Tempest Therapeutics Inc (TPST) 2016 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to OvaScience's Conference Call to Discuss the Company's First Quarter 2016 Financial Results.

At this time, all participants are in a listen-only mode. There will be a question-and-answer session following the presentation. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions) I would like to remind everyone that this conference call is being recorded.

I will now turn the conference over to Rebecca Peterson with OvaScience. Please go ahead.

Thanks, [Brandon]. Good afternoon and thank you for joining us on today's call to discuss OvaScience's Financial Results for the first quarter ended March 31, 2016. With me today are Herald Stock our CEO-Elect; Michelle Dipp, our CEO and Executive Chair; and Jeff Young, our CFO.

Our discussions during the call today will include forward-looking statements. Actual results could differ materially from those forward-looking statements. Please see our press release issued this afternoon and our annual report on Form 10-K and our most recent quarterly report on Form 10-Q for important risk factors that could cause our actual results to differ materially from those projected or suggested in the forward-looking statements. We undertake no obligation to update or revise the information provided on today's call as a result of new information or future results or development.

We will begin today with Herald, who will provide an update on his addition for our operational strategy followed by Jeff, who will discuss our financial results. Then Michelle will review our quarterly highlights and provide a corporate update. After our remarks, we'll open it up for Q&A.

Now I'll turn over the call to Herald.

Thank you, Rebecca, and good afternoon, everyone. I'm very pleased to be speaking with you today and I'm looking forward to taking over as CEO starting July 1. That said clearly, I am already engaged with the company and putting in place plans for our future success.

I wanted to take a moment to share with you my vision for OvaScience and our 2016 operational strategy before handing it over to Jeff and Michelle to review the first quarter financial results and our business highlights.

As I prepared to take over as CEO, I am inspired by the energy and commitments our employees bring to work every day, which is driven by our company's mission -- and mission to transform fertility by helping woman and couples build the families they deserve. I am also compelled by management's ability to execute towards our goals.

In addition to the company's enormous potential for future growth in the months and years ahead. In under five years, the talented team of scientists here at OvaScience has succeeded in creating and making augment a transformative fertility treatment globally available. And we're also developing two additional potentially ground breaking options, OvaPrime and OvaTure.

As we look at the year ahead, we're focused on three primary objectives or pillars that both serves as the foundation to grow our business. First, we aim to expand our operational platform and execute a target and expansion of the AUGMENT treatment with a narrow and deep focus on Canada and Japan as our primary commercial markets.

Second, we aim to increase our patient support services by building a patient centered operating model. This means on the ground teams in market to support patients and clinics. Third, we plan to continue to generate a robust data set to further validate our portfolio of novel fertility treatments and demonstrate their clinical benefit.

Regarding our first objective, we're currently working to expand access to augment in key IVF markets by taking a narrow and deep approach to the commercial launch. We have already made significant progress in building our ongoing commercial operations and infrastructure particularly in Canada where in addition to existing partnerships; we recently entered into agreements with two new partner clinics who will begin offering the AUGMENT treatment commercially following the completion of a preceptorship training program.

From our experience in that market, we expect to draw meaningful conclusions to inform our strategy as we embark on comprehensive launches in other regions such as Japan. To this end, we will continue to enhance our patient services in part by shifting to a patient-centered marketing approach. With this type of commercial model, we plan to be more proactive in raising awareness and educating patients directly about augment.

In the case of fertility treatment, we believe patients are sophisticated consumers who are informed and will pursue breakthrough treatments.

Lastly, we're committed to improving market confidence in our treatment paradigms by creating validating datasets to support the use of our treatments. The evidence for AUGMENT's efficacy is already compelling. However, we look forward to data in the second half of 2017 from the ongoing egg allocation study conducted by our partner, the IVI Group, comparing standard IVF to Augment.

And with respect to the U.S., we are determining our FDA strategy and will update you on our progress by year-end. Beyond AUGMENT, we expected a debut on our path forward with OvaPrime by the end of this year.

We have an exciting year ahead with multiple catalysts and I'm confident in the company's ability to execute and transition into our next phase of growth. I am very excited to work with everyone on the management team, our dedicated employees and our Board of Directors as we execute on our strategy. I look forward to keeping you updated on our progress.

And with that, I will turn the call over to Jeff.

Thank you, Herald, and good afternoon, everyone. Earlier this afternoon we issued a press release detailing our financial results for the first quarter of 2016. Now I'd like to take a few minutes to recap those results.

First quarter cash burned was $16.6 million and we ended the first quarter with cash, cash equivalents and short-term investments of $110.1 million. We currently believe this cash balance is sufficient to support our activities through key inflection points including our targeted expansion of AUGMENT in Canada and Japan, our ongoing study of AUGMENT in conjunction with the IVI Group in Spain, and a continued advancement of our leading fertility pipeline treatments OvaPrime and OvaTure.

Turning now to the financial results. Revenue for the first quarter was $146,000 compared to $15,000 in the same period last year. The revenue recognized in the first quarter relates 24 AUGMENT cycles at a blended price per treatment as compared to one AUGMENT cycle in the first quarter of 2015. In addition compared to the fourth quarter 2015, we increased the number of patients treated with AUGMENT from 14 to 24.

As we described in the fourth quarter call, we continue to anticipate an average or blended commercial price for the full year 2016 of approximately $7,000 per AUGMENT treatment cycle.

Net loss for the quarter was $21.8 million or $0.80 per share, as compared to the net loss of $17.2 million or $0.65 per share for the same period in 2015 and $20.6 million or $0.76 per share for the fourth quarter of 2015. We attribute this increase primarily to planned higher personnel and personnel related costs as well as costs associated with our international commercial expansion of AUGMENT.

Cost of revenue for the quarter was $1.2 million compared to $35,000 in the same period in 2015. This increase was primarily driven by the continued expansion of our commercial operations to support our current demand as well as our anticipated future growth.

Research and development expense for the quarter was $6 million compared to $5.7 million for the same period in 2015. This increase resulted primarily from a $1.1 million increase in employee compensation and employee related benefits, a $0.6 million increase in cost related to our clinical study being performed at the IVI Clinic in Spain, and a $0.5 million increase in facility and consulting cost. This was partially offset by a decrease of $2 million of stock-based compensation expense related to certain mark-to-market adjustments of our Founders' shares that fully vested in the first quarter of 2015 and did not recur in 2016.

We expect research and development expense to increase as we continue to advance our program successfully towards commercialization and continue patient enrollment in our studies.

Selling, general and administrative expense for the three months ended March 31, 2016 was $14.5 million as compared to $11 million for the same period in 2015. This increase was primarily result of a $2.2 million increase in employee compensation and related benefits driven by the hiring of additional sales and general and administrative personnel to support our operations.

A $1.6 million increase in legal accounting tax and other related services, primarily to support our International growth and a $0.6 million increase in facility related costs. This was partially offset by a $1 million decrease of stock-based compensation expense related to the completion of the vesting of our Founders' shares.

We expect selling, general and administrative expense to gradually increase as we continue to hire international sales and operational personnel to support our commercial efforts for the AUGMENT treatment and future treatments in our key regions.

In summary, the increase in spend in the first quarter of 2016 is aligned with our three primary objectives that as Harold mentioned will serve as a foundation to grow our business as we expand our operational platform to our focused regions, increase our patient support services through our in-market teams, and generate data to further validate our portfolio.

With that, I'll turn the call over to Michelle. Michelle?

Thank you, Jeff. I will now review recent developments. In March results supporting AUGMENT mechanism of action were published in a peer reviewed article in Scientific Reports, a Nature journal. This publication highlighted data from a study conducted by Dr. Justin St. John from the Hudson Institute of Medical Research, one of the world's top medical research institutes. This study showed the importance of mitochondria in normal embryo development. Moreover, this study further supports the current body of evidence on the role of mitochondria from egg precursor cells in improving female fertility and improving pregnancy rates.

Beyond the scientific data, what's most important is that we continue to see healthy babies being born. To-date, 30 babies have been born with the AUGMENT treatment and the first baby to be born with AUGMENT recently celebrated his first birthday.

As Herald noted, we are expanding our commercial presence in Canada. In the first quarter, we've signed two new agreements with clinics that will offer AUGMENT commercially. This includes one of the largest clinics in Canada.

Now turning to Japan, we completed enrollment in our non-commercial preceptorship training program at IVF Japan, where we are making progress towards commercialization. Internally, we continue to build our AUGMENT data set as we progress the enrollment of our ongoing egg allocation study with the IVI Group. As a reminder, this is a prospective controlled, double blind and randomized egg allocation study with an adaptive design to evaluate the success of standard IVF versus AUGMENT. We expect to report data in the second half of 2017.

Turning now to OvaPrime, we have also continued development efforts by advancing our clinical study. This study is designed to give clinicians hands on experience with the OvaPrime treatment and to evaluate OvaPrime's safety and efficacy as measured by a woman's hormone levels and follicular development. We plan to provide an update on the path forward for OvaPrime by year-end.

Finally, we're continuing to advance our third product in development OvaTure, a potential next generation IVF treatment for women with compromised eggs, or those who are unwilling or unable to undergo hormone hyper-stimulation. We are currently maturing human egg precursor cells into human eggs and we plan to continue this work throughout 2016.

At OvaScience, we are shifting gears with an increased focus on commercial operations. We remain focused on our mission to bring novel fertility treatments to patients in need and we aim to become a global leader in fertility.

With that, I will now turn it now to Rebecca.

Thanks, Michelle. We'll now open the call for Q&A. Operator?

Thank you. We will now begin the question-and-answer session. (Operator Instructions)

And from Ladenburg Thalmann, we have Bert Hazlett. Please go ahead.

Yes, thank you for taking the question and appreciate the update on the -- in strategy and the developments going forward. The question regarding strategy and the focus on Canada and Japan, could you describe the characteristics of those two countries maybe in contrast to other regions of the world that make those countries specifically compelling for a narrow deep focus and compelling initially as opposed to maybe countries in Europe.

Sure, happy to. Well Japan maybe surprisingly to some of the audience is the largest IVF market in the world with over 300 cycles each year, which has about double for instance the number of cycles in the U.S. and more than in all of Europe. And therefore targeting Japan for us was a very important strategic decision.

On Canada, we had early adaptor interest already last year and it serves perfectly as a test market for us before we expand our strategy in other parts of the world.

Okay, thank you. In terms of the egg allocation study with the group in Spain, is the final data to be reported in the second half of the '17? Or actually my question is there a chance that interim data can be reported before the second half of '17?

Thanks. Great question. We're really pleased to be working with the IVI Group in Valencia, Spain on this study. We do expect the final data to be reported in the second half of 2017.

Okay. But there is no chance any interim data would be reported between now and then?

It is an adaptive design, but Bert, just so you know the trial is blinded, so.

Okay, thank you. And then one on finances, I think I asked this last quarter and I'll ask it again. Could you discuss maybe how we should think about gross margins as the AUGMENT treatment is rolled out across the globe? When should we be able to see some improvement in gross margin?

Yeah, Bert, this is Jeff, thanks for the question. I think as we think about '16, and we think about the three major objectives for the organization in building out and expanding into these regions as well as building these in-market teams and getting data, I think that you should expect some pressure on the margins for this year with the expansion of AUGMENT going forward into '17, you should start to see improvement in the margin.

Okay. So 2016 is a build year in those regions and that should improve as we move forward into the further years?

That's our expectations, yes.

Okay, thank you very much.

Thanks, Bert, very much. We'll take the next question.

And from Leerink Partners, we have Paul Matteis online. Please go ahead.

Hi, this is [Jeff] in on behalf of Paul, thanks for question. Just a couple of quick ones.

First, can you provide further granularity or context on what the requirements are needed to make the go no-go decision on OvaPrime? And secondly, can you update us on how is the IVI study recruiting, what are the inclusion and exclusion criteria especially with regard to co-morbidities? And then finally, how has your thinking evolve under sales infrastructure? Thank you.

Sure. I'll take the first two questions and then I'll hand off to Herald to talk about sales infrastructure.

So the first question on OvaPrime, what we'll be looking for in order to make our go no-go decision are really number one hormone levels, which we can measure in serum blood levels. So we're looking for AMH and FSH. And then the second thing that we're looking for is evidence of follicular development, which can be seen through ultrasound.

On the IVI study, you were asking about inclusion and exclusion criteria. They are pretty broad criteria that are on clinicaltrials.gov. It's essentially women, who are 18 to 42 who failed one IVF cycle and they have exhibited poor embryo development, so they have poor embryo quality.

And then I think you had a question --

Yes, your last question, I believe was on sales infrastructure.

Happy to take it.

That's correct.

Thank you. So if you look at the fertility market and the specifics of it, we're working on implementing a three tiered strategy in commercializing our product. First of all, there is a commercial key account management approach that is needed to sell the product to the clinics. Then there is a medical scientific liaison approach to actually educate the IVF doctors and also referring OB/GYN in order to get the best treatment option to the patients. And then there is a patient education component to it, where we will expand our patient services and patient marketing activities in the key regions.

Great, thank you.

Thank you very much. We'll take the next question.

(Operator Instructions). And from Credit Suisse we have Ken McKay online. Please go ahead.

Hi, this is actually Anamaria for Kennen. I have a question on the AUGMENT procedures, could you tell us or give us more color on how many clinics are currently commercially selling the AUGMENT procedures or -- and versus how many clinics are currently into that pre-commercial preceptorship, but are being scheduled to offer the procedure?

Sure. So in terms of commercial centers, if we start with Canada, we have our two existing clinics, who are offering AUGMENT commercially, that's TCART, who are now TRIO; and First Steps, who are now Anova. And then we recently signed up two new clinics, one of whom is CReATe, one of the largest fertility centers in Canada; and the other clinic is NewLife. And so those are -- that's a total of four in Canada. Then we have three clinics in the UAE, who are offering AUGMENT commercially. And in terms of the preceptorship, we have a total of three clinics part of IVF Japan that are in Japan under the preceptorship. And then, of course, we have the study ongoing at IVI in Valencia, Spain.

And the Japan is schedule to begin full offering in the near-term or?

We said in 2017.

Thank you.

Great. Other questions?

No, we have no further questions at this time. Rebecca, I will turn it back to you for final remarks.

Okay, thanks everyone for dialing in, I know it's been a very busy earning season and we certainly appreciate your attention. If you have any follow-up questions, please don't hesitate to reach out to the company. Have a great evening.

Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.