Quotient Limited
Q2 2022 Earnings Call Transcript

Published: 9 Nov 2021

[Operator:]

Greetings. And welcome to the Quotient Limited Second Quarter Business Update. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. . As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Peter Buhler, Financial Advisor. Please go ahead, sir.

[Peter Buhler:]

Thank you, Hector. Good morning, everyone, and welcome to Quotient's business update conference call. Joining me today is Manuel O. Méndez, Chief Executive Officer of Quotient, and Ali Kiboro, Chief Financial Officer. Today's conference call is being broadcast live through an audio webcast and the replay of the conference call will be available later today at www.quotientbd.com. During this call, Quotient will be making forward-looking statements, including guidance and projections as to future operating results and expected development and commercialization timelines. Because such statements deal with future events, actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements can be found in Quotient's filings with the US Securities and Exchange Commission. The forward-looking statements, including guidance and projections provided during this call, are valid only as of today's date and Quotient assumes no obligation to publicly update these forward-looking statements. As stated in the press release issued yesterday, our Q2 FY 2022 earnings release is delayed as we are working through a restatement of our previously issued financial statements. We're working through a technical non-cash accounting adjustment related to the historical treatment of our senior secured notes and the associated royalty rights. The estimated impact is anticipated to below 5% of net loss and total liabilities in each year presented in the FY 2022 Form 10-K. The financial impact on prior-year periods is considered immaterial. With that, I would like to turn the call over to Quotient's Chief Executive Officer, Manuel, to provide you with a business update.

[Manuel Méndez:]

Thanks, Peter. And good morning, everyone. Thank you for joining us today for our business update. We appreciate your time and interest in Quotient. I'm here joined in Eysins in Switzerland by our new CFO, Ali Kiboro. I know you will look forward to meeting with customers, investors and analysts as you onboard our leadership team. Ali?

[Ali Kiboro:]

Thank you, Manuel. Thank you, Peter. It has been a busy first week getting to meet the leadership team here at Quotient. I joined Quotient because I was excited about the potential to transform transfusion diagnostics and go beyond. My initial impressions are that we have a very committed and capable team focused on the work ahead of us. I look forward to meeting many more of our internal and external stakeholders in the days ahead. And with that, I will turn the call back to Manuel's to take us through our key pillars.

[Manuel Méndez:]

Ali, welcome to the Quotient family. As you've seen from our business update press release yesterday, we've made a lot of progress over the last quarter. I would like to start by recognizing the entire Quotient team for their dedication and support. Today, we will be updating you on our executive leadership team and, consistent with our last business update, the three key pillars – The MosaiQ Solution, Alba by Quotient, and Quotient's financial position. I will begin with the new members of our executive leadership team. I'm delighted that we have continued to make progress this quarter by enabling the transformation of our company's business mix. As you have read in our press release this morning, and as announced earlier this quarter, we have four new dynamic members in place who will bring deep industry knowledge and proven track records of success. By supplementing our executive committee, we will be able to meet our growth initiatives and better serve our customers. The first key pillar is our MosaiQ Solution. We will begin with the transfusion diagnostics pipeline, which includes immunohematology, serological disease screening and molecular disease screening. I'm proud to announce the expanded immunohematology C regulatory dossier has been submitted. The submission was the result of a multiple clinical performance evaluation trial in Europe, which included more than 4,500 random blood donors. We are proud of the work our team has achieved. The results were excellent. The microarray contains of 20 commercially relevant specificities, antigen performance demonstrated on average 99.5% or greater for most specificities Additionally, we received positive feedback from our customers who stated, 'The MosaiQ Solution is very easy to use with limited training required.' Time to result is better than other commercially available instruments. Can I be an early adopter? And how quickly can I get one? These were consistent feedback that we received across the different sites and, frankly, in all my travels around the world. We can continue to expect CE Mark approval around year-end followed by commercial launch in Europe and rest of the world where CE Marking is accepted. Now, I would like to update you on the second MosaiQ modality, the serological disease screening microarrays. Firstly, the expanded SDS microarray, or serological disease screening microarray, development is on track, advancing rapidly and will include HIV-1, 2, group O and other sensitivities, hepatitis C, syphilis antibodies as well as hepatitis B surface antigen immunoassays, the core assays needed in blood screening. Our R&D team continues to drive optimization of the multiplex array, where we are serving 100% sensitivity and greater than 99.8 specificity with our anti-HIV and anti-HCV assays, meeting European Common Technical Specification requirements, CTS requirements as is commonly known. The anti-syphilis and surface antigen assays are progressing also very well as planned. This quarter, we refined our go-to-market strategy to accelerate commercial launch into the plasma fractionation market. We're in discussions with key customers in this field and will integrate, as indicated previously, a plasma site into our clinical performance evaluation, so we can then submit and launch ahead of schedule in the plasma market. Relative to our third MosaiQ modality, the infectious disease molecular screening. We continue to make progress in our assay and instrument development with internal and external partners. Shifting beyond development, our focus has also been on MosaiQ commercial execution. Our commercial and technical teams have been working on the qualification of the expected IH tenders or immunohematology tenders within the next two years. Of the approximately 25 tenders mentioned last time, we have six MosaiQ tender evaluations at five locations in progress. With the previously committed 12 MosaiQ evaluations, three have progressed this quarter and two more are still on track to take place by fiscal year-end. Regarding our rest of the world distribution strategy outside of Europe and the US, we have identified 57 distributors. Through our distribution network, we have validated an access to more than 100 qualified customer targets, which are in advanced stage to be closed in the next 12 to 18 months. We have received multiple MOUs with commitments from various distributors in various geographies. This quarter, our virtual presence at the AABB in 2021 conference was well received. As a corporate sponsored, we have received over 300 attendees, which visited our booth virtually, signifying an interest in Quotient solutions. Three scientific evaluations were showcased at the virtual conference, two on the MosaiQ COVID-19 antibody microarray and one on the MosaiQ serological disease microarray on the detection of antibodies to human cytomegalovirus and treponema pallidum. Additionally, we established the innovator circle, led by Dr. Christine Ginocchio, a series of performance and workflow studies within the innovator circle membership are planned to be initiated to demonstrate the impact of the MosaiQ Solution on laboratory workflow efficiencies. We are targeting four to five new site participants and members by fiscal year-end. This is a critical step for commercialization and building clinical and scientific value. I'd like to conclude our update on the MosaiQ Solution by providing you information on how we've leveraged MosaiQ power and flexibility by exploring opportunities in new market segments. Part of our strategy has been to develop and commercialize MosaiQ beyond transfusion diagnostics. This quarter, in clinical diagnostics, Quotient's new product research team demonstrated MosaiQ feasibility to detect serum in IgE specific to key food and environmental allergens, such as weed and birch tree allergens. This opportunity we represents the first step for the company towards providing advanced, automated, high throughput, multiplex solutions for clinical diagnostic specialties, such as the 2 billion allergy IBD market. At the same time, and as communicated at our Q1 earnings call press release, we're investigating the options in the autoimmune and transplant clinical diagnostic market segments. In biopharma and pharma, we are pleased to announce the collaboration between Quotient and Janssen. We are very pleased with this successful collaborative effort that demonstrated MosaiQ's ability to inform the development of vaccines and differentiate vaccine induced antibody positivity from antibodies due to natural infection. This continues to underline the power of MosaiQ multiplexing technology for broader IBD applications. Both our efforts into pharma/biopharma diagnostics and allergy diagnostics have progressed rapidly, underlining the power of the MosaiQ multiplexing technology for broader IBD applications in a very rapid way. Now, I'd like to update you on our second pillar, Alba by Quotient. We announced the expansion of the Alba by Quotient product portfolio. The expansion includes 13 new products on the way to address our customer needs. Our Alba above sales of $9.2 million exceeded guidance in the second quarter and continued to drive double-digit growth of 15.9%. We've demonstrated an impressive performance across the board, including 18.6% growth in the OEM business. Finally, our third pillar that I'd like to update you on is on Quotient's financial position. The successful amendment of our senior secured debt, reduced Quotient's near-term cash obligations by approximately $60 million. We negotiated the amendment of senior notes indenture, postponing the principal payments by 18 months, which significantly improved the timing of our future cash flows. Additionally, Quotient received a further $5.4 million payout in August and September related to the Credit Suisse Supply Chain Financial Funds. And now, I would like to hand over to Ali to provide guidance.

[Ali Kiboro:]

Thank you, Manuel. For fiscal year 2022, our guidance remains unchanged. We're expecting the full-year revenue forecast from product sales of our Alba by Quotient reagents in the range of $35.5 million to $36.5 million. No milestone payments related to other revenues are expected. For the third quarter of fiscal 2022, we expect sales of Alba by Quotient reagents of between $9.1 million and $9.7 million. We forecast capital expenditures in the range of $5 million to $10 million. With the acceleration of our MosaiQ field trials, we expect cash use in operations of approximately $6.5 million to $7 million per month. This amount does not include debt service costs and capital expenditures. No guidance is provided on operating loss. Before I hand it back to Manuel, I would like to thank Peter for his collaboration and onboarding over the last week, including his participation on this call. We will continue to transition over the next couple of weeks and then get up to speed on the business. And I look forward to meeting many of you in person or virtually. And with that, let me now turn the call back to Manuel.

[Manuel Méndez:]

Thank you, Ali. Looking forward now, I would like to share upcoming plans for the three key pillars as I mentioned a few moments ago, beginning with the MosaiQ Solution and transfusion pipeline. The expanded immunohematology microarray regulatory dossier is now under review with the notified body. Unless there any major questions raised by the notified body, we still expect approval around year-end, which is in line with our communication last quarter. The development of the US version of the expanded immunohematology microarray is approaching completion and the US field trials will start before year-end, with an expected FDA submission in the first quarter of calendar year 2022. Expanded immunohematology will require BLA for US and we therefore expect anticipated timeline of approval between 15 to 18 months depending on the agency. Regarding our second modality, the serological disease screening microarrays, the plan will be following. We will finalize the development of the remaining tests and start field trials in Q2 of calendar year 2022. The design of the field trials is progressing and the trials will cover both the expanded serological disease screening donor microarray as well as the plasma microarray, as I mentioned before. We expect to submit the CE Marking and FDA approval in Q3 of calendar year 2022. On the MosaiQ commercial execution, we will expand our customer base by providing them with insight on how to best leverage the MosaiQ Solution to help optimize their laboratories. We will continue to drive tenders and expand our distribution network. I will now conclude with MosaiQ Solution guidance by providing you with a view into our plans on new market segments. We will continue to explore opportunities in the allergy, autoimmune and HLA typing infectious disease and other clinical diagnostic specialties beyond transfusion market. Moving on to our second key pillar, Alba by Quotient, we will commercialize the new expanded Alba by Quotient menu to bring value to our current customers and OEM partners. We'll expand our geographical presence to drive our direct business. And then, finally, on our third and final key pillar, financial position. As we mentioned in the release earlier today, we're currently working through a technical non-cash accounting adjustment related to the historical treatment of debt, which will lead to a restatement of our last annual report 10-K form. The estimated impact is anticipated to be below 5% of net loss and total liabilities in each year presented in the fiscal year 2021 Form 10-K. We continue to reaffirm Quotient's previously provided guidance for full-year fiscal year 2022. In summary, we are on track to deliver on our key objectives. To conclude, Peter joined us over a year-and-a-half ago. And in that time, he has made a significant impact on the business and our company. On behalf of the whole Quotient family, thank you, Peter, for your valued contribution and support to help drive our company's strategic vision. Now, I would like to hand over to Hector to open the Q&A session. Thank you.

[Operator:]

. Our first question comes from line of Josh Jennings with Cowen.

[Joshua Jennings:]

Congratulations on submitting the complete dossier for CE Mark and congratulations to Ali and good luck to Peter in his next endeavor. I wanted to just ask about the final field trial test for expanded IH2 menu and just the antigen performance first. Just wanted to get a little bit more clarity on the comments on average, 99.5% or greater for most specificities. Were there some antigens that reached concordance levels that were lower than 99.5% or any more details you can share there? And then also, just the 20 individual specificities versus what we're expecting, a lower level. Any comments in terms of which antigens were included in this 20 specificities?

[Manuel Méndez:]

I'll start with the specificities. So, on the specificities, we were able, as we looked at the data from the clinical trials, to increase the number of specificities there. These are on the extended. So, we have the core, plus then now additional specificities that were in the extended view, which will allow us to further consolidate as we look at the way that customers are running those either manually or in an automated analyzer. So, we're very excited about that. In terms of performance, why we chose not to put the table, the typical table that you would expect that's been shown in the past, it's because the data that we have has been submitted to the regulatory body. And, again, it's not really good forum to be able to show this data, because, again, you submit the data, we analyze the data we submitted, and then there may be differences as they look at data in their reviews. So, we didn't want to put some data out there that potentially can have some change here and there. So, that's why we didn't share the data. But what I can say is that the performance that we saw on the specificities is consistent with one, what's required for customers and to pass regulatory agencies. Again, I don't want to get ahead of myself because that's the agency's job to be able to say that, but we are very confident with the performance that we've submitted and the performance expected from our customers. So, sorry, I can't give you more specifics on the specificities. But we are very pleased with the outcome. And the fact is that we ran 4,500 samples. So, that's just really great to be able to show performance of the MosaiQ Solution.

[Joshua Jennings:]

Just shifting over to the SDS 2, and you commented on HIV, HCV, hepatitis B and syphilis, are there any other tests that are going to be in that expanded menu besides those four?

[Manuel Méndez:]

In most laboratories today, and the donor labs, they run like HIV 1, 2, group O and others, maybe even M, and then you would run the surface antigen, you would run the HCV. And so, those are the main – and then syphilis. Those are the core. And then, we are also in development of HTLV, hepatitis B core, the CMV is part of that. And then, of course, there's others like Chagas which we have in development. What our intent is to be able then to launch with the core and then the extended will follow. I think that's key because it allows us to get to market much quickly, and then generate revenues much more quickly. So, the program has not changed, but we're trying to get us to market much quicker. That is the same menu that also we're going to use for the plasma market, which makes it very convenient for us to be able to do those two things in parallel.

[Joshua Jennings:]

Just one last follow-up on just the tenders and evaluations. Sounds like you're going to have five tender evaluations by the end of the year. And you've had, I think, six hybrid care sites, you've had some sites that have adopted MosaiQ for COVID-19 testing. Can you just help us understand the number of sites that have already had exposure to MosaiQ. either in one of those buckets, and just whether that represents the low hanging fruit for your early launches, those sites that have had these evaluation periods and potential to see how MosaiQ can integrate into their workflows?

[Manuel Méndez:]

Again, we have a cross geographical number of sites that have experienced the system. The idea is once those evaluations – and we added a third dimension, by the way. I mentioned the innovators circle – innovation circle, which also is going to add a different set of sites. Our intent with those is that, once those evaluations are complete, of course, we'll participate in some of the tenders and the intent is that those instruments stay there and not leave the sites. But, of course, in a tender process, we'll run through the process in due course. In the meantime, there's other customers that like the innovator circle, which are going to generate papers for us, whether they're related to workflow, consolidation of laboratories, whether it's related to performance and different elements associated with that. We'll continue to drive those and those, of course, are going to remain. But I think the focus is that we have these sites and we hope to continue to drive those. In the meantime, we'll have other elements of evaluations with the rest of the world, which we're very active in this area as well.

[Operator:]

Our next question comes from the line of Matt Sykes with Goldman Sachs.

[Matthew Sykes:]

I just wanted to maybe start out on some of the comments you made on new market segments for MosaiQ. You mentioned the release about clinical regarding the food and environmental allergens. Just want to see kind of what your thoughts are on that and potential timeframe. I know it seems probably far out, but just looking at some of the new market segments, just wondering how you see those evolving over time? Then on the biopharma partnerships, you mentioned the Janssen earlier this year. Just wondering if you're looking to potentially replicate that with other partners as you kind of start to continue to develop MosaiQ's capabilities.

[Manuel Méndez:]

Regarding the allergen/allergy business, I think this is an area where we're super pleased with the progress we've made in a very short period of time. So, one, we needed to make sure that, one, the capabilities of the MosaiQ can address this area and this opportunity. So what we've done is we have sort of pre-feasibility, if you will, because now we know that we can do it, the MosaiQ can do it, that we can do multiplexing. So, what you would expect is that we will continue to be making an acceleration in this area. We've also made some conversations with some key customers in the market that are highly interested to have this type of high throughput solution in their laboratories. So, we believe that, again, maybe some of these partnerships will become interesting for us going forward, as then we would maybe have some cool development and acceleration access to different samples, et cetera. So, we think that this is going to give us a good boost in order to accelerate, but we'll communicate more on that topic going forward, but we're pretty excited about that. And we've had some of those conversations ongoing. As per the pharma/biopharma, I think you alluded to the fact that – and I think it's correct. We know that the work we did with Janssen is a great one. It just validates the technology. It also validates the fact that we have the flexibility to be able then to play this area. So, we are looking to understand how then we replicate that with other players in the market, as well as then other potential projects within the Janssen and in Johnson & Johnson world and then, of course, other players as, as I mentioned before. So, yeah, this, we believe, represents additional opportunities for us to capitalize on the flexibility of the multiplexing and multi-modality of the MosaiQ. And then, in the future, this should help us generate additional revenue through those collaborations.

[Matthew Sykes:]

On Alba, you mentioned some product expansions that you're doing, assuming that's in kind of response to customer feedback, are there any type of additional development costs that would be incurred from that product expansionary? Are you able to kind of leverage what you currently have right now to be able to do that?

[Manuel Méndez:]

Great point. You know what, I think the beautiful thing is that we have a very good infrastructure we have in the Alba by Quotient business. I think the team is extremely efficient, and we have the capability. So, it doesn't require additional investments. And because we have a significant number of customers – between direct and indirect, we have more than 5,000 customers. Direct, we have all this insight. So, in speaking with customers, in getting some of that feedback, we've developed those products. We have the capabilities, we have the infrastructure. So, now that allows us to continue to grow in our direct business and also with our OEM partners. So, that's part of the strategy that we're trying to follow. So, no, it's the cost. We're looking at that very closely. We've discussed in the past. I don't know that I highlighted in my remarks, but regarding costs, we're also looking at all functional areas as I mentioned in the last earnings call. We're looking at optimizing the different investments that we have. And one of the thoughts you may have is, is the allergy investment incremental? Well, as you would expect, we just launched – ready to launch on an immunohematology. So we reallocate some of those expenses that we've been doing for immunohematology development into other areas. So, it doesn't also become incremental expense, right? So we're just trying to be smart about how we spend our dollars and how we allocate resources on the areas that are going to drive the growth.

[Matthew Sykes:]

Just one last question, if I may. I know in the past COVID has been a bit of an obstacle for you to run the field trials and you're clearly getting through that and timelines seem intact. I'm just wondering with the Delta variant in this past quarter, are you anticipating any potential delays or disruptions from that? Or is that baked into your current timeline?

[Manuel Méndez:]

No, we don't anticipate any impact from COVID. Frankly, our clinical trial sites were uninterrupted. I think that was one of the good things that we saw. So, we are not anticipating any impact in our timelines from COVID. We believe that – I'm maybe too optimistic, but those things – it sort of seems to be a little bit behind in most of the geographies we interact. And we think we will be able to follow through on the commitments we've made so far.

[Operator:]

Our next question comes from the line of Brandon Couillard with Jefferies.

[Unidentified Participant:]

This is Matt on for Brandon. First one, can you just confirm on the six MosaiQ tenders under review that you have under progress, are all these customers that were part of Hypercare? And then, any initial feedback – understanding, very early days – from these customers or updated thoughts on how you're thinking about timelines from initial tender evaluation to potential for commercial revenues to start to pull through a little bit?

[Manuel Méndez:]

The evaluation sites are not from the Hypercare. So, they're completely different. And what we will follow and expect is the same process that we've communicated in the past. The feedback that we have is the same that I receive everywhere, frankly speaking, which is how quickly can we get it, when do you get the CE Marking. So, I think that's more – because of the historical nature of where we've been in the past, I think people are just, okay, once you get the CE Marking, then we know that this is for real. But, yeah, the feedback is extremely positive from a user interface and logistics, everything else. So, I think the addition of Mohammad El Khoury, our new Chief Commercial Officer, has been amazing. He and the team have been going through all the tenders in great detail, the feedback in great detail and then using those to position our solutions, not just in in Europe, but rest of the world. So, that's why I shared that we have greater than 100 opportunities identified that are not necessarily tender driven, which we hope to capitalize once we get the CE Marking approval. So I think, again, from a commercial standpoint, I'm very encouraged and very pleased with the addition of Mohammad to the team and the type of focus is brought into the mix.

[Brandon Couillard:]

Sticking with the MosaiQ launch, what's your current view on the number of instruments available to place at customer sites as we move into 2022? And then, is STRATEC able to increase production capacity and have they signaled any component shortages, given some of the supply chain dynamics we're seeing out there?

[Manuel Méndez:]

That's a fair question. So, we're in constant communication with STRATEC. We have access to instruments in the short term. So, I don't think in the short term is an issue. We have access to greater than 60 instruments quickly, so I don't anticipate that being an issue. But, certainly, I would love to have a problem where I go back and tell them, hey, I need more. But I don't think it's an issue at this point we believe we can react quickly. They're very supportive. I think again we're going to be looking at those things very quickly. It's all going to depend how quickly we get their CE Mark. And we're monitoring very closely. So we have now greater than 60. But we can react very quickly to get additional ones if that comes to that point. And given the opportunity that we're looking at, we're monitoring this very closely.

[Operator:]

Our next question comes from the line of Sung Ji Nam with BTIG.

[Sung Ji Nam:]

So, maybe starting with the six tenders, would you be able to quantify what the total value of those six tenders might be in aggregate?

[Manuel Méndez:]

What we've said is, to represent about 60% of the European market, so the 25 tenders, which is about – the market is about $21 million in donations per year. So, in some way, it's just somewhere in the – what is it, Peter? Can you – it's about 60% of the $21 million. So, it's about $11 million to $13 million. This is just immunoassay. If you take an average price of $5, it could be $60 million to $65 million worth. And so, that just gives you an idea of more or less what the value is on just immunohematology. For Europe only.

[Sung Ji Nam:]

On the molecular assay side, should we anticipate any updates before the end of the year in terms of the progress you're making, the performance characteristics, et cetera, of that program underway?

[Manuel Méndez:]

We're looking into that. I think it's an area that we're very closely monitoring because we were trying to find ways on how we can accelerate this. We're in current conversations with external partners because I think, in this area, we don't want to reinvent the wheel for a couple things, like, probably extraction and amplification. These are very proven methods in the market. And we would like to be able to offer a complete solution. From a detection perspective, we have capabilities very clearly articulated, and that's in process. So, we do expect to give an update before year end with our plans where we're at and the progress we've made. But, again, I think in many ways, I think it's more understanding how do we accelerate it with the external partnerships? Because I think, again, we don't want to reinvent the wheel, like I said. So that's the idea here.

[Sung Ji Nam:]

Lastly for me, great to hear about the Janssen partnership. Would love to hear why Janssen may have chosen the MosaiQ platform for their serology testing versus some of the other serology platforms that are out there?

[Manuel Méndez:]

We're going to be publishing, we hope in the next – Dr. Ginocchio is going to take that on, a paper on this, white paper on this. So, I don't want to steal the thunder from that. But what I can say is that they evaluated different technologies out in the market, and they were very pleased with the flexibility of the MosaiQ platform, our ability to be able then to quickly develop an application that worked for them. And I think, again, this is a super important application, if you really think about it, because they want it to be able to differentiate natural infection from vaccine induced antibody presence. So, at the end of the day, the fact that – the MosaiQ was the most versatile for that. I think, again, we were very excited. So, we're in conversations with them on other things. And like I mentioned to Matt, this is an area that we're going to pursue and understand a little bit more on how can we become more relevant.

[Operator:]

Ladies and gentlemen, there are no further questions at this time. And I would like to turn the call back over to Mr. Manuel Méndez for closing remarks.

[Manuel Méndez:]

Thanks, Hector. Well, look, thanks, everyone. It's been, again, a hell of a quarter. We're super excited with the progress we've made. You heard the focus areas we have. I'm very excited and pleased with the new team members. So, we hope, again, to continue to bring the progress that we're making in the next quarter. But other than that, have a great day and thank you for joining.

[Operator:]

This concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.