Good afternoon, and welcome to the Co-Diagnostics Third Quarter 2020 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Investor Relations. Please go ahead..

Thank you, everyone, for joining us today. Before we begin, we would like to inform listeners that certain statements made by Co-Diagnostics during the course of this call may constitute forward-looking statements.

Any statement about company expectations, beliefs, plans, objectives, assumptions of future events or performance are forward-looking statements.

For example, statements concerning 2020 financial operational guidance, the development, regulatory clearance, commercialization and features of new products, plans and objectives of management and market trends are all forward-looking statements. The company believes these statements are based on reasonable assumptions.

However, these statements are not guarantees of performance and involve known and unknown risks and uncertainties that may cause the actual results to materially -- to be materially different from any future results expressed or implied by such statements.

Important factors, which could cause actual results to differ materially from those in these forward-looking statements are detailed in Co-Diagnostics filings with the SEC.

Co-Diagnostics assumes no obligation and expressly disclaims any duty to update any forward-looking statements to reflect events or circumstances occurring after this call or to reflect the occurrence of unanticipated events. In addition, we'll discuss certain non-GAAP financial measures during today's call.

These non-GAAP financial measures should not be considered a replacement for and should be read together with GAAP results. We refer you to the company's earnings release out shortly before this call, which contains reconciliation to the non-GAAP financial measures presented in their most comparable GAAP results.

I will now turn the time over to Dwight Egan.

Dwight?.

we will be dealing with this virus forever, effective and safe vaccines, and hopefully, ones with some durability will be very important, even critical tools in fighting it, but the whole world is going to be experiencing COVID-19 until the end of time.

We're not going to be vaccinating our way out of this to 8-plus billion people in the world right now. And if we don't get durable immunity, we're potentially looking at revaccination on a routine basis, if we can do that. We've really got to come to groups with actually living with this virus for at least my lifetime.

In mid-September, on meeting the press, Osterholm said, "looking forward, we're now leveled off at about 40,000 cases a day, 8,000 more than when the house was on fire back in March." With the colleges and universities opening, with the spillover that's occurring, we're going to see these numbers grow substantially.

If a vaccine does become available, it won't be in any meaningful way until the beginning of next year, and then it's going to take us months to vaccinate the population of just this country. We really have another 12 to 14 months of a really hard road ahead of us. Our view is largely consistent with that of Dr. Osterholm.

We have strategized our company's response around dealing with the pandemic over the next year and engineering products that will enhance durability of the company as we move into the potentially ongoing endemic stage of COVID-19's life cycle over time.

We believe that from here on out, we will be dealing with flu, cold and COVID-19 season for decades to come. With this potential inevitability ahead of us, we have engineered and are currently developing robust products that we believe will play an important ongoing role in dealing with these upper respiratory diseases.

I would like to begin by offering some additional color on the company's existing COVID-19 strategy, including our take on antigen tests, antibody tests and vaccination. Our current strategy includes production of high-performance tests, utilizing an open architecture, meaning that it works on most PCR devices and a variety of extraction methods.

We have focused on what we term high throughput deployments comprised of high complexity, CLIA labs. Our clients include labs that utilize the latest sample collection methods, including saliva test that can be self-administered at home, work or school.

Insofar as tests are concerned, the company has developed a robust COVID-19 test menu, including a new multiple gene assay for our international customers, our powerful ABC assay that detects and differentiates between Flu A, Flu B and COVID-19 and one easy to use and easy to interpret test; and our latest innovation, extraction free reverse transcription PCR directly from saliva samples, which has the potential to increase throughput while reducing time and cost, more on this important development in a moment.

The CDC informs us that while seasonal influenza viruses are detected year-round in the United States, flu viruses are most common during the fall and winter. The exact timing and duration of flu seasons can vary, but influenza activity often begins to increase in October.

Most of the time flu activity peaks between December and February, although activity can last as late as May. According to the Rockefeller Foundation, this year's cold and flu season will potentially result in 100 million cases of flu-like symptoms in just the U.S. In addition, during the course of the next year and every year thereafter, the U.S.

will experience approximately 1 billion colds according to some estimates. WebMD reminds us that children have about 6 to 10 colds annually.

Cold and flu symptoms are often similar to those of COVID-19, which means that while many of these cases may fortunately turn out to be the common cold, physicians will only know that patients are free from influenza or the coronavirus after testing for both.

By offering an ABC, reverse transcriptase PCR test, Co-Diagnostics has entered the high demand, upper respiratory test base in the U.S. and worldwide. Patients need to know whether the symptoms they are experiencing are a result of flu, cold or COVID-19 or a co-infection.

The flu is more lethal to children and the elderly -- while elderly adults are in the highest risk group for COVID-19. The U.S. alone is estimated to have up to 56 million cases of flu last year. Going forward, those cases will need confirmation and differentiation. 56 million flu cases is more than 5x the COVID-19 burden so far this year in the U.S.

alone. Worldwide, approximately 8% of the population or well over 0.5 billion are infected with flu every year. We anticipate broad acceptance of our ABC test, which the company began shipping on an RUO basis during the first week of October. An overlooked reality is that current -- that currently, antigen tests are typically used to detect flu.

Antigen tests are known to be considerably less accurate than reverse transcriptase PCR test. According to the CDC, sensitivities or rapid influenza diagnostic tests are generally approximately 50% to 70%, but a range of 10% to 80% has been reported compared to viral culture or PCR.

Moreover, the CDC also states that the risk of complications for healthy children is higher for flu compared to COVID-19. Our ABC test utilizes the gold standard of detection for all 3 pathogens rather than the lower standard of detection antigen tests.

While we're on the subject of antigen test, I'd like to quote Geoffrey Baird, the Acting Laboratory Medicine Chair at the University of Washington, who told the Atlantic last month, the point I'm trying to make here and I'll be blunt, is that antigen testing will not and cannot work for asymptomatic screening, and it will probably kill a lot of people.

Dr.

Baird is widely respected in the diagnostic field and his sentiments were bolstered by Alexander McAdam, the Director of the Infectious Diseases Diagnostic Laboratory of Boston Children's Hospital, who told the New York Times, that deploying the current antigen test to screen populations where the virus is scarce is a bad idea, and I'll die on that hill.

The problems experienced by the use of antigen tests are widespread. The states of Nevada and Vermont are illustrative of potential problems despite serious skepticism from scientists, the country barged ahead with tests and now find themselves in a maelstrom of COVID-19 cases.

As Otto Yang, Infectious Disease Expert at UCLA recently appointed to the industry general science earlier this year, a misdiagnosis is worse than no diagnosis. Essentially, some experts dispute not only how antigen tests should be used, but whether they should be used at all, especially for asymptomatic patients.

Keep in mind that antigen tests don't amplify their protein signals, so they are inherently less sensitive. To make matters worse, that signal gets diluted when samples are mixed with liquids needed to enable the material to flow across the test strips. As a result, most antigen tests have a sensitivity of anywhere between 50% to 90%.

In other words, 1 in 2 infected people might incorrectly be told they don't have the virus, add to this that antigen test cannot provide a true negative result.

I'll leave it to epidemiologists and infectious disease experts to prognosticate where widespread use of antigen tests may be leading us, but we believe the new stories and initial data are troubling. And that the potential negative unintended consequences of antigen testing may yet be realized and have to be reckoned with.

The New York Times also reported getting an antibody test to see if you had COVID-19 months ago, is pointless according to guidelines issued by a major medical society.

Many antibody tests are inaccurate, some for the wrong antibodies and even right antibodies fade away, so the expert at the infectious disease Society of America, which issued the new guidelines.

Because current tests cannot determine if someone is immune and the society said they cannot inform decisions to discontinue physical distancing or less than the use of personal protective equipment. As to vaccines, we believe safe and effective vaccines will be a critical tool in the fight against COVID-19, but will likely not be a panacea.

And a recent story on CNBC headlined Dr. Fauci says, help is on the way with vaccines, but doubts COVID can ever be eradicated is quoted as saying, "I doubt we are going to eradicate this." I think we need a plan that this is something we may need to maintain control over chronically.

Scott Gottlieb, a former Trump administration FDA commissioner who sits on Pfizer's Board told the Washington post, that even if the vaccine is approved before the end of 2020, that the general public would not have access until late spring or summer of next year. How soon vaccines make into the domestic and international markets remains to be seen.

And if the experience with the flu in the U.S. is any indication, effectiveness of the vaccine and controlling the virus in a real-world setting is likely uncertain. Last year, the flu vaccine was given to 45% of U.S. adults and 63% of U.S. children under 18. Notwithstanding this level of vaccination, the U.S.

still experienced approximately 56 million cases of the flu with a vaccination effectiveness of about 30%. Maybe the experience with COVID-19 will be different, but the medical community has decades of experience with flu and flu vaccines that still result in tens of millions of cases of flu in the U.S. annually.

Manufacturing issues, which is the hardest part of the vaccine business and distribution in an extraordinary cold chain conditions represent additional challenges to vaccinating our way out of this pandemic.

We note the statement, Emma Hodcroft, the molecular epidemiologist at Switzerland's University of Edinburgh quoted in the Wall Street Journal saying, a little bit more realism about the time frame for vaccinating the population would be helpful.

And even once the vaccine is widely available, it will still be an open question exactly how long it remains effective. We believe that physicians will continue to order COVID-19 tests for the foreseeable future, even for patients that have been vaccinated, but are exhibiting COVID-like symptoms out of an abundance of caution.

I will now turn to the development of our recently announced technical advance and testing for COVID-19 using non extracted saliva samples. The company has successfully demonstrated that the CoPrimer platform technology can be used to identify the presence of SARS-CoV-2 in human Saliva samples without first requiring RNA extraction of the sample.

And can do so while providing low limits of detection. This technology is a significant advance as eliminating the costly and time-consuming RNA extraction step allows for even greater speed and economic advantages.

We believe this discovery speaks to the strength, innovation and flexibility of our CoPrimer platform, not just as it relates to creating improved testing technology for COVID-19, but also additional possibilities to implement CoPrimers and various other diagnostic applications from point-of-care to high throughput centralized lab settings.

Our next steps include incorporating extraction-free saliva direct tests into the company's product offerings, including those for COVID-19, so they can be available to our customer base worldwide. Our CLIA lab customers have made important strides in saliva-based testing using CoPrimers.

For example, clinical reference laboratory is now selling its CRL rapid response saliva-based COVID-19 RT-PCR test directly to consumer.

The CRL announcement states that the test uses CoPrimer probes and primers developed by Co-Diagnostics with high degrees of sensitivity and specificity and a simple saliva collection device that lets this test be administered in virtually any setting with results typically available in 24 hours after the lab receiving their sample, delivered via secure online computer or mobile device platform.

CRL has been an invaluable customer and partner in providing high-quality molecular diagnostic COVID test to individuals and organizations across the country, helping to facilitate the safe reopening of schools, business and other organizations. We are pleased that CRL rapid response test will now be even more widely available to consumers online.

Next, I would like to provide an update on our regulatory status.

We were notified just this morning that our SARS-CoV-2 RdRp E-gene multiplex test and our ABC multiplex test for influenza A, influenza B COVID-19 have both been granted CE-IVD clearance, which will allow them to be sold as in vitro diagnostics in areas of CE markings as valid regulatory approval.

The CDSCO in India has also informed the company's joint venture that we should expect to receive formal notification of approval for the CoSara SARS-CoV-2 RdRp E-gene multiple gene test in the next few days.

This test was engineered to facilitate greater adoption in India and other jurisdictions where World Health Organization recommendations of a test with multiple genes have significant influence on health care policy. Accordingly, we believe this accommodation on the company's part could materially increase the sales opportunity in those markets.

The company will continue to distribute the ABC test to research enterprises in the U.S. market on an RUO basis, including clinical laboratories that have formed the backbone of our U.S.-based initiatives. While we pursue regulatory clearance through a 510(k) submission to the FDA. Finally, work continues in our other important verticals.

In addition to the company's test menu for COVID-19 tests, we have received various regulatory approvals for other molecular diagnostic tests, including tuberculosis, malaria, hepatitis C, hepatitis B, human papillomavirus, and a triplex test for Zika, Dengue and Chikungunya.

We look forward to increasing the availability of these tests to dozens of new markets facilitated by an increased distribution network of more than 50 organizations around the world. The company employs 2 full-time regulatory specialists who facilitate the clearance of our tests in foreign health care markets.

The acceptance of certain of our products in more than 50 countries represents an important asset of the company as we seek to expand our test menu to markets around the world. Co-Diagnostics agricultural vertical is also gaining traction, especially in our work with Bayer Crop Services and LGC.

The company is under contract with Bayer pursuant to an ongoing proof-of-concept project using our patent-pending NGS library prep technology. The company is also successfully marketing mosquito vector control products throughout the U.S.

with a list of diagnostics that include West Nile virus, eastern equine encephalitis, western equine encephalitis and Saint Louis encephalitis.

The mosquito is the deadliest creature on the planet and the co-primary platform's capabilities in this area enabled mosquito-related products, including those for malaria, Zika, Dengue and Chikungunya, which constitute an important ongoing market around world.

Our liquid biopsy test development continues as we position the company to take part in this historic development in human health care. A liquid biopsy is sampling and analysis of nonsolid biological tissue primarily blood, like traditional biopsy.

This type of technique is mainly used as a diagnostic and monitoring tool for diseases such as cancer, with the added benefit of being largely noninvasive. Therefore, it can also be done more frequently, which can better track tumors and mutations over a duration of time.

It may also be used to validate the efficiency of a cancer treatment drug by taking multiple liquid biopsy samples for the span of a few weeks. The technology may also prove beneficial for patients after treatment to monitor relapse.

Recently announced multibillion-dollar transactions between Illumina and Grail, Exact Sciences and Thrive as well as the successful IPO of Garden Health demonstrate the importance of this market for asymptomatic cancer screening, therapeutic selection, recurrence monitoring and therapeutic development.

CoPrimers have been shown to have excellent capabilities in the detection of cancer mutations present in human blood. And the company is developing diagnostics to detect a number of relevant mutations relating to the most pervasive and deadly cancers.

Our high-margin profitable operation this year and healthy balance sheet have allowed the company to expand in both staff and facility space and move development of the company's agricultural liquid biopsy infectious disease diagnostics initiatives forward aggressively.

In summary, at the beginning of the second quarter, Co-Diagnostics received emergency use authorization from the FDA for its Logix Smart COVID-19 test. Since that time, the company has successfully launched an internationally recognized business and brand.

We agree with the experts that despite the emergence of antigen and antibody test, PCR remains the gold standard for COVID-19 testing.

While upcoming vaccines will play an important role in addressing the pandemic, we believe the need for accurate, reliable, high throughput testing and even rapid point-of-care devices will remain for the foreseeable future.

Furthermore, we have laid the groundwork for future beyond the pandemic on the strength of our patented technology platform, with clients in more than 50 countries, more than 25 U.S.

states and validations of test accuracy from numerous regulatory and reference institutions from around the world, the company has established a durable production and distribution platform designed to continue sales and profitability as our technology has gained widespread acceptance in the market.

I will now turn the time over to Reed Benson, CFO, for a discussion of the financial results and condition of the company.

Reed?.

Thank you, Dwight. In the third quarter of 2020, total revenue was $21.8 million. In addition, we recorded $3 million of revenue in our India joint venture, CoSara Diagnostics. Year-to-date revenue was $47.4 million with an additional $4.4 million from CoSara.

Third quarter net income was $15.7 million and year-to-date net income was $29.6 million, this represented fully diluted net income per common share of $0.53 for the third quarter and $1.07 for the year-to-date.

Our operating leverage continues to contribute to our success as our gross profit margin on sales is 73%, and our net income margins year-to-date are 63% of sales. This includes a onetime benefit of $2.9 million from recording a deferred tax asset since we have determined that. Our net operating losses will be realizable.

The net income also includes our share of the net income from CoSara which was $750,000 for the third quarter. We continue to strengthen our balance sheet as we ended the quarter with over $50 million of current assets compared to $1.6 million on January 1, 2020.

We generated over $8 million in cash from operations for the 9 months ended September 30, and had $27 million in cash and marketable securities on hand at the end of the quarter. Our stockholders' equity increased to $52.7 million compared to $1.7 million at the beginning of the year.

The improvement in our balance sheet was driven by strong revenue growth and healthy gross margins even after the increased operational expenses in the second quarter, resulting from explosive growth we've experienced and our desire to invest in new products and initiatives in the coming months.

That concludes our prepared remarks for today, and we'll turn the time back over to the moderator..

[Operator Instructions]. Our first question comes from Theodore O'Neill with Litchfield Hills Research..

A really, really impressive income statement here. And the question I have is pretty much general, Dwight. Is it -- I mean, given what's going on out of the world, I would have expected sales to have gone up dramatically, not just for you, but for other providers of diagnostic tests.

Can you talk a little bit about what's going on there in the marketplace?.

Thanks for the question. From the beginning of our foray into COVID-19 tests, the company has had opportunities worldwide. We were the first U.S. company to have a test approved by the European Union with a CE mark, and that's where we began marketing the test. And then, of course, April 3, we got our EUA from the FDA.

And then, of course, as you know, there have been a plethora of other companies that have come into the marketplace and the recent introduction of both antibody and antigen tests. So we actually feel like we've done a very good job holding our own. We have been careful to make sure that the business that we sell is good business.

When you're dealing with an international marketplace, one of the ways you are able to check the credit of the companies that you're dealing with is to get them to pay money upfront as much as possible.

And I think anybody looks at our balance sheet and sees how well we work for our balance sheet in context of receivables and such, you can see that we're not dragging people on payables and we're getting our money collected. And we're selling good accounts to good clients that can do durable business in the future.

When this business first started in the COVID space, everybody in the world was acting like that they were going to buy billions and millions of dollars' worth of tests, but only certain of them had actual credibility. Many people were trying to shore up the ability to get tests.

And then once they were able to try and shore that up, then we go out and look for a client. We, on the other hand, have sold a very high-quality CLIA Labs or CLIA Lab equivalents and such around the country and around the world. We have a very broad base of CLIA Labs and other kinds of laboratories around the world.

And are very pleased with the kind of sales momentum that we have been able to maintain. We believe that the introduction of our ABC test and our multiple gene test for COVID will also greatly expand potentially this market around the world. So yes, we would all like to have more.

We've concentrated on making sure we have a very good quality type of sale, one that we can collect the money on, one that's going to be durable in the future in terms of increased and consistent business.

And we think we've done an excellent job doing that, as is evidenced by the gross margin that we're delivering and is also evidenced by the earnings per share that we're delivering..

My follow-up question is about the ABC test.

Will that be a saliva-based test that you can do at home as well at some point?.

Yes, it will be. The ABC test is an incredibly great test. I want everybody on the call to understand that this is a multiplex test that is very powerful. It interrogates about 41,000 different strains of Flu A, about 12,000 strains of Flu B and the 2 genes that we mentioned with respect to COVID-19.

I got a recent communication from one of our customers that said, we are just in love with this assay. It's a very good assay, very clean.

Anybody knows anything about CoPrimers and our elimination of primary dimers and such understand that the products that we deliver are easy to use, easy to interpret, and that's why we have a business that is such a high level of repeat business from our customers and why we're able to replace other tests in the market from time to time..

The next question is from Yi Chen with H.C. Wainwright..

My first question is, during the call of the second quarter, just that was in the middle of August, you mentioned that the company, at that point, has received year-to-date, $50 million worth of orders related to COVID-19 diagnostic products.

So looking at the top line revenue so far for the first 3 quarters, it has yet to receive -- yet to reach $50 million.

So does that mean there is a bottleneck at the manufacturing side or the packaging and shipping side? Or how do we -- how should we understand that?.

Okay. The first thing to recognize is that the number we were using that you mentioned also includes the revenue and sales orders, rather, from CoSara joint venture in India. So when we show the top line on our third quarter results, the India top line revenue is not shown on the income statement.

And secondly, I would just tell you that the momentum that we have in the fourth quarter so far, for example, is about the same as we've had at the same time of the quarter that we had in Q2 and Q3. So it's a similar momentum.

And I think in terms of getting a sense of how the company is doing, what to expect from a revenue standpoint, if you look at what we did in Q2, what you did Q3, what we're looking for in Q4 is on a consistent pathway.

And of course, we hope that with our new introduction of our multiple gene COVID test and also our ABC tests that we can have even greater sales as we're meeting some additional needs there, particularly in the international markets.

Does that give you some additional color there, Yi?.

Yes, yes, yes.

So is the company ready to announce a number of the number of year-to-date orders so far at this time or no?.

We're not really in a position to do that except to tell you that our momentum is similar to what we would have reported at the same time last quarter. So it's a similar looking situation right now, Yi..

Got it. Got it. So my next question is regarding these 2 new products, when you see ABC test and the other one is the SARS-CoV-2, 2 gene test.

So first of all, can you tell us how the second one is differentiated from the current Logix Smart test? And also, do you expect your current customers to, starting from now going forward, start ordering these two tests to replace the current orders for Logix Smart tests?.

Okay. Yi, most of the tests that we're selling to date continue to be the original COVID-19 tests. We just this morning, got regulatory clearance with a CE Mark and also have been notified by the CDSCO in India clearance. So we'll just now be able to begin selling the two gene tests.

I think in international markets, it will only have the chance to potentially materially increase the level of sales that we experience overseas. U.S. customers have been very happy with the existing COVID test. And I don't think that our CoV-2 test will be high driver for U.S. sales as we think it will be in international sales.

The World Health Organization promulgates certain guidelines, and they have tended to emphasize a multiple gene sort of criteria. And the reason that we did this new reengineering of the test was to make it so we could drive more sales in those international markets. So I think the U.S. market will continue to order the existing COVID test.

The international markets will probably swing to the CoV-2 with -- I think we'll just sell more of them internationally because we're now complying with the kinds of guidance that the World Health Organization has promulgated. With respect to -- and the way it's different is that it has not just the RdRp gene, also the E gene in the sequence.

So as a company, we didn't view it as a necessary "upgrade" but we think it helps the sales go down a lot easier in the international markets. With respect to the ABC tests, this is a test that we think more our customers will migrate to the ABC test from the original COVID test over time.

We don't have any problem if it cannibalizes the original test because it's sold at about a 30% higher price. So it has a chance to cannibalize the original test to bring in more revenue. So we're okay with that.

We still have very brisk sales in the COVID -- our original COVID-19 tests, and we expect that to continue for at least the next little while, while these other tests have a chance to get traction..

This concludes our question-and-answer session. I would like to turn the conference back over to Dwight Egan for any closing remarks..

Thank you. And we thank our analysts for their coverage and for their questions today, and for our shareholders and others who have listened to the call. We're very excited about our progress as a company. We think we're on a very solid footing. We think we've approached our business with a very, sort of an eye to durability, let me put it that way.

Because we have been able to foresee the need for things like a multiple gene test. We've been able to foresee the need for an ABC test well in advance of when it was going to be required, so that we are able to now supply the market with those critical tools.

We also believe that we've attached ourselves to the right technology with reverse transcriptase PCR. That is the gold standard, as indicated by the CDC as recently as September this year.

So we're very proud to be providing the test with some very good partners, such as clinical reference laboratory that are doing serious innovation and important client servicing throughout the United States and throughout the world. We appreciate our shareholders.

We appreciate our employees, our PhD talent base that have made these products available and available to our customers. It's in all-hands-on-deck environment around here.

And as you know, and as I articulated in my prepared remarks, we have not let the ball drop on our other initiatives that are involved in agriculture and involved in liquid biopsy and mosquito vectors, products and others.

We're building a company for the future, intending to make CoPrimers a technology of choice in many different parts of the world because. It deserves to be there in terms of how this technology works.

As you know, during the quarter, we also received an additional patent protection on the CoPrimer technology, where we actually got the actual molecule patented. And so we're very happy about the preservation of our intellectual property.

We look forward to some very interesting times over the next year as we take these various markets and various verticals to market and appreciate your support. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..