Akers Biosciences Announces Q1 2018 Earnings

THOROFARE, N.J, July 13, 2018 (GLOBE NEWSWIRE) — Akers Biosciences, Inc. (NASDAQ: AKER) (AIM: AKR.L), (“Akers Bio” or the “Company”), a developer of rapid health information technologies, reports its financial results for the first quarter ended March 31, 2018. A Form 10-Q containing the full financial statements is available for viewing on the Company’s website at www.akersbio.com or www.sec.gov.

Q1 Financial Summary:

  • Total revenue $302,475 (Q1 2017: $667,250)
    • Revenue from flagship PIFA Heparin PF/4 Rapid Assay products $259,983 (Q1 2017: $560,921) – the Company experienced lower yields in the process of extracting antigen used to produce these products, resulting in production under target levels, and backorders
  • Gross profit margin 2% (Q1 2017: 61%)
    • Costs associated with the low antigen yields and steps to remediate the issue significantly affected the direct costs of production and the fixed nature of key components of the indirect production costs impacted the margin during the period
  • Overall expenses increased by 7%:
    • General and Administrative expenses increased by 16% to $915,533 (Q1 2017: $790,529)
    • Sales and Marketing expenses decreased by 15% to $500,152 (Q1 2017: $588,934)
    • Research and Development expenses increased by 26% to $439,970 (Q1 2017: $348,442)
  • Net loss attributable to shareholders $1,859,991 (Q1 2017: $1,349,270)
  • Cash and marketable securities at March 31, 2018 of $9,326,277 (31 December 2017: $5,450,039)
    • During Q1 2018, warrant holders executed 30,492,070 warrants with an exercise price of $0.1875 per common share, raising net proceeds of $5,717,325

Q1 Operational Summary:

  • Entered into a three-year National Distribution Agreement with Diagnostica Stago, Inc. (“Stago”) for the sale of PIFA Heparin PF/4 Rapid Assay products across the US – Stago is a global leader in hemostasis, with an extensive US-based team dedicated to the sale and support of hemostasis products and equipment to hospitals across the country
  • During the quarter, the Company experienced lower yields in the process of extracting antigen from the supplier provided platelets used to produce PIFA Heparin PF/4 Rapid Assay products. At these yield levels, production of this product was under target levels, resulting in backorders. The Company’s engineers and supplier representatives have been working together to adjust processes in order to restore the yield to appropriate levels, the results of which are not yet determined
  • The Company is taking steps to improve its market presence for PIFA Heparin PF/4 Rapid Assay products including through the use of specialized Independent Sales Representatives (ISRs) and through a program to educate the marketplace through the preparation and publication of additional clinical studies and physician seminars on the risks associated with heparin induced thrombocytopenia – the ISR strategy is gaining momentum with coverage extending to 27 states across the US

Update Regarding Recent Key Events

The Company has updated its product pipeline to reflect products marketed and/or within its pipeline as follows:  

                     
PIFA ® Heparin/PF4 & PIFA PLUSS ® PF4   PIFA   Marketed   Prescription Use   Obtained   Rapid tests for Heparin/PF4 antibodies to detect an allergy to the widely used blood thinner, Heparin
                     
PIFA PLUSS ® Chlamydia   PIFA   Pipeline   Prescription Use   Required/withdrawn on May 29, 2018 *See explanation below.   Rapid tests for the most prevalent sexually transmitted disease
                     
seraSTAT ®   seraSTAT   Marketed   Prescription Use   Obtained   Rapid Blood Cell Separator, marketed under the brand name seraSTAT ®, further accelerates the rate at which a test result is obtained as the often-required sample preparation step is abbreviated drastically.
                     
Tri-Cholesterol “Check” ®   REA   Marketed   OTC   Obtained   Rapid test for Total and high density lipoprotein cholesterol and estimates low density lipo protein
                     
BreathScan OxiChek   MPC   Marketed   Health and wellness   n/a   Breath test for oxidative stress using the Lync reader and digital app
                     
BreathScan KetoChek   MPC   Pipeline   Health and wellness   n/a   Breath test for ketosis using the Lync reader and digital app

Product   Platform   Marketed/Pipe line   FDA Clearance Required Prescription Use/OTC   FDA Clearance Status Obtained/Needed   Description
BreathScan TM   MPC   Marketed   OTC   Obtained   Disposable breath alcohol detector
                     
BreathScan ® PRO   MPC   Marketed   OTC   Obtained   Quantitative breath alcohol detection system
                     
METRON ®   MPC   Marketed   Health and wellness   n/a   Disposable breath ketone device to monitor ketosis
                     
BreathScan Lync   MPC   Marketed   Health and wellness   n/a   Non-invasive, quantitative measurement of biological markers for health and wellness

The Company follows a disciplined and rigorous process to determine market needs and the commercial viability of potential new products within its development pipeline. In doing so, the Company has targeted products that are aligned with our served markets and core capabilities, to further support our quest of enhancing business profitability and shareholder value.

All of the Company’s existing development projects and platforms are being subjected to this process which involves the re-evaluation of the scientific feasibility and potential marketability of the products and platforms. The new business development process ruled out the commercial viability of the following products: Breath Diabetic Ketoacidosis, Breath PulmoHealth “Check” products, and breath cardiac marker test (Troponin).    

In May 2018, after extensive review both internally and with the FDA, we withdrew our initial 510(k) application for the PIFA Chlamydia rapid assay. We are currently evaluating the feasibility and marketability of this product in order to determine when and if the 510(k) application will be resubmitted.    

Regulatory requirements vary across the globe. Our authorized distributors are tasked to meet local and regional regulatory requirements.   

Rapid Blood Cell Separation Technology

In addition to the Company’s testing platforms, Akers’ patented Rapid Blood Cell Separation (“Separator”) Technology, marketed under the brand name seraSTAT ®, further accelerates the rate at which a test result is obtained as the often-required sample preparation step is abbreviated drastically. Conventional methods of blood cell separation are labor-intensive and time-consuming, typically involving blood collection and laboratory personnel, as well as electrically-powered centrifuges and other specialized equipment. We wanted to clarify that the separator device requires a small-volume of venous whole blood sample.

Manufacturing and Suppliers

We are a vertically integrated manufacturer, producing substantially all of our devices in-house. The vast majority of our products start out as high quality, medical grade polymers and exit our facilities as fully manufactured and packaged medical devices. As a result, we have a short supply line between our raw materials and finished goods which gives us greater control over our product quality. The downside of our in-house manufacturing is the requirements for facilities, power, and equipment. This approach also requires mid-to-long-term planning and the ability to predict future needs. Many of our processes are unique to us, but the Company’s flexible manufacturing capabilities and unused current capacity generally translate into relatively short production timelines. As demand for our products increase, additional capacities may be required to advance our evolving needs.

We use a diverse and broad range of raw materials in the manufacturing of our products. We purchase all of our raw materials and select items such as packaging from external suppliers. In addition, we purchase some supplies from single sources for reasons of proprietary know-how, quality assurance, sole source availability, or due to regulatory qualification requirements. U.S. medical device manufacturers must establish and follow quality systems to help ensure that their products consistently meet applicable requirements and specifications. The quality systems for FDA-regulated products are known as current good manufacturing practices (“cGMP’s”). cGMP requirements for devices in part 820 (21 CFR part 820) were first authorized by section 520(f) of the Federal Food, Drug, and Cosmetic Act. We work closely with our suppliers to ensure continuity of supply while maintaining high quality and reliability. To date, we have not experienced any significant difficulty locating and obtaining the materials necessary to fulfill our production requirements.

During the three months ended March 31, 2018, we experienced lower yields in the process of extracting antigen from the supplier provided platelets used to produce our PIFA Heparin product.   At these yield levels, our production of this product was under target levels, resulting in backorders. Our engineers and representatives from our supplier have been working together to adjust our processes in order to restore the yield to appropriate levels, the results of which are not yet determined.            

Furthermore, we are evaluating and testing a resolution that may involve one or more alternative antigen suppliers and processes that may provide a path to restoring yield levels for this product. For each of these potential solutions, we will be conducting production validation and stability testing.

The following is an update of our distribution strategy

We distribute our products through direct and indirect channels of distribution. We have well-developed indirect distribution channels in the U.S. with, among others, Cardinal Health, Thermo Fisher Healthcare, a Division of Fisher Scientific Company L.L.C. and Diagnostica Stago, SA (“Stago”) for the Company’s PIFA Heparin/PF4 assays. These relationships provide us with access to most U.S. hospitals.

Our dedicated sales force works in tandem with independent and distributor sales representatives to uncover opportunities in the clinical laboratory marketplace. The Company facilitates direct sales for hospitals that prefer to purchase direct from the manufacturer.

Since 2012, the Company has had a distribution relationship with Novotek Pharmaceuticals, Inc., a division of Yifan Pharmaceuticals (“Novotek”), a Beijing-based pharmaceutical and in vitro diagnostic business development corporation. Through a multi-year distribution agreement. NovoTek has exclusive sales and marketing rights to distribute Akers’ PIFA products in Mainland China and Poland.       Prior to being able to distribute our products in these markets, NovoTek must first obtain product reimbursement approval from each of the Provincial (regional) jurisdictions. Through June 2018, NovoTek has not been able to obtain these approvals in any of these jurisdictions. We do not anticipate additional PIFA revenue from this region until these approvals are received.

With respect to the Company’s breath alcohol franchise, historically Akers focused its commercial attention within the on-the-job safety/human resources sector. Access was and currently is largely achieved through designated BreathScan® distributors and limited arrangements in which the Company serves in an OEM capacity.

In select European countries and Australia, we have distribution relationships with specialized sales and marketing organizations for some of our products. We do not have a strong presence in many emerging markets, but are seeking to enter into agreements to enable us to enter other international markets in the current fiscal year.

Other Emerging MPC Platform Products

The Company’s MPC Biosensor technology is being applied to the development of products that serve the nutraceutical, fitness, and weight loss marketplaces. As a category, these disposable screening tests are exempt from FDA 510(k) premarket clearances. Biomarkers related to various metabolic processes can be measured in breath condensate. As a result, Akers has used its proprietary, easy-to-use platform to design disposable breath devices that measure ketone (acid) production associated with fat-burning (METRON ® and KetoChek) and oxidative stress levels that relate to cellular damage and the development of many preventable diseases (OxiChek). The Company believes that personalized health and wellness – and eventually personalized medicine – will become an increasingly significant market. The Company is positioning its tests for fitness, weight loss and oxidative stress for this market by designing a more consumer-focused reagent device, and linking this device to an application for smartphones and tablets that can not only produce a result, but also track progress over time. Initial marketing activities have commenced for these products and the Company is preparing for commercialization. Since devices with claims related to weight loss or nutrition are exempt from FDA oversight, a clinical program to support a 510(k) submission is not required for any of these products. Given the non-medical intended use, the Company does not believe products will be required to hold a CE-mark prior to marketing in the EU.

Health and Wellness Market Development (OxiChek)

The Company is currently assessing distribution opportunities with companies specializing in weight loss and/or mass distribution through health-related multilevel marketing organizations. We had been engaged with a with a large network marketing firm to secure a multi-year contractual arrangement.    We failed to produce a custom product that satisfactorily met customer expectations, and as a result we were not able to finalize this arrangement. The Company is pursuing alternative customer options within the Multi-Level Market segment.

During October 2016 the Company was served with a notice that Pulse Health, LLC (“Pulse”) filed a lawsuit against the Company. This litigation has been assigned to mediation and our intention is to resolve this issue in the third quarter. There is risk associated with the BreathScan OxiChek product related to this litigation and an adverse decision may affect our ability to market the product. The Company is aggressively defending our product intellectual property and market position.

Update regarding the marketing of the BreathScan Breath Alcohol products acquired in settlement with ChubeWorkx

The Company has been actively marketing, on a global basis, the BreathScan Breath Alcohol products that were produced for and/or acquired as part of the ChubeWorkx settlement agreement in August 2016. Unfortunately, we have not been successful in securing buyers in sufficient volumes.   

An extensive analysis of the market opportunity has been performed and it was determined that the on-hand quantity of this group of products exceeded the expected near term demand for the product prior to its expiration. As such, the Company’s management elected to establish a reserve.

Chief Executive Officer’s Remarks:

“The decline in total revenues in Q1 was disappointing and was a result primarily of the lower antigen yields experienced in the process of extracting antigen from the supplier provided platelets used to produce PIFA Heparin PF/4 Rapid Assay products. This had an impact on production levels of this product, resulting in backorders. Our engineers and supplier representatives have been working together to adjust processes in order to restore the yield to appropriate levels, the results of which are not yet determined. We are additionally evaluating and testing a resolution that may involve one or more alternative antigen suppliers and processes that may provide a path to restoring yield levels for this product. For each of these potential solutions, we will be conducting production validation and stability testing.

The Company is taking steps to improve its market presence for PIFA Heparin PF/4 Rapid Assay products including through the use of specialized Independent Sales Representatives (ISRs) and through a program to educate the marketplace through the preparation and publication of additional clinical studies and physician seminars on the risks associated with heparin induced thrombocytopenia. I am pleased to say we have significantly enhanced our ISR network across the US, focused on surgeons and surgical teams. At the core of our strategy is to influence the clinical pathway for the diagnosis of heparin induced thrombocytopenia and therefore drive sales of PIFA Heparin/PF4 Rapid Assay products. Earlier this month, we announced that our ISR coverage extended to 27 states and we expect this to increase further in the near-term.

With our rapidly expanding ISR coverage, working in tandem with our existing distribution partners, as well as our own technical sales personnel targeting large Integrated Delivery Networks, we remain confident in the growth potential of PIFA Heparin PF/4 Rapid Assay products.

The Company continues to pursue opportunities to accelerate the commercialization of BreathScan OxiChek™, the first commercialized Akers Wellness™ breath test which rapidly determines levels of oxidative stress in the body by measuring the levels of certain abundant free radicals. The Company is currently assessing distribution opportunities with companies specializing in weight loss and/or mass distribution through health-related multilevel marketing organizations. The Company is pursuing opportunities within the multilevel marketing segment.

We remain highly focused on driving profitable growth of our core commercialized products, currently led by PIFA Heparin/PF4 Rapid Assay products. We are building strong sales and distribution partnerships with extensive national coverage in order to help achieve this. At the same time, we continue to advance the research and development of targeted products that are aligned with our served markets and core capabilities, to further support our quest of enhancing business profitability and shareholder value. I look forward to reporting developments in our commercial and product development strategies in the future.”

John J. Gormally
Chief Executive Officer

Summary of Statements of Operations for the Three Months Ended March 31, 2018 and 2017

Revenue

Akers’ revenue for the three months ended March 31, 2018 totaled $302,475, a 55% decrease from the same period in 2017. The table below summarizes revenue by product line for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:
  

Product Lines   3 Months Ended
March 31, 2018
    3 Months Ended
March 31, 2017
    Percent Change  
Particle ImmunoFiltration Assay (“PIFA”)   $ 259,983     $ 560,921       (54 )%
MicroParticle Catalyzed Biosensor (“MPC”)     18,950       85,659       (78 )%
Rapid Enzymatic Assay (“REA”)     9,900             %
Other     13,642       20,670       (34 )%
Product Revenue Total   $ 302,475     $ 667,250       (55 )%
License and Service Fees                 %
Total Revenue   $ 302,475     $ 667,250       (55 )%

Revenue from the Company’s PIFA Heparin/PF4 Rapid Assay products decreased 54% to $259,983 (2017: $560,921) during the three months ended March 31, 2018, over the same period of 2017. The Company is taking steps to improve its market presence including the use of specialized Independent Sales Representatives (“ISRs”) and through a program to educate the marketplace through the preparation and publication of additional clinical studies and physician seminars on the risks associated with heparin induced thrombocytopenia.

During the three months ended March 31, 2018, we experienced lower yields in the process of extracting antigen from the supplier provided platelets used to produce our PIFA Heparin product.   At these yield levels, our production of this product was under target levels, resulting in backorders.    Our engineers and representatives from our supplier have been working together to adjust our processes in order to restore the yield to appropriate levels, the results of which are not yet determined.

Furthermore, we are evaluating and testing a resolution that may involve one or more alternative antigen suppliers and processes that may provide a path to restoring yield levels for this product.   For each of these potential solutions, we will be conducting production validation and stability testing.

The Company’s dedicated technical sales account executives are supporting over 300 sales representatives of Akers’ U.S. distribution partners, Cardinal Health, Thermo Fisher Scientific and Diagnostica Stago. The Company’s relationship-building initiative with our partners has delivered a measurable increase in product trials and adoptions. Domestic sales for the three months ended March 31, 2018, of our distributors, Cardinal Health and Thermo Fisher Scientific, accounted for $209,471 of the total PIFA Heparin/PF4 Rapid Assay sales as compared to $454,656 for the same period of 2017.

The Company’s MPC product sales decreased by 78% to $18,950 (2017: $85,659) during the three months ended March 31, 2018. Sales of the Company’s Metron and BreathScan Alcohol products accounted for the revenue.

The Company’s REA products generated $9,900 (2017: $-) during the three months ended March 31, 2018. The Company’s re-introduced Tri-Cholesterol product is produced with this technology.

Other operating revenue decreased to $13,642 (2017: $20,670) during the three months ended March 31, 2018. The category is made up of the sales of miscellaneous raw material components, sub-assembled products and fees billed for shipping and handling charges.

The table below summarizes our revenue by geographic region for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

Geographic Region   3 months ended
March 31, 2018
    3 months ended
March 31, 2017
    Percent
Change
 
United States   $ 294,733     $ 617,691       (52 )%
People’s Republic of China           21,030       (100 )%
Rest of World     7,742       28,529       (73 )%
Total Revenue   $ 302,475     $ 667,250       (55 )%

Domestic sales represent the most significant portion of the Company’s revenue, contributing 97% (2016: 93%). The primary sales and marketing efforts are concentrated on expanding the Company’s domestic market share in the rapid clinical diagnostic and health and wellness segments. The introduction of the Tri-Cholesterol test has allowed the Company to re-enter the retail market.

Gross Margin

The Company’s gross margin declined to 2% (2017: 61%) for the three months ended March 31, 2018. Increases in direct personnel costs ($96,824 (2017: $65,353)) and the transfer of raw materials and sub-assemblies from/to inventory for production ($13,419 (2017: $133,111)) were offset by a decrease in services provided by sub-contractors for material preparation, assembly and packaging to $600 (2017: $113,761).

During the three months ended March 31, 2018, low yields during antigen extraction processes and the addition of a production laboratory technician to the direct manufacturing staff in anticipation of increased demand for the PIFA and REA platform products significantly affected direct costs of production.

Cost of production also includes significant components that are fixed expenses which effectively reduces the gross margin when revenue declines. These expenses include the cost of personnel, manufacturing and warehousing space, depreciation of equipment and other similar items.

Cost of sales for the three months ended March 31, 2018 totaled $297,500 (2017: $258,721). Direct cost of sales increased to 44% of product revenue while other cost of sales increased to 54% for the three months ended March 31, 2018 as compared to 16% and 23% respectively for the same period in 2017.

Direct cost of sales for the three-month period ended March 31, 2018 were $132,653 (2017: $106,129). Other cost of sales for the three months ended March 31, 2018 were $164,847 (2017: $152,593).

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2018, totaled $915,532, which was a 16% increase as compared to $790,529 for the three months ended March 31, 2017.

The table below summarizes our general and administrative expenses for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

Description   3 Months Ended
March 31, 2018
    3 Months Ended
March 31, 2017
    Percent Change  
Personnel Costs   $ 306,936     $ 334,527       (8 )%
Professional Service Costs     303,937       191,753       59 %
Stock Market & Investor Relations Costs     114,166       82,386       39 %
Other General and Administrative Costs     190,493       181,863       5 %
Total General and Administrative Expense   $ 915,532     $ 790,529       16 %

Personnel expenses decreased by 8% for the three months ended March 31, 2018 as compared to the same period of 2017. A reduction in bonuses included in salaries and wages to $243,941 (2017: $277,456) was offset by increases in auto allowance and employee benefit expenses of $19,938 (2017: $14,286).

Professional service costs increased 59% for the three months ended March 31, 2018 as compared to the same period of 2017. A significant increase in legal fees ($278,277 (2017: $138,688)) were offset partially by a decrease in engineering fees ($6,475 (2017: $30,090)) resulting in the change. The Company replaced its SEC attorneys in February 2018 and continues to incur legal expenses related to ongoing litigation (Part II, Item 1).
  
Investor relations totaled $52,573 (2017: $39,354) and transfer agent fees of $21,402 (2017: $7,369) were the major contributors to the 39% increase in stock market and investor relations costs for the three months ended March 31, 2018.

Other general and administrative expenses increased by 5%. This increase is the result of increases in building expenses of $74,909 (2017: $45,253) for the addition of the Ramsey, New Jersey satellite office and licenses, permits and fees of $16,374 (2017: $4,869).

Sales and Marketing Expenses

Sales and marketing expenses for the three months ended March 31, 2018 totaled $500,152 which was a 15% decrease compared to $588,934 for the three months ended March 31, 2017.

The table below summarizes our sales and marketing expenses for the three months ended March 31, 2018 and 2017 as well as the percentage of change year-over-year:

Description   3 Months Ended
March 31, 2018
    3 Months Ended
March 31, 2017
    Percent Change  
Personnel Costs   $ 321,708     $ 335,832       (4 )%
Professional Service Costs     71,559       65,046       10 %
Royalties and Outside Commission Costs     27,855       45,133       (38 )%
Other Sales and Marketing Costs     79,030       142,923       (45 )%
Total Sales and Marketing Expenses   $ 500,152     $ 588,934       (15 )%

The US market has been divided into two regional zones, each with a business director that is responsible for recruiting and supporting ISRs and independent manufacturing representatives (“IMRs”) to target large integrated delivery networks and individual facilities. This strategy requires more experienced and technically knowledgeable sales personnel to interact with surgeons, executive management, laboratory and medical directors. The Company has increased its sales and marketing staff from 4 members on March 31, 2017 to 5 as of March 31, 2018.

Personnel costs decreased in the three months ended March 31, 2018 as compared to the same period of 2017. A reduction in compensation, bonuses and commissions to $257,352 (2017: $293,269) primarily due to changes in the bonus and compensation plan was offset by increases in auto allowance and employee benefit expenses of $31,648 (2017: $14,208).

The Company renegotiated or eliminated several consulting arrangements targeted at improving market penetration or identifying marketing or distribution partners during the first half of 2017. The result was a significant reduction of in professional services for the three months ended March 31, 2017. The Company continually monitors the effectiveness of the remaining agreements and a few have been expanded to provide additional services resulting in an increase in professional service costs during the three months ended March 31, 2018.

The legal settlement with ChubeWorkx Guernsey, Ltd (“ChubeWorkx”), signed on August 11, 2016, requires the Company to pay a 5% royalty on adjusted gross sales to ChubeWorkx on a quarterly basis. During the three months ended March 31, 2018, this royalty totaled $31,689 (2017: $32,279). The Company received a credit for an overpayment of commissions to an IMR for $14,208 which contributed to the decline in royalty

Leave a Comment