Biocept Inc (BIOC) 2021 Q3 法說會逐字稿

Welcome to the Biocept Third Quarter 2021 Financial Results Conference Call. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference call over to Bruce Voss. Please go ahead.

Thank you. This is Bruce Voss with LHA and thank you all for participating in today's conference call. Joining me from Biocept are Michael Nall, President and Chief Executive Officer, and Tim Kennedy, Chief Operating Officer and Chief Financial Officer.

During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical facts and generally can be identified by terms such as anticipates, estimates, believes, could, expects, intends, may, plans, potential, predicts, projects, should, will, would, or the negative of those terms.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance or achievements to be materially different from those statements as well as performance or achievements that are implied by the forward-looking statements.

In particular, there is significant uncertainty about the duration, severity, and impact of the COVID-19 pandemic. This means results could change at any time and the contemplated impact of COVID-19 on Biocept's operations, financial results, and outlook is the best estimate based on the information for today's discussion.

For details about these risks, please see the company's SEC filings, including the company's quarterly report on Form 10-Q being filed today. The content of this call contains time-sensitive information that is accurate only as of the live broadcast today, November 15, 2021. Except as required by law, Biocept disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. Now, I'd like to turn the call over to Michael Nall. Mike?

Thank you, Bruce, and good afternoon, everyone. I'm pleased to begin by announcing another sequential quarter of growth in the CNSide volume. CNSide is our paradigm-changing neuro-oncology test that uses cerebral spinal fluid for diagnosing and monitoring patients with brain metastases. I will share updates on our progress and strategy for CNSide in just a moment.

Turning first to financial results, we reported another exceptional quarterly performance with profitability on revenues of more than $17 million, driven primarily by our high-quality RT-PCR COVID-19 testing service. The Biocept team is pleased to continue providing this valuable service as we assist in the management of the pandemic with the resulting financial performance and cash flow supporting investments in our core oncology business.

Our revenues for the quarter increased 165% from Q3 2020, which was our first full quarter of COVID-19 testing, and we're also up 45% from Q2 of this year. As mentioned on last quarter's call, Q2 COVID-19 testing volume declined from prior quarters as more Americans became vaccinated.

During Q3, we saw a return to higher volumes in part due to the emergence of the Delta variant as well as from volume driven under our contract with the California Community College system. We implemented COVID-19 testing at more than 35 campuses with convenient on-site sample collection locations. Many California Community Colleges are now requiring students and staff to be vaccinated, with mandates for some taking effect this week.

That being said, the majority of our COVID-19 testing volume continues to be sent by skilled nursing customers. We have received more than 660,000 samples since we began providing COVID-19 testing services in June of 2020. This includes receiving more than 150,000 samples in the third quarter.

We were well prepared for the influx of COVID-19 testing samples in Q3, having already taken steps to increase lab capacity and improve automation. Our investment in these improvements will also support our capacity to process CNSide and other oncology testing as those volumes increase.

Turning to our combined COVID-19 and influenza testing, we expect to launch this test in the coming weeks and believe we'll be particularly well received by our skilled nursing facility customers.

As we move through flu season, our combined testing can distinguish between COVID-19 and flu infections, as well as identify those infected with both COVID-19 and flu. This information can be critical for treatment decision-making.

As a final update on COVID-19 testing, following validation, we expect to begin commercialization of the assay co-developed with Aegea Biotechnologies by the end of the year. The benefit of this assay is in quantifying viral load regardless of variant. Quantifying viral load can be key in determining when patients can safely return to work school, or other activities.

Returning now to our oncology business, we are highly encouraged by the data being generated and the resulting ongoing adoption of CNSide. This assay provides physicians with a valuable tool to diagnose and manage patients with cancer that has metastasized to the central nervous system and brain.

Our assay answers three critical questions. First, is cancer present? Second, is there a target? And third, what is the trend over time?

Since our beta launch in early 2020, we have seen continuous consecutive quarterly increases in test volume. And as I mentioned, strong sequential quarter volume growth in the third quarter, 40 prestigious academic institutions have now ordered our CNSide assay, and importantly, the majority have become repeat customers.

We view this as a strong indication that neuro oncologists are using our assay, see its value, and improving patient outcomes. To drive further adoption, we will be focusing on reaching the neuro-oncology community through the end of this year with plans to expand our outreach to include the broader oncology community next year.

A recent study conducted by the University of Utah Huntsman Cancer Center provides further support for CNSide. Results from this retrospective study suggest that our assay is more sensitive than standard of care, CSF cytology in patients with non-small cell lung cancer and leptomeningeal disease, a complication in which the cancer spreads to the membranes surrounding the brain and spinal cord.

In analyzing the cerebral spinal fluid of 15 unique patients, CNSide detected tumor cells 100% of the time. While cytology detected tumor cells in just 40% of the same samples. CNSide also identified actionable biomarkers and tumor cells, which allowed oncologists to make targeted treatment decisions that reduced debilitating symptoms and extended patient lives by more than three years in some cases.

This is remarkable as the average life expectancy is just four to six weeks for patients with non-small cell lung cancer and leptomeningeal disease when left untreated. An estimated 3% to 9% of the more than 198,000 patients diagnosed with non-small cell lung cancer each year will develop leptomeningeal disease.

This study was presented at the conference on brain metastases hosted by the Society for Neuro-Oncology or SNO in August. We will be sharing new data supporting use of CNSide generated with additional collaborators at the annual SNO Conference being held in Boston later this week. We are working towards securing standard of care status for CNSide under NCCN guidelines. This includes refining the pathway to publish the clinical data, we anticipate, will influence those guidelines.

Under our FORESEE clinical program, we expect to conduct two longitudinal observational studies. The first will be a therapy response monitoring study comparing CNSide with standard of care for the management of breast and lung cancer in patients being treated for brain metastases.

The second will be a longer-term registry study comparing CNSide and cell-free tumor DNA to standard of care for various tumors and indication of use. We expect to begin the first of these FORESEE studies by mid-2022. Currently, CNSide is offered as a lab-developed test validated to clear and cap standards.

That being said, we continue collecting supporting data, demonstrating the superiority of CNSide over standard of care for potential resubmission of an application to the FDA for breakthrough device designation. Our CNSide assay is validated to identify metastatic cancers, originating in the lung and breast, which are the two cancers that most often lead to involvement with the central nervous system.

We estimate that the US market for CNSide for these two cancers at more than $1 billion annually. Validation activities are underway to expand our CNSide testing for CNS involvement from all solid tumors, as well as melanoma, which is the third most common cancer leading to CNS involvement.

We are targeting the launch of expanded CNSide assay in Q1 2022. Approximately 30% of our current CNSide testing volume is for research cases, involving patients with cancers other than our current commercialized lung and breast offerings. Following validation of the expanded CNSide assay, we expect to begin commercialization of the majority of what is currently research testing.

As an update on our agreement with Quest Diagnostics, we expect that our Target Selector NGS Lung Panel will be available in QUEST 2,200 patient service centers across the US in the coming weeks, at which time the Quest oncology division will then begin their marketing. Our Target Selector NGS Lung Panel provides genomic profiling of patients diagnosed with advanced non-small cell lung cancer.

This testing serves an important need as tissue biopsies can be difficult to retrieve from these patients. Even when collected, the amount of tissue can be insufficient to provide results to guide treatment.

Our blood-based panel is able to detect multiple actionable biomarkers to qualify patients for therapy, including newer therapies like targeted treatments that are allowing patients to live longer with a better quality of life. Lung cancer is the third most common cancer in the US and leading cause of cancer death.

The CDC estimates that of the more than 235,000 new cases of lung cancer diagnosed this year, 84% are non-small cell lung cancer. Quest is the world's largest clinical testing laboratory, and we are excited to partner with them to provide physicians and patients with increased access to our panel.

And lastly, we recently announced the publication of a study in the peer-reviewed Journal of Molecular Diagnostics. This study showed that our Switch-Blocker technology enhances the sensitivity of PCR-based liquid biopsy testing more than 200 times. Switch-Blocker is incorporated in our Target Selector assays and enhances the sensitivity that's essential to accurately identify an often extremely rare cancer cell mutation.

Further, this technology can be used whether the sample is blood, tissue, or cerebral spinal fluid. This highly sensitive technology is also incorporated in the COVID-19 assays that we co-developed with Aegea.

And with that, I'll turn the call over to Tim to review our Q3 financial results. Tim?

Thanks, Mike, and good afternoon, everyone. For Q3 2021, we're reporting net revenues of $17.5 million, which is up 165% from $6.6 million in Q3 of 2020. As Mike mentioned, Q3 2020 was our first full quarter of providing RT-PCR COVID-19 testing services.

With the increase in this year's third quarter revenues due to higher sample volumes, our revenues for the third quarter of 2021 included $17.4 million in commercial test revenue, which included $16.5 million attributed to COVID-19 testing, and $826,000 in oncology testing, $34,000 in development services test revenue, and $71,000 in revenue for distributed products, targeted selector RUO kits, CEE-Sure blood collection tubes, and payments for other development services.

As comparison, revenues of $6.6 million for the third quarter of 2020 included $6.4 million in commercial test revenue, of which $5.7 million was attributable to COVID-19 testing, and $713,000 to oncology testing, $47,000 in development services test revenue, and $154,000 in revenue for distributed products, Target Selector RUO kits, and CEE-Sure blood collection tubes, and payments for other development services.

In Q3 2021, we received 154,324 total accessions. This is a significant increase from 52,542 total accessions in Q3 of 2020. It's also up sharply from Q2 2021, total accessions of 102,172 as we realized the anticipated sequential quarter increase in COVID-19 testing volume due mainly to the Delta variant and samples received from our agreement with the California Community College system.

Total cost of revenues was $10.3 million, compared with $5.9 million for the prior year period, with the increase primarily due to the increase in COVID-19 related collection kits and consumable expenses. As we continue to leverage the fixed components of our expense structure, our cost of revenues as a percentage of net revenues decreased by approximately 30% from the prior year period.

Contributors to this expansion in gross margins included better pricing on COVID-19 consumables and COVID-19 collection kits. Implementation of automation to more efficiently handle higher volumes and lower facility costs related to the relocation we completed late in 2020.

R&D expenses for the third quarter of 2021 were $1.3 million, compared with $1.1 million a year ago, with the increase primarily attributable to increases in headcount-related expenses and the material costs associated with investment in CNSide clinical development. We expect R&D expenses to increase in the coming quarters as we begin the first FORESEE clinical study.

G&A expenses for Q3 2021 were $3.4 million versus $3 million in Q3 2020, with the increase primarily due to headcount additions and other expenses related with COVID-19 volumes. Sales and marketing expenses were $1.9 million, compared with $1.4 million in the prior year period, with the increase due to higher COVID-19 revenue and marketing costs related to CNSide.

Net income for the third quarter of 2021 was $427,000 or $0.03 per diluted share on 15.6 million weighted average shares outstanding. This represents a $5.3 million improvement from the net loss we reported in the third quarter of 2020 of $4.9 million, or $0.37 per share on 13.3 million weighted-average shares outstanding.

And now turning to the year-to-date results, net revenues for the first nine months of 2021 were $47.3 million, which compares with $9 million for the first nine months of 2020. The 2021 period included a $1.1 million increase in reserves for potentially uncollectible aged accounts receivables.

Revenue for the 2021 nine-month period included $47 million in commercial test revenue, $107,000 in development services test revenue, and $167,000 in revenue for Target Selector RUO kits, and CEE-Sure blood collection tubes, and payments for other development services.

Operating expenses for the first nine months of 2021 were $45.9 million, and included cost of revenues of $26.8 million, R&D expenses of $3.5 million, G&A expenses of $9.8 million, and sales and marketing expenses of $5.8 million. Operating income for the first nine months of 2021 was $1.4 million, an $18.9 million improvement from an operating loss of $17.4 million for the first nine months of 2020.

Net income for the first nine months of 2021 was $1.2 million, or $0.08 per diluted share on 14.3 million weighted-average shares outstanding. This is a significant improvement from the net loss for the first nine months of 2020 of $19.7 million, or $1.74 per share on 11.3 million weighted-average shares outstanding.

We reported cash and cash equivalents as of September 30, 2021, of $27.7 million, which is up from $14.4 million as of December 31, 2020. During the three months ended September 30, 2021, our cash balance increase included raising $9.6 million during the third quarter through sales of common stock under our ATM facility.

And with that, I'll now turn the call back over to Mike.

Thank you, Tim. Before opening the call to your questions, I want to remind you of our corporate priorities, which include the following. One, fully supporting the commercial launch of our CNSide assay. Number two, initiating clinical studies with CNSide and presenting and publishing results of studies conducted both by Biocept and in collaboration with respected institutions to support adoption of standard care under NCCN guidelines.

Three, expanding our CNSide testing menu for additional tumor types and biomarkers. Four, increasing sales of our full range of Target Selector assays. Five, growing sales of our Target Selector liquid biopsy kits and CEE-Sure blood collection tubes. Six, entering into additional strategic commercial and technology partnerships, like the agreement with Quest Diagnostics. And seven, continuing to support our community with our high-quality COVID-19 testing service by offering both qualitative and quantitative PCR assays in combination COVID-19 influenza testing.

Our portfolio of Target Selector based assays provides critical information to assist physicians in determining treatment decisions for their patients diagnosed with cancer. Our assays are based on our differentiated platforms that leverage information from tumor cells, cell-free DNA and RNA in both blood and cerebral spinal fluid.

To date, we have tested approximately 31,000 patient samples with our proprietary oncology biomarker assays and have received more than 660,000 samples for COVID-19 testing. We expect revenues related to COVID-19 testing to remain meaningful through the end of 2021. Over the past several weeks, we have seen volume averaging about 10,000 samples per week.

That said, there are many variables with circumstances such as colleges imposing vaccine mandates that could impact our COVID-19 testing volumes. With CNSide, we anticipate increasing adoption of our assay as we develop collaborations and clinical studies with the goal of obtaining standard of care designation. We have a strong balance sheet to support our commitment of improving patient treatment choices and clinical outcomes.

And with that overview, we're right now ready to take questions. Operator?

Thank you (Operator Instructions) One moment, please, for the first question.

While we're waiting for the first question, I'd like to mention that CNSide will be featured at the SNO Annual Meeting being held later this week and two events in which neuro-oncologist, Dr. Nicholas Blondin of Yale School of Medicine will be discussing the utility of our CNSide assay to manage leptomeningeal disease in patients with metastatic cancer.

You may recall that Dr. Blondin was a featured presenter on our CNSide KOL webinar in April, along with neuro-oncologist. Dr. Amir Azadi from the Barrow Neurological Institute, and Dr. Priya U. Kumthekar from Northwestern University. We also held a second webinar co-sponsored by Cap Today, with presentations by neuro-oncologist, Dr. Seema Nagpal from Stanford and Dr. Santosh Kesari from Saint John's Cancer Institute.

We invite you to view both webinars with links available through our home page at biocept.com. Also, we will be presenting virtually at the H.C. Wainwright Bioconnect Conference and holding in-person investor meetings in San Francisco during the JPMorgan Healthcare Conference, with both events being held January 10 through 13.

Okay. Operator, we're ready for the first question.

Jason McCarthy, Maxim Group.

Hey, guys. This is Michael Rabinowitz on the line for Jason. Thanks for taking my question.

Sure, Michael, good to get that.

So, I wanted to ask about how we should be looking at COVID-19 testing going forward? Because across the space, it seems like Q4 is headed for a bit of a reduction with decreased cases and now oral antivirals are approaching, which could prevent hospitalization as many as 90% of cases.

So, how should we think about Biocept's COVID testing business going forward? And does the target market of skilled nursing and community colleges position the company to be more durable to changes in COVID cases?

Well, I think there's a lot in that question. And of course, the whole industry is also asking the same question about what to predict in the future with the volumes. I think it's going to continue to go up and down as outbreaks happen here and there regionally, you're still seeing some outbreaks in some of -- for example, and here in California and some of the more rural parts of the state even now, so that's keeping us busy.

And we tried to give a little bit of guidance that our average is 9,000 or 10,000 right now a week currently, so that gives you a little bit of where we're currently at. And that seems to be where it's balancing out for now. But as you said, you never know what's going to be in the future.

One thing too is important that you asked there, though, is why we stayed with the volume we have versus some of the other labs have seen big declines already. And that's because, strategically, we focused on the skilled nursing centers, which have a routine need for testing with their very high-risk population of residents and patients. And so, therefore, we anticipate that the testing will continue to be important for that population of folks that we serve.

Tim, do you want to add?

Yes, that's exactly right versus drive-up, pop-up collection centers that were pretty prevalent a year ago in 2020, right?

That's right.

Yes.

Well, thank you. I'd like to can continue kind of on this vein, I wanted to see if you could just give a bit more on your plans to expand into influenza testing.

Sure.

Isn't that a single sample combination test? And does it increase the potential to maybe maintain improved durability of those testing relationships that you've built with your current contract?

No, thank you for asking that. That's an important point. It is from the same sample we can test for both COVID-19 and influenza, and also determine if someone actually has both from the same sample. And you're exactly right, especially for the skilled nursing centers, we anticipate this will be important for them. They ask for this. They like the service levels we provide. And of course, it's critical for them to know when they have a resident or employee who's impacted.

All right. Thank you very much. And then just one more, I wanted to ask about how the oncology testing market is looking at right now in terms of volume versus pre pandemic as we've largely exited this recent Delta surge?

Well, I think most folks are getting back to the doctor and as we've pivoted the company, we're now transitioning with a lot of our efforts, as you heard in our prepared remarks today towards CNSide, which is our groundbreaking test for neuro-oncology and this is where we're helping patients with late-stage cancers, whose cancer has metastasized to the central nervous system and brain.

And we're getting rapid uptake of that test from the neuro-oncologists that we're calling on at the major academic centers. On the blood side, we're excited to have our relationship with Quest, and there'll be more news about that this quarter as that gets ready for launch. The liquid biopsy side, blood has a fair amount of competition and be able to have a good partner in Quest that has broad reach with the applicability of their 2,200 patient service centers. We're very excited about what this could mean for Biocept going forward.

Right. Thank you very much, and congratulations on a great quarter.

Thank you, Mike.

Thanks, Mike.

Thank you for your support.

(Operator Instructions) Thanks, everyone. This concludes our question-and-answer session. I'd like to turn the conference back over to Mike Nall for any closing remarks.

Well, thank you, operator. On behalf of our Board of Directors and hard-working team here at Biocept, I want to thank everyone for participating on today's call and for your interest in our company. We look forward to providing an update on our progress during our next conference call in March when we report fourth quarter and full year 2021 financial results. Thanks again, everybody, and have a great day.

Thank you, Sir. This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.