Aspira Women's Health Inc (AWH) 2014 Q1 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Vermillion's first-quarter ended March 31, 2014. Joining us today are Jim LaFrance, the Chairman, President, and Chief Executive Officer of Vermillion, and Eric Schoen, the Company's Vice President of Finance and Chief Accounting Officer. Following their remarks, we will open up the call for your questions.

Before we conclude today's call, I will provide the Company's Safe Harbor statement with important cautions regarding forward-looking statements made during the call. Before we begin I would like to remind everyone that this call is being recorded and will be available for replay through May 29, 2014, starting later this evening via the link provided in today's press release as well as on the Company's website. (Operator Instructions)

I would now like to turn the call over to Mr. LaFrance. Please go ahead, sir.

Thank you, Claudine. Good afternoon, everyone. Thank you for joining us. It's a pleasure to speak to all of you for the first time in this setting.

As some of you are aware, I have been Chairman of the Board of Vermillion since December and assumed the role of President and CEO on April 23, just over three weeks ago. As you can expect, it has been a whirlwind since, getting to know the team on a different basis and coming fully up to speed on Vermillion's opportunities and challenges.

I have had a chance to meet face-to-face with the majority of the Company, and all have been very welcoming but anxious to move on with the business at hand, building a great cancer diagnostic company in women's health. Today, we will talk about our accomplishments in the first quarter and how that sets the stage for the remainder of 2014.

I will now turn the call over to our Vice President of Finance and Chief Accounting Officer, Eric Schoen, who will take us through our first quarter of 2014 results. Eric?

Thanks, Jim. Today we filed our first-quarter 2014 financial results in a press release and our Form 10-Q with the Securities and Exchange Commission. These are available for download via the Investors section of our website at www.Vermillion.com.

Total revenue for the first quarter of 2014 decreased to $305,000 compared to $328,000 in the first quarter of 2013. Total revenue in the first quarter of 2014 included $191,000 from product sales of OVA1 and $114,000 of license revenue.

Product sales of OVA1 in the first quarter of 2014 included revenue from 3,817 tests performed. By comparison, revenue in the first quarter of 2013 was generated from 4,274 OVA1 tests performed. The 11% volume decrease was primarily due to the reorganization of sales staff in advance of the launch of ASPiRA LABS as well as the impact of having several open sales rep positions in key territories in the first quarter.

OVA1 revenue in the first quarter of 2014 included only the $50 fixed portion of revenue per test from the OVA1 tests performed. The OVA1 product revenue in both periods does not include the additional royalty component of revenue based on 33% of Quest Diagnostics gross margin. The Company recognizes this portion of revenue when reported by Quest Diagnostics via an annual true-ups after the end of the calendar year.

Operating expenses for the three months ended March 31, 2014, were approximately $4.2 million. This compares with operating expenses of $2.9 million for the same three-month period in 2013.

The year-over-year increase was due primarily to increased efforts in the first quarter of 2014 associated with our collaboration with the Johns Hopkins University School of Medicine to advance our platform migration and next-generation diagnostic tests. In addition, we increased research and development headcount compared to the same period in 2013. Also, we incurred significant expenses in the establishment of ASPiRA LABS as well as increases in medical meetings and education activities in 2014 compared to the same period in 2013.

Net loss for the first quarter was $4 million or $0.11 per share on weighted average shares outstanding 35.8 million. This compares to a net loss of $2.6 million or $0.17 per share in the first quarter of 2013 on 15.2 million shares outstanding.

Cash and cash equivalents at March 31, 2014, were $26 million. The Company utilized $3.5 million in cash in the first quarter, and we expect $3.3 million to $3.8 million of cash to be utilized in the second quarter of 2014.

With regards to the 2014 expense outlook, we have significantly increased our salesforce and research and development headcount as well as our R&D collaboration activity. In addition, we are spending significant amounts in preparation of the ASPiRA LAB opening and will have moderate ongoing expenses thereafter. Thus we anticipate our operating expenses to be between $4 million and $5 million per quarter for the remaining quarters of 2014.

With regards to test volumes, we roughly tripled our field sales presence at the beginning of the second quarter. We know from past experience that it takes a new field sales rep approximately one quarter to begin impacting test volumes as they build relationships and advance customers through the sales cycle. Thus we do not expect to see the benefits of our increased field presence until the third quarter of 2014.

Now I will turn it back to Jim.

Thank you, Eric. During quarter one we began the implementation of our strategy to develop a CLIA laboratory for Vermillion. We received our CLIA certification in late March and formally announced ASPiRA LABS at the annual ACOG meeting in April. We expect the lab to be fully operational this summer.

Our decision to develop a CLIA laboratory is driven by our desire to completely control the entire sales cycle and the entire customer experience, allowing us to both drive greater growth and realize the appropriate value of our tests with healthcare providers and payers. Quest Diagnostics will continue to be an important commercial partner of ours alongside our own ASPiRA LABS. We will also seek new commercial lab partners where appropriate to extend our commercial coverage and reach.

ASPiRA LABS is located in the Austin, Texas, area. The medical director of the lab will be Dr. Herbert Fritsche. Dr. Fritsche has an extensive resume of work in the development and clinical use of cancer tests from his 40 years of experience as head of the clinical chemistry laboratory at MD Anderson Cancer Center.

Now I would like to move on to our commercial expansion activities. During the first quarter of 2014 we expanded our Vermillion sales team, roughly tripling our dedicated salesforce. We have established a focused 20-city plan managed by five district managers reporting to a head of sales.

The majority of our expanded sales organization have extensive women's health sales experience and existing relationships with our call points in their respective geographies. Their objective is to help educate on the challenges of the ovarian cancer triage process, gain adoption of our proprietary OVA test, and build advocates for changing existing paradigms in the management of ovarian cancer patients.

In addition to the dedicated sales team calling on OB/GYNs and GYN oncologists, we have a team of reimbursement specialists whose role is to drive coverage and reimbursement level decisions by both national and regional private payers. Today, we have a total of 56 million covered lives. Our goal is to significantly improve our payer coverage in 2014.

We expect that our expanded salesforce and the opening of ASPiRA LABS will begin to yield an appreciable increase in OVA1 order volume in quarter three.

On May 8, we announced an exciting new sponsored research collaboration with Moffitt Cancer Center in Tampa, Florida. Moffitt is a nationally renowned center of excellence in cancer research and treatment as well as a member of the National Comprehensive Cancer Network. Moffitt is considered by many to be the number-one cancer hospital in Florida and is listed in U.S. News & World Report as one of America's Best Hospitals for cancer since 1999.

The collaboration will be led by Dr. Jonathan Lancaster, President of the Moffitt Medical Group, an expert on personalized medicine and gynecologic oncology. Together, we plan to examine the quality and cost of ovarian cancer care as it relates to patients coming into Moffitt from their community.

The first objective is a retrospective analysis of first surgeries on ovarian cancer and to what extent appropriate referral and treatment is administered. Such studies are critical to establishing the appropriate value of improved ovarian cancer triage in the minds of payers. Moffitt is one of three current health economic studies in progress which will aid Vermillion in establishing the clinical and economic benefits for payers, which will help propel coverage and payment-level decisions.

Lastly, I would like to provide an update on our platform migration program. This program is important to put our current and future tests into a more sustainable, scalable, and cost-effective solution.

We completed our 510(k) pre-submission step with FDA during this quarter. Pre-submission meetings are intended to provide companies with an opportunity to obtain FDA feedback on future applications prior to their formal submission.

Our choice of platform, which will be announced next quarter, transitions OVA1 to a modern, integrated, and world-class instrument family. It will support a higher degree of automation for ASPiRA LABS and opens options for international market expansion at a later date. We remain optimistic that development can be completed in calendar 2014, targeting launch of OVA1 on the new platform in early 2015.

Operator, this concludes our remarks and we are ready for questions.

(Operator Instructions) Debjit Chattopadhyay, ROTH Capital Partners.

Hey, good afternoon, gentlemen, and thank you for taking my question. I am just looking at the test volume growth here. The test volumes that you reported for the first quarter of this year is at this point lower than it was during the first quarter of 2013. Could you help us understand what the salesforce composition was during 2014 first quarter versus 2013 first quarter?

Sure, Debjit. The first thing to note is that our expansion of the salesforce didn't occur till the very start of the second quarter, so there was no impact in the first quarter. The rough number of salespeople in the field in the first quarter of 2013 was somewhere in like the eight or nine range.

In the first quarter of 2014, we had two open territories as well as three people that were transitioning to manager roles for ASPiRA LABS. So effectively, we only had roughly five people focused on field sales during the quarter.

How does that compare with the fourth quarter of last year? I believe there were like eight sales reps and one territory, which was Florida, I believe, that was left open.

Yes, that is roughly correct, Debjit.

In the territories that the Vermillion reps were the primary lead, how was the performance compared to the fourth quarter of last year in terms of volume growth?

Marian, do you want to address that?

Yes. When we have a Vermillion rep in a field sales, they are actually growing volume through Quest at about 10% to 13% over areas where we do not have a Vermillion rep. So I think your question is, if we have eight of them out there, we are seeing them consistently grow those areas. In the first quarter, where we had some openings, we did see those areas decrease.

All right. The comment regarding significant potential expansion during the third quarter once most of the 23, 24 reps are up and running, so where do you see volume growth at during the third quarter of this year?

Debjit, we don't project. We don't give those numbers as our projections. Clearly we have internal numbers but it just wouldn't be prudent to lay them out at this point.

Okay. One last question. There was a study underway with the Department of Defense, a similar outline like that you are proposing with Moffitt. Could you update us on the status of that? And when can we expect a publication? Thank you so much for taking my questions.

Certainly. It's Donald Munroe here. We had a little bit of a hiatus due to an organizational change within the DoD structure, and so we believe that it will be able to resume in the second half of the year. But it basically led to kind of a six-month timeout on that program -- again, external to Vermillion.

Thanks, Donald.

(Operator Instructions) Bruce Jackson, Lake Street Capital Markets.

Good afternoon and thank you for taking my questions. With the salesforce, the old territory structure was nine territories.

What's -- do you have any plans to change the territory structures? How many reps do you think you are ultimately going to have out in the field by the end of the year?

Marian?

Yes, would like me to take that? The old structure really had many of our reps spread very thin over two or three states. What they were doing is staying at a very high level and gaining as much exposure as we can for the OVA1.

In our new organizational structure, we have 20 cities specifically designed in a territory that our reps will go very deep in those cities and get a lot of return to the doctors over and over again, as well as build relationships with the hospitals. So I do see a very big difference in the new structure as we are moving forward and developing it commercially right now.

Okay, and then so --

Does that answer your question?

It does. So each district manager is going to have roughly four cities?

Four reps.

Four reps, okay.

Yes. And then each district manager is responsible for all the revenue for that district. So they will actually also implement out activities with hospital organizations or things like that. They will be the organizer of that district.

Okay. Are you still in the process of hiring your reps?

Actually, we are full except for one city at this point.

Okay. Then with the lab, do you have it all built out yet? When do you think you're going to be actually generating reportable results?

I don't -- does anybody --? Eric, would you like to answer that, or you would like me to answer that?

You can take it, Marian.

Okay, since was already talking. Yes.

Obviously the structure of the lab has to be a full customer experience from sales straight on through to the physician level. So we are really looking at some time -- we said this summer, end of Q2 -- to be fully functional with the lab.

Okay. Then in addition to OVA1 do you envision running, for example, doing CA-125 testing for the follow-up treatment test? That's the first question. And then might you at some point in time expand your menu out even further?

Yes. At the first to launch of our lab we would like to be talking about both OVA1 and what we called longitudinal CA-125, so that again a patient who starts with an OVA1 at her OB/GYN can continue through our lab experience. And at this point, I can't comment to anything beyond those two tests at this point.

Okay. Then moving over to the platform migration project, is this something where you're going to select one platform to move onto, and then it's going to be exclusive? Or might you open it up to some other platforms over time?

It's Donald here again. There is certainly nothing limiting us to one platform. But since from an FDA perspective each platform is a new submission, it makes sense to start with one; and that is the path that we are taking.

Okay.

Did that answer your question?

It does, thank you. Then last one is on OVA2. Can you just give us just a little bit of an update on where that project is right now? Are there any milestones we should be looking forward to?

Sure. Just to be precise, we prefer the next-gen term, in terms of a modified panel which can support improved performance in it. Just like you get other immunoassays that are next generation and they also provide potentially the basis for additional filings, line extensions, or expanded claims.

So we have been continuing on the biomarker research work that we had undertaken with Johns Hopkins. On a previous call, we talked about a poster which published at ASCO last year, which demonstrated a proof of concept that we can achieve higher specificity without sacrificing sensitivity.

So now we are working on the design of a potential commercial offering which would not be along the lines of those research immunoassay kits. Those are not really reliable enough to be used in a clinical setting.

So that work is ongoing, and that is about all that I can tell you about it at this point.

Okay, great. Actually, I was incorrect; I do have one more question. With CMS and the reimbursement, going after the national coverage decision, what is the next -- when might we hear something about that?

This is Carl. Pursuing a national coverage decision, we will probably stay with local coverage decisions based on location of our lab, which gives us sole-source provider status and all claims processed through that lab in that jurisdiction.

Okay. So that would be like going through Novitas?

Yes, correct.

Okay, okay. Great. That's it for me. Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. If there are any further questions, please contact the Company's investor Relations, or Ron Both at the Company's Investor Relations firm, Liolios Group, at 949-574-3860 or by email at vrml@liolios.com.

I would now like to turn the call back over to Mr. LaFrance. Please go ahead, sir.

Thank you, Claudine. In closing, thank you for your time today. Vermillion is in a better place today than it was one year ago and will hopefully be far ahead of today one year from now. This is a journey, and we are entering a critical juncture with a significant change in our commercial strategy that we hope will yield strong results.

But we believe this change is necessary to deliver an outstanding experience to our customers and their patients. We also believe this change will result in greater growth, appropriate pricing in the marketplace, and long-term shareholder value. We look forward to sharing our progress in the quarters ahead. Thank you.

Ladies and gentlemen, before we conclude today's call I would like to take a moment to read the Company's Safe Harbor statement. Some of the commentary and answers to today's questions may contain forward-looking statements. You are cautioned not to place undue reliance or 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 2013 Form 10-K, quarterly reports 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 May 29 starting later this evening via the link provided in today's press release, as well as available in the Investors section of the Company's website. Thank you, ladies and gentlemen, for joining us today for our presentation. You may now disconnect.