Lucira Health, Inc. (NASDAQ:LHDX) Q3 2022 Earnings Conference Call November 14, 2022 4:30 PM ET
Company Participants
Greg Chodaczek – Gilmartin Group
Erik Engelson – President and Chief Executive Officer
Dan George – Chief Financial Officer
Conference Call Participants
Operator
Good afternoon, ladies and gentlemen, and welcome to the Lucira Health Third Quarter 2022 Earnings Conference Call. At this time all participants are in a listen-only mode. As a reminder, this conference is being recorded.
I would now like to turn the conference over to Greg Chodaczek, from the Gilmartin Group.
Greg Chodaczek
Thank you, Jonathan and good afternoon everyone. Earlier today, Lucira Health released financial results for the third quarter ended September 30, 2022. A copy of the press release is available on the company’s website.
Joining me on today’s call is 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, 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
Thank you, Greg. Good afternoon everyone, and thank you for joining us. Welcome to the third quarter 2022 earnings conference call. Lucira had a solid third quarter in which sales were $34.4 million driven by demand for our PCR-quality molecular COVID-19 test. This represents a 130% increase over sales in the same period last year and a sequential revenue increase of 32% over the second quarter of this year.
On November 11th, we executed a marketing agreement with Pfizer to increase awareness of the risks of COVID-19 and the availability of treatment. The Pfizer partnership will provide financial and promotional support so that through Lucira Connect test users who are positive for COVID-19 can immediately find high quality information about the disease and its treatment options and access a healthcare provider consultation.
In addition, Lucira has partnered with telehealth marketplace, Sesame Care, to offer all Lucira test users an immediate and affordable option to speak to a doctor about their test result without leaving home. If a consumer tests positive for COVID-19 on a Lucira test, a telehealth visit is completely free and can typically occur within 15 minutes of scanning one’s test result to luciraconnect.com.
To our knowledge, there is no other offering out there that combines such convenience, speed, and affordability. Just as Lucira’s tests are one-time use with no additional investment in equipment required, our referral service can be utilized whenever needed without subscription. We believe that this combined offering is good for public health and good for business.
Lucira Connect was built to seamlessly and immediately connect patients to the resources they seek at the moment they needed, the initial diagnosis. These developments provide the opportunity to partner with pharmaceutical manufacturers, brick-and-mortar locations and virtual healthcare providers to ensure patients can immediately access high quality information from reputable sources. Lucira test users have the ability to rapidly confirm a diagnosis, speak to a doctor to determine the best next course of action to get to better and request a prescription all without leaving home or spending valuable time and resources on multiple trips and appointments.
Turning to some of our operating results. In the quarter, cash decreased to $39.8 million, primarily related to funding our operations and working capital in advance of the anticipated launch of the combination COVID-19 and influenza test kit in the fourth quarter of 2022. The combination COVID-19 and influenza test kit is a molecular test that demonstrated 99% accuracy for COVID and influenza A and B and is comparable to highly sensitive lab-based PCR assays. As of today, we anticipate having sufficient inventory of COVID-19 and combination COVID-19 influenza test kits to fulfill anticipated demand in the current respiratory season in our primary markets of the U.S. and Canada.
During the quarter, we received Canadian regulatory approval in the form of an interim order During Q3. We have not yet received authorization from FDA, despite having submitted our EUA in May of this year and maintaining strong advocacy throughout the review process by our DC-based regulatory attorneys.
The user operation of the combination of COVID-19 and influenza test kit is identical to that of our COVID-19 test. And while our EUA submission contained all of the clinical data that was previously agreed in a pre-submission with FDA, the agency informed us in early November that they would grant only point-of-care approval this time. The FDA has agreed to allow us to amend this point-of-care EUA to transform it to OTC use once additional prospective clinical data has been obtained through ongoing clinical trials.
The Lucira product has designed primarily for OTC use and the delay in obtaining the OTC EUA will significantly impact sales and consequently cash in Q4 of 2022. Our Board of Directors has initiated a review of strategic alternatives, including a potential sale, merger or other strategic transaction and of our financing strategy. At the same time, we were reducing costs and this unfortunately impacts our workforce companywide.
Several weeks ago, we took action to reduce our workforce and notified 56 employees of a 60-day termination period, and today we notified an additional 97 employees of a similar timeline. The decision to reduce workforce size was a difficult one. Not only are we disappointed to see these hardworking employees leave the company, the personnel reductions will also delay execution of product pipeline programs. The combined reductions in force represent an approximate 68% decrease of our workforce and are expected to result in $26.4 million in annual cost reductions.
Before I turn it over to Dan, I’d like to recognize and thank the employees and contractors of Lucira that have worked tirelessly on behalf of the company’s mission.
I will now turn the call over to Dan George, our CFO for a detailed discussion of financials.
Dan George
Thank you, Eric. Please refer us to our press release issued earlier today for a summary of our financial results and for the third quarter of 2022 and a discussion in reconciliation of our non-GAAP financial measures.
Net sales for the third quarter of 2022 were $34.4 million, a 130% increase over the third quarter of 2021. Our net revenue was primarily driven by sales directly to consumers, businesses and distributors, healthcare providers and international customers.
GAAP gross loss and negative gross margin for the third quarter of 2022 was $99.6 million and – 289% respectively compared to a gross loss in negative gross margin for the third quarter of 2021 of approximately $1.5 million and 10% respectively. Our increase in GAAP gross loss in gross margin was driven primarily by a onetime non-cash access inventory related charge of $107.2 million due to a significant reduction in our sales forecast resulting from an unanticipated delay and FDA’s approval of our COVID-19 and influenza test kit has declined in COVID-19 testing demand.
Non-GAAP gross profit and gross margin that excludes the excess inventory related charge and other non-cash charges such as depreciation stock-based compensation was $9.5 million in 28%, respectively. Non-GAAP gross profit and gross margin for the same period in 2021 were $2.4 million and 16%, respectively.
R&D expenses were $9.1 million in a third quarter of 2022 compared to $14.3 million in the same period in 2021. R&D expenses incurred during the third quarter of 2022 were primarily related to new product development, clinical activities, and validation of manufacturing activities. The third quarter of 2021 R&D expenses were primarily related to the redevelopment of our manufacturing and quality release process in preparation for launching our Dominican Republic manufacturing facility at our contract manufacturer.
Selling, general and administration expenses were $17.6 million in the third quarter of 2022 compared to approximately $11.8 million in the same quarter of 2021. The increased risk primarily related to increasing personnel related costs in third party services facilitate commercial activities and public company compliance.
GAAP net loss was $126.9 million in the third quarter of 2022 compared to $27.5 million in the same period in 2021. The increase in GAAP net loss was primarily related to our one-time non-cash inventory related charge of $107.2 million. Non-GAAP net loss was approximately $15.4 million in the third quarter of 2022 compared to $18.4 million in the same period in 2021.
We ended the quarter with $39.8 million in cash and cash equivalents compared to cash and cash equivalents of $106 million at the end of 2021. A decrease in cash was primarily related to purchases of inventory and capital equipment partially offset by the closing of the first tranche of our debt financing agreement of $30 million. In addition, the significant decline in our near term revenue forecast requires us to seek additional capital sooner than anticipated.
As Eric mentioned, our board of directors has initiated a review of strategic alternatives including a potential sale merger or other strategic transaction and of or our financial, our financing strategy.
I’ll now turn the call back over to Erik for closing comments.
Erik Engelson
Thank you, Dan. Thank you all for your time this afternoon and for your interest in Lucira Health. Both Lucira’s accurate test platform as well as Lucira Connect are important offerings that accelerate the move of infectious disease testing and result in treatments into the home. We envision an improvement of public health that will result from this important transformation in the way that diagnosis are performed.
Operator
Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.
Question-and-Answer Session
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