Biocept, Inc.
Q3 2019 Earnings Call Transcript

Published: 14 Nov 2019

[Operator:]

Ladies and gentleman; thank you for standing-by and welcome to the Biocept Third 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, November 13, 2019.At this time, I'd like to turn the conference call over to Jody Cain. Ma'am, please go ahead.

[Jody Cain:]

This is Jody Cain 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, November 13, 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, Jody and good afternoon to everyone on the call today. I'm please to report on our continued strong growth for both revenues and commercial samples for the third quarter, all are reducing cost of revenue on a percentage basis.Revenue has reached $1.5 million, up 101% from the third quarter of 2018, and up 28% from the second quarter of this year. The growth was driven by an increase in commercial samples, up 66% over the prior year period.We anticipate that we will continue to grow test volume by focusing our commercial strategy on the segments of liquid biopsy market where our target selector technologies and testing platform can help the most patients such as in patients diagnosed with prostate, breast and lung cancers.Our focus on prostate cancer and the uro-oncology treatment market continues to be the largest contributor to our growth, with breast and lung cancer also key therapeutic areas where physicians primarily order our testing.We added new practices to our customer base and expect to continue to do so in the fourth quarter. Not only are we adding these new urology practices, but we are seeing growth in reorders from the physicians that have begun using our products earlier this year.Our breast-cancer offering also leverages our CTC platform and we continue to see an increase in orders for testing in this area. Clinicians who treat patients with breast cancer are utilizing our blood-based assays to ensure the critical biomarkers such as ER, PR and HER2 are not missed in the workup of the initial tissue biopsy.Additionally, they are monitoring for key changes in these biomarkers during or after treatment. Earlier this year we launched our next-generation sequencing panels developed in partnership with Thermo Fisher. We believe the Biocept remains the only commercial liquid biopsy company that offers both CTC and circulating tumor DNA or ctDNA analysis with both single gene and multi-gene panel offerings, all tested from the same blood sample.We are working with Medicare contractors to secure reimbursement coverage for these panel offerings and expect to have a determination on coverage in the first half of next year last. Last week we attended the Association for Molecular Pathology or AMP conference in Baltimore.We were pleased to have six posters reaching our target selector test and kits accepted for presentation. Among these we presented data on the advantages of our kits including the ability to obtain highly sensitive molecular test results when using a blood sample or tissue sample.The use of either blood or tissue or both is a key advantage in providing physicians a choice to evaluate a patient cancer for biomarker activity. Importantly, our patented and proprietary mutation enrichment technology improves sample prep efficiency for tissue which can save labor cost, reduced sample prep errors and can ensure that doctors have the best chance of getting a result from a small quantity of tumor tissue.Sales of our distributed products including test kits and blood collection tubes advances our strategy position Biocept globally. This business has grown with customers ordering nearly $60,000 of these products in the third quarter, up from approximately $5000 in the first quarter of this year.Our target selector platform is patent protected in the U.S. and in 11 major international territories. Last week we announced the receipt of CE IVD Mark for both our patented blood collection tube and our sample collection kit. These certifications allow us to market our CEE-Sure collection technologies in the EU and in other geographies where the CE IVD Mark is recognized.We are also working on obtaining the CE IVD Mark for target selector kit, which is for the high-sensitivity detection of EGFR biomarkers and lung cancer. We expect to gain the certification by the second quarter of 2020 and plan to launch additional offerings in the future.Our quality improvement initiative collaboration with Highmark Blue Cross and its subsidiary Allegheny Health continues to progress. The key goal of this initiative is to increase the rate of testing for molecular biomarkers in advance lung cancer patients to 100% as many lung cancer patients are still not tested to qualify for targeted therapies. This is significant as lung biopsies can cost between $16,000 and $45,000 or even more.We are demonstrating the ability to find important biomarkers while reducing both the cost and risk of repeat biopsy testing. The program is continuing advance toward the completion of its enrollment goal of 100 patient and clinical results from this initiative could be reported in a larger form or at a medical conference in 2020.Finally, we continue to present data demonstrating the clinical utility of our liquid biopsy test at important scientific and medical conference. At the World Lung Congress in September we present study results highlighting the ability of our circulating tumor DNA or ctDNA assay platform to consistently detect actionable biomarkers from the blood of lung cancer patient at a mutant allele frequency of less than 1%. And in early October, analytical validation results for the same platform on more than 3000 samples were published in the Journal PLOS ONE.This peer-reviewed reviewed publication demonstrated that our target selector testing for EGFR, BRAF and KRAS mutations has been validated to an ultrasensitive single copy level with the limited detection of .02% or better. Our Switch-Blocker technology uniquely amplifies mutations of interest from the blood of patients with cancer while blocking DNA from normal cells.This enables very high sensitivity with detection down to a single gene copy. As mentioned we present six posters at last week AMP conference. In addition to data on our Target Selector kits and tissue that I discussed earlier, we presented four posters highlighting technologies and related study data.These posters feature data from our Target Selector NGS breast and NGS lung panels, a potential test for cancer based on our ability to detect p53 gene mutations in circulating tumor cells and data highlighting our CTC platform's ability to detect cells undergoing epithelial to mesenchymal transition or EMT to monitor prostate cancer and aid physicians in selecting certain treatment pathways for patient that develop these cancer cells.In December we plan to meet with key opinion leaders and physicians who treat breast cancer at the San Antonio Breast Cancer Symposium to further educate them about our unique testing to monitor breast cancer. A poster featuring our CTC testing in approximately 1500 patients highlighting the clinical utility of our assay platform across various types of breast cancer has been accepted for presentation.Our testing serves as a key need in this market, which is monitoring patients with breast cancer deem negative through mutant or through alteration. Retesting with a liquid biopsy can provide highly valuable information as literature shows that around 20% of patients with HER2 negative breast cancer may eventually test HER2 positive. And therefore may become candidates for treat more with anti- HER2 therapies.I'd like to now summarize, our corporate priorities for the remainder of 2019 and into 2020. These include the following

[Tim Kennedy:]

Thanks Mike and good afternoon everyone. As Mike shared earlier for Q3, 2019 we reported revenues of $1.5 million, compared to $762,000 in Q3 2018, an increase of 101% year-over-year. Revenues were also up 28% sequentially from the $1.2 million reporters in Q2, 2019.Commercial reimbursement based on historical mix and test per accession test received increase in the third quarter of 2019 and is now expected to continue to be in the $1200 range on average. We continue to launch new assays and improve upon operational processes leading to increased testing capabilities and physician ordering.In Q3, 2019 we received 1429 total accession, up nearly 50% versus 964 total accessions in Q3, 2018. Commercial volume received in Q3 2019 of 1,189 was up 66% compared to 717 in Q3 2018 and up nearly 12% sequentially from the 1066 received in Q2 2019.As Mike mentioned earlier, our commercial strategy is focused on physician specialty and specific market segments that we believe are driving the growth and our volume trend.Cost of revenue for Q3 2019 as a percent of revenue was down 141 basis point to 185% from 326% for the same period last year. Total cost of revenue was $2.8 million, up 14% compared to the same period last year.Notably cost of revenue on a per accession basis was down 23% as we leverage the fix components of cost with higher volume. While variable costs are benefiting from improvements we are making in our processes and workflow.In 2019 we began implementing automation in our CLIA Laboratory, which we anticipate will lead to further leveraging of our fixed cost as we focus on achieving gross margin positive result.In addition, we've also began the work to implement AI or Artificial Intelligence in our CLIA Laboratory and anticipate the ability to provide incremental laboratory capacity at minimal expense to accommodate higher volume, as we expect our growth trends to continue to improve.Research and development expenses for Q3, 2019 were $1.2 million compared to $1.1 million for the same period last year. This slight increase was primarily due to an increase in materials used for the development and validation of new assay.General and administrative expenses for Q3, 2019 were $1.7 million down $100,000 versus the prior year. As a percentage of revenue G&A expenses in Q3, 2019 were down 125 basis points versus Q3 2018 as a company continues to work to contain operating expenses.Sales and marketing expenses for Q3, 2019 were $1.5 million compared to $1.4 million for Q3 2018. The increase was primarily attributable to commissions paid for higher sample volume in revenue.As a percentage of revenue sales and marketing expenses in Q3 2019 were down 89 basis points versus the prior year period, despite increased marketing costs related to the launches of new test.Our sales force productivity has increased due to the changes we have made with our commercial strategy. We're pleased to report that with the improvements and cost and growth in revenue the net loss for the third quarter of 2019 is down $400,000 or about 6% versus the prior year period.The net loss attributable to common shareholders for the third quarter of 2019 was $5.7 million or $0.25 per share on $23 million weighted average shares outstanding. This compares to net loss attributable to common shareholders for the third quarter of 2018 of $6.7 million or $2.42 per share on $2.8 million weighted average shares outstanding.The results for the third quarter of 2018 including non-cash deemed dividend of $600,000 for the repricing of adjustable warrant. As a reminder we conducted a one-for-30 reverse stock split of our outstanding common stock which was effective in July 2018.Turning to our year-to-date numbers, our revenue increased by $1.3 million or nearly 57% to $3.7 million during the nine months ended September 30, 2019. This compares to $2.4 million in the same period last year. The increase in revenue is attributable to our commercial team's effort.From Q1 to Q3 2019 alone commercial revenue has grown nearly 50% from $976,000 in the first quarter of this year to $1.5 million in the third quarter. Cost of revenue in the nine months of 2019 was $8.1 million, R&D expenses were $3.5 million, G&A expenses were $6.9 million and sales and marketing expenses were $4.5 million.Cash and cash equivalents total approximately $6.5 million on September 30, 2019 compared to $3.4 million on December 31, 2018 as we raised approximately $17 million in aggregate net proceeds from refinancing and $4.9 million from warrant exercise today in 2019.I'll now turn the call over to Edwin Hendrick for an overview of our commercial progress. Edwin?

[Edwin Hendrick:]

Thanks Tim. Hello everyone. I'm pleased to share that our commercial team continues to make good progress with both our test volumes and sales reaching new highs in the third quarter. We believe that our strategy to focus on specific treatment areas of high need where our liquid biopsy tests can have a clear competitive advantage and offer the most utility is paying off.As Tim mentioned, our commercial revenues have grown nearly 50% since the first quarter of this year. Our sales force productivity backs these numbers with quarterly accessions per sales rep for third quarter up 66% year-over-year. These figures demonstrate that our experienced sales team is continuing to deliver results.Importantly, our average selling price per patient sample is increasing, as doctors are now ordering more biomarker tests per sample. For example, in prostate cancer we launched our product line with CTC with only one biomarker late last year. And today our repeat customers in urology are now ordering up to five biomarkers per patient specimen.We're continuing to generate more traction in the urology and uro-oncology segment with new physicians ordering our service for the first time. Our existing customers reordering tests more often and more tests per patient coming into the lab as some physicians have begun to use our assays for monitoring disease.There over one 150 practices and more than 2400 urologists that are members of Large Urology Group Practice or LUGPAs in the United States. We believe that we're just scratching the surface in terms of market awareness.We estimate that we're currently detailing our service to less than 5% of these positions in these practices and therefore we believe that there is a large untapped opportunity. Our sales team is focused on signing more physicians, working with more physicians within these practices and working with each doctor to consider using our test with more of their patient.Through this process, we have identified important new market opportunities. Among these is the pre biopsy area in which a patient with a rising PSA can be tested to determine if prostate cancer cells are circulating in the blood. Another area is in the post surgery setting in which our tests can be used to monitor for circulating tumor cells as a predictor of potential recurrence of cancer.These are very high utility areas for our technology in which either limited or no tools are currently available to these physicians. We're working with several large physician practices and institutions, as well as collecting data and our own internal registry to compile and publish clinical data that demonstrates the utility of our unique liquid biopsy testing platform in prostate cancer.We're also leveraging our CTC platform and gaining acceptance in the breast cancer treatment market. Physicians have begun to use our liquid biopsy testing as a monitoring tool for patients who initially tested negative for the biomarker HER2 which is commonly treated with receptive, but that identifying this biomarker in their in their tumor, a patient will not qualify for targeted treatment therapy.As Mike mentioned, published studies indicate that approximately 20% of patients who initially tested negative for HER2 will test positive for this biomarker and subsequent biopsy. We believe that our target selector CTC test is among the most sensitive blood based tests used to identify HER2 amplification.The specific biomarkers needed to qualify patients for targeted anti-HER2 treatment in a liquid biopsy. We are working with Northwestern University Medical Center and certain independent investigators to demonstrate the clinical utility of our liquid biopsy assay for HER2 amplification in the setting. And we intend to collect and publish data on this novel offering in breast cancer as soon as next year.The studies we're conducting in the urology and breast cancer treatment areas are cost efficient requiring minimal capital with enrollment targets of 100 to 200 patients, study periods of less than a year and the opportunity to build for some of our tests in some instances.To summarize, we continue to execute against our focused strategy growing our business with our effective and efficiently sized sales force. We continue to evolve our technology platforms to meet the needs of our customers as we seek to demonstrate the clinical utility of our testing. We're doing this by collecting and analyzing data and conducting new studies to define additional practical applications to help physicians improve patient care. And we can't continue to increase acceptance within health systems and with third party payers to ensure that patients have access to Biocept's unique liquid biopsy solution.Thank you for your time and attention. And I'll turn the call back over to Mike.

[Michael Nall:]

Thank you, Edwin. We are increasing adoption of our patented proprietary liquid biopsy test with our broad offering of less invasive, cost effective solutions to help physicians select the best treatment pathways for their patients diagnosed with cancer.Our proprietary biomarker assays have been used to test over 20000 patient samples and are based on our differentiated platforms that leverage information from both circulating tumor cells and cell free circulating tumor DNA.We continue to generate clinical evidence that supports the high sensitivity and specificity of our biomarker assays. In addition to significantly improving volume and revenue while reducing our expenses as a percentage of revenue, we are also focused on expanding opportunities where we can leverage the investment in our intellectual property, all with the goal to enhance shareholder value.And with that overview, we're now ready to take these questions. Operator?

[Operator:]

Ladies and gentlemen, we'll begin the question and answer session. [Operator Instructions]

[Michael Nall:]

While we're waiting for that first question, I'd like to mention that I'll be presenting at the LDA Micro Main Event conference on December 10th. A webcast of that presentation will be posted to our website at biocept.com. Okay. We're for the first question.

[Operator:]

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

[Jason McCarthy:]

Hey guys. Congrats on the quarter and thanks for taking the questions.

[Michael Nall:]

Sure Jason. Thank you.

[Jason McCarthy:]

I'd like to see if he could provide me a bit color on which factor lead to the strong revenue growth and sample orders that we've seen this quarter. Is it primarily the sales strategy or commercial agreements and new products and services playing a larger role? And do you think that the increase in publication and presentations could actually drive further adoption?

[Michael Nall:]

Well, I think, Jason, I'll take, so I get that first and I'll turn it over to Edwin for little more color. And I think the answer is yes to all that. It's a combination of all those things. And you named all the things we've been doing to help grow the adoption of liquid biopsy. And Jason as someone who's covered companies in our space for years and years, it's a lot of heavy lifting in the early days to establish the foundation for acceptance with physicians to change their behavior and lead to adoption of new patterns when it comes to treating their patients.But we're getting there with liquid biopsy in industry and specifically at Biocept, the things that you mentioned there have been critical to bringing the growth back to our story here. And part of that has been the strategy that Edwin has laid out since he joined with us. So I think the addition of marketing in prostate cancer with urologists primarily has really paid off for us. And the investment we made there in validating additional assets to serve that market is paying off with dividends. So with that I'll turn over to Edwin, let him add a little bit more color.

[Edwin Hendrick:]

Well, Mike, you're absolutely correct. I think the question is yes to all. We still stand very, very strong with our lung offering and continue to grow that business. But we've also now adopted two new major areas; one in urology and even a larger focus in regards to the breast. And so therefore anytime you open up new vaults to walk into you're going to have an increase in specimens. We think we've done a very good job and from a marketing aspect with our sales training and with the sales team in general to give them the tools to be able to go out there and market in these new areas.And then also the laboratory has done a fantastic job in regards to bringing new testing to market as well. So as I mentioned not only are we being able to walk into brand new offices and market and sell our product, but now we also have multiple biomarkers to be able to sell with that as well. So it's been a lot of fun to sell over the course of the last year and it's going to be even more fun as we continue to hopefully open up new doors with both of these new markets.

[Michael Nall:]

That's exactly right. One more thing, Jason, I'd just like to highlight the last piece of your question and highlight a few other folks that aren't on the call. And you mentioned about the data that's generated and for Edwin and his team to be successful in educating physicians on the benefits of our tests, they've got to have something to talk about and the critical factor is to continually come out with points of data that we can share with physicians about how we can enhance the clinical utility of how their treatment plans are working with our offerings. And we have -- as you've met a few of them before we have some very sharp scientists, medical and clinical folks here that worked very hard to get the data. The example was the six posters that were accepted at AMP which we're very proud of the team had did that, so, just wanted to give them a little bit of airtime as well because they're critical to this growth that we're seeing.

[Jason McCarthy:]

Yes. Thank you. And actually I'd like to touch on the urology market a bit, because as you mentioned it's been a significant growth driver. And so, I'd like to see if you could kind of give us an idea and like a refresher on the size of this market and why it represents such an important segment for you guys?

[Michael Nall:]

Well as you know it's the most commonly diagnosed cancer for men. And also one of the top three cancers diagnosed in America, so a very large market. And I think I'm certainly at the age now where those sorts of things come into play and folks older than me it certainly becomes more, more of a factor and with the baby boomers there's a big opportunity there. There's also a lot about uncertainty with the physicians about what to do with certain patients. So we really help patients today in a couple areas. So let's focus on those and maybe Edwin, you can tell us about both the pre-treatment and the post treatment scenario that they're using our test.

[Edwin Hendrick:]

Well, actually there's really three different areas that the urology market has opened up for us. One of it is in the pre-biopsy where as one of the posters that we published is that we do not see people with circulating tumor cells that do not have cancer. So we do have a -- which is great information to have. But when you have a urologist that is deciding about whether or not they need to do a biopsy or the patient wants to have one are particular test can kind of give further information in regards to whether or not they move that process forward.Secondarily, if they had been diagnosed with cancer there's a major segment of whether or not they do something called active surveillance, which is whether or not do they treat or do they just do watchful waiting in regards to it, because most adult males once they reach a certain age do have prostate cancer just whether or not that it's critical and whether or not that it will be fatal to them. So they're trying to decide whether or not that they put them through the treatment or not and whether or not you have circulating tumor cells or you have biomarkers that can tell you whether or not that didn't see an aggressive type of cancer whether or not it's giving indications that the foot is on the gas pedal versus on the brake helps the physician truly sleep better at night knowing that they're moving things toward either a treatment or a watchful waiting.And then lastly it's something on the on the post biopsy. The only thing that's really that the physicians have right now when they're when they remove the prostate to look and see whether or not recurrences is there or is there's some genomic tests that are available, but really they're looking at PSA and whether or not the PSA level is starting to go up. You shouldn't have a PSA level that's going up. If you do not have a prostate, so but sometimes that's a very delayed type of test and so therefore we have a lot of physicians now that are using our test after the surgery to check and see if they have circulating tumor cells and we think we can be a better predictor of PSA moving forward.And that's where as Mike pointed out, we're gathering more and more data in regards to this to be able to publish and put posters and studies out to help the physicians even feel more comfortable with this type of setting.

[Jason McCarthy:]

All right. Thank you very much. And I have one more actually on the CCE-Sure Blood Collection Tube. So you guys just received the CE IVD Mark. Let's see if you can walk us through. Who the target customer fees would be? And then how it would be applied commercially. And would you be able to leverage your existing relationships to drive an adoption of this new product?

[Michael Nall:]

No absolutely. I appreciate that question. In fact having an alternative revenue stream with our distributed product strategy is a real highlight and a way to showcase the IP that we've worked so hard to gain here at Biocept. So that's an important part of our business. And we have been selling the tubes for a while, but they've been sold as research use only tubes. And if folks recall we have a relationship to distribute the tubes with VWR one of the world's largest laboratories supply distributors. So it's in the catalogue as a liquid biopsy tube. But the key and critical factor is we can now market actively in Europe and lot of other countries that recognize CE IVD Mark as the kind of the equivalent to an FDA clearance here in the U.S.They are a little bit different. So I don't want to overstate that. But that's kind of the regulatory mark that you would have in Europe. So this will allow us to market that tube now to folks developing assays in Europe and the rest of the world with that quality certification and that regulatory certification. Now the customer base is generally going to be assay developers or folks that are currently offering other types of liquid biopsy test. And one of the things we've shared with on previous calls liquid and what I always talk about in an investor presentation liquid biopsy if you Google it you're going to get all kinds of hits and it gets to be very confusing because it's a catch [ph] all term where we're looking at genomics or proteomics out of a simple generally blood sample could be other fluids in order to make treatment decisions for a patient that would normally have required a tissue biopsy.So therefore a liquid biopsy could be for prenatal testing, cardiovascular, neurology, rheumatology, a lot of different types of issues that patients have, our tubes can be used through all that. So it's a huge opportunity. And there are some other players in the space and thus having the CE Mark is critical to get even further adoption. But we're starting to get adoption. We have some good customers now for the tube that are reordering and this will just enhance that sale process overall.

[Jason McCarthy:]

All right. Thank you very much, and again congratulations on the quarter.

[Michael Nall:]

All right. Thanks Jason.

[Operator:]

Ladies and gentlemen, with that we'll conclude today's question and answer session. I'd like to turn the conference call back over to Mike Nall for any closing remarks.

[Michael Nall:]

Well thank you. And on behalf of our Board of Directors and our hardworking team here at Biocept, I want to thank everyone for participating on today's call and for your interest in our company. We are excited about our progress and look forward to providing an update on our next conference call when report our fourth quarter and 2019 financial results in March. Thanks and have a great day.

[Operator:]

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