Aspira Women's Health Inc.
Q4 2021 Earnings Call Transcript

Published: 23 Mar 2022

[Operator:]

Good morning, ladies and gentlemen, and welcome to Aspira Women's Health Inc.'s Full Year 2021 and Fourth Quarter 2021 Conference Call. My name is Kyle, and I will be your coordinator for the call today. As a reminder, this conference call is being recorded today. Leading the call today are Valerie Palmieri, Executive Chair of the Board; Nicole Sanford, President and Chief Executive Officer; and Bob Beechey, Chief Financial Officer. After the prepared remarks, we will open the call for Q&A. Before we begin, I would like to remind everyone that forward-looking statements defined under the Private Securities Litigation Reform Act of 1995, will be made during this call, including statements relating to Aspira's expected future performance, future business prospects or future events or plans. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, actual outcomes and results are subject to risks and uncertainties and could differ materially from those anticipated due to the impact of many factors beyond the control of Aspira. The company assumes no obligation to update or supplement any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Participants are directed to the cautionary note set forth in today's press release as well as the risk factors set forth in Aspira's most recent Form 10-K and our second quarter 2021 Form 10-Q filed with the SEC for a description of factors that could cause actual results to differ materially from those anticipated in the forward-looking statements. At this time, I'd like to turn the call over to Valerie Palmieri, Executive Chair of the Board. Valerie?

[Valerie Palmieri:]

Thank you, Operator. Good morning, everyone, and thank you for joining us today. As previously announced, I have been elevated to the role of Executive Chair of the Board, I look forward to leading the company at a higher level and I'll be working side by side with our new President and Chief Executive Officer, Nicole Sanford, who is joining me today to speak with each of you. As Executive Chair of the Board, I intend to focus on specific strategic imperatives and enterprise value drivers, including the launch of critical new products, further development of Aspira's thought leadership, including key strategic commercial, scientific and advocacy partnerships as well as our clinical and scientific leadership via our KOL advisory boards. As President and CEO, Nicole will lead the business, execute strategic and operational plans and scale and transform operational and functional areas to support our planned growth. We have forged a strong and positive relationship working with one another over the past year, and it has only gotten stronger since we took our new -- on our new responsibilities. We look forward to partnering with one another to drive strategic milestones while delivering growth, revenue and profitability to all of you, our shareholders. In addition to the executive level changes, we have recently announced the appointment of Celeste Fralick, Ph.D to our Board of Directors. Dr. Fralick recently retired as Chief Data Scientist at McAfee, where she was responsible for developing enterprise and consumer product analytics and data ecosystems for cardiomyopathy and neurostimulation. Dr. Fralick is an accomplished executive who brings over 4 decades of data strategy experience to the Board. She brings a broad background in technology and specifically health care in several markets with customer and industry-facing experience. She has been recognized globally for cross industry-leading analytics, ideation, strategic leadership and results-oriented competencies. In addition, Dr. Fralick was named to Forbes inaugural 2018 list of America's Top 50 Women in Technology. I would now like to update you on some recent strategic developments, which we are very pleased with, before I move on to the 2021 review. As discussed in our March 2021 call, we entered into a strategic research collaboration agreement for the development and commercialization of a microRNA high-risk ovarian cancer early detection test with Harvard Dana-Farber Cancer Institute, Brigham Women's Hospital and the Medical University of Lutz. They have published on a novel microRNA panel, which we intend to use in combination with current technology. After completion of multiple experiments interrogating diverse sample sets and data sets, we have consistently found the technology to be complementary improving the accuracy compared to the microRNA protein biomarkers alone. Based on this outcome data, we have met the success criteria together. This month, Aspira has exercised the option for an exclusive worldwide license of its cutting-edge microRNA technology and will continue development of a novel combined assay utilizing a new platform as well. We believe the high specificity demonstrated by this technology, coupled with our strong sensitivity of our technology has the potential to be the base technology for a diagnostic, which will function as a test for women with a high genetic risk of ovarian cancer. The end goal for truly developing a personalized risk solution for patients who are genetically predisposed to ovarian cancer. The brand name for this study is OVAInherit. There will be more to come as we move forward with publishing our early data. Nicole will also discuss additional new pipeline updates in her remarks. I am now moving on to our recap. We believe Aspira Women's Health has effectively weathered the storm of the pandemic and is rapidly gaining momentum. We have delivered solid test volume recovery, improved price year-over-year considerably, added to our covered lives and lastly, made significant additions to our Board and executive team. We continue to advance our product pipeline and strengthen our financial position in 2021. We accomplished 5 major milestones

[Nicole Sandford:]

Thank you, Valerie. Before I start, I'd like to say that it has been an honor to assume the role of Chief Executive Officer and to continue working closely with you to achieve our mission. As I've transitioned from Board member to leader, my respect for the team of talented professionals that you have assembled has only grown. Your leadership has certainly set the stage for an outstanding future for the company. I'm now going to spend a few minutes providing an update on our strategic priorities and a fast forward for 2022. Our theme this year is focused execution. We've made a number of critical investments and now is the time to capitalize on those efforts. I intend to do that through focused execution in 3 areas

[Bob Beechey:]

Thank you, Nicole. Fourth quarter 2021 OVA1plus revenue was $1.8 million, an increase of 29% over prior year and a 12% increase sequentially. This 29% OVA1 revenue increase is primarily due to an increase in the number of tests performed in 2021 as well as an increase in the OVA1 average revenue past in the fourth quarter of 2021 compared to the prior year. Prior to COVID, in 2019, the third quarter versus fourth quarter growth was 7% quarter-over-quarter. Despite COVID headwinds, we grew 12% sequentially and achieved a quarterly record number of tests performed in the fourth quarter of 2021. On a full year basis, 2021 OVA1 revenue was $6.6 million an increase of 45% over prior year. This 45% increase is driven by both the lower number of tests performed in 2020 due to the COVID-19 and an increase in the OVA1 average revenue per test. The revenue per OVA1plus test performed was $382 for the fourth quarter of 2021 compared to $377 during the third quarter of 2021. This year-on-year price increase was 5% compared to the prior year fourth quarter of $364. Our full year revenue per OVA1 test perform was $378, a 13% increase compared to the full year 2020 price of $334. Our full year revenue per OVA1 test minus Medicaid perform was $414, a 15% increase compared to the full year 2020 price, excluding Medicaid. Gross profit margin on OVA1plus was 56% in the fourth quarter of 2021 compared to 50% in the prior year and 57% in the third quarter of 2021. The year-on-year price increase was driven by volume improvements, while the third quarter gross profit included slightly less kits and postage rate. Research and development expenses for the 3 months ended December 31, 2021, were $1.5 million, a decrease of $100,000 or 4% compared to the third quarter of 2021. Our R&D investment increased $700,000 or 98% year-over-year. This spending was primarily focused on product development costs related to OvaWatch, investments in Aspira Synergy and consulting expenses associated with EndoCheck regulatory clearance. Sales and marketing expenses were $4.9 million for the 3 months ended December 31, 2021, a decrease of $200,000 or 4% compared to the third quarter. This decrease was primarily due to less recruiting and promotional support costs as we execute upon our commercial strategy. The prior year sales and marketing expense of $2.8 million was depressed as it did not reflect the current investments we are making in market awareness and the sales team additions. General and administrative expenses were $3.6 million for the 3 months ended December 31, 2021, a decrease of $200,000 or 5% compared to the third quarter of 2021. We incurred $2.7 million in general and administrative expenses in the prior year quarter. The year-over-year variance is attributable to headcount and personnel expenses. We ended the fourth quarter of 2021 with approximately $37.4 million in cash, cash equivalents and restricted cash. Cash used in operations in the fourth quarter of 2021 was $7.6 million, which was a decrease from the third quarter, which was $7.9 million. This decrease sequentially was primarily due to reduced consulting costs as well as recruiting costs from our sales team investments. Our short-term focus is to continue execution on a key catalysts. Key catalysts include acceleration of OVA1 adoption and price, accelerated adoption of our Aspira Synergy platform and successful launch of new products. The organizational changes Nicole referred to will result in onetime severance separation and settlement payments as well as legal costs of approximately $1.3 million in the first quarter of 2022. I would now like to hand the call back to Valerie to wrap up.

[Valerie Palmieri:]

Thank you, Bob. Before we open up the call for Q&A, let me restate our optimism for building the company for sustainable growth for the near term and long term. 2022 will mark the first year with our second-generation technology being offered in a full access environment. It will be the first year with our first Aspira Synergy customer ramping up adoption as well. Ovarian cancer accounts for more deaths than any other cancer of the female reproductive system and is the only gender-specific cancer with greater than a 50% mortality rate. Our work in products are at the forefront of changing the standards of care and the detection of ovarian malignancies. We believe we are helping close the gap in detection and, most importantly, survival for women. In the near term, we believe OVA1Plus, with our diversity differentiation will become the standard of care in personalized pelvic mass risk assessment for ovarian cancer. Our long-term goal is to become the personalized liquid biopsy standard, inclusive of all ages, stages and race and ethnicities. We are now happy to open up the call for Q&A and answer any of your questions. Operator?

[Operator:]

Our first question is from Brian Weinstein with William Blair.

[Unidentified Analyst:]

This is Dustin on for Brian. Bob, maybe this 1 is for you. I know you called out the severance cost for the personnel rationalization. We're just trying to get a better detail on some more specifics around the sales force rationalization, what are the expected cost savings from this? And maybe more importantly, what are your expected benefits from this? And how is that factored into your outlook for 2022?

[Bob Beechey:]

I think it was largely realignment and reinvestment. So while there will be some savings. It was largely a change relative to skillsets and coverage. There were also some management changes associated with that. So I think the other factor relative to looking at spend in 2022 is that we are anticipating launch costs associated with OvaWatch this year. So in terms of absolute numbers, we're not seeing -- we're not planning a significant decline relative to overall sales and marketing expenses during the year. So it's really about effectiveness and productivity. So I think it's consistent with our intentions to drive productivity up during the year. And then also the other factor in terms of spend is a significant expectation around the OvaWatch launch this year.

[Unidentified Analyst:]

Got it. Great. And I know as of last quarter, I think you ended with around 40 reps. I just wanted to confirm that number is still right around there and maybe what your intentions are for that number for the rest of 2022?

[Valerie Palmieri:]

Dustin, this is Valerie. Last year, we ended about 26 reps and our goal is to be in that 30 to 35 zone.

[Unidentified Analyst:]

Great. And then regarding the licensing deal on the RNA technology, we just want to get a better understanding of how that option was exercised? Was it a cash payment? Was it stock, does those entail future royalties? And then maybe some further detail on the time lines when you expect that tech to be developed for that new assay?

[Nicole Sandford:]

So in terms of the -- it's Nicole, thanks for the question. In terms of the cost, it was a relatively nominal cash payment, and we are actually still working on the terms of the agreement going forward. Is that right, Bob?

[Bob Beechey:]

Yes. No, we have a royalty arrangement with them that we previously disclosed that that's in the same zip code as our Johns Hopkins, it's low single digits percentages. So I think that's consistent with our margin profile currently with the additional technology. What we will do, and it's largely reflected in our current run rate, but the exercise of the option basically commits us to support the co-development of what will be an LDT likely. So I think it's really not a big onetime spend. It's really a confirmation that we're moving forward with the next phase of development. And we're very pleased with the economics of the royalty arrangement.

[Unidentified Analyst:]

Got it. Understood. And then in terms of trends, I know you talked about the first quarter hitting some records. That's great. It looks like the recovery is going well. But maybe just trying to get some of your assumptions for the rest of the year in terms of access and ASPs, if there's any outlook that you have maybe for next month and beyond then, that would be appreciated?

[Bob Beechey:]

Well, we referenced the fact we're working clinical utility on OVA, and I think that the big factor we think that will ultimately -- relative to price in ASP think in terms of incremental growth in the short term, absent a significant publication. One of the factors that we anticipate helping to drive adoption in general is our Synergy platform expanded use case. So I think when you look at outlook, while we haven't given guidance, we're all optimistic given the recent trends we're seeing in customer conversion as well as volume that Axis is opening up. So as Nicole mentioned, we're all over if we have a resurgence that we don't -- we want to minimally any impact to that. But we're moving full steam ahead. Valerie mentioned we're at 30. We anticipate leading up to the launch, which we anticipate being this year of the OvaWatch that will build on synergy and incrementally increase the sales force from 30 to -- in the mid-30s, 35 is really the number we've said publicly. So I think the optimism -- we're back in our office now and our sales force is jazzed up with the momentum that Michael is bringing to the table as well. So we're very bullish that our strategy of building out availability with synergy with the 2 super groups and then launching the OvaWatch is going to provide us very strong momentum going into the second half of the year.

[Unidentified Analyst:]

Got it. And then a last one on cash burn. It's been a focus for a lot of investors, I think, this earnings season in regards to other companies in the diagnostic space filed incorporating your comments about operating expenses with the restructuring and all the moving pieces there. How should we think about what that means for cash from this year?

[Bob Beechey:]

Well, I think I signalled that Q1 has the one-off cost. So that's really onetime. And then I think we're thinking about a marginal reduction and then compression of cash burn as we launch and further grow adoption as the synergy platform starts to kick in with volume as our sales force productivity. Recall, we've said in the past, while we did make some changes relative to the sales force, we've got a lot of salespeople that are getting better tenured. So I think we're going to start to get to a full access fully trained, fully up to speed, stride. So I think -- and then our big optimism is related to dropping in OvaWatch during the year, which was a much wider indication that we think is going to fuel adoption because the toolkit relative to OvaWatch becomes a lot more clinically useful. OVA1plus is much more acute in terms of life or death and the implication for patient care, but the ability to use OvaWatch to really determine if surgery is necessary is very -- our voice of customer on clinicians leads us to believe that there's just a gap in the toolkit that we think OvaWatch is going to significantly impact. So those are the factors that will provide the uplift for utilization on the revenue side and think in terms of cash burn being most influenced by that and less so by the restructuring. So I think we're on the current trajectory. We built out and essentially think about the Q1 as more of the -- it's more than a tweak, but it's really an optimization move as opposed to a cutback.

[Operator:]

Our next question is from Ross Osborn with Cantor Fitzgerald.

[Ross Osborn:]

So starting off, can you discuss OvaWatch, would you be able to provide some more color around the commercialization plan for single-use? How should we think about the ramp exiting this year and early next?

[Valerie Palmieri:]

Yes. So as we mentioned, we submitted our paper last year, and we actually have some really positive signals that we may be seeing publication of that soon, so stay tuned. And the ramp-up will be in the second half on that commercialization plan. We have a lot of work to do, but we have a really solid plan in place. So we should be fully in the market in the second half of the year, and we expect to see -- I think in our remarks, we talked about there being a significant exponential driver to our volume as a result of OvaWatch. But of course, that's not all going to happen this year. It will really start ramping up in the second half, and we'll see broader adoption next year. And then as we bring on the serial monitoring, it will grow from there.

[Ross Osborn:]

Okay. Great. And then are you able to discuss pricing at this point or at least how it compares to the company's ASP?

[Bob Beechey:]

There's a couple of factors there. We are optimistic that there'll be the ability to cross walk the Medicare pricing from the OVA1, it's similar technology with a different algorithm. And I think that baseline Medicare reimbursement, while we don't have final approval, we're in discussion, and we're optimistic that we'll essentially equate to the Medicare pricing, then we have to go through the grind of working through -- working with all the individual insurers. So that won't happen overnight. But we think that the technology is similar such that it's a broader indication. So we'll have a different PLA CPT code for OvaWatch. But our intention is to migrate it to similar to OVA1 pricing, but there will be a little bit of a lag.

[Ross Osborn:]

Okay. Got it. And then on Endo, I think I may have missed it, but is the company still targeting a launch in the first half of next year?

[Bob Beechey:]

We've said 2023, and we're not trying to be cute on the timing, but there's still some -- a lot of work to be done. So we've certainly committed to 2023, and we're not backing off of that.

[Ross Osborn:]

Okay. Great. And then moving on to gross margin. Can you just provide a little bit more clarity on some of the headwinds and tailwinds seen during the fourth quarter? And how we should think about that for calendar '22, it looks like GenetiX may have looked at margin during the quarter?

[Bob Beechey:]

No. GenetiX, I think it's really volume-driven primarily. We had some -- we're sorting out the scaling and we were doing a lot of resupply of kits, and that's what gave rise to Q3. That's the dynamic there is, kit build and resupply and the timing of that. So I think -- when we scale over the year, we view margin to have upside largely based on volume ramp. We will have, as I mentioned earlier, more -- think in terms of incremental price increase over the course of the year, which goes straight to margin and then the volume -- the scaling of the fixed costs relative to volume and we're not anticipating any one-offs, but the kit -- as we scale and build out kits and go to new customers, that's where it gets slightly lumpy. But as the numbers grow, I think the significance of that will smooth out.

[Ross Osborn:]

Okay. Got it. And then lastly for me, I guess congrats on the higher selling price in the quarter. Have you seen the willingness of payers to meet the increase? Can you provide any color on the pipeline in terms of coverage?

[Bob Beechey:]

Well, we've gotten very positive indications, primarily with Medicare on payer coverage for OvaWatch. It's obviously premature relative to anything with EndoCheck to approach them. As I mentioned, the step functionality that we're trying to drive. We previously discussed a clinical utility study, which has been somewhat hampered from a time line perspective relative to COVID. We try not to use that as an excuse, but that's why it's been somewhat delayed. That's been the issue with some of the large nationals. But the other factor in the strategy in particular, relative to the large super groups as we think that they'll very helpful in influencing payers as their customer base gets adoption because I think the voice of those providers actually counts a lot more than we as a device manufacturer and vendor. So I think that's the other element is, as we get adoption and, in particular, get some major provider partners,we think that's going to help with reimbursement. But the new news relative to our dialogue needs to be the clinical utility, which we expect to be able to publish something this year. But then obviously, there's a lag relative to the cycle of the payers in terms of getting their agreement and when they implement. So we're not -- we don't have our plans anything other than the incremental -- hitting the singles, picking up payers over the course of the year, we've been doing that over time, but we don't operationally plan on a big step function.

[Valerie Palmieri:]

Let me say something on that, too. This is Valerie. Also, the other piece is just having full access. This is our first year with having full access on the Cigna in a sense of assuming Omicron variant is shutting things down. But we got the Cigna contract, the Cigna pricing at a lot of the pricing we got during COVID. So the hope is that with new sales force, additional feet on the street, additional tenured feet on the street, we should be seeing more of those contract prices come through, as Bob said, but the clinical utility is the big step function.

[Operator:]

Our next question is from Kumar Raja with Brookline.

[Kumar Raja:]

So appreciate the business update. Thank you. For the ongoing EndoCheck trial, could you please talk about the type of samples that are being shared by the 2 companies? And just to get an idea of how you are thinking about the test, confirmation of endometriosis is still required by and histology or do you expect that a test may potentially replace it all together?

[Valerie Palmieri:]

It's Valerie Palmieri. Thank you for the question. Let me answer in 2 parts. So in terms of specimens, we have a specimen collaboration with AbbVie and a specimen collaboration with ObsEva, 2 of the 3 pharma companies. These specimens are retrospective specimens. And we also have our own retrospective specimens as well, as well as additional study specimens we've been working with collaborators. So in aggregation, we have a large retrospective specimen bank, which is the heart of the validation of the EndoCheck product. We also, in parallel, we are running -- we are initiating a prospective trial as well. So we have retrospective specimens and we are initiating a prospective trial as well. And the end goal in terms of comparing it to laparoscopic biopsy. Laparoscopic biopsy is invasive. This will be a noninvasive aid in detection and our goal is to have strong enough sensitivity and specificity, whereby a doctor and the patient would have indication of the endometriosis detection, and at that point, could initiate either medical management or could initiate surgery if that is a specific treatment. So the goal is that this is for women, the initial product out of the gates will be women that are moderate to severe pain, and this will be a noninvasive endometriosis aid and detection product.

[Kumar Raja:]

Got it. And also with regards to the breakthrough designation decision for EndoCheck, I was just curious if you've seen any further guidance from the FDA? And is there any time lines that you could share with us? And also, could you talk a little bit about what kind of benefits this designation offer, especially in terms of regulatory issues or the commercial launch?

[Valerie Palmieri:]

Okay. So in terms of that question, there's a couple of parts there. So the breakthrough designation is a brand new program. I'm not sure how familiar you are with it. The benefits of it are that when you have a product that is truly breakthrough and you meet 3 criteria, which is

[Operator:]

We have reached the end of the question-and-answer session. And I will now turn the call over to management for closing remarks.

[Valerie Palmieri:]

In closing, we believe that our accomplishments during 2021 set us up for a strong 2022 and beyond. With myself leading the Board and Nicole leading the growth and scaling of the business, we are focused on doing the right things to drive profitability and growth. Our end goal is to serve the women's health market with a platform coupled with proprietary science and data tools, which will drive better health and well-being to each and every patient we serve. Thank you for joining us today, and we appreciate your support and interest in Aspira Women's Health.

[Operator:]

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.