LumiraDx Limited

Good day, and thank you for standing by. Thank you for joining Numeric DX third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to turn the call over to Colleen McMullen. Please go ahead.

Hello, everyone. We'd like to welcome you to today's call to discuss Lumiere DX's third quarter 2022 financial results issued earlier today. With us are Lumiere DX's chairman and CEO, Ron Zwanziger, and Chief Financial Officer, Dorian LeBlanc. The press release announcing our financial results is posted on the investor relations section of the company's website at LumiereDX.com. Before we begin, I would like to caution listeners that any statements we make today, other than historical facts, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Please be aware that all such forward-looking statements involve risks and uncertainties, such as those detailed in our annual reports, On Form 20F for the year ended December 31st, 2021, which was filed with the SEC on April 13th, 2022, and our report on Form 6K that was filed with the SEC on August 16th, 2022, and in other filings that we make with the SEC. Any forward-looking statements that we make must be considered in light of these factors. Actual results may vary materially. Also during the course of today's call, we may refer to certain non-IFRS financial measures. Non-IFRS financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with IFRS. There is a reconciliation schedule showing the IFRS versus non-IFRS results currently available in our press release issued earlier today which can be found on our website at LumiraDX.com. I'll now turn the call over to Ron Swanziger for opening remarks. We'll then provide financial and business updates before answering questions. Ron?

Thanks, Colleen. Good morning, everyone, and thank you for joining our third quarter 22 results call. As announced this morning, we continue to make progress commercializing new products to drive home growth. At the same time, we've achieved substantial cost savings from restructuring with further scope to exceed our original target. These efforts advance our strategy to transform point-of-care diagnostics while strengthening our financial position. As the overall market for COVID testing has dropped after the surge at the beginning of the year, we are realigned in operations to address customer needs efficiently. We also strengthened our market position through expansion and diversification of our customer base thanks to widely recognized performance and cost advantage over competitors. As we begin manufacturing multiple non-COVID test strips using common materials, we are realizing the benefit of our single highly automated manufacturing process across our menu of assays. Third quarter revenues were about 42 million, mainly with COVID sales. This performance was supported by expansion of our store base and use cases in key markets, including the US. New product launches will contribute significantly to complementing COVID revenues in the next few quarters, which I'll cover shortly. We shipped 900 platform instruments in Q3, primarily to the US, Germany, and Japan. Instrument shipments to Germany and Japan represent opportunities in border, respiratory, and cardiometabolic testing. I want to highlight approximately 5% of test trip volume shipments in third quarter were for non-COVID tests such as INR, CRPD-dimer, and the flu combo. These volumes are enabling customers to evaluate and pilot new use cases for point-of-care diagnostics. Now, sharing our progress and the four key priorities we've created for advancing our strategy to drive financial performance, to shape our organization and cost basis to support strong innovation and commercial success, to commercialize our newly authorized CE marked product portfolio in Europe and other international markets, to progress our revenue pipeline and 5TK plan, and to accelerate the development of our highly sensitive component and molecular assays on the platform. First, we take very seriously the task of strengthening the company's overall financial position, and this is where awareness is resulting in advancements towards that goal in Q3. Cost reduction has been a significant focus, and we have strong results to show from those efforts. We accomplished our initial plans targeting operating expense savings of $16 million per quarter and already implemented further cost reductions to bring this expected savings to approximately $18 million per quarter. We can further reduce our cost basis necessary to ensure sufficient cash resources throughout 2023. As previously discussed, we reshaped the organization and cost basis to focus resources on the strategic priorities I've highlighted. We are exploring strategic partnerships, as we mentioned on the Q2 call, to provide additional avenues for developing and commercializing our platform and look forward to updating you on these opportunities. We continue to deliver on our priority of commercializing new products in Europe and other international markets. We commenced commercial shipments of hemoglobin A1C, a new finger-stick assay for screening and monitoring diabetes that delivers results in under seven minutes. The rollout started with Europe, which is a key market for achieving our platform consolidation strategy at primary care. Our initial test menu is designed to enable customers to consolidate three different instruments they are currently using into a single Lumira DX platform and workflow right now, and the opportunity to consolidate up to six instruments in the next 18 to 24 months. We're scaling manufacturing of hemoglobin A1C and plan to launch additional countries in the next few weeks. Early customers include hospitals, pharmacies, and enterprises that are looking to repurpose the Lumira DX platform for its broader testing capability. We're also on track to launch the NT Pro BMP by the end of this year. Positive initial feedback from key opinion leaders fight the value of diagnosing congestive heart failure in patients at community care settings using NT Pro BMP finger-sting sample that delivers accurate results in 12 minutes. We commence commercial shipments of our new five-minute COVID Ultra test, COVID Ultra pool, and the COVID and flu combination test. Offering a comprehensive respiratory menu on a single platform delivers a critical advantage during this stage of the pandemic, given the need for customers to quickly and easily differentiate COVID from other widely circulating traditional respiratory viruses that are prevalent in the patient population this season. We see significant demand from existing customers in Italy, UK, Germany, and Japan to convert some COVID testing to these new products. In addition, we're seeing growth opportunities from new customers for COVID and flu tests, especially in Japan, with early orders fulfilled for the current respiratory season. We believe this demonstrates the value of innovation in our respiratory portfolio and will aid in retaining and gaining market share and customer adoption. Shifting to the United States, we're addressing the opportunity to progress our U.S. revenue pipeline. In 2022, we more than double our testing size, and I've diversified our customer base for COVID testing across health systems, primary care, pharmacy, and enterprise settings. As previously shared, we're actively working on 510K submissions for both COVID Ultra and COVID plus flu combination tests. We plan to initiate clinical studies during the current respiratory season. We plan to focus the rest of the year, of next year that is, on accelerating and completing these programs and then initiating HbA1c, INR, and strep molecular clinical studies and registration plans in the first half of next year. Next, our commitment is to accelerate the development of high-value assays and the capability to perform molecular tests on our platform. Our first molecular product in development is a TruePointerCare TB test, which delivers results in 20 minutes from an easy to collect tongue swab sample. We're close to finalizing the strip design, having started manufacturing test strips, and are just initiating a pre-clinical study in the field. In summary, we continue to progress on our strategic milestones, enabling us to deliver our mission for improved health outcomes at lower cost through fast, accurate, and comprehensive diagnostic information at the point of need. I'll now hand things over to Dorian to go deeper into our financial performance.

Good morning. As Ron said, we have made significant progress this quarter to position our company for growth while strengthening our financial position. We believe that our focus on the four priorities Ron discussed, our experience scaling production quickly during the pandemic, and our manufacturing advantages position us to successfully grow new product volumes in 2023. Total revenues for the quarter were $42.2 million. This represents a $2.5 million decline from our prior quarter which was primarily due to the impact of the strong U.S. dollar versus the British pound and the euro. Excluding the impact of foreign exchange, revenues in Q3 2022 declined 2% from Q2 2022. Our point of care platform test trip revenues were 26.9 million, and the total volume of test trips shipped within the quarter was equal to the total test trips shipped within Q2 2022. Sales of instruments, accessories, and other items related to our point-of-care platform were $1.7 million. Our fast labs revenues were $9 million in Q3. Substantially, all of the revenues for test strips and fast labs were derived from our COVID-19 products. Finally, our third-party distribution revenues were $4.6 million for the quarter. Our gross margins for the quarter were 20% compared to 11% in Q2 2022. While core test strip margins remain strong, we recorded an additional inventory reserve of $9 million related to excess COVID-related inventory in the quarter and will continue to review the carrying value of that inventory for COVID-related items as we understand testing demand better while progressing through this respiratory season. Depreciation expense included in cost of sales for the period was $3.6 million. Excluding non-cash items in the period, such as depreciation, amortization, stock-based compensation, and the inventory reserves, total adjusted gross margins were 52%. Again, our core test strip margins continue to exceed our target of over 80%. The adjusted gross margins are reduced by the impact of instrument placements and revenue from instrument sales, fast lab reagent sales, and our third-party distribution sales, all of which have lower gross margin profiles than our point-of-care test strips. We have a strong inventory position for instruments, reagents, and test strip raw materials, which are common across our point of care testing products. As we manage down our inventories and operate with a reduced manufacturing expense base after our global restructuring, we anticipate revenues in the coming quarters to carry a high cash contribution. Our non-IFRS R&D expenses for Q3 were $29.2 million, a decrease of 35% from the second quarter of this year. As previously discussed, we incurred higher R&D expenses in Q2 2022, achieving European CE marking of the new products that we are now launching. In addition, the global restructuring plan implemented during the third quarter reduced expenses. Our non-IFRS SG&A expenses for Q3 were 27.9 million, or a decrease of 10% from the second quarter. The reduction was partially from our global restructuring program, but was also impacted by the strong U.S. dollar, as our European expense base for both R&D and SG&A translated into 2.5 million lower expenses in U.S. dollars for the quarter versus Q2 exchange rates. While we maintain a portion of our cash balances in pounds and euros, the net impact of a continued strong U.S. dollar is a benefit to the company as our foreign currency expense base exceeds our foreign currency revenues. While we cautiously guided there would be minimal impact in Q3 from our restructuring program, We were able to accelerate our plans in several areas and fully implement the program to realize our committed 16 million per quarter of savings from our first half 2022 expense base. As Ron noted, we have recently implemented additional cost reductions that will bring the overall quarterly savings to approximately 18 million. As we progress through 2022 and move into 2023, we will continue to take measures to manage our cost base while focusing on our near-term commercialization activities and assay launches on our US 510K submissions. The non-IFRS operating loss for Q3 2022 was $47.9 million, representing a $22.6 million reduction in the operating loss from Q2 2022. We anticipate the impact of our global restructuring program to continue this improving trend. At the end of Q3 2022, we had cash and cash equivalents of 135.3 million, and we have the ability to ensure our existing cash position can fund the company throughout 2023. Thank you, and we're now ready to take your questions.

Thank you. As a reminder, if you have a question, please press star 11 on your telephone. One moment while we compile the Q&A roster. The first question that I have is coming from Vijay Kumar of Evercore. Please go ahead. Your line is open.

Hi. This is Alexandra on for Vijay. I have a couple questions here. Maybe we can just start at the top with the HBA1C launch and if you could talk about the reception and feedback you've seen there and when we're going to see revenues ramp for that and BMP.

Well, the response we've had even before we started shipping was excellent. Customers everywhere we have the platform in Europe and elsewhere, including where we don't have registrations, have been asking for the product. The product performance is, as we've always said, that we provide lab performance in the point-of-care setting. We had some early studies with the testing agencies that look at the product from a performance, not from a regulatory standpoint, and showed that we had exceptional performance. And so customers are picking it up. And we expect to see significant growth throughout next year and well beyond. We think it's going to be one of the important, most important products in our portfolio.

Great. And then if I could just have a couple follow-ups on the Troponin test. When are we, or when can we expect to see data being published? And then also, what is the timeline on the EU filing? And then I have a couple on the financials for Dorian as well.

Well, Trapani is taking a little while. It's been partly affected by the cost-cutting that we've implemented, so I can't be extremely definitive about exact timing. I will comment that the performance we're seeing on the product is outstanding with So I'm afraid I can't be more definitive than that because of the cost basis, but we're continuing to move the product forward.

Okay. And then just on the financials, I guess two things. For the growth margins coming in slightly above 20% in the quarter, were there any one-time impacts? And then from the restructuring that jumped from 16 to 18 million, does this change your path to profitability at all? The implied fourth QOPEX is around $60 million. Is that going to be a run rate that we can apply to 23?

So, on the gross margin, the largest issue that we've dealt with is the inventory reserves. So, a $9 million inventory reserve. I think that the strength of the respiratory season will determine whether we have additional inventory at risk, and we'll continue to assess that, but that was the largest one-time item in the gross margin. On the reductions, the 18 million quarterly reduction is off of the expense base from the first half of the year. So we should see that continue to get the full impact here in the fourth quarter. Substantially, all of those measures have been taken and completed. And then going into next year, The path to profitability is a question both on the expense base and on the revenue ramp and the impact of COVID, but we do anticipate at these revenue levels that we'd be approaching break-even as we exit 2023.

Okay, thank you.

One moment while we prepare for our next question. The next question that we have will be coming from Jeffrey Cohen of Ladenburg-Fallman. Your line is open.

Good morning, Ron. How are you? Very good, Jeff. Good morning. Ron, you had talked about the metabolic platforms, and I think you called out a third of shipping into U.S., Germany, and Japan were on that front. Tell us more specifically what types of tests were going out, and was that Q3 shipments, and specific to those three countries?

Dorian, you probably have more of the detail, but the shipments into Germany and Japan were primarily driven by non-COVID. They were driven by flu and A1C or preparations for A1C. and other tests. Dorian, do you have a better answer?

Yeah, the Japan were driven largely by the flu test. And then for Germany and that area of Europe, it really is our strategy of selling the multi-analyte solution by combining the respiratory with INR, D-dimer, CRP, A1C, and soon NT-PRO. We can displace three of the leading competitive instruments in a single customer location with a single solution. So that value proposition of being able to displace multiple instruments with higher performing and cost competitive content is really beginning to take hold here and really just starting to take hold at the very end of Q3. And that's what has us excited about the momentum in Q4 and heading into 2023 with able to, you know, adopt that commercial strategy that we've been waiting to adopt with the launch of A1C in particular.

Okay, got it. And then, during any further color on forward-looking on the OpEx expenditure, was your $18 million reduction call-out off of Q3's $57 million on an OpEx front?

The $18 million is off of the expense base from the first half of the year, so we did realize a portion of that within Q3, and we did have the benefit of the foreign exchange. So if the dollar stays where it is, obviously that will endure, but you should think of it as an $18 million reduction off of the expense base from the first half of the year.

Got it. Any further color on the finance expense taken for the third quarter? I know that a fair amount of it was labor-related and staffing.

The finance expense below operating income? Yeah. Yeah, so none of that was related to the restructuring. We included those costs within the core operating expenses, and we may break those out in Q4s. In Q3, they weren't substantial. The largest expense in finance expenses is just the internal revaluation of intercompany balances between the group that are long-term balances. So we have a lot of pound functional currency entities, and they have intercompany balances with our U.S. dollar entities. And as the currencies move, that's just a non-cash revaluation internally. will never lead to any cash impact for the company. We call that IFRS adjustments.

And then finally for us, can you talk about the Ultra platform a little bit as far as number of tests now on it currently and any other of the tests out there, whether they be respiratory or metabolic that you plan to get faster with the ULTRA platform?

Well, the ULTRA platform, which even increased performance, even though our first test already achieved lab-cobbled performance and reduces the time of the test considerably, is gradually going to become the standard for our product over time. And so we currently have the COVID on it, but the flu A and flu B on Europe is going to be on it. But over time, all our tests will be on it.

Okay. So we'll hear more about that happening. test by test going forward, I suppose. Yeah.

We'll give you a constant update. Sure.

Okay. That's perfect. And then one more question on the fast labs were primarily COVID related, the fast lab revenue for the quarter and any outlook there on how that might look through the balance of this year and next year on fast labs, or should that largely kind of follow the path, with regard to general COVID testing?

Well, that's a complicated question because we are starting to put additional tests onto the platform, so that brings an assessment of regulatory issues into play by countries. But we are in the process of turning what originally was supposed to be product was to help in the pandemic, but it's taken such a hold in the labs that we are turning it into a fully-fledged product line, and there'll be a bunch of other tests on it going through the usual procedures.

Okay, perfect. Thanks for taking our questions.

Thank you. One minute while we prepare for the next question. I have the next question. It's coming from Mark Massario of BTIG, your line is open.

Hey, guys. This is Vivian on for Mark. Thanks for taking the question. First, wondering if we could revisit the long-term revenue target of exiting 2025 at a run rate of $1 billion in revenue. Is that still your thinking? And any thoughts you could share on your updated view for endemic COVID or flu contributing to the 15 to 20% range of revenues.

Thanks. Well, taking the last question, the second part of your question first, you know, we had taken the view pretty early in the pandemic that we thought that the most likely outcome would be an endemic phase which would essentially move the respiratory part of our business from about 10% long-term to maybe more in the range of 15% to 20%. And I don't think there's anything we've seen recently that changes that view. I'm talking about 15%, 20%. It has changed our view on that. So I think that's pretty much the same. So we haven't changed. On the first part of your question about our target revenues, Because our focus at the moment is very much on the short term and making sure that the current tests that we have in Europe are launched, making sure that those get launched in the U.S. next year, our focus is very much on those and part of the impact of cost cutting inevitably hits some of the R&D programs longer term. So although we haven't sort of looked at the specific question you asked, given sort of the nature of being much more careful about investing in R&D as a result of us being very focused on cash and utilizing cash more effectively, particularly in the short term, we haven't thought that through specifically in detail, but I have to say, I think it'll be impacted. because of our focus on cash.

Okay, understood. Thank you. So could you also remind us, just following the restructuring, what the highest priority near-term R&D pipeline assays are, the stage of development they're in, and any updated outlook on when you might resume development of AMIRA. Thanks.

Well, on EMIRA, we're not rushing into that, so I don't think, we certainly don't have a date on that. That's more pandemic-related, and let's hope the pandemic doesn't recur vigorously, because that would certainly cause us to go back to it. But in terms of, in the short term, the fastest way to get revenues up, of course, is to not only increase focus very hard on the on the on the test that we have now in Europe because we've now as we launched the NT pro BMP in Europe which is imminent we will have the base business for community-based testing and so we have a wonderful set of tests that replace the replace three instruments at the moment so that's our focus and that's why we're very focused on next year on working the regulatory aspect to bring those into the U.S. But in terms of some of the items that are in the pipeline that we're focused on, molecular strep A, which I think we mentioned, is those that we are focused on near term as well. Strep in general is one of the missing items in our portfolio, so we're pretty focused on that. So that's one example of something that we're focused on in the short term that's not already in the immediate launch.

Great. Thanks for getting the questions.

Thank you. One moment while we prepare for our final questions. And we have our final question will be coming from Andrew Cooper of Raymond James. Your line is open.

Hey, everybody. Thanks for the questions here. Maybe just kind of circling back on the pipeline and on the trajectory there. You know, when you first talked about these cost cuts, the language was doing so in a way that didn't necessarily slow down some of the higher priority launches. So we're sitting here today thinking about troponin coming a little bit later and potentially because of that. I think you had said group A strep, you were going to run this trial this respiratory season. So I guess is that still the case? And then just how do we think about combining or rectifying the difference between there shouldn't be major impacts on some of the more exciting near-term potential versus

Kind of what we're hearing today on on some slip outs of you know, at least a couple of different items so that so the way to think about it is on what's relevant in community-based settings so that we have Real solutions in in those settings whether it's in in doctors offices or the pharmacy and so our willingness to to let uh troponin slip is because it doesn't um it's a it's a separate target obviously you don't need troponin testing in the community it's a it's a er based test and although we have quite a number of ers the vast majority of our our installed base and where we're heading remains in the community so as we as we're being careful um we can let that slip, but in the case of groups of the strep A, group A strep, as you called it, test, that's community-based, so we're working on that, and we're working on other tests as well, which are community-based in the short term, for the short term.

Okay, helpful, and then maybe one more. Last call, I think you had talked about ongoing discussions for potential strategic partnerships. Ideally, I think you had said you'd like to have something by the end of the year. So just can you give us an update on how those conversations have gone, where you're sort of focused in those conversations, whether geographical or in different parts of the market and what we should be expecting from a communication standpoint around that initiative?

Well, I won't go into for obvious reasons, actually, exactly where the nature of them are. But we've got to the stage now where we're talking particular details with several of the strategic One or two have got a bit complicated because they're more interested in a full acquisition. But we remain focused on working a strategic relationship. We hope to narrow the field down by the end of the year to two and at the most three and then finalize something soon thereafter.

Okay, great. I'll stop there. Thanks for those questions.

Thank you for your questions. I would now like to go ahead and turn the call back over to CEO Ron Zingwiger for closing remarks.

Okay, thank you, Lisa. Let me just conclude by saying we took timely action to right-size our business as the COVID demand shifted to an endemic stage. As we near the end of this year and looking ahead to the coming year, we're in a position of strength in which to address customer and market opportunities efficiently. Indeed, while focusing our financial operations and strengthening the company's financial position, we've reinforced our market position with customers and advanced our product and pipeline strategy for transforming the $50 billion point-of-care market. We look forward to updating you on our progress and appreciate your continued support. Thanks very much.

Thank you all for participating in today's conference call. You may all disconnect. Everyone have a great day.