Aspira Women's Health Inc (AWH) 2018 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Vermillion Second Quarter 2018 Conference Call. My name is Karina, and I will be your coordinator for the call today. (Operator Instructions) As a reminder, this conference is being recorded today and is being webcast live on the Investor Relations section of the Vermillion website at www.vermillion.com.

Leading the call today is Valerie Palmieri, President and Chief Executive Officer; and Bob Beechey, Chief Financial Officer. Valerie will provide a corporate update and reviewing upcoming milestones, and Robert will summarize the company's financial results. After the prepared remarks, we will open the call for Q&A.

Before we begin, I would like to remind everyone that the statements made during this call, including the Q&A session, relating to Vermillion's expected future performance, future business prospects or future events or plans are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, actual outcomes and results are subject to risks and uncertainties and could differ materially from those forecasts due to the impact of many factors beyond the control of Vermillion. The company assumes no obligation to update or supplement any forward-looking statement, whether as a result of new information, future events or otherwise. Participants are directed to the cautionary note set forth in today's press release as well as the risk factors set forth in Vermillion's annual report filed with the SEC for factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.

At this time, I would like to turn the call over to Valerie Palmieri, President and Chief Executive Officer. Valerie?

Thank you, Karina. Good afternoon, everyone, and thank you for joining us today. On this call, we will be reviewing our Q2 results with a core focus on the leading commercialization indicators, and then Bob will follow with more details on our quarterly performance. We will close with our Q3, Q4 2018 priorities as we embark on the most transformative years since OVA1 was launched.

Today, 39 women die each day of ovarian cancer, and we are very proud of the impact that OVA1 and Overa is having on patients' lives. Since OVA1 launched, it has made a difference in the lives of over 107,000 patients with 0 safety or efficacy issues.

Currently, ovarian cancer is the only sex-specific cancer with greater than a 50% mortality rate. And today, 85% of all ovarian cancers are diagnosed when the cancer is beyond the ovaries or fallopian tubes. Our goal is to truly change that.

OVA1 is the only FDA-cleared ovarian cancer risk assessment solution which is ACOG-endorsed with positive physician statement with NCCN and SGO and is covered by Medicare as well as Medicaid on a state-by-state basis. It is now covered and/or has positive medical policy with over 40% of the U.S. population as we now have 129 million covered lives with 80% contracted. This is a 4 million increase over Q1, which we will discuss in detail shortly.

While we are still in the initial stages of our commercial investment with many of the fundamentals in place, we are confident that the growth is poised for acceleration. I am now going to review in detail the core 4 foundation blocks of our commercialization strategy as well as some of the high level leading indicators of success.

The first foundation block is top line growth via our organic sales force, channel partners and alternative revenue channels, including international and ASPiRA IVD. The second foundation block is obtaining additional regional and national payers, which is driven by clinical education, clinical utility as well as strong healthy economic publications. The third is continuing to build and leverage the utilization of our one-of-a-kind public mass data and specimen repository. We have an update on a data analysis which we believe will support OVA1 and diminish the CA125 as held for 30-plus years in assessing ovarian cancer risk for all women and all ethnic groups. And last but not least, number four, which is portfolio expansion beyond ovarian cancer, which we are in active assessment of several new technologies.

I'm going to now begin with number one. We have completed the building of a high quality team surrounding OVA1 and Overa in the marketing, sales and sales operations. As part of this, we recently welcomed Chris Goulart to our senior management team as SVP of Commercial Operations. This is a newly created position which we added when we reached critical mass in all core foundational areas. We needed a leader with deep experience in commercial ops including sales, business development, managed markets and technology transfer. Chris brings tremendous strength in all areas. He has been here for just over a month and has contributed to bringing insights to our vision and plan.

As part of Chris joining the team, we are also very excited to announce a new program that we've been working on for months. It is a new platform and cloud service tool for OVA1, which the brand name will be announced at a later date. This tool, in conjunction with the OvaCalc, will allow hospital system IDNs, regional labs and large OB/GYN super groups to run OVA1 at a local level on a decentralized platform. This strategy will allow for a better patient experience and position Vermillion for more rapid growth in otherwise closed systems. We are in term sheet discussions with 2 partners currently and have 5 additional partners in the pipeline. The reason this is so significant as we now have the ability to distribute an ACOG-endorsed technology on a globally distributed platform. Our increased reach to patients through decentralization of the testing site will allow more of the population in the markets we serve to access OVA1. In addition, local testing in these institutions will accelerate adoption and further Vermillion's drive to make OVA1 the standard of care for pelvic mass management.

I am now moving on to the commercial team expansion. We have expanded our sales force with newly created positions known as Regional Account Director versus Market Development Manager. The Regional Account Director role will predominantly sell our new platform program to hospital system IDNs, regional labs and large OB/GYN super groups. This newly created role will initially roll out to 5 territories: Southwest, Midwest, Mid-Atlantic, New York City boroughs and Long Island. We feel that these new hires will rapidly drive adoption of this new model. Now moving on to the Market Development Manager's performance, which call directly on physicians. We have continued to grow covered territories year-over-year, and we have finally offset the loss of the Q3 legacy customer volume, which is 15% of our total volume. Our uncovered territory volume decreased 54% year-over-year on a per-day basis, which is where the majority of the Quest legacy customer falloff occurred. Now that we have a critical mass to sales team members, only 20% of our volume is now uncovered versus 40% in Q1 of 2017. In the first half of 2018, covered territories grew 6% Q1 '18 versus Q2 '18, and our uncovered territories grew 5% quarter-over-quarter. This is the first quarter since the Quest transition, where our uncovered territories have actually grown versus retracted.

In terms of diving into some specific territories where we have new rep and payer coverage, we are seeing early indicators with meaningful results. In New York Metro, prior to coverage, the territory was running at 143 specimens per quarter. In Q1, we predicted the New York territory would be running at approximately 200 per quarter, and it finished at 199 per quarter. This is a 40% increase in 6 months. The Philadelphia territory increased from 39 to 71 specimens Q4 2017 to Q2 2018, an 82% increase. And our Dallas-Fort Worth territory increased from 12 to 37 specimens from Q4 2017 to Q2 2018, a 308% increase off a very small base.

With this product launch, as well as enhancements to the current portfolio and new team members, we will be hosting a national sales meeting in the third week of September. This meeting will largely focus on the several new strategies and products which we are taking to market.

In addition to the new platform, we are also launching our new reflex clinical care pathway for OVA1/Overa being used in combination. The OVA1/Overa Reflex will increase specificity and provide a better clinician-patient experience. We will discuss that further in the update.

In terms of additional revenue channels, international revenue is modest. But as you know, international is a work in progress with studies in the queue, which we will discuss in a bit. For ASPiRA IVD, the majority of the revenue occurring in the back half of the year due to the timing of studies.

I am now moving on now to the second foundation block, which is obtaining additional regional and national payers while maximizing our contract agreements and value. We have added a total of 4 million lives in Q2. The majority of those lives were in Illinois with a total of 3.1 million Medicaid lives, taking our Medicaid lives total to 5.5 million. In the quarter, we also added some additional Blues contracts in significant states and secured the final contract with a large Northeast benefits fund. Overall, now we have 129 million lives covered or close to 40% of the population.

In terms of price optimization, our overall price is improving with the reduction of client sales, increase in Medicare, third-party contract and patient pay price. On the Medicare front, the new PAMA rate of 897 went into effect January 1, 2018, and we are seeing better-than-expected results. The average rate paid in the first quarter -- second quarter of 2018 was $741 per specimen compared to $151 for the second quarter of 2017, a fourfold increase. This is being driven by the price increase and percent paid. The percentage paid was 72% in the first quarter 2017 versus 86% in Q2 2018. Overall, percent paid has increased from 56% in Q2 2017 to 60% in Q2 2018. The majority of this improvement was driven by the improvement in Medicare rate, third-party contracts and patient pay rate.

Over 40% of our volume is also handled by our Patient Advocacy Program now. This service allows us to brand and educate OVA1 to patients as well as facilitate payment and proactive insurance benefit checks.

On the payment front, all fronts are moving in a positive direction. Keep in mind, with the new revenue recognition rule, our price improvement will take a few quarters of price patterns to factor into our average unit price due to contract pricing lag and pricing history being established.

I'm now moving on to our third block, which is continuing to build and leverage the utilization of our one-of-a-kind pelvic mass data and specimen repository. We have a landmark analysis which we recently discovered. Our recent review of literature as well as our internal data, we have identified a market trend which there is lower production of CA125 in non-Caucasian versus Caucasian women. We have confirmed the lower serum CA125 in our own database of women with pelvic mass and malignancy. In these ethnic groups, OVA1 is up to 2 times better than CA125 at detecting cancer. Thus, we believe CA125 should not be used as a diagnostic aid in non-Caucasian women due to its ineffectiveness for cancer detection. An abstract is in process of being submitted to a national society, and a publication is being prepared, as well as additional studies are underway to demonstrate the ineffectiveness of serum CA125 as a diagnostic aid for ovarian cancer. We believe these studies will establish OVA1 as the most reliable laboratory test to assess the risk of cancer in women with pelvic mass, and it will greatly diminish the CA125 as held for 30-plus years in assessing ovarian cancer risk for all ages and all races.

In addition to CA125 ethnic disparity publication, we are also rolling out a combined profile using OVA1/Overa Reflex due to our new platform improvement. The OVA1/Overa Reflex is designed to take advantage of both product strength. It will benefit from OVA1 sensitivity and Overa specificity. The OVA1/Overa Reflex will reduce falsely elevated risks by almost 40%. This can also be offered in a decentralized structure as well as with improved economics.

In terms of medical education at the local level, we have implemented a new regional key opinion leader program, which will educate and spread awareness in the Metro hubs. We currently have 4 key opinion leaders onboard or in the queue including New York Philadelphia, Illinois and California. Having active working thought leaders in these large metro areas is paramount to a large health care system in supergroup buy-in as well as this will facilitate OVA1 adoption.

I'm now moving on to our international study update. We are primarily focused on 2 prospective studies to validate Overa on those specific populations. The 2 countries we are focused on is the Philippines and Israel.

In the Philippines, we are nearing the midpoint of a 2-year study. Currently, we have enrolled 151 of the 380 patients needed or about 40%. We believe this prospective outcome study will be a significant contributor towards critical mass payer coverage in the U.S. for Overa when it's completed late 2019 and published in 2020. In addition, our Philippine distributor, MacroHealth, is poised to distribute Overa to their national client base over that time. The end goal of the Philippine study is twofold. Number one, the adoption of Overa into the Filipino health care system protocol; and number two, a prospective Overa outcome study which can be used worldwide.

In Israel, we have one validation study which is about to commence. This study will include both OVA1 and Overa. It will be completed -- we will be completing a 240-patient validation study estimated to take 1 year on the local population in Israel, which is a necessary step for long-term commercial success in the Israeli health care market.

And lastly, we are in the final process of kicking off a U.S. BRCA study, which we are in discussions on expanding this to Israel as well. We are using OVA1 and Overa instead of CA125 for the routine monitoring of high-risk ovarian cancer patients due to a BRCA mutation. Approximately 1 in 40 women in Israel are BRCA carriers versus 1 in 400 in the U.S. Understanding how OVA1 and Overa perform this cohort at the highest risk of developing ovarian cancer is crucial to expanding the clinical application for our test in the U.S. and ex-U. S.

I would like to now turn the call over to Bob for a review of our financial results. Bob?

Thank you, Valerie.

Let me begin with a summary of our results for the quarter. Our total revenue in the second quarter of 2018 was $708,000 compared to $898,000 the same year ago quarter, a 21% decrease. The second quarter of 2018 revenue included $627,000 from product sales of OVA1 and $81,000 for service revenue from ASPiRA IVD. Product revenue decreased 21% in the second quarter of 2018 compared to the prior year quarter. 1,884 OVA1 tests were performed versus 2,418 OVA1 tests performed in the prior year quarter. The volume decrease was attributable to the loss of a significant client bill customer, which we've previously disclosed, which transpired in Q3 of 2017, as well as reductions in volume in uncovered territories. Q2 2017 was the high point of the legacy customer revenue, with the relationship having been dissolved in Q3 of 2017. We would note relative to the uncovered territory decrease that our expectation is Q3 of 2018 will represent the inflection point where our covered territory growth overtakes the decline in uncovered territories. Despite these reductions, revenue associated with Medicare increased more than fivefold driven by a 20% increase in volume and a 440% increase in price.

Revenue on a per-test-performed basis in Q2 2018 was $333 in the second quarter. The price per test on a comparable GAAP basis would have been $287 in the second quarter of 2017, representing a 15% increase year-on-year. Cost of product revenue for the second quarter of 2018 totaled $528,000, representing a 23% increase from the comparable prior year quarter. The increase was due to kits and postage associated with delivery to physicians; nonrecurring lab supply costs for our new offerings and clinical validations; as well as the Quest project management fee which commenced in 2018 and did not exist in 2017.

Total operating expenses in the second quarter of 2018 increased to $2.9 million compared to $2.6 million in the same quarter a year ago, representing an increase of 15%. This increase was primarily due to onetime costs for severance and consulting costs as well as increased investments in sales resources, slightly offset by a reduction in R&D expenditures in the prior year -- relative to the prior year.

Net loss for the second quarter of 2018 was $3 million or a loss of $0.04 per share as compared to a net loss of $2.4 million in 2017 second quarter, also $0.04 loss per share.

There were 775.3 million common shares outstanding at June 30, which is after the offering -- the equity offering and the conversion of preferred stocks to common stock that transpired in Q2.

Cash and cash equivalents at June 30, 2018 were $14.1 million, representing 5 quarters of cash, looking forward, all things being equal in terms of volume and costs. The company will utilize $2.5 million in cash in the second quarter of 2018, excluding the $13.5 million received from the April public offering net of issuance costs.

I'll now turn it back to Valerie.

Thank you, Bob. Before we open the call for Q&A, let me emphasize our optimism for building our company for success. Our key catalyst will be our new decentralized platform offering; our new expanded portfolio including OVA1/Overa Reflex; and finally, price improvement with our Medicare rate being the base case for contract negotiations going forward.

Vermillion is uniquely positioned to create value in the early accurate risk assessment of ovarian cancer for all ethnic groups. Our focused growth in large practices and health care systems, transformative payer success, coupled with our new platform, has set the stage for scaling our volume and revenue via direct and indirect channels in 2018, 2019. We look forward to keeping you apprised of our progress during 2018. Our end goal is to enhance shareholder value by saving lives and saving money for the overall health care system.

We are now happy to answer your questions.

(Operator Instructions) And it appears we have no questions at this time. I would like to turn the call back over to management for any additional or closing remarks.

In closing, we have laid a strong organic commercial foundation in the first half, which will set the stage for a strong second half of 2018 and full year 2019. During the past 24 months, the core foundry work including guidelines, 40% of the U.S. population under coverage and, of course, increase in CMS pricing have set the stage to drive growth and profitability in time. Lastly, we have laid the foundation for an expandable, decentralized data platform, which will offer an expanded portfolio of disruptive technology to women's health providers. Our end goal is to serve a large global market with a platform coupled with strong science, which will drive profitability and overall shareholder value.

Thank you for joining us today, and thank you for your interest in Vermillion. We look forward to seeing you at the upcoming medical meetings and investor conferences.

Once again, that does conclude today's conference. Thank you for your participation. You may now disconnect.