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Executives

Joshua Drumm

Stephen T. Lundy - Chief Executive Officer, President and Director

Donald R. Hurd - Chief Commercial Officer and Senior Vice President

Analysts

Mark Massaro - Canaccord Genuity, Research Division

AspenBio Pharma (APPY) Q3 2012 Earnings Call November 13, 2012 4:30 PM ET

Operator

Good afternoon, and welcome to the AspenBio Pharma Third Quarter Business Update Conference Call. [Operator Instructions] Please note this event is being recorded. And I would now like to turn the conference over to Joshua Drumm of Tiberend. Please go ahead.

Joshua Drumm

Thank you, Emily, and thank you all for joining us this afternoon. With me on today's call are Steve Lundy, President and Chief Executive Officer; Jeff McGonegal, Chief Financial Officer; and Don Hurd, Senior Vice President and Chief Commercial Officer.

This afternoon, AspenBio issued a news release that provided an overview of its current activities and upcoming milestones. We encourage everyone to read today's news release, as well as AspenBio's quarterly report on Form 10-Q, which was filed last week and is available on the company's website at www.aspenbiopharma.com.

If you need a copy of the press release, please call Tiberend Strategic Advisors at (212) 827-0020, and we will email you one.

Steve will open the call with an update on the current state of development for the company's in vitro diagnostic test, and he will focus primarily on the preparation activities for the pivotal clinical study, which are ongoing at major hospitals across the United States. Don will then provide an update on AspenBio's progress in preparing for launch in Europe. Steve will provide some concluding remarks, and we will then open the call for a question-and-answer session where Steve, Jeff and Don will be available to take your questions.

Please note that certain of the information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that during this call, AspenBio Pharma management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements due to the risks and uncertainties associated with the company's business. These forward-looking statements are qualified by the cautionary statements contained in AspenBio's news releases and SEC filings, including its Form 10-Q for the period ended September 30, 2012, filed November 7, 2012.

This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Tuesday, November 13, 2012. AspenBio undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

Now I'd like to turn the call to Steve Lundy, President and Chief Executive Officer of AspenBio.

Stephen T. Lundy

Thank you, Josh, and thanks to everyone for joining us on the call today. This afternoon, we announced significant news for AspenBio, so I'll just get right to it.

We are excited to tell you that we've officially begun the important hospital training phase for our pivotal U.S. clinical study for our blood-based appendicitis test. This is a major advancement for AspenBio because it sets the foundation for clinical success and brings us closer to a potential FDA clearance and commercialization of our in vitro diagnostic test in the United States. Specifically, it means that the first of our hospital sites are undergoing the formal training required to begin recruiting patients into the study. Importantly, it also means that we remain on track to meet our goal enrolling patients before year end.

We are actively focused on training the participating hospital sites on the trial protocol, and this will continue over the coming weeks. We anticipate all of our hospital sites will be online and enrolling patients by early 2013. Ultimately, we expect to enroll a total of approximately 2,000 net evaluable patients at approximately 25 hospital emergency departments across the United States.

Just to remind everyone, we requested and held a pre-investigational device exemption or IDE meeting with the FDA. During the meeting, FDA gave us valuable input that we incorporated into our final study plans. Our pre-IDE package, which was reviewed by the FDA prior to holding the meeting, described the data from our 500-patient pilot study completed in 2011.

This study demonstrated significantly improved performance of the multi-marker test configuration over the results from the test's previous single-marker configuration, exhibiting a negative predictive value of 97%, sensitivity of 97% and specificity of 43%.

As we continue our clinical development, we look forward to commencing the pivotal trial, sharing the outcome and data of the pivotal trial with you when it is available and submitting it to the FDA for their review.

In addition to running a successful trial, market development remains a top priority for AspenBio, which Don Hurd, our Chief Commercial Officer, is spearheading. Both Don and I strongly believe that investments in market development now will foster a faster sales ramp following regulatory clearance. In a few moments, Don will provide some detail on those efforts and what he's been hearing from our potential customers both in the U.S. and in Europe.

In summary, we continue to believe that we can reach a significant portion of the market with a modest sales infrastructure. This is based on American Hospital Association guide information based on bed size, which shows that greater than 80% of all emergency department visits occur in the top 2,600 hospitals.

Following product clearance, our initial plan is to target those potential customers in order to maximize our potential for a successful launch.

With regard to Europe, Don's focus continues to be establishing a network of European distributors to commercialize our diagnostic test. In fact, Don is joining us on the call today from Düsseldorf, where he is representing AspenBio at the MEDICA Trade Show.

As we've mentioned previously, we anticipate obtaining CE Mark for our product before the end of the year, and Don is working very hard to make sure that happens, as well as position AspenBio to launch the product successfully in the EU shortly after obtaining CE Mark. As Don will highlight for you, we are making important advancements that we believe will have a significant impact on our commercial success.

As we reported in our 10-Q filing last week, we ended the third quarter with $10.2 million in cash, cash equivalents and short-term investments. I just want to reiterate that we believe we have sufficient cash to complete the planned pivotal trial, as well as the initial launch of the product in Europe.

Before I turn the call to Don, I want to reflect for a moment on our accomplishments and our strategic plan going forward. When we were on the road earlier this year for our June capital raise, we laid out a clear and carefully thought-out plan for our success, which included the milestones and activities we've been discussing.

As you know, we were able to raise $12.2 million from investors that believe in our ability to bring our product successfully to the market. More importantly, we're making good on those promises. We are accomplishing or are on track to complete our planned development and regulatory milestones. We have made important hires and engaged consultants and other experts to ensure we're putting forth our best efforts. We are also mindful of meeting expectations of our investors who told us quite clearly what they expect to see in terms of preparing the company for long-term success.

In addition to executing our key milestones, this has included efforts to rebrand the company for its future in, in vitro diagnostics. We are acting to change our company name to Venaxis, Inc., which is among other provisions that's subject to shareholder approval at a special shareholder meeting planned for December 11, 2012.

Investors also wanted us to become more transparent communicating our ongoing efforts and sharing our accomplishments. We have taken this to heart as well and plan to hold regular conference calls to provide important updates.

We look forward to keeping this dialogue open as we continue to check off boxes for our development and regulatory milestones.

And with that, I'll turn the call over to Don to provide further insight to the market dynamics and our specific market development activities. Don?

Donald R. Hurd

Thank you, Steve. We continue to make positive progress in terms of market and business development, both in the United States and in Europe. When we set out to engage hospital sites for our upcoming pivotal U.S. clinical study, we identified and interviewed about 100 sites across the United States, establishing quality relationships with emergency department directors, abdominal surgeons and laboratory staff at these hospitals. From these, we selected our group of approximately 25 hospital sites from across the United States to recruit patients into the clinical study.

Additionally, as a critical part of our market development efforts, we continue to visit and cultivate relationships with the other 75 or so sites in order to continue to validate and refine our market assumptions about the clinical utility, pricing, et cetera.

Based on these constructive conversations, I can tell you anecdotally that enthusiasm for the product is very high among clinicians. We believe these efforts are a key to our success, and it's my job to make sure they continue as trial enrollment continues into 2013. It is our goal to enter the market having identified 30 to 50 potential buyers, and we believe we are well on our way to achieving that target.

Relative to Europe, last week we announced that we've engaged Miguel Vernet to consult with the company as we prepare for European commercialization. Miguel is a seasoned sales and marketing veteran who is based full time in Belgium and will be advising on European business development for AspenBio.

As we mentioned in our press release about Miguel's appointment, he was hired by Steve several years ago to lead the European commercial effort for genome sciences. He was very successful in helping to build that business from scratch prior to its acquisition by BD. We have full confidence that Miguel is the optimal choice for AspenBio, and we're thrilled to have his skills and help in place in advance of obtaining CE Mark.

As Steve mentioned, I'm currently in Düsseldorf for the MEDICA Lab Trade Show, which is, if you're not familiar with it, is an international medical technology and diagnostic trade fair of the largest of its kind in the world. I'm here to continue conversations and to demo our product in person with a short list of potential distributors.

We've selected top distributors in 5 initial territories, those being Germany, the U.K., France, Italy and Benelux, where we believe we can be successful. These territories were chosen based on size, overall commercial health, as well as their ability to work with us seamlessly. Miguel has also worked with many of these distributors successfully in the past.

Our approach with these distributors is to ensure an optimal working relationship that fosters success. Part of that involves negotiating initial agreements to sell our product. We want to make sure we focus our efforts on establishing quality relationships with people who like the product and are enthusiastic and motivated sellers. We expect to announce additional advances in the short term as these negotiations continue.

Our commercial goal in Europe is to be positioned for a successful launch as soon as possible after obtaining CE Mark, which we will anticipate will occur before year end.

So in parallel with our distributor conversations here in Europe and similar to what we're doing in the United States, we have begun the process of developing relationships with 5 to 8 select hospitals in each of the territories I mentioned. Our goal is to establish ourselves and our product with key professionals at these 40 or so initial hospital sites in order to establish a potential customer base.

As in the United States, these relationships will help us validate our current assumptions about the European market, as well as to allow us to better understand the kinds of marketing materials, packaging and pricing that may have the greatest impact. These efforts are already under way and will continue over the next few months into 2013.

We estimate the size of the market in Europe, just within the 5 territories we're currently targeting, could approximate the market opportunity in the United States. So we feel it's going to be worth our efforts to develop these hospital site relationships and invest in agreements with distributors in order to optimize our approach.

Finally, it is important for me to highlight our significant accomplishments in product manufacturing as this process is critical to our ability to be able to produce commercial product lots to meet the requirements for CE Mark and United States FDA regulations. As a result of these efforts, we remain on track to declare conformity, submit our filing and obtain CE Mark by the end of December.

In addition to finalizing product specifications, we have made incredible efforts to design our product labeling and packaging to have a new look and feel that reflects our company rebranding strategy.

Also, this has been primarily a behind-the-scenes effort. Some of you may know that this is a huge undertaking that requires hard work by many talented individuals. I'm happy to say that we will have everything in place for product launch in Europe in 2013.

As you can see, we have a lot going on as we prepare for both U.S. and European commercialization. We expect these market development activities to continue to increase over the coming weeks, and we look forward to providing additional updates.

I'll turn the call back to Steve for some concluding remarks.

Stephen T. Lundy

Thanks, Don. I would like to summarize by saying we're very happy with the progress made since our last update. We've taken into account what the FDA had to say about our plans for the pivotal trial and integrated that feedback into our final trial protocol and statistical plan.

We are advancing towards commencement of the pivotal trial by formally engaging and training participating hospital sites to begin enrolling patients. We've advanced our negotiations in Europe with potential distributors and are pursuing agreements in key territories.

We engaged an experienced Europe-based consultant to assist us with strong commercial effort following our -- obtaining our CE Mark. We're continuing to expand our broad network of key opinion leader hospital sites in the U.S. and Europe in order to develop the market ahead of potential product launch. And lastly, we've continued to scale up manufacturing our product in order to conduct the pivotal trial and support CE Mark and commercialization in Europe. I want to point out this is an ongoing effort that will continue ahead of our anticipated U.S. commercial launch.

As we look to the future, we anticipate a number of important developments. First, we look forward to updating you when we commence enrolling patients into the pivotal study. As we've said, this remains on track for occurring before the end of the year.

We plan to complete the study, file for marketing clearance with the FDA, and upon receipt of such clearance, be ready to launch the product in the U.S. in late 2013. Right now, we're focused on completing protocol training for the remaining hospital sites and will do so over the coming weeks to advance the patient enrollment. We expect to file for and announce that we have obtained CE Mark for our diagnostic test before the end of the year.

Market development is advancing nicely. We have met and are advancing interactions with key European Union, key opinion leader sites, and we are moving closer towards signing agreements with potential commercial distributors. Once CE Mark is obtained, we plan to be in a position to launch the product in Europe.

Finally, we are pleased to announce that we will present at the 9th Lazard Capital Markets Healthcare Conference at The Pierre Hotel in New York. Our presentation is scheduled for 2:30 Eastern Time tomorrow afternoon. I look forward to meeting those of you who will be in New York for the conference.

As you can see, we have numerous exciting regulatory and development initiatives ongoing as we continue our evolution into a commercial-stage in vitro diagnostics company. This is an exciting time in the company's history and we prepare -- as we prepare to commercialize our first diagnostic product. As always, we thank you for your continued support and look forward to taking your questions.

Thanks, again. Operator, you may open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Mark Massaro of Canaccord Genuity.

Mark Massaro - Canaccord Genuity, Research Division

I wanted to start, could you describe -- are these more regional distributors in Europe or are these some larger guys that are more household names, if you will?

Donald R. Hurd

The distributors that we're looking at in Europe are tend to be more well-known in the country they're in, I guess, to be specific. So if -- I'll give you an example. If I'm working with a distributor in Italy, that distributor will be working specifically in Italy and not outside of those boundaries.

Mark Massaro - Canaccord Genuity, Research Division

Okay. And could we have an update on -- I know that you have $10.2 million in cash. I know that your burn rate was running somewhere in the $1.6 million per quarter and then possibly rising to $2.8 million when the trial commences. Could you just provide an update on that? Am I pretty close on that ballpark?

Stephen T. Lundy

Yes, Mark, you're pretty close. We are getting ready to ramp up spending a bit more now, as we have these hospitals coming on board and particularly as we enroll patients. So those estimates are very close. I will remind everybody that when we did raise the $12.2 million back in the summer, our goal was to raise somewhere in the $15 million to $17 million range. So we revised our spending estimates in order to reflect that reality, but we've absolutely not changed our plan for conducting this clinical trial in the most expeditious way possible. And we do believe we have enough cash to get through the trial and submit to the FDA and hopefully very successfully submit to the FDA.

Mark Massaro - Canaccord Genuity, Research Division

Great. And have you made any adjustments to the trial prior to the pivotal given the last FDA meeting?

Stephen T. Lundy

We made some changes to the actual clinical protocol itself. We added some things that the FDA recommended we add in the way of collecting certain information. We have not changed the number of patients we intend to enroll. That 2,000 number came from a very rigorous statistical analysis that we performed and that was also performed independently by another statistical analysis firm. So we feel that we've nailed both the protocol as well as the number of patients that we need to enroll and the number of hospitals we need to enroll those patients.

Mark Massaro - Canaccord Genuity, Research Division

Great. And upon CE Mark in Europe, how should we think about timing and revenues upon launch in Europe?

Stephen T. Lundy

Well, I think what we want to emphasize is that we are in the stage now where we're identifying key opinion leader sites. And I will say that we are a bit further behind in Europe than we are in the U.S. on this, Mark. So Don is in the process of identifying, like he said, per country, 5 to 8 hospitals, getting distributors onboard that can work with these hospitals, getting comfortable with our product. And I think in the first quarter, we'd like to see revenues start rolling in from those hospital sites. And then as we start to see the uptake, then we can start thinking about guidance for ongoing commercial activities in Europe beyond that.

Mark Massaro - Canaccord Genuity, Research Division

That's great. And then going back to the U.S. for the clinical trial, what is the mix of hospitals among community, academic and children's hospitals?

Stephen T. Lundy

I'd say it's a pretty good mix, but probably, I would guess half of the hospitals are community hospitals, midsized to large community hospitals. The rest are split between children's hospitals and what I would call larger academic medical centers. We tried to reflect the entire United States, but also do the recruitment so that we can efficiently conduct the study. So for example, we've got -- I know for a fact, 4 or 5 of the hospitals are in the New England area, for example. So that gives us a mix of hospitals, as well as an efficient way to have the contract research associates do the work they need to do.

Mark Massaro - Canaccord Genuity, Research Division

Great. And what are your expectations? I know you're hoping to launch in the U.S. before the end of '13. But what are your thoughts on the timing of the trial in the U.S.?

Stephen T. Lundy

Well, we believe that we can complete the patient enrollment in the 6- to 10-month phase, Mark. And then at that point, we should be very quick to get to a package to submit to FDA, and we'll submit to FDA as soon as we can after that. And assuming that this goes down -- what we think it will go down, which is a de novo 510(k) path, it will be hopefully a fairly fast process beyond that. Obviously, we don't have a lot of control over that part of the process, but that's kind of what we're looking at.

Mark Massaro - Canaccord Genuity, Research Division

Great. Final question from me. Do you expect to incur sales and marketing costs for the EU launch? And can you help us frame what that amount might be?

Stephen T. Lundy

Don, do you want to take that one?

Donald R. Hurd

We do expect to have some initial sales and marketing costs, Mark. But as Steve alluded to, the first quarter of 2013, those costs will be mainly derived around having what I would call a controlled launch and doing market development with 5 to 8 hospital sites in each of the 5 countries I mentioned. And clearly, the cost will be associated with finalizing the distributor agreements and also finalizing any working relationships that we have in selecting the 5 to 8 hospital sites in the first quarter. So any expenses we have will be related to those areas.

Operator

[Operator Instructions] And at this time, I'm showing no questions.

Stephen T. Lundy

Okay. Once again, I'd like to thank everyone for joining us today, and we look forward to speaking with you again in the new year. Thank you very much.

Operator

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

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