BG Medicine, Inc. (NASDAQ:BGMD)
Q1 2013 Earnings Conference Call
May 9, 2013 8:30 am ET
Stephane Bancel - Chairman
Chuck Abdalian, Jr. - EVP and CFO
Paul Sohmer - President & CEO
Eric Bouvier - Director
Aram Adourian - SVP and CSO
Howard Rosen - VP, Sales and Marketing
Peter Lawson - Mizuho Securities
Shaun Rodriguez - Cowen and Company
Good day ladies and gentlemen, and thank you for standing by. Welcome to the BG Medicine Inc., Q1 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Chuck Abdalian, Chief Financial Officer. You may begin.
Chuck Abdalian, Jr.
Thank you, Marcy for introducing the call. Good morning and thank you for joining us. I am Chuck Abdalian, BG's Chief Financial Officer. Joining me on the call are my colleagues, Stephane Bancel, our Chairman of the Board; Paul Sohmer; Eric Bouvier; Howard Rosen, Vice President of Sales and Marketing; and Aram Adourian, our Chief Scientific Officer.
Before we begin our formal remarks, I have two administrative details, regarding replay information for this call and forward-looking statements to cover. Today's call is being recorded and a replay will be available on our website. The information to access the replay is available in our press release, can also be found on our website.
As a reminder, today's call contains forward-looking statements regarding events that involve risks and other uncertainties. The company's actual results may differ materially from those anticipated by our forward-looking statements. The risks and uncertainties are set forth in the company's 10-K as filed with the SEC, as well as any updates to those risks and uncertainties filed from time to time with the SEC.
With the housekeeping out of the way, I will now turn the call over to Stephane.
Thank you, Chuck. Good morning.
Today in addition to providing an overview of our Q1 results, we are announcing a change in our management structure, which we believe will help even favor our position into a strong commercial organization.
As you have seen this morning announcement, we have named Paul Sohmer, MD, as our new CEO, effective immediately. We are very pleased to have Paul joining the company. Paul brings more than 25 years of experience leading the growth of commercial stage organization in healthcare including a strong track record of having sales and building shareholder value for important and innovative in-vitro diagnostic businesses. As an MD, with a long and varied perspective on the trend affecting healthcare, Paul is both visionary and practical capable of uniting our thoughts, rather common goal and taking the steps needed to get there.
As we implement this position, I will have to thank Eric Bouvier for his work to literally transform BG from what was a scientific organization into one that now have the stronger commercial focus and a sound strategy for success. He and his team, at the BG increased credit over past year. He began accelerating status of Galectin-3. With the sales and commercial team focused on the need for unplanned recognition using Galectin-3.
I have the chance to recently during the training of our sales force to spend time with them and I was very pleased by the quality of our team. They are energetic, highly experienced in diagnostic sales and passionate over Galectin-3.
His team has successfully raised money to fund operations, they have streamlined R&D and reduced overall and recently successfully gone for a FDA inspection that presented in no observation and no Form 43 being filed by the agency. So Eric, thank you.
Eric has agreed to remain as a consultant to the company and to organize a (smooth position) report. With the results we are announcing today, I believe we are seeing the first evidence as the strategy we have implemented as taken us in a right direction and provide the solid foundation for the future. I’m very confident that under Paul’s leadership we will see an acceleration of this trend as it will result in BG Medicine being recognized as not just a leader in scientific innovation but even more important in the commercial performance as well.
I’d like now to turn the call to Eric to review the company’s progress in Q1.
Thank you, Stephane. And thanks also to everyone for joining us on the call this morning. I’m glad to have the opportunity to report to you on a successful quarter where BG Medicine made substantial progress both financially and operationally in our comprehensive strategy to drive the greatest adoption of the BG Medicine Galectin-3 test, our flagship diagnostic test for cardiovascular disease.
Our first quarter financial results reveal two important aspect of the progress we are making in the implementation from new corporate strategy and I’m sure we’ll review the details of our financials shortly. However, as a brief overview, I would like to point out the following. First, we generated increased revenue from Galectin-3 compared with the first quarter of 2012. We reach $0.8 million basically that being the revenue compared with Q1 last year.
Second, and also significantly, we have demonstrated very strong financial discipline within our organization relating substantial improvement in BG Medicine bottom-line, while also making investment in our commercial operation.
Operationally, we made several key accomplishments that should contribute to increasing Galectin-3 adoption. Importantly, we made fundamental progress both in the automation of Galectin-3 testing with our corporate partners and we achieved traction in our force to have the Galectin-3 test internalized by comprehensive healthcare organization.
As we have described in the past, the key step which enables the much robust adoption of Galectin-3 testing is the automation of the test by our corporate partners. Importantly, our partner Abbott and bioMérieux for the test assay of Galectin-3 in Europe very recently. Under the guidance on the Abbott automated ARCHITECT platform.
Abbott is starting the commercialization in Germany, the UK, France, Spain and Italy. Further, as we noted earlier in the year bioMérieux announced CE Mark for VIDAS Galectin-3 test which is also run on the bioMérieux automated platform. Overall, we provide more color on this in just a moment.
Year-to-date, you may have seen the announcement that we made regarding the adoption of the Galectin-3 test by the Trenton Health Team to identify patient of near-term heart failure rehospitalization. There is a complete (inaudible) readmission strategy and was a first major win for our newly formed commercial team. However, we provided deeper analysis of our marketing and adoption accomplishment in a moment but this achievement is not (able) for two reasons. The Trenton Health Team is regenerating the development of the accountable care organization concept in the U.S. and one of the first very first acting ACOs to be fully CMS approved.
We believe that continued analysis of this type of organization will facilitate the (intimate) success of Galectin-3. Secondly, their acquisition of the role that Galectin-3 testing can play in reducing hospital readmission is a critical message that our expanded face off, we continue to deliver and will open the door to further business with order ACOs. We believe that the use of the Galectin-3 test to better manage hospital readmission, we have a positive consequence on healthcare of course as a whole.
We expect as a result from the long-term commitment to financial and operational vigor, I have only began to become and we expect that this trend we continue to expand, to expand over the quarters to come. And as a matter of illustrating this new discipline, the company underwent a routine quality system inspection by the FDA, we treated observation.
I will now like to turn the call over to Howard for more detailed review of BG Medicine commercial operation and look forward to taking the question at the end of the call. Howard?
Thank you, Eric.
As Eric just observed, we made progress on several of our critical commercial strategies since I last updated you.
Earlier this year, we announced that bioMérieux and Abbott received their CE Mark approval to launch Galectin-3 on their automated platforms. This milestone events significantly broadened our distribution channel and tested our ability for clinicians and their patients. This provides us a broad European footprint and positions us to deliver a long-term growth.
bioMérieux launched the VIDAS Galectin-3 in Q1 and we are beginning to see very early positive results of their efforts. I’m also pleased to report that we are in the very early stages of our European launch with our partners from Abbott. During the past month, we executed our launch planning kick-off meetings for targeted geographic regions throughout Europe.
With the strength of the Abbott sales and marketing organization and a significant installed base of the ARCHITECT platform, we expect to see commercial traction later in Q2 and into the second half of the year. To support our corporate partnerships we host a webnair this week featuring Professor Di Somma of Sapienza University in Rome and Professor Edelman from the University of Groningen in Germany.
Both of these global key opinion leaders shared their real world experience with over a 100 of their colleagues to educate how the Galectin-3 test is utilized in their everyday practice to guide intervention management and decision-making.
To close out our comments regarding Europe, we are looking forward to the ESC Heart Failure Congress in Lisbon in a few weeks. We are expecting several new presentations supporting the clinical validity of the Galectin-3 test as a powerful prognostic tool for clinicians and administrators.
We are pleased with the robust foundational data we have in place and we continue to welcome new data to further strengthen the clinical evidence to justify adding the Galectin-3 test into the standard of care for all heart failure patients.
And now turning to our strategic initiatives in the United States. We hired two additional key account executives last month to complete the first phase of our (inaudible). The team is spread out across the United States in a strategically located in areas that have a high prevalence of heart failure. In addition, the team is focusing on IVNs, hospital systems and ACOs that are developing risk stratification initiatives to reduce unnecessary readmissions associated with heart failure.
The team has been focusing on strengthening the educational foundation initiated by our clinical liaison team with targeted clinical and administrative personnel through case study reviews and webnairs, ring rounds and other educational events. Doing so has enabled the team to gain an increased exposure with clinical acceptance with cardiologists, lab personnel and key executives by helping these key customer segments understand the clinical value economic value and operational value of including the Galectin-3 test as part of their standard of care.
Additionally, our team has been collaborating with our reference by partners to co-promote the Galectin-3 test with lab personnel. This strategy has resulted in several new hospitals on Galectin-3 test and our sales pipeline is increasing by the day.
Many physicians are ordering Galectin-3 along with their BMP or NC (inaudible) to better appreciate the post-clinical picture of the patients heart failure progression but complementary clinical use of the Galectin-3 test combined with the BMP allowed for improved risk stratification. We have also observed that several of the early adopter pioneers and KOLs of BMP are beginning to adopt the Galectin-3 test into their clinical practice, this is a very encouraging sign.
In closing, the commercial strategy we announced out a few months ago is beginning to gain the early commercial traction we expected. I would like to share with you a recent commercial win executed by our new commercial team representing collaboration from our marketing, sales and managed care team.
My new commercial team has been in place for only three months which speaks volume of their prior experience to collaborate with healthcare providers to introduce new value based solutions for their customers.
As we announced earlier this week, the Trenton Health Team in New Jersey has adopted the Galectin-3 test throughout their organization to identify patients at near-term risk for rehospitalization. The Trenton Health Team is a formation of two hospital systems, Capital Healthcare and St. Francis. And they are a community health improvement collaborative that serves the sixth zip codes of Trenton, which comprises 85,000 patient population.
The Trenton Health Team is considered one of the early pioneers and visionaries in the United States in recognizing the need to create an accountable coordinated care geographic strategy that many have subsequently followed. In fact, the Trenton Health Team was one of the first collaborative teams to act like an ACO, before the ACO term and concept was established a two years ago as part of the Affordable Car Act.
Many believes the ACO construct represents the future of healthcare population management to improve quality of care and drive down unnecessary costs in United States.
By adopting Galectin-3 test as part of their heart failure readmission reduction efforts this program validation that are Galectin-3 test will play a critical role in the standard of care for heart failure patients. We have certain other ACOs with similar vision will follow and also adopt Galectin-3 test over time. Thank you for your attention.
I would now like to hand the presentation off to Chuck.
Chuck Abdalian, Jr.
Thank you, Howard. This morning I will briefly highlight our operating results and financial position for the quarter of 2013. More detailed financial information can be found in this morning’s press release.
Product revenue from the BGM Galectin-3 test was $800,000 in the first quarter of 2013 compared to $400,000 last year. The $400,000 increase reflects increased volume from our laboratory providers. In 2013, six reference laboratories ordered our products compared to three in 2012.
Royalties from bioMérieux or as I refer to them BMX were nominal in the quarter as we expected in their initial quarter of launch. Product margin was 66% in 2013, up slightly from 65% in 2012 from an improved sales mix between reference lab providers and distributors.
Total revenues which includes the BGM Galectin-3 test as well as our R&D service revenues increased to $900,000 in 2013 compared to $500,000 in 2012. On a sequential quarter basis, revenue from Galectin-3 in the first quarter of 2013 decreased by $160,000 over the fourth quarter of 2012. As you may recall, we recorded a $250,000 international stacking order in the fourth quarter of 2012.
If we adjust fourth quarter revenues for the stacking order, sequential quarter revenue growth would have been 13%. Similarly product margins in the fourth quarter of last year were higher due to the higher ASPs associated with this order. Net loss in 2013 was $5.4 million compared to a loss of $7.7 million in 2012. The $2.3 million year-over-year decrease results primarily from lower research and development and sales and marketing expenses.
R& D expenses decreased primarily from the elimination of biomarker discovery research last year, and sales and marketing expenses decreased primarily due to the redeployment in the U.S. from a contract clinical liaison organization to a dedicated internal sales team and from a more disciplined approach to our marketing spending. As a result, net loss per share was $0.21 in the first quarter of 2013 compared to $0.38 in 2012.
Cash used in operations decreased by $1.5 million in the first quarter of 2013 to $4.2 million. We were able to reduce cash burn, while also making continued investments in our commercial operations in support of our long-term growth ambitions. We ended the first quarter with cash totaling $21.4 million and $27.6 million common shares outstanding.
Yesterday, we supplemented our first quarter financing transactions that we previously reported by amending our term loan facility to allow for a 3 month before our principal amortization beginning May 1, 2013 and to allow for up to an additional 3 months of deferral based on meeting minimal liquidity requirements. Each month of deferral is expected to save us about $330,000 a month. The terminal date of the loan remains unchanged at September 2015.
That concludes my financial update. I will turn the call over to Eric for his conclusion.
Thank you, Chuck.
Before we take your question, I would like to provide some guidance for the remainder of 2013. Our priorities for the remainder of the year are to continue growing directing renewals and launching CardioSCORE in the first half in Europe. And completing the medical review of data for the BioImage study, which we then guide our regulatory and commercial strategy for CardioSCORE. With respect to direct increase we have a three prong strategy.
First, increased volume from our seven existing (reform) slab providers and additional providers to our in and outpatient lab provider network. We target two additions in the U.S. Second, continued targeting the top 100 hospitals with the highest heart failure readmission rate and continue as in accountable care organization. So, what is Abbott on the 510(k) filing expected in the second half, while we continue our market development it was in Europe with both Abbott and bioMérieux.
As many of you know, I am a passionate advocate of Galectin-3 and with the condition of predictive and preventative medicine. More than managing cost is critical for the (NYSEARCA:SKF) system. The American Heart Association, HA, is predicting that more than 8 million American will have heart failure by 2013. And that is also directly associated with a disease we raised from $21 billion in 2012 to $70 billion in 2013.
It is an increase in the number of patient with heart failure and the associated cost could be reduced if there was more 50 dissemination and use of the preventive measure and (corrective therapy). Galectin-3 is one of the tools doctors can use to determine that job for the heart disease also that (inaudible) increase heart failure prevalence over the next decades.
Second the big impact of heart failure on readmission. And third, its better to understood competitive different forms of the heart failure disease like the preserve signature infraction reduce infraction form. All those fact, emphasize a need for better predictive and stratifying tool now in favor of the use of the Galectin-3.
I have spent a good deal of time over the last several months in U.S. and Europe with customers, our partners and our new commercial team. From this collective experiences I believe Galectin-3 is well positioned towards a medical community and to heart failure clinical need and become just another care.
I will now turn the call over to Paul. Who will introduce himself? Paul?
Thank you, Eric. Good morning.
I would like to add my thanks to Eric for the job well done. Your work over the past years has clearly set the stage for the next phase in the development of the company, thank you.
I am thrilled to be asked to lead BG Medicine, as it is poised to bring major improvements to the quality and delivery of cardiovascular care through its innovative diagnostic test for heart failure and for the prediction of major cardiovascular events. The clinical case for widespread Galectin-3 testing and heart failure continues to grow stronger. Especially given the role it can play as part of a comprehensive strategy to reduce unplanned readmissions in heart failure.
CardioSCORE which is now available in the EU will play an important role in identifying patients in high risk of a near term cardiovascular event. Our challenge now is to unlock the clinical and commercial potential. Many of the necessary pieces are already in place. Going forward we will work to enhance and leverage our assets to create a commercial engine that will allow us to grow our sales and to drive our margin. It is great to be a part of this and I’m eager to get started.
I will now pass this back to Eric.
Thank you, Paul. Thank you very much. We now will open the call to your questions regarding the Q1 results and achievement for your information Aram Adourian, CSO is in the room as well.
Thank you ladies and gentlemen. (Operator Instructions). Our first question is from Peter Lawson from Mizuho Securities. Your line is open.
Peter Lawson - Mizuho Securities
This is just with the management shuffle, I mean Eric, I joined the call late, I just wanted to if you could kind of talk through your new role going forward. And then Paul, what you have for the next 6 months stacked up the company, any change in particular product focus or go-to-market approach, will be really helpful. Thank you.
Thank you. I will – better I will turnover to Paul for this question.
Thanks Peter. So, given that this is my first time to job and it is still pretty early in the day. I have had not as yet had the opportunity to deep dive with the team. But here is my sort of bias going in; Galectin-3 is very compelling. It is compelling physiologically, where it stands in the process and the pathway developed in a fibrosis. It is compelling clinically, particularly now that we have identified the relationship with readmission to the hospital also data regarding the impact of its relationship with response to various sorts of medications. It is very compelling from that perspective in the cardiology sector.
It is also compelling commercially. The company has done a fair amount of work, significant work now in terms of developing a strategy for distributing the platform on a worldwide basis. I think its collecting the clinical data that will clearly be able to demonstrate the power of the technology and the value of the product and I think our challenge now is to leverage where we’ve been and sort of placing them.
So I’m also very passionate about Galectic-3. In the meantime, we will continue to process how to position CardioSCORE to develop the same kind of storyline around CardioSCORE to built the gates on a regulatory as well as in the clinical perspective, I think that goes to – will be our main strategy in the coming 6 months.
Thank you, Paul.
Peter Lawson - Mizuho Securities
I was wondering if you could walk through your experience, what you think you will bring to the role I guess, then how you approach this question with the board for instance and say your experience at TriPath?
So, I think as you know, I am a physician by training, although I haven’t practice in many years. But what really is going to drive or drop my entire career has been providing solution to clinical problems. This goes way before even TriPath. In terms of the kinds of things that we were doing, we try to solve various kinds of clinical problem. In TriPath as you know we created TriPath in the merger of three companies. When we did so, we were pretty much in the same kind of position as BG Medicine is today. How do we commercialize a product and how do we differentiate it in a marketplace? How do we tell a story of value?
We had to learn the process of beginning of -- we sort of started out by selling to labs and realizing that there was this very important component of this, clearly this is about telling a clinical story. And how we could communicate the value that could be created for the payer, for the ACO, as well as for the clinician and the patient. I think that our success of doing that, we were forced in a very competitive environment, I think implies very directly to this experience here as well.
So I think, it’s very reminiscent to me of where we were, TriPath when we started, and I think that’s one of the reasons why this was such a good fit for me to come on Board.
Peter Lawson - Mizuho Securities
Thank you. Just a final question around pricing, with the new hospital wins, can you just comment around the pricing during the quarter and how are you looking at that going forward and how those hospital win may have changed the pricing?
We are not giving any guidance in term of pricing or any information – specific information, its bit too early and in the process and the pricing is a mix of different businesses as you know while we have the (inaudible) business, we have the hospital readmission business today. And plus now the royalty coming from our partners. It’s a but too early to discuss that.
Peter Lawson - Mizuho Securities
You got this thing kind of appearing depending on those segmented markets?
Yeah, you are right and we have discussed, we have different pricing but its much too early to get into the detail of it at this stage.
Peter Lawson - Mizuho Securities
Thank you very much.
Thank you. (Operator Instructions). Our next question is from Shaun Rodriguez from Cowen and Company. Your line is open.
Shaun Rodriguez - Cowen and Company
Hi, good morning everyone. Thanks for taking the question.
So, I guess, I am taking a different angle on an earlier question, I appreciate that it’s very early here. But really just trying to understand what’s on the table for reevaluation with the management change. With the business transition going on under Eric towards the building the dedicated sales force, and the service lab, is this something the company is still committed to at a high level or not necessarily and do you envision significant deviations in breadth or scale relative those plans?
Shaun, Stephane speaking. No, I think that the right of course, no. Call needs to come and do the diagnostic and get a sense for where we are heading. And so I think, we have numerous discussions at the board for this month including the process. We thought about the strategy. And I think about this very early. And our strategy is very clear and coming up (inaudible) pretty harder on the different channels as we have, not only in the U.S., it is doing internationally.
And we are building a very compelling story along CardioSCORE. So I think this is really not changing at all. I think that as companies go through different phases, and as a board we take very seriously and we want to ensure that we have the right leadership for every one of those perspectives. And we have updated in life and we have updated in life of the company. And we believe that for really growing the company commercially and grabbing clinical adoption, Paul was the right leader to do that. And that’s why we went through the process as a whole. And we announced today this change in leadership.
But let me add that, there were really and of the number of the of things that made obvious to me that this is a very compelling opportunity that create significant value and why I joined is number one. Because of the clinical evidence of Galectin-3 and the kind of data that we see is probably number two that the company had already been in the process of making the transition towards moving to a commercial organization, that’s very critical and essential to this. And I think it’s been done so far as foundational and we see that it’s really the basis for a lot of the work that we are doing going forward.
Shaun Rodriguez - Cowen and Company
Okay. I really appreciate this. It’s very helpful. And just one more on CardioSCORE, really just looking for a little more color on the development in the U.S., you said you expect to complete the review of the (inaudible) data and then that will guide commercial and regulatory strategy. Could you provide any more detail on the associated timelines for this review and it sounded based on your commentary that while you still your path to meeting FDA requirements and getting clearance for this product remains the goal that you made to choose to go the (LDT role) or did I misinterpret that?
Thank you for the question Shaun. First of all our goal is to seek positive factor. And we are working on that with and Aram will give you some more details on that. (inaudible) is still an option on the table and we need to figure out, we afford to do that. And but I’m Aram, he wants to give some monitoring about the process we are doing.
Sure. So very briefly as we have previously reported, our previous, pivotal trial validation study for the CardioSCORE test as it was originally submitted to the FDA, while the BioImage study which comprised approximately 7000 patients cohort and three years follow up.
Toward addressing FDA’s additional information request on certain aspect of the BioImage study in the context of our original pricing case condition. And upon discussing these requests in personal meeting with FDA last year, the Mount Sinai School of Medicine in New York is completing and they are very close completing the final clinical adjudication of the primary events in the BioImage study which was one of the pre-requisite that was articulated by FDA.
Upon the conclusion of this activity at Mount Sinai, which will be completed before the end of this year, we will continue our (inaudible) strategy that was discussed with FDA. And which is focused on the assessment of cardiac and stroke mortality risk and that indeed where we stand at the moment.
Shaun Rodriguez - Cowen and Company
That’s very helpful. Thank you guys.
Thank you. We have no more questions in queue. I’ll now turn the call over to Eric Bouvier for closing remarks.
Thank you very much. And thank you for your time this morning. And I wish a good luck to the team here and to Paul. Thank you very much.
Ladies and gentlemen, this does conclude today’s conference. You may now disconnect. Everyone have a good day.
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