Lucira Health, Inc. (LHDX) Q1 2022 Earnings Call Transcript

Lucira Health, Inc. (LHDX)
Q1 2022 Earnings Call
May 12, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. And welcome to the Lucira Health First Quarter Earnings Conference Call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Louisa Smith from the Gilmartin Group.

Please go ahead.

Louisa Smith -- Investor Relations

Thank you, Alex. And good afternoon, everyone. Earlier today, Lucira Health released financial results for the first quarter ended March 31, 2022. A copy of the press release is available on the company's website.

Joining me 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 in the company's most recently filed annual report on Form 10-K and subsequently filed quarterly report 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 and manufacturing, product potential and the regulatory environment, sales and marketing strategies, capital resources or operating performance.

With that, I'll now turn the call over to Erik.

Erik Engelson -- President and Chief Executive Officer

Thank you, Louisa. Good afternoon, everyone, and thank you for joining us. Welcome to the first quarter 2022 earnings conference call. Lucira achieved record revenues in the first quarter of 2022 driven by demand for our accurate and easy-to-use molecular COVID-19 tests.

We are pleased with our performance and see COVID-19 testing as a proxy for what Lucira will become: a leader in the healthcare paradigm shift to a new category of decentralized diagnostic testing combined with rapid treatment, otherwise known as test to treat. Since Lucira's founding almost a decade ago, this has been the vision. The pandemic, tragic as it has been, catalyzed this transformation in infectious disease diagnosis, quarantine and treatment. For Lucira, the pandemic accelerated achieving manufacturing and commercial scale for our current COVID-19 test, for the next diagnostic test in our pipeline, and it also deepened the investment in our digital reporting platform.

We see our mission not only as a molecular test manufacturer but as a digital healthcare company. Accurate and easy-to-use testing is fundamental, but the full service of test to treat is enabled through a digital backbone that we achieve both through telehealth partnerships, as well as by the growing accomplishments of our in-house digital development team. We envision a society in which early diagnosis, at times even before symptom onset, results in immediate prescription and medication delivery for rapid intervention and recovery. The current infectious disease and treatment paradigm, while good, is still too slow and that it requires patients to travel to see healthcare providers or, at times, relies on healthcare providers to make educated guesses rather than to know with certainty, and it also requires patients to speculate as to whether they or family members are infectious.

Utilization of Lucira's tests mean that guessing is replaced by knowing at the earliest moment possible, all of this in the name of reduced suffering and improved personal and public health. COVID-19 continues to evolve toward an endemic disease. And thankfully, severity, as measured by hospitalization and death, has declined from recent peaks. But as shared by the many fully vaccinated and boosted people that I know, who currently have or recently had COVID-19, it is no picnic.

For some, it is benign, but for many otherwise healthy individuals, it is debilitating. Our plans assume that COVID-19 testing demand will cycle but will remain, likely fluctuating seasonally, cycling with population vaccine, booster durations and rising as new variants emerge. Visits to grandparents to families with young children to those who are immunocompromised, return to work, return to school, travel, all are made safer by testing first with Lucira's accurate molecular tests. While no test is 100% accurate, only Lucira's molecular level of accuracy can ascertain if a person is infectious with or without symptoms.

A family member recently needed a flu antiviral that would have been far easier and faster to obtain had there been an accurate home flu test on the market. Negative on Lucira's COVID-19 test but bedridden with fever and flu symptoms, telehealth providers still wanted the patient to visit the clinic for evaluation. This was not practical, and we obtained a flu antiviral quickly elsewhere. This antiviral worked very well, but the telehealth process is in need of Lucira's COVID-19 and flu combo test, so that telehealth physicians can prescribe treatment medications with diagnostic confidence at the earliest sign of infection and without requiring a patient visit.

The near-term launch of the COVID-19 and flu combo test is the next step in our growth strategy predicated on new products, regulatory approvals and global expansion. The first quarter of 2022, recording a revenue of $90.5 million, a 19 times increase over Q1 2021 with net income of $13.1 million, demonstrated the leverage that exists in our business with only modest commercial volume. This was the first quarter that produced net income in the company's commercial history. In February, we announced the debt facility available to Lucira for up to $80 million.

We have drawn down only the initial financing tranche of $30 million to bolster capital reserves. 2022 remains a year of strong growth for the company. This quarter also demonstrated several marketing expansion achievements. Our main commercial channels remain business-to-business, healthcare, including telehealth, direct-to-consumer and international.

In Q4 of 2021, we signed an agreement with a major Silicon Valley tech company and an initial product purchase was made. In Q1 of this year, this customer doubled their purchase volume. In Q2, their demand has remained strong even as COVID-19 ebbed and flowed. This representative customer shares characteristics with other enterprise/B2B customers.

These are employers who wish to mitigate the risk of illness because their employees are critical to their operations, require their employees to work in proximity with one another and for whom the cost of downtime is high. Examples outside of the tech space include film and media production, professional sports and financial services, all of which are categories of our current enterprise customers. We would also like to provide an update on sales to the government of Canada. In 2021, Lucira was awarded a standing offer that allowed Health Canada to purchase defined quantities of tests from Lucira over a 12-month period.

Health Canada has subsequently exercised the first of two six-month extension options. Our tests have been used across Canada and have provided value to remote and hard-to-reach communities in which providing fast and accurate testing would otherwise be difficult or impossible. For the remainder of 2022 and beyond, we look forward to continuing our important working relationships with the government of Canada, the Canadian provinces and all Canadians from coast to coast. Lucira is investing in people and other resources to allow us to deepen our relationship with institutional buyers, like the government of Canada, and to expand our offerings and ease of ordering to private enterprises and to individual customers.

In Q1, we entered into a distribution agreement with a national healthcare and laboratory products distributor. This distributor, in turn, provided Lucira test to a major health system on the West Coast that had not previously been a Lucira customer. Over the coming quarters, we expect this distributor to increase sales with this health system and to expand sales to other health systems and hospital networks. In 2022, we are continuing the hiring of a small team of seasoned healthcare sales professionals who will sell directly to healthcare organizations, augmenting the distribution business.

We will continue to monitor and optimize this hybrid distributor and direct sales strategy. Additionally, we are delighted that we received CE Mark for the COVID-19 and flu combo product on May 6. Influenza and COVID-19 are the two major respiratory diseases for which there are antiviral treatments. On May 11, we submitted our application for Emergency Use Authorization, EUA, for our COVID-19 and flu combo product to the U.S.

Food and Drug Administration. Clinical trial results for this product were positive and submissions to other regulatory authorities, including Health Canada, are anticipated to occur in the second quarter of 2022. Clearance for this device will allow Lucira to expand its geographic footprint while also transitioning away from reliance on revenues based solely on COVID-19 testing. The Lucira COVID-19 and flu combo test and the COVID-19 test, which also received CE Mark on May 6, are nucleic acid amplification tests with sensitivity and specificity comparable to lab-based PCR assays, miniaturized to run in Lucira's palm-sized test with no separate instrument or reader and producing results in 30 minutes or less.

Lucira's COVID-19 test is authorized in the U.S., Canada, Singapore, Israel and Taiwan, with millions of tests distributed to date. The Lucira COVID-19 and flu test uses the same platform on palm-sized device design and independently test for COVID-19, Flu A and Flu B from a single nasal swab. As a reminder, COVID-19 and flu have similar symptoms but distinct treatments. This underscores the importance and utility of providing tests, such as the COVID-19 and flu product, that differentiate between such infections when the viruses that cause them are both circulating.

We have an efficient and leverageable infrastructure that we believe now has sufficient capacity to support anticipated demand in 2022, including production of the COVID-19 and flu combo product. However, given the unpredictability of potential COVID-19 surges throughout 2022, we are withdrawing the previously stated revenue guidance of $450 million. Many factors contribute to a lack of visibility into the remainder of the year. An internal analysis of cycling COVID-19 peaks, new variants that challenge vaccine efficacy, potential seasonality and timing associated with booster cycles contributed to the decision to withdraw guidance.

We anticipate that seasonality of respiratory illnesses will cause Q1 and Q4 to be strong revenue quarters. Note that the Biden administration is forecasting a cold weather wave of COVID-19 infections, mentioning a potential quantity of 100 million infections, which represents nearly one-third of the U.S. population. The average quantity of influenza-like illness cases in the U.S.

is almost two times this number, underscoring the potential demand for the combo product in Q4. We expect that our commercial expansion into the Southern Hemisphere will bolster midyear demand. Additional tests on our platform, primarily respiratory and STIs, are undergoing feasibility evaluations. As these products are developed and approach commercialization phase, we will report relevant information to shareholders.

Lucira is building on the momentum that we have gained through COVID-19 testing to bring accurate and actionable test to treat into the home and to professional settings, such as medical clinics and hospital emergency departments. Empowering patients and healthcare professionals with accurate, real-time information about infections enables test to treat. Our product, because it is reader- and instrument-free, eliminates bottlenecks in point of care, enables simultaneous testing of multiple people in any setting and provides an easy-to-carry form factor for travel. We appreciate the hard work and dedication of our employees, partners and contractors who are delivering long-term success for Lucira.

Lucira's leadership is experience in commercializing new technologies at the forefront of changes in healthcare. We are excited with the progress that we are making in new products and new markets. I will now turn the call over to Dan George, our CFO, for a detailed discussion of financials.

Dan George -- Chief Financial Officer

Thanks, Erik. Please refer to our press release issued earlier today for a summary of our financial results for the first quarter 2022. Net revenue for the first quarter of 2022 was $90.5 million, an approximate 19 times increase over the first quarter of 2021. Our net revenue was primarily driven by sales to businesses and to distributors, international sales, direct sales to consumers and healthcare providers.

Gross profit and gross margin for the first quarter of 2022 were $39.9 million and 44%, respectively, compared to a gross loss and negative gross margin for the first quarter of 2021 of close to $900,000 and 19%, respectively. Our increase in gross profit and gross margin was driven primarily by increased sales and operational efficiencies gained through increased manufacturing output and scale. Selling, general and administrative expenses were $13.9 million in the first quarter of 2022, compared to approximately $6.1 million in the same period in 2021. The increase was primarily related to increase in personnel-related costs and third-party services to facilitate commercial activities and public company compliance.

R&D expenses were $12.2 million in the first quarter of 2022, compared to $6.3 million in the same period in 2021. New product development, clinical activities and validation and manufacturing activities primarily drove the increase. GAAP net income was $13.1 million for the first quarter of 2022, compared to a GAAP net loss of $13.3 million in the same period in 2021. Non-GAAP net income was approximately $16.7 million in Q1 2022, compared to $13.6 million of non-GAAP net loss in the same period in 2021.

The decrease in net loss primarily resulted from increased gross profit. We ended the quarter with $120.6 million in cash, compared to cash of $106 million at the end of Q4 2021. The increase in cash was primarily related to the closing of the first tranche of our debt financing agreement of $30 million. Most of our investments in our contracted manufacturing facility in the Dominican Republic have been completed, allowing us now to manufacture at scale.

These investments include automation of certain critical manufacturing steps. We are also investing in our lease facility in San Diego County, which will house commercial operations and other functions. We have the cash necessary to fund our long-term business strategy. For 2022 guidance, as Erik previously stated, we are withdrawing our initial 2022 guidance of $450 million in revenue.

We are expecting that revenue in the second and third quarters may be down sequentially from Q1. And although we anticipate demand to uptake significantly in Q4, visibility limitations resulted in our decision to remove annual guidance. These estimates reflect our most recent assessment of manufacturing output and commercial demand. I'll now turn the call back over to Alex for Q&A.

Questions & Answers:

Operator

[Operator instructions] You have your first question coming from the line of Brian Weinstein from William Blair. Your line is now open.

Brian Weinstein -- William Blair -- Analyst

Hey, guys, thanks for taking the question. Appreciate it. I guess we'll start with, I guess, the guidance and the removal there. Obviously, we all knew kind of last quarter, the last time that we spoke, that demand was going to drop off significantly.

But you guys talked at that time about -- and I want to make sure I get these numbers right -- a $250 million of committed contracts, and I think $150 million or so of that was binding. And I think that everybody kind of thought that that was in there, and maybe that still is included in kind of how you're thinking about the business. But I guess I'm just trying to understand really what's changed about the outlook today versus what you had thought before? I mean, again, to repeat myself, I think we all knew that demand was going to drop off pretty precipitously, but you guys seemed pretty confident about that number. So any thoughts on that?

Erik Engelson -- President and Chief Executive Officer

So no lack of confidence here, just a lack of visibility throughout the year. We thought it would be prudent to remove the guidance. And no additional comment other than that. As we know more, as we go through the year, we'll share more.

Brian Weinstein -- William Blair -- Analyst

Is that -- Were my numbers right about the committed and the binding thoughts? Are those numbers still accurate in terms of what you have from different contracts that are available?

Erik Engelson -- President and Chief Executive Officer

So we have close relationships with all of our customers. They're excited about the product. They're excited about the new product. But we're just not going to comment at this point now that we've removed guidance on those levels of detail.

Brian Weinstein -- William Blair -- Analyst

OK. And then are you hearing anything from the U.S. government? And are you working with the government in any way as they try and ensure that people who are involved in COVID testing and manufacturing are able to continue to fund capacity expansions and anything else that's needed? Are you working with the government in any way on any kind of funding or any purchases there?

Erik Engelson -- President and Chief Executive Officer

We do interact with the government, but we have nothing to report along those lines. Those discussions that you referred to do go on and we're party to those.

Brian Weinstein -- William Blair -- Analyst

OK. And then on the combo test, obviously, your expectation is that you'll have EUA ahead of the season. How are you thinking about, I guess, the capacity that you have? It sounds like you're fully scaled down in the Dominican Republic. What is that capacity capability right now? And how will you think about manufacturing products? Will you just basically be shifting almost entirely to the combo product ahead of the season? Or will there still be some thoughts about COVID only?

Erik Engelson -- President and Chief Executive Officer

So we had talked about getting to 1 million units per month by the end of the second half of this year. We're well in advance of that. We achieved that in Q1. And we're in the process of transitioning production.

We'll continue the ability to produce the COVID product. But we're transitioning to the combo product, which we're very excited about. And by the way, our customers are extremely excited about it as well. It's exactly what they've been asking for.

If you're going to test, there's no reason to test for only one virus when they present with similar symptoms. So we're extremely excited about the combo product.

Brian Weinstein -- William Blair -- Analyst

Got it. And then last one for me is OUS. I think you had talked about that potentially being about 30% of revenue. I recognize you're not commenting on revenue in aggregate, but should we be thinking about a split that's, call it, 70-30 for whatever it is that we're going to put in our models, U.S., OUS? And along those lines, I think you mentioned something about the Southern Hemisphere.

And I guess I didn't appreciate that you had opportunities in the Southern Hemisphere. So if you can tell me anything that you guys are doing down there, that would be great as well.

Erik Engelson -- President and Chief Executive Officer

So we have a strategy, a growth strategy, for the business of expanding globally. That includes the Southern Hemisphere. And we'll provide more color on that as we expand. And I'll turn it over to Dan to answer the first part of your question.

Dan George -- Chief Financial Officer

Yeah. Brian, I think your assumptions around the split are accurate, about 70-30.

Brian Weinstein -- William Blair -- Analyst

OK. Thanks, guys.

Erik Engelson -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Rahul Rakhit from LifeSci Capital. Please go ahead.

Rahul Rakhit -- LifeSci Capital -- Analyst

Hey, guys. Just following up with the previous questions. If I'm understanding it, the CE Mark for the combo test, I guess how does that kind of affect your expectations for orders in the EU specifically? And if we are thinking about some kind of a 70-30 split or some other split, do you expect there would be a little bit of a tailwind, with the combo test now being available in the second half of the year?

Erik Engelson -- President and Chief Executive Officer

So we're very excited about the combo test. Customers are as well. I think a CE Mark this early is an achievement that we're very proud of. And we do expect that as we get into flu season in the Northern Hemisphere, and as we see COVID continue to cycle, that there will be uptake in Europe as well.

Rahul Rakhit -- LifeSci Capital -- Analyst

Got it. And I was wondering if you could just kind of give us any kind of color on some of the pipeline programs that you're working on. Where are you guys kind of focusing the majority of your attention? Are there any milestones that we should be aware of?

Erik Engelson -- President and Chief Executive Officer

I would suggest focusing for now in our discussion on the COVID and flu combo test. That's really -- We're very excited about this because our customers are so excited. But other products in the pipeline, in addition to the digital platform in which we're investing, include other respiratory and STI products. When the company was in its early days, nearly 10 years ago, it had developed chlamydia and gonorrhea assays.

Those assays continue development at the background, and we'll bring them forward and productize those, as well as other respiratory as time comes on here. And as we do so, we'll share the specifics.

Rahul Rakhit -- LifeSci Capital -- Analyst

Got it. OK. That's helpful. I think that's it on my end.

I really appreciate it.

Operator

That ends our question-and-answer session. I'll turn the call back over to Erik Engelson, for closing remarks.

Erik Engelson -- President and Chief Executive Officer

Thank you, Alex. Thank you all for your time this afternoon and for your interest in Lucira Health. The future at Lucira is exciting as we expand our decentralized test portfolio and global commercial reach. While COVID-19 testing accelerated our transformation into a commercial company, the upcoming launch of the COVID-19 and flu combo product, which provides a differential diagnosis with a single swab, is what customers are asking for, and it demonstrates the versatility of our platform.

Our entire team looks forward to our future achievements. We are confident we are executing well. We have the right team. And we are looking forward to the future.

Thank you, and have a great evening.

Operator

[Operator signoff]

Duration: 29 minutes

Call participants:

Louisa Smith -- Investor Relations

Erik Engelson -- President and Chief Executive Officer

Dan George -- Chief Financial Officer

Brian Weinstein -- William Blair -- Analyst

Rahul Rakhit -- LifeSci Capital -- Analyst

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