Champions Oncology Inc (CSBR) 2023 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Champions Oncology second-quarter fiscal year 2023 earnings call. (Operator Instruction) It is now my pleasure to turn the floor over to your host, Dr. Ronnie Morris. Sir, the floor is yours.

Good afternoon. I'm Ronnie Morris, CEO of Champions Oncology. Joining me today is David Miller, our Chief Financial Officer. Thank you for joining us for our quarterly earnings call.

Before I begin, I will remind you that we will be making forward-looking statements during today's call, and that actual results could differ materially from what is described in those statements. Additional information and factors that could cause results to differ is available in our Forms 10-Q and Form 10-K. A reconciliation of non-GAAP financial measures that maybe discussed during the call to GAAP financial measures is available in the earnings release.

Overall, we had another good quarter with record revenue in our services business as well as progress in our drug discovery effort. We continue to monitor the current economic environment and for the first time, we have noticed the effect on our business.

During the quarter, specially in September and October, we noticed a slowdown in bookings compared to prior quarters. While the quarter's total bookings remained strong, they were below those obtained in our previous quarter.

Our late-stage pipeline continues to be strong, and we feel that in Q2, there was a general delay when it came to finalizing a proposed statement of work from our customer base. We are halfway through Q3, and we are cautiously optimistic that bookings are back on track to Q1 levels. We are confident that our superior, TumorBank; high-quality work; and expanded services will continue to propel our growth even in these uncertain economic times.

With regards to Lumin, which is our multifaceted data platform, we have our software product and our data analytics product. As I discussed on our last quarterly call, Lumin adoption has been slower than anticipated. We still envision our data platform as an asset and part of our overall long-term strategy.

However, we determined that we were at a crossroads with regards to our SaaS platform. We either needed to invest more heavily in both sales and marketing and our software support or to reduce some of our costs and wait for more opportune time to increase investment.

Given the current economic environment and the multiple platforms we are working on to expand our pharmacology offerings, we've decided to reduce our Lumin investment for the time being. While we are still signing up a small number of new users, the short-term focus will be to continue to learn from our active user base and to improve on the product.

With regards to our drug development effort, we continue to make good progress. Our lead discovery programs are progressing well through its therapeutic discovery stages. As discussed last quarter, our partnership with Alloy recently reached a milestone with the completed development of a series of lead antibodies, exhibiting favorable biophysical binding and specificity characteristics.

A lead candidate was selected from this series and evaluated as a promising antibody drug conjugate. We expect to start preclinical testing shortly. Our lead molecule from our Fannin collaboration is also expected to progress into preclinical testing in the next six months. Both programs are the first of many potential therapeutic programs from our platform.

In summary, during the second quarter, we had record revenue, we continue to expand our platform, we are reacting to the current economic environment, and we are optimistic on our long-term growth prospects. We anticipate that our target discovery effort will progress into the preclinical phase marking a significant milestone.

Now let me turn the call over to David Miller for a more detailed review of the financial results.

Thanks, Ronnie. Our full result on Form 10-Q, we filed with the SEC on or before December 15. Our second-quarter financial results were good with record revenue of $14.3 million compared to $11.8 million in the year-ago period, an increase of $2.5 million or 21%. We generated operating income of $7,000. And excluding stock-based compensation and depreciation, we recognized adjusted EBITDA of approximately $686,000.

Focusing as we do on result, excluding noncash expenses such as stock comp and depreciation, our total cost of sales was $7.2 million compared to $5.5 million in our second quarter last year, an increase of $1.7 million or 31%. The increase was primarily from compensation and supply expenses as we geared up for an increase in study volume.

Due to the current economic climate, we experienced an uptick in cancellations, limiting our anticipated revenue for the quarter and pressuring margin. Gross margin for our pharmacology services was 51% versus 53% in the year-ago period, while total gross margin was 49% compared to 53% for the same period last year. As Ronnie mentioned, we've decided to reduce our Lumin spend in the coming quarters, which should alleviate some of the total margin pressure.

R&D expense was approximately $2.6 million compared to $2.3 million in the year-ago period, an increase of $300,000 or 13%. The increase is in line with guidance provided in the past. As we indicated, we'll be ramping up our R&D investments, adding data to our TumorBank, and investing in our therapeutic target discovery platform.

Sales and marketing expense was relatively flat, $1.65 million compared to $1.6 million in the year-ago period. Our G&A expense was at $2.1 million for the quarter compared to $1.6 million a year ago, a 30% increase. The increase was primarily due to compensation and IT expense as we invest in upgrading our infrastructure to support company growth. Additionally, we increased our bad debt allowance due to the current economic condition.

In total, our cash-based expenses were $13.6 million for the second quarter of fiscal 2023 compared to $11 million in the same period last year, an increase of approximately $2.6 million or 23%; with the increase primarily stemming from cost of sales as we have built an infrastructure to support higher revenue levels.

Now turning to cash. At the end of the quarter, we had $10.8 million of cash on the balance sheet, an increase of $2.8 million from our prior quarter. For the quarter, net cash generated from operating activities was approximately $3.3 million, primarily due to positive cash-based operating results and an increase in accounts payable in the ordinary course of business. Cash used in investing activities of $600,000 was primarily due to equipment purchases for our laboratories.

In summary, we had a good financial quarter, hitting a new revenue record of $14.3 million. As discussed, we experienced a slowdown in bookings in the quarter along with an increase in cancellations. While we are cautiously optimistic that bookings will reaccelerate in the second half of the year, the slowdown in bookings and increase in cancellations will likely impact total revenue for the year.

Accordingly, we're expecting our total revenue growth for fiscal 2023 to be in the 10% to 15% range, down from the approximate 20% range provided at the beginning of the year. We're well positioned to weather this revision, and we are excited about the company's overall progression and long-term prospects. We look forward to our next update call in mid-March. We'd now like to open the call to your questions.

Thank you. (Operator Instructions) Matt Hewitt, Craig-Hallum.

Hi. This is Jack on for Matt. So first question is following a choppy Q3 reporting season where some companies spoke of headwinds due to the current weak biotech funding environment, I'm just curious what you're seeing and hearing from your customers? Thanks.

Yeah. So we're still seeing -- we look at a couple of different key performance indicators. We look at the pipeline, which includes conversations, interest from our pharma customers, and then we look at the actual [SOWs] signings. What we're seeing is a robust pipeline, lot of conversations, a lot of discussions. There's a big need out there. But what we think we've been seeing over the last couple of months, or we saw in the middle of Q2 was just some more scrutiny, longer time to the signing of those SOWs.

And so far in Q3, we seem to be back on track. So it's unclear if -- how things are going to progress the rest of the year. We still think we are well positioned to continue to have growth. And -- but there's certainly there's certainly an aspect out there, tightening of the belt or certainly an aspect out there where especially some of the smaller biotechs are maybe either worried about their funding or not getting some funding. So it's definitely having an effect on us, but it's hard to quantitate because we had a couple of months where we saw that. And then a couple of months now, where we're seeing things seem to be opening up again.

That's helpful. Thank you.

Scott Henry, ROTH Capital.

Thank you, and good afternoon. I did have a couple of questions. First, with regards to the cancellations, can you talk a little bit about who is canceling? Are these smaller biotech companies? Are these larger companies? Is it earlier-stage work or later-stage work? Any color that you can provide would be helpful. Thanks.

Yes, Scott, I think it's a little bit of everything. I think it's a mixture of some smaller biotechs, but certainly there are some mid and larger biotechs that we prioritize. I think that sometimes the reasons may be different. I think everyone over the last, let's say, six months has been scrutinizing their prioritization of projects. I think some -- we have examples of some of the larger biotechs that cancel some stuff, but then we booked some other stuff. So it's going to have a short-term impact because that stuff won't turn into revenue, but then they turned around and use that allocation to rebook other stuff.

And then, there's examples of some of the smaller biotechs that just cancel for lack of funding or reprioritization where they're just doing what they absolutely need to do right now for some short-term results, they can raise more money. So I think it's a combination across the board. I think that everyone's been looking at their spend prioritization. And I think that when we think about the value we provide and the services that we provide, I think that puts us in a good place. But when everyone gets a little bit squeezed, I think we also get squeezed as well.

Okay. Shifting gears, the revenue guidance of 10% to 15%, I mean, there's only six months left in the year, so that range looks a little wider given that half of the years through. Do you feel comfortable that you're going to be at one end of that range or are you targeting the middle? And as well (multiple speakers) talk about the [sales] between Q3 and Q4?

I am sorry, what was the last question, Scott?

The last part was as well, if you could just talk about the mix between Q3 and Q4? Thank you.

Sure. So listen, I think that we feel comfortable with that range and it's a range for that reason. I think that what we've experienced with greater than usual cancellations and some of the weakness in the bookings in Q2 is definitely have an effect on the year's revenue. Certainly, the stuff most of the stuff that we booked now and in Q4, even if it turns out that Q3 and Q4 go back to our normal projections, I mean, it's probably not going to have as much of an effect on the total revenue for the year as what happened to us in Q2 in terms of the slowdown in bookings and the greater-than-expected cancellations.

So from that perspective, we think that we're going to take a shorter-term hit on what we expected. And that's why we revised our projections. I think longer term, we feel pretty comfortable and confident that all the stuff that we continue to do and have done over the last couple of years going to put us in a good position to be able to weather the storm and continue to grow. So right now from where it looks, certainly there's a hiccup based on what we think is the economic environment.

But we're seeing now is pretty much the last six to seven weeks has come back to normal pace for us. So that was a good sign going into next fiscal year.

Okay. So should I assume that one would expect Q4 to be stronger than Q3?

Yeah, yeah, I would expect Q4 to be stronger than Q3, correct.

Okay. And I guess the final question, I completely understand the environment cutting noncore business expenses, but I'm curious why the discovery the target business, you still seem pretty bullish on that category and as well, if maybe if you could just talk about when do you monetize that discovery target processing? Are you just trying to get through preclinical and then out-license, or do you ever anticipate taking it beyond preclinical? Just trying to get a sense of how much that business cost and what the timeline to expense recovery is there?

Yeah. So again, going back to the thesis we have that our data is a very unique set of data. It's a very, very deep set of data that's unique because of all these PDX. It's not just all the characterization we have on these couple of thousand patients, but it's also the fact that all these patients have been treated with multiple drugs, and we have multiple drug treatments against the PDX. So really gives us a very unique and rich data set with which to do our discovery.

And I'll remind you that our bank is characterized on a very deep level, including proteomics -- fossil proteomics, the DNA, and the RNA expression. So we really look at all these treatments, what the effects were from these treatments. And so it gives us a very unique database. And that was the impetus for us to think that we could take this data and really find unique targets.

So we're excited about the targets. We're excited about the molecule so far that we've been able to develop against these targets. So we continue to be excited about the results we're getting. We are starting to do preclinical work now very, very soon. So we've been doing a lot of work ex-vivo and in-vitro, but now we're starting to do some preclinical in-vivo work. And the plan is really to do enough work so that we really get more confident not only in the molecule on the stability and efficacy of the molecule, but also in the efficacy on the PDX models that we have.

And then, the plan is to go out and try to find a home for it, which includes getting investment or out-licensing itself and so on. So that's the current plan. We don't plan currently to take these into the clinic, but the goal is to get them ready for the clinic and then find a partner.

Okay, great. Thank you for taking the questions.

(Operator Instructions) Okay, we currently have no questions in queue. But I'd like to turn the floor back to management for any closing remarks.

Thank you, (inaudible). Just wanted to thank everybody for joining us for our call. We look forward to continuing to update everybody and we're excited about the growth trajectory that we have at Champions, a lot of exciting assays, and a lot of exciting services that are continuing to be developed that are important to the pharma and biotech world. So we look forward to continuing to update everybody on our next call, and thank you for joining the call. Have a good evening.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.