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BG Medicine, Inc. (NASDAQ:BGMD)

Q2 2013 Earnings Call

August 8, 2013 8:30 AM ET

Executives

Paul Sohmer – President and CEO

Stacie Rader – SVP, Executive Operations & Human Resources

Chuck Abdalian, Jr. – EVP and CFO

Howard Rosen – VP, Sales and Marketing

Analysts

Jeff Elliot – Robert W. Baird

Operator

Good day ladies and gentlemen, and welcome to the BG Medicine’s Q2 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 follow at that time. (Operator Instructions) As a reminder, this call maybe recorded.

I would now like to introduce your host for today’s conference, Dr. Paul Sohmer, Chief Financial Officer. You may begin.

Paul Sohmer

Thank you. Good morning and welcome to the Q2 2013 BG Medicine earnings conference call. I am joined today by Stacie Rader, our Senior Vice President of Executive Operations; Chuck Abdalian, Chief Financial Officer; Howard Rosen, Vice President of Sales and Marketing; and Aram Adourian, Chief Scientific Officer. I will now ask Stacie to read a brief statement and then introduce Chuck who will review our financial performance for the quarter. Stacie.

Stacie Rader

Before we begin our formal remarks, I will cover a few administrative details, regarding replay information for today’s call and forward-looking statements. Today’s call will be recorded and a replay will be available on our website. The information to access the replay is available on our press release and on our company 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.

And with that I will turn the call over to Chuck.

Chuck Abdalian, Jr.

Thank you, Stacie. This morning I will briefly highlight our key measures of financial performance, cash burn and revenue growth. Our first key measure is cash burn. Our disciplined efforts to reduce our spending have translated into a 20% decrease in cash used in operations during the first six months of 2013. Cash used in operations decreased by $2.2 million over last year to $8.8 million. Second quarter, net loss was $4.8 million, 25% lower than the $6.4 million net loss reported in 2012.

The $1.6 million year-over-year decrease in net loss results from lower operating expenses primarily in research and development. We ended the first half of 2013 with cash totaling approximately $16.2 million and term loan debt of $9.3 million.

As discussed on our previous call our amended term loan facility agreement allowed for a three months deferral of principal amortization from May 1st to July 1st. This amendment also allowed us the opportunity to earn up to an additional three months deferral based on meeting a minimum liquidity threshold.

We restarted principal payments on August 1st since we did not meet the required threshold. Product revenues are the second key measure of our financial performance. Product revenue from the BGM Galectin-3 test which is the microtiter plate version of our test was $1 million in the second quarter of 2013, compared to $600,000 last year.

The $400,000 increase results primarily from increased volume from our largest specialty cardiovascular laboratory provider and also increased purchases relating to third party clinical research studies. Second quarter growth in product revenues, primarily reflects domestic sales. Product royalties from [inaudible] provide us Gal-3 test were nominal in the quarter. Although Abbott CE Mark and launch their ARCHITECT Galectin-3 assay in certain European countries in April, no royalties were recorded in the second quarter since Abbott reports product royalties to us 60 days in arrears.

Now on a sequential quarter basis in 2013 Galectin-3 revenue growth in the second quarter increased by 19% over the first quarter. Looking forward to the third quarter of this year we expect this growth rate very similar to last year to be much lower due to seasonality.

This concludes our financial review. For more detailed financial information, please refer to this morning’s press release. I would now like to turn the call over to Paul.

Paul Sohmer

Thank you, Chuck. Thank you, Stacie. Our results for the quarter reflect the early impact of our efforts to rigorously control our operations and our finances. We’ve made progress but this is only start. While we have continue to aggressively manage our spending going forward, our attention must now be directed toward leveraging the investments that we have made to drive our top-line growth. Although our products currently remain at a relatively early stage in the typical new test adoption cycle, we believe that there are some early indications and developing opportunities to drive our growth.

We believe that there are several prerequisites that must be achieved to drive a new assay along the adoption curve. These include demonstration of a clinical utility, professional recognition by inclusion in practice guidelines, regulatory clearance, local support from key opinion leaders, existence of multiple publications that support assay applications, well defined channels of distribution with the value of the assay is clear, reimbursement and access.

These prerequisites set our agenda. So where are we with this agenda? During the second quarter we achieved two noteworthy milestones in the U.S. first the Trenton Health Team and community health improvement collaborative located in Trenton New Jersey adopted Galectin-3 testing for identification of chronic heart failure patients who may be at risk for rehospitalization. Second, the Galectin-3 test which recognize for its ability to predict adverse outcome, including hospitalization in the American College of Cardiology Foundation and American Heart Association guideline for the management of heart failure.

These critical market development achievements in the U.S. affirm both to predict the value of Galectin-3 and the potential to leverage the value of Galectin-3 testing to identify and manage chronic heart failure patients who are at greatest risk of hospital admission and readmission. This is a critical market need, the cost for diagnostic solution that we believe can be provided by Galectin-3 testing.

As a result of our market development activities and the entry of automated Galectin-3 testing in the EU, interest in Galectin-3 in Europe is increasing although it has not as yet translated into significant revenue. Galectin-3 testing is receiving increased support from select European opinion leaders and the growing European awareness of the potential to use Galectin-3 testing for assessment of heart failure patients prior to hospital admission.

These milestones, observations and other market indicators reflect the progress we have made in achieving our critical commercialization prerequisites relative to Galectin-3 and suggest that there may be a significant opportunity to drive revenue growth from increased adoption and sale of our Galectin-3 test.

To this end, we have prioritized our actions and investments around what we believe to be key drivers of adoption and revenue growth in the U.S. and EU. In so doing we will redirect our efforts and investments from the previously announced clear laboratory, launch of CardioSCORE in Europe except as partnership opportunities arise and longer term clinical studies so that we may further develop and support the message, the product and the product feature that are required to drive the adoption of Galectin-3 testing including reimbursement and automation.

We continue to pursue consideration by CMS for a higher reimbursement rate for Galectin-3 testing in the U.S. and look forward to a decision by year end. The Europe the company’s sales efforts are currently directed to hospitals situated emerging unit departments with reimbursement is covered under the hospital budgeting process.

We also continue to provide assistance to Abbott, BMW Europe and Siemens relative to their efforts to gain FDA clearance for their automated version of our Galectin-3 test. Abbott is expected to resubmit its application for 510(k) clearance in the second half of 2013.

In regard to CardioSCORE, medical review of the data generated in support of BG Medicine’s previous submission to FDA for FDA clearance of CardioSCORE is progressing. This review includes independent adjudication of clinical end points, the assessment of staple stability and evaluation of other technical issues.

We expect that this review will be completed by the end of the year. Results from this review will then guide our regulatory commercial reimbursement and investment strategies for CardioSCORE. In the interim, we may move forward with a European launch in test markets as partnership opportunities arise.

Our priority is for the remainder of 2013 address our commercialization prerequisites and are. One to communicate a focused message regarding the clinical utility of Galectin-3 testing as defined by our current indication for use and newly published clinical guidelines as well as our understanding of the factors that contribute to its predicted value.

Two, to drive adoption and call points in which Galectin-3 testing can create the most value. Such as community health improvement collaborative and accountable health organizations in the U.S. and the hospitals situated emergency departments in Europe.

Three, to attain reimbursement that is appropriate. Four, to facilitate the progress of our partners to offer automated versions of the Galectin-3 test, and five to rigorously control our investments.

We expect that laying the ground work to execute on these priorities will occupy much of the third quarter of 2013, and that we may not begin to realize the sequential impact of these actions on our financial performance until year end.

We currently believes that revenues for the full year of 2013, will range from between $3.8 million to $4.0 million a 46% to 54% increase from 2012. We expect our operating cash burn for the full year of 2013 will range from $15.5 million to $16.5 million, a 37% to 22% reduction from 2012.

Yes, we have made progress, but it’s clearly only a start. That being said, we will continue our efforts to try to optimize our business to drive product adoption and revenue growth and to generate adequate resources to achieve these goals.

Thank you. This completes the formal part of our presentation and we are now ready to take questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). And our first question comes from Jeff Elliot from Robert W. Baird. Please go ahead.

Jeff Elliot – Robert W. Baird

Good morning guys and thanks for the questions. First Chuck previously you had commented that you thought the company could be funded through 2015 with the arrangements you have in place. Is that still the case?

Chuck Abdalian, Jr.

Thank you, Jeff and good morning. Jeff based on our current operating plans cash balance and the availability we have under our stock purchase agreement that we have adequate resources to take us at least through the next 12 months.

Jeff Elliot – Robert W. Baird

Okay. And then shifting over to CMS, I guess can you walk us through what you think a fair level of reimbursement would be or what’s your level of confidence that you can achieve a higher level of reimbursement from CMS?

Howard Rosen

This is Howard Rosen. We are working with CMS right now on the reconsideration process. We feel confident that we have provided enough information for CMS to reconsider and provide an increase. I think it’d be inappropriate for me to predict exactly what they’re going to do and what that rate is going to be? But I feel confident that we’ve addressed all the concerns that they’ve communicated to us last year.

Jeff Elliot – Robert W. Baird

Got it. And then switching over to the Trent deal, can you talk about what the ramp is? And I know you probably don’t want to break up the revenue, but can you talk about how that contract is ramping and just give us a feel for what the progress is so far?

Howard Rosen

Yeah, again this is Howard. We’ve seen several primary care physicians starting to order Galectin-3, we’ve seen a number of tests and tremendous momentum and commercial traction with several physician groups within that accountable care organization and we feel very confident that they’re using the test as part of transition’s management in dispositioning patients to appropriate care facilities and specialists throughout their care network.

Jeff Elliot – Robert W. Baird

Got it. And then just look at the second half guidance, what have you assumed for your automated partners in terms of revenue just in the second half?

Howard Rosen

We’ve assumed minimal revenues Jeff.

Jeff Elliot – Robert W. Baird

Okay.

Howard Rosen

As Paul mentioned, we’re still working on the ramping up of both partners.

Jeff Elliot – Robert W. Baird

Got it, okay. Thank you very much.

Operator

(Operator Instructions). I’m not showing any further questions at this time. I would now like to turn the call back to Dr. Paul Sohmer for any further remarks.

Paul Sohmer

I just want to thank you all for your participation this morning. Your ongoing interest and support are obviously greatly appreciated and we look forward to updating you on our progress. Have a good day.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day.

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