Categories Earnings Call Transcripts, Health Care

Centogene N.V. (CNTG) Q3 2021 Earnings Call Transcript

CNTG Earnings Call - Final Transcript

Centogene N.V.  (NASDAQ: CNTG) Q3 2021 earnings call dated Nov. 24, 2021

Corporate Participants:

Lennart Streibel — Investor Relations

Andrin Oswald — Chief Executive Officer

Rene Just — Chief Financial Officer

Analysts:

Puneet Souda — SVB Leerink — Analyst

Catherine Ramsey Schulte — Baird — Analyst

Sung Ji Nam — BTIG — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by and welcome to Centogene Q3 2021 Earning Results. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question-and-answer session. I would now like to hand the conference over to the speaker today Lennart Streibel. Please go ahead, sir.

Lennart Streibel — Investor Relations

Thanks, Roberto. Hello and welcome. Thank you for joining us to discuss our third quarter 2021 results which were reported earlier today. You can view the presentation and the related press release on Centogene’s website. For those unable to view the webcast, you’ll find the corresponding slides at investors.centogene.com.

Referring to Slide 2. Before we begin, I would like to remind everyone that statements we make on this conference call will include forward-looking statements within the meaning of the US securities laws, including those regarding our strategic plans, development programs, future financial results. Statements made during this call that are not historical statements may be forward-looking statements and as such, may be subject to risks and uncertainties, which if they materialize could materially affect our actual results. The forward-looking statements in this presentation speak only as of today, November 24, and we undertake no obligation to update or revise any of these statements to reflect future events or developments except as required by the law. Additional information regarding these statements appears in our SEC filings.If you turn to Slide 3, it is my pleasure to introduce you to today’s speakers, our Chief Executive Officer, Andrin Oswald and Rene Just, our Chief Financial Officer. We will first begin with a general business update, followed by a summary of our financial results for the last fiscal quarter ending September 30. We will then open up the call to Q&A session before closing remarks. We kindly request already that you ask a maximum of three questions.

I would now like to turn the call over to Andrin. Please turn to Slide 4. Andrin?

Andrin Oswald — Chief Executive Officer

Thank you, Lennart, and hello everyone. Thank you for joining. As Lennart said, I will start with a business update on our core business and also some updates on the progress we’re making on implementing our strategy as presented at the June investor event. As it relates to our COVID business and our plans with that one going forward and also how we plan to restructure the Company to be fitter for future growth, those two elements Rene will address in financial review. And then we will lend an outlook and of course the Q&A.

So Q3. Our Q3 performance reflects progress in our core business execution making meaningful strides on our strategic priorities, which we outlined at Investor Day. As mentioned, we are continuously expanding our data driven approach to reinventing rare diseases, drug discovery and development. In this last quarter, we saw solid revenue performance delivering core business growth for the second consecutive quarter. At the core business, which is our diagnostics and pharma segment, together grew 13% versus Q3 last year. And we are very happy to see that core business is back to growth.

While COVID-19 testing revenues did not continue to contribute to our overall top line, we are seeing a shift in COVID testing landscape and are acting proactively ensuring our efforts are focused on our core business in pharma and diagnostics. This is in line what we had communicated previously.

Foremost we’re excited about the continued growth of our core diagnostics business segment observed in Q3. In that period we added approximately 22,000 new individuals to our extensive prior data bank and continued to demonstrate our commitment to superior diagnostic offerings for rare diseases. This is a steady increase towards our goal of having 1 million patients in data bank in the next couple of years.

I will now discuss a bit more in detail the different segments. Please turn to Slide 6. Here on the graph you can see the mentioned 13% revenue in our core business. More specifically on the diagnostics segment in Q3 we reported order intake of 14,770, up 46% over the previous quarter. Within the segment we have seen the business return to growth, up 43% year-over-year. We have indicated this trend in the last quarters, and it is nice to see the business return. It is our fifth consecutive quarter of diagnostics segment growth. We believe we currently offer the growth in diagnostics testing portfolio for rare disease globally covering the widest range of teams with unique value propositions we have.

Turning pharma segment. We are still experiencing a protracted recovery as compared with the diagnostics segment. Pharma business segment revenue is down year-over-year. But as we have highlighted in the past, it’s mostly the result of the delay of revenues as it relates to the time it takes from signing a new contract with a pharma partner until that contract translates into revenues. However, we have now 57 active collaborations, just 16 new ones started in recent quarters and they’re all advanced towards revenue generation. So we are quite confident that the pharma business will return back to growth starting with that Q4. I will share some further details on that later on.

Please turn to Slide 7. Here a look at our knowledge repository. The number of sample order intakes in our core business in diagnostics and pharma is up 12%. This growth was driven primarily by increase diagnostics business. The test requests were 46% versus the same period in 2022 [Phonetic], also pharma contribution. Overall, we are making progress on growing our Bio/Databank which includes samples as well as data and cell lines. On the graph on the right, you see the numbers in this data repository. Over the course of 2021, we added about 70,000 individuals to rare disease-centric data bank. We believe our Bio/Databank to be the core of our differentiation and our basis for revolutionizing the development and eventually the discovery of rare diseases. As we stated in previous quarters, we kicked off an initiative in 2021 to reduce and upgrade the Bio/Databank. It’s a Bio/Databank that by now has taken back the cost by 16 years. So you can imagine that was the right time to look at it cleans up and strengthen and its content in the way. This includes the setting up good data governance, as well as making sure our approach to growing the data bank is truly strategic. At our inventor events in June, our CDO and Data Officer Bettina Goerner gave you insights in how we plan to upgrade our data bank and I want to give you based on that here some first updates or insights into data banks.

In the past we have communicated the number of patients at summary metric. With the newly defined by Bio/Databank, we will share some deeper insights going forward. As of today, November 24, we have about 650,000 patients, active patients in samples in our repository. At the end of Q3 we speak about approximately 630,000. Some of you will remember that we had already communicated the number of about 650,000 previously. However, after the recent review and reclassification and the cleanup of the Bio/Databank we have now improved a more robust number, ensuring that what is in there is really of the quality that we needed to have the ability to mine these and come up with valid results.

Additionally, we are now also going to provide you with some more metrics as it relates to the content and the growth of the biobank. Turn to Slide 8. Here you can see some of the metrics we developed that we believe show in more details what’s in the data bank and how it’s progressing going forward. We have total number of individuals of course as previously discussed. We have the dried blood spot and that’s why it’s much of the data of the Bio/Databank. So the dry blood spot samples stored in our data bank that allow us also to go back to sample and do further analysis. And we have the number of genome and exome sequence versus data where we just have done gene panel, for example. We also have the research content that allows us not to use the samples and the data just for diagnostics and also for full research on the discovery pharma side with a potential, of course, to commercialize that. Then we have our cell lines. As you can see it’s important addition. The cell lines are critical for our future discovery efforts and of course, all this is build on an active network of physicians that we engage in and that work with us for getting access to past, but also future patients. You can see the numbers here on the slide and also how it developed in the recent quarter.

With this, we are now also providing more details and we plan to do that going forward. We believe that this is the way for you to better appreciate the relevance of the value of Bio/Databank going forward.

Please turn to Slide 9. Here you can see a closer look in terms of where we have particularly strong data and samples as it relates to disease areas. And this in metabolic and neurological diseases. It is also reflected in the increasing number of pharma partners that we have established in that area. As shown by the revenue contribution, most of our collaborations are relatively small in nature. However, we believe, it’s something that will grow in the future. Our partners may start with a lot of small specific research questions or a research collaboration that we have, which may be low in initial revenues, those partnerships while the research and the underlying drug discovery progress we believe these partnerships will expand and so will our revenue.

Please turn to Slide 10. We’ve shown that slide at our June event, but I would like to highlight again why we think we are uniquely positioned in the rare disease space. Here are some companies that are also in the data driven insight space and we believe we clearly differentiate from them and have unique competitive — we have unique competitive advantages.

On one side we are a rare disease company. We have 16 ago in rare diseases and have started collecting samples and insights and has built the brand and the network over 16 years. Some of the other companies have also more recently expressed interest in rare diseases, but they do not have the bandwidth, the brand nor repository that we do. Secondly, I also want to highlight our geographic footprint and that makes us unique. Of course it is highly valuable to have a good strong presence in the US, especially as it relates to commercial revenues from the diagnostic business. However, overall, we believe our geographic global footprint is absolutely critical for the rare diseases. Rare diseases are by nature a global challenge and to collects patient data and generate sufficient patient data for the right insights and a global footprint in our minds is required and that’s what we have.

Let’s go to Slide 11. This is to remind you of our business model and our patient centric business model with Bio/Databank at our core and using that Bio/Databank and our omics and AI tools generate insights for superior clinical diagnostics and pharma services for patient identification including the trials report and last, but not least, to develop the discovery platform to enable drug discovery, orphan drug discovery in the rare disease space.

So let’s go to Slide 12. I just want to highlight a few updates along business continuum that we have done in the recent quarter, scientific progress, our diagnostics footprint, impact in pharma and what we find in discovery. So let’s start with Slide 13. As you know and I’m sure you’ve seen over the recent quarter and we had quite a leading — present the number of scientific publications in the rare disease space. I just want to highlight here a recent one in New England Journal of Medicine. We view our contribution to better understand rare diseases at the core of our commitments to these patients around the world. And not all of those, of course as you for sure know, will immediately translate into revenues, but we believe that they highlight our scientific expertise, the depth of our Bio/Databank and of course our attractiveness of the partner in rare disease discovery.

Taking a closer look at these efforts here. And the study utilized data contingencies by data bank and our international team including Rady Children’s Institute for Genomic Medicine and A STAR that have analyzed data on a range of families to find — to create the deeper understanding of syndromic structural birth defects and pave the way to advance pharmacological treatment for that unique medical condition.

Now with these methods what has been demonstrated frankly is the robustness and offers a unique opportunity for drug developers to capitalize on the insight and we claim the programs potentially create new approaches to find treatments for to-date are almost 4 million infants every year that are born with such birth defects. We think that research highlights why Centogene and Bio/Databank can be a huge partner, not just for the academic institutions, but also for pharmaceutical organizations to collaborate to actually translate science findings and translate them into drug development.

Slide 14 in our clinical diagnostics business we have signed an exciting partnership with Twist Bioscience that we have recently announced. Together we will develop and commercialize custom assay kits for rare diseases genetic diagnostics. The product offering will combine our rare disease expertise powered by our data bank with the manufacturing investments and cost in sequencing with Twist Bioscience to deliver multiple assays. We are excited to have picked up this collaboration and the next major milestone will be progress on SAP development followed by commercial launch together with this that we plan for next year.

This collaboration enables us to address the ongoing trend of decentralizations of testing error. It’s our belief that offering decentralized solutions will play a pivotal role in making genetic testing more accessible and with the help of partner laboratories to deliver rapid and reliable top quality genetic diagnostics for rare disease patients. We expect some announcement around our assets there related also on the progress of our CentoCloud product offering in the coming months.

Now let’s look at our pharma progress on Slide 15. I had mentioned that the pharma revenue recovery is clearly taking more time than on diagnostics side, but we are confident that with recent partnerships we are on track to get there. But what I want to highlight here is the partnership we have with Alector. We signed that deal early in 2021 and we have announced that. We have now started patient enrollment just a couple of weeks ago for that large scale 3,000 to 4,000 patient study. And it’s an exciting study that I think highlights a few things from our side. First of all, of course, that it takes time from signing the contract to actually start seeing the enrollment of patients and mostly the revenues that are associated then with that. But it also highlights that findings in rare disease patients in the right rare disease patients is a competitive advantage that Centogene has that the customers have an high interest in. And it also highlights that our business model while we do such collaborations actually allows us to accelerate our Bio/Databank. And this partnership here for example will help us to build up a huge cohort of frontotemporal dementia patients in our Bio/Databank similar to what we had with DENALI, the sources that can be further mined and further insights can be generated for future customers who are working with us in the neurological disease space.

And overall, we have signed quite a number of new contracts to date in the year and actually when we look at the accumulated value of this contract it is a multiple of the company that’s able to sign in 2022. So that large volume of new contracts that we had signed, not just Alector to give you some confidence for sure it gives us that starting from Q4, we think that pharma business will also be back on the growth track.

Please return to Slide 16. Here just to show an update on our discovery efforts and how we plan to use our Bio/Databank for discovery partnerships going forward. And I would like to focus on the development of our rare disease and other that we have mentioned to you this effort in our June event. And I think our aspiration for us is to be able to enable the cure of 100 rare diseases in the coming years.

With Patrice we have made quite some progress to accelerate the growth and make sure that the team fully develop and to accelerate the work we do in that regard what exactly is the disease avatar. You may have heard of the term digital twin which is essentially a virtual copy of a typical body structure that physicians can use for example the train surgery or as a model of a certain treatment impacts the anatomy of a patient. So the disease avatar is the digital platform on the whole disease by which we have an aspiration to actually virtually model the whole disease such that it can be used by researches to mine that data, to come up with hypothesis on how disease can be better diagnosed or potentially treated and then test those hypothesis in the actual model. We believe that we need at least 100 rare disease patients to be able to develop such an avatar. We of course won’t stop when we have 100, but we think once we have passed the 100, we have enough diversity and data to start with these avatars to really generate value. And as you know on some diseases we have already clearly exceeded that milestone. And the disease avatar also is linked to cell models and we think at least 10 up to maybe 20 patient derived cell models will be part of the avatar to actually make the digital model complete.

At the forefront of this initiative is Patrice Denefle, our Chief Scientific Officer who you are introduced to in our last earnings call. And I would like to pass on these excitement around our disease avatar and we have been able capitalize the human disease in a dish, generating insights from hypothesis and validating these by a new patient derived cell models ultimately leads to better understanding of [Indecipherable] and enables us to take hands-on approach on testing drug candidate in rare disease human models the way we could never have done before. With these initiatives in place Patrice has further strengthened the focus on our three-course key priority avatar other of Gaucher and Niemann-Pick and genetic Parkinson’s to accelerate progress we make on those three in the coming quarters.

All of these three will be significant opportunity for Centogene to drive short-term value and potentially partner those avatars with pharmaceutical partners. We will of course not stop there. And on the success of those three we have a range of prioritized diseases that we plan then to work on and to accelerate in the next two years to come.

With that overall updates on our core business and the progress we make on our strategy, I would like to hand over to Rene.

Rene Just — Chief Financial Officer

Thank you, Andrin. Please turn to Slide 18. Our overall Q3 revenues declined by 17% year-over-year to EUR30.2 million. This development was mainly driven by COVID-19 testing generating only EUR20.2 million in revenue in Q3 2021 versus EUR27.4 million in Q3 2020. This reflects the decreasing importance of the non-COVID-19 business and on the other side, the increasing importance of the core business. I will highlight the COVID business separately in a moment.

With that, I would like to focus on the core business, which includes our diagnostic and pharma segments. The core business expanded by 13% in Q3 2021 year-over-year to EUR10 million compared to EUR8.9 million for the same quarter of 2020. This growth was mainly driven by the strong uptake of the clinical diagnostic business, which recorded EUR7.3 million in Q3 2021, representing 43% growth compared to the same quarter in 2020.

Pharma revenue decreased year-over-year from EUR3.8 million to EUR2.7 million in Q3 2021 reflecting a decrease of 28% compared to the previous year. The decrease was primarily due to the impact of the COVID-19 pandemic, which unfortunately slowed the clinical studies of our pharmaceutical partners.

In principle, we believe the recovery in Pharma takes longer due to the generally longer sales cycles. However, the value of our pharma contract signed in the first nine months of 2021 already exceeds the value of deals signed for the full year of 2020. So we continue to see an acceleration in the pharma revenues in the fourth quarter.

We will now be looking at COVID before going into more detailed review of the core business performance. Please turn to Slide 19. I would like to take a few minutes to discuss our COVID business. In summary, Q3 2021 represents fourth quarter in a row where our portion of revenues generated by the core business increased and the portion from COVID decreased, a trend we foresee continuing. We have consistently spoken about the COVID-19 business as a non-core business which has in the past contributed revenue and cash to Centogene to drive the strategic execution in our core business.

Looking at the EBITDA contribution from COVID-19 which has turned negative we have made the executive determination to begin phasing out the business segment to focus on areas where contribution margin is anticipated to continue in order to optimize our cash spend. Very specifically, this means that we will phase out most COVID related projects by the end of the year and some specific airport centers will follow in the first quarter of 2022. We have informed Centogene staff internally of this decision and related measures which will undoubtedly be impactful as we had approximately 230 colleagues working on COVID-19 activities, which are now expected to ramp down through termination, attrition and non-replacement of planned departures. We have agreed on an accelerated depreciation and amortization schedule for COVID-19 related assets and have carefully examined related inventory. As in previous quarters, the cost of the segment are mainly allocated to cost of goods sold, which resulted in the unusual picture of a negative gross margin overall.

To give some specific details, the cost of sales incurred by our COVID-19 segment for the three months ended September 30, 2021 represent 143% of the revenues from this segment. This was primarily due to the reduction of COVID-19 revenues. The initial steps and phasing out of the COVID business led to accelerated depreciation and amortization expenses of COVID-19 related assets, committed fixed overhead cost, as well as costs related to the shutdown of our Hamburg lab and unprofitable testing sites. Examples of fixed costs include cost of premises, including unprofitable sites that we have since shutdown. IT costs and temporary wages at unprofitable sites which have now been restructured. We are also consolidating our operations to only operate at sites that are still generating positive returns and streamline our laboratory cost by shutting down the Hamburg lab and increasing the test outputs and efficiencies at our all other lapse in Rostock, Frankfurt and Munich to ensure our cost going forward is streamlined to the needs of the segment, which will allow us to generate a positive EBITDA.

As we face out the COVID segment, we have reassessed the useful life of all COVID related long-lived assets in according to our accounting policy, which resulted in a significant write-down of EUR3.2 million in form of accelerated depreciations and amortizations. We have also recorded at EUR0.6 million write-down in COVID related inventories in the quarter. In summary, we will diligently manage the phase-out of the business as the management teams are highly focused on executing on the core business.

With that, please turn to Slide 20. Pharma revenue recovery continued to be affected by the COVID-19 pandemic in the last quarter. We see in the graph that pharma revenue decreased to EUR9.2 million in the first nine months of 2021 compared to EUR12.3 million in the same period 2020. The main drivers of pharma revenues are patient identification and clinical trial support partnership. The decline in 2021 year-to-date is mainly due to the successful completion of contracts by the end of 2020 and a slower rebound due to longer sales cycles and building contract backlog. Andrin discussed earlier, the increase of signed contract value we have seen in 2021, which is significantly above the full-year 2020. So we remain confident in the acceleration of the pharma revenues in Q4.

During the first nine months of 2021, we entered into 16 new collaborations and successfully completed 25 collaborations, resulting in a total of 57 active collaborations as of September 30, 2021. Revenues from our new collaboration totaled EUR2.1 million for the three months ended September 30, 2021 with no upfront payments. I previously mentioned the 57 active collaborations on the pharma side. If you take a look at the pie chart in the bottom of the right corner, you will see that we currently have one large patient identification collaboration which reflect disease fields where commercial state products are already available, in this case, our contract with Takeda. Most of our collaborations continue to be in the clinical development stage with clinical trial support. All of these are based upon the set up we already have. Clinical development states collaboration can be used to support clinical trials or clinical studies like we do with our Denali collaboration or the collaboration with Agios and Denali highlighted in recent press releases announcements.

Adrian spoke about our R&D efforts on building the disease avatars earlier. So through leveraging our Bio/Databank for unique data driven insights, we expect to sign more collaborations in the R&D states in the future. As discussed at our investor event in June in detail, this is an area where we will expand and expect to have the first value share deal added over the course of 2022. Those collaboration would generally include a value share for Centogene when historically, these may have been small contracts only for testing research questions.

Please move to Slide 21. While the ramp up in revenue in the pharma segment appears a protected, we are extremely pleased to see the strong growth in our diagnostic business in Q3. Revenues from our diagnostics segments were EUR7.3 million for Q3 2021 an increase of EUR2.2 million or 43% from EUR5.1 million Q3 2020. We received an order intake of approximately 14,770 in our diagnostics segment in Q3 2021, representing an increase of approximately 46% as compared to approximately 10,150 order intakes received in Q3 2020. The increase in revenue was primarily related to an increase in test requests for panel testing, as well as whole exome sequencing and whole genome sequencing during the three months ended September 30, 2021.

Total revenues from panel testing, whole exome sequencing and whole genome sequencing amounted to EUR5.2 million, representing an increase of 46% as compared to Q3 2020. Panel testing, whole exome sequencing and whole genome sequencing account for approximately 50% of the number of test requests in the diagnostic segment 2021 year-to-date, supported by a project win in Middle East.

Please turn to Slide 22 for a look at our segment adjusted EBITDA. Here we see the segment adjusted EBITDA, which includes the contribution from the pharma, the DX the COVID-19 segments. We report a segment adjusted EBITDA loss of EUR2.5 million in Q3 2021 compared to positive EUR9.2 million for the same quarter last year. Same as for revenue, segment adjusted EBITDA was driven mainly by the decline in the COVID-19 business as discussed.

Total core business segment adjusted EBITDA grew EUR1.4 million, up from negative EUR0.4 million in Q3 2020 reflecting the strong uptake in the diagnostic business after COVID-19 hit in 2020. The picture for our two core business segment is mixed. Adjusted EBITDA for the Diagnostic churn from minus EUR1.2 million in Q3 2020 into a positive adjusted EBITDA of EUR1.1 million. Adjusted EBITDA of our pharma segment was EUR0.3 million compared to EUR0.9 million in Q3 2020. The decrease was primarily attributable to lower revenues, as well as product mix.

Looking at profitability, I would also comment on our organizational alignment in the core business. We will leverage the changes through the phase out of COVID to also optimize our overall organizational footprint related to the coal business to free up resources for investment into our core business. This streamlining is associated with the overall smaller employee base going forward, but also based on an in-depth review by the new management team to ensure focus on improving processes and efficiencies as well as streamlining our product portfolios. We expect the results to be saving of up to EUR15 million annualized excluding restructuring cost consisting mainly of personnel related and operational expenditures and a smaller contribution from capex. We expect a portion of the savings to be reinvested in the core business execution. Overall, you should therefore expect to see D&A expenses decreasing and over time R&D expenses increasing. Correspondingly, we expect to record restructuring charges of below EUR2 million in the fourth quarter related to the core business realignment.

Please turn to Slide 23 for a view of the P&L. Looking at our income statement, the slide shows you Q3 results on the left, as well as year-to-date results on the right and we will focus on the quarterly results for the purpose of these discussions and compare year-over-year. We have already discussed the revenue development in the quarter and highlighted the dynamic of core business versus COVID-19. I do want to spend some time on the gross profit development as this requires some explanation.

On gross profit we reported a loss of EUR5.4 million in Q3 2021, which compares to a gross profit of EUR10.2 million in Q3 2020. A negative gross profit is, of course, unusual and the reason behind this is again, the impact of the COVID-19 business as previously discussed.

Our expenses, including other operating income, increased by EUR1 million for the quarter compared to Q3 last year. Let me comment on the biggest factors that drove the increase in expenses. Firstly, general administrative expenses increased by approximately EUR2 million. The increase is principally due to the increased personnel cost, administrative cost and additional expenditure on IT support and data centers. Additionally, the COVID expenses included share-based compensation expenses of EUR1.9 million, an increase of EUR0.7 million versus the prior-year quarter.

Second, our R&D expenses for the quarter were approximately EUR1 million lower than Q3 2020. this decrease mainly represents streamlining of personnel cost IT-related development costs and then a change in the capitalization of costs last year, which led to an additional expense in the P&L.

Thirdly, our sales and marketing expenses for the quarter increased approximately EUR0.9 million, mainly reflecting an increase in personnel expenses online service expenses as well as travel expenses due to the easing of travel restrictions from COVID 19 pandemic. In total, our operating loss was EUR21.3 million, a decrease of EUR16.6 million compared to a loss of EUR4.7 million in Q3 2020. As previously discussed, the main change driven by the negative gross profit in the COVID business. Now please turn to Slide 24 for the cash flow and balance sheet highlights.

As of September 30, 2021, we had EUR25.7 million of cash and cash equivalents on our balance sheet. In regards to our outstanding debt, I would like to remind you that as of the end of September, this includes approximately EUR19 million of lease liabilities.

Looking at the movements. Cash flow from operating activities improved compared to last year. The main drivers were the cash generated through our COVID-19 testing business segment in the first half of the year. Having said that, we do recognize the impact of the earlier discussed reason to COVID business and negative gross profit leading to fading contribution from the segment compared to previous quarters. As discussed before, we are managing that business on a cash basis to a phase out.

In 2021 year-to-date, the cash flow used in investing activities was EUR5.4 million as compared to a cash flow of EUR11 million in the nine months 2020. Consistent with our aforementioned attention to the COVID business the decrease is mainly due to a reduction in COVID-19 related investments. Cash flow from the financing activities decreased compared to 2021 mainly reflecting the follow-on equity offering, which contributed with EUR22 million in Q3 2020. Based upon this cash development we have in our 6-K also disclosed a growing concern issue.

With that, let me hand it back to Andrin for our 2021 guidance and closing summary. Please turn to page — Slide 25.

Andrin Oswald — Chief Executive Officer

Thank you, Rene. So to round up today’s call, let me touch on the financial guidance. We have seen that on the core business, we have good recovery of our diagnostic business and we are also quite confident based on the contract values that we’ve signed on the pharma side that that business will return to an attractive Q4. We, of course, although declining have also significant contribution this year from our COVID business and accordingly overall we’ll adjust our top line guidance and expect gross revenue for 2021 to be between 30% to 40% versus prior year. This is mainly driven by COVID-19. However, we also expect our core business for the full year to be back to growth of mid to high single-digit after a decline of 20% in 2022.

Overall with exiting the COVID business, we plan to be fully focused on our rare disease business, strengthening execution, building the capabilities and attracting the credit capital and to further strengthen our leading position in this rare disease space to create long-term value for our shareholders and stakeholders.

With that just a few summary points on Slide 27. Core business recovery of 30%, 43% growth in diagnostics in the quarter. As mentioned, we plan to exit our COVID-19 testing business and we have started to implement a program to reduce cash burn in our core business. Overall, we remain confident on the step by step recovery we make on our core basis where the overall strategic priorities have not changed. Accelerating our growth in clinic diagnostics and pharma services by leveraging our unique Bio/Databank and strengthen our research capabilities to try to educate conform the understanding and treatment of rare diseases starting with Gaucher, Niemann-Pick and genetic Parkinson’s disease.

So in closing, I would just like to express our gratitude to our partners our employees and, of course, our shareholders as we continue tirelessly in this program pursuit of pure rare diseases. We remain committed to delivering the best part of the business performance for our shareholders while we are adapting and capitalizing on the testing in rare disease landscape maybe continues to evolve and grow.

With that, I would like to hand it back to the operator for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Puneet Souda from SVB Leerink. Please go ahead. Your line is open.

Puneet Souda — SVB Leerink — Analyst

Yeah. Hi, Andrin, Rene. A couple of questions given the quarter, obviously. So first on gross margin. You pointed out your cost rose significantly as outlined due to COVID testing. I mean, I appreciate that you’re shutting down your COVID testing operation in the first quarter. I don’t think we were expecting your gross margin to be negative. So it appears to us that that would continue into the fourth quarter, but could you elaborate for us as we look at 2022, when do you think your gross margin can return to be positive? So that’s my first question. And then secondly on cash runway, can you elaborate sort of given the current expenses, R&D increase, how long do you — in terms of the cash runway, how long do you have before further potential capital raises? Thank you.

Rene Just — Chief Financial Officer

Maybe, I can comment on the first one. The reason you are seeing this drop in the gross profit that are twofold in — or they’re seeing the negative gross in the COVID business mainly due to the development of the COVID business. Our core business, this is very important, is actually developing very positively compared to last year. So you see an increase in the quarter compared to last year in the gross profit in our core business from EUR840,000 to $3.2 million quarter versus quarter and year-to-date the core has improved from EUR8.1 million in gross profit last year to EUR9.9 million this year. So the underlying business of our core activity is actually improving.

Having said that, it’s of course correct as the gross profit in total is negative. And that is mainly coming from the negative gross profit in COVID with EUR8.6 million. And this is — there are two reasons for that. The — as we have told you about, how should have put it, the decreased level of activity as you have also seen in the presentation, has basically decreased from Q4 2020 into Q1, Q2 in 2021 and this has also continued in Q3. In Q3 we have then initiated, if I may put it like that, the ramp down of the activity and reducing the employer cost and so on. Here we have not reacted fast enough compared to the revenue decline. But due to the revenue decline in Q3, we have then made the decision that we will ramp down the COVID business in full until year end for the major part of the activities, except to airports that will continue into Q1 2022.

Having said that, then you can say, of course, will the negative gross profit development continue due to these accelerated amortization and depreciations. And there my — it’s a little bit difficult for me to answer exactly. But I can tell you in the month of October, we have seen an increased activity in the COVID business. So we are actually very cash positive and EBITDA positive in the month of October. And we expect this to continue for the Q4 in 2020 based upon the development in the infection rates and so on, you see first of all, of course, in Germany, but also around the world. So we expect that this will be very cash positive in Q4. So, no, I would not — I mean this, how should I put it, this negative gross profit development you have seen, we do not expect that to continue on a cash basis, if I may put it like that in the Q4 and the Q1 of 2022.

I believe that was the answer to your first question. And then the second question was, how long do you expect that our cash will last, if I may put it like that. First of all, I have to say that we have disclosed a going concern issue. This means that currently our cash position cannot cover the burn rate for the coming year based upon the current activities. Therefore, we have also started streamlining project as I explained, where we will reduce the cost with approximately EUR15 million and this has also been kicked off today. This will be implemented right now and then over the Q4 and Q1 next year. So, we do plan to reduce the burn rate significantly with EUR15 million.

Having said that, then we also have EUR26 million in cash. So there should not be any issues — I mean, the EUR26 million will not cover another full year, but at least it will cover far into the 2022 based upon the current burn rate.

Finally, it’s also important to say, due to our reduced cash position, which is also typically normal for a biotech company like ours, we have, of course, also looked into to different, what you call it, hunting opportunities, that we have, and we are currently in discussions with various strategic potential partners. We are in discussions with minority investors and maybe also some other potential investors. It could either be in terms of additional equity or in terms of issuing some debt. So we are, how should I put it, on top of this and as soon as we have more information, we will, of course, disclose this to you.

Puneet Souda — SVB Leerink — Analyst

Got it. Thanks Rene. On the Databank, you reported, I believe — somewhere around 630,000, 632,000 patients in the database. That appears to be a step-down from the 650,000 in the quarter. And I recall Andrin talking about this database should continue to increase. Obviously, this is the core part of your offering. Can you just elaborate on exactly what — why this decline happened? And also on pharma, could you — I totally appreciate that COVID is ongoing and that is impacting the recovery in that business, but obviously that’s a core business development activity for you. Maybe just walk us through that. What are some of the parts there that are impacting on the ground level and when do you expect realistically for that pharma business to improve because obviously that declined sequentially as well?

Andrin Oswald — Chief Executive Officer

Yeah. Puneet, so the first one, the collateral product that new data coming into the Bio/Databank is increasing. So in Q3, again, I mean, as it significant [Technical Issues] on that exact number. On Slide 8, we added another 22,000 patients to the Databank in Q3 alone. So the trend is robust. It’s increasing quarter-over-quarter. The reason for us that stepdown that you highlighted, lab and story nature. And we have with our new Chief Data Officer, started really as an overhaul of the Databank, to not just take historical samples for granted, but really validate, what we have in key count that we think is no longer of value. So that has led to a reset of the baseline by 40,000 patients. Nothing [Technical Issues] will be from this year. I mean, this is — from a historic cleanup of the samples of patients that have been in that bank coming from [Technical Issues].

On the — so the — just to summarize, the growth of the Bio/Databank samples being very strong and we expect it to accelerate. The trend is such remain absolutely robot and it’s also not the secret that, of course, samples that come in today, are much more valuable than samples that we had that maybe are already 10 years old. We have much the research content at 80% level. And, of course, we are also in a position today to do genomic analysis. You can also see that that percentage of whole genomes, the exome sequence with the patients that come in more recent time, of course, is much higher than we have a couple of weeks ago. So, overall, the Bio/Databank remains on track to be strengthened quarter-over-quarter.

And for the Pharma, at this point in time that the recovery is not affected by the pandemic, at least not significantly. It’s really — as we told of the fact that in 2020 the Company has focused its whole entity and commercial strength on COVID and such close to no new partnerships had been signed in 2020. And then, we refocused on the core business starting when I came on board, we start in progress and signed the first contract and as highlighted a contract signed in Q1. And given that it is not counted when you sign the contract, but mostly when we start recruiting the patients you will see the revenue there to [Indecipherable]. But when I look — as we have emphasized and all the contracts we had signed already this year, we feel very good that first of all quality is real. I mean, the year’s not over, but you’re very encouraged by what we see now by November the 24th, that we will have a good Q4 for Pharma and with the contracts that we have signed to date, we also believe that that will continue into next year.

Puneet Souda — SVB Leerink — Analyst

Okay. Thanks. I’ll let others to hop in.

Operator

Thank you for your question. The next question is from Catherine Schulte from Baird. Please go ahead. Your line is open.

Catherine Ramsey Schulte — Baird — Analyst

Hey, guys. Thanks for the questions. I guess, first, there have been some additional COVID lockdowns or restrictions lately across the world as cases start to rise again. How do you view that impacting your fourth quarter, both in terms of core diagnostics and then clinical trial work for pharma?

Andrin Oswald — Chief Executive Officer

Yeah. So thanks for the question. On COVID, we do see an uptake in testing volume. We expect Q4 to be stronger than Q3. It’s a little bit early to tell how strong it will be, given the — a lot depends, of course, on December. I mean, last year we had the tremendous uptake during the traveling season and will holiday season as a lot of travel, will that happened this year or not? I mean, this will really depend on how strong the potential lockdown would or would not be in Germany. If traveling continues, I think we will see growth and relate to the cash generation, should the lockdown leads to very strong travel restrictions then normally the testing volume would go down again. But as said, I think the — we are on track and we will execute the overall ramp down of the COVID business that it might well be — if the testing volumes continue to be high that during the ramp down, we generate some additional cash.

As for the second question, which was — you have to remind me, unfortunately.

Catherine Ramsey Schulte — Baird — Analyst

Yeah. It’s more on the non-COVID side of the business [Speech Overlap] core diagnostics for the pharma.

Andrin Oswald — Chief Executive Officer

Correct. Up to now, we haven’t seen any impact. In Europe, I think that now it’s somewhat center of the current pandemic, but that may change in a month from now. And even here, we don’t see an impact right now. Should it get worse that hospitals start to get significantly overcrowded so that they would be prioritized the more standard testing work that they do be made as some impact or some slowdown on our testing or clinical trial. But that’s pure speculation. We haven’t seen any to date. We also don’t expect it to be in any way near it happened compared to how you got last year. I mean, we do have a global business. I mean, we are not over presented in one region and given that there is different phases of the dynamic in different regions and we overall do not expect to see a substantial impact even if in Europe we were to see a smaller slowed down in the months to come.

Catherine Ramsey Schulte — Baird — Analyst

Okay. Got it. And can you just talk a little bit more about what you’re doing with request? When will those custom kits be available and how do you think they’ll improve or differentiate your diagnostics?

Andrin Oswald — Chief Executive Officer

Yeah. So, I cannot to offer them to say we expect it to be rolled out next year, in terms of exact what quarter and what — when I think — given that this is in a collaboration with [Indecipherable] we cannot share too much before we have alignment with them. But the teams are working on that and we expect rapid progress. And as highlighted we expect to have a further announcement on our CentoCloud deal this year that we will give you also their more insights into how we plan to accelerate the rollout of our decentralized testing solution.

Catherine Ramsey Schulte — Baird — Analyst

Great. Thank you.

Operator

Thank you for your question. We have the next question for Sung Ji Nam from BTIG. Please go ahead. Your line is open.

Sung Ji Nam — BTIG — Analyst

Hi. Thanks for taking the questions. Just out of curiosity, of the new pharma contracts that you’ve signed this year, year-to-date, or even the last, I would say, 12 to 18 months or even two years, do you have a sense of roughly what percentage is coming from the existing 30-plus customers versus percentage is coming from new customers?

Rene Just — Chief Financial Officer

Yeah. So, how you look at it in terms of number of contracts, the majority are from new customers. In terms of value, some of the existing contracts, of course, have a significant size, but some of the new ones are more from buying the companies and hence are smaller. And if you ask for a value split, roughly, I would say about half-half.

Sung Ji Nam — BTIG — Analyst

Okay. Got you. And for the ones that have not — that have completed their projects and have not signed on for new projects, just out of curiosity, what are the main drivers or do you have a sense if they’re expecting? Yeah, go ahead.

Andrin Oswald — Chief Executive Officer

Some of them are biotech companies specifically working on the rare disease with a certain scientific approach. And then if that fails, then, of course, the program stops, right? Then the company, given that it will be focused on one specific project, of course, would most likely either needs to exist or it needs to have other priorities, then you need to be starting the next collaboration with us. And — but overall, I would say that it’s relatively rare. I mean, we have a lot of repeat customers. And I think, all the larger partnerships that we have, I think it needs to date — I can of course not make a forward-looking statement, but to date these partnerships, they by and large tends to continue.

Sung Ji Nam — BTIG — Analyst

Got you. And then just on the diagnostic side, on the core diagnostic business side, do you have infrastructure in place currently in your view to be able to achieve kind of your long-term growth rate target or are there kind of further efforts in place or that are underway to be able to continue to drive growth there?

Andrin Oswald — Chief Executive Officer

Infrastructure, again, it depends what you need. I mean, as it relates to our laboratory capacity, I think we have what it takes at least for two different terms. If we look at our CentoCloud, which is, call it, infrastructure as it relates to working with decentralized labs, I mean that we are building up and we’ll share as I mentioned in a couple of months and where we stand and what you can expect. The investments there are not significant that, but still, I think it’s an important project for us.

And when you look at the commercial infrastructure, I would say we have highlighted that in the past where we do have the gap and it’s in the US and we do have a presence in the US, but we consider it not to be developed at the stage that we would like. And that’s also why we are exploring partnership opportunities in the US, because of course, one option always is strengthened ourselves that I see a potential there maybe partner with someone who has that footprint already in the US and is interested to help our value proposition [Technical Issues] commercialization partnerships.

Sung Ji Nam — BTIG — Analyst

Great. Thank you for taking the questions.

Andrin Oswald — Chief Executive Officer

All right. We are a little bit over here about four minutes. Should we take one more?

Operator

There are no further questions, sir. Do you like to end the conference?

Andrin Oswald — Chief Executive Officer

Good. Even better. All Right. I think then Lennart, we can close the call.

Lennart Streibel — Investor Relations

Yeah. Thanks very much for joining us and talk to you during the next quarter and investor events as well. Thank you and goodbye.

Andrin Oswald — Chief Executive Officer

Bye-Bye everyone. Thanks for calling.

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