Co-Diagnostics, Inc. (NASDAQ:CODX) Q2 2023 Earnings Call Transcript August 10, 2023
Co-Diagnostics, Inc. misses on earnings expectations. Reported EPS is $-0.31 EPS, expectations were $0.24.
Operator: Welcome to the Co-Diagnostics Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Andrew Benson, Head of Investor Relations. Please go ahead.
Andrew Benson: Thank you. Good afternoon, everyone and thank you for participating in today’s conference call. On the call from Co-Diagnostics, we have Dwight Egan, Chief Executive Officer; and Brian Brown, Chief Financial Officer. Earlier today, Co-Diagnostics released financial results from the second quarter ended June 30, 2023. A copy of the press release is available on the company’s website. We will begin the call with management’s prepared remarks and then open up the call to analyst Q&A. Before we begin, we would like to inform the listeners that certain statements made by Co-Diagnostics during this call may constitute forward-looking statements. Any statement about company expectations, beliefs, plans, objectives, assumptions of future events or performance are forward-looking statements.
For example, statements concerning 2023 financial and operational guidance, the development, regulatory clearance, commercialization and features of new products, plans and objectives of managements and market trends are all forward-looking statements. This includes statements concerning the company’s forthcoming Co-Dx PCR Home platform, which is subject to FDA review and is not available for sale. The company believes these statements are based on reasonable assumptions. However, these statements are not guaranties of performance and involve known and unknown risks and uncertainties that may cause the actual results to be materially different from any future results expressed or implied by such statements. Important factors, which could cause actual results to differ materially from those in these forward-looking statements are detailed in Co-Diagnostics’ filings with the SEC.
Co-Diagnostics assumes no obligation and expressly disclaims any duty to update any forward-look statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events. In addition, the company may discuss certain non-GAAP financial measures during today’s call. These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. We refer you to the company’s earnings release out shortly before this call, which contains reconciliation to the non-GAAP financial measures presented to their most comparable GAAP results. At this time, I would like to turn the call over to Co-Diagnostics, Chief Executive Officer, Dwight Egan. Dwight?
Dwight Egan: Thank you, Andrew. Good afternoon, everyone. Thank you all for joining CODX’s second quarter 2023 earnings call. Today, we are excited to provide details regarding our financial results as well as recent developments relating to our product development pipeline. I’m proud of the work our team has done to advance our goal of creating a better quality of life through best-in-class, affordable PCR testing. Our recent grants, which I will discuss shortly, exemplify the interest in our new Co-Dx PCR Home platform and further validate that we are on target to serve a sum of healthcare’s greatest unmet needs. As a reminder, we are leveraging our unique patented CoPrimer technology, which has been used in tens of millions of PCR assays sold around the world to develop tests for our new platform and instrument that can be deployed in a variety of point-of-care and point-of-treatment centers, and even right down to the home.
The platform, which is currently undergoing clinical evaluations for our initial COVID-19 test is small, portable, and will be available at a fraction of the cost of conventional PCR technology used in high-complexity clinical labs today. Photos and videos of this device are available on our website. The high demand for affordable and accurate PCR testing around the world was reinforced at the American Academy of Clinical Chemistry’s annual meeting, or AACC, held in Anaheim at the end of July. Attended by nearly 20,000 healthcare leaders and industry professionals, this event is one of the largest gatherings in the diagnostics industry, and our booth experienced high levels of foot traffic and interest from a broad cross-section of visitors.
Having a presence at conferences like AACC provides valuable market awareness as showcasing our technology and progress helps to confirm to market participants that we are moving in the direction of filling an unmet need and remain committed to our mission. While there, we also discussed some recent grant activity, as well as the clinical evaluations for our Co-Dx PCR Home device. These trials are going well, and we remain on schedule to complete them in our initial regulatory submission by the end of this year, and we are encouraged by early data we’re seeing. In previous earnings calls, we shared that a third-party analytical and usability study with PATH, funded by the Bill & Melinda Gates Foundation was in process. Now complete, we are happy to share that the resulting data from this study further demonstrated the ease of use and performance of our COVID-19 assay for the new platform.
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The study was insightful and confirmed that we are on the right track to bringing our lab-quality PCR technology to the point-of-care setting. More recently in this quarter, we also announced the details of multiple grants that we have been awarded. Recall that last quarter we discussed the potential of grants awarded by notable parties to help us advance our innovative Co-Dx PCR Home product. The first is from RADx Tech, which is an arm of the NIH, that seeks to accelerate innovation and development, commercialization, and implementation for new COVID-19 tests. This $1.2 million grant will be used to support what we believe will be one of our first products to reach clinics at the point-of-care, which is our respiratory multiplex test that will include detection for flu A and B, COVID, and RSV.
While we view COVID-19 as the first target indication that will accelerate our PCR Home device’s path to commercialization, we see an even greater market opportunity within the market for other respiratory diseases, and we still expect to begin the clinical evaluations for this multiplex test during the upcoming flu season. As a reminder, we aim to market this multiplex test both through the new PCR Home platform, along with another version that will be suitable to meet demand from our centralized laboratory customers and distributor base. The second and third grants were awarded by the Bill & Melinda Gates Foundation to support the development of two new tests on the platform, tuberculosis, or TB, and human papillomavirus, or HPV. Two diseases that continue to have high global incidence and mortality rates.
The World Health Organization has been committed to addressing the world’s TB crisis through its End TB initiative, which aims to significantly reduce global TB infection by 2030. Due to lack of testing access and the shift in focus since the pandemic towards addressing COVID, the World Health Organization and United Nations have fallen off track to meet this goal, and TB infections have risen in the last few years. According to the Gates Foundation, about 3 million of the estimated 10 million new annual TB cases go undiagnosed and/or unreported. It is our mission to reduce global TB incidence by providing a more accessible and affordable test, accompanied by a recommendation from the World Health Organization. We expect to begin clinical evaluations for this test in 2024.
We are evaluating different jurisdictions to conduct these studies and future regulatory filings using as criteria those that we believe will provide the most direct path to regulatory clearance, and ultimately, the recommendation by the World Health Organization. The third grant award will be used to help us develop an HPV test, also on the new platform, which is expected to be used as a companion diagnostic to a therapeutic vaccine. HPV is one of the most common STIs in the world, and one of the greatest risk factors for cervical cancer, which is the fourth most common cancer in the world. We look forward to providing updates on this project as they come. We are honored to have been awarded grants by these prestigious organizations that seek to improve quality of life by providing crucial access to diagnostic testing.
As we advance our platform and assays through the regulatory approval process, we are pleased to align ourselves with such insightful and experienced supporters. The Co-Dx PCR Home has been designed as a platform that looks beyond the present and into the future. As such, we are utilizing all cutting-edge tools available to us, including leveraging artificial intelligence, or AI, to help keep in front of healthcare trends. For several years now, Co-Dx has incorporated machine learning into our CoPrimer’s test development. Now, as more and more tests are run on our CO-Dx PCR Home platform, we are training an AI model to help make the platform’s software even more robust than before. And, as the devices are gradually deployed around the world in the future, we intend to further leverage the power of AI to make the community monitoring component of the software more powerful and effective, using it to analyze the de-identified test result data for trends that might otherwise have been overlooked, and to control for outlier results, all with the aim of ultimately being better able to help track and possibly even predict outbreaks and the need for greater healthcare resources in affected areas.
Lastly, in anticipation of demand for our new platform, we have been focused on ramping up our manufacturing capacity. We leased space for a new manufacturing facility right here in Salt Lake City that is scheduled to be operational by the end of this year. Currently, the plan is to install 12 new lines that will manufacture assays and instruments at scale. The construction of this plant ensures that Co-Diagnostics will be aptly prepared to meet end-market demand upon the commercial launch of our new products. We also intend to utilize the capacity and resources available to us through Cosara Diagnostics, our manufacturing joint venture in India, to help service the diagnostic needs of that country and other low and middle-income countries around the world.
There has never been a more exciting time at Co-Dx as we pivot our strategy to expand beyond the walls of a lab to enable testing in places with the greatest needs. Our new development partnerships, market interest, strong early clinical trial data, and capacity for expansion all position us very well moving forward. As we seek to advance a diversified product mix, we expect to win market share by leveraging our existing global distribution footprint and strong branding. I’m excited to witness the continued progress that the company will make and look forward to updating you further as we progress toward our milestones. With that, I will turn the call over to Brian to discuss our second quarter financials in greater detail. Brian?
Brian Brown: Thanks, Dwight, and thanks to everyone who joined today’s call. The decline in global COVID testing had an unfavorable impact on sales of our Logix Smart COVID-19 tests and resulted in a decline in our financial results compared to the prior year period. For the second quarter of 2023, revenue decreased to $0.2 million as compared to $5.0 million in the prior year’s same period. Gross profit for the quarter decreased to negative $0.3 million compared to $4.1 million in the prior year comparable period. The negative gross profit for the quarter reflects a larger amount of fixed costs as compared to the reported sales in the quarter. Total operating expenses for the three months ended June 30, 2023, were $11.7 million, an approximate increase of 42.1% compared to $8.3 million in the second quarter of fiscal 2022.
The increase was driven by continued investments in research and development and general and administrative expenses to further support the development, regulatory, and commercialization processes for our forthcoming CO-Dx PCR Home platform. Research and development expenses in the second quarter were $6.0 million compared to $3.9 million in the prior year period. The increase primarily reflects continued investment in our at-home and point-of-care CO-Dx PCR Home Platform and other company initiatives. With clinical trials for our platform ongoing, we continue to invest additional time and resources to bring our revolutionary diagnostic testing platform to market. For the second quarter of 2023, income before taxes decreased to a loss of $11.2 million as compared to a loss of $3.4 million reported in the prior year same period.
We experienced an income tax benefit for the second quarter of $2.2 million, representing an effective tax rate of 20.0%. As stated on previous calls, our effective tax rate will differ from the U.S. federal statutory rate of 21.0% due to state taxes, permanent items and discrete items. Net loss for the second quarter of 2023 was $8.9 million or a loss of $0.31 per fully diluted share compared to a net loss of $2.7 million or $0.08 cents per fully diluted share in the prior year same period. Adjusted EBITDA for the second quarter of 2023 was a loss of $9.6 million compared to an adjusted EBITDA loss of $2.3 million in the prior year period. We continue to be deliberate in our actions as we manage the health and flexibility of our balance sheet to ensure positioning for long-term growth.
As we make further progress on clinical trials of our platform, we remain deliberate and discerning while we evaluate opportunities that enhance our capabilities or the timing to bring our platform to market. Cash, cash equivalents, and marketable securities ended the quarter at $69.1 million. As was highlighted in Dwight’s remarks, we recently announced that we were selected to receive multiple grants, which will provide us with additional financial resources and flexibility as we continue to progress on bringing our new at-home and point-of-care platform to market. The funds received from these grants are not reflected in the ending balance of cash, cash equivalents, and marketable securities at June 30, 2023. Our balance sheet remains solid and we remain committed to maintaining a strong cash position, while also preserving the health and flexibility of our balance sheet.
Our highly liquid no-debt balance sheet enables us to utilize our resources to achieve short and long-term goals and enables us to opportunistically allocate capital with the goal of maximizing long-term value for shareholders. As mentioned on the Q1 earnings call, we believe our current company success will be measured in terms of progress made toward our development and operational goals. As such, we will not be providing financial guidance at this time. Our solid cash position combined with our grant awards provides us with adequate foundation to support near-term financial demands and deploy capital in a disciplined manner in support of our long-term strategy, including our at-home and point-of-care CO-Dx PCR Home platform. 2023 will be a monumental year for the company and one that will position us for the long-term future.
We continue to consider additional ways to increase returns and create greater value for shareholders. With that, I will now turn the presentation back over to Dwight.
Dwight Egan: Thank you, Brian. We will now take calls from our analysts. Operator?
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Q&A Session
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Operator: We will now begin the question-and-answer session. [Operator Instructions] And with that, we will conclude our question-and-answer session. I’d like to turn the conference back over to Dwight Egan for any closing remarks.
Dwight Egan: We want to take a moment to extend our thanks to all of our shareholders, as well as the whole CO-Dx family of employees, distributors, and consultants for joining us on this journey. We look forward to talking with you again after the next quarter.
Operator: The conference is now concluded. Thank you very much for attending today’s presentation. You may now disconnect your lines.
End of Q&A:
