Champions Oncology, Inc.
Q1 2015 Earnings Call Transcript

Published: 10 Sep 2015

[Operator:]

Good afternoon. I'm Joel Ackerman, the CEO of Champions Oncology. Thank you for joining us for our quarterly earnings call. I'll start the call today with highlights and updates since our last call, discuss the financial results, and then open up the call for questions. Before I start, I will remind you that I will make forward-looking statements during the call and actual results could differ materially from what is described in those statements. Additional information on factors that could cause results to differ is available in our Forms 10-Q and Form 10-K. Reconciliation of the non-GAAP financial measures that may be discussed on the call to GAAP financial measures is available in the earnings release. It’s been only six weeks since our last earning call and most of that was during the typically slow month of August, despite this it’s been a busy time for us and I’m excited to report three significant developments for Champions. The first highlight is our successful Uplisting to NASDAQ. Shifting to a national exchange has been a goal of ours for a couple of years and it’s something we’ve been actively planning for more than a year. Trading over the counter at a stock price below on $1 has undoubtedly been an impediment in our fund raising efforts. For this and other reasons, we are very excited to have completed the Uplisting process. The final steps in this process began on August 12 with a 12 for 1 reverse split of our stock. This brought our stock price above the $4 minimum we needed to qualify for the Uplisting. It remained comfortably above the $4 until we got the final approval on August 12 for an Uplisting that was effective on August 21. We’ve been pleased with the transition and the short term halo effect it has provided us. We did not expect an immediate pick up in volume or price especially given that this all occurred during the typically quiet time on Wall Street at the end of August, combined with a particularly rocky period in the public markets. Given this, we’ve been very happy with the trading and the stock since the Uplisting. Overtime, we do believe that listing on NASDAQ will allow us to expand the list of investors that we have access to and should help with liquidity. The second highlight for the quarter was the filing of two patents relating to the development use of our ImmunoGrafts. As I discussed on our call last quarter, we’re investing resources in our program to allow the testing of the new class of drugs that harness the human immune system to kill tumors. This is a very hot area in oncology drug development and we’re excited about the new opportunities that will be available to us as we develop a commercial offering in this space. These models are complicated to build the news, they incorporate both the complexicities of mouse humanization and the complexicities of patient derived xenograft models. In addition, there is a second order complexicity that arises from the important interactions of the implanted human immune system with the implanted human xenograft. As we learn more about these models and develop innovative ways to apply them to drug development we want to ensure we will have the opportunity to get a return on our investment, therefore as part of our R&D strategy for ImmunoGrafts, we are looking for ways to develop a portfolio of intellectual property to protect our investment. To this end, we filed two patents recently related to our ImmunoGrafts. The first patent filing covers a novel methodology the company is developing to create a mouse model containing a humanized immune system and a human tumor xenograft which is capable of testing the efficacy of immune oncology agents both the single agents and in combination with other anti cancer drugs. The second patent filing relates to the use of these models for the development and personalization of anti cancer vaccines. As this offering evolves we expect to have more reports on both the R&D efforts and the commercial development of these products. The final developments over the quarter were some important additions and changes to our management team. During the quarter, we hired David DeOrnellis as the Global Director of Lab Operations. David joins us with more than 20 years of experience working in and managing animal labs at and for the pharmaceutical industry. He started his career as a lab tech and has spent most of the last decade as a manager at Novartis in their lab animal services group. He also spent almost two years at Harlan a large supplier of mice to the industry. David has hit the ground running and is already contributing to our goals of operational excellence and scalability. We also brought Mark Weinstein on as our permanent CIO. Mark has worked with us as a consultant for two years and proven himself to be a very talented, business oriented Chief Information Officer. His work has been integral to our continued systemization and automization of every aspect of our business. Operational excellence is an important value at Champions that we drive towards through a combination of people, process and technology. Bringing Mark on as a permanent member of the team ensures that our approach to information technology is innovative and practical and aligns with our broader business goals. Finally, we promoted Jordan Rubinson, to the role of Chief Commercial Officer. Jordan was one of the first hirers Ronnie Morris and I made after taking over the leadership of the company. Jordan joined us with an impressive background in the pharmaceutical industry having worked for GlaxoSmithKline, Aventis and Pfizer. As the head of our POS business for the last few years, he has great knowledge and experience in building and utilizing our platform. As we move to merge the core competencies we’ve developed over the years and our work for pharma and patients Jordan is uniquely qualified to drive in his combined effort. Now let me turn to the financial results. During the quarter, we implanted 107 new patients' tumors an increase of 1% over the same quarter last year. 42 of these implants came from our commercial POS offering and 65 implants came from research, partnerships and trials. This continues the trend I’ve talked about in the past of increasing implants from our research partnerships which grew to 65 this quarter from only 15 in the same quarter last year with a flattening over the volume from the TOS customers. We continue to focus on growing the bank in a thoughtful way that maps to our overall business goals. We are narrowing our criteria for accepting implants to ensure that the tumor types and subtypes match the needs of our TOS customers. We’re also focussed on putting in place processes to ensure we are optimizing the take rates of our implants to avoid wasting money on implantations that don’t ultimately grow who have no commercial value to us. POS revenue for the quarter was $485,000 an increase of 42% over the prior year. Core revenue from POS was roughly flat with the same quarter last year. The big change in POS revenue was the result of $160,000 increase in non-core revenue over the prior year primarily from our sales of sequencing tests. We expect this number to continue to bounce around from one quarter to the next. POS cost of sales were $661,000 for the quarter and the gross margin loss was $186,000 compared with a loss of more than 400,000 in the same quarter last year. As we’ve reported in the most recent quarters we’re showing good progress in lowering the cost structure and the losses associated with the POS business. We anticipate continued progress on this in the coming quarters. Now let me talk about the POS business, the one that serves the pharmaceutical industry. TOS revenue was $2.3 million for the quarter, an increase of 49% or $700,000 over the same quarter last year. Over the last few quarters I’ve talked about the pickup in bookings which were the signing of new business with our TOS customers. I’ve explained that there is always a delay between bookings and actual revenue recognition because we do not recognize revenue until the work is completed even though we typically collect a significant portion of cash at the beginning of the work and additional cash as we achieve different milestones in the process. We are very pleased to be able to show this revenue growth in the quarter as we had anticipated. Based on the booking results we have seen over the last couple of quarters we remain confident that the next quarter will continue to show strong revenue growth over the same quarter last year. That said, we still do anticipate volatility in this revenue line in the future. POS gross margins were 31% for the quarter compared to 39% in the same quarter last year. The lower margins were the result of timing mis-matches between revenue and cost that we’ve discussed in the past as well as increased investment in the lab infrastructure to ensure we have the capacity to grow and deliver quality service to our customers. We do expect gross margins to rise as revenue grows and absorbs some of the fixed cost associated with the lab infrastructure investments. Regarding our operating expenses, year-over-year sales and marketing expenses were flat at $1million. We have a significant investment in our POS business development efforts and do expect this to continue to deliver growth in bookings and revenue. We do not anticipate any significant increase in our costs here other than increased commissions resulting from bookings growth in the future. R&D costs were down slightly over the last year because of the large investment last year in genomic characterization in the first fiscal quarter. G&A was also down compared with last year largely as a result of declines in stock based compensation. As I hope you see from the numbers we have continued to deliver on the growth that we had anticipated over the last couple of quarters while managing our expenses. We’ve a lot of exciting new avenues for growth that we expect will supplement the traditional revenue streams of the past and build the proprietary nature of our platform. That is the end of my prepared remarks. I'll now open up the call to questions.

[Joel Ackerman:]

Thank you very much. Thank you everyone for participating. We look forward to updating you next quarter. Have a good day.

[Operator:]

This concludes this afternoon’s teleconference. You may now disconnect your lines.