Aspira Women's Health Inc (AWH) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to this Ciphergen first-quarter conference call. During the presentation all lines will be on a listen-only mode. Afterwards we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded Thursday, May 4, 2006.

Your speakers for today are Sue Carruthers, Gail Page and Dan Caserza. I would now like to turn the conference over to Sue Carruthers. Go ahead, ma'am.

Thank you. Welcome to Ciphergen's third-quarter 2006 conference call. At the request of the Company, this call is being recorded. The entire contents of the call, including the presentation and question-and-answer session that will follow, are the copyrighted property of Ciphergen with all rights reserved. Any redistribution, retransmission or rebroadcast of this call in any form without the express consent of Ciphergen is strictly prohibited. I'm here with Gail Page, President and CEO, and Dan Caserza, Vice President, interim CFO and Corporate Controller.

Some of our commentary and answers to questions may contain forward-looking statements that are based on current expectations and involve risks and uncertainties that could cause actual results and outcomes to be materially different. Certain of these risks and uncertainties may include but are not limited to competitive environment, changes in government regulations, and changing relationships with customers and strategic partners and other factors described in Ciphergen's 2005 Form 10-K and subsequent filings. A copy of our earnings press release and a recording of our prepared remarks can be found on our website at www.ciphergen.com.

Now I'd like to introduce Dan Caserza.

Thank you, Sue. I'm going to begin with a discussion of our financials and then I'll turn the call over to Gail Page for a review of other corporate highlights.

Ciphergen's first-quarter 2006 revenue grew 6.3% to $7.1 million as compared to $6.6 million in the first quarter of 2005. We reported revenue from the sale of 18 systems in the first quarter. Instrument sales which include accessories and software generated about 41% of total revenue in first quarter with $2.9 million in sales compared to $2.1 million in the first quarter of 2005.

Total ProteinChip consumable sales were $1.9 million in the first quarter or 27% of total revenue. The remainder of our revenue was related to service activities. For the quarter, total service revenue was $2.3 million or 32% of total revenue. Collaborative service projects accounted for about 797,000 of the total in the first quarter of 2006 with the remainder coming from maintenance contracts and paid training activities.

In January we adopted FAS 123(R) which requires companies to record compensation expense related to stock options and employee stock purchase plans. To assist investors, we have therefore presented our financials in the press release on both a GAAP and non-GAAP basis. The non-GAAP presentation excludes these non-cash compensation expenses and is more comparable to prior period results. The update I'm presenting focuses on these non-GAAP results although investors should also review our GAAP reported results.

Our gross profit for the first quarter was $3.7 million which represents a 52% gross margin essentially unchanged from the first quarter of 2005 and a significant improvement from 45% gross margin for the fourth quarter of 2005.

Sales and marketing expense was $3.4 million in the first quarter of 2006 versus $5.3 million in the first quarter of 2005. This is a 36% decrease year-over-year in sales and marketing expense. Sales and marketing expense declined 11% as compared to the fourth quarter of 2005.

Research and development expense was $2.9 million in the first quarter of 2006 as compared to $3.5 million in the first quarter of 2005. This is an 18% reduction in overall R&D expense year-over-year even as we continue to increase our investment in biomarker discovery and diagnostic activities.

General and administrative expense was $2.1 million in the first quarter of 2006 as compared to $3.5 million in the first quarter of 2005 and $3.7 million in the fourth quarter of 2005. These represent decreases of 41% year-over-year and 44% sequentially.

Our net loss on a GAAP basis in the first quarter of 2006 was $5.5 million and $5 million on a non-GAAP basis as compared to $9.3 million in the first quarter of 2005. This is a 41% decrease in net loss on a GAAP basis and a 46% decrease in net loss on a non-GAAP basis.

Our ending cash on March 31st was $24.4 million at which point we still had an additional $6.25 million available to borrow under our loan facility with Quest Diagnostics. The decrease in our cash and short-term investments during the quarter was $3.6 million. Our gross cash burned during the quarter excluding borrowings from Quest Diagnostics was about $4.8 million.

Now I'd like to turn the call over to Gail Page for additional comments.

Thank you, Dan. Good afternoon everyone. I'm pleased to have this opportunity to update you on our accomplishments during the first quarter. Today we will discuss our progress relative to the objectives we outlined in our fourth quarter 2005 earnings call and talk about several new initiatives. I trust that our progress toward achieving these goals will be evident at the conclusion of today's call.

During the first quarter we delivered the message to our shareholders and customers that the time was right to leverage the power of SELDI Technology aggressively into the diagnostics marketplace. Since 2002, we have been working on biomarker and diagnostics discovery with some of the most esteemed collaborators in the world and now powered by our alliance with Quest Diagnostics, the diagnostic pipeline that resulted from those efforts is ready to take center stage as we drive the Company forward as the leader in the exciting new field of high-value molecular diagnostics.

As Dan stated, our revenue increased by 6.3% and our net losses decreased by 46%. We achieved these results by bringing a commercial focus to all aspects of our operations. After a significant management reorganization at the end of fourth quarter 2005, we acted quickly to realign our resources to maximize the use of our talent. During the quarter, each department completed a comprehensive review of its operations and implemented programs that are making a difference to our quality, to our performance and to the bottom line.

For example, the experienced executives were put in place to manage our sales process and focus on critical commercialization activities. As an example, price stabilization in part accounted for our improvement in gross margin from 45% in Q4 2005 to 52% in Q1 2006. We will continue to work to align our costs with our revenue while adding the talent needed to focus on our alliance with Quest Diagnostics. As of today our headcount is 146 down 8% from the end of 2005.

We have begun to try our facility costs by subletting space and letting existing space go as leases terminate. As promised we have significantly reduced our use of outside contractors maintaining only those activities directly impacting our diagnostics commercialization efforts. We have focused our R&D efforts to targeted programs that will impact commercialization of products in 2006, 2007 and that directly impact near-term sales. Although we still have more work to do, I am very pleased with the results of our efforts to date to create a more focused, efficient and commercially responsible organization.

Let's move forward and discuss our strategic alliance with Quest Diagnostics. Quest Diagnostics and Ciphergen are pleased with the progress that is being made. Both organizations have identified key personnel to drive the programs forward. The teams are working on the first development program and we are preparing a second plan to submit to Quest for review and acceptance. During the quarter we transferred our technology to Quest Diagnostics as part of our joint development efforts to launch innovative new tests utilizing proteomics technology. Both parties remain very enthusiastic about the future at our alliance based on our initial interaction. The alliance's function as we envisioned, Ciphergen supplying potential biomarkers and Quest providing the expertise on their conversion to commercial tests.

Now I'd like to describe specific progress in assay and clinical development for our ovarian cancer program. Ciphergen and its esteemed collaborators have been managing our ovarian cancer clinical program and we are very pleased with our continued progress. In developing our ovarian cancer clinical program, we have analyzed over 2000 samples taken from women with ovarian cancer or benign disease and from healthy women. The findings from these studies provided the discovery and independent validation data underlying the clinical development of a test intended to help triage women with a persistent pelvic mass.

In December, we ran a carefully designed prospective pelvic mass study with the aim of specifically quantifying the degree of improvement and positive predictive value that our marker panel has in distinguishing a benign versus malignant pelvic mass. The positive predictive value of a test is the percentage of time a positive test result is a true positive result. The study employed our latest improvements in the ovarian cancer assay protocol to examine 202 patient samples which were divided into independent training and test sets. Results of this pivotal study were presented at the annual meeting of the Society of Gynecologic Oncologists in March. A major theme of the meeting was that appropriate triage of women with ovarian cancel to the specialist gynecologic oncologist has a great impact on improved clinical outcome. Therefore, a test that can aid in the risk stratification of a woman with a specific pelvic mass would be of great value particularly to the general gynecologist who often evaluate woman with these masses.

We demonstrated that our marker panel provides a substantial improvement and positive predictive value from 59% to 80% in distinguishing benign from malignant pelvic masses. This result would aid gynecologists in triaging women with a high likelihood of having ovarian cancer to the specialist gynecologic oncologist.

In addition to this prospective clinical trial we also tested 300 retrospective samples obtained from Japan. We were able to confirm the performance of our marker panel and the Japanese study indicated that these markers are applicable to another population. Additional data demonstrating the multisite validity of our marker panel will be presented in June at the meeting of the American Society of Clinical Oncology.

In addition to the assay in clinical development progress, we are pleased to report that our activities of obtaining FDA clearance are progressing. We have received notification of successive completion of our annual ISO 9001 2000 audit. We have verified through independent audit that all necessary elements of quality system regulations are in place which will allow us to manufacture diagnostic products. With these achievements, we are now positioned to develop our overall worldwide commercialization strategy.

As we continue to focus on the future, we have added two new initiatives. First, the formation of a scientific advisory board and second, the addition of new members to our Board of Directors who can assist us as we enter the diagnostics marketplace. I am pleased to report significant progress on both. Our goal for the scientific advisory board is to recruit individuals who will help us leverage our intellectual property portfolio, guide our resource allocation and evaluate our ongoing diagnostic programs and prioritize them towards commercialization. Members of this scientific advisory board who will be announced shortly are distinguished members of academia and industry with experience in diagnostic test development and commercialization.

With respect to our Board of Directors, on April 18, 2006, we announced the addition of Mr. Ken Conway to our Board of Directors. Ken brings a wealth of knowledge in the diagnostics and clinical lab sectors as well as in predictive medicine. We will be working closely to leverage his insight as we navigate the Company forward toward product commercialization.

On a final note, we were pleased to learn that the United States District Court order to shareholders securities class-action suit dismissed on March 29, 2006.

In summary, we've demonstrated significant progress in improving operational performance while advancing our diagnostic product commercialization efforts. As we move forward, we will maintain our focus on the following. Our relationship with Quest Diagnostics which is a critical component of our overall commercialization strategy; driving revenues from instruments, consumables and services base facility to the research market while leveraging this viable asset; managing our operations to become more efficient while focusing on our quality and productivity; continuing to leverage our technology directed toward the discovery and commercialization in the high-value market of diagnostics. And last but not least, investing in our future.

Towards that end, we are recruiting seasoned diagnostic veterans to enhance R&D, marketing and reimbursement efforts and we are heightening our activities with Quest.

Finally in addition to our ovarian cancer program, we have identified other candidate tests to maintain a healthy pipeline for continued growth in the molecular diagnostic space. We anticipate that as we deliver on these stated objectives shareholder value will increase. Let me conclude by thanking all of you who have joined us today.

Operator, we are now ready for questions.

(OPERATOR INSTRUCTIONS) Eric Smith with Cohen, Inc.

Good afternoon. Hi (technical difficulty)

Did we lose Eric?

It looks like we did. (OPERATOR INSTRUCTIONS) Eric Schmidt of Cowen.

Can you hear me, Gail?

Yes I can hear you now. Sorry.

Sorry about that. It sounds like from your comments that you have every intention to keep the instrumentation business as far as it relates to the research market. Is that the case or have you completed your strategic review of that division?

I would say that we have not completed our strategic review. As I indicated in the first call, I think it upon us to look at all avenues to leverage that asset and I would say that we're very pleased with the progress and we're working toward the best plan.

Okay. And then second in terms of the ovarian cancer, the diagnostic or for that matter any other diagnostics you might be launching with Quest. Is there anything that actually has to happen from an FDA or other perspective before you can launch on an ASR basis?

The key thing that we have to be concerned about in order to be a provider of an ASR product is that we are GMP and that is the one thing that I alluded to in this piece today is that we are GMP, we are ISO, we passed our audit. So we feel like we're in very good shape to be a provider of an ASR product.

So if I can probe further, what internal factors Ciphergen and/or Quest are holding back the launch today?

Well what happens for any clinical laboratory to provide an in-house developed test is that they have to be the provider of their own validation material. You as a diagnostic supplier cannot provide the protocol or the associated things. You can provide the components and the laboratory, it has to be an in-house developed test. So they will go through their own internal processes of validation and their own internal studies that make them feel comfortable to get to a launch date. So that would apply to any clinical laboratory relative to an ASR.

Is there any update on the timing of the first commercial product here?

I wish I could be more specific but I think I'll have to stick with my same good old standard answer that it is our goal to have a test on the market by the end of the year.

Great, thank you.

Thank you, Eric.

(OPERATOR INSTRUCTIONS) Ms. Carruthers, there are no further questions at this time. I would now like to turn the call back over to you. Please continue with your presentation or closing remarks.

There are no further closing remarks. We would just like to thank everyone. Have a good day.

Ladies and gentlemen, thank you for participating in today's Ciphergen first-quarter conference call. You may now disconnect.