Biocept, Inc.
Q2 2018 Earnings Call Transcript

Published: 15 Aug 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Biocept Second Quarter 2018 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded, August 14, 2018. I’d now like to turn the call over to Ms. Jody Cain. Please go ahead.

[Jody Cain:]

This is Jody Cain with c. Thank you for participating in today’s conference call. Joining me from Biocept are Michael Nall, President and Chief Executive Officer; and Tim Kennedy, Senior Vice President of Operations and Chief Financial 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 anticipates, estimates, believes, could, expects, intends, may, plans, potential, predicts, projects, 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 14, 2018, 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. Folks we did received quite a few questions from shareholders in advance of the call and hopefully we were able to incorporate the answers to those questions in the prepared remarks. If not please email us to our Investor Relations’ email address and we’ll get back to you right away. So first of all, I would like to start off by thanking all the participants in our shareholder rights offering for their support in strengthening our capital position. We raised gross proceeds of approximately $11.6 million with the majority of funds coming from our existing shareholder base. This capital we put to good news as we aim to further establish Biocept as a leader in liquid biopsy. Also related to our capital structure, we paid off our long-term debt in July, which reduces our annual cash expenditures by more than $2 million. As a result of cost reduction activities put in place earlier this year and the elimination of our debt we now have more resources to focus on growing our business, while pursuing partnerships, collaborations, distribution agreements and other strategic initiatives aim to creating shareholder value. As an update on our commercial activities and progress in the business, I want to point out that as a management team we are not satisfied with our Q2 performance of being slightly up quarter versus quarter, but down year-over-year. We are taking concrete steps that we believe will restore us back to growth in coming quarters. That being said, the actions discussed on last quarter’s call to improve our productivity are being implemented. Our sales team is now focused primarily on lung cancer profiling either at diagnosis or disease progression as well as the emerging need to monitor solid tumors in blood where liquid biopsy has unique advantages over tissue biopsy. Our sales team is employing our an campaign message to educate physicians on the benefit of using our Target Selector liquid biopsy solutions along with traditional tissue biopsy for patients diagnosed with non-small cell lung cancer. In many cases, tissue biopsies provide us small amount of tissue, most of which is used to first diagnose the presence of small cell lung cancer. In some cases, patients may not have an opportunity to benefit from molecular testing since little to no tissue is left for such analysis. Without molecular testing, a physician may have to choose chemotherapy despite significant evidence that patients who have certain molecular alterations are better treated with targeted therapy. In addition most of the time, results from our liquid biopsy tests can be obtained more rapidly in tissue biopsy results, enabling physicians to make more timely treatment decisions for their patients. Our sales team is also presenting to physicians case reports published in peer-reviewed journals earlier this year that describe scenarios, which our Target Selector test were used to make treatment decisions that subsequently improve patient outcomes in those cases. Sales calls also incorporate the clinical guidelines issued in January recommending use of liquid biopsy in patients with lung cancer. These guidelines were developed through collaboration by four leading industry associations. Our plan is to maintain our sales force at its current size and to revisit expansion of the later date. With that said, I'm pleased to announce that we expect to obtain a New York license later this year. Receipt of which opens an important market for our liquid biopsy test. At that time we anticipate adding a sales rep to cover New York State, expanding our territories to 13. For those who don't know New York acquires their own unique approval process for selling CLIA-certified diagnostic testing. We see the greatest value for a liquid biopsy test in monitoring patients over time for changes in tumor composition and resistance to therapy. We're working toward providing further clinical validation with a specific emphasis on monitoring to support physician adoption and to establish Target Selector as a component of the standard of care. To that end last week we announced an agreement with the major managed care organization that operates an integrated healthcare delivery network. This agreement is structured to evaluate the clinical utility of our Target Selector testing to profile and monitor actionable biomarkers in lung cancer patients with the objective of demonstrating improve patient care and reduce cost. This initiative is expected to add to our sample volume in the near-term. Importantly data collected from this collaboration could provide key clinical evidence supporting the benefits of our liquid biopsy platform to both physicians and payers. We expect to announce more information as this partnership progresses. We've also partnered with the Moores Cancer Center at UC San Diego Health to conduct two clinical studies in patients with a variety of solid tumors. These studies will use our liquid biopsy assays to detect circulating tumor cells and circulating tumor DNA in patients with late stage cancer, who are at risk for disease recurrence. The results will then be compared with findings from CT or PET scans. The current standard of care to assess disease recurrence is CT imaging. However CT imaging may only detect recurrence after a significant organ damage has occurred and the tumor has returned. Using a simple blood sample may enable a patient to qualify for more rapid and comprehensive treatment options and may facilitate the earlier detection of recurrence. We also continue to raise awareness of our Target Selector test at major industry conferences. For example two posters featuring data from our liquid biopsy testing have been accepted for presentation in September at the World Lung Congress, which is the meeting for members of the International Association for the Study of Lung Cancer. Turning to our collaboration with Thermo Fisher Scientific, this broad partnership gives us access to the next generation sequencing products and supports our plan to commercialize a molecular oncology assay panel. I am pleased to report that we expect validation to be completed by the end of the third quarter. Once we are validated, this partnership will allow for Biocept to team up with Thermo Fisher to market molecular diagnostic products and services to pharmaceutical companies and opening new market opportunities for Biocept. Furthermore Biocept will be the only liquid biopsy company offering both individual cancer biomarker tests with the option of a larger test panel. The agreement also calls for Biocept to become a Thermo Fisher liquid biopsy center of excellence. We have jointly agreed to evaluate the development of additional products and services through the combination of molecular diagnostic technologies from both companies. We recently made progress in broadening our internal international footprint in support of our planned transition of Biocept beyond a reference lab only into a diagnostic kit manufacturer with a global brand. This progress includes distribution of our proprietary blood collection tubes through VWR, which is a leading global supplier of lab equipment supplies. I'm pleased to report that in Q2 we shift our initial stocking order and recorded our first revenue under this agreement. Other companies developing liquid biopsy test can now incorporate our proven preservative to ship specimens as they validate through own molecular assays. We are excited about this first step with VWR and look forward to reporting on this part of our business in future quarters. We also recently broadened our intellectual property coverage to 28 issued patents globally. This includes the recent award of a Canadian patent covering the use of our proprietary micro channels for the capture and detection of any biological target of interest. These targets include proteins and nucleic acids as well as the capture of cancer or other cells that can be used for molecular analysis and blood and other biological fluids. We also were granted a patent in seven European countries for our Target Selector essays for ctDNA analysis using real-time PCR, Sanger sequencing and next-generation sequencing. We are specially proud of this family of patents as the molecular field is very crowded and patents are difficult to obtain. Importantly, we expect to have a research use only, or RUO kits, ready for sale in early 2019. These ROU kits will be based on our Target Selector assays for ctDNA and will include Biocept’s novel primers and reagents for molecular analysis. This new product line will allow us to expand our liquid biopsy business geographically by selling these kits to international labs, which can use them to develop and conduct their own laboratory testing using our proprietary technology. According to a recent industry report published by Grand View Research, the use of liquid biopsy testing is growing faster in several markets outside the U.S. such as in the Asia Pacific region and we are having ongoing discussions with international parties interested in utilizing our kits to either enter the market or expand their offering of liquid biopsy products. In recapping our priorities for 2018, we are focusing on increasing Target Selectors market penetration in the emerging liquid biopsy segment by capitalizing our newly issued industry guidelines to support the use of liquid biopsy for patients with lung cancer, advancing our collaboration with Thermo Fisher Scientific to grow our business in the pharmaceutical sector, signing additional Empower TC agreements with pathology groups and major hospital systems, further automating our laboratory processes to improve reproducibility, quality, productivity and improved margins, entering into strategic partnerships in the U.S. and internationally including sales and distribution agreements, supporting the global adoption of our blood collection tube sales under the VWR marketing and distribution agreement, signing new third-party health plan contracts and agreements with integrated health care delivery networks, launching additional oncology biomarker assays and publishing additional clinical case studies that validate the use of our Target Selector assays. And with that I will turn the call over to Tim to review our second quarter financial results. Tim?

[Tim Kennedy:]

Thanks, Mike, and good afternoon everyone. For Q2 2018, we reported revenue of $822,000 up 2% compared to Q1 2018 of $807,000. Compared to the same period last year on an accrual basis revenue was approximately $280,000 or about 25% lower partially due to a higher amount of work in process. In particular, there were 45 accessions or about $60,000 at the end of Q2 2018 that will be recognized as revenue in Q3 2018. The remaining difference in revenue of about $220,000 was due to lower overall volume year-over-year. Commercial reimbursement based on historical mix and test per accession received continues to be in the $1,100 range on average. In Q2 2018, we had 996 billable accessions versus 1,225 billable accessions in Q2 2017. As a reminder billable samples are defined as commercial cases plus those samples that come from our development services. Commercial cases are test ordered by physician for which we submit a claim to an insurance company, hospital or other third-party responsible for payment. Development cases are testing services performed for either a research partner, a pharmaceutical company or under an international distribution agreement. The number of billable samples per day averaged approximately 16 in the second quarter of 2018. As I mentioned on previous conference calls, liquid biopsy is still in the early stages of acceptance and adoption, so referral patterns from physicians can be sporadic. Nevertheless, we anticipate returning to growth in sample volume during the coming quarters. Moving on to our expenses. Cost of revenue for Q2 2018 was $2.7 million compared with $2.4 million in Q2 2017. The increase was attributable to higher software amortization and other information technology and laboratory equipment cost as we invested in our laboratory information system and certain laboratory equipment. The higher cost of revenue was also impacted by an increase in direct costs associated with laboratory process improvements and blood collection kits. Throughout the quarter, we have been exploring options for automation of manual processes in our CLIA laboratory. We anticipate having part of this automation completed by year end. We expect that this automation will result in a more reliable and efficient process leading to lower cost of revenue. Research and development expenses for Q2 2018 were $1 million compared to $842,000 in Q2 2017. This increase was mainly due to the addition of personnel for the development of new biomarker assays and a higher proportion of allocated laboratory costs due to increased research and development activities. General and administrative expenses for Q2 2017 were $1.7 million down from the $1.8 million reported in Q2 2017. The decrease in G&A was due to our cost reduction efforts, which we began implementing in the first half of this year. Sales and marketing expenses for Q2 2018 were $1.4 million versus $1.7 million in Q2 2017. This decrease was also due to our cost reduction efforts, which we began implementing in the first half of this year. The net loss for the second quarter of 2018 was $6.2 million or $2.70 per share on 2.3 million weighted average shares outstanding. This compares to a net loss for the second quarter of 2017 of $5.7 million or $6.32 per share on 901,000 weighted average shares outstanding. As a reminder, we conducted a one for thirty reverse stock split of our outstanding common stock, which was effective in July 2018. This resulted in significantly fewer shares outstanding since we reported our financial results last quarter. Now turning to our results for the six months ended June 30, 2018. As a reminder during the three months ended March 31, 2017, we converted from cash based revenue recognition for our commercial revenues to accrual based revenue recognition. Revenue for the first half of 2018 was $1.6 million. All revenues in 2018 were recognized on an accrual basis whereas of the $3 million in revenues recognized in the first half of 2017, $1.9 million related to revenues recognized on an accrual basis and $1.1 million related to revenues recognized upon the receipt of cash. Billable samples accession in the first half of 2018 were 2,080 compared to 2,332 in the same period last year. Cost of revenue for the first half of 2018 was $5.1 million, research and development expenses were $2.1 million, general and administrative expenses were $3.6 million and sales and marketing expenses were $3.1 million. The net loss for the first half of 2018 was $12.5 million or $5.97 per share was about $2.1 million weighted average shares outstanding. This compares to a net loss for the same period in 2017 of $10.1 million or $12.58 per share with about 805,000 weighted average shares outstanding. Cash and cash equivalents were $2.6 million as of June 30, 2018 compared to $2.1 million as of December 31, 2017. We recently raised approximately $10.4 million in net proceeds from our shareholder rights offering, which closed yesterday and included shares of Series A convertible preferred stock and warrants to purchase Biocept’s common stock at $4.53. Lastly and as we previously indicated, we paid off the remaining balance of our term debt with Oxford Finance, which occurred in July and we began to realize lower operating expenses as we implemented our cost reduction program last quarter. The elimination of our debt and the reduction of our operating expenses together are anticipated to reduce our annual cash need by approximately $3 million to $3.5 million. And with that I'll now turn the call back over to Mike. Mike?

[Michael Nall:]

Thank you, Tim. Folks we approved the ability of our Target Selector technology to improve care for many patients diagnosed with cancer. We’re among the innovators in our field at a time when diagnostics are gaining recognition for the improvements our industry is bringing to the healthcare system. We have seen this in the liquid biopsy guidelines for lung cancer patients issued by major industry associations as well as an improved reimbursement for next generation testing. Biocept is an established provider in emerging field liquid biopsy and we are taking the steps to build upon our accomplishment. Our liquid biopsy tested have been performed on approximately 15,000 patient samples and our test menu provides physicians with the clinically actionable information they need to develop personalized treatment plans for their patients diagnosed with cancer. Our proprietary biomarker assays are based on a unique platform that leverages information from both CTCs or circulating tumor cells as well as ctDNA or circulating tumor DNA and we continue to generate clinical evidence that supports the high sensitivity and high specificity of our biomarker assays. And in addition to organic growth, we are focused on expanding the opportunities through strategic partnerships for other alternatives. An overlay to all of these accomplishments is our ongoing dedication to our mission of improving the outcomes of patients diagnosed with cancer. With that overview, we’re now ready to take your questions. Operator?

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions]

[Michael Nall:]

While, we’re waiting for the first question, I'd like to mention that I'll be making a company presentation at the Microcap Conference being held October 1st and 2nd in New York. I hope to see some of you there. And for those not attendance, a webcast of our presentation will be posted to the investor section of our website at www.biocept.com. Okay, operator, we’re ready for the first question.

[Operator:]

Actually, the queue is empty at this time. [Operator Instructions] Showing no questions, this concludes our question-and-answer session. I would like to turn the conference back over to Michael Nall for any closing remarks.

[Michael Nall:]

Thank you, operator. I want to thank all of you for participating on today's call and for your interest in Biocept. We look forward to sharing our progress on our next conference call in November when we report our third quarter financial results. Thank you very much and have a great day.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.