Aspira Women's Health Inc (AWH) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Ciphergen Biosystems First Quarter Earnings 2002 conference call. At this time, all participants are in a listen-only mode and later we will conduct a question and answer session. If you have a question, depress the touch-tone phone and you may remove yourself anytime by depressing the pound key. If you are using a speakerphone, please pick up your handset before depressing the numbers and if you should require assistance during the call, please depress zero and then star. As a remainder, this conference is being recorded and I would now like to turn the conference over to our host Ms. Sue Carruthers with investor relation. Please go ahead ma'am.

Thank you, good morning ladies and gentleman, I am Sue Carruthers, investor relations, and with me today are William Rich, President and CEO, Matthew Hogan, Chief Financial Officer, and others may participate in the questions and answers. Copies of the release were distributed yesterday and are available on our website. I would like to remind everyone that this call is for information purposes only. This call is being recorded and is and therefore, please note that it cannot be , transcribed or rebroadcast without Ciphergen's permission. Your participation implies consent to our recording this call. If you do not agree with these terms kindly drop off the line.

Our discussion today contains some forward-looking statements, including Ciphergen's expectations of future strategic plans and operational results. Various risks may cause Ciphergen's actual results to materially from these expectations. For a list and description of uncertainties, please see the report filed by Ciphergen with the Securities and Exchange Commission. The information in this conference call related to projections or other forward-looking statements may be relied upon subject to the previous Safe Harbor Statement as of the date of this call and may continue to be used, where a call is maintained on our web site. Now, I would like to turn the conference call over to Matthew Hogan our Chief Financial Officer.

Thank you Sue and good morning everybody. This was a very strong quarter for Ciphergen, with revenue in the first quarter at 6.8 million, which represents a 154 percent increase over the same quarter of 2001. We had strength across the board in systems, consumable and services. During the quarter, we recorded revenue from the sale of 25 ProteinChip(r) systems and interfaces and had bookings in excess of that. The ProteinChip(r) Biomarker system continues to sell nicely and a number of customers have opted for an automated Biomarker system, which includes the purchase of a Beckman Coulter robotic liquid handling system for a combined list price of $275,000. We have several customers purchasing Biomarker pattern software, as well as system upgrades. We also continue to sell ProteinChip(r) interfaces and recently increased our marketing efforts around that product offering. Hence the instruments part of our business generated 3.4 million in revenue in Q1 compared to 1.9 million in Q1 of 2001, an 82 percent increase.

Our consumable business now consists of both ProteinChip(r) arrays and chromatographic sorbents for our BioSepra Process Division. Array revenue of $659,000 was up 66 percent in Q1 compared to the first quarter of last year. Our BioSepra Process Division had a very nice quarter generating 1.8 million in sorbents revenue. We are very pleased that our efforts to introduce process Proteomics is leading a strong market interest and has led to both system sales and service revenue, as well as increase sales of BioSepra sorbents. Our services business also had a strong quarter. Collaboration services now consist both of Biomarker Center activities, as well as start of process Proteomics service activities. In addition, we generate service revenues from providing maintenance services to our customers and paid training activities.

For the quarter, total service activities grew 123 percent to $927,000 in revenue, as compared to $416,000 in Q1 of 2001. I would also note that many of these activities also carried with them certain downstream rights for Ciphergen and in many cases the rights to diagnostics that may materialize in the future and often rights to therapeutic discoveries, as well. Our cancer-related activities at Johns Hopkins fall into this category, as do our two AIDS collaborations that have received recent publicity in the Wall Street Journal. In Q1, our revenue mix was about 50 percent instruments, 36 percent consumables, and 14 percent services. At the end of Q4, we had indicated that for 2002 as a whole we anticipated a mix of about 60 percent instruments, 30 to 35 percent consumable and 5 to 10 percent services.

Our gross profit for the first quarter grew a 156 percent from $1.7 million to $4.3 million. Gross margin was flat in both periods at 63 percent. If you exclude the deferred stock compensation included in cost of revenue in the first quarter of 33,000 the reported gross margin would have been 64 percent. Just to repeat our prior massages, we expect to be able to improve the gross margin during the course of the year as our volumes continue to improve. Sales and marketing expense, excluding deferred comp, was $4.6 million in the first quarter of 2002 versus $2.7 million in the first quarter of 2001 and up from $4.2 million in the fourth quarter. This increase in activity such advertising, trade shows, etc. Deferred compensation in sales and marketing was 162,000 in the first quarter. Research and Development expense, excluding deferred comp, was $3.8 million in the first quarter as compared to $2.4 million in the first quarter of 2001 and $3.6 million in the fourth quarter of 2001. Deferred comp attributable to R & D was 82,000 in the first quarter.

Despite the overall growth in the size and complexity our organization, we managed to temper the growth in our G&A expense. G&A expense, excluding deferred comp, was $2.5 million in the first quarter versus $2.4 million in the first quarter of 2001 and $2.7 million in the fourth quarter. Deferred comp attributable to G & A was 474,000 in the first quarter. During the first quarter, amortization of intangibles largely related to our BioSepra acquisition was 207,000. Net interest income and other items was $0.4 million in the first quarter. All of the above resulted in a net loss for the first quarter of $7.2 million versus $6 million in first quarter of 2001 and $7.1 million in the fourth quarter. I would note that our revenues were higher than external published expectations and our net loss was smaller than anticipated. Now let us turn the call over to Bill Rich to comment on other key events in the quarter

Thanks Matt and good morning everybody. On today's call, I will focus on the major factors that contributed to our strong first quarter and will continue to do so going forward. First, peer-reviewed publications based on discoveries made using the ProteinChip(r) system provide substantial validation for the value of this technology. Second, I will lead you to expanding role of our system in the clinical Proteomics market, where it is already proving valuable in the development of predictive diagnostics. Third, the ProteinChip(r) system holds promise and drug discovery as well, an area we entered to collaborations with two prominent AIDS research organizations recently. Finally, I will lead you to our expansion to new markets and outline some of the value drivers going forward. First of all, this was another strong quarter for Ciphergen in terms of our revenue growth continuing to build, our base of users, and increasing our chip sales.

The integration of our BioSepra Process Division is going very well and our confidence is high that this will prove to be a very good acquisition. The acceptance of our products and services is allowing us to continue to grow strongly even in a difficult economic environment, which has caused many other research tools companies to report disappointing revenue growth and pare back their expectations. We have met our goals and expect to continue do so going forward. Peer-reviewed publications based on the ProteinChip(r) system: driving our continued growth is the application success that our customers have been using the system. One metric for these successes, and it is an important marking tool for us, is the increase in number and quality of peer review publications. Just to review the numbers for a second. We noted during our last call that we'd had 41 publications in 2001 as compared to 19 in 2000. It is now safe to say that we expect to substantially increase our number of publications in 2002, which directly will impact reference selling and is an important lead generation tool.

Also, at the American Association of Cancer Research meeting in early April in San Francisco, 25 papers were presented by leading medical research centers covering a verity of cancers, compared to 14 papers using our technology the previous year. Clinical Proteomics market: these AACR publications are critical indicators of our success and pioneer in the clinical Proteomics market. We see the clinical Proteomics market consisting about 25,000 labs, including physicians and academic settings, for example at Cancer Center. They might do rounds in the morning, then the clinical research in their cancer specialty in the afternoon with a substantial group of research associates. Clinical Proteomics also consists of the pharmaceutical preclinical and clinical development groups.

For example, the toxicology group at Pfizer is faced with a large number of potential lead compounds to assess their drug safety profiles prior to entering the clinic. All of these scientists are very comfortable associating protein biomarker phenotypes with disease staging and treatment or toxicity assessment or patient responder or nonresponder stratification in the clinical trials. One of the major strengths of the ProteinChip(r) platform is rapid protein expression profiling using small quantities of samples to develop protein profiles showing differences between normal and diseased fluids or tissues. Our pattern recognition software provides analysis and validation of protein biomarkers and patterns of biomarkers for high confidence prediction of the desired phenotype using as few as 30 to 60 samples.

In a short period of time, novel biomarkers are being discovered and platforms developed for predictive toxicology, early detection of disease, and other types of predicative clinical phenotyping. A major publication occurred in February of this year when the National Cancer Institute and the FDA's clinical Proteomics initiative jointly published a pioneering study in the prestigious journal The Lancet on the early detection of ovarian cancer. This groundbreaking study showed the protein pattern generated from the serum of 50 ovarian cancer patients could distinguished from 50 women without disease, using the ProteinChip(r) system and analysis by pattern recognition software. These patterns were then used to screen another 116 serum samples, 50 from ovarian cancer patients, and 66 from healthy woman or woman with nonmalignant disease.

Using these protein patterns, all 50 of the cancer patients were correctly classified, including 18 with early stage cancer and 63 of the 66 women without cancer were correctly classified. The yielding of sensitivity of 100 percent, specificity of 98 percent, and overall positive predictive value of 94 percent. While this is a preliminary study, this work indicates the potential for using multiple protein biomarkers and patterns of protein biomarkers for the early detection of cancer. In many diseases, early detection has profound impact on survival rates. In ovarian cancer, the five-year survival rate of women with advanced disease is only 35 percent compared with more than 90 percent for those with early stage tumors. Our systems are being widely use now in a verity of cancers looking at early detection strategies, but also other important clinical questions such as the staging or classification of the disease, treatment response, and treatment monitoring. Thirteen of the forty comprehensive cancer centers in the US are users.

We have six units now in the Cancer Center alone. We have an additional 31 user accounts involved in cancer research around the world. I cannot go into detail at this stage, but we have a number of predictive diagnostic efforts underway as part of our Johns Hopkins and Virginia Prostate Center collaborations, the largest of which are currently focused on ovarian cancer, prostate cancer, and breast cancer. Later this year, we should complete several ongoing clinical studies that employ sets of roughly 400 to 500 patient samples. We plan to patent biomarkers and patterns of biomarkers discovered as part of this effort and expect multiple publications in the leading generals to occur this year. Despite the focus on cancer, we are also active in other predictive diagnostic applications, in areas such as neurodegenerative and cardiovascular disease, so we expect to report back to Wall Street and to the scientific community on these fields as well during the course of the year.

AIDS collaborations: During the first quarter we announced collaborations with two the world's leading AIDS research organizations, the NIAID and the NIH and the AIDS Research Center to discover proteins in certain AIDS patients, which may be responsible for retarding the progression of the disease. This is very exciting news for us on several fronts. First, two of the world leading AIDS research organizations have chosen to work directly with our technology and our scientists.

Second, they have both been working on this in the past with other technologies for many years without success, while other results of our collaboration are very positive. Third, the potential development of new therapies is possible and we directly or indirectly have access to diagnostics and therapeutic rights to discoveries made under these collaborations. These collaborations were the subject of a very interesting article in the Wall Street Journal on April 18. If you haven't seen it yet, I would encouraged you to review a copy. Included in that article was a powerful statement from Dr. Tony Fauci, Director of the National Institute Health's National Institute of Allergies and Infectious Diseases. "We've never had this level of sophistication in protein analysis." This statement from some one of Tony stature is extremely rewarding to our efforts.

Drug Discovery: These AIDS collaborations mark another important step for us, the entry in to drug discovery based on the application of our technology that I described you earlier, that is differential protein expression profiling. We believe that this technology can enable the protein discovery of proteins in the region of the . The current Proteomics methods are weak and genomic methods are refractory. This region encompasses highly acidic or basic proteins, proteins of lower molecular weight, and proteins that are produced after gene expression and translation. I would also just like to reiterate that Ciphergen has an issued US patent covering the protein expression profiling efforts just described.

This pattern is wholly owned by Ciphergen and represents intellectual property barrier to any other company proposing to use for the purpose of differential expression profiling. On another front, we recently presented preliminary data at satellite meting of the American Association of or a new generation prototype of ProteinChip(r) arrays, which are expected to have particular utility for drug discovery application. These new polymeric surfaces further extend Ciphergen's capabilities and is a technology that Ciphergen has pioneered and continues to advance. These SEND surface that is Surface Enhanced Neat Desorption are modified with homogenous polymeric that interact with to focus laser energy to allow the direct creation of ions without introducing unacceptable levels of chemical noise so that we can analyze them by on our ProteinChip(r) systems. The elimination of the need to add chemical matrix solutions as a separate step, which is common to all type , not only facilitates and simplifies research, but also allows for better quantitation.

Further, these SEND surfaces enable the analysis of small low molecular weight molecules by reducing the chemical noise background, otherwise created by the matrix. We believe that these new SEND ProteinChip(r) arrays are particularly exciting as they mark an important step toward creating a novel based drug platform, which could be used on for on small molecule protein interactions screening.

Entering the China Market: During the quarter we entered China and we think this could be a very significant market for us. We set up a cooperate entity there and have sold multiple systems already. We've established a strong relationship with the University's Confederated Institute for Proteomics or UCIP, which the Chinese Government sponsors. UCIP has considerable influence over what technologies are adopted by many of the leading hospital and universities in China. We will be providing priority technical services to UCIP members and this relationship was a key part of the strategy for entering China. We expect significant growth in the China market this year.

Value drivers going forward: in conclusion I would like to reiterate some of the key value drivers for our company going forward. We will continue to rapidly increase revenue growth while we maintain or increase or high gross margins of 65 to 70 percent. We will clinical Proteomics with continued biomarker discovery efforts and the start of clinical validation studies. There should be an increasing news flow via publication of predictive diagnostic studies results and . We will expand our business to the emerging process Proteomics services and products revenues. We will increase penetration of the research Proteomics market with important new applications of the technology in drug discovery and increased acceptance of the PCI 1000 tandem MS interface by core Proteomics laboratories. We will continue to expand our product portfolio this year in the automation area, as well as systems and kits tailored for particular applications and users and now I think we're ready to take questions at this time, operator.

Thank you very much, sir. Ladies and gentleman, if you wish to ask the question, please depress the 1 on your touchtone phone. You will hear a tone indicating that you have been placed in queue and you may remove yourself from queue at anytime by depressing the '#' key. If you are using a speakerphone, please pick up your handset before pressing the number. One moment please for the first question. And our first question comes from the line of James of Partners. Go ahead, your line is open.

Good morning, gentlemen. Congratulations on another great quarter. I have a question on the sales force and wondering how you've grown that team. I think you mentioned that you were going to. And, another thing, how has the adoption of the units been in terms of using demo units to drive the sales?

Well, with respect to the sales force, I don't if I have handy a breakout of precisely people within the sales force, but we grew the total sales and marketing group by about five people in the first quarter. I think that masks the fact that all the people that we hired in the fourth quarter and in the third quarter of last year, now have one or two quarters under their belt, we would consider to be fully productive. You typically need about two quarters to get fully up to speed on the technology and be really productive and I think we'll continue to grow the sales and marketing group throughout the rest of this year. We coverage now throughout the US and throughout Europe, but there are still some areas we are going to be, you know, (audio gap. And your second question about the demo units...

We are continuing to use, you know, running problems through a demonstration process with our sales organization, in the past, it has met every sales situation to do that in order to get, what we are beginning to see now this last quarter that about something on the order of 15 percent to 20 percent of our orders now demonstration just do reference selling and this is kind that we expect to see going forward.

Excellent; and a following question. As far as ,are you still on the track to meet the guidance from the previous quarter?

Yes.

Thank you very much.

Ladies and gentleman, a reminder, if you do wish to ask a question please press '1' at this time. We have a question. of of , go ahead, sir.

Hi, good morning, and congratulations also a good quarter. I was wondering if you could give more information on the backlog that you have this quarter, where it stands now, and how it compares to the backlog at the beginning of the quarter.

You know, we don't want to set a precedent for describing in detail what our backlog is. I will say our backlog is better than it was end of the quarter, the end of last quarter.

Great, and also you just mentioned that you are stating to some reference selling of the machine. Could you give us a little insight into what areas that reference selling is occurring in. Is it AIDS or cancer or Alzheimer's disease or maybe somewhere else?

It's occurring substantially in the clinical Proteomics areas where we're doing a lot of these sales to places like who already have six systems. People who are actually involved in the clinical Proteomics are seeing the number of publications and the reference base we have now becoming strong enough so that simply showing references and referring to papers is satisfactory for bidding.

OK. Do most of those people already own or are these new customers entirely?

Most of them are brand new customers entirely.

And one final question, instrumentation companies are saying that they're seeing a longer sale cycle at and biotech companies and maybe less planning, but your growth rates are actually increasing. Are you seeing any incidence of or any evidence of longer sales cycles?

We're not right now, Phil. I suspect, we don't sell as strongly into the core, you know, discovery basic Proteomics laboratories directly as some other people do core laboratories and so we're not seeing any kind of slow-down in our market segments.

Great, thank you.

Thank you and if you a question please press '1' at this time. We have question from the line of John Park with Liberty Asset Management. Please go ahead; the line is open.

Thank you. Hi, Matt. Hi, Bill. Have you started shipping any product at all with the recently announced, I think it was in March, partnership with Beckman Coulter?

Oh, yeah. Absolutely yes.

Okay, and is that meeting your expectations at this point?

Yeah, what it does it is it automates a part of the front-end of the whole process, and so I alluded to this, and we've got a number of customers now that have brought a ProteinChip(r) Biomarker system and at the same time this the Beckman robot at the front-end, and the list price of that combination is $275,000 and we've sold a number of those, and the implication of that is these are users that are going to do lot of volume, so we really expect a lot chip volume to also follow from those customers.

OK. Thanks a lot.

Thanks, John.

For additional questions, please do press '1' at this time. And, there no further questions at this time. Please continue gentlemen.

Well, if there are no formal questions, thank you for participating and be happy to talk to people off-line during the course of the quarter, as we always do, and thank you very much.

Thank you very much.

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