Strata Skin Sciences Inc (SSKN) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the MELA Sciences fourth-quarter and 2013 year-end earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference may be recorded. It is now my pleasure to turn the floor over to Toni Trigiani. Ma'am, the floor is yours.

Thank you. And good day. Let's begin with the Safe Harbor language. This presentation includes forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. These statements include but are not limited to our plans, objectives, expectations, and intentions, and other statements that contain words such as expects, contemplates, anticipates, plans, intends, believes, assumes, predicts, and variations of such words or similar expressions that predict or indicate future events or trends or that do not relate to historical matter.

These statements are based on our current beliefs or expectations and are inherently subject to significant known and unknown security -- I'm sorry -- known and unknown uncertainties and changes in circumstances, many of which are beyond our control. There can be no assurance that our beliefs or expectations will be achieved. Actual results may differ materially from our beliefs or expectations, due to financial, economic, business, competitive, market, regulatory, and political factors or conditions affecting the Company and the medical device industry in general, as well as more specific risks and uncertainties facing the Company such as those set forth in its reports on Forms 10-Q and 10-K filed with the US Securities and Exchange Commission, the SEC.

Factors that might cause such a difference include whether MelaFind achieves market acceptance or becomes commercially viable. Given the uncertainties affecting companies in the medical device industry, any or all of these forward-looking statements may prove to be incorrect. Therefore, you should not rely on any such factors or forward-looking statements.

The Company urges you to carefully review and consider the disclosures found in its filings with the SEC, which are available at www.SEC.gov and www.MELASciences.com. With us today is Rose Crane, President and CEO of MELA Sciences, and Mary Phellan, Controller of the Company. Now, I will turn the call over to Rose.

Thanks, Toni. Good afternoon and thank you for joining us on today's call. I have been with the Company since November 2013. Today, I would like to provide a review of the 2013 fourth-quarter and year-end financials. Then I will provide an overview of recent activities and some thoughts on where we see the company going. At the end, I will be more than happy to take questions.

So, I have spent much of the last four months interacting with a number of dermatologists, especially those who treat patients at high risk for melanoma. You know, I have also found in speaking with people over these same months that almost everyone has been touched directly or indirectly by melanoma. The work we are doing here at MELA Sciences is so very important to the lives of so many.

Since this is our first call, let me give a little bit of background on me. I have been in the healthcare industry for 32 years and was with Bristol-Myers Squibb for about 20 of those years, including serving as the US president of the primary care division. I then joined Johnson & Johnson in 2002 to head the worldwide McNeil Company, which many of you know as Tylenol and Motrin. In 2008, I joined Epocrates, a healthcare technology firm, to serve as CEO where I took the company public.

Over the years, I have launched a number of new products, helped to build product pipeline, and have managed many different types of businesses. So let's begin.

At the close of the fourth quarter, we saw net revenues increase by 14.75% from the same quarter period last year. For the full year, we reported net revenue of $536,000 compared to $278,000 for 2012. That is an increase of nearly 93%. The cost of revenue for the fourth quarter was $914,000 compared to the same period last year of $971,000, a reduction of nearly 6%. For the full year of 2013, it was $4.3 million compared to $2 million for 2012.

So now, let's take look at operating expenses. Total operating expenses for the fourth quarter were $3.64 million compared to $5.24 million for the same period last year. For 2013, total operating expenses were $20.33 million versus $20.96 million in 2012. The net loss for the fourth quarter was $4.6 million, or $0.09 per share, compared to $6.1 million, or $0.19 per share, for the fourth quarter 2012. For 2013, the net loss is $25.9 million, or $0.60 per share, versus $22.7 million, or $0.74 per share, for the same period in 2012.

So now, let's late take a look at what has transpired since the third quarter, the last time we reported. On October 31, 2013, we closed the registered direct offering that resulted in net proceeds of approximately $5.5 million. Pursuant to which it issued common stocks and pre-funded warrants. Additional warrants to purchase up to 6.9 million shares of common stock were also issued, which could result in proceeds of up to $5.8 million.

Now, in February of this year, we completed a private placement with Sabby Management and Broadfin Capital, which resulted in net proceeds of $11.4 million prior to management participation. We issued non-redeemable, preferred stock, convertible into approximately 14.6 million shares of common stock. Additionally, warrants were issued to purchase up to approximately 13.3 million shares at $0.74 per share.

The Board of Directors also participated for $150,000 in restricted common stock, priced at $0.74 per share. I personally invested $50,000 of that $150,000. I really believe, as a CEO, you need to put your money where your mouth is, so I invested. This investment leaves us with a stronger balance sheet than we have had recently.

We are beginning the refocus of MELA Sciences with cash in the bank and no debt. Now, it is time to focus squarely on the business. So, let's talk about the business and how we plan on changing that game.

First, we have seen a number of changes in both management and the Board of Directors. I would like to welcome Jeffrey O'Donnell to the Board and to his new role as Chairman. Jeff is the managing director of BioStar Ventures, a venture capital firm that specializes in early-stage medical devices. He brings extensive experience with private and public companies and, specifically, in medical dermatology as past president and CEO of Photomedex Incorporated.

At this time, I would really like to thank Bob Coradini for his hard work and commitment as both Interim CEO and Chairman, and I am pleased that he will continue to serve on our Board. Bob was instrumental in raising the needed funding in the fourth quarter.

I am also pleased to welcome Sam Navarro to the Board. Sam is a founder of Gravitas Healthcare. Their focus is exclusively on advising and planning strategic mergers and acquisitions of emerging medical device companies. He has also had a long and successful career with Cowen and Company, and Needham and Company.

So next, let's talk about MelaFind, an optical imager that is not designed for definitive melanoma diagnostic -- diagnosis, but rather to provide additional data to doctors that can be used in determining whether or not to perform a biopsy. We conducted the largest prospective study in melanoma with positive results. And no other company has done this to date.

With MelaFind, we created the largest database of over 10,000 pigmented skin lesions. This has allowed us, using proprietary algorithms, to analyze each lesion and provide a score. Now, these scores help dermatologists decide to biopsy or not to biopsy difficult and ambiguous lesions. We truly believe there is great value in how this database can be utilized to improve clinical decisions, and we intend to do that as we move forward.

Does it sound clinical? Does it sound medical? Of course it does, because it is. And so, we are redirecting the efforts of this business to the medical dermatologists and key institutions that are in the business of treating patients at high risk for melanoma.

As you heard in the third-quarter call, our new strategy was to introduce MelaFind to key opinion leaders at the leading hospitals and teaching institutions in the US. This is such a vital part of our strategy in that they, the KOLs, lead the charge on melanoma. We're working with many of them and hope to expand that universe. It is a top-down approach. It is really very simple.

We have also recently placed clinical trial units in some of the key institutions where the world's leaders treat high-risk patients. Also, since November of 2013, we have presented nine posters and abstracts at key dermatology conferences around the country and in Germany, and we have had units in Germany for some time now and continue to focus on expansion there.

It is an important market for us. Notwithstanding that in 2013 our R&D expenses declined, our engineers will continue to explore the many nuances of our technology and are pursuing new avenues of advancement in that technology. We are redirecting the sales force to present MelaFind as a medical device, an imaging and analysis tool that is capable of helping dermatologists reach better clinical decisions for their patients, as well as gather new and important information that will serve the patient and the doctor better.

We continue to focus on key meetings where the top thought leaders in dermatology gather. As a matter of fact, next week I will be attending the AAD, which is the American Academy of Dermatology, annual meeting. We will be holding our fourth clinical advisory session, presenting two posters, and will spend a full day training our sales group on the new strategy.

So what if we get into all the right places and every medical dermatologist uses MelaFind? Well, it is only good if we can make the economics work, and we are changing that too. So first, we are implementing a new business model where dermatologists will be able to purchase MelaFind. This is what they are used to doing with medical equipment. This is what they are telling us they want to do. And for MELA Sciences, rather than spreading the revenue over the term of the rental, we will now be able to immediately recognize a large percent of the revenue at the time of sale.

It is important that we get to book the sales and revenue as they are happening, just as it is important to give our customers what they want. Second, we are working diligently to secure a CPT code for insurance reimbursement purposes. For those of you who don't know the acronym, CPT stands for current procedural terminology. This is just simply the code that doctors use to bill charges. Once secured, we plan to then work with insurance companies in hopes of obtaining coverage for these charges.

Currently, lesions and malls are examined moles by the naked eye. And if the physician cannot be certain if melanoma exists or not, often a biopsy is taken, but not always. And this leaves room for error. What if the one lesion you don't biopsy is the one with melanoma? With MelaFind, physicians have never-before-available data that will help them make more informed decisions. And that is really great for the patient, and it is good for the health care system.

This is a compelling argument for reimbursement and, in the end, a win-win for everyone. We have engaged specialists to help us through this process. It is tedious for medical devices, and it can take nearly two years and sometimes more. We are determined to see this process through. We can't be certain it will happen, but we will keep you informed.

So not unlike many companies that are in the early stages of commercialization, the ramp up hasn't been established. We have started the process of redefining and refocusing the company's strategy to one that I truly believe positions us to better maximize the value of MelaFind technology. Although we have not yet figured out everything, we are confident in our new go-to-market strategy, our pricing model, and product enhancement based on the power of our data and the analytics.

We have only been in the market with our new business model for less than three months. So, I do not see a pattern emerging yet that would afford fair guidance to you. However, I can tell you the reception has been positive and encouraging, and I hope I can provide something soon.

So in closing, I am so excited by the technology we have and the certain advancement that I know we can achieve in the ongoing study of helping to detect melanoma early. More importantly, we are making great strides in what has been an otherwise virtually ignored area of cancer when it comes to optical imaging and data analysis.

The statistics show just how deadly this disease is if it is not caught early, and how high the survival rate is if it is caught early. MelaFind is the only imaging and analysis tool that has found a way to assist dermatologists in detecting melanoma at its most curable stage. So, I really thank you for your patience and your time today. I am happy to take questions at this time.

(Operator Instructions) Josh Jennings, Cowen and Company.

Thanks for taking the questions, and thanks for the download. Just, again, I know you stated in your prepared remarks that you are not able to give much on your go-to-market strategy. It is still very early days, but I was wondering if you could give just some anecdotal data points or color to how -- with you -- since you have been in the seat in these early days, how academic centers and KOLs are receiving this pitch. And I know you can't give any hard data points, but maybe just something anecdotal.

Yes. You know, I have spent a lot of time up in Boston, New York. I spent a lot of time with the guys down in Texas. Hawaii. Yes, there are dermatologists there. The thing that I see happening, Josh, is there are some really good strong users of out there using MelaFind -- the docs. And they are really figuring out how best to use it -- the high-risk patients -- how many lesions that they really look at. They are getting very comfortable with the out-of-pocket. They charge for patients.

So what we are doing with that data is kind of exchanging it between physicians. What I am seeing and Bob has been out there a lot, too, and I think he saw this. What we are seeing is doctors are having comfortable conversations with each other. So and then when we go to the AAD, if you were to attend, for the first time there is a fair amount of presentations on MelaFind. Doctors are asking for slides. They are getting a chance to really play with it. So it is so very soft, Josh, but that is what I can tell you.

Sure. That is helpful. And then just maybe outside of the AAD, as we work our way through 2014, at other conferences and are other any other data sets that could be presented to the clinical community? And then, secondarily, how do you approach these conferences from a marketing perspective? Are there events you are hosting? And how do you expect to garner business at AAD and other dermatology conferences this year? Thanks a lot.

Yes. Great question, Josh. So there are -- actually, we're going to be publishing a couple of articles in peer-reviewed journals. I can't reveal it; I just saw it. But it will be out soon. What we try to do, really, is continue to work with the physicians or thought leaders and opinion leaders. And so at AAD, as I said, we will have our fourth clinical advisory session. That is the fourth in the time since I have been here. And so, what we do is -- it is a closed session, but we will invite physicians who we think are thought leaders and ask them -- show them our data, show them some new data, and ask them to interact with each other.

It is a typical -- I have done this my entire life throughout the pharmaceutical, but it is typical. They get a chance to really put issues on the table, talk about them. So, we are really trying to have a clinical advisory session at every major meeting. That is a big goal. And we are trying to get as many posters and abstracts as possible, and we are trying to get our -- really, what is happening now is the opinion leaders are asking for our slides to put in sessions. So that is a big change.

From a marketing approach, what I would say, Josh, is we are still spending time on the clinical side. So if you were to come by our booth, what you will see at AAD is the new user interface. It is going to be on display. And so, the physicians will be able to play with the unit and interact with the reps. We really try to focus on kind of what is best for the physician. So, it is a pretty standard approach for every meeting.

(Operator Instructions) [Jared Cohen, Jared Cohen and Company].

Just a few questions, because I know in one of your press releases you have mentioned opening up, in terms of marketing, the MelaFind to beyond just medical dermatologists to pathologists and to surgeons. And I was wondering about doing that because I know the device has always been limited in terms of its use, in terms of only to dermatologists, but to biopsy -- to lesions that have not been biopsied yet.

Right. So spot on, we are limited to dermatologists and ambiguous lesions. What we are looking at and what I have talked about is really doing nothing more than separating our optical scanner from our analysis. And once you do that, you're able to file a 510(k). I have given no dates. I have just presented a view of the world. Let's step all the way back. So, the reason we want to go here is to kind of pull the environment together, right?

The dermatologist does the biopsy, sends it to pathologists. If it is a melanoma, it then goes -- let me be very clear -- reconstructive plastic surgeons, those that deal with tumors, with melanoma. Then it goes to the reconstructive surgeon, especially if it is on your face or a place that they are worried about the appearance. So, we have had a number of pathologists actually approach us. Bob talked about this on the third quarter call where the pathologists basically are looking -- they can use the optical scanner to look at the lesion and see whether disorganization versus the organization is. That is basically what our optical scanner does.

And it basically allows them to be more efficient, to figure out where to cut. That is all in process, as I said. We are exploring it. We have a number of key pathologists looking at it. We're going to enter into some clinical trials with them so that we have data. I think it is important to put data out there, not just the 510(k).

So, we have a long road ahead of us, but we are finding that there is a lot of interest. And, again, the reconstructive surgeon works closely with the pathologist. And again, we have had a lot of interest from those positions because it allows them to image the margin. It basically allows them to figure out what the margin guidance is. But we have yet to do the clinical trials, and we have to do that. So hope that helps you, Jared.

Okay. And just a follow-up question in terms of pricing because I am hearing from one or two dermatologists who are always skeptical -- I mean, their main point of view is just they are set in their ways, and it just comes down to pricing versus the biopsy, even though this is cheaper to use than doing a initial biopsy. Because, what, a biopsy costs, what, initially $600, and if you have to do a surgery beyond that, that is a few thousand dollars. Is that correct?

Right. Yes. It is about correct. It differs in regions of the country.

Right. Versus doing MelaFind depending on how much they want to charge themselves.

That is correct. That is one of the issues out there. The issue with MelaFind is the patient has to pay out of pocket.

Pocket.

Right. That is the issue. So he or she is reimbursed for the biopsy, but not for MelaFind. And this is where I am saying that we are assuring physicians -- and if you go to any of the conferences, you will hear them talk about what they charge patients for MelaFind out of pocket. And I would tell you, it depends on what region of the country they are in and what the economics of their patient base is. If you talk to a doctor in the upper east side of New York City, he charges a fair amount out of pocket for MelaFind, because his patients -- it is all part of the economics in that area. If you go down to Tennessee, it is much different.

So this is what is happening. Most doctors are trying to figure out what is the right cost and what the patient can afford. But remember, these high-risk patients, it is not just any patient that walks in. We have really positioned it for high-risk patients. These women and guys could be in six times a year, four times a year, three times a year. Many of them have had 10 to 20 biopsies already. So if you can spare a biopsy, or if you can be sure that they are not walking away with melanoma, in the end the economics make sense for the patient at risk. But the doctor is figuring that out.

All right. Thank you.

(Operator Instructions) Presenters, at this time, I am currently showing no additional phone questions in the queue. I would like to turn the call (multiple speakers). I would like to turn the program back over for any additional or closing remarks.

I would really like to thank everybody for joining us, and I will look forward to talking to you more in the future. Thanks again, everyone.

Thank you, ladies. And thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation, and have a wonderful day. Attendees, you may log off at this time.