Biocept, Inc.
Q2 2019 Earnings Call Transcript

Published: 13 Aug 2019

[Operator:]

Ladies and gentleman, thank you for standing-by and welcome to the Biocept Second Quarter 2019 Financial Results Conference Call. At this time all participants are in a listen only mode. [Operator Instructions] As a reminder this conference call is being recorded today, August 12, 2019.At this time, I would like to turn the conference call over to Kevin McCabe. Sir, please go ahead.

[Kevin McCabe:]

This is Kevin McCabe at LHA. Good afternoon and thank you for participating in today's conference call. Joining me from Biocept are Michael Nall, President and Chief Executive Officer; Tim Kennedy, Senior Vice President of Operations and Chief Financial Officer; and Edwin Hendrick, Senior Vice President and Chief Commercial Officer.During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical facts and generally can be identified by terms such as anticipate, expect, believes, could, expects, intends, may, plans, potential, predict, project, should, will, would, or the negative of those terms. Forward-looking statements involve known and unknown risk, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those statements, as well as performance or achievements that are expressed or implied by the forward-looking statements. For details about these risks, please see the company's SEC Filings.The content of this call contains time sensitive information that is accurate only as of today, August 12, 2019, except as required by law, Biocept disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occurred after this call.Now, I'd like to turn the call over to Michael Nall. Mike?

[Michael Nall:]

Thank you, Kevin and good afternoon to everyone on the call today. I'm pleased to report that we are continuing to follow through on the growth we delivered in Q1 with total revenues for the second quarter, reaching $1.2 million up 45% from a year ago and up 16% from the first quarter. The growth was driven by an increase in commercial samples, as we delivered 1066 in the second quarter of 2019, up 26% over the prior year period and 5.5% over the first quarter of this year. We anticipate that we will continue to grow test volume by focusing our commercial strategy, on segments of the liquid biopsy market where target selector can help the most patients, including prostate, breast and lung cancer.We made a strategic decision late last year to focus on prostate cancer and the uro-oncology market which continues to be a key contributor to our growth this year. We expanded the biomarkers included in our test menu specifically for the management of prostate cancer and we've added new clients to our customer base including several uro large urology group practices, the technology backbone that supports this initiative is our pathology partnership service called EmpowerTC, which leverages our unique target selector circulating tumor cell or CTC platform. This platform enables pathologists, including those affiliated with urology practices to interpret the results of our proprietary CTC testing, so they can participate in remain in the critical path of patient care.Our urology customers are enthusiastic about our target selector testing through EmpowerTC to better manage patient treatment. Our breast cancer offering also leverages our CTC platform and we have seen an increase in orders for testing in this area. Clinicians to treat women with breast cancer are utilizing our blood based essays to monitor key changes in biomarkers such as ER, PR and HER2 for initial treatment and to ensure that critical biomarkers are not missed in the workup of the initial tissue biopsy.In regard to our recently launched a partnership with Prognos to capture and monetize data generated from our liquid biopsy testing. We are very pleased to announce that this initiative has gone live. We are beginning to supply de-identified patient data Prognos for their use in building repository of clinical laboratory diagnostics data, which already exceeds 20 billion laboratory records. Prognos supplies there artificial intelligence technology to this repository, to supply important information to the life science and pharmaceutical customers to assist in the development and marketing of targeted therapies. In addition, we continue to advance our collaboration with Thermo Fisher and with the launches of tumor-specific panels late in the first quarter. Target selector NGS lung and Target selector NGS breast. We started marketing this targeted panel to physicians in the hospital study and to researchers in the pharmaceutical and biotechnology industries.Our collaboration with Thermo Fisher Scientific gives us access to Thermo's next-generation sequencing technologies and supports our strategy to commercialize Multi-Gene Tumor-Specific Panel. As a result, we believe that Biocept remains the only commercial liquid biopsy company that offers both CTC and circulating tumor DNA or CT DNA analysis with both single gene and Multi-Gene offerings, all tested from the same blood sample. We believe this differentiation is helping us gain market adoption. At this time Medicare does not cover these Multi-Gene panel but we are working with Medicare contractors and would expect to have a determination on coverage by Q2 of next year.As an update on our target selector research use only kits that were launched earlier this year, we signed our second customer who remains undisclosed during Q2. These kits and our liquid biopsy collection tubes are intended to enable molecular laboratories around the world to utilize our target selector kits to perform liquid biopsy testing using the same technology available through our clear lab. You may recall that during the first quarter, we announced our first customer Agiomix, which is a provider of genomics and bioinformatics services in the Middle East, Africa and Asia for both research and clinical applications. These customers ordered approximately $28,000 in kits and blood collection tubes during the second quarter of 2019 up from about $5000 in the first quarter of this year. We believe that over time, we will see adoption of our kits continue to grow.As an FYI when customers order our kits the normal process is to perform analytic and clinical validation studies before offering a test for sale, this could take quarter or longer in most laboratories. Launching our RUO kits continues our quest to position Biocept as an international diagnostic kit manufacturer with a global brand. Our target selector platform is patent protected in the United States and in 10 major international territories. We are in the process of applying for a CE Mark in Europe for our patented blood collection tubes and our first available target selector kit, which is for the high-sensitivity detection of EGFR biomarkers and lung cancer, if granted this will enable us to market our kit technology in the EU and elsewhere in the world where a CE Mark is recognized.We anticipate obtaining the first CE Mark before the end of 2019 with additional RUO test kits for other oncogene mutations are planned for launch in the future. Our quality improvement initiative collaboration with Highmark Blue Cross and its subsidiary Allegheny Health continues to advance. The key goal of this initiative is to increase the rate of testing for molecular biomarkers in advanced lung cancer patients to 100%. As many lung cancer patients are still not tested to qualify for targeted therapies. Notably in data recently presented at the National Blue Cross conference our test identified a treatable biomarker 37% of the time and helped 29% of tested patients avoided a second biopsy.This is significant as lung biopsy can have a higher rate of complications and cost between $16,000 and $45,000 or even more. We're demonstrating the ability to find important biomarkers while reducing both cost and risk of repeat biopsy testing. While these data are preliminary, we are advancing towards completion of the programs 100 patient enrollment goal. Clinical results from this initiative could be reported in a larger form later this year or in early 2020.On the health plan and reimbursement front we recently entered into a laboratory services agreement with BeaconLBS, a subsidiary of LabCorp. BeaconLBS administers laboratory benefit management programs for health plans to improve test ordering efficiency for their plan members. Under this agreement, we have been deemed a lab of choice within the BeaconLBS network enabling more patients' access to our liquid biopsy testing service. We anticipate contracting with additional health systems and plans in the coming quarters.I'm also pleased to report that in the second quarter, we are granted an additional patent covering our CTC platform in China. At present we have announced 34 patents issued globally, with several more patent applications pending. Our IPS state includes patents for our proprietary, microchannel and antibody cocktail platform for rare cell capture, as well as patents for our highly sensitive molecular enrichment or CT DNA platform.Finally, we continue to focus on developing data to demonstrate the clinical utility of our industry-leading testing. In this regard the back half of the year will be busy with clinical abstracts accepted for presentation at the World Lung Congress in September, the Association of molecular pathology meeting in November and the San Antonio Breast Cancer symposium in December.To summarize, our corporate priorities in 2019 include the following. Increasing target selectors market penetration in the emerging liquid biopsy field including launching and gaining traction with our new tumor specific panels backed by Thermo Fisher's next generation sequencing technologies. Signing additional and EmpowerTC partnership agreements with hospital systems, pathologists and other physicians including urology practices. Advancing our kit strategy by entering into additional global distribution agreements and gaining access to additional markets by obtaining the CE Mark in Europe. Monetizing data from our testing results through our collaboration with Prognos. Further automating our laboratory processes to improve reproducibility, quality and productivity to improve the margins. Continuing to pursue our quality improvement initiative with Highmark Blue Cross and the Allegheny Health system. Signing new third-party party health plan contracts and agreements with integrated healthcare delivery networks and presenting and publishing additional clinical data in case studies that validate the use of our target selector assays.Now, I turn the call over to Tim Kennedy to review our financial results for the second quarter.

[Tim Kennedy:]

Thanks, Mike and good afternoon, everyone. As Mike shared earlier for Q2 2019 we reported revenues of approximately $1.2 million, compared to $822,000 in Q2 2018, an increase of 45% year-over-year. Revenues were also up 16% sequentially from the $1 million reported in Q1 2019. Commercial reimbursement based on historical mix and test per accession received is expected to continue to be in the $1100 range on average as we continue to launch new assays throughout the year.In Q2 2019 we had 1211 billable accessions up 22% versus 996 billable accessions in Q2 2018 and up 5% from the 1155 billable accessions in Q1 2019. Our commercial strategy is focused on physician, specialties and market segments that we believe are driving the growth in our volume trends. Cost of revenue for Q2 2019 was 2.7 million, which is flat compared to the same period last year despite the 25% year-over-year increase in total volume. In 2019, we've begun to implement automation in our clear laboratory resulting in the ability to lower some headcount as compared to the same period last year. With the increased volume we've begun to once again leverage the fixed components of our cost structure. As we continue to automate additional functions in our clear laboratory moving forward, we anticipate the ability to provide incremental laboratory capacity at minimal expense to accommodate higher volumes as we expect our growth trends to continue to improve.Research and development expenses for Q2 2019 were $1.1 million, compared to $1 million for the same period last year. This slight increase was primarily due to the development and validation of our recently launched target selector NGS lung and target selector NGS breast liquid biopsy panels.General and administrative expenses for Q2 2019 were $1.7 million flat versus the prior year period. As a percentage of revenue, G&A expenses in Q2 2019 were down 68% versus Q2 2018, as the company continues to work to contain operating expenses. Sales and marketing expenses for Q2 2019 were $1.6 million, compared to $1.4 million for Q2 2018. The increase driven by higher excess and volume and commissions associated with that volume and other sales and marketing expenses as well. As a percentage of revenue, sales and marketing expenses in Q2 2019 were down 39% versus the prior year period despite increase the marketing costs related to launches of new test. Our sales force productivity has increased due to the changes we've made with our commercial strategy.The net loss for the second quarter of 2019 with $7.8 million inclusive of a non-cash expense in the period of $1.8 million for warrant inducements. Net loss per share in the second quarter of 2019 was $0.38 per share on $20.5 million weighted average shares outstanding. This compares with a net loss for the second quarter of 2018 of $6.2 million or $2.70 per share on $2.3 million weighted average shares outstanding. As a reminder we conducted a one to 30 reverse stock split of our outstanding common stock which was effective in July 2018.Now turning to our year-to-date numbers; our revenue increased approximately $600,000 or 36% to $2.2 million during the six months ended June 30, 2019 compared to $1.6 million in the same period last year. Cost of revenue for the first six months of 2019 was $5.3 million, research and development expense was $2.4 million, sales and marketing was $3 million, and general and administrative was $3.3 million.Cash and cash equivalents totaled approximately $12.6 million on June 30, 2019 compared to $3.4 million on December 31, 2018 as we raised approximately $17 million in aggregate net proceeds from three financings and $4.9 million from warrant exercise to date in 2019.I will now turn the call over to Edwin Hendrick for an overview of our commercial progress. Edwin?

[Edwin Hendrick:]

Thanks, Tim and hello, everyone. I'm pleased to share that our commercial team has made good progress throughout the first half of 2019, our commercial sample growth over last year's second quarter demonstrates the strong traction were getting in our focus treatment areas of prostate, lung and breast cancer. While we are still implementing our new commercial strategy were pleased to see the strong year-over-year growth. And I believe that our sequential quarterly growth in sample volume from the first quarter of this year is a testament to our growing acceptance in the market.In January 2019, we are accessioning approximately 14 billable samples per day. As we exited the second quarter and entered the third quarter, we grew that number to approximately 21 per day, roughly a 50% increase since the beginning of the year. Our sales force productivity is behind these numbers with monthly accessions per sales rep for the second quarter, more than doubling year-over-year. In the first half of this year we brought in a train several highly capable sales professional with an average of 15 years of experience in the diagnostic industry. All have managed to the regional or national level in the past and bring significant physician and physician practice relationships to the company. As the numbers suggest our experience sales team is delivering to their hard work every day.In each of our target oncology treatment markets urology, breast and lung cancer, we continue to provide results that help physicians treat and monitor patients. We're also gathering data to further drive market penetration of our testing. Each day, we add more information into our large liquid biopsy database. Analysis of these data can help us further define the use of our technology to aid physicians in selecting the best treatment pathways for their patients.In fact, four of the six abstract that been accepted for presentation at the Association of Molecular Pathology or AMP meeting this year were derived from information gathered from our new customer base. We plan to engage in new perspective clinical studies in the coming months potentially with major treatment centers in our areas of focus to further demonstrate the value of our target selector liquid biopsy testing platforms.Our R&D department and laboratory been very busy in 2019 with the launches of new biomarker test for prostate and breast cancer. Our target selector NextGen sequencing range, NGS liquid biopsy panels and new automation to enhance our test menu and service. We expect these new tests will enable us to continue to gain market traction in the back half of the year.Our novel target selector CTC and EmpowerTC offerings enable to capture and enumeration of CTCs, which is an area of high interest in certain market segments, such as in the treatment of breast cancer and prostate cancer. Additionally, our unique ability to analyze biomarkers in CTCs distinguishes us in the marketplace. We believe that our focus on these services have been a key contributor to the growth in our test volume and revenues. We recently attended the 18th annual international Congress in the future, breast-cancer and the subject of CTCs and they are using guidance treatment and disease monitoring was very prominent at this meeting. We believe this is very positive as we interact with physicians and educate them on the capabilities of our platform and now our technology can play a role in getting them the information they need to make more informed treatment decisions.And lastly, we continue to make progress in expanding access to our target selector liquid biopsy testing with patients who are part of the healthcare delivery system. Laboratory network or health plan, our recently announced contract with BeaconLBS demonstrates that our message to the payers that we offer the right test, for the right patient, at the right time is resonating. We recently presented to the Blue Cross Blue Shield national Association, as part of the care source program and during this event there was strong interest in our unique focus target selector liquid biopsy testing approach and the cost-effectiveness of that service.To summarize, we continue to execute against our focused strategy, growing our business with an effective sales force and we continue to evolve our technology platforms to meet the needs of our customers and were seeking to further demonstrate the clinical utility of our testing by collecting and analyzing data and conducting new studies to define additional practical applications to help physicians improve patient care. And were driving success with liquid health system, and payers to ensure that the patients have health plan assets to our liquid biopsy options.Thank you for your time and attention, and I'll turn the call back over to Mike.

[Michael Nall:]

Thank you, Edwin. We are innovating in the important in emerging field of liquid biopsy with our broad offering of less invasive and cost effective solutions to help physicians select the best treatment pathways for their patients diagnosed with cancer. Our proprietary biomarker test have been performed on over 23,000 patient samples and are based on our differentiated platforms to leverage information from both CTCs or circulating tumor cells as well as circulating tumor DNA or CT DNA. We continue to generate clinical evidence that supports the high sensitivity and specificity of our biomarker assays. In addition to driving organic growth to increase shareholder value we are focused on expanding opportunities through strategic partnerships and other initiatives where we can leverage the investment in our intellectual property.And with that overview we are ready to take questions. Operator?

[Operator:]

[Operator Instructions]

[Michael Nall:]

While waiting for the first question, I'd like to mention that we will be making a corporate presentation at two upcoming conferences both in New York City. We will be at the HC Wainwright 21st Annual Global Investment Conference being held September 9 and 10th, as well as the follow Investor Summit to be held September 16 and 70. Okay, operator we're ready for questions.

[Operator:]

Our first question today comes from Jason McCarthy from Maxim Group. Please go ahead with your question.

[Jason McCarthy:]

Thanks for taking the question. Like to see if you could give us a bit more color on some of the practical differences between the newer Oncomine based target selector panels and then the traditional target selector offerings? And what cases would physician want to choose one versus the other and are there any other panels in the pipeline that we can expect to see in the near future?

[Michael Nall:]

Thanks for the question, Jason. Well I will take, so I get that first and then I'll probably tear up for Even, Edwin and he can address it as well. But when you look at the two offerings you got either a broader panel that has multiple genes or you have the individual genes offered from our traditional target selector offerings. And generally there is kind of two different markets for that. If you're a position in a teaching hospital for your researcher in the biopharmaceutical company you generally want a lot more information that the larger type panels provides. Many community oncologist like our offering though because they're just looking to treat a patient with a specific regimen and they frankly don't have a need and sometimes can get confused by the much larger panels because it has a lot of information that's very interesting to researchers or folks doing studies but not as interesting to someone who's just treating based on the standard of care guidelines driven options. So Edwin, do you want to add anything to that.

[Edwin Hendrick:]

No. Mike, I think you handle that very well. Again in many different situations, especially the next and sequencing versus the CT DNA and the liquid biopsy on the two different platforms. You have sites that are looking for it for a larger entity type, weather looking at a larger approach, the academic institutions really looking more for that or as the community-based doctors really looking whether or not they just want to treat off of a certain biomarker like EGFR K rest for certain type of therapeutic response. Also, you are going to see on our original platforms from a monitoring aspect, the next and sequencing panels are typically more expensive to the healthcare system. So therefore they're looking at it to be able to monitor patient over a long expanded time. They wanted look at it from a more right task at the right time with the right program and ultimately, that's going to be a better and more effective way to be able to do it from a cost-effective way back to the healthcare system.

[Michael Nall:]

And one critical difference too, is that with our individual target selector test based on CTCs, we could offer more types of analysis specifically on protein and we feel more efficient analysis on what we call DNA amplification. So a broader menu if you will, by using both CTC, CT DNA individual genes by PCR as well as NGS panels and that's really the unique thing of Biocept. Whatever the physicians looking for they can find it right here.

[Jason McCarthy:]

All right, thank you. That's very helpful. And then I just like to see if you could provide any additional details on the Prognos deal. I know that monetizing the data is an important part of a lot of diagnostic companies these days. I want to know how you generate revenue from that deal, are you getting a share of sales, is there a fee, are you directly selling them the information.

[Michael Nall:]

While we haven't disclosed the terms of the agreement. I will say that it went live this quarter. And so hopefully we will have a little bit more color on that for you all when we report Q3, but in the meantime, there is more of a revenue share and you know we are not at liberty to discuss anything more about that but they find their customers, primarily in the pharmaceutical and biotechnology research world and they use the information that they're gathering from the overall the identified data that we provide from that we're generating every day here in the lab and then they use that to either target existing on market treatments to specific locales or they use it for research as to what types of patients agents they should be developing in the future.

[Jason McCarthy:]

Alright thanks and just one last quick one more on the finance side. So, looking back for the past few quarters you seeing kind of stead-ish increase in your gross margins and I know you mentioned automation is part of the drivers for that. So is that primarily automation or there other factors, like including volume growth that are driving that?

[Michael Nall:]

Let me start real fast and then I'm going to turn over to Tim because I want him complimenting. So one of things when Tim joined us in the fall of 2016 these were truly hard on, his increasing not just efficiencies but quality coming out of the operations at lab. We're being successful with that and making a lot of progress in our ultimate quest. And as Tim will always tell everybody that's a job that's never done. So I'm thrilled that you identified that and I'll let Tim kind answer more specifics about your question.

[Tim Kennedy:]

Yes, thanks, Jason, Mike, thank you as well. So our incremental growth in our gross margin, Jason, as you said is actually two fold. It is automation and being able to grow without significant increases in expense. You're always going to have expenses and cost of revenue associated with consumables, but the goal here is to be able to limit that increase and expense, to just that consumables through that automation process. Clearly, as volume growth as well you begin to leverage the fixed components of your expenses also. So with the combination of both. So it's a combination of controlling those expenses potentially reducing them and also leveraging the growth in volume and having more of that volume/revenue growth fall down through gross margin and ultimately EBITDA and net income.

[Jason McCarthy:]

Alright. Thank you very much for taking the questions.

[Michael Nall:]

Okay, thanks Jason.

[Operator:]

And ladies and gentleman at this time, I'm showing no additional questions. I like to turn the conference back over to management for any closing remarks.

[Michael Nall:]

Thank you, operator. And on behalf of the hard-working employees of Biocept as well as our Board of Directors, I want to thank all of you all for participating on today's call and for your interest in our company. We look forward to sharing our progress on our next conference call when we report our third quarter financial results. Thanks and have a great day everybody.

[Operator:]

Ladies and gentlemen, that does conclude today's presentation. We do thank you for joining. You may now disconnect your lines.