Good day, and welcome to the Trinity Biotech's First Quarter 2021 Financial Results Conference Call. All participants will be on a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Joe Diaz of Lytham Partners. Please go ahead.
Thank you, Betsy, thanks to all of you for joining us today to review the financial results of Trinity Biotech for the first quarter of 2021, which ended on March 31, 2021. Joining us on today's call is Ronan O'Caoimh, CEO of Trinity Biotech, and John Gillard, CFO. At the conclusion of today's prepared remarks, we will open the call for a question and answer session. Please be aware that statements made in the course of this earnings call may be deemed forward-looking statements within the meaning of federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include, but are not limited to, those set forth in the risk factors section of the company's annual report on Form 20-F filed with the Securities and Exchange Commission.
Management undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. With that, I will now turn the call over to John Gillard, CFO of Trinity Biotech, for a review of the results of the quarter, who will be followed by CEO Ronan O'Caoimh for an outline of the progress in sales and marketing and the impact on revenue. John, please proceed.
Thank you, Joe. As Joe mentioned, I will now take you through the results for Q1 2021. Starting with revenues, total revenues for the quarter were $25.6 million, compared to $21.2 million in Q1 2020. As Joe pointed out, and is our typical approach, Ronan will discuss revenues in further detail later on the call. As such, I will move on to discuss other aspects of the income statement. Gross margin for the quarter was 42.6%, compared with 43.8% in Q1 2020. This change in margin has been contributed to by sales mix changes and downward pricing pressure on PCR viral transport media products and associated collection devices due to lower demand, with some customers stockpiling supplies in Q4 2020, thus reducing market demand in Q1 2021.
In addition, the increased rollout of vaccination programs as Q1 progressed reduced down the focus on COVID-19 testing, with consequently reduced demand for PCR viral testing media and associated collection products. As ever, our gross margin remains susceptible to product mix changes, geographic spread, currency fluctuations, and product level variation. Other operating income decreased from $14,000 in Q1 2020 to $1,000 in Q1 2021 due to the suspension of small ancillary activities at our Irish site due to COVID-19 public health restrictions. Moving on to R&D expenditure. This remained relatively flat compared to Q1 2020, at $1.4 million. Meanwhile, SG&A has decreased slightly to $6 million. This reduction is primarily as a result of reduced selling and associated costs. These result in an operating profit for Q1 2021 of $3.1 million, compared to $1.7 million reported in Q1 2020, an increase of over 81%.
The $1.4 million increase in operating profit is primarily driven by increased revenues, partially offset by the lower gross margin and higher share-based compensation costs. Moving on to financial expenses. This includes the quarterly cash interest cost for our exchangeable notes of $1 million and $200,000 relates to notional finance charges associated with lease facilities. These notional lease finance charges are required by the relevant accounting standard, IFRS 16. You will note that there are further non-cash financial expenses of $160,000, which consist of non-cash accretion in the accounting carrying value of the exchangeable notes as required by the relevant accounting standard. Profit after tax, before one-off items and non-cash financial expense, was $1.8 million, compared to $0.4 million in quarter one 2020.
As in prior periods, and set out in the press release, we quote earnings per ADR, effectively our equivalent of EPS, on standard basis and also before the impact of one-off charges and non-cash financial measures. Using that modified measure, earnings per ADR have increased to $0.084 from $0.017 in Q1 2020. While diluted earnings per ADR have also increased, in this case to $0.101 from $0.053 in Q1 2020. I will now move on to address some of the main balance sheet movements we have seen since quarter four 2020. Inventories have increased by 24% over the quarter, with most of this increase attributable to increases in inventory to support PCR viral transport media and associated sample collection devices.
We increased inventory in Q1 in line with the increase in our production capacity, and to respond to market feedback that indicated customers wanted near immediate delivery of these products. We did, however, reduce output from mid Q1 to manage inventory levels, given the aforementioned reduction in demand. We have, however, retained our ability to rapidly scale up production if required. Meanwhile, our trade and other payables have increased by 17% this quarter, driven by a number of items, including the receipt of $1.76 million of Paycheck Protection Program loans in quarter one 2021, continued working capital efforts to optimize credit terms obtained from suppliers, and accrued interest on our convertible notes. These were partially offset by reduced deferred revenue.
While we do expect that the vast majority of the Paycheck Protection loans will be forgiven in due course, until they are forgiven, we will continue to account for them as repayable, as has been our policy with prior Paycheck Protection loans received. Trade and other receivables decreased by 34%, primarily driven by strong cash collection efforts and the quarter-on-quarter reduction in revenue, which delivered an increase in net collections versus new credit billings. Finally, I will discuss our cash flows for the quarter. Cash generated from operations during the quarter was $5.9 million. As I mentioned, the company received just over $1.7 million of second-round Paycheck Protection Program loans in Q1, which was a non-operating cash inflow. Non-operating cash outflows during the quarter included capital expenditure of $2.2 million and payments for property leases of $0.7 million.
Overall, this resulted in a cash balance of $32.3 million at the end of quarter one 2021, which is a net increase of almost $5 million in the quarter. Thank you. I will now hand over to Ronan.
Thanks, John. I am now going to review the revenues for quarter one and for the corresponding quarter in 2020 before opening the call to a question and answer session. Our revenues for quarter one were $25.6 million, compared to $21.2 million in the corresponding quarter, which is an increase of 21%. Point of care revenues in quarter one were $1.9 million compared with $3.3 million in the corresponding quarter, which is a decrease of 43%. This was primarily due to a delay in the issue of HIV rapid test orders from Africa as a result of COVID-19, but also due to difficulty in procuring air freight transport. We are seeing evidence of these COVID-19 driven delays abating, and we expect that point of care revenues will increase as 2021 progresses.
In March 2021, we announced that we had submitted our TrinScreen HIV product to the World Health Organization for approval. This product, once approved, will allow the company to enter for the first time the HIV screening market in Africa, which at 117 million tests annually, is a twelvefold bigger market by value than the confirmatory test market where Trinity Biotech has for many years held dominant market share with its HIV Uni-Gold p roduct. Meanwhile, we have significantly strengthened our sales team in Africa with a number of senior hires in anticipation of our market entry later this year. The exact timing of the expected approval is difficult to predict, but we are hopeful of an approval during quarter three, although it is possible that due to prioritization of COVID products by the WHO, that the approval could fall into quarter four.
We see HIV TrinScreen as a huge opportunity for the company, given its outstanding performance characteristics, given also our automated low-cost manufacturing capability, and given our existing reputation and presence in the market. Moving on to chemical laboratory. Our revenues for the quarter increased to $23.7 million compared with $17.8 million in the corresponding quarter, which is an increase of 33%. This increase is primarily explained by strong COVID-19 related product revenues with our PCR viral transport media product being the most significant contributor. We have developed and continue to develop a strong suite of COVID-19 related products. As previously noted, our FDA-approved PCR viral transport media product performed well during the quarter. It is a sample collection device for COVID-19 PCR molecular testing, which is used to store the nasopharyngeal swab which contains the patient sample, allowing it to be transmitted in a stable environment.
The transport medium stabilizes the sample and prevents bacterial growth and maintains its integrity until such time as the test is run in the laboratory. In addition to our COVID-19 ELISA antibody test, which runs on automated instrumentation and which is available for sale in both the U.S. and in Europe, we also expect to submit our COVID-19 rapid antibody test to the FDA before the end of June, within the next five weeks, under the Emergency Use Authorization pathway, thereby enabling us to sell the product in the U.S. The company is developing a COVID-19 rapid antigen test using a nasopharyngeal swab. The test will run in 12 minutes. The test will be manufactured in our automated manufacturing facility in Ireland with a cassette which is virtually identical to that of both Uni-Gold and TrinScreen.
Meanwhile, the company has also experienced increased revenues of our COVID-19 monoclonal antibodies. These monoclonal antibodies are the raw material used in the manufacture of COVID-19 antigen tests. Lastly, as a consequence of COVID-19, we have experienced increases in the revenues of our respiratory point-of-care products. During our last conference call, we signaled that there would be a reduction in COVID-related revenues in quarter one. In fact, COVID-related revenues in the quarter came to a total of approximately $8 million, down from approximately $13 million in the previous quarter. This reduction is explained by large elements of stockpiling prior to year-end in 2020 and a reduction in overall testing levels as vaccination progressed. Now moving back to our core business. Our autoimmune business generated revenues approximately 5% lower than the corresponding quarter, with reference laboratory testing volumes down about 10% and product revenues marginally down.
We believe that this is entirely due to the COVID-19 pandemic, as many patients deferred doctor visits unless absolutely necessary. We are confident that these revenues will fully recover in the post-pandemic environment. Moving to our hemoglobin A1c business. We continue to have lower instrument placements with just over 40 instruments placed during the quarter, which is slightly more than 50% of normal placement levels. This was expected as hospitals and clinics are unlikely to purchase new capital equipment in the midst of a pandemic. However, we are confident that these placements will fully recover in a post-pandemic environment. Meanwhile, reagent revenues, and by that, I mean the number of tests being run in our diabetes business are running at about 90% of normal, again, due to the fact that patients are less likely to perform discretionary tests during the pandemic.
Meanwhile, we anticipate launching our new midsize hemoglobin A1c instrument in early 2022. This instrument will enable us for the first time to target thousands of smaller hospitals and diabetes clinics around the world, mostly outside of the U.S. and the European Union. Previously, we have been unable to service this market as the processing capability of our Premier instrument, and also its cost, was too large for the requirements of these hospitals and clinics. Although we have designed and developed the instrument in Kansas City, it will be manufactured in China, thereby enabling us to make the instrument available to the market at a very attractive price. Could I now hand back to the operator for question and answer session, please? To Betsy.
We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Paul Nouri with Noble Equity Fund. Please go ahead.
Hey, good morning.
Hi, Paul.
Your COVID revenue for the quarter, was it mostly PCR transported?
Yeah.
Okay. The antigen test that you're developing, is that going to be for the U.S. or mainly OUS?
First, Paul, it'll be for right around the world. Basically, the test will be manufactured in Ireland on the same automated equipment that we do Uni-Gold and that we're about to do TrinScreen on. We have a very efficient cost of manufacturing, beyond like under $0.50. We'll be in a position to supply worldwide. In the U.S., we go the EUA route, and in Europe, we go CE mark, that's our intention. Yeah, it's progressing well, admittedly slowly, but it'll be a very good test.
You said you're going to submit EUA for a rapid antibody test, right?
Yes.
Yeah, I was just going to ask, are they substantially used now, rapid antibody tests? The next question, I guess would be, would the primary setting for it be the hospital or?
Right. Paul, what we have is we have already developed a very excellent COVID-19 antibody ELISA test. That's a test basically that runs on instrumentation in a laboratory. All right? That has both EU and EUA, FDA approval. We're free to sell in each of those geographies. The actual sales that we've achieved have been disappointing. I think everybody has seen that the level of antibody tests that had been expected didn't actually materialize, and that the focus has been mostly on PCR testing and then obviously to a lesser extent on antigen testing, but to a modest extent on antibody testing. It's been more population tests and that kind of thing. In addition to that, we are about to submit to the FDA under the EUA pathway, in the next five weeks, our antibody rapid test.
Which we believe would have greater potential for selling than the laboratory-based antibody test.
Okay.
Did that answer it?
Yeah. At least for now, we're shifting to reopening in the U.S. Different countries around the world are experiencing COVID in different ways. Some have lowered their COVID cases way earlier, and some are actually still rising. As you look at your markets, are there places where the revenues in your traditional businesses are back to where they used to be? Is it pretty much across the world that that's not the case?
We're experiencing basically that everything is down on probably about 10% on that, say, if I was to average out. It's just that, particularly in the case of diabetes, which is somewhat of a discretionary The A1C test that a diabetic would do every three months, there's a discretionary element to it, if you were to wait four months or whatever. To some extent, we were finding that patients don't present to the doctor in the middle of the pandemic. That's less the case in our autoimmune business. I think that one of the principal problems we've had with HIV is that getting into Africa, it's actually getting the product there because air cargo has become really, really precious and difficult to procure, particularly into remote areas of Africa.
What we do believe is that all of those business components will normalize back to their previous levels as soon as the pandemic is largely passed and people are largely vaccinated.
Okay. All right. Thank you.
The next question comes from Jim Sidoti with Sidoti & Co. Please go ahead.
Hi, good afternoon. Can you hear me?
Hi, Jim. Yeah.
Great. I believe I heard you said, the transport media COVID revenue was around $8 million, down from about $13 million. Down about 40% from Q4. Can you give us a sense on where you think that'll trend for the rest of the year? Is there a baseline level that you think continues, even as the vaccines roll out?
Well, just to say that, firstly, we didn't say that the transport media was $8 million. We said that all of the COVID-related products totaled $8 million, just to make that point, Jim.
Okay.
Given the many variables involved, including vaccinations and variants, it's difficult to predict future demand for the COVID-related products, and therefore, we're really not giving revenue guidance in the circumstances, Jim. It's just impossible to predict.
All right. It seems like it's likely that it'll decline from that $8 million level in the second and third quarters. Is that reasonable to assume?
I think it is reasonable to assume, but again, it's reasonable to assume, but we don't have great visibility on it. It's reasonable to assume, but it may not happen. It probably will. To what extent, we're just not saying because we don't really have the visibility on it.
Okay.
With new products coming through also.
Right. Then I assume some of those products are used in regions where the vaccine is still pretty dominant outside the United States. Is that correct?
Yes. Although most of our revenues actually have been in the United States. Just to make that point.
Okay. All right. You mentioned.
We're developing the other markets more.
You mentioned some hires in Africa in anticipation of TrinScreen. Can you give us some color what type of folks you hired?
Well, we basically were in a position to hire the most senior person, really, of our main competitor. Basically, our main competitor was involved in an acquisition in the last few years, a big acquisition. Anyway, we were able to basically make a really, really good hire of a very, very senior person. That person has brought in some of his previous reports. We have actually a really strong team and position to take on this TrinScreen challenge, and indeed to increase our Uni-Gold market share, and indeed to sell the rest of our range of products. Our primary focus is on TrinScreen. 170 million tests per year.
Those folks are primarily sales and distribution-type folks, it sounds like. Is that correct?
Yeah. This would be basically the sales guys. Sales team. Geographically spread right across Africa.
Got it.
Sorry, Jim?
I heard you. Okay. Now I know the next two or three quarters is going to be very hard to predict because you're not sure how fast the COVID business will trail off. Longer term, do you think the TrinScreen business has the potential to at least offset, if not become a larger business than your COVID business was in 2020?
To deal with that, the screening market is 117 million tests per annum in Africa, and the typical price is $0.80. Whatever that works out, it'll be $140 million or whatever. Basically, we believe that we can take a reasonable market share. The performance of our test in terms of sensitivity and specificity was staggeringly excellent, if I could say it like that. It was just remarkable. The test works very well. We know the market. We have a good reputation in the market. We have been selling the gold standard Uni-Gold test. It's basically commands the highest price in the market for the last 15 years.
We clearly have a very good reputation in the market, and in addition to that, then we can manufacture the product in a very cost-efficient manner in Ireland on an automated system that has basically almost got limitless production capability. In addition to that, now we've beefed up our team with some serious hires from the very people that were selling the majority of that 170 million tests. In addition to that, I see no doubt but that we'll get WHO, World Health Organization approval. It's only a matter of when rather than if. You take all of that into consideration and given an intention to marginally undercut the market leader. Remember, the market leader has about 80% market share. We believe that we can take a reasonable market share.
If you ran the numbers, basically, the potential here is a lot greater than the COVID opportunity, which will probably gradually evaporate. Yeah, the answer to your question is yes, Jim.
Okay. All right. How quickly do you think you'll see those sales pick up? Are there tenders that you need to win? How often are they put out? Do you expect to start winning tenders this year?
As I indicated, we believe that we will get approval sometime in quarter three. It's possible it may be quarter four. We've sought to try and get clarification from the WHO on that. They're being a little bit coy in terms of indicating what the timing will be. I think we hope to get there in quarter three. The actual route to market in individual countries depends on being basically placed on the algorithm. The algorithm will indicate what product will be the screener, what product will be the confirmer. In some instances, the screening can be split. It can have two companies in there.
We believe that as the algorithms come up for renewal, and they basically tend to come every two years, that every single time we'll be in there, and we'll win some, and we won't win others, and we'll share some and whatever. We believe it's realistic to take a sort of a 25% market share over the course of something like between three and five years, that kind of thing. In the context of our size, it's a very, very significant opportunity.
Okay. The last one for me is on the A1C instrument that you plan on rolling out next year. What's the strategy in terms of pricing? Do you charge the instrument, or do you basically let the customer use the instrument in exchange for a contract for disposables?
In fact, in essence, we'll be primarily selling the instrument because the only markets in which we sell direct, where we'd actually place an instrument and carry the cost on their balance sheet, et cetera, is really in the United States and in Brazil. In the United States, this instrument really won't. We may not even bother actually bringing it to the market. The U.S. has typically bigger hospitals. We're really not focused at all on the U.S. Yes, we will place some on our balance sheet and when we basically do reagent rentals in Brazil. The main focus will be where we will sell this instrument to our distributors right around the world, who will then basically do the reagent rentals themselves. What we're endeavoring to do here is to provide an affordable instrument, and to place it in large volumes.
We don't really endeavor to make any serious money out of the actual instrument placement itself, but rather, basically we're a razor blade model. We place the razor just marginally over cost and seek to profit from the sale of the blade, so the reagent. It's all about selling the reagent. Basically, typically, our instrument at the moment, Premier, goes into hospitals that will run, say, 10,000 or more tests per year. The sweet spot for this instrument is between sort of three and 8,000 tests per year. It's got huge potential. Remember, we've got instruments placed all over the world, basically all over the Second World, Third World. That'll be primarily our focus.
Okay. Got it. Thank you.
Thanks, Jim.
As a reminder, if you have a question, please press star then one to be joined onto the queue. Our next question comes from Bill Lapp, who's a private investor. Please go ahead.
Good morning, Ronan and John. Things are pretty well covered. I have some questions, though, on why we're spending the time on the rapid antibody test and the rapid antigen test. It seems like the market is pretty competitive and seems like we're late. I'm wondering what the thinking is. I don't think the autoimmune lab testing, you did much. I don't know, you said the sales were minimal. They were nothing. Can you explain why you're pursuing the rapid antibody test and the rapid antigen test when there seems to be plenty of competitive products there, and you haven't even been approved for the rapid antibody test in the U.S., and you're spending money for the rapid antigen test? Do you see a big market you're going to capture, or what's the thinking for going forward on this?
Hi, Bill. Nice to hear from you. Just to say, by the way, Betsy will close the call after this question. Bill, I would concede that the antibody test basically has disappointed in terms of the size of the market. Having said that, I think that there's greater market potential for the rapid antibody test than there is for the laboratory-based one, and it's for that reason that we are actually finishing basically the launch of the product by submitting to the FDA in the next five weeks. I would concede that that product is unlikely, at least as we see things at the moment, to be a huge revenue generator. In response to your question about antigen testing, I think that antigen testing will remain. COVID, although the populations will largely be vaccinated, will be with us for the future.
I think a COVID antigen test would be a very important part of the armor of Trinity Biotech, given our ability to manufacture it sort of under $0.50 on an automated basis.
Okay. You'll be competitive with the Abbott test. I just sent John an article in the Minneapolis paper about the testing that they're doing here. A lot of companies are requiring the test to be given. I just wondered if you think you can penetrate that market, even though you're a little late because of the rapidness and the cheapness of it, right?
Yeah.
Okay. When do you expect that to be done, the rapid antigen test? When do you think you'll have that ready?
We're just basically not going to give a prediction on timing here, lest we don't mislead.
Okay.
We're just not committing a timeline on it, but we're working as quickly as possible on it.
Okay. That'll be an EUA grant? I mean, EUA.
Yeah. We'd be using the EUA pathway again. Yeah.
Okay.
In Europe, we'll just CE mark those.
Okay. All right. Well, I can see why on the last call you mentioned your most exciting thing was the WHO and the TrinScreen, and I think I understand why, and with the volume, that makes sense. Good luck on getting that in the third quarter. Thank you for allowing me to ask the question.
Thanks very much. All right, well, thanks to everybody for joining us this afternoon and for your support and interest. Good afternoon. Speak to you at our next conference call. Bye-bye.
Thank you, everybody. Thanks for your time.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.