STRATA Skin Sciences, Inc.
Q4 2012 Earnings Call Transcript

Published: 6 Mar 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the MELA Sciences 2012 Fourth Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. This presentation includes forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. These statements include, but are not limited in -- to

[Joseph V. Gulfo:]

Thank you, Mary. Good afternoon, everyone, and thanks for joining us for MELA Sciences' fourth quarter 2012 conference call. We've now completed our initial 9 months on the market, having begun our controlled and deliberate stage product launch in March of 2012. I'm pleased to report that the second half of our first year, beginning in October, found us significantly escalating the pace of signing up new dermatology practices and placing systems, consistent with our overall plan. In particular, we have expanded our geographic reach within our target markets of the U.S. and Germany, and MelaFind is being well received by both key opinion leader and "in the trenches" dermatologists in busy and productive practices. We are gratified to hear about the positive clinical experiences and benefits of using MelaFind from these dermatologists. As many of you know, MelaFind is our breakthrough noninvasive and objective automated point-of-care system for use when a dermatologist chooses to obtain additional information for a decision to biopsy clinically atypical pigmented skin lesions with one or more clinical or historical characteristics of melanoma. On today's call, I'm going to give a brief overview of our fourth quarter accomplishments and then turn the call over to Richard Steinhart, our Chief Financial Officer, for a review of the financials, and then open up the call for questions. I'm thrilled to report that the fourth quarter was our best to date, with recognized revenues of $122,000 and cumulative deferred revenues of approximately $303,000. We ended the year with 115 signed user agreements, 95 of which were installed and 20 pending installation. We had over 100 dermatologists that -- in which we provided user agreements or we considered highly interested dermatologists that were actively considering acquiring MelaFind. Thus, we saw an increased cadence and intensity of commercial activity in the fourth quarter that has continued into the first quarter. Significant achievements in the fourth quarter include

[Richard I. Steinhart:]

Good afternoon, and thank you, Joseph. Total invoicing to our customers in the 3 months ended December 31, 2012, was approximately $278,000, of which $122,000 was recognized and $156,000 was deferred, bringing deferred revenue reported as of December 31 to approximately $303,000. This is compared to no revenue for the same period in 2011. As a reminder about recognized and deferred revenue, as we have discussed in the past, we establish contracts with multiple elements of delivery and must defer a significant portion of our placement fee despite the fact that we generally do receive the entire cash payment on installation. As a result, deferred revenues reflect the timed recognition of the installation fee revenue over the term of the user agreement, which is usually 2 years. Research and development expenses for the fourth quarter were $1.3 million versus $2 million reported in the same period last year. The decrease in research and development expenses is primarily attributable to the reallocation of certain expenses to properly reflect commercial operations and reduced R&D expenses at our contract manufacturer Askion, which is located in Germany. Selling, general and administrative expenses were $3.9 million for the fourth quarter of 2012 versus $2.5 million reported in the same period last year. The increase is a result of several factors. First, there was a reallocation of certain expenses from R&D, as we discussed, into selling, general and administration to properly reflect commercial operations. In addition, there have been significant additions to our direct sales force. Finally, there have been increases in our incremental marketing costs and our indirect costs associated with the placement of MelaFind systems into doctors' offices in both the U.S. and in Germany. Our net loss for the fourth quarter of 2012 was approximately $6.1 million or $0.19 per share versus a reported loss in the fourth quarter of 2011 of $4.5 million or $0.17 per share. For the entire year, the company had a net loss of $22.7 million or $0.74 per share compared with $20.4 million or $0.80 per share in 2011. As of the end of the fourth quarter, the company had cash and cash equivalents of approximately $7.9 million. We added approximately $23 million in cash and commitments to the balance sheet in 2013 with the use of our at-the-money, or ATM, product; $8.8 million in gross dollars or 4.7 million shares; the equity financing we completed in February of $7.9 million gross on 6.1 million shares. In addition, I'm pleased to report that just this afternoon, we received a letter from Hercules Technology Growth Capital informing us that their investment committee has formally approved the $10 million debt financing facility that was outlined in their February 5 term sheet to us that we have previously announced. This financing remains contingent on the satisfactory completion of loan documents. We anticipate receiving $6 million on the formal closing, with $4 million upon the successful completion of certain sales and revenue targets. Also of note, we retired the ATM registration, having raised $14.4 million of the $20 million available to the company under this program. Finally, it's important to note that we continue to be focused on expense control despite significant ramp-up and expansion activities. We continue to balance the need to invest in building our market opportunity and revenue growth with a keen focus on controlling cash expenditures. I'd now like to turn the call back to Joseph for concluding remarks, and then we'll open it up for questions.

[Joseph V. Gulfo:]

Thanks, Richard. We're pleased to report the many achievements we have reached in the fourth quarter. Our goal in the first 12 months of the launch was to turn a company into a business, and I believe we achieved that goal in just the first 9 months that we were on the market in 2012. We did many critical things in 2012

[Operator:]

[Operator Instructions] And our first question comes from Mark Turner [ph] from Morgan Stanley.

[Unknown Analyst:]

I just have a question. With the last few conference calls that we've had and the number of signed agreements slowly inching towards that 100 mark, and now we're slightly past it, why would the comments come that you want to change from a placement phase to a management phase?

[Joseph V. Gulfo:]

Well, we always planned on a 2-phased launch, right? So Phase I was really focusing on the razor, if you will, that we have a razor-razorblade model. And focusing on the razor meant a few things. One, getting the right messaging about it down, learning about perceptions of the dermatologist given the messaging and adjusting, learning exactly how to communicate with the customers and place them effectively and have them understood by the whole practice. So that really was Phase I, again, focusing on the razor. Phase II, to really drive the business is, once we had a good meaningful base, now focus on MelaFind being used more, right? So we'll always want to put more and more systems out, but the real driver of the business and what's really critical to turning a business into a successful business is showing that the systems -- each system in place is being used more and more, because that's really what drives the success of the product in catching melanoma so that it doesn't kill 1 American an hour, in making it a successful use of the doctor's time from a practice perspective and making our business successful. So the usage really satisfies all of the goals we wanted to achieve when we set out

[Operator:]

Our next question comes from Greg Chodaczek from First Analysis.

[Greg Chodaczek:]

Just a couple of quickies. Joseph, can you go through those statistics or metrics again about the average user compared to the so-called power user, days per month and numbers per day? Can you go through those again for me, please?

[Joseph V. Gulfo:]

Yes. So what we're able to do because we get data from the systems, right, HIPA-compliant, we don't see user -- patient identification, things like that, but we get to see use data from the systems. So the last data we had from as many system as we had showed -- for which we had these kind of data on, that we saw an average of roughly 2 MelaFind uses per active day. And across the whole body that we had information on, an average of 7 active days per month. The most prolific users averaged more like 3 a day -- averaged 3 a day, rather, and they had twice the number of days, 13 active days per month. Okay, so those are the numbers that I mentioned. And we had a couple of -- more than a couple, a few examples of people using it quite a bit, so I expect those anecdotes to grow and grow and then be reflected in the actual "numbers" as we proceed.

[Greg Chodaczek:]

And are you seeing that once a placement is done that these numbers are growing and will continue to grow, or do you think these are numbers that you think will be there for a while?

[Joseph V. Gulfo:]

I don't think we have enough data yet. I mean, we really only started really expanding in October, quite honestly, that's when we really planned our -- internally, that's when we really blow it out, that's when we hired the bolus of territory managers. I just don't have enough data yet on that. I do know this

[Greg Chodaczek:]

Right. And another question, and I'm not sure if you have enough data yet, but once a doctor or dermatologist uses this and could have missed a melanoma and was, I don't know want to say saved by the MelaFind, but the MelaFind helped make that decision to biopsy or vice versa, do you see usage going up? And I know on one of the morning shows, you had a very famous dermatologist from New York City talk about how she wouldn't have -- or was going to biopsy something but did not because MelaFind said it was low, and for this dermatologist to admit that is quite a piece of information. But is there a ta-dah! moment for these dermatologists once they have it in their hands?

[Joseph V. Gulfo:]

Yes, but I don't -- I can't quantitate it. You're asking for quantitation, and I can't do that yet. But let me just tell you that another couple of things have happened this weekend. So we had 2 dermatologists -- again, in the early days, we focused on the key opinion leaders, and I knew every customer, right, in the first few handfuls, right? And then it got to a point where the commercialization team took over and did it the right way. And we had -- it was incredibly gratifying this weekend. Two dermatologists came to the booth, and I never met them before. One from -- I don't think I should say, but one from the middle of the country said -- he went over and thanked us for giving him a MelaFind -- he paid for it, by the way, but his words were "giving," and he said, "I found 6 melanomas I wouldn't have found without this." And then another one came from the Northeast, again, someone I never met before and said a similar thing, that he's now found 2 melanomas, 1 on the face, he wouldn't have found without MelaFind. And I will tell you, not hearing that from people we know, hearing that from strangers that I didn't -- I had no hand in teaching about the product or whatnot, was just an incredible thing. So we'll report back on the kind of usage from those doctors. It would make sense that we would see that.

[Greg Chodaczek:]

Okay. And then last one, I know I take up too much time already. But based on your statistics that you said earlier about the average dermatologist having -- using the 7 days a month, do you think that's typical for a product inside a dermatologist's office that they use it for specific days and don't use it for other days? Can you explain real quick on scheduling at a dermatologist's office and what you've seen that they only do skin exams on certain days and BOTOX on other days? Can you explain that real quick? And then I'll hang up.

[Joseph V. Gulfo:]

Yes. I understand the question, and I don't understand that exactly. So some of them work in different locations different days of the year -- different days of the month, and that could help. And maybe they're in the other location and MelaFind is only in one practice. That could be part of it. But your point doesn't follow very well with then why the most prolific one is 13. So I don't have a good handle on that yet. I think we have a certain glimpse. But I don't want to make any decisions or change any tactics or plans until we've really effected the proper launch. And we haven't yet, right? We haven't yet gotten all of the practices using all the tools. So let's wait to see what happens when they do use it. And then, you're right, we may see something structural that only on days they're doing skin exams is that or something else only when they're in the office with MelaFind are we seeing that, and then we'll be able to optimize that situation, but I don't have enough data yet.

[Operator:]

[Operator Instructions] Our next question comes from Jeremy Hellman from Avenue T Fund -- actually, it looks like we have no further questions at this time. I'd like to turn the conference back to Mr. Joseph Gulfo for closing remarks.

[Joseph V. Gulfo:]

Okay, and thank you. I want to share one other story with you that happened at the very end of yesterday when we left the AAD meeting. A dermatologist from New York that we don't know came to the booth and said, on her flight down, one of the flight attendants could tell she was a dermatologist and discussed with her, her recent experience where she spotted something on her body and she presented to a dermatologist in Florida and asked about it, and the dermatologist said he or she was not concerned about it, and the word that the patient used was "dismissed"

[Operator:]

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.