Precipio Inc (PRPO) 2016 Q2 法說會逐字稿

Good day and welcome to the Transgenomic second-quarter 2016 financial and business review conference call. (Operator Instructions). 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 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 most recent 10-Qs, 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. Thank you for joining us for today's second-quarter earnings conference call. I am joined by our Chief Accounting Officer, Leon Richards. I will provide an overview and an update on our progress and Leon will then briefly review the quarter's financial results in greater detail.

Please note that we are now reporting our cancer liquid biopsy business as a single continuing operation along with some legacy reporting for our discontinued operations from our non-core businesses.

As we've discussed previously, we also suspended our testing out of our New Haven laboratory after a strategic review of the patient testing business unit in the first quarter.

TBIO is now fully focused on ICE COLD-PCR and cancer testing as its sole business on a go-forward basis. In the first six months of 2016, we devoted considerable time to implementing these changes. We are now able to focus fully on the commercialization of our ICE COLD-PCR technology that enables broad use of liquid biopsies and adoption of precision medicine.

Our team is reporting that they are starting to see excitement about the performance attributes of ICE COLD-PCR and greater interest in adoption from clinical labs, molecular diagnostic labs in academia and life science companies. This is allowing us to build a strong pipeline of potential commercial partners for licensing opportunities that we continue to actively pursue in the second half of 2016.

Our focus is conversion of these opportunities and for (technical difficulty). The pace has been a bit slower than we'd wish but institutes and companies in general are tending to be cautious and therefore more deliberate in their dealmaking.

In addition, potential partners licensees are following a more rigorous process and taking the time to assess new technologies with care to ensure that they are achieving the best option for patient care and treatment.

We are getting positive feedback on ICE COLD-PCR technology and products from our prospects and we are optimistic that the ICE COLD-PCR's superior performance and unique qualities should result in a number of deals in the coming months of 2016.

Among our advantages is the fact that we will allow clear, clinical molecular diagnostic labs as well as life science companies to access, implement and develop ICP-based assays in-house. This is a major differentiator for TBIO and ICE COLD-PCR. All our major competitors still require blood and plasma samples to be sent to them directly for analysis for a significant fee, even for a simple test. Using our technology, these tests can be simply and rapidly run in-house utilizing ICE COLD-PCR on their current sequencing equipment, with their existing staff for as little as $500 per test in contrast to 7 to 8 days and in the region of $2,000 to $3,000 required to test in many other companies' hands.

We remain optimistic that this focus continues to represent a realistic opportunity to achieve robust growth and has the potential ultimately to return substantial value to our shareholders.

We also believe that we've made good progress in the first half of 2016 in building a strong foundation for the future success that should start to gain traction in the remainder of the year.

As noted in our press release, net sales for the second quarter of 2016 were $0.5 million as compared to $0.44 million for the same period in 2015 for continuing operations, an increase of approximately 14%. We now have a number of signed revenue-generating projects with pharma and biotech clients that we expect to get underway as soon as patient samples become available from the clients. We anticipate providing genetic analysis services and receiving and recognizing revenues for these projects starting in the second half of 2016, and these are in the single-digit millions, not hundreds of thousands of dollars.

The Company is currently managing its cash on hand and is utilizing collections from discontinued operations to supplement current revenues. In the last six months, these collections have generated approximately $3 million in cash and we expect this to continue through the remainder of 2016.

There is still a significant amount of outstanding receivables from the discontinued businesses and we are confident that we can collect a portion of this during the remainder of 2016 at a similar rate to the first half of the year.

We are also in continuous dialogue with NASDAQ about our listing status and we are optimistic that we will be able to continue to trade on NASDAQ Exchange as we keep them informed about our progress and on our business strategy. This is a critical issue for TBIO and we are spending significant time to ensure that we are able to maintain our NASDAQ status listing as our ICE COLD business ramps up.

As we have previously stated, a key element of our strategy is to provide access to the ICE COLD-PCR technology as broadly as possible, and in order to achieve this, we will continue with our efforts to strategically partner with sequencing platform companies, life science companies, electro-testing labs and clinical providers.

During the second quarter we entered into two commercial agreements. The first involved a legacy asset, but the second, the VWR North America agreement, is we believe a very positive development for ICE COLD-PCR. VWR is a distribution powerhouse with an organization that in a channel that can produce significant revenues for TBIO in the next 12 months as VWR brings its strong commercial contracts and contacts and its sales expertise to help develop the market for ICEme Kits in North America.

As part of our initiative to generate additional evidence, validating and accuracy of the utility of ICE COLD-PCR, we released further study data at ASCO in June. The data is excellent, showing concordance of approximately 97% between matched plasma and tissue samples collected simultaneously from Stage IV colon cancer patients.

Data such as this plus customer validation from respected clinicians such as Anil Vachani, the Associate Professor of Medicine at the Hospital of University of Pennsylvania and VA Medical Center, are providing additional support for adoption of ICE COLD-PCR in the marketplace.

Additionally, we announced the expansion of our ICE COLD-PCR cancer test product line covering more anticancer mutations along with product release plan that gets it to approximately 200 actionable and clinically relevant cancer mutations by the end of next year, which we expect to be fully customizable to meet customer's needs.

All of these activities have helped position us and establish a foundation for TBIO to become a leading technology and product provider for liquid biopsies in precision medicine, both through our own sales and by our strategic and broad-based licensing and partnering.

Overall, we believe the strategy is being well received in the marketplace by potential clients and partners as have performance of ICE COLD-PCR products. All of this gives us confidence that our strategy is the right one and has good potential to achieve commercial success.

Overall, we are pleased with the increasing momentum we are achieving and believe we are on the right track to realizing the key elements of our plan for ICE COLD-PCR and TBIO. And with our new streamlined organization and structure, we are now able to focus our full resources and energies on commercializing the technology whose versatility and ease of use we believe are perfectly aligned with the needs of the emerging high-growth market for liquid biopsies.

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

Thank you, Paul. Net sales for the second quarter of 2016 from continuing operations was $0.5 million, an increase by $0.1 million, or 14% as compared with the same period in 2015. Sales of our contract laboratory services in our Omaha lab were flat year-over-year and the slight increase in net sales for the current year period reflects some higher oncology and some revenue generated from grant.

Gross profit was a negative $37,000 during the second quarter of 2016 compared to a negative $23,000 during the same quarter of 2015. The negative gross margin during the second quarter of 2016 is due to revenues that were not sufficient to cover the current laboratory direct fixed costs. The lower sales in our contract laboratory revenue services which is driving the lower gross profit with a function of fewer active projects currently in the current year and the timing of samples supplied by customers to work on those projects.

Selling, general and administrative expenses decreased by $0.5 million to $1.4 million during the three-month period ended June 30, 2016 as compared to the same period in 2015. The decrease was due to lower franchise tax fees and lower stock compensation costs in the second quarter of 2016 as compared to the second quarter of 2015.

Research and development expenses for the three months ended June 30 remained relatively flat at about $0.4 million as compared to about $0.5 million for the three months ended June 30, 2015.

In summary, net loss from continuing operations for the second quarter of 2016 was $2.2 million or $0.10 per share compared with a loss of $3.2 million or $0.26 per share for the second quarter of 2015, a decrease of 30% or $1 million.

Modified EBITDA, which is a non-GAAP measure that Transgenomic views as an appropriate and sound measure of the Company's results, was a loss of $1.8 million for the second quarter of 2016 compared to a loss of $2.1 million for the same period in 2015. A reconciliation of net loss to modified EBITDA is presented in our earnings release.

Cash and cash equivalents were $0.4 million at June 30, 2016, flat when compared with the comparable balance at December 31, 2015. And as Paul mentioned, during the second quarter of 2016, the Company completed sales of assets associated with our discontinued operations that raised approximately $1 million in net proceeds.

As for the year-to-date results for the six months, net sales from continuing operations for the six months ended June 30, 2016 were $0.7 million a decrease of $0.5 million or 38% as compared with the same period in 2015. The decrease reflects the lower sales in our contract laboratory services as a result of fewer active projects in the current year and the timing of samples supplied by customers to work on projects.

Gross profit was a negative $0.3 million during the first half of 2016 compared to $0.3 million during the same period of 2015. Gross profit is a result of lower revenues during the six-month period ended June 30, 2016, and again the negative gross margins in the current year is due to the lower revenues not sufficient to cover the laboratories' direct fixed costs and also a recognition of a one-time product commercialization royalty fee that was booked in Q1.

Selling, general and administrative expenses decreased by $0.6 million to $3.1 million during the six-month period. The decrease was due to lower professional fees and lower stock-based compensation.

In summary, net loss from continuing operations for the six months ended June 30 was $4.3 million or $0.20 per share compared with a net loss of $5.8 million or $0.54 per share for the six months ended June 30, 2015. And again, modified EBITDA was a loss of $3.8 million for the six-month period, both June 30, 2016 and June 30, 2015.

At this point, Paul, I will turn the call back to you.

Thank you, Leon. To recap, Transgenomic has made significant progress to becoming the focused precision medicine company we've been targeting for the past 12 months. We significantly advanced our ICE COLD-PCR commercialization strategy with the launch of multiple CLIA tests for cancer, we signed licensing agreements and we've moved into the clinical diagnostics market. And we continue to work with our pharma partners to develop a scalable ICE COLD-PCR-based service business.

We accomplished this while delivering on our promise to divest our nonstrategic assets thereby significantly reducing our expenses and generating some non-diluted of cash.

At this point, operator, we are ready to open the call to questions.

(Operator Instructions) Per Ostlund, Craig-Hallum Capital.

A couple questions for you and you've alluded to some of this in your prepared remarks, so I may have some idea of where you are going to head with the answers but I thought we'd get in there a little bit further.

As it pertains to potential collaborations, we've talked about and anticipated some for a little while here and you did allude to the rigorous process that some of the potential counterparties are going through. I'm just curious maybe if you can get into what some of the gating factors might be that are remaining to get one or two of those to come fully on board? If it's just validation on their end, if there's anything that you can do or are doing with them in conjunction to move that forward or how the situation plays out between here and agreement?

It's a process, whether it's a valuation of ICE COLD-PCR or anything else. I think most companies these days are finding that the overall process for getting a deal signed is longer. It's more arduous. It's a little bit slower. And that's just the nature of the business. Additionally, there is issues relating to the fact that this is being used and implemented in the labs that we are talking about for patient treatments. So there's a little bit more rigor there and there's a lot more attention being focused on the enabling nature of the technology and how it can actually make their lives easier.

I think people are trying to make sure they don't make a mistake and buy into one technology or another technology or disrupt their current workflow with the customers and the patients, because obviously they are treating cancer patients currently. They don't want to disrupt that. But they are moving away and starting to migrate away from tissue biopsies and they are going to go toward liquid biopsies and obviously the insurers and CMS and everyone else hasn't yet adopted the technology completely. So we are still at that early stage.

So I think it's all those factors together. I don't think it's anything retaining to our technology. We do have the compelling differentiator that nobody else that we are aware of is actually offering, a technology that you can just add to your reaction, carry it out in your lab and basically then you are enabling them to do precision medicine, whereas the other vendors are saying, send us a sample. We will treat it and give it to you. We won't tell you what we are doing. And then we will send you the results and you can give that to the patient.

So it's a big differentiator and I think the people we are talking to are basically making sure that that differentiator is real and they do believe it is and then once they believe that it will move through. But again, the organizations are following a lot more of a rigorous process.

Does that give you a little bit more color, or do you want to know specifics of where we see the process in different accounts or what?

No, actually that was great color. If you wanted to go into one or another as an example, I would certainly take that but no, I think that was very, very helpful. Thank you.

Without mentioning names and stuff and I talked to another shareholder a few weeks ago and he asked me some specifics, but we've had issues with clients where they've had turnover in their organization, or organizations have had changes whether it's mergers and acquisitions or other activities and those activities have slowed down our progress and that's a challenge that you can't deal with. But because the marketplace in life science these days is so aggressive in terms of M&A activity and discussion, those activities are going on in all organizations now and there's a lot more of that going on. And because of that, that also affecting us.

So some turnover in some of the companies we've been talking to some been senior VPs and VPs in organizations and then within two weeks that person is gone and you have to start building the relationship up again. And in some cases it's been junior staff who are doing certain evaluations and testing and they didn't follow-up on what they were supposed to do and then their organization dismisses them and you have to start from scratch again.

So we've had some hurdles there out of our control a little bit and that's been a hiccup. Sometimes you can't deal with that so that's why we built a bigger pipeline and a bigger opportunity base and we believe it's in excess of three times as large as it was the beginning of the year, so we've got a lot of things in the pipeline now. We've really got to, as you say, close them and close these deals as soon as possible.

Okay. That's excellent. Thank you for the additional color there.

Maybe turning really quickly to the agreement you announced earlier this week with VWR. I thought that was an encouraging announcement on the ICEme Kits. Wondering if maybe you could go into just a little bit of background there and maybe how the relationship was cultivated. Did they seek you out? Did you seek them out? Maybe give us a little bit of flavor for the reach that they bring to the table for those that maybe aren't as familiar with that organization.

So, I've known VWR for many, many, many years. Obviously in my lifetime at Life Tech, they were our biggest competitor. They are the second largest in the US and maybe the second largest in the world depending on what market you are in. So from a reach point of view, they've got a large number of sales people in the US. They've got a lot of technical support people. They have contracts with nearly every major academic and major pharma biotech in the US. They supply products for everybody and they are very aggressive at getting new technologies into the marketplace and that's one of their expertise and one of the things they really excel at is bringing new products to market and getting it to customers. So perfect match for us in the ICEme Kits.

So we've discussed it with them. They are excited. The negotiations, again, were a little bit longer than we would have liked. We actually started talking to them earlier in the year. It was a phasing thing, but once they understood the potential and saw the value of what the kits could bring to the academic and the pharma market they were excited. For instance, they see the benefit and the pharmas see the benefit of using the kits in-house and testing samples while those samples are being used externally and tested for clinical trials as well. No other technology allows that. No other company is providing a liquid biopsy solution where a pharma such as Glaxo or Merck can buy a reagent, run it in-house at the same time as a clinical study is being carried out with that product.

And if you go to Foundation or to anybody else, they are sending their liquid biopsy samples out and they are getting results back. That's it. This way they can check, they can match, they can do things early on in advance of it and really benefit from understanding what's going on with the samples. So that's compelling and it's a good partnership from that.

From the point of view of the revenue and the size and the materiality of the opportunity, we obviously have set some targets with them and we've got a discussion ongoing with them. We think the first few months will be quiet but we do think by the end of the year that we will start seeing material growth and we will be looking to report that.

And then maybe sometime next year, if Leon allows it, we will be able to give a better forecast as the run rate picks up, but we do see it being a material relationship and we are hopeful that the VWR relationship will grow as well.

Excellent. All right. Duly noted. Leon, you are on the hook.

Last question for me, again you alluded to this in your comments, Paul, but now you really are presenting yourself as fully focused around the ICE COLD-PCR technology in precision medicine and have worked to move out the non-core assets. Is there really anything left on that side of things to divest or otherwise monetize, or are you basically all set on that front?

Well, there are also some commercialization opportunities that are presenting themselves. We still retain a certain amount of IP relating to that business and in fact the license with LabCorp, we have a very good relationship with LabCorp. There was a quote in our press release from (inaudible) and basically we've talked to their business development people and that long QT portfolio we actually license to LabCorp, so we will be getting royalties in from them on a quarterly basis. And we are actually in discussions with other organizations about doing something similar because if companies are producing that test and it's covered by our IP, then they need to pay us royalties.

So there's some opportunities there. They are in no way near as big as ICE COLD. It's not a focus for us, but it is an opportunity where we can generate cash in the short term and it will bolster the business as we move forward and become successful with ICE COLD-PCR.

Okay. Very good. Thank you, guys. Appreciate it.

[Mark Tabashnik, Mark Communications Network] (Operator Instructions). It appears we have no further questions at this time. Ladies and gentlemen, this will conclude our question-and-answer portion of the call. I'd like to turn it back over to management now for additional closing remarks.

Thank you, very much. Despite our challenges we are encouraged by the positive feedback we are getting and the progress we are making in the marketplace in advancing commercialization of ICE COLD-PCR with the potential to transform both our Company and the emerging field of liquid biopsies in precision medicine. We appreciate your support and look forward to keeping you apprised of our progress as we continue.

Thank you for much. This does conclude today's call. We appreciate your participation and you may now disconnect. Have a great day.