Biocept Inc (BIOC) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Biocept 2019 fourth-quarter and full-year financial results conference call. (Operator Instructions) As a reminder, this conference call is being recorded today, March 25, 2020.

I'd now like to turn the call over to Jody Cain. Please go ahead, ma'am.

This is Jody Cain at LHA. Thank you for participating in today's conference call. Joining me from Biocept are Michael Nall, President and Chief Executive Officer; and Tim Kennedy, Senior Vice President of Operations 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 fact and generally can be identified by terms such as anticipate, estimate, believes, could, expect, intend, may, plan, potential, predict, project, 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 expressed or implied by the forward-looking statements. For details about these risks, please see the company's SEC filings.

The content of this call contains time-sensitive information that is accurate only as of today, March 25, 2020. 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, Jody, and good afternoon, everyone. I'm pleased to be reporting our outstanding performance for the fourth quarter and full year with significant growth in revenues and commercial samples. Revenues for the quarter reached a total of $1.8 million, up 108% year over year, and up 17% sequentially. Commercial test volume for the quarter increased 46% over the prior year with average reimbursement per patient up 34%.

Importantly, our average revenue per patient sample increased as we are reporting on more tests per accession ordered by referring physicians. We also benefited from operating efficiencies that reduced cost of revenues per accession by 12% versus the fourth quarter of 2018.

Our results for Q4 capped an exceptional year in which revenues grew with each passing quarter, reaching $5.5 million, up 70% over 2018. Commercial revenues for the year were $5.1 million, a 68% increase, while commercial sample volume increased 35%.

Throughout 2019 and into 2020, our team executed exceptionally well across the board on our business priorities. Most notably, we benefited from a focus on therapeutic segments where our Target Selector technologies and testing platform can help the most patients, namely prostate, breast and lung cancers. Our hardworking sales team's efforts paid off, with accessions per sales rep for the fourth quarter up 43% from the prior year.

Our focus on testing for circulating tumor cells in prostate cancer was a major contributor to our revenue growth last year. Recall that in early 2018, we identified this as an area where our liquid biopsy testing could add significant value, and we launched our product line with only one biomarker.

Then, in early 2019, we expanded our offerings for urologists with additional prognostic and predictive biomarker tests. As the year progressed, we gained momentum with new physicians ordering our services for the first time, more biomarkers ordered per sample, and more reordering of tests as some physicians began using our assays for monitoring disease.

We are targeting more than 150 larger urology group practices, and the 2,400 urologists who are members of those group practices representing a significant growth opportunity. Urologists are using our tests for men with intermediate-grade prostate cancer and are considering whether they need to have more aggressive treatment such as radical prostatectomy or radiation therapy. These patients have a rising PSA and are undergoing watchful waiting with Target Selector testing determining whether prostate cancer cells are circulating in the blood.

Another area in which urologists are using our testing is for monitoring CTCs post-surgery as a predictor of cancer recurrence. With fewer tools available to physicians to assess this, our test addressed a significant need. Also in urology, we are working with several large physician practices and institutions as well as collecting data in our own internal registry to compile and publish clinical evidence that demonstrated utility of our liquid biopsy testing platform in prostate cancer.

In addition, we are continuing enrollment in our cost-efficient study of patients with a rising PSA who have not been diagnosed with prostate cancer. We will compare these results with tissue biopsy. If we show strong concordance, we will then embark on a larger study in this patient population for what could ultimately be a new indication for Biocept.

We are also leveraging our CTC platform and gaining acceptance in breast cancer. Physicians have begun to use our liquid biopsy testing as a monitoring tool for patients who initially tested negative for the biomarker HER2, which is commonly treated with Herceptin or other anti-HER2 therapy. Without identifying this biomarker in their tumor, a patient will not qualify for Herceptin therapy.

Published studies indicate that approximately 20% of patients who initially tested negative for HER2 will test positive for this biomarker in a subsequent biopsy. We believe that our Target Selector CTC test is among the most sensitive blood tests used to identify HER2 amplification. We are working with Northwestern University Medical Center in Chicago and certain independent investigators to demonstrate the clinical utility of our liquid biopsy assay for HER2 amplifications. And we intend to publish this data on this novel breast cancer offering as soon as next year.

Another notable development last year was the launch of Target Selector NGS Lung and Breast, our first two multi-gene liquid biopsy panels. Biocept is the only commercial liquid biopsy provider of single-biomarker testing, tumor-specific panels and CTC analysis.

The next-generation sequencing, or NGS panels, run on the Thermo Fisher Scientific Ion Torrent NGS platform, are being marketed to physicians and researchers for the detection and monitoring of actionable biomarkers associated with these tumor-specific cancers. We expect to secure Medicare reimbursement for these tests by Q3.

We also gained traction during 2019 with our Target Selector research-use-only, or RUO kits, and our CEE-Sure specimen collection tubes. Our RUO kits are used for the high-sensitivity detection of EGFR biomarkers in lung cancer. And our blood collection tubes allow for the transport of specimens for molecular testing throughout the world, without refrigeration or special handling.

This business is on a strong trajectory, with customers ordering nearly $108,000 of these products in the fourth quarter, up from $5,000 in the first quarter of 2019. We plan to launch RUO kit offerings for other assays in the future, including for BRAF and KRAS biomarkers.

We were delighted to receive CE IVD Marks for our blood collection tubes and sample collection kits last November. These certifications allowed us to market our collection technologies in the EU and in other geographies where the CE IVD Mark is recognized. Importantly, this is another significant milestone in our strategy to grow the business and our quest to brand Biocept globally as a leading technology provider in molecular diagnostics.

Among notable developments to date in 2020, we're now the first and only national CLIA lab with a validated cerebral spinal fluid test for the detection of biomarkers. We began work in this area in 2016 with Columbia University Medical Center to evaluate the clinical utility of our Target Selector platform in patients with breast cancer and through a collaboration with a biopharma company for lung cancer.

Our testing detects biomarkers present in the central nervous system, or CNS, which can occur when tumor cells gain access to cerebral spinal fluid pathways and regrow in distant sites within the spinal cord and brain, leading to neurological complications. Profiling biomarkers is key to physicians selecting the best treatment option for the 23% of breast cancer patients and the 25% of lung cancer patients who have metastases to the brain.

While very early in our commercial launch, neuro-oncologists are enthusiastic about our testing. These are neuro-oncology organizations in North America, Europe, and Japan with combined membership that is estimated to exceed 1,000 neuro-oncologists, making this a manageable physician population for our sales team. That said, we estimate about 90,000 patients with breast or lung cancer live long enough sufficiently to develop brain metastases, making this a promising and more rewarding an opportunity for Biocept.

Also this year, we signed an agreement with a well-respected, Northern California-based, independent physician association, or IPA, to provide our Target Selector testing services to physicians and patients in their network. Today, I'm pleased to announce a second leading health system affiliated IPA. This one in Southern California is now under contract with Biocept. These are value-based systems or capitated plans under which the healthcare provider is paid a fixed amount by the organization to see patients, regardless of how many treatments these patients receive.

We see these capitated plans -- which include IPAs, HMOs, and ACOs -- as the trend for healthcare in the United States. Our liquid biopsy testing provides a solution by delivering cost-efficient and high-quality care. These are our first major contracts with capitated plans, and we expect to announce additional contracts as the year progresses.

We continue to present compelling data that further validates our technology at scientific conferences and in peer-reviewed journals. Earlier this month, we announced the publication of previously reported, yet highly compelling clinical data in the Journal of Clinical Pathology that further validates our Target Selector qPCR Assay using patented Switch-Blocker technology to identify cancer-related mutations in liquid biopsy sample.

Our study examines 127 clinical assays for mutations commonly associated with cancer found in patients with EGFR, BRAF and KRAS genes. Each Target Selector assay in the study demonstrated extremely high accuracy, sensitivity, and specificity compared to results obtained from tissue samples, showing a 93% to 96% concordance to blinded-tissue samples across all assay.

In February, we announced the promotion of Cory Dunn, the Senior Vice President of Commercial Operations. Cory joined Biocept in late 2018 as Vice President of Marketing, having previously held leadership positions in the diagnostics industry. We are exceptionally pleased with Cory's performance in building our business, including our focus in urology. She has our sales team united behind her and has seamlessly assumed leadership of our commercial operations.

In addition to our cash balance at 2019 year end, we have raised combined net proceeds of approximately $17.5 million in 2020 through two back-to-back financings and warrant conversions. We're thankful to have completed the financings with at-the-market pricing and with no warrant. By reviewing our cash position, you can see these funds were needed to strengthen our balance sheet and support our growth initiatives. We believe we now have sufficient cash to execute on our growth strategy through the end of 2020.

As a final topic, I'd like to address an issue many of you have raised regarding our role in testing for coronavirus. Biocept, along with other diagnostic companies, was listed in a recent article as having the potential to offer such testing. Although we qualify to perform this test in our CLIA-certified, high-complexity lab, and we are evaluating different options regarding coronavirus testing, we remain focused on helping patients diagnosed with cancer.

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus a global pandemic and recommended containment and mitigation measures worldwide. In addition, as we are located in California, we are currently under a shelter-in-place mandate, and many of our clients worldwide are similarly impacted.

As a healthcare provider, we are allowed to remain open, in compliance with the shelter-in-place mandates, and continue to provide critical information for patients diagnosed with cancer. However, the global outbreak of COVID-19 coronavirus continues to rapidly evolve. And the extent to which the COVID-19 coronavirus may impact our business will depend on future developments which are highly uncertain and cannot be predicted with confidence.

Among these uncertainties are the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, and social distancing in the US and other countries, business closures or business [disruptions], and the effectiveness of actions taken in the US and other countries contain and treat the disease.

While we are still receiving specimens from our client on a daily basis, we anticipate a potential slowdown in volume as many clinic visits are being rescheduled and delayed. We're continuing to vigilantly monitor the situation with our primary focus on the health and safety of our employees while providing cutting-edge services to our clients.

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

Thanks, Mike, and good afternoon, everyone. As Mike mentioned, for Q4 2019, we reported revenues of $1.8 million compared with $859,000 in Q4 2018. This increase of 108% is due to higher accession volumes and an increase in reporting on more tests per accession ordered by referring doctors.

Revenues were up 17% sequentially from the $1.5 million reported in Q3 2019. Commercial reimbursement based on historical mix and tests per accession bill increased in Q4 to the $1,400 range, up from the $1,100 range in the prior year period. The increase was predominantly due to more reported biomarkers per accession.

We continue to launch new assays and improve upon operational processes, leading to increased testing capabilities and physician ordering. In Q4 2019, we received 1,404 total accessions, up 35% versus 1,043 total accessions in Q4 2018.

Commercial volume in Q4 2019 was 1,159, up 46% compared with 795 in Q4 2018. And as Mike mentioned, our commercial strategy is focused on physician specialties and specific market segments where we see significant opportunity for our liquid biopsy testing. Our execution on this strategy is driving both growth and testing volume.

Cost of revenue for Q4 2019 as a percentage of revenues improved 122%. Total cost of revenues was $2.9 million, up 18% compared with the prior-year period. Again, this 18% increase in cost of revenues is on a 108% increase in revenue. Cost of revenues on a per accession basis was down 12% after declining 23% in the third quarter of 2019, as we continue to leverage the fixed components of cost with higher volume, while variable costs benefit from improvements we are making to our processes and workflow.

In 2019, we implemented automation in our CLIA laboratories, which we believe led to further leveraging of our fixed costs as we focus on our goal of positive gross margin. We anticipate being able to provide incremental laboratory capacity at minimal expense to accommodate higher volume.

R&D expenses were $1.2 million during the fourth quarter of 2019 compared with $1.3 million during the fourth quarter of 2018. The slight decline was due to lower expenses allocated to R&D associated with validations of new assays in CLIA.

G&A expenses for Q4 2019 were $1.9 million, an increase of $279,000 versus Q4 2018 due to a reclass of customer service and related expenses from sales and marketing to G&A. However, G&A expenses as a percentage of revenues improved 107% in Q4 2019 compared with 190% in Q4 2018. Sales and marketing expenses for Q4 2019 were $1.5 million compared with $1.4 million in Q4 2018.

The increase was primarily attributable to commissions paid for higher sample volume and revenue. As a percentage of revenue, sales and marketing expenses in Q4 2019 narrowed to 83% versus 168% a year ago, despite increased marketing costs related to the launch of new [tests]. Our sales force productivity continues to improve due to the changes we have made with our commercial strategy, up 43% versus the prior-year period.

We are pleased to report that with tightly controlling expenses and growing revenue, the net loss for the fourth quarter of 2019 is down $279,000 or nearly 5% versus the prior-year period. More specifically, the net loss attributable to common shareholders for the fourth quarter of 2019 was $5.7 million, or $0.20 per share on 29.1 million weighted average shares outstanding.

This compares with a net loss attributable to common shareholders for the fourth quarter of 2018 of $6 million or $1.43 per share on 4.2 million weighted average shares outstanding. And as a reminder, we conducted a 1-for-30 reverse stock split of our outstanding common stock in July 2018.

Now turning to our results for the 12 months ended December 31, 2019. Revenues for 2019 increased 70% to $5.5 million from $3.3 million for 2018. The increase is attributable to strong execution by our commercial and operations teams. From Q1 to Q4 2019, commercial revenue grew nearly 63% from $976,000 in Q1 to $1.6 million in Q4.

In 2019, we received 4,425 commercial accessions, up 35% from 3,273 in 2018. As was the case for the fourth quarter, our full-year increase reflects our commercial strategy focused on certain physician specialties and specific market segments.

Cost of revenues for 2019 was $11 million compared with $10.1 million for 2018. While cost of revenues increased 9%, total accession volume received increased by 29%. R&D expenses for 2019 were $4.7 million. G&A expenses were $7 million, and sales and marketing expenses were $5.9 million.

The net loss for 2019 was $25.3 million, inclusive of a non-cash expense of $2 million, which includes warrant inducements. The net loss per share was $1.22 on 20.7 million weighted average shares outstanding. This compares with a net loss for 2018 of $25.2 million. The net loss per share was $9.01 with about 2.8 million weighted average shares outstanding.

Cash and cash equivalents were $9.3 million as of December 31, 2019, compared with $3.4 million as of December 31, 2018. This includes $25.7 million in net proceeds from equity capital raises in the first and fourth quarters of 2019 and $4.9 million on the exercise of common stock warrants during 2019.

Additionally, as Mike noted, during the first quarter of 2020, we raised net proceeds of approximately $14.6 million from two registered direct offerings and $2.9 million from the exercise of warrants.

And with that, I'll now turn the call back over to Mike for an overview of our commercial progress. Mike?

Thank you, Tim. And thank you for your leadership, continuingly, every day. We are increasing adoption of our patented, proprietary liquid biopsy test with our broad offering, less-invasive, cost-effective solutions to help physicians determine the best treatment pathways for their patients with cancer.

We have tested approximately 23,000 patient samples with our proprietary biomarker assay. These assays are based on our differentiated platforms that leverage information from both CTCs and ctDNA in blood and, now, cerebral spinal fluid. We continue to generate clinical evidence that supports the high sensitivity and specificity of our biomarker assay.

In addition to significantly improving volume and revenues while managing expenses, we are focused on expanding the opportunities where we can leverage the investment in our intellectual property, all with the goal to enhance shareholder value.

In closing, I'd like to summarize our corporate priorities for 2020. These include increasing market penetration into the emerging liquid biopsy field with a focus on neuro-oncology, urology, breast and lung cancer treatment segments; growing sales of our Target Selector liquid biopsy kit and our CEE-Sure blood collection tube; increasing market penetration of our Target Selector, NGS Lung and Breast Panels under our collaboration with Thermo Fisher, and securing Medicare coverage for these panels; monetizing data from over 20,000 patient samples, utilizing artificial intelligence, or AI; entering into additional strategic commercial and technology partnerships, both global and domestic; finding new third-party health plan agreements, including capitated plans and expanding our relationship with Blue Cross Blue Shield; publishing a clinical case study, and presenting data at scientific conferences that further validate our Target Selector testing; and launching additional assays.

Importantly, with the proceeds from our recent fundraises, we have sufficient capital to execute on these strategies. I'd like to thank our entire team at Biocept for their very hard work and dedication as we strive to make 2020 another highly productive year.

With that overview, we're now ready to take questions. Operator?

(Operator Instructions)

Operator, while waiting for that first question, I'd like to once again thank our investors for their confidence and their enthusiasm for our innovative offering.

Jason McCarthy, Maxim Group.

Hey guys. This is (multiple speakers)

Hello, Jason.

-- on for Jason. First off, I just wanted to say congratulations on a great quarter and really great year overall. Over 2019, you posted pretty impressive growth and it really seems like the turnaround story is progressing from the lull in 2018. And over 2019, you really expanded your product offerings with NGS panels, the focusing on prostate cancer and EmpowerTC as well as adding commercial agreements.

What I'd like to gauge from you is, what really were the drivers for that growth in 2019? Was it more increase in the product offerings or increasing penetration of previously available product? And what do you expect to drive growth going forward?

Thank you, Jason. I like that question. As we talked a little bit in the prepared remarks, one of the big growth drivers in 2019 was our focus in urology. And that -- a concept that Cory had led when she came over here to Biocept, and it was very successful for us.

As we started to expand in urology for prostate cancer -- and keep in mind, these are still folks diagnosed with cancer -- there was a real need to be able to help these patients who had these indeterminate, [gray] cancers that they weren't quite sure whether they wanted to treat more aggressively or not. And so, our test was a perfect fit there, and we've gotten good adoption with our targeted approach.

In addition, we have seen growth in our medical oncology segment, too, and especially in breast cancer. I think those two pieces are really what's driven most of the growth.

From 2020, what we're really excited about is the neuro-oncology segment now with cerebral spinal fluid. That's the market we have to ourselves at this point. And these folks are very excited about our new offering in CSF because there's really not a good alternative for that. And they really want to be able to test the fluid that's closest to the most aggressive part of the tumor, which is the part that's metastasized to the brain or central nervous system.

Thank you. Actually, on the urology side, [I'd like to see] what is the competitive advantage of Biocept's liquid biopsies, versus the other options, that makes it particularly attractive in this market?

Well, the big differentiator -- and that's a great question -- is our focus on circulating tumor cells, our ability to capture circulating tumor cells. Most other liquid biopsies -- and folks [who have] heard by presentations before -- are pretty much focused on cell-free DNA. And we also look at cell-free DNA. That's good. It's a great source to get materials, but there you're just looking for the biomarkers for treatment, Jason.

When you're looking at the cells themselves, that's good information to know in itself -- are there cancer cells being shed off into the bloodstream? Not every patient has that. If they don't, those are probably good candidates to watch and wait. If they do have CTCs being shed, that cancer is maybe more aggressive and you want to treat it more aggressive. And so, that's how the physicians are using it. And that's the big differentiator for us in that space versus areas where it's just really on the biomarkers only, like lung cancer.

Thank you. One more from me and then I'll hop back in the queue. In Q4, as your cost of goods went down on a per-accession basis, and sequentially it was also relatively flat on an absolute basis. So, I'd like to get a bit more color on what are the factors contributing to your more efficient cost of goods?

Well, I'm going to let Tim give you most of the detail there. I would just say that that was a real focus and continues to be a focus of the company. We have brought in a lot of automation and that's under Tim's leadership, and that's really paid off.

But Tim, do you want to add a little bit more color to that?

Yes. I think you hit the nail on the head there, Mike. And Jason, a good observation there. As I mentioned in my prepared remarks, we do expect to be able to continue to leverage the fixed components of cost. And the way we're doing that is bringing up additional automation like we did in 2019, at the end of 2019. And we'll continue to bring up automation as we move forward.

And we anticipate that as we -- in order to accommodate additional volume growth, we believe that we'll be able to do so without adding significant labor to our expenses. So, the variable costs associated with consumables, you'll see that expense, obviously, move as our volume moves.

But, of course, as our volume grows, we will command higher and higher discounts from vendors that we purchase consumables from. So, that cost on a variable basis should also go down. But Mike's absolutely right -- automation is what is allowing us to basically scale and accommodate volume growth with minimal cost being added to cost of revenue.

All right. Thank you for taking the questions. And again, congrats on a great quarter.

Thanks, Jason. Thanks for your support.

(Operator Instructions)

[John Kiyuda], Scotiabank.

Hello. Thank you for giving me the floor. I work for Scotiabank, but I invest for myself. Thank you, [sorry if you aren't] getting me very well. Thank you very much. I saw really a very good and a very strong financial report for the 2019. Congratulations.

Thank you.

My question, I didn't understand very well if you are being involved in coronavirus testing. Because, currently, we have worldwide emergency, which Biocept has a very big lab also (inaudible). And so, for everyone currently in emergency, America and the worldwide, we would like to hear clearly if really there will be coronavirus test.

Second question, I would like to know -- because currently you may lose Nasdaq compliance very soon because the stock is trading under [$1]. Are you reversing stock or you have a strategy of non-reversing stock and gaining the compliance? What do you say on these questions?

Otherwise, really, I thank you very much, and I appreciate being in this conference call, and I like Biocept. But I would like to hear you clearly. So, [your points] on the two questions. Thank you.

Yes, thank you, John, for the question. It's a common question and we often get investors calling in to ask about coronavirus at this point. Of course, it's the top of everyone's mind throughout the world, and I agree with your sentiment there.

As I mentioned in my prepared remarks, the company to date has made no public statements about performing coronavirus testing other than what I shared today in that we are a high-complexity, molecular laboratory with the appropriately trained staff and the required certifications to be able to perform such testing. At this point, the most that we're sharing is that we're evaluating different options and we'll have more information perhaps about that going forward. So, other than that, that's all that we can say at this point about that.

As far as the stock price, yes, we're familiar with that. And there -- Nasdaq does have various mechanisms to extend your runway in order to address that. And we're evaluating the best options for the company. We have -- are in good standing with Nasdaq. That's important about Biocept. Tim and the team and our attorneys do a great job making sure we're always in compliance there. And so, we have a good relationship.

At this point, we don't have any public announcement about any plans for a reverse split. But investors should know that we aren't asleep at the wheel, and very much actively involved in that arena.

This concludes our question-and-answer session. I would like to turn the conference back over to Mike Nall for any closing remarks.

Well, thank you all very much. On behalf of our Board of Directors and our hardworking team at Biocept, I want to, once again, thank everyone for participating on today's call and for your interest in our company. We're excited about our progress and look forward to providing an update on our next conference call when we report our first-quarter 2020 financial results in May.

Thank you, everybody, and have a great day, and please, please stay healthy and safe. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.