Chembio Diagnostics, Inc.

Good day, ladies and gentlemen, and welcome to the ChemBio first quarter 2022 earnings conference call and webcast. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Marissa Beisch. Ma'am, the floor is yours.

Thank you, Operator. Before we begin, let me remind you that the company's remarks made during this conference call today, May 5, 2022, may include predictions, estimates, or other information that might be considered forward-looking. These forward-looking statements represent ChemBio's current judgment for the future. They are, however, subject to numerous assumptions, risks, and uncertainties, many of which are beyond ChemBio's control, including risks and uncertainties described from time to time in ChemBio's SEC filings, including those under risk factors and elsewhere in ChemBio's filings with the SEC including its annual report on Form 10-K for the full year 2021. ChemBio's results may differ materially from those projected. ChemBio undertakes no obligation to publicly revise or update any forward-looking statement made today. I encourage you to review all of the company's filings with the SEC concerning these and other matters. With that, I would like to turn the call over to Rick Eberle, President and Chief Executive Officer.

Good afternoon and thank you all for joining us. On today's call, I will discuss our commercial performance, provide an update on our current product development and regulatory pipeline, and touch upon our operational priorities for the year. Larry will cover the first quarter financial results and updates on the Global Competitiveness Program. I will then provide closing remarks and open the call for a Q&A session. To start off, I would like to highlight our strong first quarter performance. In the first quarter, we generated total revenue of $18.8 million, representing growth of 116% compared to the prior year period. Total revenue included new record quarterly product revenue of $18.5 million, representing growth of 360% compared to the prior year period. We also significantly improved our gross product margins and cash burn as a result of improved operational productivity and working capital management. Our performance in the first quarter was driven by completing the shipment of the remaining units under the $28.3 million purchase order from B&M Guinness for DPP SARS-CoV-2 antigen tests in Brazil. Strong growth in the United States and continued shipments under the purchase order supported by the Global Fund, or HID-1-2 STATPAC, as they shipped to Ethiopia. Going into more detail, revenue was led by product sales in the Latin America region of $12.5 million, primarily consisting of a DPP SARS-CoV-2 antigen test, shipped to VM engineers and strong growth of product sales by ChemBio Diagnostics Brazil. We are pleased to have completed this entire purchase order in the first quarter. BMA Guinhos has been a strong partner and a long-time customer of ChemBio and we look forward to continuing to deepen our relationship and explore opportunities to address their testing needs. At the same time, we will continue to prioritize marketing our tests to be sold through our Brazilian subsidiary and distributors that target the retail, state, local healthcare systems, rounding out a comprehensive footprint across the country's healthcare markets. In the United States, we are leveraging our field sales representatives and distributor relationships to offer our diverse portfolio across healthcare and markets. Traction with the distribution of the third party manufacturer COVID-19 detect antigen test drove U.S. sales of $4.5 million in the first quarter, representing 530% growth compared to the same quarter last year. U.S. sales were supplemented by the DPP HIV syphilis system, which we continue to see as potentially our most attractive market opportunity pending CLIA waiver. In EMEA and Asia, we recognize $1.5 million of revenue driven by sales of the HIV-1.2 StatPak assay shipped to Ethiopia as part of the order supported by the Global Fund. In Europe, we are excited to be working with new distributors where we have expanded our distributor relationships in Europe to supply the SureCheck HIV self-tests in the UK and France. There are two main takeaways from the quarter I would like to highlight. First, the learnings from scaling test manufacturing to full capacity, supported by optimized automation to complete the Fiat-Maginia's order, will enable further manufacturing efficiency in the future. With these learnings, we were able, in the face of tight labor markets and supply chain challenges, to drive significant sequential product gross margin improvements relative to the fourth quarter. Second, as we expect waning demand for COVID tests internationally, we are refocusing our commercial efforts around the core product portfolio. As we have shared, our commercial resources are focused on our core products that represent higher value opportunities in higher growth markets. Our recent portfolio analysis supports our strategy to prioritize commercial efforts around DPP HIV syphilis in the United States and globally on the SURE-CHECK HIV-1-2 assay and self-test products. In the United States, SURE-CHECK HIV-1-2 is CLIA waived. In OMEGA in Asia and Africa, SURE-CHECK is WHO pre-qualified as a self-test. And in Brazil, the SureCheck HIV cell test has recently achieved approval for over-the-counter sale in retail pharmacies through our Brazilian subsidiary. In Brazil, SureCheck is now carrying in the top two major pharmacy chains. We are excited about the potential to expand our HIV self-testing business in Europe, focused on France and the UK, and across Africa and Brazil as a top priority for 2022. As we enter the summer in the United States, Brazil will enter their respiratory season. Separately, with InVisa approval of the DPP respiratory panel through our Brazilian subsidiary, We are in great position to serve the local, state, and retail pharmacy needs in the event of any COVID or flu outbreaks. In addition to our current portfolio of existing point of care products, we believe that our product development and regulatory pipeline will expand our available market opportunity as we leverage our improved commercial infrastructure. The strategy for our portfolio expansion has two main objectives. To develop novel solutions for high-value growth markets on our DPP platform and to register our existing products in additional geographies where we already have established commercial operations. As we mentioned previously, We continue to believe that the receipt of the CLIA waiver for our FDA PMA approved DPP HIV syphilis system would open up a significant market opportunity by providing access to 40,000 to 50,000 clinics that conduct regular STD testing. This opportunity is compounded by the fact that there are no other combination tests currently on the market despite the recent rise in infection and co-infection rates. Our team is making progress on providing data requested by the FDA as part of the CLIA waiver application. On DPP SARS-CoV-2 antigen test, which has received a CE mark as well as Anvisa and South African approval, has been submitted to the FDA for an EUA and 510 . It remains under active review for an EUA approval. On the product development side, we are engaged in feasibility work to potentially develop additional tests for sexually transmitted diseases and insect-borne disease states. We have identified large unfilled market needs for each disease state, which we believe can be addressed through the development of advanced multiplexed point-of-care tests in these categories. We are making progress on our pipeline and expect our investments in R&D will generate profitable revenue in the long term. Now, I will hand the call over to Larry to detail the first quarter financials and provide more details on our operational improvements under the Global Competitiveness Program. Thank you, Rick. For the three months ended March 31, 2022, total revenue was $18.8 million, representing growth of 116% compared to the prior year period. Product revenue for the first quarter of 2022 was $18.5 million, an increase of 360% compared to the prior year period. Government grant income, license and royalty revenues, and R&D revenues combined for the three months ended March 31, 2022 were $0.3 million, a decrease of 94% compared to the prior year period due to the expiration of previous partner development agreements. Our revenues were in compliance with the quarterly 12-month rolling minimum total revenue covenant in our credit agreement. Gross product margins during the three months ended March 31st, 2022 increased by approximately $2.8 million compared to the prior year period. It's 3.3 million. Gross product margin percent was 18% in the first quarter of 2022 compared to 12% in the first quarter of 2021. Subsequently, gross product margin percent for the first quarter of 2022 increased by 27 percentage points relative to the fourth quarter of 2021. The gross product margin increase was driven by increased product volume sold in the U.S. and Latin America at higher average selling prices and operational productivity. R&D costs decreased by $1.2 million compared to the prior year period to $1.7 million in the first quarter of 2022, primarily associated with the completion of development work for prior partnership development agreements. Selling, general, and administrative expenses increased by $.9 million compared to the prior year period to $6.9 million in the first quarter of 2022. Net loss in the three months ended March 31st, 2022 was $8.8 million or 29 cents per diluted share compared to a net loss of $4.5 million or 22 cents per diluted share in the prior year period. The net loss includes impairment, restructuring, severance and related costs of $3 million or 10 cents per share for the first quarter of 2022 compared to a de minimis amount in the prior year period. On the balance sheet, cash and cash equivalents as of March 31st, 2022 totaled $24.4 million. We were able to reduce cash usage in the quarter to $4.4 million for operational efficiencies and working capital management. The company did not sell any shares of common stock as part of the ATM offering in the first quarter of 2022. Net working capital as of March 31st, 2022 was $34.6 million. Looking forward, given the substantial nature of the COVID revenues over the past two quarters, we continue to expect revenue for the year will be first half weighted and will face challenging sales growth comparables to the third and fourth quarters of 2022. I will now touch on the global competitiveness program. Here, we are focused on four foundational priorities to guide our execution efforts as we forge a path to profitability. First, we are focusing on higher margin business and growth markets. We continue to pursue growth in markets with higher selling prices and have recently concluded an in-depth analysis of our product portfolio and profitability on both a product and geographic basis. The insight gained from this review is providing us with more visibility to support customer pricing, marketing strategies, and allows us to more accurately evaluate opportunities to increase our selling prices. In the first quarter, we undertook a reorganization of our international business, including appointing Chuck Caso as our Senior Vice President of Global Commercial Operations and establishing a new distributor relationship. We have identified a strong opportunity for our SureCheck HIV self-test in France, the UK, and Brazil, and have dedicated increased resources to this product. Second, we are looking to lower manufacturing costs. Automation and labor management are critical to our strategy of scaling unit volumes, in addition to other levers we have at our disposal to lower our manufacturing costs. In the first quarter, we achieved greater productivity with tighter controls on labor overhead, including reduced overtime hours. It is worth noting that we continue to experience the impact of inflation resulting in price increases from suppliers that are planning to accommodate the longer lead times for materials. In turn, we are evaluating appropriate price increases for our products to offset these impacts. Third, we are working to reduce infrastructure costs. Reduction of our infrastructure costs includes an in-depth analysis of all our support functions and external spend to reduce costs. Our investments in research and development will be more closely aligned with innovation strategy centered around the DPP system and the expansion of our product pipeline. Our goal is to be more disciplined in our approach to cost-benefit analysis, target markets, and competitive landscape and to have every dollar we spend go towards more profitable revenue generation. Fourth, we are actively proceeding with the strategic review of non-core businesses and assets. We are focusing on our subsidiaries in Brazil and Germany to reorient those businesses to achieve independent past profitability more closely aligned with our long-term strategic roadmap. In Brazil, We have enhanced our operations and bolstered our low-cost manufacturing resources to bring costs in line with local market dynamics. Specifically in Brazil, we have OTC packaging capabilities to maintain appropriate short-check supply levels. We are confident that taken together, these initiatives can place Cambio on an improved trajectory towards profitability. We are firmly committed to the Global Competitiveness Program, and we look forward to providing updates as we execute this comprehensive plan. I'll now turn the call back to Rick for concluding remarks. Thank you, Larry. Before I conclude, I would like to say a few words about Leslie Tiso Leekman, who has been nominated for election to the Board of Directors at the upcoming Annual Shareholder Meeting on May 24th As described in the proxy statement, we have filed for the annual meeting. Leslie is a diagnostics industry veteran with over 20 years of healthcare finance leadership experience. She is currently Senior Vice President and Chief Financial Officer of CIRVASC, a medical device company. Previously, she held roles as Senior Vice President, Finance and Treasurer of Roche Diagnostics Hematology, and Vice President and Controller of WholeLogic. We believe her experience and the skill set make her an excellent fit for the ChemBio board at this phase in our growth. To wrap up, we were off to a strong start in 2022, generating record quarterly product revenue, improved product gross margins, and increasing our capital efficiency. We continue to refocus and reposition our resources domestically and internationally to execute on our most valuable near-term opportunities while advancing our strategy to drive more profitable growth over the long term. With that, operator, please open up the call to questions.