Lucira Health, Inc.
Q2 2021 Earnings Call Transcript

Published: 13 Aug 2021

[Operator:]

Good day and thank you for standing by. Welcome to the Lucira Health Second 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 the conference to your first speaker today, Hannah Jeffrey from Gilmartin Group. Please go ahead.

[Hannah Jeffrey:]

Thank you, Lori, and good afternoon, everyone. Earlier today, Lucira Health released financial results for the second quarter ended June 30, 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. We encourage you to review the Company’s past and future filings with the SEC including without limitation, the Risk Factors section in the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors include without limitation statements regarding product development, product potential, the regulatory environment, sales and marketing strategies, capital resources, or operating performance. With that, I’ll now turn the call over to Erik.

[Erik Engleson:]

Thank you, Hannah. Good afternoon, everyone and thank you for joining us. Welcome to the second quarter 2021 earnings conference call. I would like to start by saying that we are excited about the substantial progress we have made during the second quarter of 2021. Lucira has capitalized on the solid foundation built since our inception, and we look forward to continued success. During today’s call, we will recap the progress and accomplishments of the second quarter of 2021, discuss our ongoing strategy and talk about the future. Dan will then transition into a more detailed walkthrough of our second quarter financial results. Lucira was founded on the mission of revolutionizing at-home testing for infectious disease by putting lab quality molecular testing in a small, easy to use form factor for use anytime, anywhere that would produce PCR like quality results on the spot. Our strategy has always been motivated by our belief that earlier treatment or quarantine would greatly aid in the fight against any infectious outbreak. Shifting the current climate of testing begins with creating an accurate, easy to use and readily available test. We believe our platform checks all of the necessary boxes and will become a testing platform of choice for many different infectious diseases. During the past 1.5 years, we have seen a real time shift in the testing market and an increased need for decentralized testing. The unfortunate arrival of COVID, help to abbreviate the typical time required to launch a decentralized testing platform. Our COVID-19 All-In-One Test Kit was developed to help alleviate many of the burdens and logistical issues associated with centralized testing and to provide patients with an accurate and convenient testing alternative. With COVID acting as the catalyst, we are excited to continue to advance the Lucira decentralized testing platform. I would like to provide a financial summary before turning to a more detailed review of the second quarter. Following the first quarter’s commercial debut, Lucira produced record results in the second quarter of 2021. During the second quarter, we recorded revenue of $12.4 million, representing a 175% sequential growth from the previous quarter of 2021. In addition, our gross margin is continuing to improve sequentially as volume increases. Although we anticipate that Lucira could be at a gross margin positive run rate by year end 2021. Our focus is less on gross margin in the near term in favor of continued investment in production capability optimization during the second half of 2021. Our quarterly revenue was a direct culmination of contributions from several key initiatives that we have been focused on throughout the first half of 2021. These initiatives are rooted in the following areas

[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 second quarter of 2021. Overall, from a commercial perspective, we had no activity in Q2 2020 and Q2 2021 represented our second full quarter of such activity. Net revenue for the second quarter of 2021 was $12.4 million. Our net revenue was primarily driven by access to the OTC channel through our EUA authorization, resulting in direct sales to consumers’ contracts with businesses and distributors and international sales. Gross loss was approximately $70,000 for the second quarter of 2021 and gross margin was negative 1%. The decrease in gross loss and negative margin from the first quarter of 2021 was primarily the result of increased manufacturing production. Selling, general and administration expenses were $6.1 million in the second quarter 2021 compared to approximately $900,000 in the same period in 2020. The increase was primarily related to increasing headcount and third-party services to facilitate commercial launch and public company compliance. R&D expenses were $10.1 million in the second quarter of 2021 compared to $4.6 million and the same period in 2020. The increase was primarily related to activities to support new product validation, new products and validation and manufacturing activities. Loss from operations with $16.3 million in the second quarter of 2021 compared to $5.5 million in the same period in 2020. The increase in operating loss resulted from our gross loss and increases in operating expenses as previously described. Net loss was $16.2 million in the second quarter of 2021, compared to $6.6 million in the same period in 2020. The increase is primarily related to the operating loss previously described. We ended the second quarter of 2021 with $161.7 million in cash compared to cash of $58.2 million at year end 2020. The increase in cash is primarily related to net proceeds received from our initial public offering. Based on our current plans, we believe our existing cash resources will be sufficient to meet our capital requirements and fund our operations through 2022. While we are not offering – while we're not officially offering annual guidance for 2021, we do expect continued quarterly sequential revenue growth with the emergence of the more contagious delta variant and low vaccination rates in most of the world combined with the ease of use and flexibility of our COVID-19 test kit, we believe demand will remain robust for the foreseeable future. I'll now turn the call back over to the operator for Q&A.

[Operator:]

Our first question is from Brian Weinstein of William Blair. Please ask your question.

[Griffin Soriano:]

Good afternoon. This is a Griffin up for Brian. Thanks for taking my questions here. Just first on the Meenta and AZOVA partnerships, can you give us a sense of the size of those in million dollar terms or volumes – are there any committed volume moving forward? And then just more broadly on partnerships like this and I'll call it the institutional settings, employers, schools, entertainment, et cetera. What are the – what kind of duration are you talking with clients in these opportunities?

[Erik Engleson:]

Yes. I would say, Griffin that we won't get into necessarily specifics around those partnerships, but I think that they're fairly representative of a lot of the deals that we're seeing today. Kevin and his team had done a great job of bringing in a lot of contracts that have durability forecasted volumes. I would say, greater than the majority of what we're seeing now are contracts and purchase orders that have forecasted amounts that range anywhere between 3 to 12 months.

[Griffin Soriano:]

Got it. That's helpful. Thank you. And then just on the manufacturing ramp, I heard the comment reaching full capacity in the first half of 2022. Can you just give us a sense of your current capacity in relation to that 1 million per month?

[Dan George:]

Yes. So Griffin, we're in the single-digit, we're in hundreds of thousands of units at this point. And we're looking at a fairly linear trajectory up to the million.

[Erik Engleson:]

Yes. I might just want to throw a little bit in there that we kicked off the Dominican Republic facility here in the Q2 timeframe. We're just producing commercial units that DR facility now. So as we gain experience with the DR, our capacity will grow and I would expect it to see call it over time 80% to 90% of our unit production will be derived from that facility.

[Griffin Soriano:]

Okay. And then the decision to pull the online distribution channel, versus it fair to say that product demand is exceeding supply. And then if you could quantify that in any sense of based on inbound orders and the sales funnel, any sense of just how much demand is outstripping current supply?

[Erik Engleson:]

Well, I would say that demand is robust right now. We made the decision we didn't want to partially fulfill that channel and we had larger, larger commercial orders that we decided to prioritize. So we felt that that was the prudent loop to make especially considering that those distributors have a better opportunity to meet the demands of the public then we would just through our website or through Amazon.

[Griffin Soriano:]

Got it. Appreciate the time guys. Thank you.

[Operator:]

Our next question is from Derik de Bruin of Bank of America. Please ask your question.

[Unidentified Analyst:]

Hi, this is John on for Derik. That's a very interesting agreement you guys struck. Wanted to ask about how much volume you guys were getting from the Olympics deal. And more generally, could you break out the OTC, the new channel versus the at-home volumes? Thank you.

[Erik Engleson:]

Yes, we won't necessarily speak about the specifics around our deal with Meenta. It's more to be illustrative of the type of arrangements that were deals that were striking today. Most definitely getting the OTC indication had a fairly dramatic impact on our demand, as you can imagine, as once you – once we received the OTC indication the rate limiters around receiving a script or going into a physician to actually get the product were removed. So those – with those inhibitors being removed we were able to expand our reach. And I would say from an OTC perspective, we're looking at 70% plus of our total revenue is derived from that OTC channel versus the existing Rx at home channel.

[Unidentified Analyst:]

Got you. Got you. That's helpful. And then in terms of the competitive landscape, could you provide an update as to and others pushed into the at-home market?

[Dan George:]

Yes, it's a very, I mean compliment to them on the very nice product. This is a very different product that we have in that there's no instrument, additional instrument required. The instrument is effectively built into our test at very low cost. And what that does is it makes LUCIRA test extremely easy to use. We're as proud of the consumer usability as we are the clinical results. So we’re seeing at least for Lucira, that we’re growing off such a small base initially for Lucira into such a large ocean of opportunity that we’re not at this time feeling the – feeling impacts of competitive threats.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

And our last question is from Rahul Rakhit of LifeSci Capital. Please ask your questions.

[Rahul Rakhit:]

Hey guys. Thanks for taking the questions. Can you hear me okay?

[Erik Engleson:]

We can. Go ahead, Rahul.

[Rahul Rakhit:]

Just a quick one for me in terms of, you guys are bringing back the online sales through Amazon and through your own website. Maybe – I know you touched on this a little bit, maybe help us understand what the demand, I guess, exactly looked like in the past. And then how do you kind of expect that to be a contributor looking ahead through the rest of this year and coming into next year.

[Erik Engleson:]

Maybe I’ll just comment qualitatively and then turn over to Dan. But we intend to bring back online ordering in the second half of the year, whether that’s on Amazon or on our website or both to be determined. But Dan, I don’t know if you want to...

[Dan George:]

Yes. I mean, we see the businesses primarily B2B going forward, of course, we’re going to offer the product at a consumer level as well. But I think our sales team has done a great job of qualifying customers. And we’ve had inbound interest from very sophisticated customers who really understand the importance of molecular testing and understand the requirements and needs for testing proactively. So we see that being predominantly making up the lion’s share of our demand for the foreseeable future.

[Rahul Rakhit:]

Got it. Okay. I appreciate that. And then I guess maybe just one more in terms of manufacturing, and maybe you could just provide a little bit more color on what’s happening – what needs to happen between now and then to get to that optimal point for manufacturing capacity?

[Erik Engleson:]

Absolutely. We’re delighted by the way with the partnership with Jabil, that was the right partnership for Lucira and it’s a working relationship collaboratively particularly, well, both in Michigan where we started and had impressive startup work, and then later in the Dominican Republic with a great team in the DR. So very happy with that. It’s just your standard ramp up of a new manufacturing process. It’s going extremely well. We’re very pleased with it. If we could wave a magic wand and make it go faster, we would, but these things go at a certain rate. And the good news is we’re applying the right teams to this and are very happy with the way it’s going.

[Rahul Rakhit:]

Got it. Okay. No, I appreciate that. And congratulations on a great quarter. Thanks for taking the questions.

[Erik Engleson:]

Thank you.

[Operator:]

And we have a question from Derik De Bruin of Bank of America. Please ask your question.

[Derik De Bruin:]

Hey, thanks for getting me back in. I know you guys mentioned the sequential growth in the revenues for the rest of the year. But I was wondering what the outlook for the COVID testing looks like from what you see for 2022.

[Dan George:]

I mean, we’re not necessarily going talking about 2022 right now, but we see robust demand. And we see the majority of the world not being inoculated being impacted by variants and testing becoming more and more important every day. So we’re – although COVID’s, we’re optimistic. And we see that we don’t see any signs of slowing down demand for our product anytime in near-future.

[Erik Engleson:]

I mean, what we’ve been saying since the time of the IPO that COVID will remain endemic and we’re seeing reinforcement of that for better, for worse for society. And that testing will continue to play a very important role going forward. You can imagine that it’s going to take somehow controlling this or for the entire planet to be able to significantly bring it under control. And as the virus replicates in places where there’s not vaccination, not mask wearing, for example then the virus throws off variants and those variants can challenge existing control measures. So for all the above testing remains important and it’s particularly important to be able to identify asymptomatic positives and for that at least from what we can see today, the only way to effectively do that is with a test like Lucira that’s molecular and very accurate.

[Derik De Bruin:]

Got you. Thank you.

[Erik Engleson:]

Thank you, John.

[Operator:]

And there are no further questions at this time. I will now turn the call over back to Erik Engleson, CEO for his closing remarks.

[Erik Engleson:]

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

[Operator:]

And this concludes today’s conference call. Thank you for participating. You may now disconnect.