Earnings Call Transcript - ISPC Q3 2021

Operator, Operator

Good day, everyone, and welcome to iSpecimen's Third Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management's remarks. This conference call is being recorded. A replay of today's call will be available on the Investor Relations section of iSpecimen's website and will remain posted there for the next 30 days. I will now hand the call over to Allison Soss, Investor Relations for introductions and the reading of the safe harbor statement. Please go ahead.

Allison Soss, Investor Relations

Thank you, operator. Good morning, everyone, and welcome to our iSpecimen’s third quarter 2021 results conference call. With us on today's call are Christopher Ianelli, iSpecimen's Chief Executive Officer and President; Tracy Curley, Chief Financial Officer; and Jill Mullan, Chief Operating Officer. Before we begin, I would like to remind you that today's call contains certain forward-looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including with respect to the company's recent IPO and the anticipated use of the net proceeds as well as concerning future events. Words such as may, should, project, expects, intends, plans, believes, anticipates, hopes, estimates and variations of such words and similar expressions are intended to identify forward-looking statements. These statements are subject to numerous conditions, many of which are beyond the control of the company, including those set forth in the risk factors section of the company's registration statement and the final prospectus for the company's initial public offering filed with the SEC. Copies of these documents are available on the SEC’s website at www.sec.gov. Actual results may differ materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update these statements or revisions or changes after the date of this call, except as required by law. Now, it is my pleasure to introduce Christopher Ianelli, CEO and President of iSpecimen. Chris, please go ahead.

Christopher Ianelli, CEO

Thanks, Allison. Good morning, everyone, and thank you for joining us today on our third quarter 2021 earnings conference call. This is our second quarterly earnings call as a public company and I'm excited to provide you with an update on our progress. With me are Tracy Curley, our Chief Financial Officer; and Jill Mullan, our Chief Operating Officer. We will begin by providing you with an overview of our operational and financial performance during the three and nine months ended September 30, 2021. Following that, we will open the line to take your questions. To start for those of you that are new to the iSpecimen story, we are a technology-enabled life sciences company, focused on accelerating scientific and medical discovery through our iSpecimen marketplace solution and online biospecimen market platform that enables life science researchers to instantly search for and gain access to patients, biospecimens from these patients, and related healthcare datasets from a global network of healthcare providers. There is remarkably strong demand for annotated human biospecimens within the life sciences markets, due to the essential roles that they play in medical research. Without them, it would be impossible for researchers to conduct life science research and develop tomorrow's diagnostic and therapeutic products. There is an estimated $3 million to $4 billion spent annually on biospecimen procurement with a projected growth rate of 10% to 15% per annum. However, this market remains highly fragmented and suffers from a variety of supply chain issues. This is where iSpecimen comes in with its game-changing approach. The iSpecimen marketplace streamlines the entire biospecimen procurement process by connecting life science researchers to a global network of patients and biospecimens, available from iSpecimen’s partnered hospitals, laboratories, biobanks, blood centers, and other healthcare/supplier organizations. By using our platform, researchers can obtain annotated biospecimens more quickly and more efficiently, which reduces costs while at the same time enabling them to accelerate their diagnostic, therapeutic, and vaccine research. With that, let me provide some highlights from our third quarter 2021 results, followed by comments relative to our 2020 performance. I'm pleased to report that in the third quarter, we grew our unique supplier organizations under agreement to 197 compared to 190 supplier organizations under agreement at the end of the second quarter. We also continued to grow our base of customers who have purchased from us since our inception, having reached an unfulfilled orders from 398 unique organizations as of the end of September 2021, a 5% jump up from 378 unique organizations at the end of the prior quarter. Our customers include 70% of the top 20 pharmaceutical companies and 70% of the top 20 in-vitro diagnostic companies worldwide. We have delivered more than 160,000 specimens across more than 2,100 projects to them since our inception. For our iSpecimen marketplace, as of September 30, 2021, we reached nearly 4,900 registered individual users, which includes users on both the customer side and the supplier side of our platform. Turning to our third quarter 2021 financial results. We reported revenue of approximately $2.7 million, a 21% increase compared to the approximately $2.3 million recorded for the third quarter of 2020. For the first nine months of 2021, we achieved record revenue of approximately $8.6 million, a 57% increase compared to the $5.5 million posted for the same period in 2020, which is also greater than our full year 2020 revenue. Later in this call, Tracy will provide a detailed breakout of our COVID and non-COVID related revenue. Before she does that though, I'd like to provide some comments and some additional information for overall context, specifically around the typical seasonality of biospecimen order flow and how COVID-19 impacted that seasonality both last year and this year. First, a couple of notes around seasonality. Historically, the third quarter of the year is a slightly slower quarter than the second quarter for biospecimen procurement in terms of both customer requests and specimen fulfillment. We believe this is the result of summer vacation schedules impacting both the demand for specimens and our suppliers’ abilities to collect those specimens. In fact, three of our past four years showed some slight diminution in revenue during our third quarter when compared to the second quarter of the same year, including the third quarter of 2021. However, looking back at last year to the third quarter of 2020, we did not experience the usual seasonal dip. We believe this was due in large part to the COVID pandemic, which created a new heightened demand for specimens, specifically for COVID-related research studies around the globe. In fact, our COVID-related revenue peaked as a percentage of revenue during the third quarter of 2020, with approximately 63% of our revenue coming from COVID-related order flow. This heightened need for COVID-related specimens was largely meant for the provision of remnant clinical samples, which led to higher revenue in the third quarter of 2020, but at a lower average selling price per specimen. Now, one year after our COVID-related business peak as a percentage of our revenue, COVID specimens accounted for only approximately 34% of our revenue during the third quarter of 2021, while our non-COVID revenue accounted for 66%. This shift from remnant COVID specimens to non-COVID specimens also resulted in a higher average selling price per specimen in the third quarter of 2021 compared to the average selling price per specimen in the third quarter of 2020. Tracy will share with you the more detailed numbers later. But overall, our non-COVID related business has been increasing, while the demand for COVID-related specimens has been decreasing. We expect that the strong growth in our core non-COVID-related business will continue going forward and replace a diminishing COVID business as; one, non-COVID research programs return to their pre-pandemic levels. Two, we bring more suppliers on board and continue to expand our relationships with existing ones. And three, we continue to advance the functionality of our iSpecimen marketplace platform. One final note on COVID-19. We believe that our demonstrated ability to adapt and grow throughout this pandemic exemplifies the strength of our technology-enabled approach, our business model, and our marketplace platform. By having a broad and diverse supply partner network, geographically distributed across the globe and connected via our marketplace platform, we were able to quickly and easily adapt to the changing demand for patient access and biospecimens, even when such changes developed so acutely. We expect that as research protocols and requirements continue to evolve, we will also continue to be well-positioned to adapt, grow, and serve the needs of the market. Now let's review some other news for the quarter. In addition to the growth in our core business, we also made progress with increasing our service offerings, as well as growing our supplier network and data assets. Just this July, we launched an enhanced custom biofluids collection service to offer U.S. researchers in life science organizations a new rapid delivery option when they need to urgently procure human biospecimens and samples for critical time-sensitive research. We originally introduced the service during the height of the COVID-19 pandemic to assist in these time-sensitive situations. We are very pleased with the results of our enhanced custom collection service to address the ongoing need for quickly delivered collections of fresh specimens. Additionally, in August, we announced expanded offerings specifically for cancer researchers. This included broadening our network with a new wave of suppliers that offer increasingly comprehensive selections of annotated cancer tissues, biofluids, and cells throughout the iSpecimen marketplace. Related to this, we launched a partnership with a new European healthcare organization, offering 17 forms of biofluids, solid tissue, and stem/immune cells from cancer patients, as well as healthy controls. The specimens represent more than 30 categories of cancer and come annotated with detailed, identified data about the patients and their medical histories. More recently, in October, we expanded our global biospecimen supplier network to offer increasingly comprehensive selections of whole blood, plasma, and other biofluids to help accelerate the development of numerous liquid biopsy assays. In connection with the development of liquid biopsies, we also added another U.S.-based organization with numerous blood donation centers across the country to access tens of thousands of donors registered to provide blood for research. Effective in late September, iSpecimen was added to the Russell Microcap Index as part of the 2021 Russell indexes reconstitution. This is an important achievement for us as a growing publicly held company. It also reflects the hard work, dedication, and commitment of our entire team towards advancing medical research. We trust that such inclusion in the Russell index family will help increase our visibility and exposure to investors both in the U.S. and abroad. Looking ahead, we continue to execute against our strategies to broaden our service offerings and expand the number of supplier organizations under agreement, specifically to extend our procurement reach to relieve supply constraints within our model and to increase the value of our data assets. At the same time, we continue to expand our market penetration through increased sales and marketing initiatives, which will sustain our sales momentum and long-term revenue growth. Complementing this, we plan to make strategic investments to further refine our technology platform and to opportunistically expand our capabilities. These are important components of our growth strategy, which in the long-term, we believe will increase the value we provide to our current users and enable us to grow registered usership on the iSpecimen marketplace. We are excited about what we have already achieved and look forward to keeping you updated on our future progress. Now, I'll pass the call on to Tracy Curley, who will review our financial results.

Tracy Curley, CFO

Thank you, Chris, and good morning, everyone. Today I'll review our financial results for the three and nine months ended September 30, 2021, compared to the same periods in 2020. We reported revenue of approximately $2.7 million for the third quarter of 2021, a 20% increase compared to approximately $2.3 million for the third quarter of 2020. As Chris has already mentioned, our results for the third quarter of 2020 were boosted by increased COVID-19 specimen demand. While our results for the third quarter of 2021 were more typical, reflecting what we would consider normal biospecimen procurement activity and demand during this period of the year. For the third quarter 2021, non-COVID-19 related revenue was approximately $1.8 million, or 66% of our quarterly revenue, compared to approximately $838,000, or 37% of revenue for the third quarter of 2020. Complementing these numbers, COVID-19 related revenue was approximately $923,000 in the third quarter of 2021 or 34% of our quarterly revenue for the period, compared to approximately $1.4 million of COVID-19 related revenue for the third quarter of 2020, which represented 63% of revenue. The number of specimens accessioned during the third quarter of the current year decreased by approximately 700 specimens, or 12%, to approximately 5,300 specimens, compared to approximately 6,000 specimens accessioned during the third quarter of 2020. However, a favorable change in the specimen mix resulted in an increase in the average selling price per specimen of approximately $138 or 37%, compared to the same period in the prior year. During the nine-month period ended September 30, 2021, we reported revenue of approximately $8.6 million compared to approximately $5.5 million during the same period last year, a 57% increase. Our revenue for the nine-month period ended September 30, 2021, has exceeded our full 2020 results for revenue, which was approximately $8.2 million, and we are expecting to end 2021 strong as is historically typical for the company. For the nine months ended September 30, 2021, non-COVID-19 related revenue was approximately $6.1 million, or 71% of revenue, compared to approximately $3.4 million, or 62% of our revenue for the comparable 2020 period. As a reminder for the first quarter of 2020, 100% of our revenue was non-COVID-19 related revenue. The nine months ended September 30, 2021, COVID-19 related revenue was approximately $2.5 million, or 29% of revenue compared to approximately $2.1 million, or 38% of revenue for the comparable period in 2020. Again, as a reminder, for the first quarter of 2020, we had no COVID-19 related revenue. Specimens accessioned during the nine months of the current year increased by approximately 150 specimens, or 1%, to approximately 17,150 specimens compared to approximately 17,000 specimens accessioned during the nine months ended September 30, 2020. However, a change in specimen mix resulted in an increase in the average selling price per specimen of approximately $179 or 56% compared to the prior year's period. The increases in revenue for the three and nine-month periods in 2021 were primarily due to a more seasoned sales team, continued demand for specimens from patients with non-COVID-19 test results, and an increasing demand for specimens in non-COVID-19 research areas. While we were still encountering opportunities for COVID-19 related revenue, we expect those opportunities to continue to decline. Simultaneously, we continue to expect to see the COVID-related requests being replaced by an increasing demand for specimens in non-COVID-19 research areas. Cost of revenue for the third quarter of 2021 was approximately $914,000 compared to approximately $904,000 for the third quarter of 2020. This was attributable to a 14% increase in the average cost per specimen impacted by specimen mix partially offset by a decrease of 12% in the number of specimens accessioned to the current period compared to the same prior year's period. Cost of revenue for the nine-month period ended September 30, 2021, was approximately $4 million compared to approximately $2 million for the same period in 2020, which was attributable to a 96% increase in the average cost per specimen offset by a 1% decrease in the number of specimens accessioned during the same current nine-month period over the same prior year period. The significant increase in the average cost per specimen for 2021 is the result of both a changing specimen mix and a significant project in 2020, which yielded lower than normal average cost per specimen in 2020. Technology expenses were approximately $544,000 for the third quarter of 2021, compared to approximately $413,000 in the third quarter of 2020. For the nine-month period ended September 30, 2021, technology expenses were approximately $1.3 million compared to approximately $1.1 million during the same period last year. The increases in 2021 were primarily related to an increase in operating and maintenance expenses and in depreciation and amortization, partially offset by a decrease in project expenses for development of the company's technology that we were not allowed to capitalize. As you may recall, a portion of the proceeds from our IPO are earmarked for technology, and we do expect to spend more in this area moving forward. Sales and marketing expenses were approximately $513,000 for the third quarter of 2021, compared to approximately $507,000 for the third quarter of 2020. For the nine-month period ended September 30, 2021, sales and marketing expenses were approximately $1.7 million, compared to approximately $1.3 million during the same period last year. The increases in expenses in 2021 were related to the hiring of additional staff during the second half of 2020 and the first half of 2021 and external marketing efforts. We also expect to continue to spend more in this area moving forward. General and administrative expenses were approximately $1.7 million for the third quarter of 2021 compared to approximately $775,000 for the third quarter of 2020. The year-over-year increase was primarily attributable to an increase in costs related to iSpecimen becoming a public company, increases in legal and accounting expenses, and an increase in other general and administrative expenses across the board related to amortization of internally developed software, associated software licenses, human resources related expenses, insurance and facility expenses, and an increase in director and officer insurance, and an increase in payroll related costs. We do expect this classification of expenses to continue to be higher than historical levels, due to the cost of being a public company, which on an annual basis, we are currently estimating will be approximately $2 million. For the nine-month period ended September 30, 2021, general and administrative expenses were approximately $4.2 million compared to approximately $1.4 million during the same period last year. The increase was primarily attributable to increased costs related to becoming a public company, increased general and administrative expenses across the board related to amortization of internally developed software, associated software licenses, human resources related expenses, insurance cost and facility cost expenses, increased payroll related costs, and increased legal and accounting expenses, and an increase in director and officer insurance. Additionally, the remaining increase is related to costs not expected to recur in the future, such as payroll expenses of approximately $1 million for a special IPO bonus, which was provided to all employees in the form of cash and restricted stock units, and increased legal, accounting, and consulting expenses of approximately $800,000 that did not qualify as offering costs. As of September 30, 2021, our cash balance was approximately $9.8 million, compared to a cash balance of approximately $697,000 on December 31, 2020. For further details, I encourage you to read our most recent 10-Q which has been filed with the SEC. This concludes our prepared remarks. Now I'd like to open the call for questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. The first question comes from Priyanka Mahajan with ThinkEquity.

Priyanka Mahajan, Analyst

Please describe the enhanced custom biofluids collection service. Is it technology based? Has the company expanded its network in the cancer space? Just wondering about the mechanics of it.

Christopher Ianelli, CEO

I’m going to let Jill answer that question. She heads up supply development. So go ahead, Jill.

Jill Mullan, COO

Yes. So the enhanced custom collection services allow us to do a couple of things. One is to collect specimens internally at iSpecimen. We have the ability to now recruit patients and bring them to our site and collect the specimens from them. We're using mobile phlebotomists to help with that. And we can also send the phlebotomists out to the site, which allows us to very quickly collect from patients who otherwise may not be interacting with health care systems. The other piece of it is providing those same services to healthcare providers to patients. They also may not be connecting with the healthcare system, but may be able to participate in research. So it's a way for us to gain access to those patients much more quickly.

Operator, Operator

The next question comes from James Lieberman with Revere Securities.

James Lieberman, Analyst

You're clearly accomplishing a great deal in a very short period of time in terms of how you're developing your business model and adapting to the times. Can I derive or conclude from the figure? You said that you have received purchase orders for $12.8 million for the year of 30%? Would that mean that you have approximately $4.2 million backlog?

Jill Mullan, COO

No. Our backlog is approximately $7.5 million. This includes orders we have received but have not yet shipped samples. We received $12 million in purchase orders, along with a backlog from the previous year. The revenue of over $8 million reflects shipments from the purchase orders we've received, as well as shipments against the backlog from earlier quarters, along with the remaining backlog moving forward.

James Lieberman, Analyst

Is it valuable how that backlog plays out and how it ships? How do you view that? Can you give some color to it?

Jill Mullan, COO

Yes, so what we typically do is at the beginning of the quarter, we will evaluate the backlog and look at the aging of the backlog along with the types of specimen requests in the backlog. As an example, if we have requests for bank samples that are in the backlog, those are things that we know we can ship in a relatively short period of time. And we would estimate that most of those will ship over the course of the next quarter. If we have prospective collections in there, depending upon the collections, the collections can take weeks, months, and sometimes years or longer. So we'll look at each collection's rates and what we expect them to be, making estimates against what we think we will ship against those samples. So there's a backlog analysis that gives us a good sense of what we think will ship against the backlog in the current quarter, which then indicates to us what our targets need to be for what we call book turn, which is requests that we bring in that we can book and actually then turn into revenue that quarter, recognizing that many of those will also have a backlog associated with them going forward in future quarters.

James Lieberman, Analyst

And it does give some sense of trying to get an idea of as was described the seasonality of the business where the third quarter was tends to be lighter, but nonetheless was good number this quarter and going into the fourth quarter, would there be a seasonality stronger color to that or characteristic to that?

Jill Mullan, COO

Yes, so typically, we do see a stronger fourth quarter. This is due in part to folks trying to spend budgets before the end of the year. Historically, our fourth quarter has been the best quarter of the year for us.

Operator, Operator

I show no further questions in the queue. And at this time, I'd like to turn the call over to Mr. Christopher Ianelli, CEO and President for closing remarks.

Christopher Ianelli, CEO

Thank you. I'd like to thank everyone again for joining us on today's call and for your continued interest in iSpecimen. We look forward to having follow-up conversations with many of you and to seeing many of you at the upcoming events that we have scheduled. As a reminder, we are scheduled to attend A.G.P.'s Biotech & Specialty Pharma Conference virtually on Wednesday, November 10, and the Craig-Hallum Alpha Select Conference virtually on November 16. And with that, I'll give a final thank you and wish everybody a good day. Take care.

Operator, Operator

Ladies and gentlemen, this does conclude today's conference call. Thank you for participating and you may now disconnect. Have a good day.