Aspira Women's Health Inc (AWH) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Vermillion, Inc., second quarter financial results conference call. During the presentation all participants will be in a listen-only mode. Afterwards we'll conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded Thursday, August 4, 2011

It is now my pleasure to turn the conference over to Mr. Ashish Kohli, Vice President of Investor Relations and Corporate Strategy. Please go ahead, sir.

Thank you, operator, and welcome to our conference call. Today we issued a financial results press release for the second quarter 2011, which is also on our website, and we encourage everyone to refer to it for more detail.

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, relationship with our strategic partners, and other factors as described in the Vermillion 2010 Form 10-K, quarterly reports 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 this call through August 19th, 2011. A copy of our financial results release for the period ended June 30th, 2011, 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. And the redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Vermillion, Incorporated, is strictly prohibited.

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 and strategy for OVA1. With that, I would like to turn the call over to Gail.

Thank you, Ashish. Today we will begin our discussion on the business fundamentals, where I am pleased to report ongoing progress in several key areas. Let me begin with an update on the sales front .

Our Q2 guidance was 3,200 to 3,500 tests, and Quest Diagnostics performed approximately 3,920 OVA1 tests during the quarter, which represents 27% growth quarter-over-quarter. This marks the third consecutive quarter where we have met or exceeded guidance.

Several factors influenced the ramp during the quarter, including ongoing market development programs, medical education events, as well as improvement in sales force productivity, and continued expansion of payer coverage.

Second, we were delighted with the publication of two peer-reviewed articles in the June issues of Obstetrics and Gynecology, which is the official publication of the American College of Obstetricians and Gynecologists. The first one is titled "Effectiveness of a Multivariate Index Assay in the Preoperative Assessment of Ovarian Tumors", with Dr. Fred Ueland as the first author. The second one is titled "Performance of the American College of Obstetricians and Gynecologists, Ovarian Tumor Referral Guidelines with a Multivariate Index Assay", with Dr. Rachel Miller as the first author.

These articles play an integral role in increasing awareness of OVA1 and providing validity while highlighting the clinical benefits of OVA1 in evaluating women with an adnexal mass for the likelihood of ovarian cancer prior to surgery. The two articles report data from the Multicenter Prospective Trial and highlight the increased sensitivity of OVA1 for identifying ovarian malignancy as compared to physician impression and CA125.

We believe these articles will be important assets for Quest Diagnostics and Vermillion as we continue to pursue additional positive coverage policy.

Third, let me provide an update on our efforts for coverage and reimbursement for OVA1. We are pleased to report that during the second quarter of 2011, payer coverage for OVA1 expanded with the additions of Blue Cross-Blue Shield of Western New York, Blue Cross-Blue Shield of Northeastern New York, Blue Cross-Blue Shield of Rhode Island, Premera Blue Cross-Blue Shield of Alaska, and Blue Cross-Blue Shield of Washington State. In addition, LifeWise Health Plan of Washington is now also providing coverage for OVA1.

Since the launce of OVA1, in addition to Medicare, 22 independent Blue Cross-Blue Shield plans around the country have evaluated the clinical utility and benefits from OVA1 resulting in positive coverage policies. This is up from 17 at the end of Q1. Remember, not all health plans publish coverage policies, positive or negative, and we are aware of additional health plans reimbursing Quest Diagnostics for OVA1.

Working in concert with Quest Diagnostics and their health plan team, we believe our joint effort has and will continue to result in more payers recognizing the benefits and clinical utility of OVA1, resulting in additional coverage and reimbursement.

In terms of patient access, we believe that approximately 82.5 million insured lives have health insurance with positive coverage decisions for OVA1.

Our next key accomplishment was the progress we made on our international expansion strategy, which remains a key objective for 2011. As a reminder, we began the launch of OVA1 in India with Quest Diagnostics in the middle of Q2. This is a new market and will take time to educate and drive awareness of OVA1. Our main initiatives this far have been educating the Quest Diagnostics sales force and engaging KOL support to begin driving awareness of OVA1 within the physician community.

Initially, we are going to focus on the private pay opportunity in Delhi, which represents nearly 70% of the market in this large metropolitan area.

Yesterday we announced our second international initiative. Pronto Diagnostics will serve as our exclusive distributor in Israel and the Palestinian territories. Pronto offers a clinical lab, regulatory expertise, a broad distribution network, and years of experience distributing oncology products into the Israeli market. With approximately six million total women, Israel represents a new market opportunity and, more importantly, has favorable pricing relative to many other international countries.

2011 will be a year of planting the seeds internationally. And with that in mind, we continue to evaluate territories in Europe, Asia, and South America.

Lastly, we continue to move forward with our pipelines, most notably, our PAD program. We continue to progress the PAD-intended use study being performed in collaboration with the Colorado Prevention Center. As a reminder, this study represents a key component of our research and development phase of this product, as it is intended to develop a multi-market algorithm for use in the primary care population.

Currently we are in the final stages of completing our target enrollment. The study remains on track to yield top-line data during the third quarter of 2011. Based on the data, we will determine optimal venue for release of the results.

Finally, we continue to enhance our patent portfolio with IP, in not only ovarian cancer and PAD, but also in other indications such as breast cancer and Alzheimer's Disease. We are evaluating strategic options to decide on the best course of action with these assets.

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

Thank you, Gail. Total revenue for the three months ended June 30th, 2011, was $304,000, $191,000 from product sales of OVA1, and $113,000 from license revenue. Total revenue for the six months ended June 30th, 2011, was $735,000, $508,000 from product sales of OVA1, and $227,000 from license revenue.

As discussed on our Q1 call, product revenues for the six months ended June 30th, 2011, included approximately 2,800 OVA1 test results by Quest Diagnostics as of December 31st, 2010.

Operating expenses for the three and six months ended June 30th, 2011, were $5.9 million and $10.7 million, respectively. Operating expenses included approximately $1.3 million of non-cash stock-based compensation expense in the second quarter of 2011, and $2.5 million in the first six months of the year. This compares with operating expenses of $4.1 million and $7.2 million for the same three and six month periods of 2010.

The increases year-over-year were primarily due to the addition of personnel subsequent to the company's emergence from Chapter 11 bankruptcy protection, investments in sales and marketing to establish the adoption of and reimbursement for OVA1, as well as an increase in clinical trial and collaboration costs for the ongoing development of the company's ovarian cancer program and PAD blood test VASCLIR.

Operating expense increases quarter-over-quarter of approximately $1 million, primarily relate to increased enrollment in our PAD-intended use study as compared to the first quarter, continuing cost of OVA1 promotion and education, the addition of four territory managers in the second quarter, as well as cost associated with our annual meeting.

Total net loss for the second quarter was approximately $5.7 million, or $0.39 per share, based on a weighted average shares outstanding of 14.7 million. Total net loss for the six months ended June 30th, 2011, was approximately $10 million, or $0.73 per share, based on weighted average shares outstanding of 13.6 million. Our current shares outstanding are 14.8 million.

Cash and cash equivalents at June 30th, 2011, were $36.3 million. We utilized $4.2 million in cash from operations during the second quarter, and anticipate that cash usage from operations during the third quarter of 2011, will be approximately $4 to $5 million. We expect our cash utilization to remain at this level, as we methodically expand our territory management team, both in the US and internationally, initiate post-marked [inpatient registry] studies, and continue to invest in our R&D pipeline.

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

I would now like to discuss our sales and marketing efforts in greater detail. We have reached our near-term target of 18 total sales and marketing personnel. We are very pleased with the initial efforts and performance of our newest additions.

A new program we are implementing is the addition of territory development specialists, who will provide inside sales support. One of these specialists has been hired and will begin training in late August.

Our CRM tool continues to evolve, and we expect to see greater benefits over time. As you would expect, we monitor a number of metrics besides test volumes to measure success, and adjust our activities as appropriate. The following is an update on the key metrics that we began providing last quarter.

We continue to track the total number of doctors ordering OVA1. As you know, there are roughly 35,000 gynecologists in the US today. At the end of Q2, there were approximately 2,600 doctors who have ordered OVA1. We anticipate this trend will continue as more gynecologists become aware of OVA1.

One of our key tactics for the territory development managers is to gain endorsement and support of the gynecological oncologists. Of the approximate 800 practicing gynecologic oncologists in the US, our internal tracking mechanism reflects support from approximately 30% at the end of Q2, an increase of approximately 5% from last quarter. This is crucial to our continued growth because the gynecologists will rely in the consultation of these specialists in determining when to best use OVA1. We expect this trend to continue, as our newer team members become more seasoned.

During the second quarter, we conducted over 25 medical education events, delivering the OVA1 methods and data to over 750 doctors in an intimate venue conducive to dialogue and discussion with our [KOL].

Next, let me provide you with an update on our marketing efforts. During June we completed our pilot program with QUIAGEN, conducting five medical education seminars across the US, with a high level of interest from attendees. When surveyed after the event, 82% of the attendees said they would use, recommend, or already use OVA1 in their practice.

During the second quarter, we attended 25 trade and professional shows, three national, including ACOG, 15 state meetings, three regional meetings, and four advocacy meetings. These meetings continue to give us the opportunity to interact with numerous physician, discussing the OVA1 data, and gaining support from both doctors and patients.

Social media continues to be the focus of our patient awareness effort. Since our last call, we have increased our presence by greater than 140%, from 2,250 followers in April to 5,400 followers at the end of Q2. The outreach we have with advocacy groups and individual patients is helping to create a formidable brand presence for OVA1 among a very vocal audience.

Turning toward guidance, we expect 4,000 to 4,300 OVA1 tests to be performed in Q3. This takes into consideration numerous factors, including the number of days in the quarter, the impact of summer holiday, continued limited coverage by the large payers, ability to expand the diagnosis codes by Medicare, and the time required from our most recent addition of territory development managers to become fully productive.

Our goal is to support growth throughout Q3, with ongoing infrastructure expansion, strong presence in scientific journals, successful attendance at key industry conferences, and additional health plan coverage decisions.

Let me finish by making a few comments on coverage and reimbursement. We continue to be pleased with our progress in obtaining coverage after just 15 months post-launch of OVA1. Currently, approximately 25% of the insured lives in the US have OVA1 coverage, which is compelling when compared with other companies at this stage in their lifecycle.

While there have been many positive developments, I also want to provide some clarity around the challenges faced by diagnostic companies launching new innovative products, and, more specifically, how Vermillion and Quest Diagnostics are addressing these. Expanding [positive] payer coverage on OVA1 continues to be one of our top priorities. Key influences that drive health plan coverage decisions include published peer-review journal articles and patient registry studies that demonstrate the clinical and economic utility of a test leading to better patient outcome.

Vermillion, along with Quest Diagnostics, are in discussions with national and regional health plans to ensure the design of our post-marketing studies will meet the criteria that health plans require when assessing new technologies and issuing coverage policy. For health plans that have published positive coverage policies, the next step is to negotiate an acceptable reimbursement rate, typically using the established Medicare allowable as a benchmark. We are fortunate to have Quest Diagnostics as our partner, providing Vermillion with the depth and breadth of experience and relationships to help ensure our success with obtaining appropriate and acceptable reimbursement.

As with virtually all new tests and technology, denials from payers are expected, are being tracked, and appealed. This process takes time to resolve, but we are confident that it will continue to improve over time.

In closing, I want to ensure everyone that Vermillion remains focused on enhancing stockholder value by expanding OVA1 revenue opportunities as well as looking at ways to accelerate and expand our product portfolio.

Operator, we are now ready for questions.

Thank you. (Operator Instructions) One moment, please, for the first question. And our first question comes from the line of Matt Dolan with Roth Capital Partners. Please proceed with your question.

Hey, guys. Good morning. Congrats on the progress with volumes there.

Thanks, Ben.

First, first question is on the Q3 guidance and the expectations you have for volume there. Considering what we'd expect to be an element of seasonality in the September period, maybe you can just help us understand why you see such a tick up there in Q3. I don't know if it's the impact of publications or some of these educational programs you've been busy with, but some color there would be appreciated.

Okay. Obviously we look at trends in the ordering per day. We look at the number of doctors. We look at the impact of the medical education. And we do look at the seasonality. But we feel comfortable that as with each quarter what we'd really like investors to stay focused on is the long-term opportunity.

But we do believe that the business is on track to grow and continue to grow even in this very complicated environment. But we feel very strongly that the peer review, that the increasing coverage, all these things will continue to drive adoption.

Okay. And then within those 2,600 accounts that you -- that you mentioned in your prepared remarks, do you have any statistics on reorder rates from that group or just how reordering is going so far throughout the course of the launch?

Yes, Matt. We track various categories of ordering. But for competitive reasons, we don't want to share the specific reorder volume. But it is comparative to the increase that we saw quarter-over-quarter on the total ordering.

Okay. And then speaking of competition, I think AACC, there are a couple posters on some competitive tests. You have any updates [today] on any other tests that are coming up the pike or what you feel your competitive landscape looks like today?

Yes, Matt. Obviously, the most well-known one is the [Okuji Rubio Roma] test. And, of course, that had a brief in publication. [Just so you can get things] on the table, we obviously have no insight as to where they are with the FDA, and we don't, obviously, want to speculate on that. I think what we do know about the public data that have been publicly given for Roma highlights very specific clinical subgroups, and we've obviously presented our own analogous data for OVA1, that demonstrates a high sensitivity for OVA1 within the same subgroup.

Other than -- outside of Roma, we have seen things in the literature and things in posters. But we don't really believe any of those are close to market.

Okay. Great. I'll let somebody else get on.

(Operator Instructions) And our next question comes from the line of Scott Gleason with Stephens. Please proceed with your question.

Hey, Sandy. Hey, Gail. Thanks for taking my questions, and congratulations on the good quarter here.

Okay. Thank you very much.

I guess just to start off, can we maybe -- can you give us maybe a little bit more granularity on how the volume is trending throughout the quarter when we look at the different separate months? And did the last month of the quarter, June, end stronger, than, I guess, the beginning?

Okay. I'm going to let Bill speak to that.

Scott, we saw a nice ramp throughout the quarter based upon, as Gail said, the number of ship days and the holidays. We can't give specific monthly volume, but we continue to see a nice trend and expect to see double digit growth quarter-over-quarter on -- in the near future.

Scott, one comment that I would add is that OVA1 is a specialty esoteric test. And our guidance, we do look at numerous factors. We're very early in the game here, just being just 12 to 15 months post-watch. And we're really trying to professionally manage our business, driving on all objectives. So we feel that we're managing to achieve long-term success and, therefore, we try to include all things to give good clarity to the market.

Okay. Great. And then I guess if you look at the number of [doc] adds, obviously another impressive quarter in terms of the additions. It looks like the average utilization for doctors somewhere close to two tests. Can you give us maybe a sense for kind of what your high utilization doctors are doing on a test number basis? Are they doing five, six, seven, eight tests a quarter? Can you give us a sense for where that is?

Scott, it's really dependent on the local market and the individual practices. There -- there's numerous examples of high and low volume in every local market. So there's really no consistent number. The number that you came up with two, I think is the national average that you've probably done some calculations on.

Okay. And then I guess with the PAD data coming out here, can you give us a sense what the clinical endpoints will be for that trial and how many patients we'll probably be looking at?

Yes. So for the PAD study, as you know in our previous publications, we've been looking at the ability of our markers and marker panels to predict PAD as measured by the ankle brachial index. And we have the -- exactly the same endpoint. The difference, of course, is that previous studies were done in much more academic settings, whereas this one is being done in a more primary care population, which is, of course, where we would like the PAD test to be performed at the end of the day.

We don't really care to provide details on the size of the study and the scope until we do provide a data update.

Okay. Great. And then just last question. Sandy, if we look at the revenues in the quarter, can you give us a little bit of a sense maybe in terms of what was going on from a revenue recognition standpoint? I think if you take the $50 per test and multiply it by the number of tests, we're not getting quite to the product revenue. Can you give us a little bit more color on what was going on there?

Sure. We continue to recognize the revenue of the $50 for each OVA1 performed. The -- what you are doing, there is a slight difference because of an immaterial adjustment that was made, but it has no bearing on the $50 per test that we are actually continuing to recognize.

Okay. Thanks for taking my questions, guys.

Okay. Thank you.

Our next question comes from the line of Zarak Kurshid with Wedbush Securities. Please proceed with your question.

Good morning. Thanks, guys, for taking the questions. Was wondering if you could maybe speak to and maybe rank what you think were the major drivers of uptake in the quarter? Was it more the market development efforts versus sales force effectiveness versus something on Quest's end versus publications, et cetera?

Zarak, this is Bill. We continue to focus on three key areas. That is the gynecological oncology support, the medical education programs, and the building the relationship with the Quest sales team in the field. All of those contributed to growth. And we have an outstanding sales team onboard now. So we expect the growth to continue.

Okay. You may -- any sense for, I guess maybe qualitatively, how have Quests efforts played out over the last six months to a year? I mean, are they getting better? Are they getting worse? Any color there?

I can tell you that as our team becomes more seasoned and works more closely with the Quest team in the local areas, that we see performance improving.

Okay. Fair enough. And then I was also curious if you could, just sort of dovetailing on one of the prior questions. Do you have a sense for the actual use of the test in pelvic mass triage versus any other indications? Thanks.

We continue to focus on the intended use. And to the best of our knowledge, that is exactly how the physicians order it and utilize it.

Great. I'll jump back in the queue. Thanks.

Thank you.

Our next question comes from the line of Morgan Frank with Manchester Management. Please proceed with your question.

Hi, guys. I just kind of wanted to come back to this pricing per test issue, because it looked like there were some pretty significant changes in this quarter. Was there something in last quarter that was not repeatable? Or I mean test volume went up from 3,080 to 3,920, but test revenue dropped from 317 to 191. Can you speak to that a little bit?

Sure. I'm going to let Sandy address that with you.

In the first quarter, we recognized approximately $160,000 related to the 33% royalties that were deferred to our balance sheet in the fiscal year 2010. At the end of each calendar year, within 60 days at the end of each calendar year, we receive a reimbursement report from Quest. And this has to do with the number of tests that were resolved in the previous year. And, therefore, we recognize those revenues, like I said, of approximately $160,000 in Q1.

Okay. So that sort of $50 number is a good number to use going forward?

Correct. Yes, you -- we will continue to recognize the $50 per test performed on the income statement, and the remaining portion, the 33% royalties, the estimate of that, will be -- continue to be deferred to our balance sheet.

Got it. And then were any of these tests in the quarter from out of the country, particularly India?

I think as we mentioned in the script, whether it relates to India thus far or even Israel over the near term, the -- 2011, is really a year of planting the seeds. And thus far, the efforts in India have focused on educating the physician or other sales force as well as trying to obtain some key opinion leaders to help support the test.

We did recognize or we did sell some tests in India. But right now the contribution is fairly immaterial to our overall financials.

So fewer than 5% of the tests?

Yes. We're not going to comment on specifics at this point. But just what I just -- what I --

I'm just trying to understand what your --

-- what I -- what we [iterated].

-- threshold for materiality is.

Well, fine, yes, less than 5% of overall sales, yes.

Okay. Great. Thanks very much.

And there are presently no further questions at this time. I'll turn the call back to you. Please continue with your presentation or closing remarks.

The management team would like to thank you for joining us today. We appreciate your interest in Vermillion, and we look forward to updating you on our progress next quarter. Should you have follow-on questions after today's call, please contact Ashish Kohli, and we will be happy to set up a one-on-one with any of our shareholders or stockholders. So have a good day, and thanks for joining us.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Have a great day, everyone.