Aspira Women's Health Inc (AWH) 2012 Q2 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Vermillion's second quarter ended June 30, 2012. Joining us today are Gail Page, the President and Chief Executive Officer of Vermillion, and Eric Schoen, the Company's Chief Accounting Officer. Following their remarks, we will be opening up the call for your questions. Then, before we conclude today's call, I'll provide the Company's Safe Harbor statement with important cautions regarding forward-looking statements made during this call. Before we begin, I would like to remind everyone that this call is being recorded and will be available for replay through August 28, 2012, starting later this evening, via the link provided in today's press release as well as on the Company's web site.

Now I would like to turn the call over to President and CEO of Vermillion, Miss Gail Page. Please go ahead, ma'am. (No Audio)

Thank you, we'll begin again.

Good afternoon, everyone, and thank you for joining us. During the second quarter, we celebrated the two-year launch mark of OVA1. Today, we will discuss the original vision of making OVA1 the standard of care and the accomplishments that are putting the cornerstones in place to achieve that goal. We'll begin by having our Chief Accounting Officer Eric Schoen take us through the financial details for the quarter. Following that, I will discuss more about the quarter and provide an update on some exciting recent developments as well as our outlook for 2012. We'll then open up the call for your questions.

I will now turn it over to Eric.

Thank you, Gail.

Today, we filed our Form 10-Q with the Securities and Exchange Commission, as well as released our second quarter financial results in a press release, both of which will be available for download via the Investor section of our web site at www.Vermillion.com. Total revenue for the three months ended June 30, 2012, was $321,000, $208,000 from product sales of OVA1 and $113,000 from license revenue. Total revenue for the six months ended June 30, 2012, was $633,000, $406,000 from product sales of OVA1 and $227,000 from license revenue.

OVA1 revenue in the first half of 2012 included only the $50 fixed portion of revenue per test from the OVA1 tests performed. The variable portion of OVA1 revenue is expected to be recognized in the fourth quarter of the year, consistent with 2011.

Operating expenses for the three and six months ended June 30, 2012, were approximately $4 million and $6.4 million respectively. Operating expenses included approximately $0.4 million of non-cash, stock-based compensation expense in the second quarter and $0.6 million in the first half of 2012. This compares with operating expenses of $5.9 million and $10.7 million for the same three and six-month periods in 2011.

Operating expenses in the prior year included $1.3 million and $2.5 million of non-cash, stock-based compensation expense in the same three and six-month periods. Along with the non-cash stock-based compensation changes, the year-over-year decreases were due primarily to lower clinical trial and collaboration costs, as well as the ongoing execution of our reorganization announced in January, 2012.

Total net loss for the second quarter was approximately $2 million, or $0.13 per share on weighted average shares outstanding of $15 million. Total net loss for the six months ended June 30, 2012, was approximately $3.8 million, or $0.25 per share based upon weighted average shares outstanding of $14.9 million. Net loss for the three and six months ended June 30, 2012, included a nonoperating $1.8 million gain on sale of Instrument business from the release of the escrow account established in the sale of our tools business back in 2006.

We used $700,000 of the escrow proceeds to pay the Bio-Rad settlement and returned the balance of $1.1 million to our balance sheet in April of 2012. Cash and cash equivalents at June 30, 2012, were $18.3 million. We utilized $2.7 million in cash during the second quarter before considering the receipt of $1.1 million from the Bio-Rad escrow account. We expect $2.5 million to $3.5 million of cash utilization during the third quarter of 2012.

Now I'll turn it back to Gail for a discussion on various corporate initiatives.

Thank you, Eric.

Vermillion has become a known and respected pioneer in the diagnostics industry over the past two years. OVA1 was the first proteomic IVDMIA to be cleared by the FDA, creating an entirely new approach to bio medical testing. Second, OVA1 achieved Medicare approval in record time and most recently was awarded a category-one CPT code working with the AMA under the new class of multimarker codes referred to as the MAAA. Crossing these three majors hurdles demonstrates the vision and passion of the team and our collaborators.

Over the past few quarters, we have discussed the need and progress in the following areas -- physician education, reimbursement, establishing clinical utility, publications, and the importance of guidelines and enlisting key opinion leaders. The team at Vermillion continues to keep these initiatives as their priority, as they are the cornerstones of driving market adoption and making OVA1 the standard of care. It is the convergence of these efforts that traditionally create an inflection point in the market for a new diagnostic test such as OVA1.

Today, I would like to address progress on the reimbursement front first. Our three key initiatives of reimbursement are coding, claims processing, and payer adoption. First, let's address coding. On July 16, we made our initial presentation to the Clinical Lab Fee Schedule Committee in Baltimore, Maryland, regarding the proposed value for the OVA1 CPT code. Our material was very well received, and the panel was receptive to our proposal that Gapfield would be the best format for setting OVA1 pricing.

This logic was supported by the positive coverage by CMS and the Department of Defense, as well as the AMA when they established the MAAA category. We expect to have another series of discussions with the committee before their final determination of Gapfield standards and pricing, which traditionally is in the fall. The new code is a critical step in the Company's commercialization efforts, and we are working to maximize its impact to the Company when it becomes effect in January, 2013.

Now let's speak about the claims process. Our territory development managers and reimbursement department continue to work with physician offices across the country to assist with the payment appeals process. This is becoming an established program using claims to educate payers and create awareness about the medical necessity of our tests. This process has been well received, and it's seen a proactive response by our physicians. We continue to work with individual Quest Diagnostic business units to assist with claims and appeals. This ongoing program will create payer awareness about the new CPT codes and facilitate the acceptance of claims in 2013.

With regards to payers, the ongoing influential physician program has shown to be a significant step in the payer adoption process and has resulted in key layers of support to both national and regional payers. We are pleased to announce that we have picked up OVA1 coverage from Blue Cross/Blue Shield of Michigan, which is the single largest independent payer remaining within the Blue Cross/Blue Shield network. This payer adds 4.4 million lives under coverage and is indicative of the amendment that we are striving for from other key payers.

We are now able to manage the payer coverage process with multiple plans on a regular basis and expand the number of payers to realize new coverage decisions such as Blue Cross/Blue Shield of Michigan and Blue Cross/Blue Shield of Louisiana. Thus, we expect to have a pool of active payers considering coverage at any given time as we move forward.

We have stepped up our activity with two national payers by leveraging the OVA500 press release and using it as an additional piece of evidence. While it is difficult for us to predict when the national payer will issue a positive coverage decision, we understand the importance of pursuing such payers and the potential impact of their coverage.

On July 30, we announced outstanding top line results from the OVA500, a new prospective multi-center study of OVA1. The study was led by Dr. Robert E. Bristow, director of gynecologic oncology services at University of California Irvine Health Care in Orange County, California and deputy director of the journal, Gynecologic Oncology. The study was also assisted by the Johns Hopkins University Center for Biomarker Research led by Dr. Daniel Chan.

In this study, OVA1 performance was assessed in a prospective, multi-institutional blinded study with a new cohort of 494 patients representing the intended use population for OVA1. We are very pleased to report that OVA1 sensitivity and negative value in the OVA500 study met or exceeded levels previously reported in the pivotal OVA1 study published last year by Dr. Fred Euland and colleagues at the University of Kentucky.

As we discussed previously, the overall sensitivity of OVA1 when combined with clinical assessment was identical to the first study at 96%. These malignancies included primary ovarian cancers, low malignant potential tumors, and metastatic or adnexal malignancies involving the ovaries or not involving the ovaries. They also included 31 early stage ovarian cancers. That is stage one and two, in which the sensitivity of OVA1 was reported at 91%. These results demonstrate in a new patient group the high sensitivity of OVA1 and its ability to offer the general physician tools to detect and refer the large majority of all adnexal cancers.

A manuscript based on this work has been written and submitted for publication. We expect this data to be further evidence supporting clinical utility, payer coverage, and hopefully inclusion of OVA1 and medical guidelines moving forward. To quote Dr. Bristow, these results point to the possibility of a standardized triage protocol using OVA1 with high sensitivity for all ovarian malignancies including the most curable early stage cases and a broad range of subtypes. We at Vermilion look forward to sharing more results of this study as they're published.

Turning to our vascular medicine program, on our last call we described the steps we are taking to publish the intended use study on the detection of peripheral artery disease. We are pleased to report that a poster titled, Results of a Biomarker Screening to Identify Peripheral Artery Disease, offered by Dr. John Cook of Stanford and his co-workers, was presented at the Society for Vascular Medicine's 23rd Annual Scientific Session, which was held June 14 through 16, 2012, in Minneapolis, Minnesota.

The poster reported results from the 1025 subject prospective multi-center study of intended use subjects. That is the elderly, age 70 or over, and smokers and diabetics age 50 and over. The study demonstrated feasibility of a blood test using beta 2-Microglobulin, Cystatin C, and high sensitivity CRP, and more important, identified 17 of 20 of the PAD patients missed by the Framingham Risk Score high-risk cutoff. The data suggests that further refinement of a multi-marker model may hold promise as an important adjusted tool during assessment of patients at risk for PAD, a population estimated to be approximately 60 million in the US alone. After the manuscript, we submitted for publication in a peer-reviewed vascular medicine journal and expect to report on this during the next quarterly call.

Turning to our market development efforts, our expectation for Q2 was 4100 to 4410, and our partner Quest Diagnostics performed an estimated 4150 OVA1 tests during in the quarter, a 5% increase over Q1 2012. As you may recall, we downsized our team in January, and are pleased that the team has focused in those areas of the country where our early efforts are creating a target environment. One of our key metrics at this point in time is the number of ordering physicians. At the end of June, we had over 4500 physicians that had ordered OVA1, or 13% of the gynecologists in the US. That correlates well with the survey of approximately 300 physicians conducted by Contemporary OB/GYN magazine in June, which indicated 17% of the respondents had used OVA1.

The survey also told us over 50% of physicians are requesting more information, and over 30% plan to incorporate it into their practice. This is very encouraging and supports all the effort we are making in the areas of reimbursement, physician education, and publications.

As we move forward, we will be utilizing the new data from the OVA500 study to reengage our current physicians, open the door to new ones, and begin to educate our audience on the numerous advantages brought forth in this study relative to early stage cancers and the performance as it relates to the wide range of tumor types. Studies like the OVA500 are a key sales aid as we continue to develop this market.

The task for Vermillion is to change the standard practice for individual physicians to include OVA1. We expect these tactical sales initiatives, combined with our strong marketing efforts and additional clinical studies, to result in new physician orders, as well as reorders from our existing customers.

Turning to our guidance, we expect 4100 to 4400 OVA1 tests to be performed in Q3 of 2012. While quarterly test volumes are one measure of progress, we remain focused on those (inaudible) that will ultimately drive inflection in test adoption and confirm that OVA1 is the test of choice. Our primary focus remains on the following; gaining national payer coverage decisions, focusing on the valuation of the CPT codes and its successful implementation in 2013, leveraging the OVA500 study publication, and expanding the base of clinical publications. We are confident all of these initiatives will lead to increased clinical usage of OVA1 and its adoption as the standard of care for managing ovarian cancer.

The last topic I would like to update you on is the progress of the CEO succession plan. As previously announced, our Board has formed a succession committee of independent directors to oversee the process of selecting our new CEO, and has retained a leading executive search firm. We have met with a number of impressive potential candidates, and expect to identify a successor with the ability and experience to take advantage of the tremendous growth opportunities in the ovarian cancer diagnostics market, as well as continue to develop Vermillion's pipeline of new products.

Given the amount of interest and goal of ensuring we select the correct candidate, we've extended our time to complete this search from September until October, 2012. I expect to continue in my role until the new CEO is named, and then assist in a smooth and successful transition of responsibilities. As previously discussed, I will continue to act as a strategic advisor for the Company going forward as directed by the Board of Directors.

Now with that, I would like to open up the call to questions.

Thank you.

(Operator Instructions)

Scott Gleason, Stephens Inc.

Hi, this is Trey Cobb on for Scott. Thanks for taking my question.

No problem. How are you?

Good. Gail, it looks like test volume was up sequentially after dropping off some in the first quarter. Maybe if you could talk a little bit about how that trended throughout this quarter and how that has progressed from what you've seen early in the third quarter.

Hey, this is Bill. We saw a flattening in the first quarter, as you recall. And then the second quarter picked up. And it was consistent throughout. We track it by number of tests per day and then monthly. It was consistent throughout the quarter.

Okay. I may have missed this, Gail, in your commentary. But could you tell us the number of incremental physician adds during the quarter? And then maybe if you could talk about how the reorder rates were in 2Q?

Okay, we didn't touch upon those metrics today. One of the things that we're doing now is as we're maturing in this market and we're looking -- as we talked about last quarter, we have the reorder program that we're working on with Quest. That's one of the things that we see data like the OVA500 study being very instrumental in. What I will do is defer that. If you want to give us a call offline, we'll try to talk you through some of that. But right now, what we're really trying to focus on is letting Quest work with us on the reorder program, and we're trying to get out and knock on the new doors with the gynocs and get this data in front of them.

Okay. And then lastly and I'll hop back in the queue. You mentioned that the top line data from your OVA500 clinical study, it was impressive. What are you hearing from the payers given the additional positive data which follows the green journal publications? And is there any other big step that you guys need to meet before we start seeing some of the large payers come on board?

The OVA500 study, we just press released that a couple of weeks ago. Obviously we're being very careful to make sure that we have the right packets getting in front of the right people. This is a big study for us. It took over a year to complete. Unbelievable data that came out of it. And we just want to make sure that we put it out there at the right time, in the right meeting, in front of the right people. And some of that, we're going to hold up with certain payers until the management is published. What we are doing is we're working with the data that we're allowed to share at this point in time. So, one, we think it would be very instrumental. This is not the only thing we're working on. We have other studies that we'll be talking about over the coming months. That will even go further and support this further. But I guess the point is that now we have another piece of data that we can put in front of them, and this will go, I think, a long way into making an impression upon these folks.

Okay. Thanks for taking my questions.

Sure. No problem.

Debjit Chattopadhyay, Emerging Growth Equities.

Hey, good afternoon, Gail and Eric. Thank you for taking the question. I am thinking out loud here. Given the trifecta of positive things that are going happen for the company, the publication of the new OVA1 study, the expanded insurance coverage, and the CPT 1 codes early next year, what steps in particular are Vermillion and Quest doing together to benefit from the trifecta of good news that's going to hit the company next year?

I think we're looking at things on a multiple level. Quest has been very supportive in working with us on the current -- continue to educate the physicians, making sure that those that have touched the product, we continue to get it in front of them. OVA1 as I describe it to people, it's not like an HPV or ThinPrep where the doctor is going to run it on every patient that walks in the door. There are selected patients that need this test. While we're continuing to do that ground level education, that's one of the things you're right. We've got to continue to seed the market, do those things, prep everybody. That's why it's really important that we continue to work on getting coverage decisions, positive coverage decisions, because the more of those you have in place, that way when the CPT code hits, you don't have to go back and get the coverage. You've already got the coverage. And now the CPT code comes in to play.

So a lot of these things, it's like a road map and it's a little bit like playing chess. So you have to lay the groundwork on certain areas so that when the other things hit, you've got something to take advantage of. I think there's a multitude of marketing programs. We just launched another campaign, if you look on our Facebook, it's called Pump Up the Volume. That's been well received. We've hired an external firm to help with the social media. They actually did a huge mailing for us on the press release about the OVA500 study. It had one of the highest open rates of anything we've sent out into the market. So we continually are looking for those ways to get in front of people and to help them retain that knowledge and set ourselves up, as I indicated, for this convergence of things. I think anybody on this phone call that has worked in diagnostics know you have to be doing all those things in concert with each other so that at some point in time they all converge, and that's when you see, the whole test will take off.

Thanks. One more thing about -- on collection in general. Do you think Quest or have indicated any problems with the expiration of the grandfather clause? Especially as it pertains to Medicare payments?

I can't comment on that. They have not discussed that with me.

And one last question then. I mean, many ways Vermillion is being perceived as a women's health care company. And as you transition out and a new person transitions in, how do you ensure that the new person is going to have the same level of passion for women's health care and not just look at it as a diagnostic lab franchise?

Well, I think that my own personal passion for women's health care is permeated throughout the Board of Directors. I think they share that vision that they see the benefit and see all the hard work. I think that they will be looking for a certain set of skills in this new person that will drive that value proposition. I also believe that they will be looking for a person that realizes the opportunity and has a lot of growth in their background, growing a business of commercialization. So -- and I think that's one of the reasons why I've indicated that I fully plan to make a smooth transition to help that person in any way possible. I've enjoyed a long eight years here, gone through a lot of trials and tribulations to get this product where it is. So it's certainly one of my personal goals to support that person and make sure that they have all the historical knowledge or anything they need to drive the Company forward.

Well, thank you. And I'll fall back in the queue.

Thank you.

Kevin Degeeter, Ladenburg.

Good afternoon. I want to add my congratulations. A lot of great progress. Particularly the OVA500 result. I want to know a little about the OVA2 program and could you give us an update as to where the focus of that second generation product for ovarian cancer is at the moment and maybe any timelines and updates.

Sure. Kevin, thank you because the team put an awful lot of effort into that study, and so we appreciate the recognition of it. We are no longer headed in the direction of what I would call an OVA2. Companies mature and they progress, and with Dr. Munroe coming on board with his vast experience and his depth and breadth of knowledge, we've now turned that into an ovarian cancer franchise approach. And a lot of that has to do, too, with the accumulation of the assets of Correlogic and we've put all that together. This past year at the SGO and ACOG, we held numerous focus groups. And now being in the second year, we have over 30 key opinion leaders that we could reach out to, to help us understand, or better understand where should we be directing our effort relative to developing an ovarian cancer franchise. So with that, I know there's been a multitude of opportunities that have presented themselves. I'm going to let Donald comment briefly on them. But I'm going to say that we're not going to get too much in depth for competitive reasons. We don't want some of the competition out there to actually know our road map. But I'll let Donald comment to the extent he feels comfortable. Fair enough?

Fair enough.

Sure. Thanks, Kevin, for your question. It is a little bit of a chess match. And I guess in any chess match you take a look at what you've got as far as assets and positioning, what your strategy is. And early stage research doesn't really move very quickly, especially when we're focused on some of the key priorities that have already been discussed. But I would add that we obviously have a very good IT portfolio. It comes not only from the biomarker discovery research we've done, but now acquisition of Correlogic assets. We continue to have a very healthy collaboration with Johns Hopkins. We do a biweekly call with them to discuss progress in terms of looking at what results we can get from the biomarker discovery efforts we've got. Then importantly, as Gail, mentioned, we did this series of meetings with some of the key opinion leaders, gynecologic oncologists who have probably realized that Vermillion is capable of engaging in real translational research, and that's brought us a collection of opportunities we might not have realized we had just a year or two ago. We're lining those up into a portfolio, a road map. And I'm sorry -- you'll hear more about that as we go through the coming quarters.

One thing I would close on there, Kevin, is that we do tend to really like the high risk triage market. And as we do a little more marketing and research and collate that with our own internal research, we'll comment. But I guess the end all, be all is that our ovarian cancer franchise program is coming along quite nicely.

Terrific. Maybe two related follow ups, then I'll get back in the queue. Quest has the option to license commercial rights through to a third program, at least according to the existing contract by the end of October. Is there a program that's available for discussion at this point, or can you update us as to how we should think about Quest's right to consider rights to a third program? And then just consequently -- perhaps related, there is still the issue of the $7 million note out there from Quest coming due later this year. Any update on thoughts there in terms of restructuring, rolling out, or repaying would be very helpful.

I wish I could comment on it. But it's the one thing that, unfortunately, our conversations with them are confidential, and I'm just not in a position to comment on that. As soon as we do have something to say on that, of course we will let the shareholders know and our analysts know. Today, I'm sorry, I just can't comment on it.

Best of luck to all of you. Congratulations on the progress.

Thank you very much.

At this time, this concludes our question-and-answer session. I would now like to turn the call over to Miss Page. Miss Page, please proceed.

Thank you. As always, I want to thank you each of you for joining us today. We look forward to updating you on our next quarterly call.

Before we conclude today's call, I would like to take a moment to read the Company's Safe Harbor Statements. Some of the 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 conference call, and does not undertake any obligation to update any forward-looking statements contained on this call 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 2010 form 10-K, quarterly results on form 10-Q, and current reports on form 8-K.

Now again, I would like to remind everyone that this call will be available for replay through August 28, starting later this evening, via the link provided in today's press release, as well as available in the Investor section of the Company's web site. Thank you, ladies and gentlemen, for joining us today for our presentation. You may now disconnect your line.