Insight Molecular Diagnostics Inc (IMDX) 2016 Q2 法說會逐字稿

Greetings and welcome to the OncoCyte second-quarter 2016 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Michael Polyviou. Thank you. You may begin.

Thank you Matt. We appreciate everyone joining us this afternoon's conference call and webcast to review OncoCyte's operating and financial results for the second quarter of 2016. On the call today are members of OncoCyte's senior management team, including Bill Annett, Chief Executive Officer.

Before turning the call over to Bill, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to risks and uncertainties and other factors that may affect OncoCyte's business, financial condition, and other operating results, which include but are not limited to the risk factors and other qualifications contained in the Company's filings and other reports filed by OncoCyte with the SEC, to which your attention is directed. Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. OncoCyte expressly disclaims any intent or obligation to update these forward-looking statements except as otherwise may be required and applicable.

With that, I would like to turn the call over to Bill Annett, Chief Executive Officer. Bill, please go ahead.

Thanks Michael. Welcome, everyone, to OncoCyte's second-quarter 2016 conference call. Today I am joined by Russell Skibsted, our Chief Financial Officer; Kristine Mechem, our Vice President of Marketing; and by Lyndal Hesterberg, our Vice President of Development. They will be available during the question-and-answer session.

So, we achieved a number of milestones in the second quarter that highlight the depth of our science and demonstrate the continued progress that we're making in developing our diagnostic tests. In April, we reported positive research results for our lung cancer diagnostic test which we are developing in partnership with The Wistar Institute. The study included 610 subjects, and replicated the results of Wistar's 2015 study. We recently announced that the data from this 2016 study will be presented at the prestigious American College of Chest Physicians CHEST 2016 Annual Meeting, which will be held in Los Angeles in October.

As you'll recall, lung cancer is the deadliest cancer in the US with approximately 160,000 deaths per year. Life expectancy as measured by the five-year survival rate is about 17% and has not increased very much over the past 40 years, primarily because over half of cancer patients are diagnosed in stage IV, by which time treatment options are limited for most patients. However, if lung cancer can be detected in stage I, the five-year survival rate rises significantly. As a result, the early detection of lung cancer is a high priority for the healthcare system.

Recent guidelines from the US Preventative Services Task Force stipulate that a high risk patient should have annual low-dose CT scans to aid in the early detection of lung cancer. It is estimated that there are between 7 million and 10 million people in this category in the US, and having an annual low-dose CT is becoming the standard of care for this population.

While low-dose CTs are very good at detecting lung nodules, most of these nodules are not cancer. Low-dose CTs cannot distinguish malignant from the non-modules, and so increasing the number of low-dose CTs will increase the number of patients who are being overdiagnosed and set to unnecessary downstream procedures. As a result, many more people will end up having unnecessary, costly and risky biopsies and other procedures.

If our product development efforts are successful, our confirmatory diagnostic test could be prescribed for patients with a suspicious low-dose CT finding before they have biopsies or other follow-on procedures. Our decision to develop a noninvasive confirmatory lung cancer diagnostic test as our first product was based on the belief that there is a major opportunity to improve the standard of care by reducing unnecessary procedures, and at the same time, improving patient survival rates by accurately detecting the cancer at an earlier stage.

We continue to progress according to plan with our R&D efforts to develop the confirmatory lung cancer test. As a prerequisite to initiating our internal studies, OncoCyte has completed the transfer from Wistar to the Company of R&D processes for the study, including transfer of Wistar's RNA extraction method, and its NanoString assay method. We then initiated the analytical verification study for our lung cancer diagnostic test, a first step in the process to independently replicate the positive research results from the 610-patient Wistar study which we announced in April. The study kicked off with the analysis of the first batch of 100 malignant and benign lung cancer samples, which we independently collected. We currently have 20 sample collection sites enrolled. We plan to add other sites for a goal of somewhere over 25 sites. We expect to complete the studies later this year and, if the results are consistent with Wistar's earlier data, we plan to apply to the state of California for CLIA certification of the laboratory, and to launch our lung cancer diagnostic test in the first half of 2017. As OncoCyte's R&D studies continue in the third and fourth quarters, we will continue to update our investors and the public on our results.

On the breast cancer diagnostic, our second test under development is a confirmatory diagnostic for breast cancer. We are continuing to work on this test, and still estimate that it's a year or more behind development of the lung diagnostic. We believe that the breast cancer diagnostic -- that breast cancer diagnostic is a significant market with approximately 38 million women undergoing annual mammogram screenings in the US. However, as we have discussed previously, our initial focus will be a confirmatory diagnostic used in conjunction with the current standard of care, which is mammograms and/or MRIs. This test would be conducted post-mammogram and pre-biopsy for women with indeterminate nodules. And that is a market of approximately 1.5 million to 2 million patients.

Regarding our bladder cancer diagnostic, in June, we presented data from a bladder cancer study at the 2016 American Society of Clinical Oncology Annual Meeting. We developed four different gene expression classifiers, or GECs, to detect high and low grade malignancies in a highly accurate and noninvasive manner. This is important because, from a single urine sample, we can run four tests to determine the presence of bladder cancer and its severity. The data from this study demonstrated the test was 100% accurate in detecting high-grade lesions within the 241 patients in the study, and there was also high accuracy in the detection of low-grade lesion with 77% for screening and 75% for recurrence.

OncoCyte's approach of sequential GECs optimized for the detection of high-grade and low-grade malignancies provides information to distinguish between these different types of lesions and benign conditions in a noninvasive manner. Low-grade urothelial carcinoma is usually a nonaggressive cancer, whereas high-grade urothelial carcinoma is more aggressive, invasive, and causes significantly more cancer related mortality. The GEC optimized for the detection of high-grade urothelial carcinoma patients presenting with hematuria performed with a cross validated receiver operating characteristic area under the curve, or a ROC AUC, of 0.93, while the low grade performed a ROC AUC of 0.81. In the recurrent surveillance cohort, the detection of high-grade performed with a ROC AUC of 0.81, and low-grade with a ROC AUC of 0.64.

The market for bladder cancer diagnostics is large and growing. Based on the most recent statistics of the National Cancer Institute, over 70,000 new cases of bladder cancer occur annually in the US. In addition, over 550,000 men and women have a history of bladder cancer and are subject to regular recurrent surveillance testing using cystoscopies or urine cytology. The NCI also reports that another 3 million patients present annually with hematuria, which is an early symptom of bladder cancer, and that 500,000 patients have indeterminate cytology findings. These three different patient profiles represent a market potential of over 4 million tests annually.

So, moving forward to a discussion of our commercial strategy, between our lung, breast and bladder cancer diagnostic tests, we have a deep and robust product development pipeline. If our development efforts are successful, and as we embark on our commercial efforts, we will continue to address all of the key stakeholders in the healthcare system: patients, payers and physicians.

For patients, our test will improve the early diagnosis of cancer to increase survivability while eliminating many risky and unnecessary procedures. They will also reduce the anxiety patients feel of waiting for test results that often come back benign.

For physicians, our test will assist doctors in triaging patients with suspicious results by knowing which patients to send home and which patients to send on to follow-up procedures. Consequently, we will enable them to make better treatment decisions and avoid unnecessary procedures and their inherent risks.

For payers, our tests will reduce overdiagnosis or false alarms, thereby avoiding unnecessary procedures and decreasing healthcare spending, while improving the early diagnosis of cancer.

As I previously discussed, given our size and focus, we plan to take our lung and breast cancer diagnostic to market ourselves using a specialized sales force and our own commercial infrastructure. The prescribers of these tests would be specialists such as pulmonologists and radiologists, who we believe we can effectively target with a small sales force. We plan to have comprehensive marketing program for our products and also believe that, if our R&D efforts are successful, published data from our validation and clinical utility studies may helped to pave the way for physician uptake and payer coverage.

In contrast, as a potential screening test, the marketing for our bladder product will involve addressing a much larger population of the general practitioners and urologist, and so would require a far larger sales force. As an emerging Company, we do not want to expand our resources on hiring and running a large sales force. Consequently, we are exploring other options, including partnering or licensing this product with other companies. I believe that the positive data we presented at ASCO will increase our chances of finding a partner.

Reimbursement is an important issue for the entire diagnostics industry and we are continuing to proactively develop a comprehensive reimbursement strategy for our products. For our lung cancer diagnostic test, reimbursement by Medicare will be very important, since the majority of lung cancer patients are covered by Medicare. Since our CLIA lab will be in a state that is covered by the MolDX program, we have a clear understanding of the quality and quantity of data that is needed to gain CMS coverage. If we carry out our reimbursement strategy effectively, our lung and breast tests will be well-positioned to obtain CMS reimbursement.

Given the unmet need in lung cancer, we've done a study that asked the managed care professionals for their views about our potential noninvasive confirmatory lung cancer test, and the feedback was very positive. Our reimbursement strategy will seek to address this interest by creating the clinical and scientific evidence that payers require, including carrying out multiple clinical validation and clinical utility studies, and submitting high-quality evidence which we hope to present at major conferences and have published in peer-reviewed clinical journals. These and other steps are necessary to receive reimbursement in the current environment, and are addressed proactively in our comprehensive reimbursement strategy. We believe that the diagnostics companies that take this analytical data driven approach are well-positioned to achieve reimbursement from CMS and private payers.

Lastly, before we open up the call for questions, I will touch on the financials for the quarter. As a reminder, we are still in the development stage and will not generate revenue until after the commercial launch of our lung test.

During the second quarter, cash used in operating activities was approximately $1.9 million. At June 30, we had liquid assets of $5.6 million consisting of $4 million of cash and cash equivalents, and available-for-sale securities valued at $1.6 million which we can use for working capital purposes.

In summary, we achieved a great deal during the second quarter, and continue to make progress according to our (technical difficulty). We have the resources that we require, and assuming that our R&D efforts are successful, we will begin the process of scaling our business in order to launch our noninvasive lung cancer diagnostic in the first half of next year. We are excited about OncoCyte's potential and are working very hard to position the Company as an emerging leader in the liquid biopsy molecular diagnostics market.

Operator, we are now open for questions.

(Operator Instructions). Paul Knight, Janney Montgomery Scott.

This is actually Carolina Ibanez-Ventoso on for Paul Knight. My first question is could you provide more context to the data that is going to be presented for the lung cancer test at the CHEST conference this October? Is [Zareda] going to be described by a [typical operating] characteristic curve or by simple specificity and specifically these parameters?

So, as we announced, the Louise Showe from The Wistar Institute is the principal investigator in the study will be presenting at CHEST in October, conferences in Los Angeles this year. And the abstract and the details of that paper have not yet been released, and so we are under data embargo from CHEST. So, until CHEST publishes the abstract, we can't comment further on the data that's going to be presented.

So, when do you think that the abstract will be published? Is it going to be October or you think it's going to be published before then?

Generally, the -- it's surely before the meeting, perhaps in September or early October, something like that.

And regarding the -- what is the number of patients and proposed subjects given the big hundreds of [temp blood] samples that were analyzed by The Wistar Institute?

It was 610 patients.

Oh, 610.

It's approximately evenly split between benigns and malignants, so there should be sufficient power there once Dr. Showe releases her results for people that have confidence in what she has seen.

Okay, thank you. Regarding the analytical specification that you announced yesterday, can you tell us -- would you say that this first step in tails and is it going to run in parallel to the internal clinical validation of the test?

Mr. Lyndal Hesterberg will answer that.

Yes, good question. So, yes, it does run in parallel. Let me give a little more detail to that because, as we have announced, we are actively collecting the samples for our own independent cohort to be tested. While those samples are accruing, we are putting in place the technical foundation which is the analytical validation. We started with the extraction method transfer from The Wistar Institute, have extended that now to the nCounter NanoString system which we use to analyze the markers, so we are actively in progress now of running at.

Anyone who might be familiar with Clinical Lab Standard Institute guidelines for doing this, there are prescribed procedures that we follow. I don't want to call it a checklist. It's a little more complicated than that, but each of the procedures has to be addressed per those guidelines, so we've started with the initial work looking at reproducibility and precision of the NanoString system in our lab, and that work is in progress right now.

Okay, thank you. And just one follow-up. When do you think that the analytical specification process will be completed? By the beginning or the end of the first quarter?

Sometime in the fourth quarter. We haven't announced yet when that will be, and it is dependent on a number of factors.

Okay, thank you very much.

Bruce Jackson, Lake Street Capital Markets.

Just a fast question about the progress in the laboratory. Sometimes, when you move an assay out of the research environment to a production environment with automation of standardized process, you can pick up some assay performance. Do you have any early results yet on whether or not you are getting better results?

No, I don't. I agree with you that it's often the case. We are too early in the process to know if we have picked up that enhancement that is often seen. We are still focusing on essentially bridging studies that allow us show that we are getting no worse than the same results from the Wistar, and hopefully, as you point out, much better as we progress.

Okay. And then just real quick on the bladder cancer assay, what is your current thinking in terms of the commercialization of that program? Are you still debating whether or not to do it yourselves or to look for a partner?

I think, at this time, we are focused on looking for a partner for a number of reasons. As I mentioned in my comments a moment ago, I think there are commercially different characteristics for a lung and breast diagnostic versus bladder, primarily in that the bladder market would also involve focus on general practitioners as well as specialists. So you would need a larger sales force. This is more along the lines of what Exact Sciences has done in terms of hiring a very large sales force to promote their test to GPs as well as to specialists. So we don't want to take on that kind of expense at this point in time. So, I think our focus will be on out-licensing, or perhaps co-marketing, the bladder test, depending on how discussions go.

Okay, that's all I've got this afternoon. Thank you.

I would now like to turn the floor back over to management for any closing comments.

Well, thank you, everyone, for taking the time to listen in on our second-quarter conference call. I look forward to updating you on our progress during our Q3 conference call in November.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.