Aspira Women's Health Inc (AWH) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Vermillion fourth quarter financial results conference call. During this presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator instructions.)

As a reminder, this conference is recorded on Thursday, February 10, 2011.

It's now my pleasure to turn the conference over to Ashish Kohli, Vice President of Corporate Strategy at Vermillion. Please go ahead, sir.

Thank you, operator, and welcome to our conference call. Today we issued a financial results press release for the fourth quarter of 2010, which is also on our website, and we encourage you to refer to it for more details.

Some of our commentary and answers to today's questions may contain forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements. Vermillion is providing this information as of the date of this webcast and does not undertake any obligation to update any forward-looking statements contained in this document as a result of new information, future events, or otherwise.

Forward-looking statements reflect Management's current estimates, projections, expectations or beliefs, and involve risks and uncertainties that could cause actual results and outcomes to be materially different. Risks and uncertainties that may affect the future results of the Company include, but are not limited to, the competitive environment, the speed of market adoption, changes in government regulations, payer reimbursement, relationships with our strategic partners, and other factors as described in the Vermillion 2009 form 10-K, quarterly results on form 10-Q, and current reports on form 8-K.

A telephone replay of this call will be available beginning approximately one hour after the call through February 25, 2011. A copy of our financial results release for the period ended December 31, 2010 is available on our website at www.vermillion.com.

At the request of the Company, this call is being recorded. The entire contents of the call, including the question-and-answer session that will follow, are the copyrighted property of Vermillion, with all rights reserved. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Vermillion Incorporated is strictly prohibited.

Now, the agenda for today's call will be as follows. Gail Page, our Chairman and Chief Executive Officer, will lead off by providing an update on some of our key corporate initiatives. She will be followed by Sandy Gardiner, our Chief Financial Officer, who will provide a financial overview. Gail will then close by providing an update on the sales ramp for OVA1. With that, I'd like to turn the call over to Gail.

Thank you, Ashish.

Today, I am very pleased to report ongoing progress in several key areas. First, on the sales front, Quest Diagnostics performed approximately 2,935 OVA1 tests during the quarter. The 49% quarterly increase in the number of tests performed, especially in light of the holiday week, reinforces the importance of OVA1 as an aid for physicians in the assessment of adnexal masses.

Our sales and marketing initiatives, combined with the efforts of our partner, Quest Diagnostics, are successfully broadening awareness among the clinical community and we are well positioned to capture the long-term market opportunity.

Second, I am pleased to announce that we are moving closer towards launching OVA1 in select international countries. We have been working with Quest Diagnostics to define launch plans for India, Mexico and England. While we can't disclose official launch dates today, we are delighted with the progress and are setting the stage to launch OVA1 in at least one of these countries by mid-2011.

Additionally, we are very excited about the market opportunity in China. Based on our due diligence, we believe this could potentially be an opportunity to Vermillion. We are in discussions with potential partners in China and are excited about the market opportunity.

Third, we continue to move forward with our pipeline, which includes our OVA2 program and our VASCLIR program. We believe that VASCLIR is a compelling market opportunity given that it is a highly prevalent, but under-diagnosed condition that primarily impacts smokers and diabetics over the age of 50, and elderly over the age of 70, which in aggregate represents a substantial population.

As we indicated on our last call, we have contracted with the Colorado Prevention Center to conduct an intended-use study. We are pleased with the progress on this study and anticipate commencing subject recruitment shortly.

The intended-use population study will provide us with a finalized marker algorithm and, upon successful completion, will allow us to finalize with the FDA an appropriate regulatory strategy. We anticipate top-line data to be available in Q3.

OVA2 is a program intended to identify markers with high specificity to complement our OVA1 test. In conjunction with our colleagues at Johns Hopkins University, we have undertaken marker assessment studies and have generated encouraging data. These data will be presented at an upcoming oncology meeting.

Our fourth accomplishment involves the broadening of our patent portfolio. In early January we were granted a patent from the United States Patent and Trademark Office entitled Beta 2-Microglobulin as a Biomarker for Peripheral Artery Disease. Recently, we received a notice of allowance from the US PTO for our patent entitled Biomarkers for Breast Cancer. Both of these patents help validate our approach to intellectual property protection. We view the increasing breadth of our patent portfolio as a significant corporate asset.

Fifth, I want to acknowledge the progress we've made on expanding payer coverage. Since our last earnings call, two additional independent Blue Cross Blue Shield plans have provided coverage for OVA1, bringing the total to 12. This is in addition to several local and regional plans across the country that have also contracted with Quest Diagnostic to provide coverage for OVA1. This brings our total coverage to approximately 65 million to 70 million lives. We continue to leverage the relationships that our strategic partner Quest Diagnostics has with payers of all sizes.

Lastly, we recently filed with the Securities and Exchange Commission a registration statement on form S-1 for a follow-on offering. Given that we are in registration, we cannot discuss the offering on this call. However, if you have questions about the offering, including size and use of proceeds, we would encourage you to read the prospectus.

With that as a summary, I will now turn it over to Sandy to discuss our financial performance.

Thank you, Gail.

During the quarter we estimate that 2,935 OVA1 tests were performed, representing volume growth of 49% over the third quarter of 2010. For the full-year 2010, Quest performed an estimated total of 6,155 tests, exceeding the 2010 guidance range of 5,000 to 5,500 tests. Under our amended agreement with Quest Diagnostics, we received $50 for each OVA1 performed, as well as 33% of Quest's gross margin.

We have received $903,000 from Quest Diagnostics for OVA1 tests performed in 2010, of which we have recognized $308,000 in product revenues. This reflects the fixed $50 per test payment. We deferred to our balance sheet the remaining $595,000 of payments that reflect the 33% royalties as of December 31st, 2010. Later in Q1, we expect Quest to provide us with additional data about the royalty portion of our income stream. We plan to use these and other data available during 2011 in recognizing future product revenues for sales of OVA1.

Total revenue for the three months ended December 31, 2010, was $345,000; $149,000 from product sales of OVA1, and $196,000 from license revenue. During the fourth quarter we received approximately $624,000 in retroactive payments from Quest for tests performed from the OVA1 launch date of March 9, 2010, through November 30, 2010.

Operating expenses for the 3 and 12 months ended December 31, 2010 were approximately $4.5 million and $15.7 million, respectively. Operating expenses included approximately $1.6 million of noncash stock-based compensation expense in the fourth quarter 2010, and a total of $4.9 million for the full year.

Total net loss for the fourth quarter was $4 million, which included $1.6 million of noncash stock-based compensation expense, as previously stated, and $74,000 in other noncash expenses resulting from the fair value revaluation of common stock warrants during the period.

Total net loss for the 12 months ended December 31, 2010 was $19 million, which included $6.9 million in noncash stock-based compensation expense, $4.4 million in noncash gains resulting from the exercise and fair value revaluation of warrants, and $6.7 million in cash related reorganization items.

Weighted average shares outstanding were 10.4 million and 6.7 million for the 12 months ended December 31, 2010 and 2009, respectively. Our current shares outstanding are 10.7 million. Weighted average shares outstanding were 10.6 million for the fourth quarter 2010, and 10.4 million for the 12 months ended December 31, 2010, for a net loss of $0.38 a share and $1.83 per share, respectively.

Cash and cash equivalents at December 31, 2010 were $22.9 million. We continue to manage our cash judiciously while we build the business. We anticipate that cash usage during the first quarter of 2011 will be approximately $3 million to $4 million.

Now, I'll turn it back to Gail for a discussion on the sales ramp.

Thank you, Sandy.

I'd like to delve into our sales and marketing efforts in greater detail. We continue to see exciting growth and are always working to improve our sales efforts and programs as we grow as an organization.

In conjunction with our annual sales meeting in January, we added a new sales representative in the Mid-Atlantic, thus allowing us to expand coverage in a region that has demonstrated excellent growth potential. We are constantly evaluating the distribution of our sales representatives in order to optimize their productivity.

As we indicated in our last call, we have implemented a strategy that focuses on the gynecologic oncologist in order to gain their endorsement and support of OVA1, which leads to their recommendation of the test to the OB-GYNs for appropriate patients.

In the four territories that have greater than 18% of the gynecologic oncologists supporting OVA1, test volumes are growing at greater than 50% quarter-over-quarter. This growth demonstrates the effectiveness of gaining the gyn-onc support early in the selling process. Therefore, we will continue to focus our efforts in gaining additional gyn-onc support across the US.

We are measuring sales effectiveness by test volume generated in each territory. Here are a few highlights from Q4.

Our two largest territories grew 38% and 34% quarter-over-quarter. The next four grew at an average of 100% quarter-over-quarter.

In the Q3 call, we mentioned our CRM project. We initiated implementation of the CRM at the January sales meeting and expect over the next 120 days to have the system fully operational. The CRM will expand our ability to track and manage our marketing and sales programs, manage customer contact, market penetration, and sales effectiveness on a much more granular level.

Increasing physician awareness remains a key initiative for both our sales and marketing teams. In Q3, 2010 we made it a priority to attend regional medical meetings, such as District ACOG meetings, which provide the opportunity to have more in-depth conversations with target physicians. Along with the effectiveness of our salesforce, we believe these meetings were instrumental in the increased test volume during Q4.

We have attended state level ACOG meetings in Montana, Indiana and Michigan. We also exhibited at the Gynecologic Oncology Group and Society of Gynecologic Oncologists' winter meetings and received a favorable response. Therefore, we are continuing a similar strategy in 2011.

Vermillion will have a major presence at the SGO in Orlando, Florida March 5th through 9th. We have programs in place that include product presentations and SGO sponsorship and support. This meeting is attended by the majority of the 800 practicing gynecologic oncologists in the US.

Medical education is another crucial tool to increase physician awareness. These provide excellent opportunities for peer-to-peer discussion of OVA1 and accelerate our ability to close the physicians in a timely manner.

Forty programs were completed in the second half of 2010, and we expect a minimum of 20 to be completed in Q1 2011. The medical education programs will continue through the year at a rate of 20 to 30 programs per quarter.

We continue to update our speaker bureau presentations based on new data presented at scientific meetings, as well as feedback from customers and key opinion leaders.

Turning to our marketing efforts, we have launched a more robust advertising program for 2011, appearing in multiple journals to continuously increase OVA1 awareness with our target audience. These journals include Gynecologic Oncology, Contemporary OB-GYN, Female Patient, American Journal of Obstetrics and Gynecology, the OB-GYN Nurse, which have a broad reach to our target audience of gynecologic oncologists, OB-GYNs, gynecology nurses and nurse practitioners.

In the past quarter we increased our Face Book fan base four-fold. Social media provides a dynamic platform that allows us to build brand awareness and relationships with our patient audience.

Now, on to forward guidance. For the first quarter of 2011 Vermillion expects 3,000 to 3,500 OVA1 tests to be performed. This guidance takes into consideration numerous factors, including seasonality and weather. We are pleased with the traction so far this quarter, despite the impact of severe weather seen across the country.

Overall, we have made great progress in 2010 and look forward to continuing on that success in 2011. Some of the key milestones to watch for are -- expanding adoption of OVA1 in the US. We will continue to focus on physician education and awareness programs in coordination with Quest Diagnostics; launching OVA1 in several international markets throughout the course of 2011; publishing OVA1 clinical trial data in peer review journals; working in conjunction with Quest to expand reimbursement coverage; and additionally, sharing top-line data from our VASCLIR intended use study in Q3.

In closing, Vermillion remains focused on enhancing shareholder value by expanding OVA1 revenue opportunities, as well as looking at ways to accelerate and expand our product portfolio.

Thank you. Operator, we are now ready for questions.

(Operator instructions.) Scott Gleason, Stephens.

Gail and Sandy, thanks for taking my questions and congratulations on the progress you guys have made.

I guess to start off, Gail, can you talk a little bit about your physician education events? And maybe give us some color on what you guys have seen in terms of kind of hit rates with doctors that have attended the events, and kind of how their ordering activity has kind of progressed typically after they attend the events?

Sure, we'd be happy to. I'm going to ask Bill Creech, our VP of Sales and Marketing, to address that since he attends many of these.

Scott, thank you. As Gail indicated, we've had over 40 programs in the first -- or second half of 2010. The average attendance at those meetings is approximately 30. So, we've had over 900 physicians attending those and we find it an excellent opportunity to have that peer-to-peer discussion of OVA1. And success rate continues to be measured as we move forward, but we find that a large percentage of those physicians begin to order, probably in the 60 to 90 day timeframe. So, we're still calculating the responses from those in the fourth quarter.

Great. Thanks. And then I guess, Sandy, can you maybe give us a little bit of an update on kind of what you guys are doing in terms of revenue recognition right now? I know you guys are recognizing the $50 from Quest immediately, but in terms of the other portion of that actual revenue. Are you guys making an allowance for doubtful accounts, or are you recognizing revenue upon cash collection?

Actually, at this point in time, as you've said, we are recognizing the $50 per test as revenue and the remaining, the 33% royalty portion, is going to the balance sheet as deferred revenue in its entirely, based on the payments that we have received. And we have not made an allowance. That's specifically based on the cash collection. After we've received the annual report from Quest, which is due later on this month, we will make -- we'll take this information and then we will actually recognize the appropriate additional revenue on our income statement.

Great. And Sandy, I just wanted to be clear and make sure I heard you guys correctly. You said you had $649,000 in catch-up payments from Quest this quarter. Is that the right number?

$624,000, yes.

$624,000.

That's $624,000. And that actually was for a nine month period of March through November.

Okay. So, we should anticipate that that would be recognized as revenue sometime, probably next year is the right way to think about it.

Well, the $624,000 encompassed both the fixed and the 33% variable component, the 33% royalty. So, the part that was fixed we have already recognized. It is the remaining balance that's actually on our balance sheet as deferred revenue.

Great. That helps a lot. Thanks for taking my questions.

(Operator instructions.) Zarak Khurshid, Wedbush Securities.

I jumped on a little bit late. Maybe I missed it, but did you say what the average reimbursement rate was in the quarter? And then, if you could just provide kind of what the year-end number, average number was and how we should be thinking about reimbursement for 2011.

Well, I'll actually start out -- this is Sandy. I'll start out and then Jeff can talk a little bit about reimbursement.

So, as we had indicated on the call, we actually have received approximately $900,000 of payments from Quest related to the 6,155 tests that were performed in 2010. Of that, we've recognized the $308,000 as revenue on the income statement and deferred the $595,000, the balance, to the balance sheet as deferred revenue.

So, what we actually -- of course, our payments are based on the tests performed. But what I would steer you to is that obviously not all of the tests that were performed were billed. And so, on an average reimbursement to Vermillion, it is approximately $180 a test.

And how should we be thinking about that trending over the next couple of years?

Over the next couple of years? What I would expect -- this is Jeff Salzman. What I would say is that we're still early in the process. I'd like to remind you that billing and collections for OVA1 is actually handled by Quest Diagnostics. So as a result, we don't always have access to real time data as a result of the billing.

And also, keep in mind that billing and collections is a time consuming process in the lab industry since it's not uncommon to be missing some or all of the patient's information and so on. Anyway, that adds time to actually collecting for the testing that's performed.

And also, I want you to keep mindfully is that, with the new diagnostic assay, it's common for laboratories to release claims in batch mode versus one by one. So this way, a payer can see that there's actually demand for the assay. So, when you ask about over the course of the next couple of years, I don't know if I can answer that, but that's how it's currently being handled.

Ms. Page, I'm going to turn the conference back to you for your concluding remarks. Thank you.

Thank you, operator.

We'd like to thank everyone for their continued support. We think that we had a great 2010. We ended on a very good note. We have many, many growth opportunities for the Company going forward and we look forward to sharing an update on those growth opportunities with you as the year progresses.

Thank you all for joining us today.

Thank you, Ms. Page. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect. Thank you once again. Have a great day.