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GenMark Diagnostics Inc (NASDAQ:GNMK)
Q3 2020 Earnings Call
Oct 28, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. And welcome to today's conference call to discuss GenMark Diagnostics Third Quarter 2020 Financial Results. My name is Faith and I will be your operator on this call. After the presentation, we will conduct question-and-answer session. [Operator Instructions]. Please note that this call is being recorded today, Wednesday, October 28, 2020 at 1:30 PM Pacific Time and that will be available on the Investors section of GenMark's website at www.genmarkdx.com.

I would now like to turn the meeting over to Leigh Salvo of Gilmartin Group.

Leigh Salvo -- Investor Relations

Thank you, Faith. And thank you all very much for joining us today. Before we begin, I would like to inform you that certain statements made by GenMark during the course of this call may constitute forward-looking statements. Any statement about our expectations, beliefs, plans, objectives, assumptions or future events or performance are forward-looking statements. For example, statements concerning our 2020 financial and operational guidance, the development, regulatory clearance, commercialization and features of new product, plans and objectives of management and market trends are all forward-looking statements.

We believe these statements are based on reasonable assumptions. However, these statements are not guarantees of performance and involve known and unknown risks and uncertainties that may cause the actual results to be materially different from any future result expressed or implied in such statements. Important factors which could cause actual results to differ materially from those in these forward-looking statements are detailed in GenMark's filings with the SEC. GenMark assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events.

I'd now like to turn the conference call over to Scott Mendel, President and CEO of GenMark. Scott?

Scott Mendel -- President and Chief Executive Officer

Thank you, Leigh. Good afternoon, everybody. And thank you all for joining us. I'm joined on the call today by Johnny Ek, our CFO.

Today I'll start the call by discussing the COVID-19 impact on our industry and the positive long-term impact for GenMark. I'll then review our recent performance and thoughts on the remainder of 2020 and beyond. And then Johnny will provide a deeper review of our recent financial performance. And we'll finish up with Q&A.

Undoubtedly, 2020 has been an extraordinary year on many fronts and the COVID-19 pandemic has changed everything. From an industry perspective, diagnostics has been thrust into the spotlight. These days, everyone's talking about diagnostic testing from the national news to conversations with our family and friends.

From a customer perspective, small community hospitals to large health networks are all investing in new testing platforms that enable better patient outcomes through rapid diagnosis.

Syndromic panels, like ePlex, can provide the highest clinical value, especially for critically ill patients where it's crucial to determine if SARS-CoV-2 or some other bug is causing their illness.

And finally, from a supplier perspective, the urgent need for COVID-19 diagnostic testing has sparked many new entrants into this space. But it's very important to break down testing by type, meaning antigen versus molecular versus antibody. And within molecular, low plex versus multiplex for syndromic.

I'll take a minute to quickly frame up these different test categories and their typical use case. Antigen tests are primarily being used for testing on asymptomatic or lower risk symptomatic patients. Antigen tests are often used in screening scenarios, such as universities or nursing homes.

Antibody tests can be used to determine if a patient has been previously exposed to SARS-CoV-2 by looking for the immune system's response to a previous infection, and thus not a preferred approach for diagnosing active infection. For patient diagnosis, the gold standard is PCR for molecular tests. Our ePlex platform is a syndromic molecular solution that can detect the presence of many targets, often 20 or more from a single patient sample. EPlex's value proposition is built upon delivering rapid and actionable results for the most critically ill patients.

An easy way to think about when a syndromic molecular test would be used is this. Syndromic tests are used in a hospital setting to address critically ill patients. If you drove yourself to a parking lot or to your local pharmacy to get a COVID test, it's highly unlikely you're being tested with a rapid molecular test like ePlex. I spent time laying out the different types of tests because it's important to understand that ePlex is well positioned in the highest clinical value segments within the diagnostic testing spectrum. This understanding provides the foundation for appreciating the highly visible and recurring nature of our consumable revenue.

I think the following quote Dr. Greg Berry, Director of Molecular Diagnostics at Northwell Health, which utilizes the ePlex RP2 panel best sums up the extraordinary value that syndromic molecular tests deliver to customers and their patients.

Dr. Berry said that, "testing for upper respiratory infections using larger panels is essential, especially during flu season. It's very challenging based on symptoms to narrow down the cause. It's a big step in the right direction to be able to identify a pathogen without going on a fishing expedition. It helps us pick the right treatment and make the most appropriate bed management decisions, including who needs to be put on special precautions and isolation measures."

This value proposition is what drives adoption of syndromic panels independent of the COVID-19 pandemic. Now that I've highlighted how and where ePlex is used, let's turn to the supply side of the equation. Several research reports are published in capacity details by vendor and type of test. Utilizing these reports, we estimate that the capacity for sample-to-answer syndromic test continues to be less than demand. And this is consistent with what we are hearing directly from our customers.

Narrowing in on what this means for GenMark, COVID-19 has accelerated the adoption of our ePlex platform well ahead of our pre-pandemic expectations. This rapid increase in ePlex placements at customer sites, combined with multi-year contracts that include committed purchase volumes, has created an enduring and predictable revenue stream.

And here's what it means in easy to understand metrics. This year, we have secured over 115 new GenMark customers and increased our ePlex installed base by 195 analyzers through the third quarter.

Earlier in the year, many ePlex placements were only utilizing our COVID-19 test. But I'm very pleased to report that approximately 95% of year-to-date placements have now signed multi-year agreements with committed volumes for RP2 and/or BCID. The transition from ePlex COVID-19 to the RP2 accelerated through the third quarter as planned, and we expect fourth quarter revenue from our COVID-19 test of only a few hundred thousand dollars.

Beyond respiratory testing, we are continuing to drive the adoption of our BCID panels, albeit at a slightly lower rate than originally planned as resources shifted toward supporting COVID-19 initiatives. We are encouraged by the implementations completed thus far and the growing number of customers contracting for BCID adoption. In fact, more than 40% of 2020 year-to-date placements include BCID. Our turf teams are working closely with our customers to plan and complete those implementations.

I will conclude my commentary on top line growth with a look forward to 2021. With multi-year contracts and committed volumes, we have secured a highly visible and predictable revenue base. In simple terms, we are tracking to exit 2020 with an ePlex installed base of approximately 775 at the high end of our guidance range. Applying an annuity per placement in the range of $175,000 to $190,000 to this installed base results in ePlex consumable revenue between $135 million to nearly $150 million next year, which represents ePlex consumable revenue growth of 12.5% to 25% versus 2020.

On top of this highly visible ePlex base revenue, we expect additional ePlex placements and the associated capital and consumable revenue, as well as consumable revenue from our legacy XT-8 installed base. Given these building blocks, we are well positioned to drive overall revenue growth in 2021 even though 2020 was an extraordinary year, driven by the COVID-19 pandemic.

We expect to provide 2021 guidance on our fourth quarter earnings call per typical practice. But our focus on driving enduring and recurring revenue streams has resulted in a strong and highly visible revenue foundation. Moving on to the manufacturing front, we remain committed to exiting 2020 with ePlex gross margins of approximately 40%, in line with our prior communications. While we have been prioritizing ePlex capacity to sway our customers, the teams have been able to implement direct material savings and drive increased volumes to remain on track to achieve our 2020 gross margin goals.

And at the same time, we're also on track to increase our ePlex manufacturing capacity. We completed the construction phase for our fourth and fifth manufacturing lines in early October, which is an amazing result, given we began construction on this new 73,000 square foot facility in July. The teams are on track to complete the setup and validation of the equipment to enable production later this quarter on the fourth line, with plans to complete the fifth line for the first quarter of 2021.

Given our commercial success and the visibility we have for future demand, last week, we formally approved our plans for the sixth ePlex consumable line. We anticipate our teams will transition to this effort as soon as they're finished with line five, thereby providing additional capacity in the second half of 2021.

Additional manufacturing capacity is also a key component in delivering future ePlex menu. Our pivot to COVID-19 and then to RP2, as well as the rapid increase in commercial demand had to be balanced with menu expansion. While we've experienced some delay in our GI development timeline versus our initial 2020 plans, we have recently increased the size of our assay development team to leverage the increasing capacity, with a focus on completing GI development as well as other panels. We expect to have a better assessment of GI launch timelines shortly and we'll communicate more details on future calls.

I covered a lot of topics today and I want to leave you with three key highlights. First, ePlex is a sample-to-answer syndromic solution that delivers high value to critically ill patients. While the COVID-19 pandemic accelerated our ePlex installed base, we are not a COVID-19 testing company.

Second, sample-to-answer syndromic test continue to experience demand in excess of supply and, therefore, we are investing in multiple manufacturing lines to address the expanding market opportunity. And third, by executing multi-year contracts with committed volumes, our visibility to predictable and recurring revenue streams continues to increase.

With that, I'll turn the call over to Johnny for a deeper review of our third quarter financial results.

Johnny Ek -- Chief Financial Officer

Thank you, Scott. In the third quarter of 2020, our commercial team placed 70 net new ePlex analyzers, taking our total ePlex placements to 722 as of September 30, 2020.

Total revenue was $42.6 million, an increase of 104% in the third quarter versus 2019. And on a year-to-date basis, total revenue has increased by 100%.EPlex revenue grew by 187% versus the third quarter of 2019 and 163% on a year-to-date basis. Sales to US customers continued to represent the vast majority of our revenue.

Average annuity per ePlex placement for the quarter was $193,000, an increase of 82% over the third quarter of 2019. Third quarter gross profit was $16.5 million for a gross margin of 39% of revenue versus $7 million or 34% of revenue in the third quarter of 2019, representing an increase in gross profit contribution of $9.5 million or 5 % points. The continued gross margin improvement results from driving down material costs as we minimize scrap, improve total yield as well as source materials from alternate vendors.

We are maximizing our direct labor efficiencies through continuous training and process audits. The production of a record number of consumable units has also driven strong overhead absorption. We remain on track to achieve our goal of 60% gross margin over the next two to three years.

Total operating expenses were $17.8 million for the quarter, representing an increase of $471,000 compared to the third quarter of 2019. The majority of the increase was driven by investments in R&D. Our net loss per share for the third quarter of 2020 was $0.05, representing an improvement of $0.15 from the third quarter of 2019.

Moving to the balance sheet, we ended the quarter with $137.3 million in cash and investments, an increase of $4.5 million over the second quarter of 2020. We invested more than $6 million expanding our manufacturing facilities during the current quarter.

The increase in operating cash in the current quarter came in part from a $1.5 million decrease in net loss compared to the second quarter, driven by revenue and gross margin growth with stable operating expenditures. Changes in working capital drove the remaining increases in cash. The third quarter of 2020 represents the second consecutive cash flow positive quarter for GenMark and gives us confidence in our ability to fund our continued growth through operations.

Turning to the remainder of 2020, we are increasing our revenue guidance range to $165 million to $168 million for the full year. This updated revenue guidance reflects our visibility to recurring revenue coming from our system placements to date and the corresponding consumable purchase commitments.

We are maintaining our ePlex system placement guidance range of 230 to 250 net new analyzers as well as our average annuity per analyzer range of $175,000 and $200,000, but expect to deliver at the upper end of those ranges. We anticipate full year 2020 gross margins to be in the upper end of the previously stated range of 38% to 40%, and in line with our plans to achieve our gross margin goal of 60% by the end of 2022.

We expect operating expenses to come in at the top end of our range of $70 million to $75 million for the year. We continue to expect cash usage, excluding any impact from financing activities, to be approximately $10 million to $15 million. This guidance includes approximately $10 million to $15 million of investment undertaken to increase manufacturing capacity in our new facility. The strong operational results have improved our cash flows from operating activities for the year to approximately breakeven and will assist in funding this manufacturing capacity expansion to support our continued growth.

This concludes our prepared remarks. So, at this time, Scott and I would like to open the call for your questions.

Questions and Answers:

Operator

[Operator Instructions]. First question is from Doug Schenkel from Cowen.

Ryan Blicker -- Cowen and Company -- Analyst

This is Ryan on for Doug. Thanks for thanks for taking my questions. And thank you for all the detail in your prepared remarks. Maybe just starting with a near term one. So, the high end of your guidance for placements for the full year will still imply about a placements during the fourth quarter versus Q3. Have you seen any deceleration in placement momentum thus far in Q4? Or are you baking in some conservatism given what we normally see in Q4 with the flu season?

Scott Mendel -- President and Chief Executive Officer

It's Scott. We are continuing to see very strong demand from our customers for additional placements. If you remember, one of the things we're being very thoughtful about is pacing that growth with our consumable capacity. We want to make sure we take care of our customers and don't create a negative experience. So, what's really governing our guidance for placements in the fourth quarter is that consumable capacity. It's why we're so focused on bringing up the fourth line and then the fifth line. And as I mentioned, even the sixth line has now been approved.

Ryan Blicker -- Cowen and Company -- Analyst

And then, if I could ask a longer-term BCID question. Really encouraging update on that front. Can you give us a sense of how meaningful you expect BCID to be to your growth in 2021? And then longer term, is this a $50 million annual revenue test category for GenMark over the next three years or so?

Scott Mendel -- President and Chief Executive Officer

From a BCID perspective, thinking a little bit more near term, we do believe BCID will be a very strong variable in our 2021 growth, especially as it relates to placements, as well as revenue associated with those placements. As far as what it could get to over time, Ryan, I think that sounds like something that would be achievable. We think about where we want to go with BCID in terms of how much of our installed base do we expect to adopt BCD because, remember, that's a very valuable asset for the company as we have 722 systems out there and adding to it every quarter. We want to make sure that those customers are utilizing not just respiratory, but respiratory BCID as well as future panels. We would like to see that number be well north of 50% over the longer term that are adopting multiple panels.

Ryan Blicker -- Cowen and Company -- Analyst

And then, if I could sneak one more in. Really exciting to hear about you accelerating investments in menu expansion. Acknowledging you don't want to give exact GI timelines, can you talk a little bit about how you think about how long it will take for GenMark to close the gap versus your largest competitor from a menu breadth perspective? And ultimately, looking out to two or so years, how many panels do you think you could be launching per year with these increased investments? Thank you.

Scott Mendel -- President and Chief Executive Officer

From a GI perspective, we're not getting exact timelines, but I would just characterize it as we've experienced somewhere in the six to nine-month delay, and that correlates to the amount of time we've been focused on COVID and RP2, as well as satisfying commercial demand. And that's why I mentioned we brought on some additional resources already in the third quarter and are continuing to bring on even more in the fourth quarter, so that as we have access to capacity, we can start to accelerate that timeline.

As we move through the fourth quarter, I'll have a better idea of the progress that the team is making on GI and I'll provide an update coming up on future calls about what we think the timing is on that, if we made up any time or not.

As far as number of panels, I think we do have a great opportunity to start to catch up. As we now have the cash flow to fund investment in capacity, we can now spool up more teams and, ideally, you'd like to see us get one panel at least a year, if not one to two out on a go forward basis.

Operator

Your next question is from Brian Weinstein from William Blair.

Brian Weinstein -- William Blair -- Analyst

I know you talked about the fourth, fifth and sixth line, but can you just restate because I don't think I heard it on the call, I just want to make sure everybody's clear, restate what those capacity numbers are today, what each one of those lines will add, just so that we're all on the same page here?

Scott Mendel -- President and Chief Executive Officer

As we exited the third quarter, our teams achieved in excess of 120,000 units per month just on the first three lines. So, as the fourth line comes up here in the fourth quarter, we expect to exit in that, call it, 150,000 to 175,000 units per month capacity. That'll step up in the 200,000 range, a little bit more than 200,000 in the first quarter. And then as we begin sixth line, that should put us about at a quarter million per month. And Brian, that's amazing if you think about we were excited that that we ended the first quarter of this year at about 100,000. So, we have considerably wrung out even more units on the existing lines and then investing with the additional three. We're more than doubling our capacity within a year timeframe. So, that's pretty remarkable.

Brian Weinstein -- William Blair -- Analyst

If you had any issues with scaling, run into any hurdles? As I think about you guys continuing to try and get to those numbers, what are the things that you're looking out for to make sure that there's no issues?

Scott Mendel -- President and Chief Executive Officer

The first milestone that we wanted to make sure was that the actual facility got built out, we had to have all of the environmental controls, the cleanroom setup, and that's what I mentioned in my prepared remarks that we were able to do that within three month timeframe, which is really heroic. And so, that facility is fully built out that can house the fourth and fifth lines, and then eventually the sixth line and beyond. So, that was the first milestone. And so, that landing on time was really important.

The second piece is then all the equipment arriving and being set up and validated inside the cleanroom. And that's going very well. That was one of the areas that was the biggest risk because we have the least amount of control over if a certain piece of equipment would have been delayed or not. And I'm happy to report that while we've experienced a little bit here or there, we had enough buffer built into our timeline that we are still able to hit our ultimate goal of getting that line live here in the fourth quarter.

So, those are the two big pieces. One was getting the room ready. We did that successfully. And then two was landing the equipment on time. And that's going pretty well. And we're still on track.

Brian Weinstein -- William Blair -- Analyst

And then, Johnny, for you. I want to make sure that we've got this right. You said 60% gross margins. Obviously, that's the long-term goal. You talk two to three years. But just want to make sure I heard you say by the end of 2022 or exiting 2022 at a 60% gross margin. Did I hear that right?

Johnny Ek -- Chief Financial Officer

That's what we're shooting for exit for, is that we'll 2022 in that 60% range.

Brian Weinstein -- William Blair -- Analyst

So, should we think about going from about 40% at the end of 2020 and getting to 60% at the end of 2022? Should we think about next year being sort of at the midpoint there? Or are there some step ups that take place more in 2022, so that it's not quite ratable between now and then?

Johnny Ek -- Chief Financial Officer

It'll be pretty ratable through 2022. Certainly, as you've said, that's sort of that midpoint exiting next year. Sort of that midpoint, we'll get ratably there, and then get there by the end of 2022.

Operator

Your next question is from Max Masucci from Canaccord Genuity.

Max Masucci -- Canaccord Genuity -- Analyst

A great quarter. So, I'm just going to start with a big picture question here. Can you just give us a sense for how the RP2 panels being received by customers that may have been less convinced of the utility of multiplex panels in the past? Do you think that you now have more believers in the utility of multiplex panels versus single target panels compared to, say, 11 months ago?

Scott Mendel -- President and Chief Executive Officer

Yeah, I'll give two pieces of data that support that statement. We do agree with that, that there are certainly a lot more believers to use your words in syndromic panels. First, I'll address the transition to RP2. It's actually gone better than what we had expected, which is why we were able to announce end-of-lifing the COVID-only tests by the end of October here. And the numbers that I quoted really illustrate that. As I said, 90 plus percent of the placements year-to-date have already transitioned and signed up for multi-year contracts for RP2 and our BCID. So, Max, we feel really good about that. Remember, a lot of our placements early in the year were driven by COVID only tests. So that's a testament and a data point that highlights people are understanding the value that syndromic tests bring just based on that conversion rate.

And the second data point, which I think is actually as interesting is, when we look at our placement experience thus far, one of the most surprising and encouraging things is the fact that about 50% of our placements are going to customers that are new to syndromic, which is really remarkable. It's something we didn't expect. And I think that is driven by the awareness of the diagnostic tools that are out there, including syndromic tools. The pandemic certainly helped encourage some of those folks to kind of get across the finish line and maybe they were doing send out and they're bringing it in house. So, that's the second data point that I would point to that says, a lot of folks out there, a lot of customers are really understanding the value of syndromic and we've seen a big increase. So again, about 50% of our placements were new to syndromic testing.

Max Masucci -- Canaccord Genuity -- Analyst

And the COVID-19 testing numbers generally continue to increase week over week. But can you just speak with a bit more granularity to some of the unique demand trends that you're seeing in the hospital lab channel and how these may contrast from the COVID-19 testing trends observed for, say, high throughput testing in a centralized lab setting?

Scott Mendel -- President and Chief Executive Officer

I think there's a couple components to the answer. One is, we're all looking at daily testing reports and we understand where it's running between 800,000 and 1.2 million a day, give or take, over the last month, I would say. And so, the number of tests being administered each day is increasing, but also the capacity. And that's why I took extra time today to explain that where capacity is increasing is more in the central lab, the high throughput tests and those areas and less so in the molecular side, the multiplex molecular side for sure. And so, what we're seeing is consistent with that, Max. So, there's capacity increase, but not necessarily in sample-to-answer syndromic. And that is consistent with how our interactions with our customers are going. There is still demand within our segment of the diagnostic spectrum. There is a lot of demand for testing continuing.

Max Masucci -- Canaccord Genuity -- Analyst

And if I could just sneak one in and follow-up there. Can you just give us a sense for how the competitive dynamics in the hospital lab setting has unfolded over the past, say, couple of months? And are customers still bringing in multiple instruments from different companies to overcome test shortages in that particular channel?

Scott Mendel -- President and Chief Executive Officer

Yeah. We are continuing to see that which is something new this year versus pre-pandemic that inside the lab in the hospital setting that's what I'm speaking about. That's where our platform is positioned we are seeing adoption of multiple platforms, which in the past we had not seen for the same disease state. And that's because of what I just talked about that there isn't enough capacity in the sample-to-answer syndromic space to satisfy all the demand, and so customers are having to adopt multiple platforms. And that's consistent with what we've heard from some KOL panels over the last few weeks that they are adopting multiple platforms. And that has a lot to do with just what I said. They have to make sure they have adequate supply of tests as they prepare for COVID-19 to be circulating in tandem with the flu season.

Operator

Your next question is from Tycho Peterson from J.P. Morgan.

Casey Conroy -- J.P. Morgan -- Analyst

This is Casey on for Tycho. Congrats on the quarter. Just to follow-up on the previous question. How do you guys view flu, AB and SARS-CoV-2 combo tests as it relates to the competitive dynamics there? And then, there's a four in one test that tests for RC as well. Are those competitive threats to GenMark at all?

Scott Mendel -- President and Chief Executive Officer

They're part of the molecular testing spectrum, of course, and they're molecular. They do play a role in even the hospital setting, but it has to do with the use case, meaning the patients that you're looking at and whether you believe that they should be tested on the syndromic panel, which oftentimes, if you present at the hospital, that would be the choice of the physician, would be to order a syndromic panel like ours.

I think one of the important examples I provided on a past call rings true here. And that is that, at Grand Regional, we talked about the fact that they wanted to use a truly syndromic panel for one of their medical staff to determine whether she was positive for COVID-19 or not. But as importantly, they needed to know very quickly across all the targets that are possible, what she had, so that they could safely have her return to work.

And I think that just illustrates the point that, yes, the three, four or five target tests are important. But ultimately, the highest clinical value comes from a syndromic test, like ePlex.

Casey Conroy -- J.P. Morgan -- Analyst

And then, maybe one last one for me is, do you have the percentage of capital placements versus reagent rentals in ePlex placements for the quarter? And do expect that to stay the same as we had before too?

Scott Mendel -- President and Chief Executive Officer

In Q3, capital represented just about 90% of the placements were on a capital basis. I think it'll be relatively the same in Q4 based on what we're seeing and hearing early on in the quarter here. And it's one of the things we will continue to monitor throughout the rest of this year because it'll be important as we get ready to do formal guidance in 2021. That's one of the factors that we need to nail down, not just the total number of placements that we expect to have in 2021, but the ratio of capital versus reagent rental.

Operator

Your next question is from Michael Matson from Needham & Company.

David Saxon -- Needham & Company -- Analyst

This is David on for Mike. Appreciate the color you gave around 2021. I guess it sounds like 150 could be sort of a fore for 2021 revenue. So, how should we think about the magnitude of that layer of incremental ePlex revenue? And it sounds like manufacturing capacity won't be an issue.

Scott Mendel -- President and Chief Executive Officer

One way to think about it is, you're right, I gave a range of that base layer, the foundation of the recurring revenue stream for ePlex consumable revenue. And our math based on where we expect to end this year from an install base and applying a reasonable annuity stream puts you in that 135 to 150. Exactly right. And then you would layer on top of that our normal run rate for XT-8. And I think you have you can kind of look back and see what we've been generating. It tends to be in that, call it, $20 million range or so. And then the next piece that you would need to layer on is just some assumptions about placements per quarter and then layer that same annuity on top of it. So, yes, 135, 150 is the base. That's exactly what I was trying to articulate. And that base layer is highly predictable for us.

David Saxon -- Needham & Company -- Analyst

And then, you're putting in place these multi-year contracts. And you've mentioned the level of visibility you have and kind of implied in the fourth quarter guidance. If my math is right, you could breakeven. So, just kind of given that and the visibility, how are you thinking about profitability kind of, I guess, in 2021 and beyond?

Johnny Ek -- Chief Financial Officer

This is Johnny. So, our focus is certainly funding growth. Profitability comes as a result of that, but really, our focus is funding growth, cash flow positivity because it allows us to fund that growth into the future.

Operator

Your next question is from Andrew Cooper from Raymond James.

Andrew Cooper -- Raymond James -- Analyst

Scott, I'm glad you kind of brought up that example with the nurse at the one customer, but just as we think about sort of those use cases, give a sense when you talk to customers, especially giving you right out, hey, we view ourselves as critical for the critically ill patients. Is there a way to help us think about how much of the use if we think about 3Q, 4Q, etc, is maybe some of those things that aren't the traditional wheelhouse relative to truly the critically ill patient coming in where you need the answer versus if we're post pandemic phase and things are clearing up a little bit, maybe you're not testing your nurse who had a fever the same way you are now?

Scott Mendel -- President and Chief Executive Officer

The nurse example is certainly just that, an example. And maybe hospitals wouldn't test their medical staff with syndromic panels. But I think it's as important to understand that the patients presenting at a hospital from year to year have been relatively steadily growing. And if you're sick enough to present at a hospital, you are a strong candidate for a syndromic test because you're obviously critically ill enough to go to the hospital. I understand what you're asking relative to the example that I gave, but the example I gave is just that, and that's not the majority where the testing is going.

I think, Andrew, one of the things that we didn't really talk about was that when we listen to experts and our customers, like I said, they are really preparing for this COVID to be circulating in tandem with flu season and it's driving their behaviors, which are they're expecting strong testing requirements, consistent with an above average flu season. And so, regardless of whether they're testing their medical staff or not, they do believe there's going to be enough patients presenting at their hospital that would be consistent with a strong flu season.

Andrew Cooper -- Raymond James -- Analyst

And maybe one just on kind of the wording around contracts. When I think back about the way you sort of talked about them, oftentimes, it was more, hey, if they're doing any syndromic molecular testing for x, y, for respiratory or blood culture, it's going to be on our platform is the way the contracts were structured, whereas you talked about committed purchase volumes, which I think is as I recall, is a little bit of a shift. Is that tied to, hey, we've got customers that are running both platforms in the same disease state and sort of how do we think about the go forward contract structure? Has there been a little bit of a shift or any color there will be great?

Scott Mendel -- President and Chief Executive Officer

There has been a bit of a shift. And it's as much driven by the fact that in this unusual time, a single vendor is not able always to satisfy the demands of the customer as far as respiratory as an example. And so that has led to customers having to adopt multiple platforms for the same disease state. And that's why we have made a bit of a shift in how we talk about our contracts because we could not go to every customer and say we can satisfy 100% of your respiratory needs, and that we switch to, here's how much we are willing to commit to and have that agreement with the customers upfront, multi-year agreement with committed volumes, so that they understand what we are able to supply and they can make appropriate plans, which oftentimes includes seeking another platform to supplement.

Andrew Cooper -- Raymond James -- Analyst

So, is it safe to say when we think about that then, it's more pull and challenges to your ability to meet to your point on what the constraint is, limiting what you're able to contract for as opposed to you going out there and trying to sell a greater volume, you're kind of holding back and saying, well, we're not going to promise you what we can't deliver. Is that a reasonable way to be thinking about what the demand paradigm really looks like for now and really through and into 2021?

Scott Mendel -- President and Chief Executive Officer

It is a really good way to think about it. And it's what I've been trying to communicate, which is the demand is in excess of the capacity, especially in sample to answer syndromic. And so, what we have been doing is being very upfront with our customers about what we agree that we can supply and agreeing those committed volumes. And that has been governed by what I can produce off our consumable line. And like I said earlier, that also flows into what we're willing to commit to from a placement perspective. The demand is there, Andrew. This is about us making sure we're doing right by our customers, being transparent and upfront with what we can and cannot supply. And then we're tying our expectations externally with you guys to those same consumable numbers.

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to you, Mr. Scott Mendel.

Scott Mendel -- President and Chief Executive Officer

Thank you. 2020 continues to be an extraordinary year and we believe GenMark has been forever transformed. Our team reacted quickly. We made personal sacrifices to develop and deliver valuable solutions for our customers. And we've played an important role in the fight against COVID-19. And we delivered these results while demonstrating resilience and commitment to our long-term goals. We're proud to play a small role in fighting this pandemic and we're thankful for our customers who are on the frontlines caring for patients.

Thanks for joining us this afternoon, for your continued support, and I look forward to updating you on our progress in the future.

Operator

[Operator Closing Remarks]

Duration: 43 minutes

Call participants:

Leigh Salvo -- Investor Relations

Scott Mendel -- President and Chief Executive Officer

Johnny Ek -- Chief Financial Officer

Ryan Blicker -- Cowen and Company -- Analyst

Brian Weinstein -- William Blair -- Analyst

Max Masucci -- Canaccord Genuity -- Analyst

Casey Conroy -- J.P. Morgan -- Analyst

David Saxon -- Needham & Company -- Analyst

Andrew Cooper -- Raymond James -- Analyst

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