Strata Skin Sciences Inc (SSKN) 2014 Q3 法說會逐字稿

Good day, everyone, and welcome to the MELA Sciences third-quarter financial results conference call. Today's conference is being recorded. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions.

I would like to remind everyone that this conference is being recorded and would now like to turn the conference over to Ina McGuinness, Managing Director of LifeSci Advisors. Please go ahead, ma'am.

Thank you, operator. Before we begin, we would like to remind you that management's comments today may include 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 statement that contain words such as expects, contemplates, anticipates, plan, 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 matters.

These statements are based on our current beliefs or expectations and are inherently subject to significant 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.

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 the Company's forward-looking statements may prove to be incorrect. Therefore you should not rely on any such factors or forward-looking statements.

In addition, more specific risks and uncertainties facing the Company are set forth in the Company's reports on Form 10-Q and 10-K filed with the SEC. MELA Sciences urges you to carefully review and consider the disclosures found in its SEC filings which are available at www.sec.gov and www.melasciences.com.

I will now turn the call over to MELA Sciences President and Chief Executive Officer, Rose Crane. Rose?

Good afternoon and thank you for joining us on our third-quarter 2014 investor call. Today I'd like to spend some time on key topics including progress on clinical trials, publications reader trial as well as the business update and our financial status which our CFO, Bob, will address.

So turning to our key strategies for achieving our goals of MelaFind becoming the standard of care in the detection of melanoma at its most curable and cost-effective stage, let me start with a report on our progress in the area of key opinion leader support.

As you may know, our top-down approach encompasses placing MelaFind with key opinion leaders, who as a result of their influence can be very instrumental in showing other physicians the benefit of using MelaFind in their practice and ultimately share their experience in peer-to-peer settings at key medical dermatology conferences.

In late October, we had some very positive news from the Cleveland Clinic on this front when they released their annual Outcomes publication. The 2014 publication specifically highlighted the use of MelaFind for dramatically reducing benign tissue biopsies. The Cleveland Clinic Dermatology and Plastic Surgery Institute reported that with the use of MelaFind, they successfully reduced benign tissue biopsies by 61% in patients having moles at risk for being melanoma. In the study, an initial cohort of 166 pigmented lesions on 30 patients were identified as suspicious by visual inspection and dermoscopy. Following the MelaFind data, 64 of those lesions were identified for biopsy and 102 were deferred from biopsy indicating that MelaFind analysis may prevent overly aggressive biopsy decisions.

They also stated that there may also be an overall improvement in biopsy risk. Let me state that this study was conducted independently by the Cleveland Clinic and was not sponsored by MELA Sciences. These data add to our growing body of evidence showing the MelaFind system is an effective tool for not only reducing healthcare costs but overcoming challenges in the early diagnosis of melanoma and ultimately saving patients from unnecessary medical procedures related to what is today one of the fastest growing cancers.

There are a number of challenges in detecting melanoma and the doctors at this institution using MelaFind truly exemplify the positive shift in healthcare outcomes that can be achieved when innovative technology is implemented and its progress is quantified.

As you know, we have sponsored a series of reader studies that are designed to measure the impact of MelaFind on physician biopsy management decisions. To date Dr. Darrell Rigel, Clinical Professor of Dermatology at New York University Medical Center and MELA Sciences Chief Medical Advisor, has conducted four reader studies with the most recent one taking place just three weeks ago at the 2014 Fall Clinical in Las Vegas. This now brings the number of dermatologists who have participated in the reader study to 592, which is almost 8% of the US dermatology population. These reader studies will continue to be presented and published so as to add to the body of evidence supporting the use of MelaFind as a tool to improve the dermatologist's overall accuracy in finding more melanomas and importantly in reducing the number of the benign tissue biopsies.

As we continue to move forward on the CPT code and eventually reimbursement, this data will support a strong story for payers. The evidence that has accumulated with MelaFind both from the Cleveland Clinic and the reader trials simply points to the fact that there are both short- and long-term savings to the healthcare system.

In the short term, there is a tremendous savings due to fewer benign tissue biopsies being performed, which can cost the system anywhere from $150 to $1000 per lesion depending on the amount of work that must be done.

In the long-term, there is also a savings to the system when melanomas are detected earlier in the process. The melanoma which is detected at Stage zero cost the system about $5000 depending on the amount of work needed to be done. And unfortunately, a melanoma detected at Stage III to IV can cost the healthcare system anywhere from $150,000 to $180,000.

It is also critically important that we continue to grow our base of publish studied in peer-reviewed journals to support the medical relevance of MelaFind as well as increased usage and ultimately our reimbursement story. In October 2014, the Journal of Drugs and Dermatology published an article which reviewed MelaFind for use in children. We're also excited to report that three new peer-reviewed publications on MelaFind will be released in December 2014, January 2015 and February 2015. These publications focus on the use of MelaFind, improving dermatologist's accuracy in both the community and university-based systems.

Now turning to the product development front. Our efforts related to improving the quality of our product as well as reducing the cost of goods continues to move forward. The engineering team has made great progress and has designed a new, much smaller, less expensive MelaFind unit, which we believe can be launched first quarter 2015 in Germany and late second quarter 2015 in the US. A few months ago, the team eliminated the need for daily calibration with the Field Phantom, which has been replaced with software in the form of a flap shutter. The new design and the elimination of the Phantom will go a long way toward improving the quality of the machine as well as reducing our cost of goods by greater than 50%. This will allow us to better manage both our price point in the market as well as our margin.

Additionally during the third quarter, we entered into a collaborative agreement with Columbia University's research team to explore potential next-generation capabilities and features of the MelaFind system as well as other enhancements to the system's range and ease of use.

The Columbia team is being led by principal investigator Andreas Hielscher, PhD. Doctor Hielscher and his team at the Biophotonic and Optical Radiology Laboratory at Columbia possess considerable experience in modeling of light propagation in tissue and designing optical medical instrumentation. We are thrilled to have this opportunity to engage with these scientists to potentially develop a next-generation even more powerful solution in support of early detection and lifesaving treatment for melanoma.

And on the financial front, we are very pleased to complete a transaction in July that raised additional cash for us of approximately $14 million. This financing significantly improved our liquidity and enables us to move forward more confidently with the plans I discussed. We are in the process of finalizing our 2015 budget that anticipates a further significant reduction in our cash burn from 2014. And this will enable us to achieve the important goals we have set for next year with our existing cash on hand.

So with that let me turn the call over to Bob for a financial review of our third quarter.

Thanks very much, Rose. For the three months ended September 30, 2014, we recorded revenues of $0.2 million, including revenues from the sale of MelaFind Systems and placement and user fees generated from our legacy leased based business. Most sales of MelaFind Systems during the quarter were units that were purchased by dermatologists at the end of the original two-year lease term.

Total operating expenses decreased by $1.7 million consisting of $0.5 million in R&D expense and $1.2 million in SG&A in accordance with our cost reduction program initiated last year. We recorded a net operating loss of $4 million compared with a $6.2 million loss for the 2013 period, a 36% improvement. We reported a net loss of approximately $2.3 million or $0.44 per basic and diluted common share compared with a net loss of approximately $7.4 million or $1.72 per common share for the comparable three-month period ended September 30, 2013.

Our net loss for the period reflects a $2.1 million benefit in fair value of the liability for warrants accounted for as derivatives partially offset by $500,000 in interest expense.

For the nine months ended September 30 2014, we reported a loss of $9.6 million, or $1.89 per basic and diluted common share compared with a net loss of $21.3 million or $5.10 per basic and diluted common share for the comparable period in 2013, a 55% improvement.

Our operating loss during the period improved by 34% to $13 million from $19.7 million for the comparable 2013 period. Nine month 2014 results were impacted by a cumulative $7.2 million benefit from a change in the fair value of our outstanding liability for warrants accounted for as derivatives, partially offset by $3.4 million in liquidated damages from the February 2014 financing and $0.5 million in interest expense. The improvement in our operating loss is more reflective of our operating activities and resulted from our cash conservation and cost reduction activities.

Net cash used in operations during the nine months ended September 30, 2014 was approximately $14.7 million which includes $3.4 million in liquidated damages that were paid to investors in that February 2014 financing. Without the inclusion of this transaction-related expense, our net cash used in operations during those nine months would have been only $11.2 million, approximately 27% lower than the comparable period in 2013.

On a monthly basis, cash used in operations averaged $1.2 million during the third quarter of 2014 which we anticipate will be reduced in the fourth quarter and into 2015.

The Company's cash balance at September 30, 2014 was $14.5 million compared with $3.8 million at December 31, 2013. In July, we raised approximately $14 million in net proceeds through the issuance of 4% senior secured convertible debentures due July 2019 and refinanced our existing Series A convertible preferred stock with a new issue of Series B preferred stock. We issued common stock purchase warrants at an effective exercise price of $2.45 per share with warrants to purchase 4.8 million shares expiring in 18 months from the date of issuance and warrants to purchase 6.2 million shares expiring five years from the date of issuance.

If they are exercised, the warrants expiring in January 2016 would become an additional source of non-dilutive funding. This transaction considerably improved our liquidity and was supported by important healthcare investors. We plan to continue our efforts to reduce our cash burn and to rely on existing cash to cover our 2015 requirements.

At this time I would like to open the call up for questions. Operator, please go ahead.

(Operator Instructions). Swayampakula Ramakanth, H.C. Wainwright.

Good evening, Rose, good evening, Robert. This is RK. Of the $200,000 in sales in the current quarter, I was trying to understand what percentage of those revenues came from leaders and also since you said most of the sales came from people converting, just trying to understand what would that percentage be who are readily converting their [leases] into units?

The percentage of sales in the revenue line is well more than 50%. It's about 70%. And I think we had -- I think there were very few sales -- it was an average of about seven to one in terms of converted sales versus new units.

Ramakanth Swayampakula

Okay, thanks. Then trying to understand if there is anything that you can tell us how the CPT application is progressing and do you get any updates from the regulatory authority from the AMA or how do we understand where the process is at this point?

Yes, we are just kind of in the process of the applications in and progressing forward. We really don't know anything yet at this point. When we do we will provide an update. What we are really trying to do, RK, though is as you know, build our body of evidence so that by the time we get to CMS and the payers, we have the data necessary to support what we need in terms of reimbursement.

Okay. And then as you wait for the CPT code, I know that you are extensively educated as in terms of what is happening on the KOL side but what else is the management trying to do to get the market ready to accept this device?

And the last question is, in your current conversations with potential customers, what percentage of those folks are saying they are hesitating to purchase the device because they don't have a CPT code to write it against?

So, good question, RK. There are two what I would call kind of obstacles right now with customers. The first more often quite honestly is our price point. And that does kind of relate to not having reimbursement but I will tell you we -- and we've gotten a good feel for all of these conversions and what is an acceptable price point out there. So with our new equipment and that is probably one of the most important things that is going to occur in 2015, we will have a much more reasonable in the price point.

The second is reimbursement but the first is price. And so we believe by at least approaching the cost of goods reducing it and bringing out -- it is a much smaller sexier unit and much lower cost higher quality that we can at least start to gain some traction -- some traction before reimbursement kicks in.

Okay. All right, thank you. I will step back in the queue.

(Operator Instructions) Jared Cohen, JM Cohen & Company.

Just a quick question. I guess basically from the data you have out there, are you seeing increased usage within your existing user base given that you've had the device out there for I guess now more than two years? And with their --?

Yes I think really what has caused -- that has caused an increase usage but we've had our new user interface out there since March. And so all the physicians that have been converted March, April -- converted and also see the data in the reader trials, we are seeing and hearing about a lot more usage. Importantly, we are getting a lot more podium time because the data is out there and the top docs are talking about MelaFind in the data. So kind of both ends of the spectrum are being helped.

Okay, so they are presenting it in terms of to their patients and the patients are if they need -- if they want to use it they are using it on their patients when they have to? Or --?

Yes. And I would tell you even at the some of the sites like the Cleveland Clinic, patients are asking more for it because it has been -- there has been a lot of press around the Outcomes publication.

Okay. All right, thank you.

(Operator Instructions). At this time there are no further questions in the queue. I will turn the call back to our speakers.

Thank you very much for everyone for joining us and we look forward to continue to update you on our progress. Good afternoon.

And, ladies and gentlemen, that does conclude today's conference. We thank you for your participation.