Co-Diagnostics Inc (CODX) 2021 Q3 法說會逐字稿

Good afternoon, and welcome to the Co-Diagnostics Q3 2021 Earnings Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Andrew Benson, Head of Investor Relations. Please go ahead.

Thank you, Grant. I am Andrew Benson, and joining me this afternoon are members of the Co-Diagnostics management team, including Dwight Egan, Chief Executive Officer; and Brian Brown, Chief Financial Officer. We will begin the call with management's prepared remarks and then open up the call to questions from our analysts.

Before we begin, we would like to inform the 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 2021 financial and 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 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, the company may discuss certain non-GAAP financial measures in 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 may contain reconciliations to non-GAAP financial measures presented to the most comparable GAAP results.

At this time, I would like to turn the call over to Co-Diagnostics' Chief Executive Officer, Dwight Egan. Dwight?

Thank you, Andrew, and thank you all for joining us. On this call, we will provide an overview of our results for the quarter, updates on key financial performance metrics and a discussion of progress against our strategy. Then we will take your questions. This quarter saw Co-Diagnostics achieve record sales with strong gross margins, and we are proud that we've been able to deliver on our predictions and exceed expectations while providing valuable products in the ongoing battle with SARS-CoV-2. We believe our international growth, along with our clean balance sheet and strong cash accumulation are positioning us to become a leading global molecular diagnostics company. And that the sales momentum we have been experiencing over the last 7 quarters continues to demonstrate demand for our products.

We have stated before that we agree with experts who believe that COVID-19 will likely involve infection, followed by potential subsequent reinfection and that vaccination would likely need to be followed by revaccination, similar to patterns seen with the flu. For example, researchers with the Public Health Institute, the University of Texas School of Public Health and the Veterans Affairs Medical Center recently performed a study published in the journal science. The research showed that the effectiveness of the vaccines from Moderna, Pfizer and Johnson & Johnson to prevent COVID-19 dropped to 58%, 43.3% and 13.1%, respectively, from March to September. The study also indicated that the vaccines protection against death decreased after 6 months, especially among older people.

As COVID-19 continues to spread, the virus has more opportunities to mutate potentially resulting in mutation characteristics that increase its spread, particularly as it relates to finding natural and vaccine induced immunity. The appearance of new variants may require a coordinated public health initiative for many years to come to fight against COVID-19 and its potential new variants. The company has also asserted that in order to normalize society, that is to go back-to-school, to go back to work, to travel, et cetera, regular testing with reliable protocols will need to be done. The company agrees with Dr. Scott Gottlieb, who sat on face to nation, the other thing school should be doing is operationalizing testing on a regular basis. We believe that operationalizing testing on a regular basis will be required. Wherever, we intend to normalize and create safe schools, safe workplaces, restaurants, hotels, ships, entertainment venues and so forth.

A probable scenario is that there will be vaccinated and unvaccinated individuals returning to the office, increasing the spread of COVID-19. In January 2021, the Biden administration issued a national strategy for the COVID-19 response and pandemic preparedness plan, which stated, to control the COVID-19 pandemic and safely reopen schools and businesses, America must have widespread testing. Accordingly, Biden established a $50 billion plan for increased COVID-19 testing, of which $10 billion is allocated to schools in an effort to reopen.

Just yesterday, the U.S. Department of Health and Human Services announced that as at home testing increases, the need for follow-up testing in healthcare settings will likely grow. For example, if someone buys an over-the-counter rapid antigen test at their local pharmacy to take at home and test positive, they may seek a healthcare provider who would conduct another test to confirm that result. Accordingly, as part of the Biden Harris Administration's ongoing commitment to increasing access to COVID-19 testing for Americans, HHS will invest $650 million from the American Rescue Plan to strengthen manufacturing capacity for quick, high-quality diagnostic testing through rapid point-of-care molecular tests and increase America's access to them.

The company believes that a combination of testing, vaccination and therapeutics will be required to address COVID-19. We applaud the emergence of therapeutics on the market, which go hand in glove with accurate diagnostics before they can be prescribed by a physician. As COVID-19 becomes endemic in our worldwide society, testing is likely to become an ongoing part of normal life. Co-Diagnostics was able to achieve record sales in Q3 in large part to the strength of our international partnerships and our business model that involves sales to a large cross-section of customers.

This demand as well as continued sales in the U.S. as fueled by the rise of the delta and other variants have allowed us to recently achieve record sales of our COVID related products, including the ABC test for flu A, B and COVID and our COVID-19 2 gene multiplex test the former gained clearance to be sold in Mexico in September. Then last week, we announced that the latter test has been approved in the United Kingdom, both of which have been more recently been followed by the approval of our original COVID-19 assay in Paraguay and our Direct Saliva test being approved in Guatemala. Our original COVID-19 test kit also received regulatory clearance by ANVISA in Brazil in Q3, all of which illustrate our international presence and success with this model.

Importantly, those overseas relationships are now also driving sales, not just for our suite of COVID-related offerings, but for our other diagnostic products as well, opening up opportunities for our existing and planned products built on our patented CoPrimer platform to an even larger market. We are already seeing this take place as our Zika dengue chikungunya test, for example, is registered in several countries. This uptake of Co-Diagnostics products is a driving factor in our emphasis on new infectious disease products development, expanding our product offerings to better serve our important and profitable centralized laboratory segment.

CoSara, our joint venture in India, recently announced its Saragene dengue and chikungunya multiplex RT-PCR test as an in vitro diagnostic. This CDSCO approved marks the 10th assay manufactured and sold by CoSara to receive clearance from the CDSCO and follows the recent clearance of stand-alone dengue and chikungunya assays last month. In addition to those dengue and chikungunya assays and the new multiplex test, CoSara has previously received CDSCO clearance for real-time PCR test for tuberculosis, malaria, hepatitis B, hepatitis C, Human papillomavirus and 2 COVID-19 assays, all designed using the company's patented CoPrimer technology and cleared to be manufactured and sold as IVDs in the Indian market.

In the infectious disease vertical, the company pursues 2 business segments. The first business segment comprises our centralized lab customers, of which there have been many hundreds in domestic and foreign markets. This is what currently drives strong sales in the company and a large focus of our R&D efforts as we grow that product pipeline, and we continue to expand our worldwide network of capable distributors and participating labs in over 50 countries.

Among the future product offerings that are actively in development include a multiplex SDI panel to detect and differentiate between our 4 prevalent causes of sexually transmitted infections for which analytical performance testing is currently underway and in collaboration with clinical partners, a malaria test designed to differentiate between the different species of the parasite known to be resistant to treatment and an expansion of our large smart ABC test to include respiratory syncytial virus or RSV.

The development of these tests for our centralized laboratory customers is taking place in tandem with versions that would work in at home point-of-care settings. This market represents the second segment of the company's infectious disease vertical, which is being targeted by our forthcoming Eikon platform. The Eikon development continues at a rapid pace with preclinical studies and optimizations in progress to prepare for FDA EUA submission. We believe that the addressable market for at home and point-of-care diagnostic applications is considerable, and we are optimistic about the potential impact our new platform will have throughout the world, not just for COVID, but for many other diseases as well.

The system is designed to be easy to use, inexpensive and fast while maintaining the superior performance of PCR. The result is a low-cost, small footprint platform that can be deployed widely in nearly every setting, comprised of a reusable instrument, a single-use test kit and a mobile app. Operation is simple and accessible. After introducing an oral rinse or swab sample into the test cup, it is capped and inserted into the instrument. Results are delivered by via a mobile app, sample preparation, RNA DNA amplification results, interpretation and reporting are automatically performed by the system. The system is capable of addressing other testing needs in the future, including the expansion to a variety of multiplex assays.

During our last quarterly call, I remarked that the company has been vigorously pursuing the Eikon development. And we are very aware of competitive offering seeking to attract the same vast market that we envision. Co-Diagnostics believes this versatile platform will exceed the overall capabilities of competitive offerings, checking all the boxes of being a low-cost, fully integrated, sample-to-answer molecular diagnostic system designed to meet all the 3 criteria of cheap, fast and accurate testing. But Eikon also includes certain key differentiators compared to other less robust at home or point-of-care systems. Eikon test results are PCR gold standard results compared to less accurate antigen test results.

Moreover, going forward, the Eikon system will facilitate significant multiplexing results compared to other non-PCR technologies that, while molecular, do not provide the same multiplexing opportunities. Many diseases present with similar symptoms, syndromic panel icon testing or testing of several infections with one patient sample with a single test, such as flu A, flu B, RSV and COVID will provide robust testing with multi analyte differentiation as compared to non-PCR based testing protocols from our competitors.

In our last call, I also indicated that we anticipated being able to provide updates on the validation and time line for submission for an emergency use authorization with the FDA for the device and the initial test by the next earnings call. Accordingly, I'm pleased to announce that a significant user factor study is currently underway, which will be followed by a clinical trial, which we expect will commence in December. After conclusion of the clinical trial, FDA, EUA, CE marking in the EU and CDSCO clearance submissions will be completed as soon as possible.

The key to getting it right with the Eikon platform is not just for the short-term. It is rather a long-term strategy that enables the company to play a significant potential role in syndromic panel testing covering a large number of ongoing pernicious infections, all with the primary speed and cost benefits of an antigen test while also delivering gold standard PCR multiplexing compared to non-PCR molecular tests, and PCR accuracy as opposed to less accurate antigen based tests.

We believe the overall value proposition of this product has the potential to lead drug over diagnostic systems currently in place as well as open up the at-home and point-of-care markets with a better product than those developed using less robust technologies. From the creation of the CoPrimer technology, to the engineering of this device, to the human factor studies and focus groups, to the regulatory team, this product development represents a high level of innovation, expertise and skillsets, which together portend a successful future for the product and the company as a whole.

Immediately upon receiving regulatory authorization, the company expects to conduct cells campaigns to a vast number of potential clients, which include outreach to the public sector, including schools and college campuses, enterprise sales, including airlines, theme parks, cruise ships, restaurants, entertainment venues. Healthcare sector sales, including doctors and dental offices. And of course, the residential or individual consumer sector. The company infrastructure is currently being enhanced to address our product launch.

The company's strategy goes way beyond COVID-19 to addressing many infections that were here before COVID and that like COVID will continue to require diagnostic testing long into the future. At its core, this strategy for the company includes utilizing the conditions brought about by the pandemic and leveraging those conditions into a bright future for Co-Diagnostics, including a potentially explosive at home and point-of-care diagnostic market. In addition, as a platform technology company, Co-Diagnostics and our CoPrimer platform has applications extending far beyond COVID and infectious diseases.

These include liquid biopsy for cancer detection, the development of which is ramping up as we position the company to take part in this historic and challenging development in human healthcare, the exquisite specificity of CoPrimer has been shown to have excellent capabilities in the detection of cancer mutations present in human blood, and a panel is being developed that detects 6 of the most common single nucleotide mutations of the EGFR gene associated with non-small cell lung cancer. This panel is undergoing performance verification with clinical samples, negotiations are in process with clinical partners for further development and clinical evaluation.

Other assays are being developed for several pathogens of significance in dentistry, mental health and veterinary medicine. Analytical performance is being evaluated for these assays with partnerships in each of these areas. Progress in our agricultural vertical also continues, including 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. Overall, we believe that our strong profits are positioning Co-Diagnostics well for these and other future growth initiatives as significant investments in talent and R&D continue to yield positive results.

The Eikon platform has been designed from the beginning with the ability to operationalize testing on a regular basis in at home and point-of-care settings. It is the optimal solution, not only for COVID, but for other infectious diseases that will be added to our testing menu over time. It is inexpensive, fast, accurate with gold standard PCR results and capable of multiplex syndromic testing going forward, we believe that our history of remaining ahead of the curve since the onset of the pandemic will continue to drive this trajectory of growth.

This concludes my initial remarks. Let me now turn things over to Brian Brown for a review of the key metrics and numbers. Brian?

Thanks, Dwight. Our third quarter revenue marked another record milestone for the company, totaling $30.1 million for the quarter. This represents an increase of $8.3 million or 38.0% from the prior year period. The increase is primarily due to the continued strong sales growth of Logix Smart COVID-19 test. Gross profit for the quarter totaled $26.8 million, and increased by $10.8 million or 67.5% from the third quarter of 2020, a reflection of the ongoing COVID-19 pandemic. Our gross margin percentage of 89.0% for the quarter increased from 73.3% in the third quarter of 2020, reflecting continued improvement in our manufacturing processes and a shift in our product mix as compared to the prior year period.

Year-to-date revenue grew to $77.5 million, an increase of $30.1 million or 63.4%. Year-to-date gross profit ended the quarter at $68.4 million, up $33.3 million, an increase of 94.7% from the prior year period. Year-to-date gross margin percentage of 88.3% increased from 74.1% in the comparable period -- prior year period. Total operating expenses for the quarter were $13.2 million, up from $4.0 million from the third quarter last year. The higher operating expenses were driven by expected increases in both sales and marketing costs and our research and development expenses.

Sales and marketing expenses for the third quarter increased by $3.5 million compared to the third quarter of 2020, primarily a result of higher third-party commissions on higher international sales. Our research and development expenses were up by $5 million compared to the third quarter of 2020, primarily related to planned expenditures of $4.4 million for our at-home and point-of-care device. Total operating expenses for the 9 months ended September 30, 2021, were $32.6 million, up from $9.5 million for the first 9 months of 2020. The increase in expenses reflects the same sales and marketing and R&D expense increases identified for the third quarter.

Third quarter income from operations was $13.6 million, up from $12 million for the third quarter of 2020, primarily a result of increased sales and gross margin, offset by increased operating expenses, as earlier described. Year-to-date income from operations was up 39.3% to $35.8 million, representing an increase of $10.1 million from the same period in 2020. Income before tax -- before income taxes in the third quarter was $13.6 million compared to $12.8 million in the prior year comparative quarter. And for the 9 months ended September 30, 2021, income before income taxes was $35.4 million, up from $26.8 million for the 9-month period of 2020.

Income tax expense for the third quarter was $2.1 million, reflecting an effective tax rate of 15.5%. And for the 9-month period, income tax expense totaled $6.2 million, representing an effective tax rate of 17.6%. Our effective tax rate will generally differ from the U.S. federal statutory rate of 21.0% due to state taxes, permanent items and discrete items. For both the 3 and 9 months ended September 30, 2020, we recorded a benefit from income taxes, resulting from releasing our valuation allowance due to current and future positive pre-tax income results. Third quarter net income was $11.5 million or $0.38 per fully diluted share compared to a net income of $15.7 million or $0.53 per fully diluted share in the prior year quarter. The decrease in net income was a result of increased income tax expense as compared to Q3 of 2020.

Our balance sheet has remained strong through the end of the third quarter with cash, cash equivalents and marketable securities totaling $83.9 million at September 30, 2021, an increase of $36.6 million from December 31, 2020, and up $11.5 million from the second quarter of 2021. With a highly liquid, no debt balance sheet, we remain solidly positioned to continue executing on our strategic growth plan by investing in our people, processes and research and development to drive future growth. As we discussed during our previous earnings calls this year, we plan for increased sales and marketing and R&D expenses in the third quarter of 2021, and we were still able to significantly grow our cash balance, reflecting our strong debt-free position.

Now turning to cash flows. Net cash provided by operating activities during the 9 months ended September 30, 2021, was $36.2 million compared to operating cash flows of $8.2 million for the prior year period. This significant increase in cash flow from operations was primarily due to continued process improvement and our strong revenue growth, reflecting the hard work of our people. Our team's effort continued the strong momentum from the first half of 2021, and we are very pleased with the solid results we anticipate achieving for the year.

Turning now to our guidance. We expect full year revenue in the range of 96.0 and $100.0 million, reflecting continued strong domestic and international demand for our products. We also anticipate full year diluted earnings per share in a range of $1.07 to $1.16, which includes the effect of continued R&D spending on our new diagnostics platform and investments in our people and processes. Additionally, included in the earnings per share guidance is an expectation of an effective local state and federal tax rate of 18.0% compared to an immaterial amount of tax expense for the full year of 2020.

We are very pleased with our strong financial position, which enables us to invest in significant growth opportunities such as the Eikon platform. We will continue to build upon our solid business foundation and are in a strong position to continue progressing the company forward.

With that, I'll now turn the presentation back over to Dwight.

Thank you, Brian. That concludes our prepared remarks. Operator, we are ready to begin the question-and-answer portion of the call.

(Operator Instructions) Our first question today comes from Yi Chen with H.C. Wainwright.

Firstly, could you please provide some color on what percentage of the revenue was generated in the U.S. during the third quarter?

Yes, we can provide that for you. So in the third quarter, just one second let me grab my paper there it is. In the third quarter, revenue internationally was approximately 44%. And in the U.S., it was about 56%, which for the year-to-date, you end up year-to-date 55% international and 45% domestic, which is very consistent with what we said at the beginning of the year in our call.

Got it. And based on your annual guidance for 2021, it appears that the -- for the fourth quarter, you project something slightly above $20 something million for the fourth quarter, which is meaningfully lower than the third quarter's $30 million. So can you comment on the trend of the top line revenue growth going forward?

Thank you, Yi, for that question. We have -- we've been involved in the COVID-19 test supply business for -- since the beginning of the entire pandemic. And so we've seen the ebbs and flows of the COVID-19 virus as it goes in what has typically been called waves, which are driven by different things such as the delta variant and such. And so you're somewhat at the mercy of what's going on in the context of the waves of any particular COVID status. What we have also maintained through the period is that COVID isn't going away and that like Dr. Michael Osterholm opined early on, COVID is going to be with us until the end of time. So we do expect to see ebbs and flows and peaks and valleys in terms of the ongoing demand for COVID. And as the country seeks to operationalize and we get schools and businesses trying to reopen, we think there'll be a constant demand for COVID at one level or the other.

Our goal as a company, and we started this a year ago May, was to look into the future and create a product, which, of course, is the Eikon platform, which intends to address the operationalizing needs of the world with an elegant system that is fast, that is accurate and inexpensive. And so we began that project well over 1.5 years ago and are getting to the final lapse of being able to introduce that product. And so we think that we have a very good operational runway into the product introduction there, at which time, we think we're going to be able to take advantage of the operationalizing of the testing going forward in all the different at home and point-of-care environments.

So we don't want to be too aggressive in trying to predict how the waves of COVID will impact us in the U.S. and abroad. And there are definite hot spots here and there. What I can say about the United States is it seems to be plateauing at a very uncomfortable level with almost 1,200 deaths daily still happening in the United States. So it's hard to predict, and that is reflected in our cautious guidance. But we believe that COVID is going to remain a very needed testing in environment for the foreseeable future. And by that, we mean for years to come and which is why we have developed a product to address that at the at-home and point-of-care environment. We also look forward to -- with our Eikon platform of being able to provide tests there far beyond the COVID. As you know, there are many diseases that make COVID pale in comparison in terms of the number of people infected around the globe. And we expect to be able to also address those with our new Eikon platform, which is a really elegant optimal solution.

Our next question comes from Jason McCarthy with Maxim Group.

This is Naz on for Jason. And congrats on the quarter, by the way. With the new data from Pfizer suggesting an effective treatment for COVID-19 using an oral antiviral, do you think this suggests the market could eventually move toward symptomatic testing similar to the flu? In addition, how big do you think that market potential is? And who do you think the players that -- who do you think the players are that can compete in that market? And what role could CODX play in that market, Co-Diagnostics?

So when we talk about -- our first impression with respect to an antiviral therapeutic, which, as I mentioned in my remarks, we applaud the introduction of that. In many ways, I wonder why it took so long to bring about. But this is something that anybody can see is going to require a diagnosis before somebody is going to get that particular treatment. And I would urge the listeners on the call to also do your own research about what the projected cost of that therapy is. It's an expensive therapy. It's not something that's going to be prescribed capillary. And it's going to -- but it is going to drive additional testing because you're going to have to test to get the therapeutic.

As you know, things like the flu, which infects -- you can read statistics going from about 5% to 20% of the worldwide population, we think of it as being 8% to 9% of the worldwide population that get the flu, which is one of the reasons why we concentrated on our upper respiratory ABC test. And going forward, we've indicated that we'll be adding RSV to that same panel, what we refer to as a syndromic panel because we're testing for more than 1 disease state with the same sample and the same test run. So we think that the upper respiratory area has been very much where or most of the legacy players that have done syndromic testing have been focused. The upper respiratory panel is one of their main sellers.

So we're very anxious to get in that fray and be able to provide an upper respiratory syndromic panel for a number of key infections at a cost structure, both in terms of the instrument and the individual test that will just be a fraction of the cost that providers are currently having to spend for it. Now as to who else is in the therapeutic business for antivirals, I'm not the expert to talk to about that. So I'll leave it to your own due diligence on that. But we are very enthused to see a therapeutic arrived. We think it will drive additional testing. And we look forward to making the kind of testing that we're doing here in the United States so well. We look forward to making it available in so many other parts of the world like India.

We have now put under our business umbrella, about 200 laboratories in India alone. They only have about 1,200 NABL laboratories. That's basically their equivalent to our CLIA lab. And they only have about 1,200 of those in the entire country, of which 200 are currently clients of ours. So you can imagine when we go into that country with a box that costs $300 that will do molecular testing on a syndromic basis for flu A, flu B, COVID, RSV, these that we're going to be able to put a lot of other laboratories in that country, of which there are tens of thousands of labs into the molecular business by virtue of the product that we're going to be taking in there. We think it's potentially very explosive.

Our next question comes from Theodore O'Neill with Litchfield Hills Research.

Congratulations on the quarter. Two questions about the Eikon products. The first one is, how are you dealing with what everyone else is seeing as supply chain issues as you design the product? And the second question is, is that product going to have also applications in the agricultural or livestock environment market?

Yes. Our -- we're obviously very enthused about everything that has to do with Eikon. It's a platform that will handle -- and basically, any RNA DNA product that we want to interrogate. So it's -- we're targeting right now, dealing with samples primarily involved with saliva. And we've done a tremendous amount of innovative work with direct saliva that is extraction free, that's lipolyzed or freeze dried. And all those kinds of technology have been brought to bear in the Eikon chemistry. So we're very enthused about all the different markets that we're going to be able to address in that regard, including, as we mentioned, things like dental.

There are some -- there's a large market out there for dentists who are testing people for diseases that like periodontal disease, where if you have the wrong kind of periodontal disease, where you have mutation -- not mutations, but targets and that are of a particular type, it contributes -- or at least they think contribute significantly to the development of dementia and Alzheimer's. And so there are some very interesting tests that are being developed in our laboratory with people and partners that are involved in places like dentistry and veterinary and other areas that are going to address a whole lot of different disease states.

So -- and of course, when you're dealing with corn and wheat and soybeans, the Eikon could also play a very important role in being able to let that kind of testing going on with trucks that are coming in with soybeans that need to be tested on-site before a delivery is taken and accepted by somebody like a Monsanto or Bayer, for example, who need to know whether the soybeans they're buying were actually growing with their seeds and have the right kind of genetic content. So I think it has -- I don't think -- I know it has a wide opportunity for a lot of different places where we're going to be introducing it.

Now that said, keep in mind, Theo, that there are certain things that we can be involved in that require the FDA process to clear it. And not everything is under an emergency use authorization window. So certain diseases, we'll have to go through full 510(k) clearance. And so those things will be rolled out measurably. But in other areas where it doesn't require FDA clearance, and that includes certain areas of agriculture. Our whole mosquito vector business does not require the involvement of the FDA in terms of clearing those products. We're testing for things like West Nile virus and eastern equine encephalitis and Zika and dengue and such in the mosquito population, but it's not under the purview of the FDA so we don't have the same kind of regulatory hurdles to overcome.

And also keep in mind that the Eikon product has some really great potential in the area of looking at a whole population of like grade school students, where we're doing a testing of, say, 5 people at a time. It's what is referred to technically a surveillance testing. Where you're not testing a discrete individual. And when you do that, that also does not fall inside the purview of the FDA. And so there are things like surveillance testing in schools and in workplaces that may also become part of our forward going offering. And when I talk about the FDA, we think the FDA and the CEC and others have done an excellent job at pivoting and adapting during this entire process of dealing with COVID.

So our head is really off to them. And we viewed our whole approach to the FDA and others in the context of full compliance. So I don't mean to call out products that are not requiring FDA clearance as a remark about FDA clearance per se, we pursue it from a fully compliance oriented perspective, but there are things that will involve the Eikon going forward that will be outside of their purview.

And what about design issues so that you don't run into problems with supply chain that other manufacturers are seeing?

Yes. Yes, that was the other part of your question. And we just haven't -- we haven't been able to, at this point, determine that there are any supply chain issues with our Eikon. I'm pleased to say at this point, our manufacturing is going to be done here in the United States. And we have, as I mentioned on the call, we have currently a rather large user factor study going on in the United States and with several Eikon units that are being used in that particular study. And shortly, we'll be commencing our clinical trial.

And so we don't foresee having a problem with supply chain issues. And one of the reasons for that, Theo, is that much of what's going on with Eikon is in the cloud. The sample is taken on a local basis right from the patient, the saliva, the nasal swab, for example. But once that is put into the little box, the box completes the polymerase chain reaction with some very, very cool technology that was engineered by some of the best experts in the world. And then the test is actually called in the cloud and the results of the test and delivered to the smartphone of the patient.

So it's a very -- you need to understand that so much of the intelligence of what goes on with Eikon is cloud based. And that also opens up a whole bunch of other data issues with respect to potentially be involved with electronic medical records and electronic prescription, eRx, as it would be called. So there's a lot of things going on with the development of the Eikon platform besides the box and the cellphone. But no supply chain issues at the moment.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Dwight Egan, Chief Executive Officer, for any closing remarks.

Well, I'd like to conclude the call by thanking our employees and distributors for their dedication and action in helping to deliver outstanding results this quarter. And given the importance of today's date, I would also like to take a moment to recognize our servicemen and women for their service and bravery to help build a better future for the rest of us and those who stand -- they stand as an inspiration to us all. And I can tell you because we have such an exposure in the developing world that people are thrilled to be able to get U.S.-based engineered products for diagnostics that they have access to at a price they can afford and something that makes it relevant in their country. And so we're proud to be Americans, and we're proud to show the kind of things that we're able to do, largely courtesy of our men and women who protect our freedoms. So thank you for your interest in our company and for joining us today for our third quarter call. We look forward to talking with you all again after the fourth quarter.

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