Flatlander schreef op 25 april 2020 22:11:
BL
I went back in the archives to counter a couple points in your recent posts.
I see the cash situation as good until at least the 3rd Qtr 2021 assuming normal burn rates of $20 mil/qtr, Your statement about the China investment appears overstated based on the above Verrelst interview. The China operations are up and running but the next significant investment in China will likely be a 3rd manufacturing line. Verrelst's interview indicates that the recent 2nd line designs and parts sourcing, etc may easily be applied to a new 3rd line in Asia such that the costs would be significantly less than the 20 million EU spent on the 2nd line. Also, this cost would be split with partner Wonfo. The March 5 cc indicates that the cash burn will decrease significantly in 2021 as the volumes increase allowing more efficient usage of the existing manufacturing lines. Also, BCART has advised that significant margin improvements will be realized in 2021 as they move to profitability. I think this is partially as a result of the mix of high priced assay products (i.e., MSI, EGFR. gene fusion, etc) and the geographic mix.
I think a lot of your recent negative outlook is based on the increased operating expenses at year end 2019. I think it now evident that BCART management kitchen sinked the end of 2019. They accelerated all expenses possible into 2019, so as to start 2020 with a cleaner slate. This is evident from the relatively low cash burn (8 mil EU) during Q1 2020.
You take a glass half empty stance pointing out that 2019 Q1 was weak providing an easy basis of I comparison. I take a glass half full stance, in the course of a few months BCART recognized that the relationship with Fisher was failing and terminated the relationship with this distributor. They staffed a US sales force, transferred 100% of US accounts to US BCART managers, arranged for distribution of consoles and cartridges and put the US market back on a growth trajectory. Weak basis of comparison or not, this is good progress and good management! As we have discussed on this board, the relationship with Fisher was inherited from previous management and was doomed to fail since Fisher is trying to launch their own POC MDx offerings in direct competition to Idylla. How could anyone ever expect them to enthusiastically sell BCART's product given this inherant conflict?
I do not disagree that with the interview statement that profitability could be achieved at cartridge sales around 500,000. Although, the average sales price needs to reflect the higher priced assays (MSI, EGFR, probably gene fusion when it is released, etc) so that the margins improve. As you have pointed out the cartridge pricing differences around the globe are not insignificant. Average pricing in the US is much higher than elsewhere. Profitability will require a higher contribution from the US (likely to start in 2021). Where we have historically differed in opinion is your extrapolation of current sales volume and pricing way into the future. I know you have asked opinions about the sales inflection points and the rates that I see. But there are many inflection points in the 2-3 year future. In the US, I'm certain that the RUO market represents less than 10% of the overall market. Thus, 90% of the US POC market cannot be accessed until registration approval is achieved. I see the access to this larger market with very attractive insurance/medicare reimbursement rates as a game changer. As you have pointed out, this submission schedule will make this a 2021 event rather than 2020. China Registration approvals with a population of 1.4 B (many of them smokers) would obviously be another potential huge inflection point.
Based on my reviews of the pathology journals which tout Idylla's accuracy, speed, ease of use, and ability to salvage results in cases where other testing methods have failed (i.e., Idylla has been shown to provide actionable results in the 30% of the cases that fail NGS), I remain very optimistic in the long run. I still see Idylla well positioned to grow. However, I have resigned myself that regulatory approvals take alot longer than I initially expected. The system in the US is biased toward CLIA testing. But given the problems with many such COVID tests, their is legislation to regulate these lab based tests. Also, there is considerable inertia in POC adoption as detailed in the Cal Davis link provided a couple days ago. People and businesses fall into routines and often have trouble changing. COVID 19 my actually accelerate the rate of change. I think there will be an emphasis on automation to avoid having people working close together. This will benefit Idylla in the long run.
As I have mentioned several times, my experience as a long term investor at GHDX is that it takes a while to develop the technical papers and testimonials that act to drive the adoption of a new product. In the case of OncoType Dx Breast, one study, the NEJM release of the TailorX results at ASCO in May of 2018 changed the company's trajectory overnight. Despite the fact that many previous studies indicated that OncoTypeDx was a good predictor of breast cancer response to chemotherapy. BCART has a lot more irons in the fire than GHDX did. During the March 5, call Verrest mentioned that more than 30 client technical publications are in the works for 2020. These studies are how traction is gained in the scientific community. While no-one here should look at BCART as a ticket to instant riches, they can look to the long term growth of similar companies (i.e., Cepheid) that have marketed easy to use, POC MDx products as an example.
BL. Because there are so many moving parts and inputs to BCART's future, I don't think anyone can provide all the inputs your financial models require. The uncertainty range is too great. In the March 5 CC they indicated that Asia is likely a 2021 and beyond story. When you start talking about the size of those markets and the fact that we are in the earliest stages of POC personalized medicine, it has the potential to blow up your model. The fact that BCART has a first mover advantage in the worldwide launch of a sample to answer POC automated system that provides lower cost answers than most current methods is a great opportunity. Unfortunately, without all of the geographically required registrations they can currently only scratch the surface of this market potential. Currently, the chief evidence of the market potential are the Pharma and content partnerships. In the next year, the FDA and other approvals will start unlock potential. I suspect that will help provide the financial metric information you require to get back in. We'll have to see where the share price is when the financial improvement become evident to all.
Best wishes
FL