Lucira Health, Inc.
Q3 2021 Earnings Call Transcript

Published: 11 Nov 2021

[Operator:]

Good day, and thank you for standing by. Welcome to Lucira Health Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. I would now like to hand the conference over to your first speaker today, Greg Chodaczek. Please go ahead, sir.

[Greg Chodaczek:]

Thank you, Charlotte, and good afternoon, everyone. Earlier today, Lucira Health released financial results for the third quarter ending September 30, 2021. A copy of the press release is available on the company's website. Joining me today on today's call is Erik Engelson, President and Chief Executive Officer; and Dan George, Chief Financial Officer. Before we begin, I'd like to remind you that during the 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 may 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 Engelson:]

Thank you, Greg. Good afternoon, everyone, and thank you for joining us. Welcome to the third quarter 2021 earnings conference call. As the world continues to navigate the waves of new COVID-19 variants, as well as the continued spread among the unvaccinated and among those who are vaccinated yet infected, we continue to see the need and subsequent demand for decentralized testing options. Testing remains a critical contributor to the return to normalcy and customers welcome accurate, easy-to-use and reliable options that provide quick results. Our Lucira COVID-19 All-In-One Test Kit and our Lucira CHECK IT COVID-19 Test Kit, provide lab quality molecular testing in a small, easy-to-use form factor for use anytime and anywhere while producing PCR quality results on the spot. Throughout the past 18 months, we have seen testing volume fluctuate in the range of $800,000 to $1.5 million per day in the U.S. Irrespective of these fluctuations, this is a substantial volume of daily testing. The market for testing remains strong as does the demand for our tests. Lucira is an accurate and convenient testing alternative to lab tests, the benefit of which is that immediate on-the-spot results inform early treatment or quarantine decisions thereby aiding in the fight against further infectious outbreaks. We believe that our efforts over the past eight years have resulted in what we believe is a versatile testing platform that we are well on our way to achieving manufacturing scale that the initial commercial channels have been defined and success has been demonstrated in selling into these channels. We further believe that the success that we are enjoying as a result in large part of the efforts of the expanding team of highly skilled Lucira employees, contractors, consultants, partners and suppliers who leverage their experience and passion to deliver a great product to our customers. We will continue to revolutionize the at-home testing market for infectious diseases, starting with Lucira's COVID-19 test kit. We welcome the advent of antiviral medications for COVID-19 and look forward to their commercial availability. As with antiviral medications for influenza, these drugs appear to be most effective when taken early in the course of infection. This speaks to the utility of Lucira's accurate on-the-spot molecular test as a companion diagnostic that can be used to detect infection early. We anticipate the same benefit from our multiplexed Flu A, Flu B and COVID-19 test kit, which is in development for both influenza and COVID-19 treatment medications. Looking back on the quarter, we are pleased with what we have accomplished and the steps taken to propel Lucira to the next level. Lucira's test provides lab accuracy in an instrument and reader free fully disposable form factor that is easy to use and easy to carry. Lucira's test is readily carried in luggage, for example, when traveling. Our test does not require cleaning, calibration or an app and is powered by 2 AA batteries included with the test kit. Since commercialization, we have seen our tests used in several capacities, including but by no means limited to the following

[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 third quarter 2021. Overall, from a commercial perspective, we had no activity in the third quarter of 2020 and the third quarter of 2021 represented our third full quarter of such activity. Net revenue for the third quarter of 2021 was $15 million. Our net revenue was primarily driven by contracts of businesses and distributors, health care providers, international sales and direct sales to consumers. Gross loss was approximately $1.5 million for the third quarter of 2021, and negative gross margin was 10%. Increases in both gross loss and negative margin from the second quarter of 2021 were primarily due to a $1.3 million inventory obsolescence charge and a $1.6 million long-lived asset impairment charge, partially offset by increased manufacturing production. Selling, general and administration expenses were $11.8 million in the third quarter of 2021 compared to approximately $1.7 million in the same period in 2020. The increase was primarily related to increasing personnel-related costs and third-party services to facilitate commercial activities and public company compliance. R&D expenses were $14.3 million in the third quarter of 2021 compared to $8.8 million in the same period in 2020. The increase was primarily related to activities to support new products and validation of manufacturing activities. Loss from operations was $27.6 million in the third quarter of 2021 compared to $10.5 million in the same period in 2020. The increase in operating loss resulted from increases in operating expenses combined with our gross loss as previously described. Net loss was $27.5 million in the third quarter of 2021 compared to $11.8 million in the same period in 2020. The increase is related to the operating loss previously described, partially offset with a charge in other expense, primarily relating – primarily resulting from non-cash derivative liabilities recognized in the third quarter of 2020 associated with the issuance of convertible notes. We ended the third quarter 2021 with $117.3 million in cash compared to cash at $58.2 million at year-end 2020. The increase in cash is primarily related to net proceeds received from our initial public offering. We believe our cash will sustain us through the balance of 2022. As Erik mentioned, we’re seeing strong demand trends, and we believe this demand for our COVID-19 test will remain for the foreseeable feature. As such, we are forecasting fourth quarter 2021 revenues of at least $30 million in 2022 revenues in excess of $150 million. I’ll now turn the call back over to Charlotte for Q&A.

[Operator:]

Thank you. Your first question comes from the line of Derik De Bruin from Bank of America. Your line is now open.

[Erik Engelson:]

Hi. It’s Derek. Can you hear me?

[Dan George:]

We can. Hi, Derik.

[Erik Engelson:]

Thanks for the update. So I’ve got a number of questions, so I’ll just go through them. I guess, first of all, what’s your capacity expectations, manufacturing capacity expectations in terms of number of units being produced by mid-2022 and exiting 2022?

[Dan George:]

Yes. So yes, great question, Derik. We should be at 1 million units a month by the end of the first half of 2022.

[Derik De Bruin:]

Great. And when you look at your expectations in the 2022 guide, what are you assuming for ASPs? And I guess how did prices return in 3Q and 4Q as well? Just what are you sort of baking into pricing for this?

[Dan George:]

We’re going to provide a more fulsome update of 2022 when we provide guidance in Q1. But for now, I would just look at – I would probably keep your model consistent with ASPs that you currently have.

[Derik De Bruin:]

Got it. And when you look at your – the guide that you’re assuming for the revenues, is that inclusive of the ABC test, the COVID test, are you assuming anything to that? And I guess what – when do you expect to have – when do you expect trials for that?

[Dan George:]

Yes, it’s not – I mean the revenue that we provided was really a floor because we haven’t provided any guidance for 2022, and we understand it’s quite difficult for one to get their arms around that. It doesn’t include anything incremental related to the multiplex ABC test. It’s all COVID-19 organic revenue.

[Erik Engelson:]

And an answer to part two, Derik, the timing of going through all of the testing will be such that we plan to submit to FDA and assuming an EUA pathway have results and an approval in time, assuming all that happens, as I’ve described, to hit the end of year flu season in 2022.

[Derik De Bruin:]

And one final question. So how much of that $150 million for next year is committed? I mean how much of that do you have direct line of sight we’re building to?

[Dan George:]

I would just say that – I would just say, based on the current pipeline, our current revenue is probably north of 75% contracted. So we have – we feel very confident we have great visibility into our – into the 2022 revenue based off the pipeline. I would think of it in terms of a lot of our contracts probably – half of our contracts have binding elements to them that range out to six months, and all of our contracts have a 12-month forecast. So we provided that number because we feel very confident about our ability to hit it from a demand perspective, but also importantly, very confident from a production perspective as well.

[Derik De Bruin:]

Okay. Great. I’ll turn back.

[Erik Engelson:]

Thank you, Derik.

[Operator:]

Your next question comes from the line of Brian Weinstein from William Blair. Your line is now open.

[Brian Weinstein:]

Good afternoon. This is Brian. Thanks for the questions. Maybe just to start super short-term. Any commentary on the most recent trends you’re seeing here in mid-November, obviously, cases have come down a bit, but the commentary on demand seems pretty strong. So any color on what you’ve seen so far in Q4 would be helpful.

[Erik Engelson:]

Yes. We have actually seen – thanks for the question. We’ve seen no letup in demand. And in fact, when we look back at demand – at total testing over time in the U.S. since the pandemic started, it fluctuates between 800,000 and 1.5 million tests per day. So the TAM is just enormous compared with our volume of sales. And as a result of that plus people’s interest in our product, we have just not seen any change in demand.

[Brian Weinstein:]

Okay. And just a follow-up question on the guide, especially on the 2022 floor. Can you give us a sense of where that demand is expected to come from? What segment of those kind of four that you’ve outlined is going to – do you expect to be the largest contributor?

[Erik Engelson:]

Yes. So the – we anticipate that of the four, the largest contributors are B2B and International. However, hospital systems can be a wild card and could come and surprise us from behind with high demand. And we’ve seen some of that behavior in 2021.

[Brian Weinstein:]

Okay. And then just one more follow-up to the guide. 45 million tests a month, somewhere getting to – I’m sorry, $45 million a month and $1 million run rate, $45 ASP, obviously, that’s way beyond the $150 million floor. So just curious how that – why that $150 million number is the right floor, how much of discounting what it could be and some of the puts and takes there.

[Erik Engelson:]

Yes. No, great question. And we’ll say that we’re providing appropriately conservative guidance driven by a bottoms-up pipeline analysis and our – just our current best efforts at estimating this. But as we gain further resolution, as Dan mentioned, we’ll come back with more refinement.

[Brian Weinstein:]

Okay. Thanks for the time guys.

[Erik Engelson:]

Thank you.

[Operator:]

There are no further questions at this time. Presenters, please continue.

[Erik Engelson:]

Thank you, Charlotte. I want to thank everyone again for your time this afternoon and for your interest in Lucira Health. We believe that we have the right product, at the right time with the right team to manage what now appears to be evolving into an endemic disease across the developed world. We are very excited about the future at Lucira, and we look forward to speaking to you soon.

[Operator:]

This concludes today’s conference call. Thank you, everyone, for participating. You may now disconnect.