Tempest Therapeutics Inc (TPST) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the OvaScience conference call to discuss the Company's third-quarter 2016 financial results. (Operator Instructions) Please be advised that this call is thing recorded at OvaScience's request.

At this time I would like to introduce your host for today's call, Jennifer Viera with Corporate Communications at OvaScience. Please go ahead.

Good afternoon and thank you for joining us on today's call to discuss OvaScience's financial results for the third quarter ended September 30, 2016. With me today are Harald Stock, our President and Chief Executive Officer and Christophe Couturier, our Chief Financial Officer.

Our discussions during this conference call will include forward-looking statements. Actual results could differ materially from these 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 this call as a result of new information or future results or developments.

We will first with Harald who will discuss highlights from the quarter, followed by Christophe who will discuss our financial results. After our remarks, we will open the call for Q&A.

Now I will turn the call over to Harald.

Thank you, Jennifer, and good afternoon everyone. Thank you for joining us on today's call to discuss OvaScience, our financial performance, and our progress in the third quarter.

We are focused on laying the operational groundwork to support successful commercial launches of the AUGMENT treatment in select international markets in 2017 and we have continued to make important progress in the recent quarter. As you know, we are taking a deep and narrow approach to commercialization, focusing on Canada as our initial market, then on Japan as our next priority market.

We continue to prepare for commercial launches in both countries next year, as defined by having a critical mass of partner clinics and extensive patient and doctor awareness of AUGMENT. Ensuring that enough clinics offer AUGMENT in a market is fundamental to having a successful commercial launch.

We made significant headway in building the necessary foundation to support these launches during the third quarter. We signed on two new Canadian clinics, Victory in Ontario and OriginElle in Montreal, and finalized our agreement with the IVF Japan Group, a network which includes three clinics. With these additions, we now have nine partnerships, seven of which signed on in 2016 alone.

We are working diligently with our newly-contracted clinics to complete certain on-boarding and qualification activities, such as obtaining IRB or preceptorship approval and completing preceptorship training programs that will enable them to offer AUGMENT on a revenue-generating scale.

Historically, that process from initial agreement signing to the end of preceptorship has taken approximately six to nine months, after which time clinics will start to routinely treat patients. We are highly encouraged by the number of clinics we have been able to sign on this year, as it represents an important milestone in our transition from a development-stage to a commercial-stage company.

In addition to expanding AUGMENT's availability in key targeted international markets, we have begun to evaluate the necessary conditions to enable marketing of AUGMENT in the United States, which will be our next area of focus. We have engaged with the FDA and plan to provide an update on our US market entry strategy by year-end.

As a fundamental support to our commercial readiness efforts, we continue to develop a robust clinical data set for the AUGMENT treatment. To that end, OvaScience received central IRB approval for the first company sponsored, multicenter, controlled, double-blind, prospective, randomized egg allocation trial to evaluate the efficacy of AUGMENT in a broad population of women diagnosed with infertility.

Clinical endpoints for the study are the proportion of M2 oocytes that develop into quality day five blastocyst in the AUGMENT group and improved rates of embryo development which could positively impact the rate of pregnancy, embryo selection rates, and ongoing clinical pregnancies. We expect to begin enrolling patients in the first quarter of 2017 with a readout of initial data in the second half of 2017.

Also regarding our AUGMENT dataset, a retrospective analysis of live birth rates and safety profile following a single cycle of the AUGMENT treatment in women who have failed one to five prior IVF cycles will be presented at the 24th World Congress on Controversies in Obstetrics, Gynecology, and Infertility, or COGI, taking place in Amsterdam, Netherlands, on November 10-13 of this year. These data are important to validating the scientific rationale behind AUGMENT and its efficacy in women with varying prognoses for IVF success and highlight AUGMENT's potential in a broader patient population.

Finally, we continue to work with the IVI Group in Valencia, Spain, to advance the ongoing investigator-initiated egg allocation trial. This adaptive, controlled, double-blind prospective and randomized trial includes the 10% or fewer of women seeking fertility treatment who have a relatively poor prognosis for IVF success, defined as those who have failed at least one IVF cycle with embryo transfer and who have had no pregnancy due to low embryo quality. In this protocol low embryo quality is defined as having more than 70% of embryos from prior cycles meet the criteria for the worst prognosis categories.

We continue to expect results from this trial also in the second half of 2017.

In addition, we are also working to rigorously assess our earlier-stage treatment candidates, OvaPrime and OvaTure. As a reminder, OvaPrime is a potential fertility treatment that could enable a woman who makes too few or no eggs to increase her egg reserve. We believe that diminished ovarian reserves affects approximately 30% of those seeking fertility treatment.

Since receiving IRB approval last quarter, we have begun to enroll patients in our ongoing Canadian trial evaluating OvaPrime's safety, as well as changes in a patient's hormone levels and follicular development. The clinical trial of OvaPrime in the UAE continues to move forward and we remain on track to determine and announce our go/no-go decision for OvaPrime by year and based on an internal review of preliminary safety data.

Turning now onto OvaTure, our potential next-generation IVF treatment that could help a woman produce fertilizable eggs without hormone treatments. We are making steady progress in advancing our preclinical program. Along with our partner, Intrexon, we are advancing the process for maturing human EggPC cells into human eggs and recently identified a preferred media that supports early EggPC to oocyte maturation. Throughout the remainder of the year we will continue to work towards maturing human EggPC cells into fertilizable oocytes.

In addition to the progress we made this quarter across our portfolio, we also made key additions to our leadership team. In the third quarter we welcomed Christophe Couturier as Chief Financial Officer and Karen Long as Executive Vice President, Clinical and Regulatory Affairs and Quality Assurance to OvaScience. We also were pleased to announce the promotion of James Luterman to Executive Vice President, Research and Development.

With these additions we are poised to transition from a development-stage company into a global commercial organization with multiple fertility treatments, each supported by high-quality scientific research.

I will now turn the call over to Christophe, who will review our financial results from the third quarter. Christophe?

Thank you, Harald, and good afternoon, everyone. Before I discuss the financial results in my first OvaScience earnings call, I would like to express my enthusiasm for having joined the Company at this exciting juncture. I am delighted to be working with such a capable and dedicated team as we progress into this new stage for the Company.

Current standard of fertility treatment for women leaves a high unmet need. Our treatments are demonstrating promise and I look forward to playing a role in bringing innovative fertility treatment to women as quickly as possible so they can build the families they deserve.

Earlier today we issued a press release detailing our financial results of the third quarter of 2016. As of September 30, 2016, we had cash, cash equivalents and short-term investment of $131 million. This cash balance will be used to support our corporate strategy including: the continued commercial expansion of AUGMENT in Canada, the preparation of our expected launch of AUGMENT in Japan, our ongoing clinical trials of AUGMENT on OvaPrime, and the continued development of our OvaTure treatment.

Revenue for the quarter was $197,000 compared to $75,000 for the same period last year and $189,000 in the second quarter of this year. The revenue recognized in the third quarter relates to 33 AUGMENT cycles. This compares to 22 AUGMENT cycles in the full fiscal year of 2015.

Net loss for the quarter was $19.3 million, as compared to net loss of $17.9 million for the same period in 2015. We attribute this increase in net loss mainly to planned higher personnel cost and costs associated with the commercial expansion of AUGMENT in Canada and Japan.

Cost of revenue for the quarter was $1.6 million compared to $940,000 for the same period in 2015. This increase was mainly driven by the continued expansion of operations to support our current demand as well as our anticipated future growth.

Research and development expense for the quarter was $5 million compared to $4 million for the same period in 2015. This increase resulted mainly from the $900,000 increase in employee compensation on related benefits, driven by the hiring of additional research and development personnel and a $600,000 increase in lab supplies on patient-related cost associated with our ongoing clinical trial at the IVI Group.

Research and development expense was partially offset by $500,000 of stock-based compensation expense (technical difficulty) to senior executives in the third quarter of 2015 that did not recur in 2016 as a result of executive leadership changes. We expect research and development expense to increase as we continue to advance our program successfully towards commercialization and complete patient enrollment in our studies.

Selling, general, and administrative expense for the quarter was $12.6 million, as compared to $12.9 million for the same period in 2015. This decrease was mainly the result of a $900,000 decrease in related cost -- in cost related to the establishment of certain legal entities as part of our international expansion during the third quarter of 2015 and $800,000 of stock-based compensation expense for certain senior executives in the third quarter of 2015 that did not recur in 2016 as a result of executive leadership changes.

The decrease was partially offset by a $1.4 million increase in employee compensation and related benefits, driven by the hiring of additional selling, general, and administrative personnel. We expect selling, general and administrative expense to increase as we are hiring international sales and marketing personnel to support our commercial effort for the AUGMENT treatment and future treatment in our key markets.

As Harald mentioned, for the remainder of 2016 and into 2017, we will continue to build our clinical data set, regional teams, and infrastructures to support our future growth. As a result, we anticipate our operating expense and cash burn to increase to reflect this additional effort.

I will now turn the call back over to Jennifer.

Thank you, Christophe. We will now begin the Q&A session. Operator?

(Operator Instructions) John Sullivan, Leerink.

Good afternoon. I wanted to just follow-up on the comments in the press release commentary regarding the expansion of the Company's AUGMENT program in Canada.

Could you talk about how you are supporting the launch of the product in Canada at this point? How many resources do you have devoted to it? And what is a reasonable expectation for a period of time from signing a clinic to a clinic actually performing cycles?

Thanks, John, for joining the call and asking a question. Multiple answers -- well, you had multiple questions so multiple answers.

First of all, we haven't given granular detail to headcount but the reason why we have chosen Canada as our first market is that it is a very focused and concentrated market so that we can, with very little staff, actually cover the entire Canadian market. If you are in a few cities, four cities -- in Montreal, Quebec City, Toronto, and then maybe on the West Coast or additionally in Alberta -- you cover most of the market and so you don't need a big infrastructure for that.

To your second question or the second part of the question, the typical cycle a clinic undergoes before becoming commercial takes us about six to nine months historically.

What the clinics do is they submit IRB -- for IRB approval in order for them to go through the preceptorship training program. While they do this, we start training them and qualifying them and their lab so that they can perform the AUGMENT treatment. And then we go through preceptorship training with the clinics, set number of patients undergo the preceptorship, that takes additional time. And then once this is completed the partner clinic and we agree on starting to go commercial.

Then obviously between patient consultations; scheduling the biopsy, which is a laparoscopic surgery, minimally invasive, not significant; then hormone stimulation; and then the treatment there is also an additional time period. And that is how we got to the six to nine months until the clinic from sign on to commercial gets through the process. Does that help?

That is very helpful. Thanks so much. Can I ask one more?

Sure.

Let me just shift gears, if you don't mind to the OvaTure treatment and development. What should investors look for in terms of future disclosure and when can more disclosure be expected regarding development of this product?

For both products, OvaPrime targeted at those patients, the 30% that currently have no chance to go into standard IVF but would only look at either adoption or a surrogate, wherever this is allowed, so donor egg; as well as OvaTure, so in vitro maturation of EggPCs into oocytes, we will have updates on our paths forward before year-end. What we said before was that we will take a go/no-go decision on OvaPrime before year-end and we are currently working on maturing EggPCs into oocytes for the OvaTure program and we are making good progress there. Updates on both programs, as I said, before year-end.

Thanks very much.

(Operator Instructions) Mike King, JMP Securities.

Good to chat with you again. I have a similar question that John Sullivan had, except applied to Japan. I just wonder if you could talk about what resources you have either on the ground now or what you might expect to deploy in the near term as far as MSLs and other folks to do the preceptorships, etc.

Yes, sure. Japan, as one of the top IVF markets globally with nearly 400,000 cycles each year and the reproductive rate of only 1.45, is really one of our highest priority markets because of that huge unmet need. After we were able to, earlier than anticipated, sign a commercial agreement with IVF Japan Group, a clinic group with three sites around Osaka covering about 10,000 IVF cycles annually, we have started to recruit a team in Japan.

We started with a general manager, a head of commercial, and a medical group. And we are building out a very focused team that helps us sign on new partner clinics and get them through preceptorship. Obviously we are starting with what one could call a commercial excellence driven approach, where we are looking at the largest clinic networks in the major cities of Japan.

Okay. Just in terms of numbers or dollars deployed, can you say nothing about that right now, Harald, or are you reluctant to give that?

We haven't provided that granularity, Mike.

Okay, fair enough. Switching gears, I wanted to ask about the egg allocation study. Can you talk a little bit more about the target audience in terms of demograph6ics, age, and other? I assume that these are going to be women that don't have other complications like PCOS or endometriosis or anything else that would preclude them from carrying an egg to term.

Yes, our early clinical experience with the AUGMENT treatment was generally in patient populations with a relatively poor IVF prognosis. So data presented from the UAE in 2015 and from Canada in 2015 had patients who had failed at least four IVF cycles and had a relatively poor prognosis.

Our EV trial, our investigator-initiated egg allocation trial, blinded and randomized, that we started earlier this year is also targeting a very poor prognosis patient population. And now broadening our clinical trials program, our ambition is to target a broader patient population because early preceptorship data that we have collected in our patient registry indicate also a significant effectiveness of the augment treatment in a broader patient population. And with our strategic objective to go into a relevant target patient population, this clinical trial program, the multicenter trial -- which is actually our first company-sponsored multicenter trial for AUGMENT -- is really meant to help us in that strategic effort.

Okay. I mean again these will be -- other than sort of having embryos that didn't make it or were genetically abnormal, will they have any -- are you going to exclude women above a certain age or other criteria?

Inclusion criteria -- sorry that I wasn't precise. Inclusion criteria are that patients have exactly failed two prior IVF cycles and they are meant to be 40 years or younger, so that is the major criteria. All the other parameters are left broad in order to enable subgroup analyses to help us guide which patient population is most suitable for AUGMENT.

Okay. All right; thanks, Harald.

Kennen MacKay, Credit Suisse.

Thanks for taking my question. Harald, apologies if I missed this, but did you give any kind of guidance on the number of cycles that were completed for that $197,000 in revenues?

Yes, 33 commercial cycles in the third quarter.

Okay, got you. So that is maybe around $6,000 or so per cycle, give or take?

That is correct.

Got you. And then wanted to ask sort of a follow-up on maybe when we could expect to see COGS coming down as you start recognizing efficiencies of scale. We talked a little bit about potentially moving to central manufacturing and wanted to get a perspective of potentially when that could happen, as well as maybe any kind of guidance in terms of what kind of efficiencies could be recognized there. Thank you.

Thanks, Kennen. For us, the main factor right now is to on-board enough partner clinics to have a critical mass in both our target markets, Canada and Japan. Once we have a critical mass of those clinics, we can use that as a driver for efficiencies and a trigger point to go into a more centralized setup.

Got you. Is there -- do you have a sense of sort of what that critical mass number would be in terms of the number of clinics in Canada doing the AUGMENT procedure?

Yes, we believe that we need to be in about 40% of the relevant clinics in Canada, so let's say roughly 15 in Canada, all in all. Where we are right now we are about 70% down the road, which is significant progress since we only started signing on new clinics towards the end of the [first] quarter of this year.

Got you. Thanks, Harald. I really appreciate it.

(Operator Instructions) There are no further questions at this time. I would like to turn the call back over to Jennifer Viera for closing remarks.

Thank you so much for joining us today and we look forward to providing additional updates on future calls. If you have any further questions, please feel free to reach out to us directly. Thanks so much. Have a good evening.

Thank you, ladies and gentlemen; this concludes today's conference. Thank you for participating. You may now disconnect.