Luisa Fonseca - Corporate Controller
Thomas Mika - Chairman, CEO and Acting CFO
Gavin Gordon - VP, Business Development and Strategic Alliances
Chris Lahiji - LD Micro
Chuck Lipson - CSL Associates
CollabRx, Inc (CLRX) F1Q2014 Results - Earnings Call Transcript August 14, 2013 5:00 PM ET
Good day, ladies and gentlemen and thank you for your patience. You have joined the CollabRx First quarter Fiscal Year 2014 Financial Conference Call and Business Update. 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. (Operator Instructions).
As a reminder this conference maybe recorded. I would now like to turn the call over to your host CollabRx' Corporate Controller, Luisa Fonseca, Ma'am you may begin.
Please note that our recording of this conference will be made available two hours after the completion of the call and it will be available for one year via the web, using the link referenced in the company’s logistics announcement of August 7th, the financial result, press release of today as well as the company’s website.
Please also note the important Safe Harbor statement that should be taken into consideration when listening to comments that will made on this call. Except for historically information matters discussed on this call are forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties including but not limited to industry conditions, economic conditions, acceptance of new technology, the growth of target markets as well as other risks.
Actual operations and financial results may differ materially from the company’s expectations as a result of these factors or unanticipated events. Specifically we refer you to the risks and uncertainties set forth in the company’s periodic filings with the Securities and Exchange Commission.
At this time I would like to turn the call over to Mr. Thomas Mika, CollabRx Chairman, CEO and Acting Chief Financial Officer. Please go ahead, Mr. Mika.
Thank you, Luisa. Good afternoon and welcome to CollabRx investor conference call. I'll be covering both the financial portion of this call as well as the business update. Following a review of the first quarter, we will open up the call for questions.
I've asked Luisa, our Corporate Controller, and Gavin Gordon, Vice President of Business Development and Strategic Alliances, to join me during this call and to be available for the Q&A period at the end of my remarks. When we launched our commercialization phase at the outset of this calendar year, we set a goal of establishing a demonstrable trajectory towards technology content and market leadership in the data analytic space in genomic medicine.
Today’s first quarter fiscal 2014 report shows significant progress in achieving that goal. In addition to reviewing the financials and business highlights for the quarter, I want to focus this call on two recent announcements that we made. First the commercial release of our genetic variant annotation service and second the announcement that we made today regarding the next phase of our partnership with Everyday Health to develop and market an independent mobile application in molecular oncology.
But first the financials; I am going to focus this financial discussion on the company’s prior quarter Q4 fiscal 2013 rather than the quarter one year ago. Since the quarter one year ago did not include any results from our current operations, it preceded our acquisition of CollabRx. If listeners are interested in the year ago comparisons, please refer to our earnings release published today or a more complete review in our 10-Q which will be filed with the SEC tomorrow.
We are pleased to report sustained revenue generation since the previous quarter, at the start of our commercialization phase. In the first quarter of fiscal 2014 CollabRx reported a sequential increase in revenue coming from our core content and data analytics operations from 250,000 last quarter to 270,000 this quarter. We continue to maintain high gross margins at above 90%. Operating expenses totaled 961,000 for the quarter of which 818,000 had an impact on our cash. This compares to 1.1 million in immediately prior quarter with cash expenses of 828,000.
Our operating loss for the quarter was 709,000 compared to 847,000 in the prior quarter. Our net loss from continuing operations were 679,000 compared to 807,000 in the prior quarter. So we are basically operating at the same level of cash operating expense over the past two quarters, and I don’t anticipate any major changes in expense levels in the current second quarter.
During the first quarter, we recorded a loss from discontinued operations of net 118,000 consisting mainly of re-class of accumulated other comprehensive loss from foreign exchange differences resulting from the final closing of our former (inaudible) foreign subsidiaries. Thus the comprehensive loss from both continuing and discontinued operations was 797,000 or $0.41 per share, compared to 811,000 or $0.43 per share in the fourth quarter of fiscal 2013.
We ended the quarter with 3.4 million in cash and cash equivalent, compared to 4 million at the end of the prior quarter, which was the end of our last fiscal year. Intangible assets and goodwill related to the acquisitions are notable assets on our balance sheet. These assets are reducing value either through amortization or impairment. Our current liabilities amount to 215,000 compared to a 193,000 at the end of the prior quarter.
The deferred tax liability of 561,000 is reduced through amortization with no effect on cash. The only significant liability otherwise is a promissory note due back to the sellers and the amount of 500,000 plus accrued interest of 5000. CollabRx total shares outstanding are just under 2 million and fully diluted or approximately 2.9 million. The 800,000 shares not yet accounted for in our TSO include approximately 100,000 of non-price protected warrants and approximately 700,000 shares in the form of options or RSUs held by employees, Board members and consultants. Please refer to our recently filed proxy for further details on shares held by employees.
During the last conference call, I presented a comprehensive overview of what CollabRx does in the markets we serve. I would encourage our listeners on this call to refer to the transcript of that call which we filed under an 8-K or to review our recently filed 10-K which I believe is a good overview of our current operations.
During the first quarter of fiscal 2014, we made significant progress in increasing our commercial reach with several agreements and collaborations including the joint marketing initiative with GeneInsight LLC, a leading developer of software to support knowledge management and reporting for genetic testing laboratories and a wholly-owned subsidiary of Partners HealthCare. CollabRx medical and scientific content will be made accessible through the GeneInsight knowledge management platform.
Initially focused on oncology, the combined offering will be available to the clinical laboratory market. During the first quarter, we completed the technical integration of the first version of the combined product and we are engaged in business development discussions with specific qualified customers for that service.
We initiated a collaboration with the thoracic oncology program at the prestigious University of Chicago Medical Center, one of the nation’s leading cancer treatment centers with innovative clinical and translational research programs in cancer genetics and therapeutics. The collaboration will be led at the University of Chicago Medical Center by Ravi Salgia and and VP [H Dey], a Professor of Medicine and Vice Chairman of Translational Research at the University of Chicago.
The Medical Center is in the process of expanding its genomic testing capabilities with a view towards doing more in-house rather than sending samples out to third-party testing labs. Our first project will be to review prior testing results and to run them through the CollabRx interpretation engine.
And finally, we entered in to a services agreement with Hayden IR, 16-year old, highly respected national investor relations firm to raise the visibility of CollabRx and strengthen its relationships with the investment community.
In connection with this, I recently gave a presentation at the southern California investment conference which was webcast and available for your review. The PowerPoint presentation can also be found on the CollabRx website.
The overall strategy that underpins each of these deals we have announced or will announce has to do with either the strengthening of the content of our expert weighted and frequently updated knowledge base or making that knowledge base more widely available to physicians and patients, either through interactive decision support tools or clinical reports from testing laboratories.
In connection with this later point, last week we announced the launch of our Genetic Variant Annotation service, a new product in the company’s first offering for the clinical laboratory market, including reference laboratories, hospital laboratories, research institutions and laboratories within academic medical centers.
The GVA service provides for a fully-automated and scalable medical informatic solution that seamlessly pairs the results of genetic sequencing tests with clinically actionable and dynamically updated knowledge that can be used to inform patient treatment planning.
We have been beta testing this product for the past several months with customers and as of last week, we took the step of officially launching this innovative service. It is available on either a subscription basis or on a software as a service or SaaS basis depending on the particular needs of specific customers.
Large scale multi gene casting in oncology is in its infancy, and has been pioneered by Foundation Medicine, which recently filed an S1 which you can easily find on sec.com notable in that filing are the investors, all A-list venture firms Third Rock, Kleiner Perkins, Google Ventures, JVen Capital, Gates Ventures and Willington Management collectively in for about $100 million.
The Foundation Medicine S1 also identifies a number of competitors in potential competitors that should be of interest to our investors. Including commercial diagnostic companies and NGLs platform providers including light technologies with whom we have an agreement.
The Foundation Medicine S1 is a good overview of the market we serve with the GVA service, so I would encourage CollabRx investors to read it and consider our company‘s potential. Not to be too simplistic about it, but from the point of view of oncologist, Foundation Medicine offers two things, a testing service and an interpretive report.
What CollabRx does is provide the interpretive report only. Leaving behind all the associated R&D facilities personnel and capital costs as well as uncertainties associated with regulatory and reimbursement issues, we do not currently interpret Foundation Medicine test for Foundation Medicine although we could. But we do have the ability to interpret the genomic test from any and all other diagnostic labs that offer test fundamentally similar to Foundation Medicine and we expect the number of labs and tests that are doing so with us to build rapidly.
When Foundation Medicine was launched its emphasis was on the technical aspects of the testing process. Many of those technical issues have been generally addressed and as a result Foundation Medicine is currently emphasizing the test interpretation.
We believe that CollabRx can interpret generic testing more effectively and more efficiently than any other company or institution including labs like Foundation Medicine. Since we have been singularly focused on what we have always regarded as the most valuable aspect of the testing process the interpretive report, the report is what the ordering physician sees and acts on and is arguably the way that physicians will judge the usefulness and quality of the test, particularly as generic testing becomes more widespread and offered by many labs beyond Foundation Medicine as we are seeing now.
Our interpretation is platform agnostic and this is one of our most important differentiators, for example we are reinterpreting hundreds of Foundation Medicine test for academic medical centers and proving on the report that Foundation Medicine routinely provides.
Our other key differentiator in this regard is our ability to provide the input of the nation’s leading oncologist for many different prestigious institutions.
This independent clinical interpretive context democratizes access to though-leader medicine and solves a key barrier currently preventing widespread adoption of cancer genetic testing as highlighted in the article published in yesterday’s Wall Street Journal.
You might ask the question about how a small company like CollabRx could possibly interpret a multi gen test like the one offered by Foundation Medicine or any other lab. Well there's the straight forward answer to this; our entire focus as a company’s since 2008 has been on building the systems, tools and intellectual property that allows us to provide that interpretive report.
CollabRx has brought together three unique elements to solidify our position in this deal namely, the creation of a highly specialized knowledge base that to our knowledge no other entity had previously constructed.
Second specialize software tools and applications, that to our no other entity had developed for any comparable use and third a large network of independent experts that to our knowledge no other commercial entity can rival in size, scope and expertise.
We possess deep expertise in molecular oncology through the efforts of our staff, PhD level molecular biologist who have worked directly on the [curation] of our oncology specific knowledge base for over five years and they are supported by others in our team who are trained in molecular biology and file infomatics, along with consultants contractors and interns.
In addition, our staff includes Gavin seated here, a former professor of molecular pathology from the Harvard Medical School and George Lundberg, a world-renowned he physician, pathologist and former Editor in Chief of the Journal of The American Medical Association, who has guided to creation, organization and utilization of our network of 75 independent key opinion leaders since 2010.
We are now beginning to take in tests with our SaaS based and subscription service, so we will be recording small amounts of related revenue next quarter. The major impact of our announcement of the availability of the commercial service has been on our business development activities, which Gavin will report had increased substantially since last week also with better qualified leads.
This morning we announced a multiyear agreement with Everyday Health’s MedPage Today, the leading provider of real-time breaking medical news for healthcare professionals.
As many of you know this is our second agreement with an year with MedPage Today and we are pleased that the successful relationship we have established between Everyday Health and CollabRx is extended to the next level.
A division of the leading digital health and wellness media company Everyday Health, MedPage Today reaches over one-third of all US physicians including 96% of all oncologists.
The mobile application which we are co-developing is scheduled for release later this year. Under the terms of the agreement, CollabRx will provide its decision support, expert systems and electronic reference tools that incorporate our proprietary technology, and to leverage our knowledge base.
MedPage Today will develop the fun end application and included within the app, relevant medical news and physicians alerts. MedPage Today will promote the apps to its audience of oncology professionals and other physicians as well as the interested public.
I'd like to take some time to review our vision for this product and why I believe this is the most significant agreement, that we have made today with any company.
First of all, we believe that the business model for this type of independent app has been well demonstrated both (Inaudible) and outside of the healthcare market. Physicians are increasingly using smartphones and tablets at the point of care and mobile apps are increasingly the preferred method for physicians as well as the general public to access information.
There are several examples of highly successful mobile apps directed at physician users. Revenues are derived from several sources including sponsorships, advertising, subscriptions and data analytics. We expect this to be true for the CollabRx MedPage Today mobile offering as well.
The core of our new mobile offering will be our Therapy Finders which we have successfully piloted as a web-based application for the past six months on MedPage Today. Independent research confirmed that practicing oncologists viewed our one cancer Therapy Finder on the web founded to be extremely valuable and useful.
Our Therapy Finders are unique, interactive, easy-to-use apps with high value content related to treatment strategies, related to molecular bio-markers applied to a variety of cancers. Each of our Therapy Finders has been developed and updated in consultation with an advisory board consisting of some of the nations leading cancer clinicians and researchers. We envision including other features beyond the Therapy Finders within the initial app including the highly regarded real-time breaking medical news for healthcare professionals supplied by MedPage Today.
In the future, we plan to include additional features within the app, such as biomarker drug reference tool, a meet the experts feature and a diagnostic test reference tool. Many of these features are readily developed out of our existing knowledge base and data integration and analysis platforms.
The extended features require only incremental development expenses but will significantly expand our revenue well beyond the investment. All of the features within the mobile app represent extremely high value content, not readily available anywhere else in apps around the web and in many cases no place other than from CollabRx.
Our initial target users will be oncologists and pathologists and eventually patients focusing on the molecular aspects of laboratory testing and therapy redevelopment. The foundation of precision oncology in which each patient’s cancer treatment plan is individually tailored to reflect the genetic profile to their tumor.
Over time we expect that this app will serve as a comprehensive point of care resource for physicians and patients to obtain highly credible, expert-vetted and dynamically updated information to guide cancer treatment planning.
We could not have taken better partner for our entry into the rapidly growing mobile healthcare market. A division of the leading digital health and wellness media company, Everyday Health, MedPage Today reaches over one-third of all U.S. physicians including as I said before 96% of all oncologists.
The agreement opens up a new primary channel to support both our near-term growth and our long-term strategy to build a knowledge franchise in molecular medicine for practicing physicians and patients.
The multi-year agreement with Everyday Health is exclusive to both parties. Revenues from all sources, including sponsorships, advertising and data analytics will be shared equally between Everyday Health and CollabRx, with each company bearing its own cost for the development, marketing and sales of the mobile app and related products.
This agreement represents Phase 2 of a growing alliance between CollabRx and Everyday Health and we are excited to continue to be involved with MedPage Today in what we believe will be a major advanced in fight against cancer by making large scale, thought-leader medicine truly accessible in the complex area of molecular oncology.
Our Q1 2014 results represent a second straight quarter of revenue generation since we launched our commercialization phase at the beginning of this calendar year. This sustained performance continues to establish a demonstrable trajectory towards technology, content, and market leadership in the data analytics space and genomic medicine and is first to build a strengthening base for continued corporate goal in fiscal 2014.
Thanks for your participation with us today. And now I would be pleased to take questions from the audience.
(Operator Instructions). Our first question comes from Chris Lahiji of LD Micro.
Chris Lahiji - LD Micro
Developments this quarter. I had a quick question about this new app with MedPage, the big question is how do you ultimately get people to know about the app and how much do you expect it to cost in terms of marketing and build out and solicitation for this?
Chris, that’s a good question and I don’t have a full answer for you. I think that initially we are addressing a fairly well-defined set of oncologists. There are about 30,000 oncology professionals in United States, so we need to get that app in front of them. The main method for doing that is going to be those physicians who access the web version of MedPage Today will be encouraged to download or have. MedPage Today has also committed to a certain level of promotion of the app on their website.
Going forward though we are definitely going to have to address the issue of how we expand beyond the MedPage Today audience of oncologists and oncology professionals and even get to -- potentially get to the patients. Remember in the United States alone, there are 12 million people who have been diagnosed with cancer. There are 1.6 million who are diagnosed, newly diagnosed every year and unfortunately there are 600,000 new [perish] from cancer in the United States.
So beyond the limited oncology professional network we see eventually being able to promote and distribute this app to patients. So that is a market that we would approach with the normal tools of promoting web apps to consumers, but we really haven’t gotten to the point of sizing the marketing efforts, marketing and sales efforts for either the professionals or the patients, but we expect to do that between now and December.
Chris Lahiji - LD Micro
Two more questions. So is there any one directly that you think you'll be ultimately competing within this space or is it so relatively new that nothing like that exists?
There are apps that you can download in the oncology space that are available on the iTune store or iPhone store, but there at a very, very basic level and frankly nowhere near as interactive or as expert driven as our apps will be. And there is none to my knowledge that they focus at all on molecular oncology.
Chris Lahiji - LD Micro
Okay. And lastly, can you comment about the Life Technology acquisition, I mean is there any color on that or are we still don't know?
I think I said in the last conference call that the acquisition by (inaudible) actually has increased our communication between Life Technologies and CollabRx and now into communication, but the collaboration. I think they want to get things done pretty fast over there and so if anything in that relationship has been strengthened since last call.
Chris Lahiji - LD Micro
Excellent. Thank you so much for answering my question.
(Operator Instructions). Our next question comes from [Mike Harold of Midtown Capital]. Your line is open.
Can you summarize your portfolio of products of which make up current revenue over what will drive future revenue and also can you talk about the margins for each and relative to one another. Thanks.
So we really have two products. One is directed or two products line. One is directed at the clinical laboratory and that is best represented by the GVA service that I discussed earlier. The second product area has to do with the clinical products or decision supported products that are available to physicians currently on the web and expected to be available in connection with this agreement with Everyday Health through a mobile platform.
Both of those products have really only recently been introduced. So all of the revenue that we've reported so far has been related to a beta version of our GVA service (inaudible) they call most of the revenue we reported has been related to that and we expect that revenue to build in future quarters. But I would caution you that I expect it to be very lumpy as we bring on additional customers and as those customers bring on their own tests.
In the clinical product area, we’ve reported relatively small amounts of revenue sharing related to advertising on the web. That actually is expected to increase this year as Everyday Health MedPage Today signs on additional sponsors for additional therapy finders and in fact we just added to the website our melanoma therapy Finder in addition to the one that we’ve had there for about six months which would lung cancer therapy finder.
So we share some advertising revenue from them and also get some license fees. Both of those product areas have large gross margins, because the only expenses related to cost of good sold at this point are development expenses that we capitalize and those development expenses are largely almost exclusively salaries.
So salaries that are related to products that we have marketed or for which we see receive revenue, those activities are capitalized and we amortize them over the life of the product. So that’s why you see fairly high levels of gross margin, and as we add direct selling expenses we hope to keep those margins high but inevitably they are going to come down somewhat.
I think the important point here is that CollabRx has since 2008 been developing the technology to be able to deliver this content and that development is now going to be reflected in the revenues that we see going forward. So there is huge operating leverage associated with that. I don’t see very large incremental expenses on the engineering side in order to deliver any of the products that we've announced including the mobile app.
The only incremental expenses that I can see are the ones that Chris (inaudible) - asked about which are the sales and marketing expenses related to those products. Does that answer your question?
Yes, thank you.
Thank you. (Operator Instructions) Our next question comes from [Michele Rosen of Jane Street Capital]. Your line is open.
Hi there. I wanted to get your thoughts on what could be the revenue implications of the mobile app that you announced today?
So we don’t give specific guidance going forward but I can say that the overall revenue implications are for us starting out at relatively low base quite large. The advertising that is sold Everyday Health and MedPage Today is sold in slides of 6 months or 12 months terms. They're again low to mid six figure areas from our sponsorships as we move from the web to the mobile platform we expect them to be around the same amount if not more because of the potential reach. So these are pretty large sales of advertising sponsorships related to the mobile app.
In addition to that we expect as CollabRx to be doing some reports on the data analytic side that we would be selling to mainly the pharma and other diagnostic companies, and we expect those to be fairly large contracts with those customers.
What I would refer anyone listening on the call to, is the business model what we've looked at previously which is a company called Epocrates. Epocrates was acquired about four months ago by AthenaHealth and properties successfully accumulated about 300,000 physician users at the time of the acquisition and may in fact have more now. And they ramped that company to about $100 million before they were sold to AthenaHealth for $300 million roughly.
Their model is very similar to the one that we would expect to adopt in which subscription revenue represented only about 20% of the total revenue, where advertising and the sale of other services to pharma represented 80%. So I think that is a good model going forward, with the caveat that number one we're dealing with a smaller market in oncology. They had available to them about 900,000 physicians in the United States. However we're addressing those physicians with what regard as being much higher value content.
So we think the value is higher, value proposition is higher and all you have to do is look at the cost of cancer drugs in the United States, difference between cancer drugs and drugs that treat for example diabetes to see what the relative value is of the information that we would be providing through the mobile app compared to Epocrates. Does that answer your question?
Yes, it does. Thank you
Thank you. Our next question comes from Chuck Lipson of CSL Associates. Your line is open.
Chuck Lipson - CSL Associates
I'm sorry I was late to join the call; there's is a lot of earnings call today. But there was an article today in the Wall Street Journal that highlighted the targeting of cancer treatments. And I was wondering would that describe the CollabRx product and its potential, did you read it?
Yeah. So to a certain extent but I'll let Gavin Gordon our Vice President to answer that question.
Yeah sure, sure Tom. I think we're talking about the article that appeared yesterday around a case study in drug development and lung cancer. And the article was well written, I think what it did accurately capture where the field is and where it has the potential to go.
And when I looked at it several of the key issues that were identified by the author at potential barriers to the field advancing CollabRx addresses and so I think some of the key takeaways there is in the example of lung cancer being a single disease.
Now pharma as well as oncologists are recognizing that lung cancer as well as all of the common cancers for that matter represents myriad diseases each of which might require some drug or drug combination, based on the genetic profile of the tumor.
And one of the oncologist at a leading institution was quoted as basically saying that this information is not easily available to the community and we would agree with that and that’s actually one of the things that we address with our products and through our products. And so we basically put the information, the right information to the right person at the right point in time which is to say we arm the oncologist and the patient with the knowledge to leverage the explosion of genetic testing to their advantage and informing a cancer treatment plan.
And then on the pharma perspective, the linking genetic profiles to the drug development pipeline and process, most notably clinical trials, we support the notion of running faster and smarter trials in cancer by primarily by driving awareness of clinical trials for which patients might be eligible patients based on their tumor’s genetic profile.
And so I think what I've tried to do is say that we identify and solve a couple of gaps that are present for both the oncologists and address some of the needs that are highly relevant for pharma in getting drugs to market and adapting their development process from a cardiovascular, lipitor model, let's say to something like oncology where the markets are relatively smaller with respect to the number of relevant patients but are much higher value.
So Roche’s blockbuster drug Zelboraf is really only indicated for a few thousand patients each year but it's a blockbuster drug by status and sales. And so I think that the trend that article was leveraging around the explosion of genetic information as well as the changes in how drugs developed for cancer is very much a tide that will lift our boat as well.
In the article it said that there are I think 1000 chemos that are now available or in trial or being developed and that seems like it would be very difficult for the oncologists to keep up with that sort of information and especially given these numbers of permutations and combinations with the genetic tumor, type of tumor that the patient did have.
Correct, it’s incredibly complex and what we attempt to do is make accessible, easily accessible and clearly presented the information that needs to be brought to there at the point of care to inform treatment planning and so you are absolutely correct.
Chuck Lipson - CSL Associates
Now given what is the target market would you say through the number of tests that could be using your product?
Right, so I think it really depends on who you ask, and there is a variety of [investments] and so from some top consulting firm round tables that I participated in, the general consensus ranges from 30% to 60% of all cancer patients, ultimately receiving some sort of genetic testing in the next five years. Certainly others are more optimistic in terms of how many cancer patients might be tested in the near term and others certainly are more pessimistic. I think broadly speaking it’s not the extent of the penetration, but the timing and the when the ramp will occur over the next call it two to five years.
Chuck Lipson - CSL Associates
And would the pricing of your product be dependent on the -- as more information out there and there were more genetic and there were more chemos available, is the pricing already stable or how do you price your test, your report I should say?
Well, currently our pricing models aren’t tied to the complexity of the data. We figured out a scalable way to address that.
Chuck Lipson - CSL Associates
Okay. All right, thank you very much. It sounds like a very useful and valid product.
Thank you. As there are no further questions in queue, I’d like to turn the call back over to Mr. Michael for any closing remarks.
So thanks for joining us today. I hope you enjoyed the explanation on both our GBA service and our announcement with Everyday Heath, MedPage Today. We think these two areas are going to be driving our growth here in the next few quarters and I will be happy to report on progress again in another quarter. So thank you very much for your attention.
Thank you, sir. And thank you ladies and gentlemen for your participation. That does conclude your program. You may disconnect your lines at this time. Have a great day.
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