Lucira Health, Inc. (LHDX) Q1 2021 Earnings Call Transcript

Lucira Health, Inc. (LHDX)
Q1 2021 Earnings Call
May 13, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the Lucira Health's first-quarter earnings conference call. [Operator instructions] And please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand over the conference to your speaker for today, Mr.

Greg Chodaczek. Please go ahead, sir. You may begin.

Greg Chodaczek -- Investor Relations

Thank you, Delfin, and good afternoon, everyone. Earlier today, Lucira Health received -- released financial results for the first quarter ended March 31, 2021. A copy of the press release is available on the company's website. Joining me today on today's call are Erik Engelson, president and chief executive officer; and Dan George, chief financial officer.

Before we begin, I'd like to remind you that during this conference call, the company will make forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including, without limitation, the Risk Factors section of the company's annual report on Form 10-K and quarterly reports on Form 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors may include, without limitation, statements regarding product development, product potential, the regulatory environment, sales and marketing strategies, capital resources or operating performance. With that, I now will turn the call over to Erik.

Erik Engelson -- President and Chief Executive Officer

Thank you, Greg. Good afternoon, everyone, and thank you for joining us. Welcome to the first-quarter 2021 earnings conference call, our first as a public company. We will start today's call with an overview of Lucira and the accomplishments that made the company what it is today.

I will then discuss our company strategy and how its implementation has led to significant progress this quarter, followed by a discussion of our future opportunities. Dan will then transition into a more detailed walk-through of our first-quarter financial results. Since our inception in 2013, Lucira has been developing our technology and paving the way toward revolutionizing at-home testing for infectious disease. The founding vision was to put lab-quality molecular testing in a small, easy-to-use form factor that would fit in the palm of the hand for use anytime, anywhere and that would produce results on the spot.

We have always believed that if testing were available, accurate, and easy to use, individuals would proactively test, enabling earlier treatment or quarantine should the test result positive or faster peace of mind should it result negative. Ultimately, we believe that this would serve public health. Just as point-of-care testing was an important innovation that augmented central lab testing, we believe that anywhere, anytime testing with high consumer usability under an over-the-counter label represents an important next advance provided that test accuracy is maintained. As testing demand increased during the first wave of COVID infections last year in the United States, we all witnessed the logistics issues that were caused by the immobility of the testing equipment.

This resulted in traffic jams at testing centers and the risky circulation of potentially infectious individuals within the general population. Although home sample collection kits helped to alleviate some of the challenges, the long wait time to results remains an issue. It was during this time that we shifted our focus from our initial plan to bring an influenza test to market to prioritizing the COVID-19 test kit first. Our company launched our flagship product, the COVID-19 All-In-One Test Kit on November 17, 2020, upon FDA EUA authorization for both point-of-care and prescription at-home use.

This was the first and remains the only prescription at-home EUA granted. The accuracy of our test was demonstrated in our community testing study, which, at the time, included symptomatic individuals. This was subsequently expanded to also include asymptomatic individuals in the study that supported the recent over-the-counter EUA. When compared head to head against high-sensitivity PCR central lab tests, excluding samples with very low levels of virus that possibly no longer reflected active infection, our test kit achieved 98% accuracy, 97% PPA, and 98% NPA.

As we entered 2021, our company had a near-term strategy that supported our broad vision of supplying accurate, accessible, timely testing. Our goals were: one, submission of an over-the-counter EUA and expansion of current point-of-care and prescription at-home EUA to also include asymptomatic individuals; two, commercialization of our test kits through various sales channels and formation of strategic partnerships; three, expansion of manufacturing capacity; four, creation of an easy-to-use platform to report test results; and five, continued development of the test menu. Following the initial commercialization of our COVID-19 prescription at-home test kit, we focused efforts on making our test kit more accessible through OTC labeling. To that end, we submitted an application to FDA for an over-the-counter EUA.

We also submitted an application to expand the initial prescription EUA to include asymptomatic individuals. In April of 2021, we received the over-the-counter EUA for the company's LUCIRA CHECK IT Test Kit. With the release of this test kit, we address the need in the market for a PCR quality, affordable, accurate over-the-counter test. LUCIRA CHECK IT is now available to individuals without requiring a physician prescription or healthcare professional oversight, allowing users to detect a positive result in as few as 11 minutes or to confirm a negative result within 30 minutes.

And on April 26, we also announced that Health Canada issued an authorization with conditions for our LUCIRA CHECK IT COVID-19 Test Kit. Those conditions were to submit final bilingual labeling, which we expect to complete shortly. To drive commercialization and increase accessibility, we have formed key strategic partnerships. We have partnered with Converge Technology Solutions to develop an efficient way to deliver results to the user with the text LUCI system.

Lucira developed the LUCI Pass to provide users an easy way to receive a digital verified test result. Customers simply text the word LUCI, L-U-C-I, to 44544 and then follow the simple steps to upload their results. All test results are digitally verified through LUCI's secure portal. Once users have a LUCI Pass on their phone, they can show their negative test result at entrances to conferences, workplaces, arenas, and for travel and leisure.

With an easy way to access results in place, we have begun forming direct partnerships with organizations that plan to use the LUCIRA CHECK IT Test Kit on a large scale. For example, we recently launched a testing program with the Golden State Warriors to facilitate the safe reopening of the Chase Center in San Francisco. Most recently, we have commenced an agreement with Amazon for the sale of our OTC LUCIRA CHECK IT Test Kit online, significantly increasing our opportunities to reach our customers nationwide. Amazon not only provides an easily accessible marketplace but offers proven distribution channels, allowing our product to be in your hands more quickly.

We see programs and partnerships such as these as being a key driver of sales in the upcoming quarters. We see programs and partnerships such as these being an important contributor to future sales growth. Given the uncertainties surrounding the current COVID-19 environment, we have prioritized flexibility and nimbleness to match the expanding and evolving testing landscape. We continue to evolve our products to fit current needs.

As noted in our technical brief posted on our website, we perform routine surveillance of emerging SARS-CoV-2 strains by periodically evaluating in silico reactivity against sequence databases. These evaluations have shown that the six emerging variants are reactive to our COVID-19 test kit. Looking to the future, the company has created a clear path to growth that includes: one, continued commercialization of our COVID-19 test kit for both OTC and prescription use; two, formation of new programs and partnerships with sports teams, large venues, travel and leisure, distributors and other entities; three, investing in manufacturing capacity and scaling to match demand; four, international opportunities; and five, test menu expansion. We are excited about our future and look forward to the upcoming quarters.

I will now turn the call over to Dan George, our CFO, for a detailed discussion of our financials.

Dan George -- Chief Financial Officer

Thanks, Erik, and hello, everyone. Please refer to our press release issued earlier today for a summary of our financial results for the first quarter of 2021. Overall, from a commercial perspective, we had no activity in Q1 2020, and Q1 2021 represents our first full quarter of such activity. Revenue for the first quarter of 2021 was $4.5 million.

Our revenue was primarily driven by sales to healthcare professionals and physicians through our point-of-care and prescription at-home authorization. Gross loss was approximately $900,000 for the first quarter of 2021, and gross margin was negative 19%. Our gross loss and negative margin were primarily result of manufacturing capacity that has been established for anticipated commercial growth. Sales, general and administrative expenses were $6.1 million for the first quarter of 2021 compared to approximately $600,000 in the same period in 2020.

The increase was primarily related to increasing headcount and third-party services to facilitate commercial launch and public company compliance. R&D expenses were $6.3 million in the first quarter of 2021 compared to $2.7 million in the same period in 2020. The increase was primarily related to activities to support new products, validation and manufacturing activities, and EUA submissions. Loss from operations was $13.2 million in the first quarter of 2021, compared to $3.4 million in the prior-year period.

The increase in operating loss resulted from our gross loss and increases in operating expenses as previously described. Net loss was $13.3 million in the first quarter of 2021, compared to $1.7 million in the same period in 2020. The increase is related to the operating loss previously described, partially offset with the change in other income and expense primarily resulting from grant income recognized in Q1 2020 associated with our influenza activities. We ended the first-quarter 2021 with $189.8 million in cash compared to cash of $58.2 million at year-end 2020.

The increase in cash was primarily related to net proceeds received from our initial public offering. I'll now turn the call back over to Delfin for Q&A.

Questions & Answers:

Operator

Thank you, Dan. [Operator instructions] And our first question coming in from Derik De Bruin from Bank of America.

Ivy Ma -- Bank of America Merrill Lynch -- Analyst

Hi. This is Ivy on for Derik today. Good afternoon. Thank you for taking the question.

Hi. So firstly, just wanted to get more details on the OTC launch. Wanted to see if you could share more about your pricing strategy there if there's any bundled deals being offered since now we're entering into a more competitive market. So just wanted to get any clarity there.

Erik Engelson -- President and Chief Executive Officer

Yes. Hi, Ivy. Thank you for the question. So we have a multipronged strategy with over-the-counter label.

And by the way, when the company was founded, the vision always prioritized over the counter for this product, and it's very much a consumer product with central lab accuracy. So the strategy is both direct to consumer, and that was the reason for the Amazon partnership as well. We sell products on our own website, lucirahealth.com, and also other opportunities that are mainly in the B2B category. So some of those involve distribution deals with distributors within the U.S., and some of those will also involve distribution deals outside the U.S.

when the time comes. And some of the B2B deals are to organizations such as the one associated with the Golden State Warriors to reopen the Chase Center and similar deals like that. So what benefits the company from a volume deal is to be able to have some insight over time as to what the delivery schedule will be. And that's, of course, challenging for all involved in COVID, although I think we all foresee a long tail and COVID as endemic.

But to the extent -- we priced the product at $55 on Amazon and on our website. That includes shipping. And to the extent that there are volume deals put in place, we reduced price slightly. And I'm going to not name specific prices because those are subject to negotiation with different partners, although there is consistency across the partnerships.

To the extent that partners can provide visibility over time, then that's a value to the company from an internal planning standpoint.

Ivy Ma -- Bank of America Merrill Lynch -- Analyst

Great. Thank you. And my second one is on the recent agreement to supply LUCIRA CHECK for the Golden State Warriors. So that's pretty interesting opportunity there.

Just wanted to see if you could talk about what the general arrangement there and help us think about how to quantify the size of opportunities in the similar markets. And that goes into a question of how much visibility you have in terms of more sizable contract and how should we think about the revenue near term going forward.

Erik Engelson -- President and Chief Executive Officer

Yes. Thank you, Ivy. So first of all, we're grateful to the Golden State Warriors for selecting Lucira. The partnership with the Warriors means a lot to us, and we have put our hearts into delivering this quality product to the Warriors and to Warrior fans.

The operation of the partnership was such that product was shipped to certain fans' homes. Mostly season ticket holders had the priority. And the great beauty of the LUCIRA CHECK IT kit is that it's easily run, very simple, one-page instructions at home. And then a LUCI Pass is created on one's phone, as I described in the opening remarks.

So the LUCI Pass was then -- in the case of the Warriors because they wanted aggregated data on fans, our LUCI Pass also integrates into other platforms. And so in this case, as you could see on the video on the Warriors' site, it integrated into CLEAR Health Pass. And so CLEAR Health Pass, that integration made it very seamless for users. It appeared to our users as if they were just obtaining a LUCI Pass, when, in fact, that went directly into a CLEAR Health Pass on a user's phone.

So in that case, it was the CLEAR Health Pass that was shown at the gate for entrance. There's some variability in demand for sports teams like the Warriors, and it depends on local regulations. In some cases, people who are vaccinated and can prove that can gain entrance without a negative COVID test. In other cases, it's a hybrid.

People who are vaccinated come in one entrance. People who have a negative Lucira test come in another entrance. We priced very close to our $55 ASP for this whole process with the Warriors. And I think it's worked very well.

There was also some on-site testing for those who didn't have a chance to test at home or had any other issues, and that worked well as well.

Ivy Ma -- Bank of America Merrill Lynch -- Analyst

And the revenue runway, if you could shed any light there.

Erik Engelson -- President and Chief Executive Officer

So we're actually not -- we're not doing any forecasting at this point, Ivy. We're -- I would say that we're extremely excited by the reaction to the OTC labeling and to the LUCIRA CHECK IT Test Kit and have an amount of incoming interest that we're working very hard to respond to. But that said, I think we need a few quarters to understand what our baseline is so that we can then begin to forecast from there.

Ivy Ma -- Bank of America Merrill Lynch -- Analyst

Great. Thank you. I'll jump back in the queue.

Operator

And our next question is coming from Mr. Brian Weinstein from William Blair. Go ahead, sir.

Griffin Soriano -- William Blair -- Analyst

Hey, guys. Good afternoon. This is Griffin on for Brian. Thanks for taking my questions.

Just first one here, can you give us an update on the discussions you're having with customers in the professional healthcare setting that potentially have a longer testing tail? You talked about Sutter and Cleveland Clinic on the IPO. What's their use of the product? How's that been? And what are your expectations for this professional setting moving forward?

Erik Engelson -- President and Chief Executive Officer

Yes. Thank you. Appreciate the question. So when we entered Q1, the prevalence of the pandemic was higher in locations where some of the institutions, the healthcare institutions are with whom we're working.

And so we -- and also, we had only the prescription label in Q1. As we took first orders for product, we had expectations that there is going to be durability throughout Q1 of those orders and of the usage of the product in the healthcare practice in large institutions. Then prevalence dropped and so did consumption of our test. By the way, the benefit of our test in emergency departments in respiratory clinics for pre-procedural screening, for example, is the rapidity with which it produces a result on the spot, 11 minutes for a positive for example.

So that's a huge benefit, particularly as there are patients in an emergency department who are suspected of being positive and who the institution would prefer to have isolated as quickly as possible from an infection control standpoint. So one of the dynamics was that we did not see reorders from the institutions from which we thought we would see in Q1. But then conversely, we brought up online ordering for healthcare professionals with prescription writing rights on our website. And we had some fill-in in the quarter, fill-in ordering by healthcare professionals.

I suspect we would have had more had there been more awareness of Lucira. I think we suffered from being a best-kept secret. But when people found our product and found us, they were delighted by it, and we have quite a bit of reorder activity in Q1 by healthcare professionals. So ordering from our website were concierge practices, psychiatry offices, ENT practices, for example, and very pleased by the early start-up signal there.

But yes, I would just say that, going forward, prescription use remains very important to the business, but I will say that we have resourced our marketing efforts toward over the counter since having received that label in April.

Griffin Soriano -- William Blair -- Analyst

OK. And then just on the Amazon channel and realizing that product's just been selling there -- just started selling there, but you've been in e-commerce for a little while through the Rx. Can you just talk about any feedback you've gotten in the e-commerce channel and some early expectations for the Amazon marketplace?

Erik Engelson -- President and Chief Executive Officer

Yes. We're seeing good uptake through Amazon. We're really grateful to Amazon for the partnership. And I think we have a high rating at the moment on Amazon, and again, we'll be taking steps to increase awareness.

But I must say, out of all the press releases that we put out in this year, it was the Amazon press release that at least had the most -- generated the most incoming email to me. So I think it was quite exciting to people to see that.

Griffin Soriano -- William Blair -- Analyst

OK. And then just last one for me. It seems like a combo flu-COVID test could potentially be pretty important in the symptomatic testing market moving forward just given the similarities in symptoms. So just can you give us an update on the pipeline and time line there, particularly for the combo product?

Erik Engelson -- President and Chief Executive Officer

Yes. No. Thank you for the question. We're excited about that as well, and that's in development right now.

We have the assay, the flu assay developed, and we're just iterating the device design, very simple changes to accommodate both assays. So we're excited about this. We will be having some meetings with FDA to determine the regulatory path, whether this will be EUA for the combo test or whether it will need to be a 510(k), and then that will inform the time line. But maybe I won't speculate on what the timing could be, but I will say that the product, we anticipate being able to be in clinical trials in the not-too-distant future so that we're going to do everything we can do to try to accelerate this product so that it will be ready.

But it will not be contributing commercially in this year. And I would say best case, it would take another -- it would be another flu season before it is contributing commercially.

Griffin Soriano -- William Blair -- Analyst

Great. Thanks for the color, guys.

Erik Engelson -- President and Chief Executive Officer

Sure. Thank you.

Operator

[Operator instructions] And now our next question coming from Mr. David Sherman. Please go ahead, sir.

Unknown speaker

Hi, guys. Thanks for taking my questions. First one, just on the B2B channel. I was just wondering, with the current trajectory of the pandemic, the degree to which cities are reopening, has there been any kind of reprioritization on your end as to target customers and sectors of the economy that you're going to pursue?

Erik Engelson -- President and Chief Executive Officer

Yes. Thanks for the question. We're -- there's quite a bit of testing that's going on daily in the country today, COVID testing. We view the B2B opportunity as incremental to that.

I can tell you, in our own facility, we have been testing twice a week. We alternate between twice a week and once a week depending on prevalence or an incident of a positive within testing associated with our facility. And since the over-the-counter label, we have switched to using Lucira test. So we give employees Lucira test.

They test at home on the prescribed days and then they bring their LUCI Pass to the door. So we've been having similar conversations with potential B2B partners. And I would characterize this as quite interested in performing testing. And it spans the gamut from those organizations that really want to be sure and so want to test with a testing program like Lucira's to some organizations that are making testing for employees optional, which is interesting, from a safe workplace standpoint to organizations that are thinking it through, have teams dedicated to deciding what kind of testing they're going to do if any.

But within the first category, we're fielding quite a bit of incoming interest and having productive discussions. So I would say that from a sales standpoint, including myself, we spent quite a bit of time on these discussions every week. It's been exciting.

Unknown speaker

Got it. And in terms of just sort of the working assumptions you guys have thinking through some of these customers, do you envision most are going to want some kind of test run with the product? And what's sort of the assumption as to what the time line is from a test period to actually signing a contract?

Erik Engelson -- President and Chief Executive Officer

Yes. It's a great question. What we found is that folks start small, and they do pilot these programs. And then they think about increasing.

We're still early in this rollout, but people tell us that the numbers could be sizable once they see how this works. I will also mention just anecdotally that we -- Dan and I are sitting in a room together, and we don't have masks on because we tested earlier today before showing up here. And that's the case within our facility, although, within our facility, we still wear masks. Most of us are vaccinated.

However, we have had a recent positive test among one of our employees. So that just underscores that the vaccines alone do not solve the problem. They're a really important advance, and we're grateful for them. But testing is going to remain important, and that's the feedback that we've been getting on the B2B side as well.

Unknown speaker

OK. Great. And then just one more for me on the Amazon partnership. Could you just talk about are they handling the shipping logistics? Or is it coming from you guys still? Is there plans for that to be in their hands if it's not? And then is there a plan in place for them to handle kind of order logistics across sort of all of your business channels down the road?

Erik Engelson -- President and Chief Executive Officer

So we have a great partner for our 3PL, and at the moment, our partner is fulfilling. So Amazon is handling the order entry. We are having discussions about a transition to include -- to maintain our own 3PL, who we're very happy with, but in addition to have fulfillment by Amazon. So that's a discussion that I can't characterize where that's going to come out yet, but it's certainly on our mind.

So thank you for that question.

Unknown speaker

OK. Great. Thank you for taking my questions.

Erik Engelson -- President and Chief Executive Officer

Sure. Thank you.

Operator

And for our last question, it's coming from Derik De Bruin from Bank of America. Go ahead.

Ivy Ma -- Bank of America Merrill Lynch -- Analyst

Hi. Ivy again. Thank you for letting me back in. Just a few follow-up questions.

So first, on the expense side and maybe into a question of cash runway. So I mean, right now, the volume is still ramping up, but just want to see what needs to happen to get you into the positive gross margins. And then based on the cash run rate right now, is there any color you could provide on the OPEX for the year? Anything -- any color would be helpful. Thank you.

Dan George -- Chief Financial Officer

Yes, Ivy. I mean, from a gross margin perspective, a lot of it -- it's a factor of volume and cost reduction initiatives that we have in place right now. So as Erik mentioned before, we just launched in the DR and the DR is going to make up the lion's share of our volume. That's a much -- that's a lower-cost environment than what we're currently manufacturing today.

That, coupled with the fact that we're currently working volume negotiations with our suppliers in terms of working down materials costs, along with volume-based tooling that we're putting in place will be the three -- I would say, three cost initiatives that will drive down our direct costs. And then volumes will take care of overheads. Right? So currently in Q1 2021, our negative margins were primarily built -- were primarily a factor of us having an infrastructure in anticipation of growth. So we've made investments both in people and facilities to facilitate future growth.

So we're poised to facilitate that going forward. I would say from a cash perspective, although we're not giving guidance, we've modeled a number of different sensitivity scenarios, and we foresee no liquidity issues at all in the near future.

Ivy Ma -- Bank of America Merrill Lynch -- Analyst

Great. And can you talk more about your distribution channel, especially for e-commerce sales? Is it going to be selling through a channel or on consignment? So any details would be helpful.

Erik Engelson -- President and Chief Executive Officer

So we maintain the inventory, and we distribute through our 3PL, both from orders that come in from Amazon, orders that come through our website, and in some cases, we have integration with other partners, so for orders that come in from them. But we are fulfilling all of the orders now. I don't know if you want to add.

Dan George -- Chief Financial Officer

Yes. I'm assuming you're referring to direct over-the-counter distribution and through Amazon. All of that is fulfilled through us. We do have some distribution agreements as well, but title and risk passes to those distributors upon shipment.

So all that inventory leaves our books once we actually ship that product.

Ivy Ma -- Bank of America Merrill Lynch -- Analyst

Great. And I have a last one, maybe more bigger picture on the impact of vaccination still in the process of rolling out. But how much of an impact do you expect maybe compared to previous expectations that's going to have in terms of either volume or pricing impact and how you're going to utilize your capacity since you're still in the process of ramping that up? And more specifically, maybe for the Golden Warriors deal, the audience, the fans, are they -- if they're vaccinated, do they still need to be tested?

Erik Engelson -- President and Chief Executive Officer

Right. So certainly, the impact of vaccines, there will be some impact on testing volumes, particularly in the classic testing channels. We're seeing -- and I wouldn't be surprised if there's -- but there's over 1 million tests per day being performed now. There's pockets of the population that don't wear masks that are not taking the vaccine.

So the vaccinations may have spread through the easier-to-vaccinate individuals at this point. The next phase is going to be more difficult. To the extent that our borders remain open, this is really a global issue. It's not just a U.S.

issue. And the vaccines are not 100%, so there's some risk assessment for organizations. So let's see, what was the Golden State portion of that? Ivy, tell me again the Golden State question. Oh, will vaccinated people need testing? That is a function of -- yes.

The -- I'm sorry, the local regulations and policies. And I would say that that's in flux as local governments are still assessing.

Dan George -- Chief Financial Officer

Yes. And I want to add too, I mean, we've done some research on -- in terms of even people who've been vaccinated want -- certain people want testing. There's an attitude toward the treatment of COVID, and there's a population out there that exists, regardless of being inoculated or not, they still want to be tested, and they want to know that people around them have been tested as well. So there is that population out there that by allowing this decentralized testing allows them an opportunity to test at their convenience.

Erik Engelson -- President and Chief Executive Officer

Yes. It's interesting. The media has shifted from testing to no talk of testing, but there's still a lot of testing going on. So I think it's not over and it's not going to be over is our viewpoint, and I think we're well poised to help serve the ongoing need for testing.

Ivy Ma -- Bank of America Merrill Lynch -- Analyst

Great. Thank you very much.

Erik Engelson -- President and Chief Executive Officer

Thank you.

Operator

And that's it for the question-and-answer session. And now I would like to hand back for the closing remarks, Mr. Erik -- oh, I'm sorry. We have one questioner here -- oh, he -- OK.

He, yes, pressed the star and then the pound key. All right. For the closing remarks, I'd like to hand back Mr. Erik Engelson.

Erik Engelson -- President and Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 40 minutes

Call participants:

Greg Chodaczek -- Investor Relations

Erik Engelson -- President and Chief Executive Officer

Dan George -- Chief Financial Officer

Ivy Ma -- Bank of America Merrill Lynch -- Analyst

Griffin Soriano -- William Blair -- Analyst

Unknown speaker

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