There are a lot of points to discuss this morning. Please forgive me for doing it in a single post.
First let me start with the BCART downplaying of the guidance that was provided on March 5. As I wrote previously, I was surprised BCART even offered guidance given that almost all companies were not giving guidance due to the uncertainties associated with Covid 19. The fact that they are hedging by adding the words "may potentially impact" into the guidance is understandable since the entire world has changed. My positive take away is that the disruption is due to temporary clogging of the sales channels and not disruption of the supply chain. BCART is still producing, the problem is that almost everyone in the health provider world has their attention trained on Covid 19 and not oncology MDx research. The positive thing is that Septicyte rapid gives them a product that is applicable to the current pandemic. As such, I think the sales channels (hospitals, clinics in the EU) will be more receptive to sales attempts. Please excuse the following blunt/morbid discussion, From my reading about COVID 19 I understand that a percentage of the deaths are due to respiratory distress due to fluid in the lungs. Another percentage of the deaths are due to systemic organ failure due to sepsis. Respiratory failure can be treated with a ventilator assuming one is available. Multi organ failure due to sepsis caused by an infection with no treatment is an acute death sentence. Septicyte rapid can be used to enable Drs. to determine how to allocate care to patients with the potential to survive.
BCART and Immunexpress have not released the financial terms of their agreement. My original assumption was that BCART would receive a typical royalty as a medical device partner (cover their production costs and 10% of profits is typical in the pharmacy business). Based on today's announcement, I believe the agreement will be more favorable to BCART (receive a higher percentage of the profits). As shown below, BCART is taking the lead in the EU on the commercialization and that will result in a higher royalty than my base assumption (maybe up to 50%).
"Biocartis and Immunexpress are strengthening their existing partnership with a co-commercialization agreement in which Biocartis will lead commercialization in Europe as the exclusive distributor of the SeptiCyte®"
In a practical way it could work no other way since travel is now restricted so an dedicated sales force already in place with contacts at the POCs is critical to success of the launch. This provides the BCART sales team in Europe a product that is applicable to the current emergency.
Now to address some of BLs comments. I respect that your decision to exit BCART is the right one for you. However, in our past exchanges I have often cautioned that your models are based on extrapolation of the current RUO sales into the future. I believe a quantum leap occurs when a product designed for the Point of Care (POC) market is no longer blocked from this market (i.e., selling only into the RUO facilities). As I have elaborated on in prior posts, the Idylla console costs are currently about 1/10 of the cost of a Fisher or Illumina product that is being marketed for the POC users. Upon the approval of major assays (MSI, Gene Fusion, etc.), I believe the console price will be increased such that these sales will also generate profits. The Cepheid example that I often quote is to demonstrate how well a POC cartridge based MDx system is received by the market due to the quick results and ease of use. Yes, Cepheid had the advantage of higher console/equipment placement profit margins early during its launch. Gene Expert had the luxury of being able to ride the tide of quick approvals of its content for diagnostic use. Diseases such as anthrax, H1N1 and tuberculosis resulted in scares that lead to quick diagnostic use approvals. This enabled Cepheid to charge more for the console. Cancer when viewed across the entire population is more of a chronic rather than acute health concern). As such, Idylla assay content is subject to a longer review. Also, a significant portion of Cepheid's sales were the high throughput infinity units that could analyze something on the order of 50 tests at a time. This increased the average profit margins on the front end instrument placement.
Currently, the RUO game is to place a console at tier 1 research facility at cost in hopes that the user will write a research paper that is favorable in order to help with future sales. This is happening but it is not a profitable model. I would not base my future sales/profits assumptions that this continues until 2024 when the company tells you it will be shifting to the POC model in the next year well before that time frame. However, it is a necessary step for Idylla assays to gain POC diagnostic approval from FDA or Japan and China's regulatory authorities. I think Asia may emerge as a significant market before the US. The US response to COVID 19 is a patchwork of actions at the state and city levels. Unfortunately, without travel restrictions I fear that the outbreak will persist longer and shift geographically across the US and reoccur numerous times. This may make it a difficult sales environment until a vaccine is available. Asia is emerging quicker from their outbreaks. The delay in significant sales in Japan following the November approval is understandable. Nichirei is a conglomerate not a research institution, it is likely to allocate resources based on the immediate potential to monetize its investment. They most likely have most of the consoles they need for preparing the registration applications. The sales ramp occurs when they receive diagnostic use authorization and can be reimbursed by insurance for the tests that are run. The 2000 console number floated in a previous press release likely assumes widespread assay content approved for diagnostic use. If I were BCART, I would slow the US expansion hiring until the US gets a better handle on the pandemic.
Just in recap, I would not extrapolate the current RUO sales to 2024. Diagnostic use approvals will enable BCART to leverage the much larger sales forces of its partners (BMS, AZN, Amgen, EXAS etc.) such that the cost of sales will decrease at the same time that the sales revenues increase. This is a formula for the path to profitability that is not reflected by your financial modeling.