Biocept, Inc.
Q3 2018 Earnings Call Transcript

Published: 14 Nov 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Biocept Third 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 today, November 13, 2018. I’d now like to turn the call over to Ms. Jody Cain. Please go ahead, ma’am.

[Jody Cain:]

This is Jody Cain with LHA. 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 anticipates, estimates, 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, 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, and thanks to everyone on the call today. We continue to make progress on initiatives that build for our future. That being said, we are disappointed with the revenues for the third quarter and later in today’s call we will discuss the actions that we have taken aim to returning our business to grow it. We will also provide an update on our strategic initiatives and business development opportunities. First, Tim Kennedy, will review our financial results and then you will hear from our new Chief Commercial Officer, Edwin Hendrick and me about our plans to return our company to robust growth. Tim?

[Tim Kennedy:]

Thanks, Mike, and good afternoon, everyone. For Q3 2018 we reported revenues of $762,000, compared with $1.1 million reported in Q3 2017. On an apples-to-apples accrual basis, revenue was $762,000 in Q3 2018, compared with $1 million in Q3 2017 and there were 90 work in process accessions or approximately $124,000 that were received at the end of Q3 2018, which we anticipate recognizing as revenues in the fourth quarter. Commercial reimbursement based on historical mix and test per accession received continues to be in the $1,100 range on average. In Q3 2018 we had 878 billable accessions versus 1,203 billable accessions in Q3 2017. The number of billable samples per sale day averaged approximately 14 in the third quarter of 2018. Liquid biopsy is still in the early stages of acceptance and adoption, and our new commercial team is refocusing our marketing and sales efforts on physician, specialties and market segments that we believe can turn around our volume trends. As a result, we anticipate returning to growth in sample volume in the coming quarters. Turning to our expenses, we announced in Q1 of this year an initiative to reduce our operating expenses in the range of $1 million to $1.5 million on an annualized basis. We have accomplished this goal when comparing the expenses reported in Q3 to the expense baseline in Q1 of this year, when the cost reduction plan began. While research and development is flat versus the first quarter, general and administrative and sales and marketing costs are both down from the Q1 baseline. On a year-over-year basis, cost of revenue for Q3 2018 was $2.5 million, which was flat compared to the same period last year. Cost of revenues in 2018 period was impacted by an increase in expenses associated with validating the Thermo Fisher molecular oncology assay panel and an increase in costs associated with calibrations and clear validations to improve upon existing equipment specifications and testing protocols. In addition, we continue to maintain laboratory capacity to accommodate higher volumes as we work to improve our growth trends. Research and development expenses for Q3 2018 were $1.1 million, compared with $857,000 in Q3 2017. The year-over-year increase was primarily due mainly to the higher proportion of allocated laboratory costs associated with research and evaluation cases received and an increase in cost of research studies in collaboration with academic and healthcare institutions. General and administrative expenses for Q3 2018 were $1.8 million and were unchanged versus the same period last year. Sales and marketing expense for Q3 2018 was $1.4 million, down from the $1.7 million reported in Q3 2017. The net loss for the third quarter of 2018 was $6 million or $2.42 per share on 2.8 million weighted average shares outstanding. This compares with a net loss for the third quarter of 2017 of $5.8 million or $5.90 per share on 987,000 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. Now turning to our results for the nine months ended September 30, 2018. As a reminder, on March 31, 2017, we converted from cash based revenue recognition of our commercial revenues to accrual based revenue recognition. Revenue for the first nine months of 2018 was $2.4 million. All revenues in 2018 were recognized on an accrual basis whereas of the $4.1 million in revenues recognized in the first nine months of 2017, $2.9 million related to revenues recognized on an accrual basis and $1.2 million related to revenues recognized upon the received cash. Billable samples reported in the first nine months of 2018 were 2,958, compared with 3,535 in the same period last year. Cost of revenue for the first nine months of 2018 was $7.6 million. Research and development expenses were $3.2 million. General and administrative expenses were $5.4 million. And sales and marketing expenses were $4.5 million. The net loss for the first nine months of 2018 was $18.6 million or $8.26 per share with about 2.3 million weighted average shares outstanding. This compares to a net loss for the same period in 2017 of $15.9 million or $18.53 per share with about 861,000 weighted average shares outstanding. In the third quarter of 2018, we made a payment to Oxford Finance of approximately $500,000, which included our final debt installment and other fees to extinguish our long-term debt facility. With no long-term debt on the balance sheet we have eliminated approximately $2.1 million in annual cash spend. This complements the steps we have taken to reduce our operating costs throughout the year. Cash and cash equivalents totaled $9 million as of September 30, 2018, compared to $2.1 million as of December 31, 2017. We raised approximately $12.5 million in aggregate net proceeds from our shareholder rights offering and an additional financing with certain institutional investors, both of which closed in the third quarter of 2018. A key to the changes that we are making to improve our test volume and revenues is a restructuring of our commercial operation. This is being led by Edwin Hendrick who was recently appointed the Chief Commercial Officer. Edwin joined us in September and brings a strong track record of leading commercial organizations and building successful diagnostic businesses. I now like to turn the call over to Edwin to review his background and give a high level overview of his plans to reposition our commercial efforts. Edwin?

[Edwin Hendrick:]

Thanks, Tim, and hello, everyone. I’m excited to be here at Biocept to help bring unique liquid biopsy services to physicians and patients, and while it’s early days for me at the company, I believe there’s great potential here and we hit the ground running making certain changes to the commercial team. We are currently developing new marketing strategies to position our assay platforms for growth off our current base business. You may have noticed press releases announcing additional hires of commercial executive in the areas of sales, marketing and health plan reimbursement. These individuals have been key members of my leadership team at other life sciences firms, where we built significant product and service franchises. I’m grateful that they chosen to join me once again to revitalize the business here at Biocept and in future quarters I plan to give details on the commercial strategy and update on the progress we’re making. For now, I will say that we are working on repackaging and marketing the attributes of our industry-leading liquid biopsy platform for both circulating tumor cell or CTC and circulating tumor DNA or ctDNA analysis to certain physician segments in oncology. These treatment areas where we believe that our target selector technology has unique advantages in helping physicians improve outcomes for their patients. Our pathology partnership approach is particularly attractive and it’s designed to incorporate local pathologists into the pathway for treatment selection and monitoring in an effort to establish better ordination of care. Additionally, CTC status is desired by physicians since the intact cell provides information on the whole genome, rather than just the DNA fragments found in plasma. In addition, counting or enumerating CTC can be used to track disease response or progression. This service separates Biocept from other major liquid biopsy providers and will become more important as liquid biopsy is used for patient monitoring. I believe that our focused approach for growth in addition to further engaging our current base of customers is the first step towards stabilizing and turning around our volume trends. As Tim mentioned, I worked in leadership roles across functional areas to drive productivity, corporate change and increases in shareholder value, each time we were able to build multiple fold increases in revenue and the profitability of those businesses. Key strategies that my team employed include raising brand awareness, improving and positioning of diagnostic products and services in the marketplace, exploiting specific customer channels for our diagnostic offerings were able to solve a major need and offer a strong value proposition, expanding test menus and rightsizing the geographic reach of the sales organization. Most notably, my previous experiences included executive sales and marketing leadership roles at Ventana Medical Systems, US Labs and PLUS Diagnostics in which we grew these businesses into attractive franchises. So thank you for your attention. I look forward to speaking with you again in the future and I’ll turn the call back over to Mike.

[Michael Nall:]

Thank you, Edwin. We are glad to have you on the team. We recognize the need to take concrete steps to revitalize our commercial business -- team into the company is an important step toward gaining the traction needed to get our business back to growing again. Additionally, as discussed on previous calls, we’ve been focused on improving our laboratory workflows and adopting automation. After hiring new heads of quality and regulatory, as well as laboratory operations, we believe that we are on track with our efforts to build the business that can scale more efficiently and effectively. As Tim pointed out, we’ve also made progress in reducing certain expenses to better leverage our commercial effort. We have paid off our long-term debt, eliminating more than $2 million in annual cash spend. We now have more resources to focus on growing our business, while pursuing partnerships collaborations and other strategic opportunities. We have several key initiatives that we are focused on to drive value, among these our collaboration with Highmark Blue Cross and its subsidiary Allegheny Health is off to a strong start. You may recall that Allegheny is one of the largest integrated healthcare delivery systems in Pennsylvania and our collaboration has been deemed a quality improvement initiative. A key goal of this project is to increase the rate of testing from molecular biomarkers in advanced lung cancer patients to 100%. According to Allegheny between 2011 and 2013 less than 60% of lung cancer patients at large tertiary care hospitals were tested for molecular biomarkers such as EGFR, ALK and KRAS 1. This is primarily because many times there is insufficient tissue to perform molecular biomarker test. With our liquid biopsy technology we believe the testing 100% of advance lung cancer patients is achievable due to the convenience and reliability of using a simple blood sample for testing. Oncologists in the Allegheny Network are very interested in this approach and I’m happy to report that the study is already accrued more than 10% the patient’s plan for the program. Additionally, so far, the data indicates, we are demonstrating that our liquid biopsy testing has identified actionable biomarkers in some of the patient’s tested. By missing actionable biomarkers in advanced lung cancer patients when only tissue biopsy is used, treatment options can be limited. Testing with our liquid biopsy assays can help avoid the need to perform secondary biopsy, which can be invasive, expensive and risky. This initiative is designed to evaluate the clinical utility of our target selector testing, as well as the economic value of our liquid biopsy solution for profiling and monitoring actionable biomarkers in lung cancer patients. Given the strong enrollment in the program so far, we believe that the results from our collaboration with Highmark and Allegheny could be reported next year. As you may recall, we partnered with the Moores Cancer Center at UC San Diego Health to conduct two clinical studies in patients with a variety of solid tumors. The studies will evaluate the use of both circulating tumor cells and circulating tumor DNA to monitor for early signs of disease recurrence as compared to monitoring disease recurrence using CT or PET scans. More than 10% of patients have been enrolled in this program and testing has begun. Turning to our collaboration with Thermo Fisher Scientific, this broad partnership gives us access to the next-generation sequencing product and supports our plan to commercialize a molecular oncology assay panel. Once validated, this partnership will enable us to team up with Thermo Fisher to market molecular diagnostic products and services to pharmaceutical company. 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, because we and Thermo Fisher are focused on providing a high performing liquid biopsy panels to pharmaceutical companies for product development, we are continuing to optimize this panel before it is launched. As a result, we believe that validation will conclude before the end of the year and we expect to be in a position to launch the panel in the first quarter of 2019. We continue to make progress in broadening our international footprint in support of our planned transition of Biocept beyond a reference lab only into a diagnostic kit manufacturer with a global brand. We expect to have our offerings ready for sale in 2019. These research use only or RUO kits will be based on our target selector assays for ctDNA 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 lab, which can use them to develop and conduct their own laboratory tests, utilizing 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 of the U.S. such as the Asia-Pacific region and we are having ongoing discussions with international parties interested in utilizing our kits to either enter the market or to expand their offering of liquid biopsy product. Finally, we broadened our IP position announcing four new patent issuances in the second half this year. These include patents for our proprietary microchannel in antibody cocktail platform for rare cell capture, including CTCs in both Hong Kong and Canada, as well as patents for a highly sensitive molecular enrichment platform in both Japan and the EU. We now have 30 patents issued for our proprietary technologies globally. We are especially proud of this family of patents as the technology landscape in the liquid biopsy field is quite crowded and patents have become more difficult to obtain. In recapping our priorities for 2018 and into 2019 we remain focused on increasing target selectors market penetration in the emerging liquid biopsy field, advancing our collaboration with Thermo Fisher Scientific to our grow business in the pharmaceutical sector, signing additional pathology partnership agreements with hospital systems, pathology and other physician practices, continuing to pursue our quality improvement initiative with Highmark and the Allegheny Health System, further automating our laboratory processes to improve reproducibility, quality, productivity and to improve margin, entering into additional strategic and technology partnerships, including sales and distribution agreement, advancing our kit strategy by entering into global distribution agreement, signing new third-party health plan contracts and agreements with integrated healthcare delivery course [ph], launching additional oncology biomarker assays and publishing additional clinical case studies that validate the use of our target selector assays. We have proven the ability of our target selector technology to improve care for many patients diagnosed with cancer. We are an innovator 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 in the improved reimbursement for next generation testing. Our liquid biopsy test have been performed on approximately 16,000 patient samples and our test menu provide physicians with 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 and ctDNA, and we continue to generate clinical evidence to supports the high sensitivity and specificity of our biomarker assays. And lastly, in addition to efforts to drive organic growth, we are focused on expanding opportunities through strategic partnerships and other initiatives. With that overview we are now ready to take your questions. Operator?

[Operator:]

[Operator Instructions]

[Michael Nall:]

While we are waiting for the first question, I’d like to mention I’ll be making a company presentation at the 11th Annual LD Micro Main Event Conference being held in Bel-Air, California. Our presentation is scheduled to take place on December 5th at 8 a.m. Pacific time. Okay, Operator, we are ready for the first question.

[Operator:]

First question from the phone today will come from Lauren Chung with WestPark Capital. Please go ahead.

[Lauren Chung:]

Hi, everyone.

[Michael Nall:]

Hello, Lauren.

[Lauren Chung:]

Yeah.

[Operator:]

Pardon me, Miss. This is the Operator, could you please pick up the handset, we are having difficulty hearing you.

[Lauren Chung:]

Okay. Can you hear me okay. Sorry about that.

[Michael Nall:]

That’s better. Thank you.

[Lauren Chung:]

And going back to your efforts on the marketing, can you tell me more about what you are working on, so what’s the headcount now and regionally is there an area that you are can focus on or and if you can give a little more detail about the marketing efforts, that will be helpful?

[Michael Nall:]

Sure. And just -- I will turn that over to Edwin in just a minute here, but just to teed-up I would like to say how thankful we are and excited we are that Edwin has joined us and he truly hit the ground running. His years of experience doing this over and over many institutions, in fact, he and I use to compete against each other back in the day. And so doing this over and over successfully at many different institutions we knew he was the right guy to come over here and rejuvenate our commercial efforts. So with that I will turn it over to Edwin. He can share a little bit more color on some of the initiatives he is launching, as well as some of the ideas that he is kind of inherited that he is hopefully going to take to the next level.

[Edwin Hendrick:]

Sure. Thank you, Mike. So, yes, I mean, again, as I said in my statements that, this is early days for me and over the course of the last few months, I have been researching strategies while I have been here and I very much support many of the initiatives that the Mike and the team have had previously and my goal is to execute and expand on these. We are re-launching several of these. It truly is more about the execution of getting them across the finish line more so than anything else and we are revamping many of the areas within the marketing and sales team. Since I’ve been here we have changed over in regards to bringing new marketing support in-house. We brought a new VP of Sales onboard. We’ve also brought a managed care headcount onboard as well and through natural attrition we brought onboard several new representatives. More than anything else we are taking look at everything geographically. We are taking a look at all the product lines that we have. We are revamping and taking a look at where we stand differently across our competition which there are many, many reasons why people should use us and we are redeveloping some of those marketing materials in order to be if we go back out with the field. So that the sales representatives can feel strong in regards to what they’re presenting and how they are presenting. We are revamping some of the training programs and we are looking more and more technical sales then what we try to do in the past. So all of those initiatives along with taking a look and revamping some of our pathology partnership programs, are all keeping us extremely busy over the last two months or so. I do hope in the near future that I will be able to expand even further in regards to the different areas that we are going into. But I don’t want outline everything at this moment in time, but I can rest assured that in our next call that it is my hope and through an execution that we are going to have better news and we are going to have more expanded news as we move forward.

[Michael Nall:]

Thanks, Edwin.

[Lauren Chung:]

So what’s the total headcount now on the marketing side?

[Edwin Hendrick:]

We have two people on the marketing side right now and that overall in the entire sales and marketing and managed care organization we have 19 people.

[Lauren Chung:]

Got you. And also on the -- you mentioned on Thermo Fisher the -- you expect to have marketed products next year. Is there any more detail about that that you can share and also -- and would you see the cost of the kind of going down after that point?

[Michael Nall:]

Well, I will address kind of the question on Thermo Fisher first then I will turn over to Tim to give you a little bit more color on cost of good. As far as our relationship with Thermo Fisher remains robust, we communicate them on almost a daily basis. Together we are developing this panel, so it’s the highest quality and best panel that’s available today. As you know, Lauren, our first target before we launch it clinically will be in the pharmaceutical area and as you can imagine, having the highest quality and most data, before you go in for those sales presentations next year it’s going to be critical. So that’s where we are with Thermo, but I still have every plan at this point to validate that launch at this year and then with commercial launch next year, first to pharma and then to clinical, as we understand better the reimbursement landscape there. And then how that or about your question on cost of goods, I’ll turn that over to Tim.

[Tim Kennedy:]

Sure. As I mentioned, Lauren, previously during our prepared remarks, I said that, the cost of revenues in 2018 period was basically impacted mainly by the increase in expenses associated with validating the Thermo Fisher molecular oncology assay panel. Those costs are -- it is very expensive to, obviously, validate a brand new tests, never mind a brand new panel of tests. So once the validations are complete, we expect that to happen here in the not-too-distant future and we start marketing that panel into the pharmaceutical market. Certainly, we expect the overall costs associated with that Thermo Fisher panel to start coming down as revenues associated with the pharmaceutical product and selling that offset the cost of the product itself.

[Lauren Chung:]

Okay. And lastly on the -- and Allegheny partnership, can you tell me more about that in terms of are you able to build those paths?

[Michael Nall:]

It is. That’s one of the nice things about that Lauren and those are commercial samples that we are getting it from them. And Highmark, which as you know is a payer, as well as healthcare provider in this case is funding that.

[Lauren Chung:]

Okay. Thank you. And just lastly, what -- can you comment on anything strategic and just to the extent that you can mention?

[Michael Nall:]

Well, I -- that’s a broad question, Lauren, but I think, I know where you’re going because you are an expert in the industry. And as you have seen, there is a lot of M&A going on in the space, which I think is exciting times for us in diagnostics and as a huge cheerleader, all three of us are for what we all do every day in diagnostics, we are excited to see this potential and if I can think I can speak for the Board here in saying that, our Board is absolutely focused on trying to increase shareholder value in whatever way that may look and we certainly wouldn’t stand in the way of something that would benefit our shareholders. So there is a lot of excitement out in the space right now, people are starting to recognize what the good work we are all doing as an industry and specific to Biocept in liquid biopsy. So the overall macroenvironment is looking quite positive right now.

[Lauren Chung:]

Great. Thanks.

[Operator:]

[Operator Instructions] And at this time I’m showing no further questions from the phone. So I would like to turn the call back to Michael Nall for any closing remarks.

[Michael Nall:]

Thank you, Operator. Well, I want to thank all of you for participating in today’s call and for your interest in Biocept. We look forward to sharing our progress on our next conference call when we report our fourth quarter financial results. Thanks everybody and have a great day.

[Operator:]

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