Aspira Women's Health Inc (AWH) 2014 Q2 法說會逐字稿

Good day, and welcome to the Vermilion second-quarter results call. Today's presentation is being recorded. At this time, I would like to turn the conference over to James LaFrance, Chairman, President, and CEO. Please go ahead, sir.

Thank you, Leah. Good afternoon, everyone. Thank you for joining us.

As has been discussed in prior calls, Vermillion is in a commercial transition period. We believe that in order to realize full value of our novel and proprietary OVA1 test in today's changing market, Vermillion must take direct control of our commercial progression. We need to be able to serve and message our customer base directly and we need to be able to appropriately price the value of our products in the market.

We have undertaken several initiatives in 2014 to enable our commercial transition. We have built up our commercial management team in sales, marketing, and reimbursement. At the start of quarter 2, we tripled the size of our direct sales force. And in June, we successfully opened our own CLIA lab testing facility, ASPiRA LABS.

We began to see the impact of these actions in Q2 with a 10% order volume increase over the prior quarter. The commercial transition will accelerate over the balance of the year as we complete the negotiations which will redefine our strategic relationship with Quest Diagnostics.

Besides our commercial transition efforts, we continue to make progress on our product pipeline. We have developed an option to speed up the introduction of our second-generation OVA1 by combining our platform migration regulatory path with biomarker panel advancements rather than sequencing them serially. This will allow us potentially launch our product improvements to OVA1 in the second half of 2015, six months earlier than planned.

For more details on this change, I turn to Donald Munroe, our Chief Scientific Officer. Donald?

Thanks, Jim. First, I will talk about our platform migration program and then some import progress we have made toward a second-generation OVA1 biomarker panel.

Based on market feedback and our own benchmarking, we are announcing today the selection of the Roche COBAS integrated IBD system as our initial choice for OVA1 platform migration and development of the second generation OVA1 product. Roche is one of the top IBD automation companies worldwide and currently offers all five OVA1 analytes. In addition, Roche offers a ride wide range of other assays and the ability to automate custom assays and panels on board.

Development work to migrate OVA1 to the COBAS platform was completed earlier this quarter, successfully meeting all development objectives. This included requirements gained from our pre-submission meeting with FDA last quarter. At the same time, we initiated parallel development work on the gen 2 OVA1 product design to see whether we could move up our original 2016 launch target.

You may recall that the design goal for the gen 2 product was to reduce the rate of benign positive calls without sacrificing OVA1's outstanding sensitivity, negative predictive value, and detection of early stage of ovarian cancer. Our team, working together with our CROs and collaborators at Johns Hopkins, has nearly completed this development work and will soon be ready to start the validation phase.

Our gen 2 development results look promising. In fact, after comparing them with new market research and customers, gynecologic oncologists and payers, we have made the decision to shelve further effort on platform migration of the current OVA1 panel in order to focus on the gen 2 panel, targeting a launch in the second half of 2015.

At this time, we are not prepared to disclose specific gen 2 biomarkers for development results. But, by the end of 2014, we plan to submit abstracts describing the development results for presentation and publication in early 2015. So you can expect to hear more in future calls. We will also discuss with FDA this change in plans and the most effective method to pursue 510(k) clearance of the improved OVA1 test. Jim?

Thanks, Donald. I would now like to ask Eric Schoen, our VP Finance and Chief Accounting Officer, to review our second-quarter financial performance. Eric?

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

Total revenue for the second quarter of 2014 was $324,000, comprised of $211,000 from product sales of OVA1 and $113,000 from licensed revenue. Second quarter 2014 product revenue was derived from 4203 OVA1 tests performed. This was consistent with the 4184 tests performed in the year ago quarter. While test volumes were flat with the prior year, we were pleased to see the bounce back from the lower Q1 2014 volume of 3817 tests, representing a 10% quarter over quarter increase.

Total revenue for the six months ended June 30, 2014 was $629,000 -- $402,000 from product sales of OVA 1 and $227,000 from license revenue. We do expect to see a benefit in the form of increased test volumes from the April 2014 expansion of our field sales force in the second half of 2014.

OVA1 revenue in 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 upon 33% of Quest Diagnostics gross margin. The Company recognizes this portion of revenue when reported by Quest Diagnostics via an annual true-up after the end of the calendar year.

Operating expenses for the three and six months ended June 30, 2014, were approximately $5.8 million and $10 million, respectively. Operating expenses included approximately $0.4 million of non-cash, stock-based compensation expense in the second quarter and $0.5 million in the first half of 2014. This compares with operating expenses of $2.4 million and $5.3 million for the same three and six months' periods of 2013.

Operating expenses in the prior year included just $0.1 million and $0.2 million of non-cash, stock-based compensation expense in the same three and six month periods. The year-over-year increases are due to our significant investments in operations in 2014. This includes costs for the expansion of our field sales force, which was roughly tripled in April 2014, and cost to open and brand ASPiRA LABS. We have also expanded our research and development efforts to bring our next generation diagnostic test to market.

Net loss for the second quarter was $5.6 million or $0.15 per share on weighted average shares outstanding of $35.9 million. Total net loss for the six months ended June 30, 2014 was approximately $9.5 million or $0.27 per share on weighted average shares outstanding of 35.8 million. Our total shares outstanding at June 30, 2014, was 35.9 million.

Cash and cash equivalents at June 30, 2014 were $22.2 million. The Company utilized $3.8 million in cash in the second quarter. We expect $4.5 million to $5.5 million of cash to be utilized in the third quarter. We expect the third quarter of 2014 to be our high point for cash utilization before normalizing at a lower level beginning in the fourth quarter.

Finally, I want to give an update on ASPiRA LABS. We were pleased to have opened the lab at the end of June. For those that have experience with CLIA labs, it is just one sentence to say that you have successfully opened a lab. However, the amount of effort that goes into that one sentence, in getting it right, is significant considering the customer logistics, regulatory, and operational elements.

We spent approximately $600,000 on direct lab costs in the first half of 2014, with bulk of those costs being charged to general and administrative expense prior to the lab opening. We will continue to incur both recurring and nonrecurring costs in the third and fourth quarters before settling into a more normal state of lab operations and costs.

We are now regularly processing tests through the lab and we will begin to provide volume and other metrics once volume reaches meaningful levels. Remember, the lab was only open for one week in the second quarter.

We are still in the process of implementing both our medical billing and laboratory information management systems, and expect substantial completion in the third quarter. The billing and collection process for laboratory billings is complex and time-consuming, particularly in the case of the claim denial and appeal. We also expect that, initially, we will be recognizing revenue on a cash basis and, thus, there will be a lengthy lag period between performing a test and be able to recognize ASPiRA revenue for that test. Accordingly, we believe the relevant metric for the second half of 2014 is the test volume and growth rate for ASPiRA rather than GAAP revenue recognized in our financial statements.

Now I will turn it back to Jim.

I mentioned previously in discussions on commercial transition a need to build out our commercial management team expertise. This morning, we issued a press release on two critical commercial hires.

One of the biggest challenges facing diagnostic companies today is reimbursement. It is a dynamic, constantly shifting environment. We can drive adoption and demand creation all day long, but in the end, to be successful, you must convince both private and public payers to cover your test at an adequate value level.

The hurdles for gaining payer acceptance in the current environment is high and getting higher. Specifically as it relates to the Vermillion, we have relied on Quest Diagnostics for reimbursement and payer coverage. As we move into a do-it-yourself mode with reimbursement, it is essential to our success to have strong payer relations capabilities within our organization.

As such, we have created the newly established executive management role of vice president of sales and managed markets reporting to me. Recognizing that reimbursement is one of the biggest sales challenges, we will restructure and have one leadership role directing both functions. We will be in a position to fill and announce this position soon.

In today's press release, we announced the hiring of David Jansen to the newly created position of vice president of marketing. David joins us from women's health industry leader Myriad Genetics, where he has helped drive their tremendous success in establishing BRCA testing as a standard of care in breast cancer. David brings over 20 years of marketing strategy and execution experience and will be directly responsible for our positioning, messaging, and branding in the marketplace.

With this level of high caliber hires with specific discipline expertise, I have determined that a flatter management structure is called for to ensure high levels of communication and collaboration amongst the management team. As such, with these hires, we have eliminated the role of chief commercial officer. Marian Sacco, who joined the Company in December, is departing the Company.

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

(Operator Instructions) It appears that there are no questions at this time. (Operator Instructions) And seeing as we have no questions at this time, I would like to turn the call over to our presenters for additional remarks.

Thank you, Leah. In closing, thank you again for your interest today. We are a Company going through a significant commercial transition. We made good progress in Q2 on this transition with the opening of ASPiRA LABS.

We demonstrated that our new sales force can drive order growth. We advanced our product pipeline and added depth to our management team. It is strong, steady progress quarter on quarter which will eventually lead us to significantly higher revenue base, profitability, and a proper valuation over time. Thank you.

Ladies and gentlemen, that does conclude today's conference. Thank you for your participation.