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Centogene Reports 17 Percent Drop in Q3 Revenues, Closing Down COVID Testing Business

NEW YORK – Centogene on Wednesday morning reported a 17 percent decline in year-over-year revenues for the third quarter, driven by decreasing revenues from COVID-19 testing.

Given its dwindling cash position, the German rare disease diagnostics company has decided to phase out its COVID-19 testing business altogether and to streamline its organizational footprint, resulting in up to €15 million in cost savings per year, excluding restructuring costs. It is also exploring options for raising additional cash. In a filing with the US Securities and Exchange Commission, Centogene warned that "absent additional or debt financing, we may be unable to continue as a going concern." 

For the three months ended Sept. 30, Centogene reported €30.2 million ($33.9 million) in revenues compared to €36.3 million in Q3 2020.

Commercial COVID-19 testing revenues decreased 26 percent to €20.2 million from €27.4 million in Q3 2020. "This reflects the decreasing importance of the non-core COVID-19 business," Centogene CFO René Just said on a conference call to discuss the firm's financial results.

As a result of the decline in COVID-19 test orders in the quarter, particularly in Germany, the company has decided to phase out its COVID testing business by Q1 2022, including the elimination of about 230 staff positions. It has already closed its laboratory in Hamburg and plans to shut down other unprofitable testing sites, though COVID testing at airports will continue into early next year, Just said. He conceded that the company "did not react fast enough compared to the revenue decline" in COVID testing.

Revenues from the company's core business, which consists of clinical diagnostics and pharmaceutical contracts, increased 13 percent year over year. Specifically, diagnostics revenues climbed 43 percent to €7.3 million from €5.1 million in the year-ago quarter, while pharma revenues shrank 28 percent to €2.7 million from €3.8 million a year ago.

"We saw continued recovery trends in the diagnostics segment, with over 40 percent increase in revenues compared to Q3 2020," said CEO Andrin Oswald in a statement. "While recovery in pharma revenues is lagging, we remain optimistic for acceleration in the fourth quarter, given the ongoing growth in signed contract value as our new management team gains traction with current and prospective pharma partners."

The increase in diagnostic revenues came primarily from a rise in test requests for panel sequencing, whole-exome sequencing, and whole-genome sequencing tests, Oswald said during the call. The company received 14,770 diagnostic test orders in Q3, a year-over-year increase of 46 percent.

Oswald also pointed out Centogene's recent partnership with Twist Bioscience to develop customized reagent kits for rare disease genetic testing, which he said will enable more decentralized, local testing. Centogene will provide cloud-based clinical bioinformatics, interpretation, and reporting services for these tests through its CentoCloud platform and expects to provide further information over the next few months.

Centogene currently has 57 active collaborations with more than 30 pharmaceutical partners, Oswald said. So far this year, it has signed 16 new collaborations, including four in Q3, and completed 25. The value of the contracts signed in 2021 already exceeds those signed in 2020, Oswald said, and the main focus of Centogene's pharma partnerships is in metabolic diseases and neurological disorders. He added that he is "quite confident" the pharma business will return to growth soon.

During the quarter, the company added approximately 22,000 individuals to its bio/databank, including 16,000 with dried blood spot samples, 6,200 with whole-exome or whole-genome sequencing data, and 80 percent with research consent. The resource now has about 632,000 members in total, including 411,000 with dried blood spot samples, 88,600 with whole-exome or whole-genome sequencing data, 47 percent with research consent, and 1,600 with fibroblast cell lines. Oswald said that the total number is lower than the 650,000 bio/databank members Centogene had previously cited because a recent review of the database led to the elimination of a number of older records.

The firm's net loss in Q3 was €21.6 million, or €.96 per share, compared to a net loss of €5.7 million, or €.27 per share, in the year-ago quarter.

Its R&D expenses in Q3 totaled €3.8 million, down 21 percent year over year from €4.8 million. The company's SG&A costs totaled €12.6 million, up 30 percent from €9.7 million in Q3 of 2020.

Centogene ended the third quarter with €25.7 million in cash and cash equivalents. CFO Just said the company is looking for new funding opportunities, which could be new equity investments or debt financing, and is in discussions with potential strategic partners and minority investors.

For full-year 2021, the company expects revenue growth of between 30 and 40 percent over 2020, mainly driven by COVID-19 testing revenues. However, COVID-19 testing revenues have declined over the past three quarters and are expected to decrease further until they are phased out, though Just said that COVID testing had picked up in October again. Centogene expects its core business to grow in the mid- to high-single digit percentage points in 2021.

In morning trading on the Nasdaq, Centogene shares were down 19 percent at $7.19.

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