8/10/2021

speaker
Operator

Good day, everyone, and welcome to iSpecimen's second quarter 2021 conference call. At this time, participants are in a listen-only mode. A question and answer session will follow management's remarks. This conference call is being recorded. A replay of today's call will be available on the investor relations section of iSpecimen's website and will remain posted there for the next 30 days. I will now hand the call over to Allison Sauce, investor relations, for introductions, and the reading of the Safe Harbor Statement. Please go ahead.

speaker
Allison Sauce

Thank you, Operator. Good morning, everyone, and welcome to iSpecimen's second quarter 2021 results conference call. With us on today's call are Christopher Rinelli, iSpecimen's Chief Executive Officer and President, Tracy Curley, Chief Financial Officer, and Jill Mullen, Chief Operating Officer. Before we begin, I would like to remind you that today's call contains certain forward-looking statements from our management made with the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended, including with respect to the company's recent IPO and the anticipated use of the net proceeds as well as concerning future events. Words such as may, should, projects, expects, intends, plans, believes, anticipates, hopes, Estimates and variations of such words and similar expressions are intended to identify forward-looking statements. These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the risk factors section of the company's registration statement and final prospectus for the company's initial public offering filed with the SEC. Copies of these documents are available on the SEC's website at www.sec.gov Actual results may differ materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update these statements for revisions or changes after the date of this call, except as required by law. Now, at this time, it is my pleasure to introduce Christopher Rinelli, CEO and President of iSpecimen. Chris, please go ahead.

speaker
Christopher Rinelli

Thanks, Allison, and thank you, everyone, for joining us today on our second quarter 2021 earnings conference call. As this is our first earnings conference call as a public company, before reviewing the highlights of the second quarter and the first half of 2021, I'd like to talk a little bit about who we are, our history, our accomplishments, and how we have positioned the business for future growth. Afterwards, our Chief Financial Officer, Tracy Curley, will review the highlights of our Q2 financial results. Following that, we'll be happy to take your questions. So to start, iSpecimen is a technology-enabled life sciences company. focused on accelerating scientific and medical discovery via our online biospecimen marketplace. Simply put, we have developed a marketplace platform that enables life science researchers to instantly search for and gain access to patients, biospecimens from these patients, and related healthcare datasets from a global network of healthcare providers. Our story began in 2012 when we raised our seed round of financing and began building the first generation of our marketplace technology. At the same time, we began establishing a healthcare provider network to provide us access to patients, specimens, and healthcare data, the latter of which is a key enabler and differentiator for iSpecimen. In 2016, once we achieved a critical mass of biospecimen suppliers, we hired our first vice president of sales and began aggressively building our customer base. In 2017, we introduced our initial version of our customer facing online iSpecimen marketplace, successfully entering our next phase of expansion. Fast forward to today, and I can say with great confidence that iSpecimen has become the preeminent online marketplace for human biospecimens and enjoys a meaningful and significant first mover advantage in the rapidly growing biospecimen market. The driver behind our growth in the entire human biospecimen market is the explosive expansion of life science research and development, or life science R&D, driven specifically by advances made in molecular medicine, precision medicine, and regenerative medicine, all of which continually require access to a diverse range and growing number of biospecimens. The supply of biospecimens derived from healthcare providers, including biofluids, solid tissue, and hematopoietic cells, which are the cells that constitute our immune systems, is what fuels medical research and its various applications such as biomarker identification, biomarker validation, diagnostic test development, and drug discovery and development. The worldwide biospecimen market is substantial, with an estimated $3 to $4 billion spent annually on biospecimen procurement, growing at a rate of 10 to 15% annually. Having said that, this market, while large, suffers from an inefficient and highly fragmented supply chain that is further hampered by legacy manual processes. At a high level, these inefficiencies and fragmentation make it extremely challenging for healthcare providers and life science researchers to connect. And even more challenging for them to access the patients samples and data sets needed to power today's r&d pipelines. It is a market that is ripe and in fact overdue for an online marketplace solution. it's ironic that, while there is a large growing need for research specimens hampered by supply chain challenges. The billions of patient bio specimens are discarded annually from clinical and pathology labs throughout the world after clinical testing is completed. many of which could be useful to researchers but are simply not made available to them. Moreover, billions of patient encounters occur across the globe where a specimen could be obtained specifically for research, but the patient simply isn't offered the opportunity. These are potential research opportunities that are lost on a daily basis, slowing down the pace of medical advancements. In addition, every discarded specimen and every squandered patient encounter represent missed revenue opportunities for healthcare providers, most of whom need additional income sources. Our pioneering technology, the iSpecimen Marketplace solution, solves these biospecimen procurement challenges. The platform uses healthcare data to instantly connect researchers to a global network of patients and biospecimens to accelerate time to discovery and ultimately time to market for new diagnostics and new therapeutics. It draws directly from healthcare data sets that our supply partners and makes available patients and specimens searchable via user friendly web interface that in many ways is very similar to other b2c E commerce platforms. Researchers can intuitively search for specimens and patients across a partner network of hospitals labs file banks blood centers and other healthcare supplier organizations. Not only do we connect our supply partners to our research clients to enable the quick searching of specimens, but our workflow automation software manages the entire procurement process from invoice to inquiry, including contracting, compliance management, sample logistics, and data management. Utilizing our platform, researchers can procure biospecimens more efficiently and greatly reduce the time to obtain these valuable samples. The iSpecimen marketplace doesn't only offer benefits to researchers, healthcare providers and our supply network benefit as well. Providers realize increased revenue and help advance the pace of healthcare discovery on the platform that ensures for them compliance with today's privacy rules, protecting patient privacy and security of patient information. At the same time, researchers save time by procuring biospecimens quickly and efficiently. which in turn accelerates their diagnostic, therapeutic, and vaccine research, while also reducing the risk for the platform that manages contracting and compliance processes. Over the past five years, we've made considerable progress as an organization. As of the end of this year's second quarter, we had 190 unique supplier organizations under agreement, providing us access to over 1,000 hospitals, thousands of clinics and medical practice groups, more than 135 clinical research centers, approximately 55 biorepositories, more than 45 clinical and pathology laboratories, five blood centers, and three healthcare information exchanges, what are also known as HIEs. During the same period, we grew our customer base, meaning unique customer organizations that have purchased from us. From 24 at the beginning of 2016 to nearly 380 organizations at the end of this past June, a 65% compounded annual growth rate. We also increased registered individual users on the iSpecimen Marketplace platform from 43 to more than 3,800, a 126% compounded annual growth rate. That is substantial growth by anyone's standards. To date, 70% of the top 20 pharmaceutical companies and 70% of the top in vitro diagnostic companies worldwide have procured specimens from iSpecimen. We have delivered more than 155,000 specimens to researchers across 2,000 projects for our customers. In 2016, the first year we focused on customer acquisition, we reported revenue of 1.4 million. The following year, 2017, revenue more than doubled to 3.1 million. And between 2019 and 2020, we experienced 90% year-over-year revenue growth, ending 2020 with about $8.2 million in revenue. In summary, between 2016 and 2020, we realized a revenue growth rate in excess of 53% compounded annually. These are impressive results and are even more telling considering the many challenges the medical and life sciences research industries faced in 2020 from the COVID-19 pandemic, which included temporary office and facility shutdowns, supply chain disruptions, and challenging working conditions. I'm extremely proud of our talented and extremely dedicated team for everything we achieved during both 2020 and the first half of 2021. I'd like to personally thank our entire team for their countless hours and significant contributions to our continued growth, success, and our recent IPO. Turning to our second quarter 2021 financial results, I'm pleased to report that we continue to show strong growth. During the quarter, we posted revenue of $2.9 million, a 93% increase compared to the $1.5 million for the second quarter of 2020, and revenue of $5.9 million for the first six months of 2021 compared to $3.2 million for the same period in 2020, an increase of 82% year over year. We also grew purchase orders to 8.8 million for the first six months of 2021, a 31% increase over the same period in 2020. We achieved many significant milestones in our development during the second quarter and throughout the first half of 2021. On June 16th, we successfully priced our IPO and the next morning began to trade on the NASDAQ capital markets under the symbol ISPC. All in all, we generated gross proceeds of $20.7 million through the offering, which included the full exercise of the underwriter's overall allotment option. This was an important milestone for us, as a significant portion of the proceeds will be used for technology development, to hire, train, and deploy additional sales teams, and enhance our marketing efforts, to expand and strengthen our supplier relationships and bolster customer acquisition, and on other general corporate purposes. We estimate this capital can take us to profitability and positive operating cash flows. In addition to providing us with important capital to fuel our organic growth, this NASDAQ listing also expands our access to capital from new sources that were previously unavailable to us. While not part of our immediate plans, a future capital raise could be very strategically important to the company should we choose to accelerate our growth by deploying inorganic growth tactics. Currently, there is some consolidation occurring in the biospecimen procurement industry via mergers and acquisitions, and we may elect to also participate in this way. Our IPO is only one of our recent achievements. In early February 2021, we expanded our viable cell-based biospecimen offerings by introducing new cryopreserved stem and immune cell products for life science research and preclinical drug development. These new products are intended to support the growth of precision medicine and regenerative medicine by giving researchers broader access to necessary materials for developing new diagnostics and therapies for cancer, autoimmunity, and numerous infectious diseases. Researchers can now request these products through the iSpecimen marketplace. More recently, in June, we expanded our board of directors, commensurate with our IPO, with the appointments of John Brooks and Margaret Lawrence as independent directors. We are very excited to welcome John and Margaret to our board, both of whom bring considerable expertise in healthcare, marketplaces, startups, and capital markets to iSpecimen. We are confident that they will provide valuable contributions as we continue to expand our online marketplace and grow our platform. In closing, we have accomplished a great deal since iSpecimen raised its first round of financing in 2012. Since that time, we have established a global healthcare provider network and built an extensive database of millions of unique specimen and patient records. We have proven the benefits of our technology platform and our operating model as evidenced by the substantial revenue growth we have achieved. We continue to expand our supply network, enrich our data assets, and enhance our platform, all of which contribute to the strong research and supplier adoption of the iSpecimen marketplace. We also continue to expand our market penetration through increased sales and marketing initiatives, as evidenced by our strong sales pipeline. In essence, we believe that we have a great first mover advantage and are well positioned for the future. Moving ahead, we expect our sales momentum and revenue growth to continue as more suppliers and customer organizations embrace the iSpecimen marketplace, which is disrupting the biospecimen procurement process for both researchers and suppliers that recognize the benefits of working with iSpecimen. We are positioned to accelerate our growth and we'll use the IPO proceeds to expand and enhance our technology platform, supplier, and customer relationships. Complementing this in the future, we expect to create new revenue streams, leveraging our broad and growing data asset that's a key enabler and differentiator for iSpecimen. By continuing to execute on these plans, we expect to further expand our number of supplier organizations under agreement, advance our technology, and grow our registered users on the iSpecimen marketplace and further expand our revenue. We are very pleased with what we have achieved already, including our IPO, and we are even more optimistic about our future prospects with the latest capital raise. We look forward to speaking with you all again on future earnings calls and updating you as we continue to execute on our growth plans for 2021 and beyond. Now I'll pass the call on to Tracy, who will review our financial results. Tracy.

speaker
Allison

Thank you, Chris and good morning everyone today our view our financial results for the second quarter and the six month period in the June 30 of 2021 compared to the same period in 2020. We reported revenue of $2.9 million for the second quarter of 2021 compared to $1.5 million for the second quarter of 2020 an impressive 93% increase. During the six-month period ended June 30th, 2021, we reported revenue of approximately $5.9 million compared to approximately $3.2 million during the same period last year, a remarkable 82% increase. The increases in revenue for the three and six-month periods in 2021 were primarily due to the success of our maturing sales team, continued demand for specimens from patients with known COVID-19 test results, and an increase in demand for specimens in non-COVID-19 research areas. We are very pleased with these results, but know that as our revenues continue to grow, it will be challenging to sustain these increasing percentage of growth levels. For the three months ended June 30th, 2021 and 2020, our revenue derived from specimens related to COVID-19 accounted for approximately 31% and 42%, respectively, of our total revenue. For the six months into June 30, 2021 and 2020, our revenue derived from specimens related to COVID-19 accounted for approximately 27% and 20%, respectively, of our total revenue. There was no COVID-19 related revenue for the first quarter of the prior year. What this means is that we are still encountering strong opportunities for COVID-19 related revenue, but those opportunities are declining. The good news is that it is being offset by an increasing demand for specimens in non-COVID-19 research areas. Cost of revenue for the second quarter of 2021 was approximately $1.5 million compared to approximately $500,000 for the second quarter of 2020, which was attributable to a 191% increase in the average cost per specimen as a result of the specimen mix. as well as an 8% increase in specimens of session for the current period compared to the same prior year's period. Cost of revenue for the six month period into June 30th, 2021 was approximately $3.1 million compared to approximately $1.1 million in the same period in 2020, which was attributable to a 185% increase in the average cost per specimen as a result of the specimen mix during the current six-month period over the prior year period, offset by a 2% decrease in the number of specimens of session during the current six-month period over the same prior year period. In addition to the increase in the average cost per specimen in 2021 being related to the specimen mix as just discussed, we had a significant project in 2020 which yielded a sizeably lower than average cost per specimen, which has significantly impacted the magnitude of the year-over-year difference in the average cost per specimen for both the quarter and the first six months of 2021. Moving on to technology, our expenses there were approximately $362,000 for the second quarter of 2021, compared to approximately $292,000 for the second quarter of 2020. For the six-month period ended June 30, 2021, technology expenses were approximately $772,000 compared to approximately $718,000 during the same period last year. The increases in 2021 were primarily related to an increase in the operating and maintenance expenses and in depreciation and amortization, partially offset by a decrease in project expenses for the development of the company's platform technology that we were not allowed to capitalize. Now that we have the IPO behind us, we do expect to spend substantially more in this area moving forward. Sales and marketing expenses were approximately $648,000 for the second quarter of 2021, compared to approximately $368,000 for the second quarter of 2020. For the six-month period into June 30th, 2021, sales and marketing expenses were approximately $1.2 million compared to approximately $799,000 during the same period last year. The increases in expenses in 2021 were primarily related to the hiring of additional staff during the second half of 2020 and the first half of 2021 and external marketing efforts. We also expect to continue to see more in this area moving forward. General and administrative expenses were approximately $1.5 million for the second quarter of 2021 compared to approximately $344,000 for the second quarter of 2020. The increase was primarily attributable to an increase in cost related to becoming a public company, including increases in legal and accounting expenses, an increase in our other general and administrative expenses across the board related to amortization of internally developed software, associated software licenses, human resource-related expenses, insurance costs, and facility expenses, an increase in director and officer insurance, as well as an increase in payroll-related costs. Additionally, the remaining increase is related to costs not expected to reoccur in the future, such as payroll expenses of approximately $555,000 for a special IPO bonus provided to all employees and increased legal and accounting consulting expenses of approximately $264,000 that did not qualify as offering costs. For the six-month period into June 30, 2021, general and administrative expenses were approximately $2.5 million compared to approximately $657,000 during the same period last year. The increase was primarily attributable to an increase in costs related to becoming a public company, including an increase of general and administrative expenses across the board related to amortization of internally developed software, associated software licenses, human resource-related expenses, insurance costs, and facility expenses, an increase in payroll-related costs, an increase in legal and accounting expenses, as well as an increase in director and officer insurance. Additionally, the remaining increase is related to costs, again, not expected to reoccur in the future, such as payroll expenses of approximately $555,000 for a special IPO bonus provided to all employees, and increased legal, accounting, and consulting expenses of approximately $744,000 that did not qualify as offering costs. Basically, IPOs are an expensive business and we are very glad to have this event behind us. However, being a public company is also expensive, and we do expect to spend approximately $2 million per year to support being public with such expenses as D&O insurance and an extension of our in-house resources for accounting and finance functions, as well as audit and legal fees. As mentioned earlier, we recently completed an initial public offering of 2,250,000 shares of common stock at a public offering price of $8 per share. Total gross proceeds from the offering, including the full exercise of the underwriter's over-allotment option for 337,500 additional shares of common stock, which was executed July 1, 2021, was $20.7 million. prior to deducting underwriting discounts, commissions, and offering expenses. These proceeds should give us considerable financial flexibility to continue executing on our growth strategy and achieve our goal to become cash flow positive. As a reminder, we're not giving any further guidance in this area at this time. In connection with our IPO, we were able to markedly clean up our balance sheet, which should be extremely helpful going forward. Effective with the IPO, we converted a substantial portion of our accrued but unpaid interest, a substantial portion of the bridge notes, all of the convertible notes, and all of the Series A, Series A1, and Series B preferred stocks. The debt conversions also resulted in the elimination of the associated derivative liabilities. In total, effective with the IPO, we eliminated approximately $29 million of liabilities and mezzanine classifications from our balance sheet with all of the conversions I just mentioned. Further, upon closing of the IPO, we repaid approximately $2.8 million of accrued and unpaid interest on the bridge notes from the proceeds of the offering. As a result, we ended the second quarter of 2021 with only $3 million of bridge debt remaining on our balance sheet. We do have a financial institution waiting in the wings ready to replace that 15% bridge debt with a much more reasonable and conventional debt at 4% over four years. At June 30th, 2021, our cash balance was approximately $13.2 million compared to a cash balance of approximately $696,000 at December 31st, 2020. For further details, I encourage you to read our prospectus and most recent 10Q, both of which have been filed with the SEC. This concludes our prepared remarks. Now I would like to open the call for questions. Operator, please go ahead.

speaker
Operator

Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment while we poll for questions. Our first question comes from the line of Gary DiStefano with Think Equity. Please proceed with your question.

speaker
Gary DiStefano

Hey, Chris, Jill, Tracy, congratulations first and foremost on a fantastic quarter. Just one question for you guys today. It looks like the unique supplier organizations, We're growing at about eight new per quarter. And for the customer organizations, it looks like it was growing at about 15 unique per quarter. Just curious as to whether that was in alignment with your expectations or was that maybe artificially inflated from COVID? Just wanted to get your thoughts around that.

speaker
Chris

No, I think generally both of those are in alignment, and we had goals to get somewhere between 1,800 new customer organizations by the end of the year and probably around 40 or so supplier organizations. So we're right in alignment with where we expect it to be.

speaker
Gary DiStefano

Fantastic. Thanks, Jill. Congrats again, guys.

speaker
Chris

Thanks.

speaker
Christopher Rinelli

Thanks, Gary.

speaker
Operator

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

speaker
Christopher Rinelli

All right. Thank you, Doug. I'd like to thank everybody again for joining us on today's call and for your continued interest in iSpecimen. We look forward to having a follow-up conversation with many of you and updating you on our progress as we go forward. If you do have any questions that you didn't get in on this call and you'd like to set up some time with us, I'd encourage you to reach out to KCSA, the investor relations firm that we're working with, and ask for either Allison Sauce or Scott Eckstein, and you can reach them by email at ispecimen at kcsa.com. So with that, I think we can wrap up the call. Thank you.

speaker
Allison

Thanks, everyone. Thank you. Have a great day.

speaker
Operator

Ladies and gentlemen, this does include today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

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