Lucira Health, Inc.
Q1 2021 Earnings Call Transcript

Published: 14 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the Lucira Health First Quarter 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. I would now like to hand over the conference to your speaker for today, Mr. Greg Chodaczek. Please go ahead, sir. You may begin.

[Greg Chodaczek:]

Thank you, Delfin, and good afternoon, everyone. Earlier today, Lucira Health released financial results for the first quarter ended March 31, 2021. A copy of the press release is available on the company's website. Joining me on today's call are Erik Engleson, President and Chief Executive Officer; and Dan George, Chief Financial Officer. Before we begin, I'd like to remind you that during this conference call, the Company will make forward-looking statements regarding future events.

[Erik Engelson:]

Thank you, Greg. Good afternoon, everyone, and thank you for joining us. Welcome to the First Quarter 2021 Earnings Conference Call -- our first as a public company. We will start today's call with an overview of Lucira and the accomplishments that made the company what it is today. I will then discuss our company strategy and how its implementation has led to significant progress this quarter, followed by a discussion of our future opportunities. Dan will then transition into a more-detailed walkthrough of our first quarter financial results. Since our inception in 2013 Lucira has been developing our technology and paving the way towards revolutionizing at-home testing for infectious disease. The founding vision was to put lab quality molecular testing in a small easy-to-use form factor that would fit in the palm of the hand for use anytime, anywhere and that would produce results on the spot. We have always believed that if testing were available, accurate and easy to use, individuals would practically test. Enabling earlier treatment or quarantine should the test result positive or faster peace of mind should it result negative. Ultimately, we believed that this would serve the public health. Justice point of care testing was an important innovation that augmented central lab testing. We believe that anywhere, anytime testing with high consumer usability under an over-the-counter label represents an important next advance, provided that test accuracy is maintained. As testing demand increase during the first wave of COVID infections last year in the United States, we all witnessed the logistics issues that were caused by the immobility of the testing equipment. This resulted in traffic jams at testing centers, and the risky circulation of potentially infectious individuals within the general population. Although home sample collection kits help to alleviate some of the challenges, the long wait time to results remain an issue. It was during this time that we shifted our focus from our initial plan to bring an influenza test to market to prioritizing the COVID-19 test kit first.

[Dan George:]

Thanks, Erik and hello, everyone. Please refer to our press release issued earlier today for a summary of our financial results for the first quarter of 2021. Overall, from a commercial perspective, we had no activity in Q1 2020 and Q1 2021 represents our first full quarter of such activity. Revenue for the first quarter of 2021 was $4.5 million. Our revenue was primarily driven by sales to healthcare professionals and physicians for our point of care prescription at home authorization.

[Operator:]

Thank you, Dan. Our first question coming in from Derek DeBruin from Bank of America.

[Unidentified Analyst:]

Hi, this is Ivy, on for Derek today. Good afternoon. Thank you for taking my question.

[Erik Engelson:]

Hi, Ivy.

[Unidentified Analyst:]

Hi. So firstly, just wanted to get more details on the OTC launch. Wanted to see if you could share more about your pricing strategy there? If there's any bond of the deals being offered since now we're entering to a more competitive market. So just wanted to get any clarity there.

[Erik Engelson:]

Yes. Hi, Ivy. Thank you for the question. So, we have a multi-pronged strategy with over-the-counter label and by the way, when the company was founded, the vision always prioritized over-the-counter for this product and it's very much a consumer product with central lab accuracy. So, the strategy is both direct-to-consumer and that was the reason for the Amazon partnership as well. We sell product on our own website, lucirahealth.com and also other opportunities that are mainly in the B2B category. So, some of those involve distribution deals with distributors within the U.S. and some of those will also involve distribution deals outside the U.S. when the time comes. And some of the B2B deals are to organizations such as the one associated with the Golden State Warriors to reopen the Chase Center and similar deals like that. So, what benefits the company from a volume deal is to be able to have some insight over time as to what the delivery schedule will be. And that's, of course, challenging for all involved in COVID although I think we all foresee a long tail, and COVID as endemic. But to the extent, we priced the product at $55 on Amazon and on our website -- that includes shipping. And to the extent that there are volume deals put in place, we reduced price slightly. And I'm going to not name specific prices, because those are subject to negotiation with different partners although there is consistency across the partnerships. To the extent that partners can provide visibility over time, then that's a value to the company from an internal planning standpoint.

[Unidentified Analyst:]

Great, thank you. And my second one, on the recent agreements to supply to Lucira Check It for the Golden State Warriors. That's pretty interesting opportunity there. Just wanted to see if you could talk about what's the general arrangement there? And help us think about how to quantify the size of opportunities in the similar markets. And that goes into a question of how much visibility you have in terms of, more sizable contracts? And how should we think about the revenue near term going forward? Thank you.

[Erik Engelson:]

Yes. Thank you, Ivy. So, first of all, we're grateful to the Golden State Warriors for selecting Lucira. The partnership with the Warriors means a lot to us and we have put our hearts into delivering this quality product to the Warriors and to Warrior fans. The operation of the partnership was such that product was shipped to certain fans' homes, mostly season ticket holders had the priority. And the great beauty of the Lucira Check It is that it's easily run -- very simple one page instructions at home and then a LUCI PASS is created on one's phone as I described in the opening remarks. So, the LUCI PASS was then in the case of the Warriors, because they wanted aggregated data on fans, our LUCI PASS also integrates into other platforms. And so in this case, as you can see on the video on the Warriors' site, it integrated into CLEAR Health Pass. And so CLEAR Health Pass, that integration made it very seamless for users. It appeared to users that they were just obtaining a LUCI PASS, when in fact that went directly into a CLEAR Health Pass on a user's phone. So in that case, it was the CLEAR Health Pass that was shown at the gate for entrance. There's some variability in demand for sports teams like the Warriors and it depends on local regulations. In some cases, people who are vaccinated and can prove that can gain entrance without a negative COVID test. In in other, it's a hybrid. People who are vaccinated come in one entrance, people who have a negative Lucira test come in another entrance. We priced very close to our $55 ASP for this whole process with the Warriors, and I think it's worked very well. There was also some on-site testing for those who didn't have a chance to test at home or had any other issues. And that worked well as well.

[Unidentified Analyst:]

And the revenue runway, if you could shed any light there?

[Erik Engelson:]

So, we're actually not doing any forecasting at this point, Ivy. I would say that we're extremely excited by the reaction to the OTC labeling and to the Lucira Check It test kit and have an amount of incoming interest that we're working very hard to respond to. But that said, I think we need a few quarters to understand what our baseline is, so that we can then begin to forecast from there.

[Unidentified Analyst:]

Great, thank you. I'll drop back in the queue.

[Operator:]

And our next question is coming from Mr. Brian Weinstein from William Blair. Go ahead, sir.

[Unidentified Analyst:]

Hey, guys, good afternoon. This is Griffin on for Brian. Thanks for taking my questions. Just the first one here, can you give us an update on the discussions you're having with customers in the professional healthcare setting that potentially have a longer testing tail? Can you talk about Sutter and Cleveland Clinic on the IPO? What's their use of the product? How has that been and what are your expectations for this professional setting moving forward?

[Erik Engelson:]

Yes, thank you. Appreciate the question. So, when we when we entered Q1, the prevalence of the pandemic was higher in locations where some of the healthcare institutions are with whom we are working. And also, we had only the prescription label in Q1. As we took first orders for product, we have expectations that there was going to be durability throughout Q1, of those orders and of the usage of the product in the healthcare practice in large institutions. Then prevalence dropped and so did consumption of our test. By the way, the benefit of our test in emergency departments, in respiratory clinics, for pre-procedural screening, for example, is the rapidity with which it produces a result on the spot -- 11 minutes for a positive, for example. So that's a huge benefit, particularly as there are patients in an emergency department who are suspected of being positive and who the institution would prefer to have isolated as quickly as possible from an infection control standpoint. So, one of the dynamics was that we did not see reorders from the institutions from which we thought we would see in Q1, but then conversely, we brought up online ordering for healthcare professionals with prescription writing rights on our website. And we've had some fill-in in the quarter, fill-in ordering by healthcare professionals. I suspect we would have had more had there been more awareness of Lucira. I think we suffered from being a best-kept secret, but when people found our products and found us, they were they were delighted by it and we have quite a bit of reorder activity in Q1 by healthcare professionals. So, ordering from our website, where concierge practices, psychiatry offices, EMT practices, for example, and very, very pleased by the early startup signal there. But I would just say that going forward, prescription use remains very important to the business. But I will say that we have resourced our marketing efforts toward over-the-counter since having received that label in a book. Thank you.

[Unidentified Analyst:]

Okay, and then just on the Amazon channel, realizing that products, just been selling there, just started to selling there, but you've been in ecommerce for a little while from your ex ; can you just talk about any feedback you've gotten in the ecommerce channel and some early expectations for the Amazon marketplace?

[Erik Engelson:]

Yes, we're seeing good uptake through Amazon, we're really grateful to Amazon for the partnership. And I think we have a high rating at the moment on Amazon, and again, we'll be taking steps to increase awareness. But I must say, out of all the press releases that we put out in this year, it was the Amazon press release that at least had the most -- it generated the most incoming email to me. So, I think it was quite exciting to people to see that.

[Unidentified Analyst:]

Okay, and then just last one for me. It seems like a combo, flu-COVID test could potentially be pretty important. In the symptomatic testing market moving forward, just given the similarities and symptoms. Can you give us an update on the pipeline and time line there, particularly, for the combo product?

[Erik Engelson:]

Yes. Thank you for the question. We're excited about that as well. And that's in development right now. We have the assay -- the flu assay developed. And we're just iterating the device design. Very simple changes to accommodate both assays. So, we're excited about this. We will be having some meetings with FDA to determine the regulatory path, whether this will be EUA for the combo test, or whether it will need to be a 510-K and then that will inform the timeline. Maybe I won't speculate on what the timing could be, but I will say that the product we anticipate being able to be in clinical trials in the not-too-distant future, so that we're going to do everything we can do to try to accelerate this product so that it will be ready. But it will not be contributing commercially in this year. And I would say best case, it would be another flu season before it is contributing commercially.

[Unidentified Analyst:]

Great. Thanks for the color, guys.

[Erik Engelson:]

Sure. Thank you.

[Operator:]

And now our next question coming from Mr. David Sherman . Please, go ahead, sir.

[Unidentified Analyst:]

Hi, guys. Thanks for taking my questions. First one, just on the B2B channel, I was just wondering with the current trajectory of the pandemic, the degree to which cities are reopening, has there been any reprioritization on your end as to target customers and sectors of the economy that you're going to pursue?

[Erik Engelson:]

Yes. Hi, David, thanks for the question. There's quite a bit of testing that's going on daily in the country today -- COVID testing. We view the B2B opportunity as incremental to that. I can tell you, our own facility, we have been testing twice a week. We alternate between twice a week and once a week, depending on prevalence or an incident of a positive within testing associated with our facility. And since the over-the-counter label, we have switched to using Lucira test. So, we give employees Lucira test, they test at home on the prescribed days and then they bring their LUCI PASS to the door. So, we've been having similar conversations with potential B2B partners. And I would characterize this as quite interested in performing testing and it spans the gamut from those organizations that really want to be sure and so wants to test with a testing program like Lucira's to some organizations that are making testing for employees optional, which is interesting, from a safe workplace standpoint to organizations that are thinking it through, have teams dedicated to deciding what kind of testing they're going to do, if any. But within the first category, we're fielding quite a bit of incoming interest and having productive discussions. So, I would say that from a sales standpoint including myself, we spend quite a bit of time on these discussions every week. It's been exciting.

[Unidentified Analyst:]

Got it. And in terms of just sort of working assumptions you guys have thinking through some of these customers, do you envision most are going to want some kind of test run with the product and what's sort of the assumptions as to what the timeline is from a test period to actually signing the contract?

[Erik Engelson:]

Yeah, that's a great question. What we found is that folks start small and they do pilot these programs and then they think about increasing, but we're still early in this rollout. But people tell us that the numbers could be sizable once they see how this works. I will also mention, just anecdotally, that Dan and I are sitting in a room together and we don't have masks on, because we've tested earlier today before showing up here and that's the case within our facility, although, within our facility, we still wear masks. Most of us are vaccinated. However, we have had a recent positive test among one of our employees. So that just underscores that the vaccines alone do not solve the problem. They're in a really important advance and we're grateful for them. But, testing is going to remain important. That's the feedback that we've been getting on the B2B side as well.

[Unidentified Analyst:]

Okay, great. Then just one more from me on the Amazon partnership. Could you just talk about are they handling the shipping logistics or is it coming from you guys still? Is there plans for that to be in their hands if it's not? Is there a plan in place for them to handle order logistics across all of your business channels down the road?

[Erik Engelson:]

We have a great partner for our three PL and at the moment, our partners fulfilling. Amazon is handling the order entry. We are having discussions about a transition to maintain our own three PL, who we're very happy with, but in addition to have fulfillment by Amazon. That's a discussion and I can't characterize where that's going to come out yet, but it's certainly on our mind. So, thank you for that question.

[Unidentified Analyst:]

Okay, great. Thanks for taking my questions.

[Operator:]

Thank you. For our last question, it's coming from Derik De Bruin from Bank of America. Go ahead.

[Derik De Bruin:]

Hi, Erik. Thank you for letting me back in. Just a few follow-up questions. So first, on the expense side and maybe into a question of cash run. Right now, the volume is still ramping up, but just wanted to see what needs to happen to get you into the positive growth margins? Then based on the cash run right now, is there any color you could provide on the OpEx for the year, any color would be helpful? Thank you.

[Dan George:]

From a gross margin perspective, it's a factor of volume and cost reduction initiatives that we have in place right now. As Erik mentioned before, we just launched in the DR and the DR is going to make up the lion's share of our volume. That's a lower cost environment than what we're currently manufacturing today. That coupled with the fact that we're currently working volume negotiations with our suppliers in terms of working down materials cost, along with volume-based tooling that we're putting in place will be, I would say, three cost initiatives that will drive down our direct costs. Then volumes will take care of overheads. Currently in Q1 2021, our negative margins were primarily a factor of us having an infrastructure in anticipation of growth. We've made investments, both in people and facilities to facilitate future growth. We're poised to facilitate that going forward. I would say from a cash perspective, although we're not giving guidance, we've modeled a number of different sensitivity scenarios and we foresee no liquidity issues at all in the near future.

[Derik De Bruin:]

Great, thank you. Can you talk more about your distribution channel, especially for the e-commerce sales? Is it going to be selling through a channel or on consignment? Any details would be helpful. Thank you.

[Erik Engelson:]

So, we maintain the inventory and we distributed through our three PL, both from orders that come in from Amazon, orders that come to our website, and in some cases, we have integration with other partners. For orders that come in from them, but we're fulfilling all the orders. If you want to add?

[Dan George:]

Yeah, I'm assuming you're referring to direct over the counter distribution through Amazon, all of that is fulfilled through us. We do have some distribution agreements as well, but title and risk passes through those distributors upon shipment. So, all that inventory leaves our books once we actually ship that product.

[Derik De Bruin:]

Great. I have a last one. Maybe more bigger picture on the impact of vaccination is doing a process of rolling out, but how much of an impact do you expect maybe compared to a previous expectations that's going to have in terms of either volume or pricing impact and how you're going to utilize your capacity since you're still in the process of ramping that up? More specifically, maybe for the Golden warrior's deal, the audience, the fans, are they -- if they are vaccinated, do they still need to be tested?

[Erik Engelson:]

Certainly, the impact of vaccines, there will be some impact on testing volumes, particularly in the classic testing channels. We're seeing -- I wouldn't be surprised if there's -- but there's over 1 million tests per day being performed now. There are pockets of the population that don't wear masks, that are not taking the vaccine; so the vaccinations may have spread through the easier to vaccinate individuals at this point. The next phase is going to be more difficult to the extent that our borders remain open. This is really a global issue. It's not just a US issue. The vaccines are not 100%. So, there's some risk assessment for organizations. So, let's see what was the Golden State portion -- Ivy, tell me again the Golden State question -- oh, will vaccinated people need testing? That is a function of the local regulations and policies. I would say that that's in flux as local governments are still assessing.

[Dan George:]

I want to add here. We've done some research in terms of -- even people who've been vaccinated, certain people want testing. There's an attitude towards the treatment of COVID and there's a there's a population out there that exists regardless of being inoculated or not, they still want to be tested and they want to know the people around us have been tested as well. That population out there that that by allowing this decentralized testing allows them an opportunity to test at their convenience.

[Erik Engelson:]

It's interesting, the media has shifted from testing to no talk of testing, but there's still a lot of testing going on. I think it's not over and it's not going to be over is our viewpoint. I think we're well poised to help serve the ongoing need for testing.

[Derik De Bruin:]

Great, thank you very much.

[Operator:]

That's it for the question-and-answer session. Now, I would like to hand back for closing remarks to Mr. Erik Engelson.

[Erik Engelson:]

Thank you. I want to thank everyone again for your time this afternoon for your interest in Lucira Health. We are very excited about the future of Lucira and we look forward to speaking to you soon. Thanks.

[Operator:]

This concludes today's conference call. Thank you for your participation everyone. You may all now disconnect. Have a great day.