Trinity Biotech plc

Good day and welcome to the Trinity Biotech First Quarter 2021 Financial Results Conference Call. Our participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Joe Diaz of Lippen Partners. Please go ahead.

Thank you, Betsy. And thanks to all of you for joining us today to review the financial results of Trinity Biotech for the first quarter of 2021, which ended on March 31, 2021. Joining us on today's call is Ronan O'Queave, CEO of Trinity Biotech, and John Gillard, CFO. At the conclusion of today's prepared remarks, we will open the call for a question and answer session. Please be aware that statements made in the course of this earnings call may be deemed forward-looking statements within the meaning of federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include, but are not limited to, those set forth in the risk factor section of the company's annual report on Form 20-F filed with the Securities and Exchange Commission. Management undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. With that, I will now turn the call over to John Gillard, CFO of Trinity Biotech, for a review of the results of the quarter, who will be followed by CEO Ronan O'Queave for an outline of the progress in sales and marketing and the impact on revenue. John, please proceed. Thank you, Joe.

As Joe mentioned, I will now take you through the results for Q1 2021. Starting with revenues, the total revenues for the quarter were $25.6 million dollars compared to $21.2 million in Q1 2020. As Joe pointed out, and is our typical approach, Ronan will discuss revenues in further detail later on the call. As such, I will move on to discuss other aspects of the income statement. Gross margin for the quarter was 42.6 percent compared with 43.8 percent in Q1 2020. This change in margin has been contributed to by sales mix changes and downward pricing pressure on PCR viral transport media products and associated collection devices due to lower demand with some customers stock buying supplies in Q4 2020, thus reducing market demand in Q1 2021. In addition, the increased rollout of vaccination programs as Q1 progressed reduced down the focus on COVID-19 testing, with consequently reduced demand for PCR viral testing media and associated collection products. As ever, our gross margin remains susceptible to product mix changes, geographic spread, currency fluctuations and product level variation. Other operating income decreased from $14,000 in Q1 2020 to $1,000 in Q1 2021 due to the suspension of small ancillary activities at our Irish site due to COVID-19 public health restrictions. Moving on to R&D expenditure, this remained relatively flat compared to Q1 2020 at $1.4 million. Meanwhile, SG&A has decreased slightly to $6 million. This reduction is primarily as a result of reduced selling and associated costs. These result in an operating profit for Q1 2021 of $3.1 million compared to $1.7 million reported in Q1 2020, an increase of over 81%. The $1.4 million increase in operating profit is primarily driven by increased revenues, partially offset by the lower gross margin and higher share based compensation costs. Moving on to financial expenses, this includes the quarterly cash interest cost for exchangeable notes of $1 million and $200,000 related to notional finance charges associated with these facilities. These notional leased finance charges are required by the relevant accounting standard IFRS 16. You will note that there are further non-cash financial expenses of $160,000, which consists of non-cash accretion in the accounting carrying value of the exchangeable notes as required by the relevant accounting standard. Profit after tax, before one-off items and non-cash financial expense was $1.8 million compared to $0.4 million in Q1 2020. As in prior periods and set out in the press release, we quote earnings per ADR effectively are equivalent of EPS on standard basis and also before the impact of one-off charges and non-cash financial measures. Using that modified measure, earnings per ADR have increased to $0.840 from $0.107 in Q1 2020, while diluted earnings per ADR have also increased, in this case to $0.101 from $0.053 in Q1 2020. I will now move on to address some of the main balance sheet movements we have seen since Q4 2020. Inventories have increased by 24% over the quarter, with most of this increase attributable to increases in inventory to support PC or viral transport media and associated sample collection devices. We increased inventory in Q1 in line with the increase in our production capacity and to respond to market feedback that indicated customers wanted near immediate delivery of these products. We did, however, reduce output from mid Q1 to manage inventory levels given the aforementioned reduction in demand. We have, however, retained our ability to rapidly scale up production if required. Meanwhile, our trade and other payables have increased by 17% this quarter, driven by a number of items, including the receipt of $1.76 million of paycheck protection program loans in Q1 2021, continued working capital efforts to optimize credit terms obtained from suppliers and accrued interest on our convertible notes. These were partially offset by reduced deferred revenue. While we do expect that the vast majority of the paycheck protection loans will be forgiven in due course, until they are forgiven, we will continue to account for them as repayable, as it has been our policy with prior paycheck protection loans received. Trade and other receivables decreased by 34%, primarily driven by strong cash collection efforts and the quarter on quarter reduction in revenue, which delivered an increase in net collections versus new credit billings. Finally, I will discuss our cash flows for the quarter. The cash generated from operations during the quarter was $5.9 million. As I mentioned, the company received just over $1.7 million of second round paycheck protection program loans in Q1, which was a non-operating cash inflow. Non-operating cash outflows during the quarter included capital expenditure of $2.2 million and payments for property leases of $0.7 million. Overall, this resulted in a cash balance of $32.3 million at the end of quarter 1 2021, which is a net increase of almost $5 million in the quarter. Thank you. I will now hand over to Ronan.

Thanks, John.

I'm now going to review the revenues for quarter 1 and for the corresponding quarter in 2020 before opening the call to a question and answer session. Our revenues for quarter 1 were $25.6 million compared to $21.2 million in the corresponding quarter, which is an increase of 21%. Point of care revenues in quarter 1 were $1.9 million compared with $3.3 million in the corresponding quarter, which is a decrease of 43%. This was primarily due to a delay in the issue of HIV rapid test orders from Africa as a result of COVID-19, but also due to difficulty in procuring air freight transport. We are seeing evidence of these COVID-19 driven delays abating and we expect that point of care revenues will increase as 2021 progresses. In March 2021, we announced that we had submitted our trim screen HIV product to the World Health Organization for approval. This product, once approved, will allow the company to enter for the first time the HIV screening market in Africa, which has 117 million tests annually. It's a 12-fold bigger market by value than the confirmed through test market where Trinity Biotech has for many years held dominant market share with its HIV unigold product. And meanwhile, we have significantly strengthened our sales team in Africa with a number of senior hires in the anticipation of our market entry later this year. The exact timing of the expected approval is difficult to predict, but we are hopeful of an approval during quarter 3, although it is possible that due to a prioritization of COVID products by the WHO that the approval could fall into quarter 4. We see trim screen, HIV trim screen as a huge opportunity for the company, given its outstanding performance characteristics, given also our automated low-cost manufacturing capability and given our existing reputation and presence in the market. Moving on to clinical laboratory, our revenues for the quarter increased to $23.7 million compared with $17.8 million in the quarter, which is an increase of 33%. This increase is primarily explained by strong COVID-19 related product revenues with our PCR viral transport media product being the most significant contributor.

We

have developed and continue to develop a strong suite of COVID-19 related products. As previously noted, our FDA approved PCR viral transport media product performed well during the quarter. It is a sample collection device for COVID-19 PCR molecular testing, which is used to store the nasopharyngeal swab which contains the patient sample, allowing it to be transmitted in a stable environment. The transport medium stabilizes the sample and prevents bacterial growth and maintains its integrity until such time as the test is run in the laboratory. In addition to our COVID-19 ELISE antibody test, which runs on automated instrumentation and which is available for sale in both the US and in Europe, we also expect to submit our COVID-19 rapid antibody test to the FDA before the end of June, within the next five weeks, under the emergency use authorization pathway, thereby enabling us to sell the product in the US. In addition, the company is developing a COVID-19 rapid antigen test using a nasopharyngeal swab and the test will run in 12 minutes. The test will be manufactured in our automated manufacturing facility in Ireland with a test which is virtually identical to that of both Unigold and Finscreen. Meanwhile, the company has also experienced revenues, increased revenues of our COVID-19 monoclonal antibodies. These monoclonal antibodies are the raw material used in the manufacture of COVID-19 antigen tests. Lastly, as a consequence of COVID-19, we have experienced increases in the revenues of our respiratory point of care products. During our last conference call, we signaled that there would be a reduction in COVID-related revenues in quarter one and in fact COVID-related revenues in the quarter came to a total of approximately eight million dollars, down from approximately 13 million dollars in the previous quarter. This reduction is explained by a large element of stockpiling prior to year end in 2020 and a reduction in overall testing levels as vaccinations progress. And now moving back to our core business, our autoimmune business generates revenues approximately five percent lower than the corresponding quarter, with reference to the barge of testing findings down to about 10 percent and product revenues marginally down. We believe that this is entirely due to the COVID-19 pandemic, as many patients defer doctor visits unless absolutely necessary. We are confident that these revenues will fully recover in the post-pandemic environment. Moving then to our hemoglobin A1C business, we continue to have lower instrument placements, with just over 40 instruments placed during the quarter, which is slightly more than 50 percent of normal placement levels. This was expected as hospitals and clinics are unlikely to purchase new capital equipment in the midst of the pandemic. However, we are confident that these placements will fully recover in a post-pandemic environment. Meanwhile, reagent revenues and by the same in the number of tests being run in our diabetes business are running at about 90 percent of normal, again due to the fact that patients are less likely to perform discretionary tests during the pandemic. Meanwhile, we anticipate launching our new midsize hemoglobin A1C instrument in early 2022. This instrument will enable us for the first time to target thousands of smaller hospitals and diabetes clinics around the world, mostly outside of the United States and European Union. Previously, we have been unable to serve this market as the processing capability of our requirements of these hospitals and clinics. Although we have designed and developed the instrument in Kansas City, it will be manufactured in China, thereby enabling us to make the instrument available to the market at a very attractive price. Could I now hand back to the operator for a question and answer session, please? To Betsy.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Paul Noury with Noble Equity Fund. Please go ahead.

Hey, good morning.

Hi, Paul. Hi, Paul.

Your COVID revenue for the quarter, was it mostly PCR transported? Yeah. Yeah. Okay. And the antigen test that you're developing, is that going to be for the U.S. or mainly OUS?

Paul, it will be for right around the world. So basically, the test will be manufactured in Ireland on the same automated equipment that we do, UniGold, and that we're about to do trim screen on. So, you know, we have a very efficient cost of manufacturing, like under 50 cents. And so we'll be in a position to supply worldwide. So we go in the United States, we go the EUA route, and in Europe, we go CE Mark. And so that's our intention. And yeah, so it's progressing well, admittedly slowly, but it will be a very good test.

And you said you're going to submit EUA for a rapid antibody test, right?

Yes.

So, yeah, I was just going to ask, are they substantially used now, rapid antibody tests? And the next question, I guess, would be, is the primary setting for it the hospital?

Right. So Paul, what we have is, we have already developed a very excellent COVID-19 antibody ELISA test. So that's a test basically that runs on instrumentation in a laboratory, right? And that is basically both EU and EUA FDA approval. So we're free to sell in each of those jobs. The actual sales that we've achieved have been disappointing. I think everybody has seen that the level of antibody tests that have been expected didn't actually materialize. And that the focus has been mostly on PCR testing, and then obviously to a lesser extent on antigen testing, but to a modest extent on antibody testing. So it's been more kind of population tests and that kind of thing. And so, but in addition to that, we are about to submit to the FDA in the next, under the EUA pathway, in the next five weeks, our antibody rapid test, right? Which has, I think, which we believe would have greater potential for selling than the laboratory-based antibody test.

Okay. Does that answer?

Yeah. Yeah. And then, you know, as, you know, at least for now, we're shifting to reopening in the U.S. Different countries around the world are experiencing COVID in different ways. Some, you know, have lowered their COVID cases way earlier, and some are actually still rising. So as you look at your markets, are there places where the revenues in your traditional businesses are back to where they used to be? Or is it pretty much across the world that that's not the case?

We're experiencing basically that everything is down. I'm probably about 10% on that, say, if I was to average out. And it's just that, particularly in the case of diabetes, right, which is somewhat of a discretionary, this, you know, the A1C test that a diabetic would do every three months, there's a discretionary element to it, you know, if you were to wait four months or whatever. So to some extent, we're finding that patients don't present to the doctor at the middle of the pandemic. And that's less the case in our autoimmune business. And I think one of the principal problems we've had with HIV is that getting to Africa is actually getting the product there, because, you know, air cargo has become really, really precious and difficult to procure, particularly into, you know, remote areas of Africa. So, but what we do believe is that all of those business components will normalize back to the bridge levels as soon as the pandemic is largely passed and people are largely vaccinated.

Okay. All right. Thank you.

The next question comes from Jim Siddoti with Siddoti & Co. Please go ahead.

Hi. Good afternoon. Can you hear me? Hi, Jim. Yep. Great. So, yeah, I believe I heard you said that the transport media COVID revenue was around 8 million down from about 13 million. So that's down about 40% from Q4. You know, can you give us a sense on, you know, where you think that will trend for the rest of the year? Is there a baseline level that you think continues even as the vaccines roll out?

Well, just to say that first thing, we didn't say that the transport media was 8 million. We said that all of the COVID-19 products totaled 8 million, just to make that point, Jim. But given many variables involved, including vaccinations and variants, it's difficult to predict future demand for the COVID-related products and therefore we're really not giving revenue guidance in the circumstances,

Jim. It's

just impossible to predict.

All right. But I mean, it seems like it's likely that it'll decline from that $8 million level in the second and third quarters. Is that reasonable to assume?

I think it is reasonable to assume, but again, we don't really, it's reasonable to assume, but we don't have great visibility on it. It's reasonable to assume, but it may not happen, but it probably will. To what extent? We're just not saying because we don't really have visibility on it. And again, with new products coming through also.

Right. And then I've seen some of those products are used in regions where the vaccine is still pretty dominant outside the United States. Is that correct?

Yes. Although most of our revenue is actually has been in the United States, just to make that point.

Okay. All right. And then you mentioned- We're working about things

the other markets more.

You mentioned some hires in Africa in anticipation of trim screens. Can you, give us some color of what type of folks you hired?

Right. Well, yeah, well, we basically were in a position to hire the most senior person really of our main competitor, basically. And our main competitor was involved in an acquisition in the last few years, a big acquisition. So anyway, so we were able to basically make a really, good hire of a very, very senior person. And then that person has brought in, you know, some of his previous reports. So we have actually a really strong team and position to take on this trim screen challenge and indeed to increase our unigold market share and indeed to sell the rest of our range of products. But our primary focus is on trim screen.

170 million

tests per year.

Those folks are primarily sales and distribution type folks, it sounds like.

Is that correct?

Yeah. This would be

the, basically, you know,

yeah,

salespeople, sales guys, salesmen. So it's two guys across

Africa. Got it. Got it. I hear, I heard you. Okay. So now I know the next, you know, the next two or three quarters is going to be very hard to predict because you're not sure how fast the COVID business will trail off. But longer term, do you think the trim screen business has the potential to at least offset, if not become a larger business than your COVID business was in 2020?

Well, I mean, to deal with that, I mean, the screening market is 170 million tests per annum in Africa and the typical price, and the price is 80 cents, right? Whatever that works out, it'll be 140 million or whatever. And basically, we believe that we can take a reasonable market share. I mean, the performance of our tests in terms of sensitivity and specificity was staggeringly excellent. I could say that. I mean, just remarkable. And so the test works very well. We know the market. We have a good reputation in the market. I mean, we, you know, we have been selling the gold standard. Unigold test is basically the kind of the highest price in the market for the last 15 years. And so we clearly have a, I mean, a very good reputation in the market. And in addition to that, then we can manufacture the product in a very cost efficient manner in Ireland on an automated system that can basically almost got the middle of the production capability. So and in addition to that, now we beefed up our team with some series hires and the very people that were selling the majority of that 170 million tests. So I think, and in addition to that, I see no doubt but that we'll get WHO, World Health Organization, approval. It's only a matter of when rather than if. We take all of that into consideration. And given an intention to marginally undercut the market leader, remember the market leader has about 80 percent market share. We believe that we can take a reasonable market share. And if you if you ran the numbers basically, yeah, the potential here is a lot greater than than the COVID opportunity, which will probably gradually evaporate. So yeah, the answer to your question is yes, Jim.

Okay. All right. And yeah, how quickly do you think you'll see that those sales pick up? Are there tenders that you need to win? And how often are they put out? And you know, do you expect to start winning tenders this year?

So as I indicated, we believe that we will get approval sometime in quarter three. It's possible it may be quarter four. We've sought to try and get clarification from the WHO on that. They're being a little bit coy in terms of indicating what the timing will be. But I think we hope to get there in quarter three. The actual route to market in individual countries depends on being basically placed on the algorithm. So the algorithm will indicate, you know, which product will be the screen of what product will be the confirmor. And in some instances, the screening can be split. It can have a couple of, it can have two companies in there. So we believe that as the algorithms come up for renewal and they basically tend to come every two years, that we'll be in every single time we'll be in there and we'll win some and we won't win others and we'll share some and whatever. So we believe that it's realistic to take a 25% market share over the course of, you know, something like three, between three and five years, that kind of thing. So in the context of our size, it's a very, very significant opportunity.

Okay. And then the last one for me is on the A1C instrument that you plan on rolling out next year. What's the strategy in terms of pricing? Do you charge the instrument or do you basically let the customer use the instrument in exchange for our contract for disposables?

Well, in fact, in essence, we'd be primarily selling the instrument because the only market is which we sell direct where we've actually placed an instrument and, you know, carry the instrument in the United States and in Brazil. So in the United States, this instrument really won't, we may not even bother actually bringing it to the market. The US, you know, has typically bigger hospitals. So we're really not focused at all on the US. So yes, we will place some on our balance sheet and when we basically do reagent rentals in Brazil. But the main focus will be where we will sell this instrument to our distributors right around the world who will then basically do the reagent rentals themselves. So what we're endeavouring to do here is to provide an affordable instrument and to place it in large volumes. We don't really endeavour to make any realistic, any serious money out of the actual instrument placement itself. So basically we're a razor blade model. So we place the razor, you know, just marginally over cost and seek to profit from the sale of the blade. So the reagent. So it's all about selling the reagent. So basically, typically our instrument at the moment, Premier, goes into hospitals that will run say 10,000 or more tests per year. And the sweet spot for this instrument is between sort of three and eight thousand tests per year. So it's a huge potential. I remember we've got instruments placed all over the world, basically all over the second world, third world and that will be primarily our focus.

Okay, got it. Thank you.

Thanks Jim.

As a reminder, if you have a question, please press star then one to join us for the queue. Our next question comes from Bill Lapp, who's a private investor. Please go ahead.

Good morning, Rowan and John. Things are pretty well covered. I have some questions though on why we're spending the time on the rapid antibody test and the rapid antigen test. It seems like the late. So I'm wondering what the thinking is. I don't think the autoimmune lab testing, you did much. I don't know what you said. The sales were minimal. They were nothing. So can you explain why you're pursuing the rapid antibody test and the rapid antigen test when there seems to be plenty of competitive products here and you haven't even been approved for the rapid antibody tests in the U.S. and you're spending money for the rapid antigen test? Would you see a big market you're going to capture? What's the thinking for going forward on this? Hi Bill,

nice to hear from you. Just to say, by the way, we'll close the call after this question. But I would concede that the antibody test basically has disappointed in terms of the size of the market. Having said that, I think that there's greater market potential for the rapid antibody test than there is for the laboratory-based one. And it's for that reason that we are actually finishing basically the launch of the product by submitting to the FDA in the next five weeks. But I would concede that that product is unlikely, at least as we see things at the moment, to be a huge revenue generator. But in response to your question about antigen testing, I think that antigen testing will remain and I mean COVID, although you know the populations will largely be vaccinated, will be with us for the future. And I think the COVID antigen test would be a very important part of the armory of Trinity Biotech given our ability to manufacture sort of under 50 cents on an automated basis. Okay, so you'll

be competitive with the Abbott test and you know, I just sent John an article in the Minneapolis paper about the testing that they're doing here. But you know, a lot of companies are requiring the test be given. So I just wondered if you think you can penetrate that market even though you're a little late because of the rapidness and the cheapness of it, right?

Yes,

yes, yes. Okay. And when do you expect that to be done, the rapid antigen test? When do you think you'll have that ready?

We're just basically not going to give a prediction on timing here that's for you. We're not going to mislead and so we're just not committing a timeline on it but we're working as quickly as possible on it.

Okay, and that'll be an EUA grant? Yeah,

we'll be using the EUA pathway again.

Okay.

And then in Europe we'll just see EMARC bill.

Okay, all right. All right, well I can see why you're, you know, on the last call you mentioned your most exciting thing was the WHO and the trends then and I think I understand why and with the volume that makes sense. So good luck on getting that in the third quarter. Thank you for allowing me to answer the

question. Thanks very much. All right, well thanks to everybody for joining us this afternoon and for your support and interest and so good afternoon and speak to you at our next conference call. Bye-bye.

Thank you everybody. Thanks for your time.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.