Chembio Diagnostics Inc (CEMI) 2020 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Chembio Fourth Quarter 2020 Earnings Conference Call and Webcast. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Philip Taylor. Sir, the floor is yours.

Thank you, operator. Before we begin, let me remind you that the company's remarks made during this conference call today, March 11, 2021, may include predictions, estimates or other information that might be considered forward-looking. These forward-looking statements represent Chembio's current judgment for the future. They are, however, subject to numerous assumptions, risks and uncertainties, many of which are beyond Chembio's control, including risks and uncertainties described from time to time in Chembio's SEC filings, including those under Risk Factors and elsewhere in Chembio's filings with the SEC, including its annual report on Form 10-K for 2019 and its quarterly report on Form 10-Q for the third quarter of 2020 and subsequent Form 10-Qs. Chembio's results may differ materially from those projected. Chembio undertakes no obligation to publicly revise or update any forward-looking statement made today. I encourage you to review all of the company's filings with the SEC concerning these and other matters.

With that, I would like to turn the call over to Rick Eberly, President and Chief Executive Officer.

Thank you, Philip. Thank you to all of you joining us today. Today, I'm delighted to discuss our strong fourth quarter performance, provide an update on the strategic repositioning I initiated upon joining Chembio in March 2020 and review the status of our product portfolio expansion. Neil will cover the detailed financial results, and then I will conclude and open up the call for questions.

Given this was a challenging year, we were pleased that because the team remained resilient, we were able to finish the year with a strong fourth quarter revenue performance. Before talking about these numbers and our business strategy, I would be remiss if I did not acknowledge the range of challenges we encountered throughout the year. Nevertheless, our team, which I'm very proud to be a part of, remained focused on executing even when it meant overcoming those challenges along the way.

Chembio's core values spell the acronym rapid, as we were in the rapid testing business. The R stands for relentless. And our team's achievements during 2020 are a testament to our relentless perseverance through many challenging times as a result of the global pandemic. We achieved top line product revenue growth. We executed on product development and regulatory submission time lines, expanded our relationship with the Biomedical Advanced Research and Development Authority, or BARDA, which is part of the Department of Health and Human Services, and advanced our commercial and operational capabilities.

Total revenue for the fourth quarter was $10.2 million, including product revenue of $6.9 million, representing growth of 62% and 39%, respectively, compared to the prior year period.

Now I would like to step back and talk about what attracted me to join Chembio approximately 1 year ago. I will articulate the opportunities I still see for the company and how we have repositioned the business to execute on them throughout an incredibly dynamic and challenging year. I'm now even more convinced that there is significant value to be realized with the DPP platform.

Why? Well, as a reminder, and for some of our newer shareholders on the call today, Chembio's proprietary DPP technology platform provides high-quality, rapid diagnostic results in 15 to 20 minutes using a small drop of fingertip blood or alternative easy-to-collect samples such as nasal swabs. Through advanced multiplexing, the DPP platform can detect up to 8 distinct test results from a single patient sample, delivering greater clinical value than other rapid tests.

For most application, Chembio's easy-to-use portable DPP Micro Reader optical analyzer then reports accurate results in approximately 15 seconds. The system is well suited for decentralized testing, where rapid results enable patients to be evaluated while they are on-site. Objective results produced by the DPP Micro Reader reduce the possibility of the types of human error that can be experienced in the visual interpretations required by many rapid tests. With these differentiating features, DPP test systems are ideally suited for testing more patients in more locations more often. We have all seen the value of this decentralized testing model.

When I joined Chembio, it was focused on international tender-driven programs funded by national health systems and/or NGOs. Many of these arrangements were in regions that could not afford premium technology. This situation created lower ASPs that pressured margins, and the inherent nature of these tenders reduced business performance visibility. To expand its product portfolio beyond HIV and leverage DPP's capabilities, the company focused on disease states in underdeveloped markets. This work resulted in powerful validation of the technology but with commercialization potential constrained by the same inherent market dynamics.

Other than the DPP HIV-Syphilis test, internally identifying and pursuing organic product development opportunities for the U.S. market was not a priority. The U.S. market offers premium prices for advanced technology and well-defined disease states and sales channels. There are many potential customers across decentralized health care settings, where multiplex tests improve clinical decision-making at the point of care.

In addition, with a balanced approach of direct sales and leveraging leading health care distributors, the U.S. sales team can efficiently access these customers at scale. Our strategy is focused on building a U.S. customer base with recurring revenue from high-value diagnostic tests. Our objective is to win customers by selling DPP Micro Readers used to analyze the results from a broad menu of current and future tests. Establishing these accounts offers the potential to realize recurring revenue that facilitates increased visibility on future business performance. This is where we see the greatest opportunity for the company.

In 2020, we took steps to optimize our resources to support this business model. Commercially, we have built a comprehensive U.S.-based team of professionals with diagnostics experience. We are active in both the direct and distribution channels to access all the decentralized testing markets, where we see potential demand for our products.

To serve the U.S. market more comprehensively, we've added new commercial leadership, distribution management, sales, marketing and customer service professionals. Building deeper and new relationships with large national distributors like Fisher Healthcare, McKesson and Henry Schein is a priority, and we will help -- that will help broaden the reach of our expanded sales force. We've built our organization to suit the needs of different customers across various decentralized markets.

Internationally, distribution is a core component of our commercial strategy. We are working on building a new and improved distributor network to better leverage our ANVISA approvals with our subsidiary in Brazil, CE Mark approvals in Europe and country-specific opportunities elsewhere. As an example, Luas Diagnostics, led by industry veteran CEO, Brendan Farrell, is now our distributor -- exclusive distributor in the U.K. and Ireland. Commercially and operationally, our resources are aligned to be more effective with current and future product portfolio.

Of course, as we move forward, we are hyper-focused on driving the development and regulatory approval of a diverse portfolio of tests that will bring value to the U.S. market. I'll start with the FDA's PMA award of our DPP HIV-Syphilis test, which illustrates all the differentiated features provided by Chembio's DPP platform. From a single fingerstick blood sample, both HIV and syphilis are discreetly detected at a high sensitivity and specificity in only 15 minutes. It is the very first rapid test approved in the U.S. to aid in the diagnosis of both infections.

Access to syphilis testing is vital because congenital syphilis infections increased by 185% from 2014 to 2018. An untreated syphilis in pregnant women may result in stillbirth or infant death in up at 40% of cases. Additionally, patients with active syphilis infections are 2 to 5x more likely to contract HIV, if exposed.

Our initial target customers are 15,000 moderately complex physician offices, hospitals and clinical labs across the country. We are pursuing a CLIA waiver for the test, which, if awarded, would expand the market meaningfully into traditional HIV testing locations and provide the opportunity to take meaningful share in the U.S. HIV testing market. The DPP HIV-Syphilis test provides both clinically differentiated value and dual reimbursement under well-defined CPT codes with a single test and a single finger prick of blood.

Now I will provide an update on our portfolio of COVID-19 test systems, which comprised of COVID-19 antigen test, of COVID-19 antibody test and a multiplex respiratory panel, which is currently under development, that simultaneously and discreetly detect antigens for SARS-CoV-2, flu A and flu B. All 3 systems deliver the differentiated features of the DPP platform.

Point-of-care diagnostic tests for COVID-19 have proven to be extremely effective in understanding and controlling the spread of the virus. The information that these tests provide to clinicians enables quick decisions to be made with the patient still present. By contrast, lab-based PCR tests that are run at central labs can take days to produce results and have, at times, been bogged down to the volume of testing and the complex sample preparations required. This delay between testing and diagnosis can put patients and those around them at risk.

BARDA recognizes the importance of point-of-care testing and Chembio's DPP platform. We were awarded 2 grants from BARDA for the development and regulatory submissions for both the DPP SARS-CoV-2 Antigen test system, which we will refer to as our COVID-19 antigen test, and the DPP Respiratory Panel. The first part of the grant totaled approximately $630,000 and is for the development and issuance of an EUA of the COVID-19 antigen test. The second award totaled approximately $12.7 million and is for the development and issuance of an Emergency Use Authorization application for the rapid DPP Respiratory Panel and the preparation and receipt of the 510(k) clearance for the rapid COVID-19 antigen test. Receiving the 510(k) would also provide traditional permanent FDA regulatory clearance.

We appreciate the collaborative relationship we have built with BARDA. Their support and guidance have been very valuable in helping us quickly develop high-performing tests.

To date, our COVID-19 antigen test has received ANVISA approval for distribution in Brazil by our wholly owned subsidiary, and in January 2021, obtained CE Mark for distribution in the EU. In January 2021, we also obtained CE Mark for the SARS-CoV-2 IgM/IgG antibody test system, which we will refer to as our COVID-19 antibody test. As I mentioned previously, to take advantage of these approvals, we are working on building new distributor relationships in Europe, Brazil and elsewhere to help commercialize these products.

Now I'd like to provide an update on our regulatory filings in the U.S. In the U.S., we submitted EUA applications for our COVID-19 antibody test in September 2020 and our COVID-19 antigen test in October 2020. We completed the development of these tests and submitted their respective EUAs ahead of the time lines we had communicated.

In December 2020, the FDA notified us that it was declining to review the COVID-19 antibody test based on the FDA's then effective prioritization guidance. Under this guidance, review of the system was not a priority for the FDA because, for example, the FDA determined that authorization of the test would have relatively limited impact on testing accessibility or testing capacity. The FDA has supplementally advised us of the type and nature of information it would need to receive in a subsequent EUA application in order for the COVID-19 antibody test to be prioritized for review.

To be clear, our COVID-19 antibody test was not reviewed by the FDA. We believe the application that we submitted included data that met the performance requirements laid out by the agency. We are confident in the quality of our test and view the ANVISA approval and the CE Mark as validation of its performance. We are continuing to evaluate whether to commit further resources to the testing and development that would be required in order to seek -- to submit a new FDA EUA application for COVID-19 antibody test systems.

Turning back to our COVID-19 antigen test. In January 2021, the FDA notified us that it was declining to review the COVID-19 antigen test based on its updated prioritization guidance, under which review of the system was not a priority. The FDA has supplementally advised us with the type and nature of information it would need to receive in a subsequent EUA application in order for our COVID-19 antigen test to be prioritized for review. And we are engaged in testing and development in order to submit the new EUA application.

We appreciate the FDA's guidance and BARDA's continued support, and we are completely committed to gathering specific information required. We are confident we have a plan, the resources and technical capability required to resubmit the EUA. We will not be providing guidance regarding either the time line or achievement of the resubmission based on the uncertainty of the changing regulatory process and priorities. We look forward to sharing news about any FDA or regulatory awards in due course.

Now I will talk about the DPP Respiratory Panel. Development is progressing well. Again, this is a great example of the versatility of our DPP platform and its ability to multiplex. Differentiating COVID-19, flu A and flu B can assist health care providers in patient management and improve resource utilization. We believe the clinical utility of this test will extend well beyond the pandemic phase of COVID-19 and into future respiratory virus seasons.

To capitalize on the current demand for our respiratory panel product and leverage our expanded U.S. commercial organization while our DPP systems are under development, we recently signed an in-licensing agreement to distribute a respiratory panel test. This test is a point-of-care, EUA-approved respiratory panel for the detection of SARS-CoV-2 antigens, flu A and flu B.

We believe it will complement our COVID-19 portfolio because it will be sold across the same overlapping decentralized markets as our currently available point-of-care HIV tests and other COVID-19 products in development. We are launching this respiratory panel this month. Our commitment to the decentralized COVID-19 testing market is strong, and we are excited to be able to offer customers this high-performing test as the first component of our planned future portfolio.

Our COVID-19 tests, combined with the DPP HIV-Syphilis system and our well-regarded point-of-care, PMA-approved and CLIA-waived HIV tests, represent a comprehensive product portfolio that can provide value to a wide range of decentralized testing locations across the U.S. and globally. The pandemic has proven the value of point-of-care diagnostics.

Our DPP test systems are easy to use and do not require infrastructure such as central reference laboratories. They are ideally suited for testing patients across a wide variety of decentralized locations such as doctor's offices, mini clinics, urgent care centers, hospitals, nursing homes and skilled nursing facilities. We believe that the global visibility that the pandemic has provided the point-of-care diagnostic testing bodes well for its future adoption throughout the health care system.

As I mentioned previously, in Brazil, we received ANVISA approval during the fourth quarter to market our COVID-19 antigen test through our wholly owned subsidiary. And we are commercializing the product through state, local and pharmacy markets. We are also working with Bio-Manguinhos, our long-time partner, that supports the federal market, to cross-register their approval of the product with ANVISA.

Over the course of 2020, we have made significant changes to our organization that repositioned it to focus on U.S.-based test demand. This is reflected in our product development, our BARDA-funded regulatory priorities and our expanded commercial organization. Our plans for 2021 are built upon this groundwork.

Our objectives are clear: number one, launch the point-of-care, EUA-approved, in-licensed respiratory panel product in the United States; number two, get our COVID-19 products approved and on the market in the United States; number three, obtain CLIA waiver to accelerate the initial uptake of our DPP HIV-Syphilis sales; number four, begin development of our expanded portfolio of DPP tests covering respiratory viruses, sexually transmitted disease, gastroenterology and insect vector diseases; and five, build upon our automation transition initiatives and achieve operational excellence throughout the organization.

At the beginning of my remarks, I shared a number of thoughts about how I approached joining Chembio nearly a year ago. And through all of the underlying issues of the pandemic itself, together with the successes and challenges Chembio faced throughout the year, my overriding thesis for creating value at Chembio has not changed.

Much has been written in the past few weeks about what the future of COVID-19 testing looks like given the vaccine programs, downward trend of cases and overall testing demand in the U.S. So let me be clear. Chembio is committed to the broader point-of-care testing business for the long haul. Our product portfolio strategy is to launch the in-licensed respiratory panel this month, pursue CLIA waiver for the PMA-approved DPP HIV-Syphilis test and complete our ongoing dedicated work with BARDA on the respiratory panel and COVID-19 antigen test.

As discussed, the COVID-19 antigen test is funded by BARDA to complete clinical trials and achieve a 510(k) regulatory approval, providing a permanent clearance beyond when COVID-19 is an emergency and become the standard test used in seasonal upper respiratory diagnostics. That transmission from emergency use to routine patient care illustrates why we are focused on our market and channel positioning strategy in the U.S.

While others are pursuing local markets, including over-the-counter and at-home testing, Chembio is staying focused on the health care channels, where we can maximize our expanded U.S. commercial organization and the proven differentiated capabilities of our DPP platform. The basis for this strategy is compelling and clear. We believe this is where the long-term sustained market will exist for each of the disease states I listed, including our current products that is presently under development and in clinical trials and future products that we will develop in these areas.

We believe that while tangential markets may develop, all these disease states will continue to be diagnosed and treated in traditional decentralized point-of-care clinical markets. From our current market position, we can drive the company towards profitability and sustained growth with incremental market share gains in these high average selling price, well-established diagnostic channels.

I will now turn the call over to Neil for details on the 2020 financials.

Thanks, Rick. First, I would like to begin with a logistical item. As a matter of corporate housekeeping, we anticipate filing an S-3 shelf registration within the next few business days.

Moving on to the financial results. For the 3 months ended December 31, 2020, total revenue was $10.2 million, representing growth of 62% compared to the prior year period. Net product sales for the fourth quarter of 2020 were $6.9 million, an increase of 39% compared to the prior year period. Government grant, license and royalty and R&D revenues combined for the 3 months ended December 31, 2020, were $3.4 million, an increase of 143% compared to the prior year period.

Consistent with past earnings calls, I'm sharing these nonproduct sales figures on a combined basis. In addition, effective with this period, we are separately presenting government grant income and R&D revenue within total revenues on our income statement. Both government grant income and R&D revenue are related to the timing and cadence of program performance obligations, which do not always occur in a certain period, but we continue to incur certain of the expenses.

Gross product margins during the 3 months ended December 31, 2020, declined by approximately $0.7 million compared to the prior year period. The decrease reflected continued impacts from unfavorable geographic sales mix, operational inefficiencies related to manufacturing production schedule changes and the qualification during the quarter of certain of our automated equipment. Our margins were also impacted by the write-off of expired and therefore obsolete HIV product.

During 2020, we continued to invest in transitioning towards the automation of our manufacturing processes, all of which are now based in the United States. Our transition from manual to automated assembly is intended to add capacity, reduce variable costs and improve product margins. Particular focus on the validation and implementation of the automated lines occurred during the 3 months ended December 31, 2020. I will talk more about this in a few minutes.

R&D costs increased by $1.3 million, primarily due to the clinical trial costs related to the development of our COVID-19 tests. Selling, general and administrative costs increased by $3.6 million, primarily due to legal costs, costs from expanding our U.S. commercial organization and facility costs related to the COVID-19 pandemic.

Net loss in the 3 months ended December 31, 2020, was $7.1 million or $0.35 per diluted share compared to a net loss of $3.9 million or $0.23 per diluted share in the prior year period.

Now turning to full year 2020 financial results. The extensive economic disruption caused by the COVID-19 pandemic, exacerbated by the market and regulatory complications we faced in seeking to develop and commercialize a portfolio of COVID-19 test systems, was reflected in our operating results for 2020 as total revenues were $32.5 million, a decrease of 6% from 2019, and net product sales were $24.8 million, a decrease of 14% from 2019.

Government grant, license and royalty and R&D revenues combined for the year ended December 31, 2020 were $7.7 million, an increase of 37% compared to the prior year period. Gross product margins during the 12 months ended December 31, 2020, declined by approximately $5.6 million compared to the prior year period.

In 2020, we invested in developing and offering products to address the COVID-19 pandemic, which have average selling prices greater than those of our legacy products. As previously discussed, we also continue to invest in transitioning towards the automation of our manufacturing processes to reduce our reliance on manual labor and improve our product margins. The decrease in gross product margin was comprised of $0.9 million from unfavorable product sales volume and $4.7 million from unfavorable product margins.

The portion related to unfavorable product margins had 3 primary drivers. First, we incurred the cost of product sales for COVID-19 antibody tests that were returned by customers in the U.S. following the FDA's revocation of the EUA for that product.

Second, the revocation precluded planned sales of COVID-19 antibody test to customers in the U.S. for the remainder of 2020 and resulted in the deferral of certain customer opportunities for the sales of these systems outside the U.S. This negatively impacted our sales mix as we experienced significantly lower sales in the U.S., where we have our highest average selling prices relative to regions outside the U.S., where we experienced a higher mix of sales in geographic regions with lower average selling prices.

And third, we experienced operational inefficiencies, including those triggered by the revocation, activities related to qualifying automated lines for production of certain products and the write-off of expired and therefore obsolete HIV product, which together resulted in increased cost of product sales as we shifted much of our production from COVID-19 products back to legacy products.

R&D costs increased by $1 million, primarily due to clinical trial costs related to the development of our portfolio of COVID-19 tests, included those fund -- including those funded by BARDA, as Rick described earlier. Selling, general and administrative costs increased by $4.9 million, primarily due to legal costs arising subsequent to the revocation, costs from expanding our U.S. commercial organization and facility costs related to the COVID-19 pandemic, offset in part by cost savings from retrenching our Malaysia facility. During 2020, we incurred severance and related costs totaling $1.1 million.

Net loss for the year ended December 31, 2020, was $25.5 million or $1.34 per diluted share compared to a net loss of $13.7 million or $0.81 per diluted share in the prior year period. Adjusted for noncash items, our net loss for the year ended December 31, 2020, was $18.2 million.

As Rick and I have discussed on prior calls, our team continues to execute a program to reduce expenses and better align our costs with revenues, including by eliminating positions that are no longer required by our strategy. Associated with that, during the first half of 2021, we are reducing the number of employees dedicated to manually assembling our products and expect to take a restructuring charge during that period ranging from $0.1 million to $0.2 million.

To date, in 2021, we have executed changes representing approximately $2 million of cost savings on an annualized basis. On the balance sheet, cash and cash equivalents as of December 31, 2020, totaled $23.1 million. Net working capital as of December 31, 2020, was $27.4 million. During the year ended December 31, 2020, cash used in operations totaled $18.9 million, primarily due to the net loss adjusted for noncash items, and a $6.5 million increase in inventory associated with a combination of noncancelable purchase orders subsequent to the revocation of the antibody test and building raw material inventory for the COVID-19 antigen test.

Finally, while we do not intend to provide quarterly guidance going forward, given the current state of operations amid the pandemic and where we are in the quarter, we want to provide an update on our expectations for the first quarter. We expect first quarter '21 -- first quarter 2021 product revenue to decrease sequentially compared to the fourth quarter of 2020 but to be roughly offset by a sequential increase in non-product revenue.

I'll now turn the call back to Rick for concluding remarks.

Thank you, Neil. Our DPP platform technology offers clinicians in every setting across the health care system the ability to decentralize and improve access to diagnostic testing. Both patients and clinicians are fully realizing the clinical utility of point-of-care testing. We continue to believe the outlook for our technology has never been more promising. There have been challenges on the regulatory paths of our respective COVID-19 tests, but our commitment to this market is unwavering.

We understand the FDA's priorities can change as we learn more about the virus and the testing landscape evolves. Our team has the resources and technical capability to demonstrate why the DPP platform is highly differentiated. There is a large need and market for decentralized testing. We are confident our DPP test will provide value for our customers.

Bolstering this confidence is the fact that we have achieved several more regulatory approvals for test using the DPP platform. We received CE Mark and ANVISA approval for our COVID-19 antigen and antibody tests. Additionally, the DPP HIV-Syphilis test received FDA PMA approval. We also won 2 awards totaling $13.3 million from BARDA that represent another strong validation of the DPP technology.

Over the course of this year, we plan to build on that success. Our goal in the regulatory front is to achieve EUA approval and 510(k) clearance for our COVID-19 antigen test, EUA approval for our DPP Respiratory Panel and a CLIA waiver for the DPP HIV-Syphilis test. These approvals can enable a shift in the geographic and product mix that would lead to improved margins.

I would like to take this opportunity to welcome our newest members to the Chembio Board of Directors. First, Dr. David Acheson joined the Board of Directors in December 2020. The Dr. Acheson brings applicable expertise in public health and infectious disease management to our leadership team. We are confident that his perspective and insights will contribute meaningfully to our long-term value creation strategy as we enter the next phase of growth for Chembio.

Secondly, David Bespalko joined the Board of Directors in March 2021. Given Mr. Bespalko's extensive network and commercial experience in the industry, David will add meaningful insight to help maximize the value of our DPP and other technology platforms in the market. We look forward to the collaboration and contributions from both Dr. Acheson and Mr. Bespalko.

Chembio is a performance-driven organization that strives to attract and retain top customers and talent every day. Operational excellence is our expectation internally. And from this foundation, we are confident we can deliver customer satisfaction, profitable growth and shareholder value.

Finally, I would once again like to thank our employees for their steadfast commitment to our organization. We look forward to providing updates in the future as we continue to execute our strategy. Thank you all for joining us today.

Again, I wanted to reiterate that we appreciate the FDA's guidance and BARDA's continued to support of our COVID tests, and we are committed to gathering the specific information required. We are confident we have a plan, the resources and technical capability required to submit the respective EUAs. At this time, we will not be providing commentary or guidance regarding the submissions, time lines or achievement of the resubmission based on the uncertainty of the changing regulatory process and priorities. We look forward to sharing news about any FDA for regulatory awards in due course.

With that, operator, please open up the call to questions.

(Operator Instructions) Your first question is coming from Kyle Bauser.

Sorry if I missed this, but what percentage of product sales came from international markets? And can you talk a little bit about how commercialization efforts have been going in all U.S. markets? For example, are you selling more antigen tests and antibody tests? Any color here would be great.

Yes. Kyle, thank you for the question. In terms of product revenue, we haven't broken that out between the U.S. and international for Q4. Neil can provide some additional color on that.

What I would like to say, Kyle, is that in terms of our international commercialization efforts, we're very focused in the EU and neighboring markets like the U.K. and Ireland and South Africa in terms of pursuing those markets. We talked a little bit about Brazil in our prepared remarks, but we're very, very active in marketing the product in Brazil to the state and local and pharmacy markets given the severity of the pandemic as everybody is reading about in Brazil.

We've got a great distributor partner in Brazil, who is helping us market the product into the pharmacy markets as well. And we're also expanding our commercial organization in Brazil in order to build the infrastructure there long term to not only have distribution in Brazil but into the neighboring region.

And then finally, Kyle, we're working very, very closely with Bio-Manguinhos. As you know, they've been a long-term partner of Chembio over the last 15 years. So we're working very, very closely with them to get the cross-registration of the product approved by ANVISA so Bio-Manguinhos can begin to also provide the antigen test in Brazil.

So in terms of the United States, we talked a lot about our commercial organization. We've been very, very focused on obtaining customers and obtaining new customer opportunities for HIV-Syphilis test. And now as we announced today, we have in-licensed product for the respiratory panel, which we'll be launching very, very shortly. And we're very excited about adding that to our HIV product portfolio in the United States.

So Neil, do you want to provide any additional color on the revenue distribution?

Yes, sure. Thanks. Kyle, in the geographic breakdown in our 10-K, which will be filed a little later this afternoon, fourth quarter revenues in the United States were just under $860,000, which represents 13% of our product revenues in the fourth quarter. And by contrast, just as a couple of data points in the first and second quarter of this year, U.S. sales were 21% and 42% of our net product sales. So you can see how that connects with some of the comments I made as well as it relates to the unfavorable geographic mix.

Got it. No, that's helpful. Appreciate it, Neil and Rick. Can -- so what are the next steps required for obtaining a CLIA waiver for the HIV-Syphilis test? It sounds like you've got some nice traction there, your partner up and running. But -- and I know you don't want to talk about time lines, but I'm just kind of wondering what's next there that you have to do.

Yes. Kyle, we're very excited about the customer uptake in the moderately complex market, as we talked about. We're seeing customers in the public health sector. Certainly, the OB/GYN market is really giving us some positive signs that the product has a great clinical utility and fit in that market. And so we have filed for a CLIA waiver to the FDA, as we said we would do after receiving PMA approval by the FDA. So we're now under the timing of the FDA. And we will work with them to answer any questions along the time line as they review our CLIA waiver submission.

Okay. Great. So that's already filed. Great. And then can you provide an update on the latest situation with manufacturing? You provided some nice color. I'm just kind of wondering about capacity. How many automated lines are up and running to the extent you can share? And maybe what percent of your output is still from manual? Just kind of any color on that would be great.

Yes. Kyle, as Neil talked about in his prepared remarks, we made tremendous progress in the fourth quarter in getting our automated lines not only validated but operational. So as we head into 2021, and we're well into 2021, we will continue to utilize our validated and operational automated lines. We also are looking at possible expansion of our automated lines as well as we go out throughout the year. But one of the things we will do is continue to balance our fully automated lines as well as our manual production lines as it dictates by product mix, geographic product sales and the various regulatory approvals we need to get for certain automated products.

So Neil, anything to add?

Yes, just a couple of things. One is I'll reiterate the comment that I shared during the prepared remarks about the actions that we've taken thus far in '21 related to our -- I guess, reflecting our confidence in the capability of the automated lines, and that is that we've executed changes in our headcount that generate annualized savings of approximately $2 million.

Secondly, as is described in the 10-K that will get filed, is we have issued purchase orders for additional automated production lines, and that's just part of the transition that we're moving towards. Something to keep in mind is that the qualification of those lines for different products, for different geographies, under different regulatory authorities vary from place to place, product to product, et cetera. So that is -- those are just the multiple dimensions that we manage as we decide where and how we build any particular product in order as we move along day in, day out.

Your next question is coming from Bruce Jackson.

If we could go back to the automated manufacturing lines and the gross margins. How do you see the gross margin profile unfolding over the course of the year? And will the increased automation have any impact on the gross margins?

Yes. So Bruce, thanks for the question. We're not providing any forward-looking guidance as it relates to specific numbers. We have, in the past, described the benefit on the margin standpoint that automated lines provide relative to manual production. Of course, mix, overall volume and average selling prices have a significant contribution to where the margins shake out as well. And those are the factors that will impact where we ultimately end up.

Okay. Great. And then getting back to the CLIA waiver for the HIV-Syphilis test, can you give us maybe a rough idea of how long that process might take? I know that we're dealing with the FDA and that it's somewhat unpredictable, but are we talking like 9 months, 1 year, 1.5 years, before getting the CLIA waiver? Can you just help us maybe put some time around that estimate?

Yes. Bruce, the CLIA waiver does have a statutory time to it in terms of the review process. But that does not include any additional time where there's a request for specific questions to be answered and/or the response to our CLIA waiver submission. So that's why the timing is a little uncertain and why we're not providing any guidance on timing. Because we can't predict what the FDA response process is going to look like at this point. But we are in that statutory time for review under CLIA waiver submissions. And like I said before, at some point, when we receive CLIA waiver, we'll provide that information.

Fair enough. And then last question. You've got several programs ongoing in the companion diagnostics area. Anything new to report on any of those programs?

Yes. We don't have any news to report on that at this point. We do have some ongoing work in that area.

Neil, do you want to talk more about any breakout of that revenue?

Yes, sure. So you can actually, as I shared, see the breakout between the revenue from those programs versus the government programs on the face of the income statement. So you can see where that's coming. In addition, as Rick described and as we talked about in the MD&A that you'll be able to read a bit later this evening, we are -- as part of a focus, which I think is maybe the theme here, is a focus that Rick talked about on developing and launching our products and our portfolio, we are shifting very much towards doing exactly that and away from outsourced R&D development.

The work that we did in those areas have unquestionably provided substantial validation over the capabilities of the platform as they were all inbound interest, and in many respects, we're very successful. And at the same time, we see that the highest and best use for our people is to develop products where we're controlling the products, we're controlling the time line, and we're controlling the commercialization associated with them.

Thank you. There are no further questions in the queue at this time.

Okay. Let me wrap up and say thank you for everyone's time and attention today. We look forward to future updates. Have a good evening.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your line at this time, and have a wonderful day. Thank you for your participation.