Exact Sciences Corp (EXAS) 2002 Q1 法說會逐字稿

Good morning and welcome to the Exact Sciences first quarter 2002 earnings call. At this time, all participants have been placed on listen-only mode, and the floor will be opened for questions and comments following the presentation. I would now like to hand the floor over to your host, Amy Hedison. Mam the phone is yours.

Thank you. Good morning everyone. I have with me Don Hardison, our President and CEO and John McCarthy, our COO and CFO and we will be discussing our first quarter 2002 performance, but of course, as you know, bear with me first hopefully just 15 seconds as I read our Safe Harbor language. As you know, certain matters we will discuss today, other than historical information consists of forward-looking statements, and these statements are not guaranteed our future performance and are subject to risks and uncertainties. These risks and uncertainties are outlined in our Form 10K that was filed for the year ended December 31, 2001. In corporate here, the discussion of those factors and you should be cautioned to not to place under reliance upon the forward-looking statements and we undertake no obligation to update or revise the information that we provide in this call. It's my pleasure to turn over the microphone to speak to Don Hardison.

Thank you good morning and welcome. Most of you had already seen our first quarter news release, but I would like to start by highlighting some of the items there. The news release includes some significant accomplishments that deserve your attention. I would then like to make some comments about our core relation as pioneers and [_____], and then I will turn it over to John McCarthy, who would provide a financial overview on his perspective. Overall, we are very pleased with the quarter and believe that we have demonstrated that we are continuing to make steady progress in a number of fronts. As we have consistently said, we will be acutely focused on execution in 2002. First quarter achievements reinforce that is what we are doing. Lets begin with our science; our company always starts with the science.

We continue to build our body of supporting evidence that is being recognized by the scientific and medical communities. As an example, we batted a resounding 1000 that we had 12 abstracts submitted during the quarter to major medical conferences and all twelve were accepted. This included a 11 as the upcoming digestive disease we will be meeting in May. As you probably are aware, this is a key meeting for us. The acceptance of these 11 abstracts after the co-object by EXACT employees provides continued confirmation of the clinical promise of our proprietary genomic space technologies. And the studies reference by these abstracts, we've studied almost five hundred cancers. The abstract support the claims of 65% to 70% sensitivity and approximately 95% specificity for the PreGen-Plus our assay for the average restraining market. The Multi-Center study that I will discuss shortly will be yet another data point within this R&D significant accumulation of data. Let me briefly mention three of the abstracts as they illustrate significance or what we are accomplishing, at EXACT three important scientific areas. We are continually attempting to increase the sensitivity of our assays without negatively affecting the specificities. This is after all one of the great positives of our working with DNA. You can do just that. To support this the first abstract refers to a study led by Tony Shuber, our Chief Technology Officer and his team in collaboration with Dr. David Ahlquist of the Mayo clinic. That discovers noble use of hyper-methylated DNA markers in stool for detection of colorectal cancer. Although, more study is needed, the potential promise of this could be an increase in our ability to pickup cancers. By adding new markers with a wary eye on the cost benefit, we can optimize the ability of our assays to detect mutation associated with colorectal cancer. The second study, illustrates our efforts to simplify the process for screening the mutations associated with colorectal cancer.

It discusses a novel new scanning technology developed by Tony and his team that we call Digital Oligonucleotide Tiling or DOT. This is a very simple and efficient method of screening permutations and it will allow us to identify mutations within gene sequences without prior knowledge of mutations. Currently, our colorectal cancer assay requires previous knowledge of colorectal cancer associated mutations. DOT will lead to our reduction of assay complexity while retaining or increasing clinical sensitivity will allow us to continue develop a new next generation assays for the detection of cancer and significant [abnormous] without changing the assay formulation. This novel method should be a valuable addition to other methodologies [the scan for] unknown mutations such as a Digital PT technology described in the January 31st article in the New England Journal of Medicine co-opted by Tony and collaboration with Bert Vogelstein and Kenneth Kinzler from John Hopkins. Finally, there is our constant effort to detect early or earlier stages of developing colorectal cancer. An obvious big win would be detection and removal of the advance colonic polyps as that would prevent the development of colorectal cancer. We have a number of [efforts] underway to prove our ability to pick up these advanced polyps pre-malignancy stage. One such study described in an abstract co-opted by Dr. Barry Berger from EXACT and Dr. [Jeremmy Ditelberg of Bethadial Deconhist] Medical Center in Boston. In it, we were able to identify these [_____] and tissue, taken from advanced polyps. We have used the similar technique to identify the same mutations from stool samples. This presents the possibility of finding the same mutations in the stools of patients with advanced polyps. If this continues to bear out, it truly could lead to a very early detection and would be an important step in saving lives.

I could go on and on about our studies and abstracts and I think you could get a good flavor for the ground rating work we are doing at EXACT, and how we are advancing the science in leading the effects of early detection in very important ways. We also had three publications highlighting our technology in peer-reviewed journals during the quarter. On the clinical front, we are also on the track of recruitment for Multi-Center of PreGen-Plus an a symptomatic average less population. To refresh your memory, we started that study in October 2001, and it is on target to complete enrolment by the end of the first quarter of 2003. We have over 60 centers throughout the U.S. accruing patients. Not only with the data from this study be supportive, but other studies that we have either completed or will complete in the near future. It also has developed such key [average] among the hundreds of gastroenterologists who are participating in the study. We believe the data from this study will further confirm the data from the study that have already been completed. Dr. Michael Ross and his team [Joy Sidus and Carthy Moral] along with our clinical research organization [parts have] done admirable job keeping the study on track. At the same time, our efforts to secure strategic partnerships to commercialize our technologies are also on target. Our first such strategic partnership is with Laboratory Corporation of America. That relationship is progressing well as Labcorp is offering our Pregen-26 assay, with those who have [collective] hereditary colorectal cancer or HNPCC. Although the market is small, the Labcorp specialty organization with support from our strategic headcounts team is making call from those physicians who see patients with this syndrome. As you know, we also plan to introduce our Pregen-Plus assay to detect cancer and average risk asymptomatic population through a commercial laboratory partner.

We are in active discussions with the obvious players regarding this technology, as we have stated, it is our goal to have at least one partnership agreement for this technology signed by the end of this year and we on track to accomplish this goal. The key point that we are focusing on beyond the actual business terms relate to the ability of our partner to meet the anticipated demand for the product. Given the importance of Pregen-Plus to EXACT, we wanted to make sure that the clinical lab that is selling and cross testing the test is as committed as we are to its success. We have [been] impressive lab force commitment to Pregen-26, we have both learnt from our experience on how to maximize this type of strategic partnership. In addition to discussions on Pregen-Plus with the commercial laboratories, we are also in active discussions with the [Beethro] diagnostic company, companies regarding aspects of their technology that are interesting to them. In general, as we have discussed with many of you, our point of view on strategic partnerships, is that we cannot just turn over our technology to our partner and expect them to make it happen. We know that in addition to providing a strong technology supported by clinical studies, we have to make significant contributions to assay optimization, demand creation, and reimbursement. On the assay optimization front, we continued to make significant progress. We are doing all we can to make our technology as robust and simple as possible. We have a clear plan in place to meet our aggressive timelines on this front. As for demand creation, we are big believers that EXACT must lead the important efforts for Pregen-Plus. We cannot and won't leave that strategy or that important set of tactics to our partners. The first quarter saw the company actively engaged in these activities. We had several meetings with important advocacy groups and organizations including the American Cancer Society. All of which went very well. Given that the goal for many of these groups is to reduce the mortality associated with cancer such as colorectal cancer, our technology provides them with a possible solution to what has been an intractable problem. We continue our work with gastroenterology communities or proactively working with the primary care physicians and their organizations.

These will lead the physicians to order our screening tests. For example we are spending time working with he American academy of family practice to provide educational seminars to familiarize their membership on the importance of regular screening for colorectal cancer and helping them to understand the various options available to them including new technologies such as rare type of DNA's based assay. We were also active participants in many of these advances associated with colorectal cancer awareness mass, which ended in March. These events were both position oriented and consumer oriented all focusing on increasing the awareness of the importance of regular screening. We produced a video news release, which aired on over a 175 stations across the country resulting in over 10 million impressions. Finally, for those people who have been to a pharmacy recently, some of the listeners, may have pickup a brochure printed by the National colorectal cancer research alliance KD [Corks] organization. A total of 10 million of these brochures are distributed nationally to over 50,000 pharmacies. These brochures specifically mention under the heading of test under development, the DNA stool test, as of. Yet another example of our setting the table for the introduction of our Pregen-Plus assay. We also thinking to make progress in hiring a small highly targeted strategic accounts team. This team has been actively working with the managed care organizations in their respective territories to ensure that these organizations are aware of both EXACT sciences and our Pregen technology. We are doing the same with self-insured employers. Our team is also actively involved with the Labcorp sales team. We are targeting physicians for them and making joint calls with them.

On the reimbursement front, we are profiling all the major payers and setting the strategy for each. We want to know all the key players in these organizations and their decision-making process for new technologies. One of the items we know they will want is cost effected this information about our assay in relation to the other test for colorectal cancer detection. We are working with several prestigious institutions and experts to develop pharmacoeconomics models that will support the use of Pregen-Plus. We are also turning up the heat on our efforts in Washington. We feel very good about our strategy and efforts with government payers such as Medicare and the VAN Military Systems. In the end, reimbursement is a trench word, but we are doing all we can do fully we understand what it will take to expedite that process when we have our Pregen-Plus assay on the market. So the first quarter was extremely productive for us and we certainly move the ball forward, looking forward into the rest of the year, we expect to continued to turn up the heat on all areas of importance. We are convinced that our technology is groundbreaking and that our strategy is sound. We have the team focussed like [_____] execution of our plan. A final word about our mission. We truly believe that we can eradicate mortality from a cancer such as colorectal cancer through early detection. We have a team of passionate people at EXACT, who truly believe that we can change the course of medical history through our efforts. In addition, it is not often that a corporation finds it's interests so perfectly aligned with the interest of such groups as the American Cancer Society or the National Colorectal Cancer Research Alliance or even the Congress, where so many members have gotten behind colorectal cancer screening. But that is in fact the case for EXACT scientists. Everyone has been looking for a way to reduce the death from colorectal cancer; it is a cancer that no one should die from and yet every year 57,000 Americans do. They die because their cancer was detected a too later stage.

They die because they are not part of a regular screening program; the costs of tests that are out there are either inaccurate or invasive or not adequately complied with. This year another 150,00 Americans will be die with colorectal cancer and two-thirds of those Americans, a 100,000 people will have less than 50% chance of surviving more than 5 years. If those cancers were detected at an earlier stage, those survival rates will a lot closer to 90% because colorectal cancer is one of the few cancers where there is no debate around the value of screening and the fact that the early detection saves lives. This is truly a disease looking for a technology. We at EXACT scientists believe that our technology will increase the rate of early detection of colorectal cancer and will truly save peoples lives. We are proud to be, at the absolute forefront of this great effort and look forward to do on our part in wiping out mortality from this curable disease. Now I would like turn it over to John McCarthy, our COO and CFO for his comments.

Thanks Don. For the first quarter ending March 31st, the company generated a net loss of $7.6 million compared to net loss of $5.4 million for the first quarter of last year reflecting, as Don suggested, our accelerating transition into a commercial operation. ProForma net loss for Q1 of 2002, which excludes approximately $600,000 of non-cash stock based compensation expense totaled $7 million, versus a ProForma net loss for Q1 of last year of $4.3 million, which in that quarter excluded $1.1 million of non-cash stock based compensation expense. ProForma net loss per share for Q1 of this year, which excludes the non-cash stock based compensation charges totaled $0.39, versus $0.27 per share for the comparable period of last year. And on operating basis, the company recognized approximately $39,000 of revenue for the first quarter of this year, almost all of which represented the amortization of an upfront payment associated with our Labcorp agreement. From an expense standpoint, we continued to carefully manage our expense run rate, while the same time aggressively supporting both the internal and external development of our Genomic space technology pipeline. As Don mentioned earlier, patient enrolment to date, now large Multi-Center study is on plan and progressing well since its inception, or its initiation, I should say last year resulting in an increase in R&D expense to $5 million in the first quarter of this year, versus $4.4 million in Q4 of last year. R&D expense for the quarter was a bit higher than some analyst figures, as our trial related expenses will continue to be more proportionally evaded to the first half of this year, versus the second half as I described in last quarter's conference call. SG&A expense for the first quarter totaled $2.3 million, versus $1.9 million for Q4 of 2001. The increased expense for the quarter's primarily attributable to the acceleration of several strategic initiatives in the Q1, which have been expected to occur later in the year. In terms of non-operating items, non-cash stock based compensation expense for the fourth quarter, as I said earlier told approximately $600,000, as a reminder, this non-cash line item will become progressively smaller amount in each of the next four fiscal years, as the total charge fully amortizes is according to specific annual figures, I have outlined in prior calls. Additionally, despite being on plan from a cash perspective, interest income for the quarter remains lower than originally projected and short-term rates remained at historically low levels. As of the end of the first quarter, the company had approximately $50 million of cash and cash equivalents on hand for continued investment into the commercialization of our business. Respectively, with our large Multi-Center study, well under way as projected, one can expect in increase in our R&D expenses throughout the balance of fiscal 2002, compared to fiscal 2001. Additionally, as we accelerate and broaden our product commercialization efforts this year, I would expect to spend proportionally greater dollars in sales and marketing than in prior years. Having said all this, and as I stated in last quarter's conference call, we remain confident in our ability to operate within the total operating expense range that we previously described as $27 million to $ 29 million for the full year, with the breakdown between SG&A and R&D expense to be roughly 35% and 65% respectively. Lastly, we continued to make good progress in both product development and business development fronts. We recently hired a very experienced executive to lead our product development efforts with a focus in the short-term on the implementation of a process automation plant, thereby, maximizing assays group [would] minimizing cost. As well as developing and executing the longer-term strategic product development plan, with our various perspective corporate partners. On the business development front, as we have discussed in the past, we had continuous and active dialog with a number of perspective corporate partners, that we believe will help us rapidly and efficiently create a strong foundation upon which we can pursue our aggressive commercialization goals. We expect to cement a number of these relationships no later than the end of this fiscal year. With that, I would like to open up the conference call to any questions.

Thank you, the floor is now open for questions. If you have a question or comment, you may press 1 followed by 4 on your touchtone phone at this time. If at any point your question is answered, you may remove yourself from the queue by pressing the pound key. Questions will be taken in the order they are received. We do ask that while posing your question, you please pickup your handsets to provide optimum sound quality. Once again, that's 1 followed by 4 on your touchtone phone at this time. Our first question is coming from Jennifer Hardin of Thomas Weisel Partners. Please state your question or comments.

Good morning guys. I was wondering on the status of the trials, if you could give us the number of patients that you have enrolled?

It's just, we have to say, its on track.

On track? How about other applications of your technology in terms of other cancers? Can you give any update on that?

We are not ready to really talk about a lot, other than we are going through a process right now where we are looking at other possible cancers that might apply to our technology and we probably have something to say about that, well we will have something to say about that later in the year.

Gentlemen, this John McCarty the other thing to keep in mind is that in parallel with our large clinical study, the Mayo is running their own clinical study and one of the components of what they are looking for is the association of one particular element of our assay with other aerodigestive cancers or other cancers outside of the colon and that's something that we have described in the past.

Okay. Thanks.

Our next question is coming from Bob Parente of Leerink Swann. Please state your question or comment.

Thank you. Just a quick follow up on the big trial. I was wondering if you could give any kind of clarity on it, if there are more patients accrue during the month of March because of the awareness, is there, being a little more conservative or is there a chance we might see some data in 2002, especially with the number of sites, you know, number of sites might be an indication, you know, accruement might be going even quicker than anticipated?

Hi, It's John, we are not giving any specific numbers as we have said all long, but I think, you know, one of the thing is that it's a proxy for how well the enrollment is going is the financial numbers especially with regard to Research and Development. As you have seen certainly since the third and fourth quarter of last year, that our R&D numbers continues to build and the only reason that is billing in the way it is, just because enrolment is going well. So, you know, we don't want to be any more specific than that, you know, we have said that we expect to complete enrollment no later than the first quarter of 2003, and I think we have been consistent with what we said all long that the enrolment is going well and I think it's being reflected in the numbers certainly on the R&D line.

_____] will be there in the second half of next year.

Okay. All right. Thank you very much.

Next question is coming from [Evan Amarando] of GKM. Please state your question or commenst.

EVAN AMARNDO]: Good morning guys, DON HARDISON & JOHN MCCARTHY: Good morning Evan.

EVAN AMARNDO]: I have two quick questions, my first one is concerning PreGen-26, I understand, I mean, you know, that it is a small market, but I was wondering if you could comment on the launch of PreGen-26. How this is [significant] and also if you have any indication of reimbursement? And my second question, I just state them both here, is that if you could comment on some of the short interest that has been out there, which you know that comprises of 20% of the float, and if you could give us more color on that?

On the PreGen-26 front, two pieces to it, we launched that ourselves Evan, back in the summer, but we only had at that time one person in our sales organization and that person has actually sold a few test. We have been reimbursed from number of those tests, either by private pay or in one case of insurance carriers, so we felt very good about that. As you know, we licensed that technology to Labcorp, they did really start selling the stuff until, I think January, this year.

Evan, this is John, let me see if I can address the short interest number, you know, it has been seven figure number since December of last year, we talked with allt he capital market stuffs of the banks that we work with as well as talking frankly with our largest investors and, you know, the only response that we have gotten from anybody is that, it appears to be, sort of technical short of the number of traders. Clearly it is not related to any news announcements here, retrospectively or prospectively and that's all that we can discern at this point in time, something that I certainly get calls on all the time and we try to track down as much as we can and we just haven't heard anything that frankly is a legitimate answer to the question.

EVAN AMARANDO]: Okay.

Sure.

Once again, if you do have a question or comment, you may press1 followed by 4 on your touchtone phone at this time. Our next question is coming from Tim Lee from Merrill Lynch. Please state your question or comment.

Good morning.

Good morning] Tim.

A couple of things, first if you do signed a partner by the end of year for PreGen-Plus, what type of revenue contribution should we expect from that product in 2003?

Well Tim, its John. We haven't changed guidance at this point of time for obvious reasons, because we haven't signed, you know the, with the four panel contract, but I would say, its safe to describe revenue contribution in a couple of different categories. One is certainly the sort of revenue protest, and I think that is most of the analysts have modeled their financial. The second piece is that, you know, that could be similar to what we got with PreGen-26, there could be up fronts and milestones associated with the signing of a contract. We haven't signed the contract so, you know, all those things are still on discussion, but the revenue would come from one of those three elements.

Would you characterize a kind of number out there for 2003?

Not beyond, what we got up there right now Tim, I just don't think it will be useful, neither for you or us, you know, when we have more visibility on it, I think, certainly will give better and clear guidance, but at this point of time, it doesn't make sense to change the guidance.

Okay. Second, in terms of your large-scale trials, are you getting in-depth [ample] feed back from some of the clinicians that are conducting this studies in terms of ease of use, or any of the patients, the feed backs?

We are actually are. We as part of the study we are doing a survey kind of experiential survey with the people who are in it, about how they feel about our test, about how they feel about colonoscopy, how they feel about fecal occult blood test and so forth, we are getting some interesting feedback that in the initial stages about how much more our test is appreciated than the other two options out there. So that will probably turn into a paper that will be published somewhere along the lines too. So we feel very good about that, I appreciate you say Tim what got you there, but we have in these abstracts DDW, we have looked almost 500 cancers in this clinical study that were doing. We are going to probably pickup 40 cancers and what we would like people to understand is that the data we already have supports a pretty good sensitivity and specificity rate in the 65% to 70 range in this sensitivity 95% or so in the specificity and we believe we have really good data there on the clinical side already and we will have that available through DDW. So we feel good about our clinical position right now, and adding to that, we are finding that people are actually do comply with the test and like what they see with it compared to the other options.

Tim its John. One of the things, just probably worth noting. Given the fact that we have this Multi-Center trials that has associated with an obviously well over 60 centers and these are very large gasrot centers. Many of the members in the senior management team here have done visiting those sites and talking with the gastro's and frankly some of the ancillary primary care physician associated with those sites about their experience and the patient's experience and the feedback that we have gotten has been extraordinarily good, and remember that these are the gastro's that we are talking to and they do a lot of colonoscopy. So one could argue that there is not a lot of in center for them to talk well about our testing infact, they are talking very well about our tests because they view the acceptance of our test is really intelligent molecular based [3 hours] for getting the right people in the colonoscopy. So, [turning] total at this point in time, but in the sites we have visited, you know, we have got extremely good feedback both from the physician level as well as the consumer.

Just one last question, if I can try to beat this dead horse here some more, in terms of the patient enrolment, assuming that the trial is going to take 15, 16 months, or so to enrolling, roughly [during] the way to the timeline, is it fair to assume may be a 25% to 30% through that 4000 patient number?

I think, it would be fair to say till they were on track they complete the first quarter of 2003.

I thought I tried.

Okay.

No more questions on the queue, I would like to hand the floor over towards speakers for any closing comments they may have.

Thank you all very much. I am sure you all are going to rush up to other conference calls. DON HARDISON & JOHN MCCARTHY: Thank you.

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.