Quotient Limited
Q4 2021 Earnings Call Transcript

Published: 1 Jun 2021

[Operator:]

Greetings. Welcome to Quotient Limited Fourth Quarter and Fiscal Year 2021 Financial Results Conference Call. Please note this conference is being recorded. I will now turn the conference over to Peter Buhler, Chief Financial Officer. Thank you. You may begin.

[Peter Buhler:]

Thank you, Cherry. Good morning, everyone and welcome to Quotient’s earnings conference call for our fourth quarter and fiscal year ended March 31, 2021. Joining me today is Manuel O. Mendez, Chief Executive Officer of Quotient. 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 U.S. Securities and Exchange Commission as well as in this morning’s release. 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.

[Manuel Mendez:]

Thanks, Peter and good morning, everyone. This is my first earnings call since I joined Quotient 60 days ago. Over the past couple of months, I have been meeting with investors, customers, internal associates both in-person and virtually in Switzerland, Europe and the U.S. These external and internal perspectives enabled me to develop our clear understanding of the company informed by many years of in the diagnostics and life science industries. When I reflect on the short time I have been here, I believe we are well-positioned for the future. I look forward to keeping you updated on the progress over the coming months and years. I would like to begin by providing you with an overview on the following three topics. First, the MosaiQ solution development and commercial readiness where I will inform you of the progress we have made on each of our transfusion modalities, immunohematology, serology and molecular. Next, I will provide you an Alba by Quotient full year and Q4 performance update. And lastly, I will provide you with an update on the company’s financial position. Regarding our MosaiQ solution and development progress to further strengthen the company’s R&D, tech transfer and overall MosaiQ development strategy, we have added a new member to the Quotient leadership team, Dr. Michael Hausmann. Michael will join as Chief Technology Officer in Q2 of this fiscal year. Most recently, Michael served as the Senior Director of Global R&D, Clinical Diagnostics division at Thermo Fisher Scientific. Michael brings over 20 years of experience in the in vitro diagnostics industry. And most recently, at Thermo Fisher Scientific, he expanded the adoption of BRAHMS procalcitonin in China and the U.S. Prior to Thermo Fisher, Michael led a team at bioMérieux to develop the VIDAS and VIDAS 3 assays. And while at Abbott, Michael developed an ex-U.S. Architect Infectious Disease portfolio for blood screening and diagnostics. We will benefit from his experience, specifically in assay and instrument development and across other functional areas such as manufacturing. I am extremely excited with Michael’s joining and I know he is going to make a big impact. During the last few weeks, I have had an opportunity to visit our customers in the U.S. and Europe and I was encouraged to hear our future MosaiQ customers are eagerly awaiting the commercial launch of our innovative system. One of our customers shared, the MosaiQ solution will improve our workflow and help solve the staffing shortages in our industry is facing today. I am confident the multimodal, multiplexing MosaiQ solution can help address lab complexity, staffing shortages, budget constraints, and for sure, the safety of the blood supply that our customers need. We look forward to collaborating with our customers to gain share in the $3.4 billion transfusion diagnostics market in the near future.

[Peter Buhler:]

Thank you, Manuel. Fiscal fourth quarter product sales were $9.6 million, an increase of 10.8% from last year’s fourth quarter. The increase in product sales was primarily attributable to Alba by Quotient revenues from OEM customers and to limited MosaiQ sales of COVID-19 antibody tests. In the quarter, OEM sales of $6.5 million grew 10.3% year-over-year and represents 67% of all product sales. The increase continues to be driven by better pricing and increased sales to existing customers. Direct and distributor sales of $2.9 million increased 1% year-over-year and represents 30% of product sales. Direct sales in the United States increased 10% year-over-year.

[Manuel Mendez:]

Thank you, Peter. Looking forward now, I first would like to share upcoming plans for the next three quarters in the same three topic areas I mentioned earlier. Firstly, the expanded IH microarray CE marking field trial just around the corner will start in June. U.S. field class will commence shortly thereafter, as I mentioned before. Instruments have been installed. Qualification visits have already been conducted. And during my recent travels with some of these accounts, they really confirmed the interest on that. So we are on track to submit to the regulatory agencies and expect to obtain CE marking around year-end. Upon approval, we will be qualified to participate in European tenders. As I previously stated, we expect around 25 tenders to become available in ‘22 and ‘23. Additionally, we have been working on the development of our patient microarray, which will leverage the learning and development from our expanded microarray. This is a key deliverable in our partnership with Ortho Clinical Diagnostics in the patient transfusion market. Regarding the serological disease screening, we continue to make progress with the realization of our expanded SDS solution. The disease targets of the antigen and antibody detections are progressing through the final stages of development and integration. Performance data on the antibody to date has met seven of the eight targets. And based on the de-risking activities in place, we are confident to achieve the required targets for analytical sensitivity and specificity within the stated time lines. Additionally, we have identified the sites for the required field trials, and the process for finalization of the clinical protocol is currently being reviewed by the IRBs. All activities are on target to begin field trials in parallel in Europe and the U.S. by year-end. Lastly, although we deprioritized the initial SDS 510(k) resubmission in the U.S. to focus on improving our expanded IH microarray, our teams have made great improvements on the SDS product for the U.S. in terms of performance to specific known concentrations and various clinical disease states. We will need to run additional clinical field trials and expect to submit to the FDA by year-end. As a reminder, we will commercialize the initial SDS microarray in the U.S. after we received the expanded IH microarray FDA approval. So our commercial launch for the initial SDS and immunohematology launch is on track. Regarding the MDS, or molecular disease screening, microarray, development is continuing with the full MDS menu. As I stated earlier, we have performance data on HIV1, HBV and HCV from the feasibility phase. And the team have identified the reagent pairs for detection for HIV2, HEV and West Nile virus. This is really great in terms of completing the target menu. Performance targets will focus on equivalency to Roche Cobas, and we will be updating you on this in the coming weeks. On commercial readiness, we look forward to the tender demo evaluations to support the customer experience. Additionally, our commercial teams have been utilizing both our Transfusion Advisory Board and a newly created IVD Advisory Board to drive product and partnership positioning and decision-making. These types of partnerships will allow us to draw on the skills and knowledge from external experts. Our Alba by Quotient team has conducted incremental assessment of products and are looking into new customer opportunities. Using that information, the team will begin implementing an action plan in the coming months. The other business started the process to extend the certificate to 2024, which includes renewals under the IBDD as well as the generation of additional data for the first batch of products that must be IVDR certified by May 2022. We expect to submit to the notified body in June of 2021. So Quotient will be ready to transition from IVDD to IVDR. Lastly, on our financial position, I would like to reiterate Peter’s points. I am very excited with our current financial flexibility, which provides us with the freedom to deliver on our plans and generate substantial value for our shareholders over time. To close, I’m extremely proud to be part of this Quotient team and look forward to partnering with our customers. Now I would like to hand it over to Cherry to open the Q&A session. Cherry?

[Operator:]

Thank you. Our first question is from Sung Ji Nam with BTIG. Please proceed.

[Sung Ji Nam:]

Hi. Thanks for taking the question. Maybe kicking off with the expanded IH array, it sounds that little bit like that the field trials in Europe have been delayed a little bit. And just was kind of curious, would you still be able to make the CE mark submission by the end of the year with this – the new time line? And also, was curious about what the time line for the FDA submission might be at this point.

[Manuel Mendez:]

Yes. Thank you for the question, Sung Ji. So there is no delays on the start of the clinicals. We have always planned to start them in June for the CE marking. So that’s on track. And so, we don’t anticipate any delays in terms of some completion of the clinical trials, submission to the CE marking agency or body and then the obtention of the approval. So there is no changes there. That has been anticipated previously. And then as far as the U.S. clinical trials, they remain on track to start in the August timeframe. And we expect to submit by year-end, and then from there, obtain the – do the necessary exchange with the agency, with the FDA to get proper approval.

[Sung Ji Nam:]

Thank you. Thank you for that. And then could you kind of talk about the environment currently from the pandemic? Obviously, there is some delays just from your targets a few quarters ago given the pandemic worldwide. And I was just kind of curious in terms of what you’re baking in as far as potential risks associated with it. If you anticipate – obviously, you’re making a lot of progress, but I was curious what’s kind of going on in Europe versus the U.S. as far as opening up of the laboratories, etcetera, in relation to the pandemic?

[Manuel Mendez:]

Yes. Thank you for the question. So regarding the pandemic, I think good news is that there are different governments and countries are opening up. The – we see great openings here, particularly in Switzerland, where we have, as you know, R&D and a big presence here. So many people are being vaccinated. The government has really taken a lot of steps. We’re also doing vaccination efforts for our teams, which then helps us to have a lot of flexibility. Actually, starting yesterday, now the government has said that people don’t have to work from home. Before, previously, they were required to work from home for the most part. So that has been lifted, which gives us a lot of flexibility in terms of making sure that, one, we can bring the necessary teams on to the site as well as then making sure that there is – that we have a safe environment – in the working environment here. So we’re taking all the measures necessary to be able to bring people back fully and then continue the engagement across that. So that’s specifically to Switzerland. As you’ve seen, in the different countries, the UK has been going back and forth. There is – with the recent variants, I think that has created some challenges where they have gone back from amber to red in some – by some countries. And so we’re managing through that process. But for the most part, we do anticipate, again, that our clinical trials which are in different countries will be able to proceed. We don’t anticipate the COVID pandemic situation to put any limitations on that in the near future. So I think that’s overall good news for all of us. Peter, I don’t know if you want to add anything?

[Peter Buhler:]

No. I think like you said, we will now be able to progressively bring people back on site.

[Manuel Mendez:]

Yes, yes. Okay, great. Thank you.

[Sung Ji Nam:]

Great. Fantastic. And then lastly for me, just curious about the plasma diagnostics market, kind of what the addressable market potential there is. And any progress you’re making in terms of developing products for that segment? Thank you very much.

[Manuel Mendez:]

Yes. So – that’s a great question. Thank you for asking. So we – one of the things that I’ve identified in a very short-term as since I’ve been here is that we definitely have an opportunity to collaborate with different plasma partners, and we’re exploring that market size very – that opportunity. Peter, you have the number. I think it’s like almost…

[Peter Buhler:]

We – actually, $1 million. About 7 – $750 million roughly market size, total market. And it’s primarily U.S. centric.

[Manuel Mendez:]

Yes, U.S. centric. So we will be exploring some of these. One of the things that we discussed internally is, can we leverage some of the clinical trial sites that we’re using and that we’re doing to accelerate the introduction in a plasma setting? So that’s something the teams are evaluating to see. So then, therefore, it allows us to get quicker approvals, plus, also leverage the infrastructure that we’re going to have on these sites to decrease our cost in being able to do some of those clinical trials. So I think it’s a win-win for everybody and as we go and try to target opportunities in this area as well.

[Sung Ji Nam:]

Fantastic. Thank you so much.

[Manuel Mendez:]

Thank you.

[Operator:]

Our next question is from Josh Jennings with Cowen and Company. Please proceed.

[Josh Jennings:]

Hi. Thanks Manuel and Peter, congratulations on the progress and bringing Dr. Hausmann on to the team. A follow-up question on the IH2 progress, it sounds like the optimization of some of the antigen tests went well. Can you just remind us – I mean, you guys didn’t release formal internal V&V test results. You gave some metrics on the call, Manuel, and they seem to be very successful. But the gist of my question is, were there any antigens added? And is that V&V testing going to be made public before the new field trials?

[Manuel Mendez:]

Yes. So look, I think to your point, we have been very pleased with the progress on the menu, what’s been included in the menu. We haven’t shared this data. We are looking at the different incremental testing internally. And then once we start on the clinical trial sites, then we will be able to share some of this information in the future. At this point, again, while we are gearing up to the clinical trials, we are not planning to release any data yet. But certainly, we will be looking forward to a successful outcome on the clinical trials and then sharing some of this information in the future. But what I can tell you is, we are very pleased with the results, as I mentioned. The team has done a really great job in not only address the basic menu, but the extended, which is key as we compare against other providers in the market, which makes us, again, really, really excited with the prospect in conversation with the customers the positioning of our solution. But Peter, I don’t know if – anything you want to add?

[Peter Buhler:]

No. I think we – I mean our focus was really to improve the tests that were below the 99%. And I think, as Manuel said, we were successful on that. And now we are going into field trials. And I think that’s what counts at the end from the field trials.

[Josh Jennings:]

Excellent. Thanks. And just on the U.S. field trial front for IH2, can you share how many sites will be running tests? And just remind us, and how long do you expect it to take to run those field trial results and then get the results and make those public?

[Manuel Mendez:]

Yes. So the – normally, we have selected 3 sites. As I mentioned on a previous question, on plasma, we may add a fourth site just because we may – we want to have that as part of the clinical trials. Normally, it would be about 6 weeks to complete it. You may think to yourself, well, that’s a bit long. But it’s because we are actually comparing different methodologies where some of the – are automated and some require manual intervention, particularly if you look at this cord and samples, it requires manual testing. So, that’s what’s sort of extending that. But what the team normally will do is then analyze the data. And once the data is completed, is submitted, then we need to assess how – if this data can be shared publicly, or again, if it’s solely for the purpose of the submission. Sometimes, there is some sensitivities there. So, we will assess that based in discussions with our regulatory teams. And then if something we can share, certainly, we will do that as soon as possible. But again, if we go back, we will do the same thing on the CE marking, where the submission is expected shortly after clinical trials are completed in Q3. So, we are excited to see the – and wait for the outcome of that submission.

[Josh Jennings:]

Great. And the question on commercialization in Europe, once CE Mark is in hand, great update, 25 potential tenders and 12 – conducting valuations at minimum of 12 sites by fiscal Q1. I was just hoping to understand better just the – it sounds like you will get a CE Mark. You will start to have these evaluations conducted at the centers, and the tender process will be going on in parallel. But maybe just to help us understand this evaluation process. And how that – the time it could take for the evaluation, kind of testing and integrating into workflows, and then actually signing, getting an install and starting to generate revenue from those MosaiQ installs in Europe.

[Manuel Mendez:]

Yes. So, the – that’s a great question. Thanks, Josh. So, out of the 25 tenders that we are evaluating, not every tender requires an evaluation or a demo, right. So, that’s one thing. So, the second piece is that those that would like to have an evaluation, and we have been very successful in influencing that or – they require evaluation, that’s part of the tender process. So, it’s not something necessarily that we control in terms of timing. So, we will have to adhere to the timing of the tender. It depends on how many samples they are going to run, the experience from a customer interface. Sometimes, it takes a week. Sometimes, it takes a couple of weeks as they do their process. Now our intent is that once an evaluation is done or a demo is done, that can turn into a revenue instrument for – of course. So, in working with the commercial teams, we are keeping this in mind, which is – and we have very successful experience. Once customers experience the MosaiQ, because of the easier use, because of the capabilities that the instrument has, they – it’s like running a – taking a car for a spin. They want to keep it. They don’t want to give it back. So, that’s our intent in these evaluations, in the demos as well. Again, we need to abide by the tender process and what they go through. So, I can’t really comment on timing. But certainly, our intent is to be able to do whatever is in our power to accelerate that process and then ensure that there is an immediate adoption following that.

[Josh Jennings:]

Great. And just a follow-up, just in terms of the historic hypercare sites where MosaiQ systems were placed and evaluation work may have already been done. Are those sites, should we be considering them kind of sites that have already had this evaluation period and completed and are ripe as potential new customers earlier than some of these other 12 and understand that other customers won’t need an evaluation process within the...?

[Manuel Mendez:]

Yes, that’s exactly right. I mean – yes, Josh. So, we are looking at those, again, the – whether we are hyper sites or sites that also happen to have had the experience with the COVID or COVID solution with the MosaiQ. I can tell you, I went to visit a customer that was in that this past week. And they were super pleased with the progress that have been made, with the advancements that were achieved, not just on the performance of the assays, but also on the potential of the workflow value that they see. I mean I went to this, there is 1 customer who had laboratories on 3 different floors. Well, when you introduce the MosaiQ, that’s going to be 2 MosaiQs in one room. So, I think they start to believe and see the value of our solution. And frankly, I can’t tell you so many times, they are like, okay, when is this product coming? Can you come to market because I think we will create good value. So again, that’s what we are focusing on, whether it’s through the evaluation, whether through the tender process, through the hypercare sites, those are all within the scope for our team.

[Josh Jennings:]

Excellent. And just last follow-up on this topic. Thinking about the MosaiQ placements for COVID testing, thinking about the clinical field trial sites in Europe, thinking about the hypercare sites, I mean we should think about 10 blood centers or more that have had direct experience with MosaiQ, the workflow and just the system prior to this launch. Is that the right way to think about it?

[Manuel Mendez:]

Yes. I would say that’s a fair number. I don’t know, Peter, do you have any comments?

[Peter Buhler:]

Yes. I would say that’s roughly right. Yes. As you said, between the field trials, hypercare, then we have COVID sites, yes, that’s a 15, 10 to 15 probably yes.

[Josh Jennings:]

Great. Thanks gentlemen for taking the questions.

[Manuel Mendez:]

Thanks Josh.

[Operator:]

Our next question is from Brandon Couillard with Jefferies. Please proceed.

[Brandon Couillard:]

Hi. Thanks. Good morning. Since you sort of started with this at the top and with respect to Dr. Hausmann’s hiring, given MosaiQ is in late-stage development, right, and about to be commercialized, why is now kind of the right time to bring someone of expertise into this CTO role? Is it really in terms of how you are thinking about the pipeline and molecular that he will be in charge of? Just curious as to what exactly he will play near-term?

[Manuel Mendez:]

Well, I think, look, what we are planning is definitely to make a big impact in terms of what we have in front of us, which is the transfusion. He has extensive experience in blood screening before – previously. And I think he still can make a significant contribution to help accelerate the molecular piece of it and some of the characterization that we are doing there. And then, also on the serological side, I think we are – we have made great advancements, but at the same time, bringing a set of eyes with a great experience that have seen the movie before and been involved in launches in this nature also serves to support the team in different areas to ensure that we have the expertise internally to be able to take us to the next level. And then also in anticipation for us to look at what’s beyond transfusion, I mean it’s a bit early for us to focus on that. But I think it’s important as we are designing, developing tests and assays, that we have this – as part of our focus. And so I think bringing Michael at this time is going to help in this as well. So, whether it’s for the current menu or for future menu, I think he brings a lot of that experience and maturity for our team to then deliver in a more effective structured way.

[Brandon Couillard:]

Got it. Okay. Earlier, J.J. asked about V&V data for the IH menu. I am curious as to the timing of V&V data that you plan to release for the Expanded SDS 2.0 microarray. Will we see that prior to you starting concurrent field studies in Europe and the U.S. later this year?

[Manuel Mendez:]

Look, I can’t answer that now. I think, again, to be honest, I even participate in the core team meetings myself, and we are still in conversations around that. I think – I mean, I don’t have a specific answer. It certainly would be our intent to share in the next weeks and months on the progress we have made on this – in this area. So it’s something that, certainly, we can consider, but it’s not something that we have decided at this time. But I can understand how sharing some of these data will help on people understand the progress we have made and the effectiveness of our solution for sure.

[Brandon Couillard:]

Got it. Okay. And then last one for Peter, could you just quantify the magnitude of net pricing in the Alba reagents business, both for last year, for fiscal ‘21? And what’s embedded in the guidance for ‘22?

[Peter Buhler:]

Net pricing was your question, Brandon?

[Brandon Couillard:]

That’s right.

[Peter Buhler:]

Okay. Yes. Well, so the pricing is really very different depending on the products, right? So, it’s a pretty wide range. Now when it comes to the guidance for last year, there is a price decrease built into the contract of one of our very large customers. And that is baked into this guidance, which is why we anticipate to be the year-over-year growth for FY ‘22 to be a little lower than what we saw and maybe in the previous years. So, that’s how we keep back front of your question. And giving – given the average pricing is difficult because of the broad range depending on the product.

[Brandon Couillard:]

Excellent, great. Thank you.

[Operator:]

We have reached the end of our question-and-answer section. I would like to turn the conference back over to management for closing remarks.

[Manuel Mendez:]

Well, I want to thank everyone for joining us today on this call, and we look forward to updating you on the progress on the next quarterly earnings call. I really appreciate the questions and the open dialogue. And again, we look forward to speaking to you soon. So have a nice day, and thank you.

[Operator:]

Thank you. This does conclude today’s conference. You may disconnect your lines at this time. And thank you for your participation.