affordable and valuable point-of-care platform to help communities and patients across the globe. The company also remains well funded with $58.5 million in cash, cash equivalents and marketable securities on our balance sheet. We look forward to updating you on our development and commercial progress throughout the year I will turn the call over to Brian to discuss our fourth quarter and full year 2023 financials in greater detail. Brian?

[Brian Brown, executive]

Thanks, Dwight, and thanks to everyone who joined today's call. For fiscal year 2023, total revenue decreased to $6.8 million as compared to $34.2 million in the prior year same period. Grant revenue in 2023 was $5.8 million and product revenue was $1.0 million, which declined year-over-year due to the impact of decreased global demand for COVID-19 testing.

Gross profit for the full year 2023 decreased to $2.6 million compared to $28.7 million in the prior year. Total operating expenses for the year ended December 31, 2023, decreased to $45.3 million compared to $55.7 million in 2022. The decrease from the prior year is a result of goodwill impairment charges recorded in 2022, partially offset in 2023 by strategic investments in research and development to support our development and commercialization initiatives for our Co-Dx PCR platform. Research and development expenses in 2023 were $23.0 million compared to $17.4 million in the comparable prior year. The year-over-year increase was largely driven by investments in our Co-Dx PCR platform and COVID-19 test ahead of our FDA submission as well as ongoing developments of other tests in our pipeline. For 2023, income before taxes increased to a loss of $38.1 million as compared to a loss of $18.8 million reported in the prior year.

We experienced an income tax benefit of $2.8 million, representing an effective tax rate of 7.3%. 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 2023 was $35.3 million or a loss of $1.20 per fully diluted share compared to a net loss of $14.2 million or a loss of $0.45 per fully diluted share in the prior year. Adjusted EBITDA for 2023 was a loss of $33.0 million compared to an adjusted EBITDA loss of $3.1 million in the prior year.

We ended the year with $58.5 million in cash, cash equivalents and marketable securities and continue to manage our spend as we look to maintain a healthy balance sheet to position ourselves for long-term growth. For the full year 2023, we repurchased approximately 1.0 million shares at an average price of $1.41 per share.

As of December 31, 2023, we have repurchased just over 4.8 million shares at an average share price of $3.21 per share for an aggregate amount of $15.6 million within our $30 million repurchase program. We continue to evaluate strategic share repurchase opportunities as we see fit. We are committed to maintaining a strong cash position through diligent expense management to ensure Co-Diagnostics is well capitalized to execute on our long-term growth initiatives. As we exited the year, we have continued to invest responsibly in our commercial initiatives to position the company for a successful commercial launch upon authorization or approval from the FDA. We remain well capitalized to deliver on our 2024 plan and are optimistic about the prospects for the Co-Dx PCR platform, first with COVID, followed by TB, upper respiratory multiplex and HPV. I look forward to updating you 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 thank our Co-Dx shareholders as well as our employees, distributors and consultants who strongly believe in our platform and the value that it offers. I look forward to updating you again next quarter. We will now take calls from our analysts. Operator?

[Operator]

[Operator Instructions] Our first question comes from Yi Chen with H.C. Wainright.

[Yi Chen, analyst]

Could you comment on whether the FDA provided any feedback regarding the submission? And when do the FDA to complete the review process?

[Dwight Egan, executive]

Thanks for the question, Yi. The FDA is once we turned it over to the FDA and made our submission, the time line is the FDAs to decide when they're going to respond to us. So we don't have any update currently on our submission.

[Yi Chen, analyst]

So after FDA approved the device, how soon can you launch the device in the U.S. and other global markets?

[Dwight Egan, executive]

The company is prepared to launch the device immediately upon authorization from the FDA. So we have done a lot of work for some time now, preparing to launch the product. So we're simply waiting for the FDA to give us authorization.

[Yi Chen, analyst]

Currently, could you comment on your expectation regarding potential sales in the U.S. and other geographic [indiscernible] any rough estimates would be helpful.

[Brian Brown, executive]

Yes, Yi, this is Brian. We have not provided any formal guidance for 2024, given that our platform and products are still being reviewed by the FDA. And we're not prepared to provide any of that guidance either at this point in time.

[Yi Chen, analyst]

And last question is after the initial COVID test, how soon can be the rest of the test, especially the multiplex test can secure clearance from the FDA?

[Dwight Egan, executive]

Yi, we expect to begin our clinical trials for our multiplex test, which, as you know, has grand support from the National Institute of Health through their [ RADx tech ] program, and we expect to be able to commence our clinical trials during the upcoming flu season.

So that flu season, where we have to gather a certain number of samples. After that, we will do the submission. I might also add that the COVID test, which is currently under review by the FDA for emergency use authorization. And we have already completed the infill testing for that. And we have the sufficient samples to make a submission to the FDA for a full 510(k). We are concluding the evaluations and analytical work that, together with the infilled results comprise the total evaluation that will be submitted to the FDA, we believe, by sometime midyear.

[Operator]

This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.