Precipio Inc (PRPO) 2015 Q2 法說會逐字稿

Good day and welcome to the Transgenomic second-quarter 2015 financial and business review conference call. All sites are currently in a listen-only mode. Please note there will be a question and answer session later on in the call.

Also note, today's conference call will be recorded and will be accessible both by phone and on the Internet. For more information, please refer to the conference call press release on the Company's website, transgenomic.com, for further details.

The Company has asked that I read the following statement. Management will make comments today that can contain forward-looking statements. Forward-looking statements are any statements that are made that are not historical facts. These forward-looking statements are based on current expectations of the management team, and there could be no assurance that such expectations will come to fruition. Because forward-looking statements involve risks and uncertainties, Transgenomic's actual results could differ materially from management's current expectations. Please refer to the press release, the Company's 10-Q, 10-K, and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time sensitive and is accurate only at this time. If any portion of this call is rebroadcast, retransmitted or redistributed at a later date, Transgenomic will not be reviewing nor updating this material.

I will now turn the call over to Transgenomic's President and Chief Executive Officer, Paul Kinnon. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us for today's second-quarter 2015 conference call. I am joined by our Chief Accounting Officer, Leon Richards. I will provide an overview and an update on our progress during the quarter, and Leon will then briefly review the quarter's financial results in greater detail.

Since the start of the second quarter, we have made tangible progress in strengthening our strategically important businesses. We also achieved major milestones in our transformation into an advanced biotechnology company, primarily focused on commercializing the many applications of our breakthrough Multiplexed ICE COLD-PCR technology.

First, in the second quarter, sales were up net 11% year over year, excluding the impact of our divested SURVEYOR business. This marks our second consecutive quarter of double-digit increase in net sales.

In the key Laboratory Services segment, we recorded a healthy 26% increase in sales compared to the earlier -- year-earlier period with higher testing volumes which are mainly driven by our patient testing and services businesses and the Laboratory Services segment, which is a key area we have targeted for growth.

The launch during the second quarter on new genetic tests for the diagnosis of the devastating genetic disorder, leukodystrophy, is a good example of the focused investments we are making in -- to grow these businesses.

In the second quarter, we reported an expected decrease in the bioconsumables and instrument sales compared to the second quarter of 2014, primarily as a result of our divestitures of SURVEYOR product line last year and the delayed shipment of a number of instrument orders, approximately $300,000 from Q2 into Q3.

The continuing shift from our reliance on instrument service-based revenues to a focus on revenues derived from product, service, and licensing applications of our ICE COLD-PCR technology is consistent with our ongoing strategy to transform Transgenomic into a high technology, biotechnology company, enabling widespread adoption of genomic-based precision medicine.

We believe this strategic path has potential for robust revenue growth and increasing profitability in the near future. The improved gross margins we reported in the second quarter, 41% of net sales compared to 35% in the year earlier period provided additional evidence our strategy is beginning to work. We are optimistic that margins will continue to strengthen as our product mix increasingly shifts to higher margin segments.

During the second quarter, we were again successful in reducing operating expenses, down by almost 10% compared to the same period in 2014. We intend to continue to restrain those expenses not directly associated with commercialization of our Multiplexed ICE COLD-PCR products.

The combination of higher sales, better margins, and lower expenses enabled us to reduce our loss in the second quarter, along with the opportunity to begin to invest in time when we can aim to achieve profitability.

We are pleased with the positive financial trends that we have reported in the first two quarters of 2015, but the most exciting news this quarter was our encouraging progress in commercialization of Multiplexed ICE COLD-PCR.

We began the quarter with the announcement that our Multiplexed ICE COLD-PCR technology was now available as part of our Biomarker Identification services business, making available to facilitate and accelerate the biomarker discovery and eventual FDA approval of our pharmaceutical and biotechnology companies' customers' drug candidates. The rapid advance in development and target and precision therapies for cancer and other conditions gives biopharmaceutical fans a big incentive to identify the biomarkers needed for these applications and approvals.

Multiplexed ICE COLD-PCR provides important advantages to biomarker discovery, and we are making progress in getting the word out to many potential customers and partners who could benefit from access to this technology, along with our years of expertise in biomarker identification in our Omaha laboratory.

This was followed by a second launch at the high profile ASCO cancer meeting in May where we introduced our first Multiplexed ICE COLD-PCR CLIA mutation detection test to enable more efficient and informed cancer diagnosis and better treatment decisions and ongoing patient monitoring. This leverages the ultrahigh sensitivity of our ICE COLD-PCR technology to deliver highly accurate results from almost any type of patient sample.

The first tests are for the detection of a number of EGFR mutations with actionable consequences for the treatment of lung and colorectal cancer. The sensitivity and the accuracy of our ICE COLD-PCR enhanced tests and their ability to work with any type of patient sample make it possible to broadly monitor how patients' tumors genetically respond to therapy, thereby facilitating an accelerating implementation of personalized treatment regimes over the course of the disease. And we are also proud of the fact that we launched the first of these ICE COLD tests 12 months ahead of original plan.

A few weeks later, we followed this up with a major launch with the announcement of our plans to introduce a pipeline of ICE COLD assays, targeting cancer during 2015, including the release of up to six new lab-based cancer tests targeting actionable mutations in melanoma, lung and colorectal cancer, and we are planning to achieve this in 2015.

The tests will include single test in multiple gene panels and are usable with liquid or tissue samples. These new tests will be immediately available by diagnostic use throughout the US via our CLIA laboratories.

We are starting to see traction with these first tests and development of the pipeline of these additional tests is progressing well. We are targeting ongoing launches of these new tests on a regular basis over the remainder of the year, and once the revenues are material, we will share these figures with you as well.

Additionally, as we promised, by the end of the second quarter, we had launched our ICEme Mutation Enrichment Kit based on ICE COLD-PCR technology, which are available for research used to cancer researchers worldwide. The initial menu includes 17 clinical actionable mutations, or Exons, for use as a single mutation test or in combination. The kit is customizable to meet researchers' specific needs, and they are validated and available for use on all major sequencing platforms.

To recap, since the start of the second quarter, we have achieved three major milestones for our ICE COLD-PCR technology. These include launching of our Multiplexed ICE COLD-PCR biomarker discovery services, launching our initial portfolio of Multiplexed ICE COLD-PCR detection cancer tests to our CLIA laboratory and launching our ICEme kits that enable researchers around the globe to immediately put Ice Cold-PCR to use in their cancer research.

We believe we now have an exciting emerging pipeline of Multiplexed ICE COLD-PCR-based products and services to researchers, physicians and patients. Building on this momentum, earlier this month we announced the expansion of our pilot clinical study in collaboration with four leading global oncology firms to validate the accuracy and utility of ICE COLD-PCR-based liquid biopsies to guide and monitor cancer clinical trials. The results of this study could serve as a critical validation of our liquid biopsy technology, and we believe that the fact that the multiple global oncology leaders are currently participating in this study is very encouraging for the future of ICE COLD-PCR.

Additionally, last week we announced the establishment of a clinical commercial advisory board for oncology applications of our Multiplexed ICE COLD-PCR products. The CCAB members are a distinguished group and include Dr. Scott Patterson, a recognized expert in the application of genetic biomarkers for cancer drug discovery, who is currently at Gilead; Dr. Bruce Johnson, Chief Clinical Research at the renowned Dana-Farber Cancer Research Institute, and molecular pathologist, Professor Paul Waring of the University of Melbourne, who is a pioneer in the application of genomic technology to cancer diagnostics and drug development.

This is an exceptional group, and we believe it is further evidence of the excitement in the industry around the potential of Multiplexed Ice Cold-PCR to help transform the diagnosis and treatment of cancer. And we expect to announce additional CCAB members soon.

In parallel, we are also pursuing our key initiative to establish a variety of strategic partnering and licensing relationships with sequencing platform and other companies worldwide. These types of deals take considerable time to complete, but the initial feedback from our outreach efforts has been very encouraging, and we remain confident that we will have at least one major agreement in place this year with the potential to generate the first material revenues to the Company for ICE COLD-PCR, and we will keep everyone posted on our progress towards this.

We believe we are on track and, in some ways, ahead of schedule in realizing the key elements of our plans for Multiplexed ICE COLD-PCR in the Company. We believe our progress in advancing ICE COLD-PCR technology is also contributing to our ability to attract outstanding professionals to Transgenomic. For example, during the quarter, we continued to strengthen our board with the addition of a new director, Mya Thomae. Mya brings tremendous insight and relevant experience to our board, and we are delighted to have her part of our team. Mya headed a premier industrial regulatory consultancy firm, but was acquired by worldwide sequencing leader Illumina last year, and she currently oversees regulatory affairs for Illumina.

as you know, strengthening our cash position has been a continuing priority, and we are pleased to complete approximately $3 million of private investment during the quarter. We are also continuing to pursue commercialization and monetization of certain assets within the Company, which we expect to contribute to our cash resources as these deals finalize and close this year. And we will continue to keep you informed on progress here.

This has been a pivotal and positive six months for the Company. And as we look to the future, we are optimistic that we will generate growing revenues from the revitalization of our current businesses and increasingly from our new Multiplexed ICE COLD-PCR-based products, services and partners.

With that, I will hand the call over to Leon. Leon?

Thank you, Paul.

I want to start today with our analysis of our second-quarter results. Net sales for the second quarter of 2015 were $7 million compared with $6.8 million in the same period in 2014. Net sales for the second quarter of 2015 for our Laboratory Services segment increased $1 million or 26%, as Paul mentioned earlier, as compared to the second quarter of 2014. The increase came in both the patient testing portion and contract Laboratory Services portions of that business segment.

In Genetic Assays and Platforms segment, second-quarter 2015 net sales declined by $700,000 when compared to the same period last year. For also, as Paul mentioned, the Genetic Assays and Platforms segment was negatively impacted by the divestiture of our SURVEYOR product line during the third quarter of 2014.

Gross profit was $2.9 million or 41% of net sales compared with gross profit of $2.4 million or 35% of net sales in the same period in 2014. The increase in gross profit was a result of higher laboratory services sales, which resulted in a 54% gross margin, and that was partially offset by decreased gross profit in the Genetic Assays and Platforms segment, again being impacted by the SURVEYOR product line and about a $300,000 adjustment made for inventory obsolescence during the quarter.

Operating expenses were $5.7 million during the second quarter of 2015 compared to $6.3 million in the prior year. The decrease was primarily due to some lower personnel costs, lower operating supply costs, lower stock compensation costs in the current quarter. (inaudible) the net loss in the second quarter 2015 was $3.3 million or approximately $0.30 per share compared to the net loss of $3.9 million or $0.57 per share for the second quarter of 2014. Modified EBITDA showed a loss of $2 million for the second quarter of 2015 compared to a loss of $3.2 million for the same period of 2014, and you can find a reconciliation of modified EBITDA to net loss in our earnings release.

Cash and cash equivalents at the end of the quarter were $2.3 million compared with $1.6 million at December 31, 2014. As mentioned on our last call, during the first quarter of 2015, we completed financings that raised approximately $7 million in net proceeds. And, additionally, we recently completed a private placement financing in July and raised approximately $2.7 million in net proceeds.

As to the year-to-date results, net sales for the six months ended June 30, 2015, were $13.6 million compared with $13 million for the same period in 2014, a 4% increase. Net sales for the Laboratory Services segment increased by 29% year over year, again resulting from increases in both the patient testing and contract Laboratory Services portion of that segment. That increase was partially offset by a 30% decrease in revenues in Genetic Assays and Platforms with the results of lower instrument sales along with the impact on the six months from the previously mentioned divestiture of SURVEYOR product line during the third quarter of 2014.

Gross profit of $5.8 million or 43% for the six months ended June 30 compares with gross profit of $4.9 million or 38% of net sales for the same period in 2014. Gross profit increased $2.2 million in the Laboratory Services segment as a result of the increased test volumes, low manufacturing costs and resulted in approximately 55% gross margin for that business segment.

Partially offsetting that increase were decreases again in the Genetic Assays and Platform segment of about $1.2 million, and, again, impacting that margin was the sale of the SURVEYOR product line divestitures and some lower instrument sales.

In the first six months of 2015, operating expenses were $11.3 million compared with $12.4 million in the prior year. Again, the decrease included some lower personnel costs, some lower operating supplies, lower stock compensation costs. Partially offsetting those lower costs was higher bad debt provision in the current year compared to the first six months of 2014 of approximately $400,000.

Net loss for the first half of 2015 was $6.3 million or $0.65 per share compared with net loss of $8.1 million or $1.17 per share in the first half of 2014.

Before I turn the call back to Paul, I just want to indicate on the balance sheet, the Company has accumulated undeclared dividends on its Series A and Series B shares. Previously, the Company had reported that as a liability, but -- of about $3.1 million. But during the quarter, a change in our accounting indicated that we should remove that liability and credit our equity. So you will see a large change on the balance sheet for that dividend, accumulated dividend payable of $3.1 million coming off of the liability and going back into RSP.

And, with that, I want to turn the call back to Paul.

Thank you, Leon. And, at this point, operator, we are ready to open the call for questions.

(Operator Instructions) Bill Bonello.

Good afternoon, guys. Just a couple of questions. Paul, I was hoping that maybe you could elaborate a bit more on the pilot clinical study to validate the accuracy and utility of ICP for use in clinical trials. Maybe you can tell us a bit more about the endpoint for that study and about the specific role that the biopharma firms are playing, and then maybe give us some sense of timing and any plans for presenting or publishing data that comes out of those trials?

Sure, Bill. Will do. The four global companies are providing us with liquid biopsy samples of plasma samples for us to analyze in-house, and in some cases they are also carrying out the analysis in-house with our kits that we sell commercially. And we will be starting that study this quarter, and we are actually completing it this quarter as well and providing the data back to the pharma companies. The goal being obviously is for them to validate the technology and the benefit of using it to analyze and interpret the data generated through liquid samples. And then we will be using some of that data in some sort of formatting of public presentations, whether it is [all-point] posters or conferences, and we will look at whether or not we can actually produce a white paper to show the validation of the technology as well in the marketplace.

And then the benefit from our point of view is whether once it is proven within the hands of the customers with our data, then they will also give us some more business and start growing their business in terms of giving us clinical trial work that will eventually end with ICE COLD being used as a companion diagnostic longer-term in their projects or projects with other partners as well.

Okay. So that's helpful. And just, when you say they are trying to validate the utility for use in clinical trials, what specifically do they want to see to confirm -- to get comfortable for adopting the technology for a trial?

It varies by client in terms of what they are looking for, in terms of what mutations or level of mutations, and what stage the samples are being collected at. It could be they are looking at using it in a study for a drug that is being used early for identification or for any stage cancer or later stage, and so they are looking at which mutations are present. Other companies are also looking at the possibility of using it to identify unknown and known mutations or to stratify populations of their studies.

So one of the examples could be is, as with Amgen in the past, we have done stratification studies to say this population should not be given the drug. Therefore, don't include them in the study. We can do that more efficiently with blood samples and for testing because we can get lower level mutations.

Therefore, the pharma companies when they go to the FDA, they have eliminated that population before they do the study. Therefore, it is a cleaner test. Therefore, it gets through the FDA quicker and more efficiently.

So there is a variety of different applications that they are looking at. It is not so much they are looking at validating, do we detect low-level mutations. It is really targeting what their application is and what their utility for the technology is.

Okay then. That is helpful. And just so I understand, are they -- is this a process that they are providing you the samples that is their contribution and then you are not charging them for the data that you are -- or the testing that you are doing or the data that you are providing back to them? This is just, in essence, sort of part of the commercialization strategy?

We haven't really disclosed what the commercial terms are, but in essence, we are working with them to allow them access to technology quickly and rapidly. They are providing us their samples whether they are new samples or current samples they have in storage clinical studies or from their own collections. But it is a way of rapidly penetrating the market for us and getting commercial adoption with them and building a pipeline of strong commercial partners for us longer-term as well.

Okay. And then, on the clinical advisory committee, can you maybe tell us a little bit more about that and some of the specific objectives for that group and what they will be doing?

I mean, what we are trying to do is pull together some of the, what we think, are strongest candidates in the market, our thought leaders and the opportunities and the applications for liquid testing and biopsies who have applications in the real world, who understand which genes and which exons and which mutations are relevant ones. And the reason it is more of a clinical commercial advisory board is we are looking at them helping us navigate the sort of rapidly expanding marketplace to prioritize, which is the best market to go after, which is the best gene to go after, or other areas that we are developing yet that we should be considering. So really, it is a less scientific review, more commercial with scientific guidance.

Okay. That's great. And then, just, Leon, any thoughts on cash burn going forward? It looks like you are burning $3 million, $3.5 million a quarter. What is the outlook for the back half of the year?

Well, that is a little bit high, Bill. So for the second quarter, the cash burn from operations is going to be reported in the Q at about $2.5 million.

Oh, okay.

And that is the number that we are obviously not thrilled. It is still $2.5 million, but it is down from what we have earned in Q1. We continue to monitor any expenses, as Paul indicated earlier, that are not ICE COLD related. And anything that is -- anything that we can do to reduce the cash burn is (technical difficulty). So $2.5 million is our number we hit for Q2, and we are looking to keep it at that level and less.

Okay. Great. Thank you very much.

(Operator Instructions) And ladies and gentlemen, this will conclude our question and answer portion of the call. I would like to turn it back over to management now for additional closing remarks.

Thank you very much. I hope we have communicated our enthusiasm about the progress we are making in revitalizing Transgenomic, along with our excitement about the major milestones we have achieved so far this year, as well as those soon to come, in successfully commercializing ICE COLD-PCR during the next 18 months with its potential to transform both our Company and the emerging field of precision medicine. We look forward to keeping you apprised of our progress, and we will do so in the future.

We appreciate your participation. You may now disconnect. Thank you and have a great day.