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spk10: Thank you, Sharon. Hello and welcome. Thank you for joining us to discuss our second quarter 2021 results, which were issued earlier today. You can view this presentation and the related press release on Centogene's website. For those unable to view the webcast, you can find the relevant slides on investors.centogene.com. Before we begin, please refer to slide two of our presentation, which provides information about certain statements to be made today that may be considered forward-looking statements within the meaning of the U.S. securities laws. including those regarding our strategic plans, development programs, and future financial results. Statements made during this call that are not historical statements may be forward-looking statements, and as such, may be subject to risks and uncertainties which, if they materialize, could materially affect our actual results. The forward-looking statements in this presentation speak only as of today, September 7th, and we undertake no obligation to update or revise any of these statements to reflect future events or developments except as required by the law. Additional information regarding these statements appears in our SEC filings.
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spk10: It is now my pleasure to introduce you to today's speaker, our Chief Executive Officer, Andrin Oswald, and Rene Juist, our Chief Financial Officer. Following our presentation, we will open up the call to Q&A. We kindly request that you ask a maximum of three questions. I will now hand the presentation over to Andrin. Please turn to slide four.
spk13: Thank you, Leonard. Hello, everyone. Today, I will begin by walking you through our operational performance during the second quarter of 2021. I will then update you on the progress of our core business, meaning the pharma and clinic diagnostic segments, and provide you with further insights into our company needs key assets. Rene will then take you through the financials, including what we have been able to achieve in our commercial COVID-19 testing segment. We will then provide our financial guidance for 2021 and the business outlook. Afterwards, we will open up for Q&A. Let's please turn to slide five. Let me first highlight the key messages for today. We delivered a strong quarter on the top line and made meaningful progress on our strategic priorities, which we outlined at our investor event in June. As mentioned at the event, we are continuously expanding our data-driven approach to reinventing rare disease drug discovery and development. Since June, we have further added to our new management team with the most recent addition of Patrice de Neffel as our Chief Scientific Officer who will lead our efforts in drug discovery and development. I'm very excited to have Patrice on board and on the team. We delivered a very strong performance from a revenue perspective, surpassing 50 million euros in revenues for the quarter. This still reflects the strong contribution from the COVID-19 testing. But most importantly, we're seeing the return of growth in our core business, with year-over-year growth of 25%. We're also pleased to see positive segment adjusted ABDA in all operating segments. Our biodata bank also demonstrated growth with approximately 25,000 new patients added in Q2 2021. This is a steady increase towards our goal of having 1 million patients in our biodata bank. We have shown that we are committed to offering superior diagnostics. We currently offer the broadest diagnostic testing portfolio focused on rare diseases, covering over 19,000 genes using over 10,000 different tests. Within this segment, we have seen the business return to solid growth, up 82% year over year. We have indicated this trend in the last quarters, and it's nice to see the business to continue to steady growth. In the pharma segment, we are continuing to leverage the compounding value of our leading and continuously growing biodata bank. While the revenue is down year over year, we believe this reflects the lumpiness of this kind of revenue stream. We now have 53 active collaborations per the end of the quarter, and our contract value signed in the first half of 2020 alone already exceeds what we signed in full year 2020. So we believe the expansion on the former partnership contracts continues. Overall, I want to underline that our firm focus remains on our core business for rare disease in 2021, and beyond. We have built a strong foundation and are set to deliver against our mission of enabling the cure of 100 rare diseases within the next 10 years. This will be reflected in solid corporations growth across both segments towards the end of the year. This statement is indicative of our strong belief in the recovery of our pharma business in the second half of the year. Let us now discuss the company's performance in detail. Please turn to slide six. Our revenue is more than quadrupled in Q2 2021 compared to Q2 2022. This increase was driven by COVID-19 testing, which accounted for 42.3 million euros, as well as a strong recovery of our core business, which includes diagnostics and pharma. Our core business grew by 25% to 9.5 million euros. As a recap, we experienced headwinds from the COVID-19 pandemic that impacted our core business segments, particularly in the second quarter of 2020. The core business trends gradually recovered towards the end last year and early this year. One of the ways we measured this was looking at the ordering tech trends, which we communicated to investors at prior earning calls. We are now pleased to see that recovery trends in the diagnostics segment confirmed and report that diagnostics revenues increased 82% compared to Q2 2020, reaching 6.7 million euros versus 3.7 million euros in Q2 last year. Farmer revenue decreased year over year from 3.9 million to 2.8 million in Q2 2021. As discussed in prior update calls, the farmer business has a longer sales cycle, so rebuilding that pipeline and recovery in the business takes more time. On top of that, we are cognizant that revenue in the segment is lumpy. But based on the contract value in the first half of 2021, We believe our view of accelerating pharma momentum towards the end of the year remains fully intact. To provide a quick recap of the science deals in the first half of 2021, we initiated a new collaboration with immunoneurology pioneer Alektor to accelerate the diagnosis for patients with frontotemporal dementia and genetic neurodegenerative disease. We extended our partnership with Takeda We extended the global Parkinson's disease study of ROPAD, aiming to recruit and genetically test additional 2,500 patients for Parkinson's, one of CentoGene's key prioritized diseases. In 2018, CentoGene entered also into a new strategic collaboration with Denali Therapeutics for the target globalization recruitment of Parkinson's disease patients with mutations in LARC2 gene. So this expansion is part of that deal. And we currently lead 12 ongoing longitudinal observational clinical studies to validate and monitor biomarkers covering several disease categories, such as Parkinson's, trans-13 amyloidosis, and inborn errors of metabolism. So as we look ahead into the second half of 2021, I'm fully confident that we will return to solid core growth, not only in diagnostics, but also in pharma. Now please turn to slide seven. The number of sample order intakes in our core business, meaning diagnostics and pharma, is up 15%. Given the discussed pharma revenue, the growth was driven by the increase in the diagnostic business, but test requests are up 40% versus the same period in 2020. Overall, we are making progress in growing our biodata bank, which includes samples as well as data and cell lines. On the graph on the right, you see the number of individuals in our data repository. Over the course of the first two quarters in 2021, We added almost 50,000 vehicles to our rare disease-centric database in Biobank, which is our core asset. I will provide an update on this later.
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spk13: In addition to growing our biodata bank, we have also ramped up our R&D initiatives. We have recently reached a milestone of publishing 200 scientific papers in which we would like to use as a basis to discuss our continuous striving for excellence and leadership in rare disease diagnostics and insights generation for differentiated drug development. The graph shows the exponential growth in the past two years in our published papers, and this momentum is reflected not just by these mere numbers of 18 authored peer-reviewed scientific publications alone in Q2 2021, but also how we are focused on generating critical insights into diseases, including Parkinson's, as well as advancements in genetic sequencing and technology. Our scientific progress seen in part in the publications is clearly creating impact. Such as, we have published advanced research that led to the discovery of six new rare diseases, which are now incorporated into our diagnostic offering, and immediately enabled the diagnosis of over 19 patients by leveraging existing data from our biobank. On the product side, we have launched an enhanced whole exome sequencing called new CentoExome, copying insights from our unique rare disease-centric bio-data band with superior omics technology, and which increases diagnostic yields up by 20% compared to a conventional whole exome sequencing. We view our contribution to better understanding rare diseases at the core of our commitment to patients around the world, aiming to provide the best diagnosis possible and unlocking the complexities of rare diseases to enable differentiated orphan drugs to develop. Let's turn to slide nine. At the core of what we do is our aim to revolutionize the understanding of rare diseases by connecting patients around the world and connecting their biology. We have shown today how we have continuously managed to grow our unique biodata bank as an asset, both in terms of volume and the quality of the data. This allows us to address different use cases for value creation. The now nearly 650,000 samples in our biodata bank have already been mentioned, but it has also grown in depth. In doing more specific testing and going beyond genomics, we have also been able to accumulate depth of data on each of the specific diseases that we have been prioritizing. To take a deeper look at how this translates into numbers, we have diagnosed over 2,500 rare diseases to date, which is a remarkably high number considering that only for a subset of rare diseases the genetic link is actually currently known. Our mutation database, CentoMD, includes more than 31 million variants. For patient identification and their trial support, the BioData Bank is valuable as it can provide insights on patient cohorts for certain diseases and geographies. We have more than 300 diseases with at least 20 diagnosed patients and about 100 with over 100 patients. Again, that's a high number considering that rare diseases have a very low prevalence. They're rare after all. Our large physician network also encompasses 20,000 physicians with active contact over the last couple of years. All of these things adapt and make us the world's number one rare disease partner for life science companies working on rare disease. On the other end of the spectrum, our biodata bank supports direct discovery and development. Overall, this structure allows us to grow in both core segments while driving novel medical solutions. Please turn to slide 10. We really believe in a data-driven approach, and for this reason, we believe we are positioned like no other company to unlock the complexities of a patient's biology and understand, as well as treat, rare disease by acting as a partner of choice in target identification, orphan drug discovery, and development. We are constantly improving our data tools, artificial intelligence, and the ability to mine big data in an unprecedented way to not only analyze public available data, but to combine our unique patient cell line-derived data with the data sets in the public sphere. To ramp up our data-driven approach to reinvent rare disease drug discovery and development, we appointed Patricia Nessel as Chief Scientific Officer. Patrice is one of the few people in the industry who has successfully applied unique data-driven approaches to drug discovery and development. With his deep scientific expertise and credentials, as well as his proven track record in industry, Patrice will be an outstanding scientific leader for SenderG. And I'm very much looking forward to work with Patrice to accelerate our work for patients. Initially, we are focusing on two metabolomic diseases, Gaucher and Niemann-Pick, type C, and on genetic Parkinson's and neurological disorders. Looking to the future, we will focus on more diseases in these areas and expand our database strategically to develop further full disease models. Full disease model for us is in the range of 100 to 500 diagnosed patients with a full omics data set and 10 to 20 cell lines for validation and to be able to discover druggable targets and biomarkers. In achieving this, we will be enabled to cure 100 diseases in the next 10 years. Let us please turn to slide 11. Lastly, I would like to provide a quick recap on why we believe we are uniquely positioned in the rare disease ecosystem and why we feel confident in delivering against our mission. We are starting from a very solid base. I believe we have been one of the first rare disease genetic testing companies in the world. And we stayed the course, building a unique asset over many years. We are now a leading genomic rare disease expert that is recognized around the world as a strong brand, and we are respected for that. We have been able to develop a unique biodata bank, allowing not just access to past diagnosis, but to access to stored samples, ensuring further analysis can be done and new tools and insights become available. And we have a truly global footprint. particularly strong in some areas also like the Middle East or certain parts of Asia, because we have followed geographies where rare diseases are prevalent and thus genetic testing was needed. And we think that this global footprint really differentiates from companies who may have started doing genetic testing much later or only in a high income country. And importantly, as discussed before, our approach relies on multiomics. bringing together the detailed phenotypical curation with genetic and eventually multi-omics insights. And while this is important for our research activities, we constantly strive to bring the new benefits to patients and into the market, also improving our diagnostics insight. With CentoMetabolic, our multi-omic panel for diagnosis of rare metabolic diseases, we believe you're truly one of the pioneers that is putting cutting edge multi-omics products onto the market for physicians today to better diagnose their patients. Bringing this together, we believe positions us in the ecosystem as the player for data-driven insights focused on rare diseases. You can see the companies that we compare ourselves within the table. We truly think that we are unique in the sense that we are fully focused on rare disease, have the most comprehensive rare disease by your data bank, and tools and have a geographic presence that really means that we can lead in data mining and complex generations around the world. With that said, let me hand over to René to walk you through the financials in more detail. René, over to you. Thank you, Angren.
spk12: Let's please turn to slide 13. Our Q2 revenues grew by an impressive 434% year-on-year to 51.9 million euros. This growth was mainly driven by the COVID-19 testing, creating 42.3 million euros in revenues in Q2 2021. Q1 and Q2 combined, our revenues climbed to 116.8 million euros compared to 21.8 million euros in first half 2020. This makes the first half of 2021 the most successful half year in Centergean's history in terms of revenue. Focusing on the core business, which includes our diagnostic and pharma segment, this expanded by 25% in Q2 2021, year over year, to 9.5 million euros, compared to 7.6 million euros for the same quarter in 2020. This growth was mainly driven by the strong uptake of the clinical diagnostic business, which recorded 6.7 million euros in Q2 2021, representing 82% growth compared to the same quarter in 2020. Pharma revenues decreased year over year from 3.9 million euros to 2.8 million euros in Q2 2021, reflecting a decrease of 28% compared to the previous year period. The decrease was primarily due to the impact of the COVID-19 pandemic, which slowed the clinical studies of our pharmaceutical partners. In principle, we believe the recovery in pharma takes longer due to the generally longer sales cycles. However, the value of the pharma contract signs in the first half of 2021 already exceeds the value of the deal signed for the full year of 2020, indicating a strong uptake in pharma revenues in the second half of 2021 and beyond. Please turn to slide 14. We achieved a strong segment at Josted EBDA of €7.5 million in Q2 2021, compared to €1 million for the same quarter last year. Our segment at Josted EBDA includes our diagnostic pharma and COVID-19 segments. As it is the case, our revenue segment adjusted EBDA was driven mainly by the contribution from the COVID-19 business. The picture for our two core business segments is mixed. Adjusted EBDA for the diagnostic segment turned from minus 1.6 million euros in Q2 2020 into a positive adjusted EBDA of 0.6 million euros. Adjusted EBDA of our pharma segment decreased to 0.6 million euros compared to 1.8 million euros in Q2 2020. The decrease was primarily attributable to lower revenues as well as product mix. Total core business segment adjusted EBDA grew to 1.2 million up from 0.2 million euros in Q2 2020, indicating the strong uptake of the diagnostic business after COVID-19 hit in 2020. Now, let's look at a further breakdown of the revenue in our coal segment. Please turn to slide 16. Or slide 15, sorry. Centogene's farmer revenue in the first half of 2021 was still affected by the COVID-19 pandemic. We see in the graph that farmer revenue decreased to 6.4 million in first half of 2021. compared to €8.5 million in the first half of 2020. The decline in revenues is mainly due to the successful completion of contracts by the end of 2020. The main drivers of revenues are patient identification and clinical trial support partnerships. The large increase of signed contracts in the first half of 2021 compared to the COVID-19 focused full year 2020 is a sign for a strong farmer business rebound towards the end of the year. During the six months ended June 30th, 2021, we entered into 12 new collaborations and successfully completed the 25 collaborations, resulting in a total of 53 active collaborations as of June 30th, 2021. Revenue from our new collaborations totaled 2 million euros for the three months ended June 30th 2021 with no upfront payments. I previously mentioned the 53 active collaborations on the pharma side. To give a little bit more perspective into the type of collaboration we have in place, take a look at the pie chart in the bottom right corner. We have one large Patient identification collaboration, which reflects disease fields where commercial stage products are already available. In this case, our contract with Takeda. Currently, most of our collaborations are in the clinical development stage with clinical trial support. All of those are based on the setup we already have. Clinical development stage collaborations can be used to support clinical trials or clinical studies like we do with our Denali collaborations. As part of our strategy, you will see our increasing focus in the earlier parts of the drug development cycle. And with leverage on the Biodata Bank for unique data-driven insights, we look to sign collaborations in the R&D stage where you currently only see one collaboration. As discussed at our investment event in June in detail, this is an area where we will expand and expect to have the first value share deal added in the next 12 months. Those collaborations would generally include a value share for Centogene, when historically these may have been small contracts only for distinct research questions. Please move to slide 16. While the take-up in revenue in the pharma segment is taking a bit longer, we are pleased to see the diagnostic business has shown strong growth. revenues from our diagnostic segment were 6.7 million euros for the three months in the june 30th 2021 an increase of 3 million euros or 82.3 percent from 3.7 million euros for the three months ended june 30th 2020. we received approximately 13 900 test requests in our diagnostic segment representing an increase of approximately 90.4 percent as compared to approximately 7,300 test requests received for the three months ended June 30, 2020. The increase in revenues was primarily related to an increase in test requests for whole exome sequencing and whole genome sequencing during the three months ended June 30, 2021. Total revenues for the two area or for the two sequencing amounted to 3.3 million euros, representing an increase of 67% as compared to Q2 2020. In total, this reflects that the WSES and the WVDS accounts for approximately 30% of the number of test requests in the diagnostic segment 2021 to date. Please go to slide 17. Looking at our income statement, the slides show Q2 results on the left as well as year-to-date results on the right. And we will focus on the quarterly results for the purpose of this discussion and compare year over year. We have already mentioned the increase in revenues in the quarter, which grow an increase in gross profit of approximately 5.2 million euros in Q2 2021 compared to last year's Q2. Relatively to revenues, the gross profit margin decreased overall, reflecting higher cost of sales in COVID-19 testing as well as the pharma segment. Higher cost of sales in the pharma segment were related to the larger portion of clinical trial related revenues. This was offset by a decrease of cost of sales in our diagnostic segment, reflecting our investment in cost efficient equipment in previous years. Our expenses, including other operating income, increased by approximately 2.8 million euros for the quarter compared to Q2 last year. Let me comment on the two biggest factors that drove this increase in expenses. Firstly, general administrative expenses increased by approximately 2.8 million. The increase is principally due to the increased personal cost, legal and administrative costs, and additional expenditure on IT support and data centers. Some of the additional costs are related to putting in place the new management team, with some being of one-off nature. In addition, the corporate expenses included share-based compensation expenses of 2.2 million euros, an increase of 1.9 million euros versus prior year quarter. Second, our R&D expenses for the quarter were up approximately 0.9 million euros. This increase mainly represents personal cost and IT related expenses incurred in the BioMega and AI research and development phase. This is reflective of our continued commitment to advancing our research and technology platform such as AI and multi-omics tool. In total, Our operating loss improved by 2.4 million euros to negative 7.7 million euros. Now please turn to slide 18 for cash flow and the balance sheet highlights. As of June 30, 2021, we had 34.8 million euros of cash or cash equipment on our balance sheet. Regarding our outstanding debt, I would like to remind you that as of end of June, this includes approximately 20 million euros of lease liabilities. Looking at the movements, cash flow from operating activities improved significantly compared to last year. The main drivers were the additional revenue from COVID-19 testing and its positive adjusted EBITDA margin in that segment. Having said that, we do recognize that the impact of the earlier discussed increase in cost of sales in the COVID-19 segment, leading to a lower marketing contribution from the segment compared to previous quarters. We are managing that business tightly as uncertainty around COVID remains. In 2021, year to date, cash flow used in investing activity was 4.8 million as compared to cash flow of 6.6 million euros in first half of 2020. Consistently with our aforementioned attention to the COVID business, the decrease is mainly due to a reduction in the COVID-19 related investments. During the six months ended June 30th, 2021, COVID-19 related investments were 2.4 million euros, of which 2 million euros were included in property, plant and equipment and 0.4 million euros were related to the development of the CentroGene Corona test portal. Cash flow from financing activities decreased compared to 2021, mainly reflecting bank overdrafts in 2020. With that, let me hand it back to Andrin for our 2021 outlook. Please turn to slide 20.
spk13: Thank you, Rene. Let me summarize the presentation briefly and highlight the key takeaways from today's discussion. For the quarter and first half of the year, we had strong top-line revenue of €52 million and €117 million respectively. While this performance was driven in large part by commercial COVID-19 testing, it also highlights that our core business is on track for recovery with more than 25% growth over Q2 2020. We are excited about this trajectory in our diagnostic segment, as we believe we offer the broadest diagnostic testing portfolio for our diseases. Data collected from our diagnostic services and biomaterials allow us to continue to grow our repository and our central MD database. We have reached almost 650,000 patients by now in our Biodata Bank, which means we are continuously improving and generating rare disease-centric insights. And we continue to view the Biodata Bank as the key asset delivering value for orphan drug development, the driver of our long-term growth. We will deploy that asset even more strategically and sharpen the value proposition, both for our former partners and internal development going forward. On the corporate side, we have made great strides in the first half of the year with five new members on the management team. And now I'm with Patrice Deneville as Chief Scientific Officer joining. I'm proud of the effort, not just of this team, but of course also of all the people at Centogene and the work that they do for rep disease patients around the world. And I'm very confident that under new leadership, the company will prosper and create significant value in the years to come. Before we move to Q&A, let me lastly touch on the outlook for the rest of the year. For the core business, we have seen the recovery in diagnostics and are confident that the farmer revenue will pick up as well. According, we expect both businesses to grow solidly in 2021. With regards to the total business, we all know the pandemic continues to throw one curveball after the other, which makes predicting commercial COVID-19 testing revenues somewhat difficult. What I can tell you is that we are confident that our overall revenue for the full year 2021 will clearly surpass 2020 revenues of 128 million euros. And we continue to make strategic investments into our core business segments to enhance our leading position in the RTC space and generate long-term value for our shareholders. With that, I would like to hand it back to Leonard.
spk10: Thank you, Andrew. As a short aside on calendar, before Q&A, our next conference attendance will be the Baird Global Healthcare Conference exactly a week from today. We look forward to seeing you and others from the investment community there virtually. As soon as feasible, though, management will also be on the road again in person. So looking forward to that. I'll now turn the call over to Sharon for the Q&A portion of the call. And I would like to kindly remind you to ask a maximum of three questions so that we have enough time to address as many as possible. Thank you again for joining us today.
spk09: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound hash key. Your first question today comes from Puneet Soda from SVB Learing. Please go ahead. Your line is open.
spk11: Yeah, hi. Thanks for taking the question. So the first one is really on the guide that you're providing, which is without much details in it, but I just wanted to get a sense of You know, obviously pharma was impacted in the quarter. Do you, Andrew, do you expect this to recover meaningfully in the second half, or this is going to be more of a 2022 recovery in pharma? And then on the, you know, diagnostic segment, you recovered only, you know, 5% sequentially. So is that a pace that we should continue to expect here in the second half? Just wanted to get a sense of the core business recovery.
spk13: Yeah, thank you for the question. So I think on the pharma, we expect the second half of the year to significantly outpace the first half so that overall the pharma revenues for the year will be significantly above last year. So that is our you know, forward direction that we can give. I think I would also look at this as a trend. As I had said in previous call, I think the company had been focused on COVID last year and as such, any, you know, pharma deals have been more or less put on hold. Now that we have restarted that work and have strengthened that team, we see really good progress. But of course, from the time that you negotiate until you sign a deal, And then until they feel translating revenue when, you know, the clinical, the outcomes trials actually start, that just has a certain lead time. But I'm very confident that you will see quarter over quarter significant growth. And then if you extrapolate, of course, that trajectory into 2022, you will see that that business is, you know, back on a highly attractive growth track. For diagnostics, I think, you know, you're mentioning the 5% is a bit of short-term take comparison. Overall, we clearly expect the diagnostic business to outpace, you know, the average genetic diagnostic market, which we, you know, when we look at the benchmarks, seem currently at around 10%. So we clearly have a plan to grow above that.
spk11: Okay, that's helpful. And then in terms of the disease models that you mentioned, wondering if there was a, you know, if you're looking at it from a contribution perspective, how much was the contribution from disease models? And obviously, you're building this up as a resource just beyond the database. So, you know, how should we expect contribution from the disease models? And also, what's been the feedback from pharma about these disease models? And lastly, wondering if there was any contribution from IPFC work that you're doing with the partners. Thank you.
spk13: Yeah, so for the disease model, you have to understand that as a solid, deep insight into a biodata set on a rare disease, which in our mind will be quite unique. As you mentioned, this will not stand on its own. So we are basically mining literal publicly available data to understand the right outstanding medical and scientific questions that we have in a certain rare disease. And then we can use our disease model to find the right answers to those. And that roadmap to finding the answer is where we engage a partner with to align on what question we answer. and then there is interest in a deal to actually get the work supported and funded. In terms of the exact financial contribution, I can only tell you that we expect them to be significant when you look at certain other deals of similar nature that you could reference to an industry. I think such deals, they do come with a significant upfront payment, which is in the Roozbeh Gharakhloo, Multi million range, but that of course is not the true value. The true value is that if the work delivers against its promise. Roozbeh Gharakhloo, We expect such deals to deliver milestones and royalties that you know would add up to a total deal value that can clearly be about $100 million
spk09: Thank you. Shall I go to the next question?
spk13: Yes, please.
spk09: Thank you very much. Your next question comes from the line of Katherine Schulter from Baird. Please go ahead. Your line is open. Hi.
spk02: Thanks for the questions. I guess first you talked about the value of contracts signed in the first half was higher than all of those signed in 2020. Can you just give us any details on how you go about calculating those values? Does that just include kind of contracted base value, or does it factor in, you know, potential longer-term upside from revenue sharing or milestones or things like that?
spk13: Those deals are, to the largest extent, the number referring to is short-term revenues. So if there is a longer-term, you know, royalties and value share, that wouldn't be included in that statement.
spk02: Okay, got it. Very helpful. And then for the seven new pharma collaborations in the second quarter, I think that was after signing five in the first quarter, and I believe 16 in all of 2020. How should we think about the pace of new collaborations going forward? And you know, how meaningfully could those contribute to revenue in the back half of the year?
spk13: So the number of deals is doesn't probably tell you that much because it all depends, of course, on the quality of the deal and the size of the deal. What it does tell you is that we have a broad range of collaborations. We're not just relying on one or two, but with regards of the total revenue that they bring, I would have to refer you back to the initial statement. What we have signed in the first half of the year will bring way more new revenues than all the deals they've signed in 2022. And that's why they're very confident that this business, starting from the second half of the year, will be back to a very attractive growth rate.
spk02: Okay, got it. And the last one for me is good to see core diagnostics, gross margins staying up above 30% again this quarter. Is that sustainable going forward? And then on pharma, just with the ramp of revenue you're expecting in the back half from your newly signed collaborations, how should we think about the gross margin profile of that segment as those contributions ramp? You know, should we be getting back to the 70% type gross margins you saw for pharma in 2019 as we exit 2021? Yeah.
spk13: So I think on the diagnostic side, indeed the margin is is quite attractive and we are happy that it stayed you know at that level because there is a certain price pressure you know genetic testing overall we were able to insulate ourselves to some extent from that but i do believe that the pricing pressure on what we consider you know more simplified you know genetic testing will further increase going forward as uh you know different players are making compromise on the pricing in return for getting access to patient data basically. We think that given we have a unique value proposition in rare diseases and that we are not just making a standard genetic test but really tailor our testing with a superior disease value, we believe that we can defend the margins that you currently see. And here and there, you know, we may also to collect the appropriate data, make a certain compromise that would be very targeted, maybe in certain geographies where we know prices are low and we still want to make sure that we get the right insights. Because the true value of our diagnostic business is not just that margin that you're referring to, but it's really also to remain the leader in collecting rare disease data and through that, creating the best data insights going forward. On the pharma side, the second half of the year, revenues, you can, I guess, in a simple way, assume what needs to happen for the values to be above last year. I think last year we had pharma sales of 16.6 million euros. You can look at the sales in the first half, and then you can put in a number that will show that the full year will be significantly above last year. So I think that It's what I can tell you exactly how much above, you know, that depends a bit because the business will rapidly recover in Q3 and even more so in Q4. And of course, with that much more aggressive growth, you know, we'll see how much of it happens already in Q4 and how much of it moves then in Q1 2022. Because every month or two, of course, can make quite a difference. That's why I don't want to give you at this point in time an exact number. for the margins on the pharma business we think they will absolutely improve while the business grows we don't think they will go back to um you know let's say pre pandemic level has nothing to do with the pandemic but it has to do with the fact that we are signing broader sets of collaborations with pharma partners in that spirit of getting access to really highly attractive data sets coming out of the clinical studies that this partnership entails. We still expect the margins to be very attractive, but maybe slightly less than what we saw before.
spk09: All right, great. Thank you. Thank you. And your next question comes from the line of Katie Trihane from Credit Suisse. Please go ahead. Your line is open. Hi.
spk03: Thanks for taking my question. Maybe first on the COVID testing side, you mentioned that contributions just flow over the back half of the year, but just trying to get a better sense of how exactly you're thinking about contributions. Can you help us think maybe about how did volumes trend throughout the quarter and what was the run rate as you exited the quarter as well? Anything there would be helpful.
spk13: Yeah, so I think Q2 had, as you saw, quite a substantial revenue, but more of that revenue happened in March, maybe, sorry, not in March, in April, maybe the first half of May, and then things clearly declined as, especially in Germany, which is by far, of course, our biggest market, the testing paradigm had to some extent changed and more people could rely on antigen self-testing rather than PCR high-quality tests. The revenues then or the testing volume has stayed more or less stable things during summer at the lower pace. Let's say maybe half of what we saw during the time before. And the question is, where does it go from here? I think the business is at this point in time, you know, cash positive for us. So there is no need for immediate action. It's possible that while Weather gets colder in fall, as we saw last year. Situation may get worse again, and testing volumes will increase, or that may not happen. I think that's where we said, look, we simply can't predict that, and we just have to be, or you have to be a bit patient to see what happens and what this means for our revenues. Overall, our base case clearly assumes that the revenues for the second half of the year are going to be significantly lower than the first half of the year.
spk03: Okay, got it. That's very helpful. And then I know you mentioned that the signed contract volume or value for the pharma business is higher in the first half versus all of 2020. But can you maybe remind us of the average lead time of when you sign a contract to when you begin generating revenue? I'm just trying to get a better sense of, you know, how these contracts will ramp over the back half of the year and into 2022. Thanks.
spk13: Yes, so from signing until the actual, so most of those contracts, and as I said, that may change in the future while we sign different research deals, but for those contracts that are largely clinical trial support contracts, revenues start to kick in when we do the testing. So there is no payment at signing or upfront milestone payment at signing. And from signing of the deal until, you know, the clinical study starts, I mean, that takes an average of six months because from the contract signed, of course, afterwards, the study needs to be planned in details, the protocols finalized, the centers informed and educated. And then eventually, you know, you can start recruiting and this is when the revenues kicking. So I think six months is a good average.
spk03: Okay, that's great. Thanks so much.
spk09: Thank you. Your next question comes from the line of Myla Elika Ochoco from FactSet. Please go ahead. Your line is open. Hello, Myla. Is your phone on mute?
spk14: Hi. I think this is actually from BTIG. Thanks for taking the questions. Sorry to ask another question on the pharma contracts signed in the first half. Just to clarify, is this just a function of more deals and more contracts being signed, or are the contracts per pharma customer also increasing over time?
spk13: I wouldn't say that. It's not that these signed with the same customer, more contracts. I think it's a combination of some contracts extensions or another contract with an existing customer and about a half a new, more new customer. So it's, it's quite a nice mix. Um, we did in the first half of the year, sign a few contracts like the one with Elektor who clearly have a significant, uh, you know, revenue value. I think you have seen in that press release that we are recruiting about 4,000 patients that need to be analyzed and tested. And I won't give you an exact revenue number per patient, but you can assume that this translates into quite a significant revenue stream over the year of the trial. So one thing, and I think we plan to do more of that in the future to give you a little bit more transparency on the deals is we group them into the research deals versus clinical trial support trials versus the patient identification deals, which is pretty much, you know, just doing the work to find patients on existing drugs. Now, the client, the clinic trial support deals, like the ones with Alektor, I think we try there to publish or share with you the numbers of patients in those trials And over time, I think we'll be able to somewhat come up with an average of a revenue per patient for the work that we do there. The reason why we don't share the details with you is one, because it's of competitive nature. You know, you can deduct pricing information from that, which, of course, A, we don't want to share publicly, and B, on most of those deals, also the customers clearly want to keep this confidential.
spk14: Gotcha. Great. Thank you for that. And then just the value share deal that you're talking about, the first or at least one signed over the next 12 months, could you kind of give us more color in terms of the type of feedback you're getting as you're talking to these potential pharma collaborators? What gets them excited about working with you guys? Or also maybe even what are some of the hurdles for some of the pharma as they're discussing potential partnerships with you kind of what what they would like to see more of?
spk13: Yeah, so the what gets them excited is the deep understanding of the disease, a clarity on what type of biomarker or potential pathway understanding would lead to a to a new drug target of identification of a drug target that they can afterwards leverage for for further development. And the discussions we have, at least since I joined, I mean, they're getting better pretty much by the month. Why do they get better? For two reasons. One of it is that we have invested significantly to make our biodata bank be able to deliver more tailored answers to some of those questions. The biodata bank has grown over years, initially more coming out of the clinic diagnostic setting. So there's a lot of data. There are a lot of people there. but the granularity in terms of how the data has been recorded or what type of genetic testing has done varies to some extent. So now that we prioritize the diseases with the clear understanding of what can we, you know, try to learn here for drug discovery and development, we really clean up this data set. Sometimes we go back and do additional testing. Also make sure that, you know, we clean up the respective, you know, phenotypes. You have a lot of phenotype information. So the more this data gets better, I think the more the customers are excited. And then the second one is our understanding of drug discovery. The company has been a genetic testing company historically. And let's not forget that the idea to use this unique trove of information and shape it up for drug discovery development is relatively new. So that clearly means there is a learning curve. And I think we have made great progress in also strengthening that the competence in that they are within 10G because you can't go to a partner and say, hey, I have some data here. I don't know what it means. Is it interesting to you? And that's also why I'm super excited now that Patrice has joined us. I mean, he's a well-recognized, you know, discovery industry leader. And under him, I think we have started to build up, you know, the comprehensive, you know, scientific program leaders can really come up with what I have described, you know, the clear roadmap from our biodata bank, the data we have, and then over a reasonable amount of time, what type of insights we can generate. And then, of course, it's a negotiation with a partner. I mean, some partners who say, well, why don't you, you know, create the data and the insights and then, you know, come and talk to me when you have them. Some of them, they clearly understand that they don't want to wait that long or shouldn't wait that long because once you have a new drug target or an insight, you know, fully on the table, then of course the competition for that, um, while the value is higher for us, but the competition for the SLOs increase. So that turns them into a negotiation where we try to find the right balance in terms of, um, you know, signing a deal, signing up with a partner at a time when we know that we can extract the value in the negotiation. So we don't want to do it too early, but also not too late. And that's why, uh, one of the key reasons why I can't give you an exact kind of commitment to say within four months, you know, that you will be here. In principle, on each of those data assets that we have, the longer we wait, the higher the value of the asset because we invest, of course, in the research and, you know, the work that needs to be done to really extract the value for for farmers. So the longer we wait, the higher the value of the deal for us, then we sign it. But of course, we don't want to wait too long either as some of these deals, we see them also as a validation for the attractiveness of the customers in terms of what you're doing. And we absolutely know that investors are looking for that as well as an external validation of the work that we do.
spk14: Gotcha. And then just lastly from me, could you talk about for your second half outlook, whether or not the impact from the Delta variant has been factored in and, you know, we'd love to kind of hear what you guys are seeing, how that's impacting your business, both on the diagnostic and on the pharmacy globally, you know, year to date.
spk13: Yeah. So on the, on the core business, we haven't seen any impact to date. I mean, the overall, the, In most of our key markets, I mean, the clinical diagnostic testing goes on as in the past. Now, this could change if you get again to hospitals being overcrowded and hospital physicians delaying some of the more routine work because they need to prioritize COVID patients. I mean, this is what led last year to the reduction in the testing volume, given that some of those diagnostic work has been then postponed or delayed. Up to now, we don't see that in a significant way, and I hope that most countries have their pandemic control strengthened enough that we don't get there. There is a minimal risk to that, but at this point in time, I'm not worried about it. So that's why we expect our core business to continue without a significant impact of the pandemic going forward. If there was some impact from the pandemic, purely from a financial point of view, that could be mitigated by, in return, some higher than anticipated COVID testing revenue. So we have a little of a natural hedge, not that we like it from a pandemic point of view, but from a financial point of view, that's what you would somewhat see. And I think our base plan is that in the second half, you know, COVID goes down. So we slowly see less of that. But in return, we see more core business. And from a financial point of view, that gives us the transition we're looking for. In a worst case scenario, this would be somewhat delayed, and we would see more COVID revenues and a bit less core revenues in the second half. But again, at this point in time, we have no reason to believe that that will happen.
spk09: Gotcha. Thank you so much. Thank you. There are no further questions. I will hand the call back to you, Sir, for closing remarks.
spk13: Thank you. Thank you all for listening and joining in. Thank you for your interest in the company and your questions. I hope you were able to answer them to your satisfaction. Please feel free to reach out even after the call if you do have specific questions. Leonard and the team are very happy to take them up and respond to you as quickly as possible. I want to again assure you that our core business is in solid shape for future growth in the second half of the year, and we will keep you updated quarter to quarter as we materialize on our new strategy with a new, very competent management team that is going to deliver against creating the value with our biodata bank for ACE patients in the quarters, but also the years to come. Thank you all and have a good day or good afternoon.
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