Rockley Photonics Holdings Limited (NYSE:RKLY) Q3 2022 Earnings Conference Call November 9, 2022 5:00 PM ET
Company Participants
Gwyn Lauber – VP, IR
Andrew Rickman – Founder, Chairman, President & CEO
Richard Meier – President and CFO
Conference Call Participants
Quinn Bolton – Needham & Company
Paul Silverstein – Cowen and Company
Tim Savageaux – Northland Capital Markets
Operator
Greetings, and welcome to the Rockley Photonics Third Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Gwyn Lauber, Vice President of Investor Relations. Please go ahead.
Gwyn Lauber
Thank you, operator, and welcome, everyone. This is Gwyn Lauber, Vice President of Investor Relations at Rockley Photonics. Today, we released the results for the third quarter ended September 30, 2022. A copy of the earnings press release is available on the Investor Relations section of our website at investors.rockleyphotonics.com. With me on today’s call are Dr. Andrew Rickman, OBE, Chairman and Chief Executive Officer; and Randy Meier, President and Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of Rockley’s website. Before I turn the call over to Andrew, I’d like to note that today’s discussion will contain forward-looking statements. These forward-looking statements include, but are not limited to, the anticipated features, benefits, scope, focus, status and goals of our platform, technology, products, studies and partnerships with third parties, our ability to bring and the timing of bringing our products to market, our product development schedules, our strategies, our research and development plans, our customers, our commercial and market opportunities and trends, our debt obligations, our cost and expenses, our cash resources, cash burn, revenue guidance, financial projections and financial performance and outlook and factors affecting the foregoing.
These forward-looking statements are subject to risks and uncertainties, which may cause actual results to vary materially from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those discussed in our earnings press release and in the Risk Factors section of our annual report on Form 10-K as well as our other filings with the SEC. Any forward-looking statements that are made on this call are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, Rockley report certain non-GAAP financial measures that do not conform to generally accepted accounting principles. We believe these non-GAAP measures enhance the understanding of our performance. Reconciliations of these GAAP and non-GAAP measures are included in the tables found in our earnings press release. Now I’ll turn the call over to Andrew.
Andrew Rickman
Thank you, Gwyn, and thank you all for joining us for our third-quarter 2022 earnings conference call. Today, I’ll start by briefly discussing our results before turning to our business highlights. In the third quarter, we generated revenues of approximately $556,000. Our GAAP net profit for the third quarter was $12 million, reflecting a fair value adjustment of certain notes and warrants. We ended the quarter with $4.9 million in cash, cash equivalents and investments. In the fourth quarter, we completed a private placement retaining up to $24.5 million of incremental funding with $10 million received at closing, plus an additional $14.5 million of proceeds placed in an escrow account for release at the direction of the note holders. A full summary of our financial statements is available on our website. I’d like to start by introducing Randy Meier, our new President and CFO. Randy joins us from Intersect ENT, a medical device company that was recently acquired by Medtronic. He brings experience in finance and operations leadership with healthcare therapeutics and medical device companies. Randy will focus on our financial and commercial strategies and will lead our finance, supply chain, quality, regulatory, and client functions. He will ensure our cash-efficient performance while enabling our route towards commercial production. I’m delighted that Randy chose to join us as I believe that he brings the discipline needed ahead of our commercial ramp.
Today, I’ll talk briefly about 3 aspects of our business, our customers, our technology and our human studies. Then I’ll turn the call over to Randy. As you know, we have 19 customers in the consumer wearables and med-tech markets, representing 6 of the 10 largest wearable companies and 2 of the 5 largest med-tech companies. We are working with all of our customers on increasing our engagement with them. And in doing so, we will enable them to run trials using our products, solidifying their product requirements for ROCE and our solution. We are working with our customers on several use cases, including patient monitoring, clinical trials, health and wellness monitoring, lifestyle management, pharmaceutical and fitness Recently, we received our first Bioptics bands from our manufacturing partner. This near-final version will provide the core biomarkers for our solution. Our first solution will be for general health and wellness and sold to customers for certain use cases, including general health and wellness, clinical trials, fitness, loan worker, and other nondiagnostic applications. In terms of our regulatory strategy, initially, we plan to introduce general health and wellness solutions to our customers as we believe there’s a market for nonclinical use cases. This will make our products available to our customers sooner, satisfying their needs for solutions that are noninvasively monitoring key vital signs. Working in consultation with our med tech customers, we plan to pursue regulatory approval for our solutions in the U.S. by seeking 510(k) clearance for those biomarkers with existing predicates and de novo classification grounds for our novel biomarkers without existing predicates.
During the quarter, we advanced our development of the Bioptics and Bioptics Pro versions of our solutions. I believe we are on track with both. We continue to work on next-generation biosensing technology as well. In the quarter, we announced our NextGen higher-density laser spectrophotometer chip. We believe that this is the world’s first micro-transference lasers on silicon photonics for commercial applications. In the future, we believe this capability will allow us to further increase the density and reduce the size of our photonic chips as well as lowering manufacturing costs. This breakthrough will allow us to create even smaller solutions, opening up even more opportunities for ultra-small wearables for health monitoring, including AR and VR headsets, clothing, glasses, and other form factors. We received funding support for this work from the Science Foundation Ireland and the disruptive technologies in innovation fund. Now I’ll talk about our human trials. In the third quarter, we expanded our studies of core body temperature, hydration, and blood pressure with larger follow-on studies of these key biomarkers. We recently announced that following promising initial results, we are expanding our free-living study to larger super population.
These free-living studies continue to test the capability of our Bioptics Biosensing band to remotely monitor and measure biomarkers outside a laboratory and controlled setting. These studies should be completed in the fourth quarter of 2022. Finally, we recently announced the results of our internally controlled blood pressure human study, where we demonstrated while I believe, are very important results for our company and also for individuals who will benefit from a device that provides regular effortless monitoring of blood pressure. Many people suffer from hypertension, often without knowing it, making it a risk factor for serious health problems such as heart disease and strokes. This quarter, we will begin our first third-party controlled blood pressure in human study, which will monitor 200 participants and will include isometric and aerobic exercise-based protocols. Additionally, an in-line arterial study with an accurate pressure monitoring catheter of reference with 30 participants is also planned in the period. Turning to the future, we have 3 priorities for the remainder of 2022. Our first priority is to sample the Bioptics units to our customers for their tryouts. The next, we plan to complete third-party-controlled human studies for blood pressure, which will form the basis for the design of an FDA study. And finally, we plan to utilize our Bioptics Pro module for in-house human studies on alcohol, glucose, and lactate biomarkers. The initial study will utilize our Pro module in benchtop-based humor studies, which will lead to studies utilizing our wearable device in the future. These priorities will form the foundation for 2023 as we scale our technologies.
I am very pleased with the tremendous work that we’ve been doing and what we’ve been able to achieve. I believe that our work is truly extraordinary and has the potential to change people’s lives for the better. What we’ve been doing isn’t easy. And I know that some may wonder if we will achieve our goals. As I sit here today, I believe that we will succeed due to the increased body of evidence gathered from our human studies, which validate the performance of our technology. We are at the point where we will soon have commercial products in our customers’ hands. And I’m confident that this will be a game changer for us. Now I’d like to introduce you to Randy Meier, our President and CFO, Randy.
Richard Meier
Thank you, Andrew, and good afternoon, everyone. I’m thrilled to have joined Rockley and the opportunities that lay ahead of us. In the third quarter, revenue was $556,000. Revenue for the quarter was solely related to nonrecurring engineering services from our customers and revenue is recognized based on mutually agreed-upon performance obligations and acceptance. Cost of revenue was $2.1 million, resulting in a gross profit loss of $1.5 million. It is important to note that expenses are recorded as incurred even if revenue has not been recognized. Third-quarter R&D expenditures were $25.7 million, a slight decrease from a year ago due to a reduction in third-party engineering expenses and other professional services. R&D expenditures in the second quarter of 2022 were $26.3 million. In the quarter, SG&A expense were $13 million, a slight decrease from the $13.6 million in the third quarter of 2021 and a sequential reduction from the $21.2 million in the second quarter of 2022. The sequential reduction was primarily a result of a reduction in professional and deal fees, offset by a slight increase in personnel costs due to severance payments. Cash used in operating activities in the quarter totaled $37.3 million. During the quarter, the company implemented programs to preserve capital and reduce future cash burn. This included a reduction in workforce of approximately 50 positions. The impacted positions were not directly focused on the immediate commercialization of our Bioptics biosensing solutions.
The company also reduced spending on programs that were not directly focused on commercializing the current technology. The company ended the quarter with $4.9 million in cash, cash equivalents, and investments. During the quarter, the company did not access funds from our E-lock. As a reminder, we continue to believe that we will receive additional funds from a U.K. R&D tax credit. Subsequent to the end of the quarter, the company closed 2 financing transactions. On October 3, 2022, the company issued $12.4 million in aggregate original principal senior secured bridge notes. Then on October 25, 2022, we issued approximately $90.6 million in aggregate original principal convertible senior secured notes due in 2026, along with warrants. The proceeds were used to repurchase all the bridge notes and the $50 million of convertible senior secured notes issued in May of 2022. And that result provided the company with access to funds of approximately $25 million, of which approximately $10 million was received in cash and after payment of fees, expenses, approximately $14.5 million is held in escrow to be released to the company with the approval of the noteholders.
For the full year 2022, we believe our revenue will be in the $3.2 million to $3.6 million range. This revenue assumes the company achieved certain customer milestones. Upon the achievement of priorities Andrew spoke about earlier in the call, our plan is to provide our outlook in the first quarter of 2023. Finally, I’m pleased to join Andrew and the dedicated team at Rockley. I look forward to working with everyone and realize our goal of bringing a revolutionary technology to market for the general health and well-being of our customers around the world. We have a great deal of work ahead of us, but the future is in sight. I will now turn the call back over to the operator to open up the call for questions.
Question-and-Answer Session
Operator
[Operator Instructions]
Our first question comes from the line of Quinn Bolton with Needham & Company.
Quinn Bolton
Hi, guys. Thanks for taking my question. I guess my question really focuses on cash flow and the balance sheet. While your technology is impressive the balance sheet has become pretty stressed. Cash is still at a pretty significant loss per quarter. And so I guess I got sort of 3 questions. One, Randy, you mentioned taking some actions to reduce costs on a quarterly basis. Can you give us some sense? What’s the expected OpEx run rate post those actions? Or what should we be thinking about on a quarterly EBITDA level? Second question, if I do the math, you started the quarter with just under $5 million on the balance sheet. It sounds net of the financing transactions, you raised 24.5%, but your cash burn seems to be higher than that per quarter. And so where are you from a financing perspective to raise additional funds? And how much do you think you need to raise to get to cash flow breakeven? And then lastly, can you give us some sense where the fully diluted share count comes because it looks like there are a significant number of shares underlying the recent convertible and warrant transactions? Sorry for all the questions, but hopefully, you can address those 3 points.
Richard Meier
Sure. First of all, I appreciate you asking the question and look forward to working with everyone as we move the company forward. Look, I think the company is certainly in a position to move forward in an aggressive fashion. As we indicated in our comments, we’ve dramatically taken steps to reduce the overall operating cost of the company. And more importantly, really focused the company on a handful of items, as Andrew outlined, that we will deliver prior to year-end. In doing so, that will position us as we indicated, to work with our adviser, Jefferies & Company, to continue to raise some capital and move the company in a direction to continue to create value in the future. At this juncture, we’re not going to be providing any guidance relative to what our cash burn is right now. I think, obviously, you’ve done the math appropriately in terms of the cash on hand at the beginning of the quarter as well as the capital that we raised. Suffice it to say that we have taken dramatic action to manage ourselves so that we can position ourselves to effectively continue to deliver on our technology processes and effectively communicate with potential investors to raise capital moving into the future. In terms of your fully diluted share count, certainly, the share count as of today is about 132 million shares or so outstanding, and we’ll be filing our Q tomorrow, so that will be reflected in that. Tough to tell you what our fully diluted would be in light of all of the financings, there’s a number of warrants and the convertibility would make under certain circumstances would certainly further dilute the shares. But we will keep you posted on that. But we do expect our fully diluted. As of the end of the quarter, you’ll see about $170 million, and the shares outstanding today on a basic level would be about 132 million shares.
Quinn Bolton
So I guess maybe if you don’t want to give a cash flow projection, can you give us at least some sense where OpEx may trend in the December quarter? And then a follow-up question. I know you’ve been awaiting some U.K. R&D tax credits. Is that something you think or have line of sight to potentially receive here in the December quarter? Or is that something that you think may push into early next year? Thank you.
Richard Meier
Sure. Again, I think we had a, as we indicated in the press release, operating expenses in aggregate of little less than $39 million in the quarter Clearly, that run rate is going to be reduced and have been reduced dramatically, since we are not giving our guidance here, we are just — we feel comfortable that we can operate comfortably through the end of the year into next year and certainly we will continue to look to opportunities to bring in additional capital moving forward. And as far as the tax consideration, we continue to work with the UK government and to secure the tax refund, so far, we’ve gotten favorable responses from them. And we will continue to work with them to recover that. In terms of timing, that’s anyone’s guess. We feel confident that we will recover but projecting what government is going to do is what we are in the business of doing.
Operator
Our next question comes from the line of Tristan Gerra with Bard.
Unidentified Analyst
This is Tyler on for Tristan. On the consumer side of the business, have you seen any delays or cancellation in projects given the weak macro environment?
Andrew Rickman
I’ll take that, Randy. No, we’ve not seen any cancellations with regard to programs with our consumer customers, they all continue.
Unidentified Analyst
Okay. Great. And then as a follow-up, are you seeing any pushback from the medical device companies on consumer OEM adoption given that, that could bring competition to their medical devices?
Andrew Rickman
You’re not because in the consumer field, we don’t see the consumer customers taking on, if you like, the kind of regulatory risk associated with, for example, in hospital and medical uses. So the 2 markets don’t appear to compete with each other.
Operator
Our next question comes from the line of Paul Silverstein with Cowen.
Paul Silverstein
Thanks. Andrew, I’ve got a bunch of related questions on role peers through my confusion. So I thought I understood from 90 days ago that you had moved the consumer wearables to the deep, deep, deep back burner. You had said that you were focused on the medical devices, given the far better economics for Rockley. I assume it wasn’t fit but I assume part of the decision was driven by the balance sheet challenges that you currently have. My question is for you. Are you all still pursuing still expending considerable or decent amount of financial resources on pursuing the conservable opportunity? Or are you still actively engaged with those consumer wearable companies? Is there still the prospect of revenue being generated from any of them? And in connection with that, correct me if I’m wrong, but if I went back to as recently as September of last year, you were talking about, I believe, the number was $63 million of NRE money, which I assume was especially investments by one or more of the wearable companies in particular, as they pursue commercializing your technology, that clearly from your guidance is not in the ’22 number, let alone the 30-plus resin referenced for ’23. What if anything does that — is that a function of the fact that the consumer wearable companies are no longer meaningfully pursuing solutions with your technology? I’m just trying to understand, is it — is 98% of your focus now on MedTech or is it more balanced? Can you help me understand?
Andrew Rickman
It’s more balanced pool. And that we are agnostic, if you like, to the utilization of the technology. What we were able to achieve over the course of this year was to dramatically accelerate a wearable device, a bioptic variable device for the med tech market. It still needs to be FDA-approved, regulatory-approved, but it has traction in professional applications and with trials with customers that will ultimately utilize it in medical applications. So we’ve accelerated that piece of it. Now what goes into that, if you like, professional wearable in terms of spectrophotometer and the associated ASICs and the algorithms and all the human studies, et cetera, is the same as it works for a consumer company. And we’ve not stopped working with any of our consumer customers, and we continue to pursue them. In terms of our timing, the — our own Bioptics band for the professional markets is, in this period, in this quarter, ready for customers to start their trials with. And so that is way ahead of where we expected back at the beginning of the year. In terms of the consumer customers, obviously, their timing is dependent on them taking our devices, putting them to the design-in process into their devices, and then when they launch those devices, and we’re not making any providing any update on that other than to say that we continue to work with all of the customers that we were previously working with. Does that help with the specific questions between Med tech and consumer?
Paul Silverstein
Kind of — and Andrew, I’m not trying to be argumentative, but I could to 90 days ago, you asserted that given the far better economics in med tech. And again, I assume there was a balance sheet aspect, but that drove you to focus and prioritize heavily the med tech the equation and to place the consumer device opportunity really on the backburn here was in parallel to but maybe it was my misunderstanding.
Andrew Rickman
I think if one thinks about the development of the devices and the development of the technology, not only have you got all of the hardware and obviously, the revolutionary silicon photonic spectrophotometer capability in these devices. But you also have to conduct human studies to train the algorithms to complete, if you like, the solution. And that’s what we’ve been doing. We’ve been doing that very successfully, and we’ve been validating our algorithms, and we’re really, really excited about the results, the latest one that we published was blood pressure, which is a huge breakthrough. And so for any customer, whether it be professional, med tech, consumer, you need that complete solution. So as we look at those bands, the bioptic bans that we are just about to launch, that those Bioptics bans are essential for the professional market, special for the med tech qualified regulatory market. Essentially before all of that as the platform that allows us to continue to develop and validate the algorithms through human studies. And our, if you will, the reference designs for the consumer companies.
Paul Silverstein
Just to be clear, it’s the same module in both MedTech and consumer, the difference is the packaging. You’re in the med tech market, you’re designing entire device, the entire word device.
Andrew Rickman
Yes. And the full stack on top of that.
Paul Silverstein
Here’s the question. If I understand in our money correctly, what happened to the planned NRE investments by the various, I think there was more than one. There was a big one plus others that you used to reference. What happened to those planned NRE investments? Why did they go away? They’re clearly gone away. They’re not in your ’22 numbers. I assume we’re not in ’23 either. I know you haven’t announced ’23. But what happened? Why did they go away?
Andrew Rickman
So I think — I mean we’d have to go back carefully through the numbers that you’re referring to. But I think what you’re referring to may include the NRE that was associated with the commercialization of the platform in fiber optic communications. And if you recall, the — our partner, Henton, will be reprimanded by the —
Paul Silverstein
Andrew, let me interrupt you. That’s not what I’m referring to. I’m not referring to the datacom business. I’m referring to the NRE money that was — it was a big company plus one or more other companies in the consumer wearable device market. Less my memory to service.
Andrew Rickman
So I’m not in a position to comment on the quantum of the NRE other than to say that all customers in the — that we’ve been engaged with, with regard to NRE, we continue to be engaged with those customers, and we continue to work with those customers, and we continue to invoice those customers.
Paul Silverstein
So we shouldn’t read anything prior. Again, I’m just trying to understand, we shouldn’t read anything from the fact that whatever those reinvestments were point whatever those planned investments were they’re apparently no longer are present at this point in time. There’s not a read-through from that.
Richard Meier
Paul, let me just jump in here and maybe I can help clarify some things because as we indicated in the revenue, most of the NREs are you generate revenue based on the meeting of certain milestones and certain qualifications. And I think what Andrew is saying is we continue to work on a number of the attributes and the technology and the additional biomarkers. We continue to work with a broad spectrum of customers on delivering those technologies and biomarkers. And so the opportunities haven’t necessarily gone away. It’s our focus. We’ve decided to focus on certain things related to the med tech or the clinical market, more so than others in terms of where we are and how we’re allocating our resources today.
That doesn’t mean we are continuing to have conversations with customers across the consumer, professional, and clinical medtech side, if you will, that will enable us to advance the technologies commercially. What you may see is a different relationship with the consumers, having us go to market directly with one of our devices may not be appropriate in leveraging someone that’s already in the consumer market and is maybe the more appropriate way to go to market. And as Andrew indicated, there’s a lead time to that they integrate our technology into their designs. What we’re focused on today is delivering the 3 priorities that we talked about, which will certainly advance our ability to talk to customers in the patient monitoring segment of health care. Certainly, the blood pressure, cardiovascular segment of health care, and certainly with glucose as lactate, certainly, there’s a whole plethora and well-developed market around diabetes and other areas that we can go to market with.
That’s really where we are today and the focus, and we think that will enable us to create the most value over the next 6 to 9 months. And we will continue to pursue every other and to monetize the existing technology through our existing customer relationships. Hopefully, that gives a little more clarity to what we’re trying to do.
Paul Silverstein
Yes. I appreciate that. One last question on this line, and then I’ll pass it on. Is all or virtually all of your R&D and SG&A investment today focused on medtech with 0 or very little outside of Medtech as one would expect given the balance sheet pressures?
Richard Meier
What I think defer on the technology side of this back to Andrew, but I think what we’re saying is to get to a Medtech offering, you have to go through the unregulated qualifications, the professional qualifications and then the clinical studies to deliver a qualified clinical device. So yes, that’s where we’re focusing most of our energy because of the margins and the specific market opportunities that exist there. But along the way, that doesn’t preclude us from talking to other customers and having them either through a co-development arrangement or an NRE arrangement to pursue other avenues to generate revenue into the company.
Paul Silverstein
And the studies you referenced earlier, you’re currently in clinical studies or you’re in the preclinical studies, you haven’t yet gotten to the clinical yet?
Richard Meier
I think the difference between sort of a biotech orientation, where you’d be in sort of preclinical and clinical studies on the med tech side, you initiate human studies. So we would be in the studies that we are validating technologies in humans so that we can proceed to the FDA to develop a clear line to an approvable device in a clinical setting.
Paul Silverstein
If everything goes perfectly according to plan, what’s the minimum amount of time that would be required before the commercial [inaudible]?
Richard Meier
I think at this point, that’s what we’ll probably be updating folks on with our outlook in early 2023. So probably, we’re not going to give a line of sight to that right now. I defer to you, Andrew, just on the technology side of things so.
Andrew Rickman
Yes. Thank you. Thank you, Randy. I think we’ve said in our release that our path associated with the regulatory approval. And so we are preparing for that as we’ve expressed in the press release.
Operator
Our next question comes from the line of Tim Savageaux with Northland.
Tim Savageaux
Hey, good afternoon. Just following up on that a little bit. I mean you talked throughout the year about gearing up for a volume production ramp kind of into Q4 next year. Obviously, that’s been pushed back to some degree. But I wonder if you might comment on where we are relative to that initial expectation? And then if the sample volumes that you referenced going to your MedTech customers in ’23 equate to some degree of production volumes in your view. I think that was the original expectation. So how has that changed? And if you can give us some indication of what you mean by sample volumes, I guess?
Andrew Rickman
Randy, do you want to take that?
Richard Meier
Sure. I think as we just indicated, with the shift in focus and clearly, from balance sheet constraints, we are clearly focused on delivering the quantities of products that we believe our customers will need in terms of trialing and sampling the device and positioning our site itself to go through a process to get to a finished good, if you will, a new product development, which shouldn’t be too far down the road. So I have less visibility into what some of the prior expectations were today in terms of overall production in terms of unit volume. But we’re taking a much more modest approach here in the fourth quarter and into the first quarter of next year, really to deliver the quantities necessary to, first and foremost, meet them customer Nano trialing and sampling and meet some of the human study trials that we’ll need to fulfill both on the blood pressure side of the fence as well as we pursue glucose, alcohol, and lactose. So rather modest in terms of overall volumes, but I think adequate enough to meet the current demand and meet the future expectations we need into developing our data to move the company forward.
Tim Savageaux
Okay. And this looks like about a 20% headcount reduction. Should we be backing on at least that for OpEx run rate? And that’s it for me.
Richard Meier
I think in terms of trying to draw a line of sight from headcount reduction to sort of other operating expenses and third-party expenses is a little bit of a swag just because the talent that we have resident in the company is really focused on the technological development, more so today than, say, just a typical manufacturing worker. So you probably get a little bit more bang for your buck in terms of some of the rationalization that the company entered into. But we continue to monitor very closely the costs and the resources that we have to deliver on our priorities right now. So I’m not sure it would be 20%. But clearly, with the availability of resources, we’re going to have to manage our income statement pretty tightly.
Operator
Our next question comes again from the line of Quinn Bolton with Needham & Company.
Quinn Bolton
Just a follow-up there to Tim’s question. When you talk about sample volumes, is that sort of in the thousands of units? Is it the tens of thousands of units? I think in the past when you talked about the CE opportunity, samples were probably in the 10,000 to 30,000, I guess is that’s probably — it’s going to be lower on the medical device side. But just kind of wondering if you could give some sense as to Tim’s question, what does sample volumes mean? And then as you prepare or your customers prepare for trials, who will do those trials on lactate in glucose? Are those going to be effectively funded entirely by Rockley or will you be selling the Bioptics ban to the medical device customer who then goes out and does some of the trials for lactate glucose and alcohol?
Andrew Rickman
Okay. Should I take this, Randy?
Richard Meier
Yes, sure. Go ahead.
Andrew Rickman
So on the volume side for customer trials and their validation trials are typically in the hundreds to thousands of units. On the qualification or the development of a verification of the individual biomarkers, the algorithms for each biomarker, the way that we have proceeded there is that we do internal human studies. These human studies basically allow us to measure subjects with our devices while also measuring them with the gold standard for the particular biomarker that we’re developing the algorithm for and that’s how we develop the algorithm and through those identical studies that’s how we validate the algorithm. But one of the things that we’ve said in this period that we’re doing is that we’re doing in independently third-party run trials to validate, for example, the blood pressure algorithms. So we are in a position ourselves and with third parties, which are not our customers, people that we’ve contracted to develop and deliver the completed algorithms for all of the biomarkers. And so the customers’ activities are focused on validating for themselves that device if you like, meets what it says on the 10. That said, because this is an — it’s an instrument on your wrist, they’re not limited by the number of biomarkers that we’ve already mentioned. We’re not limited in terms of metabolites to just glucose and lactate or more and that we are in a position to collaborate with our customers and with other parties as well to develop additional biomarker algorithms for additional biomarkers in the future. So our customers have expressed and could participate in those activities.
Richard Meier
I’d like to say, wants to add a couple of things. The sort of the internal data collection and the independent studies that we’re initiating now validate the technology. What that enables the company to do is to potentially partner with third parties to do clinical studies. That’s an option that we do have going forward. So again, to answer your question a little bit more clearly, when we get to those clinical studies or there is an opportunity that we could partner with someone, we could do it ourselves. There’s a variety of different ways we could go to market with those.
Quinn Bolton
Great. And then, Randy, just on the guidance for the fourth quarter of, I think, about $400,000 at the midpoint, it sounds like that’s all still NRE that there’s no meaningful bioptics band production in the fourth quarter. It sounds like Bioptics band is probably early next year.
Richard Meier
The incremental guidance that we gave for the fourth quarter would be consistent kind of with the revenue that we generated in the third quarter. And my understanding is that consensus was a bit above that so that we thought we’d just clarify that a little bit. But I would agree with your point of view of where the revenue would be coming from.
Operator
Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I’d like to turn the call back to Andrew Rickman for closing remarks.
Andrew Rickman
Thank you all for joining us on our call, and we’re looking forward to speaking to you throughout the quarter and at the next Earnings Call. Thank you very much, everybody.
Be the first to comment