Venaxis' CEO Discusses Q3 2013 Results - Earnings Call Transcript

| About: Venaxis, Inc. (APPY)

Venaxis, Inc. (NASDAQ:APPY)

Q3 2013 Earnings Conference Call

November 7, 2013 08:30 a.m. ET


Greg Tiberend – Tiberend Strategic Advisors

Stephen T. Lundy – President and CEO

Jeffrey G. McGonegal – CFO

Don Hurd – Chief Commercial Officer and Senior Vice President


Jeffrey Frelick – Canaccord Genuity


Good morning, and welcome to the Venaxis Third Quarter 2013 Business Update Conference Call. (Operator instructions) Please note this event is being recorded.

I'd now like to turn the conference over to Greg Tiberend. Please go ahead sir.

Greg Tiberend

Thank you, Denise, and thank you all for joining us this morning. 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 morning, Venaxis filed its Form 10-Q for the quarter ended September 30, 2013, and issued a news release that provided an overview of its current activities and upcoming milestones. If you need a copy of the press release, please contact our firm, Tiberend Strategic Advisors, at (212) 375-2686 and we will get one to you immediately.

In a few moments, Steve will highlights Venaxis’ recent milestones and provide an update on the ongoing pivotal study of APPY1. Don will then provide an update on Venaxis' market development and commercialization efforts. Steve will provide some concluding remarks, and we'll 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 today's call is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that during this call, Venaxis management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with this company's business. These forward-looking statements are qualified by the cautionary statements contained in Venaxis' news releases and SEC filings, including the quarterly report on Form 10-Q for the quarter ended September 30, 2013, which Venaxis filed this morning.

This conference call also contains time-sensitive information that is accurate only as of the date of this live broadcast, Thursday, November 7, 2013. Venaxis 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 would like to turn the call to Steve Lundy, President and Chief Executive Officer of Venaxis. Steve?

Stephen T. Lundy

Thank you, Greg. And thanks to everyone for joining us on the call today. 2013 continues to be a period of diligent execution of our pivotal clinical trial of APPY1. Throughout 2013 we have continued to optimize the way we monitor and manage our trial sites in the US, and I am happy to say that through these efforts we have been able to accelerate to the rate of patient enrolment, and we remain on track to meet our goal of completing enrolment in the pivotal trial at or around the end of the year.

Advancing APPY1 towards potential US clearance continues to be our top priority, and we look forward to reporting top line data from the pivotal study in early 2014. In parallel, our market development and commercialization efforts continued to progress and in a few moments Don will provide an update on recent developments relating to our progress.

Before I hand it over to Don, let me further comment on the US pivotal study, as well as our financial position. During the third quarter we announced that APPY1 passed each of the two scheduled interim futility analyses included in the study protocol. These analyses were performed by an external data and safety monitoring board, and involved the review of the validity, integrity, and clinical and scientific relevance of the study.

Following these analyses, the most recent of which was performed on the first approximately 1100 patients, it was recommended by the external DSMB that our pivotal study continue to completion. We remain blighted to the interim study results. To date we have enrolled more than 1700 of the approximately 2200 patients we expect to enroll in order to achieve our target of 2000 net evaluable patients for the pivotal study. As I mentioned, we anticipate completing patient enrolment at or around year-end.

Once all enrolled patients have completed the required two-week follow-up period, the database on the pivotal trial will be locked. Then, we will perform the data analyses. We expect to be in a position to announce the top line results from the study towards the end of Q1 2014. Thereafter depending on the study results, we will work to finalize our 510(k) and final data package for submission to the FDA.

Turning to our financial position, we reported initial APPY1 revenue in our form 10-Q for the period ending September 30, 2013, which represents revenue arising from the initial stocking orders of the APPY1 Test by the European companies engaged to assist us for the European market development activities. While we expect European product revenues to grow, we do not expect it to be significant prior to full-scale commercial launch. This revenue recognition represents a milestone achievement for Venaxis as our first commercial sales of the APPY1 system.

We ended the third quarter with cash, cash equivalents and short-term investments of approximately $17 million. As the pivotal study comes to a close, our cash burn is expected to be reduced temporarily until we begin our US market development and commercialization efforts in anticipation of potential clearance and launch of the APPY1 Test in the US.

Don will talk more about these planned activities in a minute. We recently filed a shelf registration on Form S-3 with the SEC for up to $20 million in potential future offerings. The shelf was put in place as a prudent business practice as our prior shelf had recently expired. Having a current shelf available allows us to take advantage of market conditions to consider raising funds on an efficient and effective basis if and when such opportunity arises.

Now let me turn the call to Don, who will take a few minutes to review our ongoing market development and commercialization efforts. Don?

Don Hurd

Thanks Steve. In the United States, while we are not able to market the APPY1 Test until FDA clearance, we are actively engaging in initial marketing and development efforts. One of the first steps in this process is to engage key hospital sites and connect with emergency physicians across the United States. Last month we hosted a booth at the annual meeting of The American College of Emergency Physicians in Seattle, and we were able to survey some 240 of the leading attendees with respect to their current practices and concerns regarding the diagnosis of appendicitis.

The learnings from this research will assist us in honing our messages and product positioning upon potential FDA clearance. One clear message from the conference is that there continues to be an increased effort across the United States to decrease the use of CT scans in children and adolescents. We continue to be encouraged by the enthusiasm and positive feedback we are hearing from these thought leaders and potential end-users of APPY1, and we believe the test will be well positioned when we enter the market.

In addition, we are in discussions with key opinion leaders in modeling and quantifying how the APPY1 Test could potentially reduce cost and improve clinical care when it is available for sale in the United States. On that front we are completing development of a modeling tool, which will help individual hospitals quantify their potential savings from possible use of the APPY1 Tests arising from areas such as reduced imaging, reduced length of stay and fewer surgical consults.

The positive feedback we are receiving from similar efforts ongoing at selected hospital visits and demonstrations in Europe will be valuable to us in advancing US commercial launch process. We will continue to engage in market development efforts in the United States and will increase intensity in this area as we get closer to product launch.

Now let me switch to Europe, where we continue the market development process for our CE Marked APPY1 Tests. Over the past 10 months, all of our activities have been centered in key territories of Italy, Benelux, Spain, UK, France and Germany. We estimate that these countries account for 75% of the in vitro diagnostic market in Europe. As I have mentioned on previous calls, our strategy has been to work with distribution partners in market development activities to allow us to establish relationships with key opinion leaders and develop a dossier of evidence in each country to demonstrate the value of the APPY1 Test in that specific country.

After developing this body of evidence, we plan to enter into distribution agreements and begin marketing the APPY1 Test to targeted hospitals as agreed upon by Venaxis and our distribution partner. One of the benefits of this modeling tool I mentioned earlier is that we can use this tool to quantify the financial impact of the APPY1 Test to a hospital prior to its implementation of the APPY1 Test in clinical use. This is an important step because we believe we can show a hospital that the potential benefits of APPY1 are quantifiable in a specific setting. We believe this approach will help accelerate the sales process.

So where do we stand today on a country by country basis. For Spain, Italy and Benelux we have signed market development agreements with our preferred distribution partners. All of these relationships continue to be productive and are progressing nicely in terms of agreed upon milestones. Our first APPY1 Test sales revenues as shown in our latest Form 10-Q has come from these relationships. We expect to begin negotiations on longer term exclusive distribution agreements with these partners shortly.

Market development studies have started in Belgium, Netherlands and Italy and in Spain multiple hospital sites have been selected and are being prepared to start studies before the end of the year. In parallel, we are also beta testing the economic modeling tool with distributor partners and on a selected hospital visit case-by-case. In the UK, Germany and France we have engaged in multiple discussions and site visits with our preferred distributors. The site visits have focused on large and influential hospital sites in each of these countries.

Based on this experience we have made the strategic decision to hire dedicated market development consultants to facilitate and accelerate the market development process in each of those countries. And our expectation is to complete all market development activities in these three countries and then commence negotiations for exclusive distribution agreements with our preferred distributors.

I’m pleased to announce the positive results from a recently completed hospital laboratory validation study at the University Saint-Luc Hospital in Brussels, Belgium has been accepted for presentation at the Journées International de Biologie. That is actually the largest hospital [show] in France. Damien Gruson will be the presenter at that show for us. The results confirm that APPY1 Test performs accurately and reliably in the hands of laboratory personnel, who would actually perform and report the APPY1 Test results to the emergency room doctor.

Specifically, the completed laboratory study showed excellent within run and between run precision for CRP and MRP-814 to two biomarkers measured internally by the APPY1 Test. Venaxis expects that publishing this and future study results in peer review publications will help Venaxis penetrate the European market effectively in the future.

To summarize our position in Europe, we are implementing our market development plan across all of our targeted countries. It has taken longer in the larger countries Germany, France and the UK to engage distributors willing to invest in our market development program, which we believe is critical to our long-term success. However, we are filling this gap by investing in our own in country resources to move this process forward. By taking this step as well as accelerating the evidence gathering process through the use of economic model, we believe we are planning -- we are gaining momentum towards building a sustainable business in Europe. This approach will also aid us in advancing our US commercialization activities once FDA clearance of APPY1 is received.

With that I will hand the call back to Steve for closing comments and Q&A.

Stephen T. Lundy

Thanks Don. I will conclude by reiterating our commitment to gaining US regulatory clearance and developing the market for APPY1, which we believe has the potential to improve the way emergency physicians manage their patients who present with abdominal pain. As was further confirmed at the recent ACEP meeting, that is the Emergency Medicine Meeting in Seattle, reducing CT scans and improving ER workflow are widely recognized as top priorities, and we are excited to deliver a product to help physicians meet these important goals.

To that end our pivotal study is nearing completion and we look forward to sharing the top line pivotal data with you, and submitting to FDA as soon as possible. As Don said, market development efforts continued to accelerate remaining a priority in both the US and in Europe. Based on the positive feedback and enthusiasm we are hearing from leading hospitals, we feel optimistic about approaching the US market as well as ramping sales of our European distribution partners in 2014.

At this time I look forward to taking your questions. You may go ahead operator. Thank you.

Question-and-Answer Session


(Operator instructions) We have a question from Jeff Frelick from Canaccord. Please go ahead.

Jeffrey Frelick - Canaccord Genuity

Yes, good morning folks. Steve, how many patients are you enrolling per month, I think the update you gave us in July was tracking around 200 per month, what has that been since then?

Stephen T. Lundy

It has increased Jeff. I would say looking at the last few weeks, we were up closer to 250 on a monthly basis, maybe even more. Last week for example we had our biggest week ever at around 75 patients. So, 250 or so has been -- is pretty much where we are at now.

Jeffrey Frelick - Canaccord Genuity

And then when do you plan to submit the FDA package in relation to when you release the top line data, would you submit it before or shortly after?

Stephen T. Lundy

Well it will be shortly after Jeff, you know, the actual package, you know, a lot of the elements of the package are in place, and some of those are written already in terms of the analytical performance of the test and things like that. Really the longest part of this is first of all getting all the patients, you know, the follow up information as you know, the negative patients required two weeks of follow up. We had to go through a fairly rigorous process of closing the database, locking database if you will, in each one of the hospitals, and we have about 25 hospitals enrolled. So that is no small task.

So, you know, as soon as that is done, we close the database, we lock it, and then, you know, we do the analyses and report top line data. The submission comes very shortly thereafter.

Jeffrey Frelick - Canaccord Genuity

Okay. And then with respect to the study that will be presented later this month in Paris, can you comment about that study in France, how does it relate to the pivotal study, just share with patient enrolment, how big it is, is it just pediatrics, or is it all comers to the ER?

Stephen T. Lundy

Yes, Jeff, I will let Don comment on that, but it was a study mainly to look at the -- they are running the test in a real laboratory, and what kind of performance they would get just on the test itself. It didn’t relate to follow up of patients and that type of thing. Don, do you want to comment on that?

Don Hurd

You said it very well Steve. Jeff but I wanted to do that study in Europe because obviously our product is going to be used in the laboratory and laboratorians are going to end up taking our instruction for use in validating MRP and CRP. So I wanted to have some additional third-party sources showing how good our test was and that is what that study was for.

Jeffrey Frelick - Canaccord Genuity

Okay. And you have talked -- Don, you have talked about some additional studies with key opinion leaders, will these be compared to [Indiscernible] or in how many of these, or when do we start seeing some of those publications? Thanks.

Don Hurd

First off, generally those studies were designed for helping us to find the economic value, if you will, and how APPY1 would help reduce costs or time or effort in the emergency room Jeff. So, statistically speaking anything that has to do with sensitivity, specificity or negative predicted value is handled through the clinical trial in the United States. We already are CE Marked in Europe, so we don’t have to do that again. So, those studies specifically were economic type studies Jeff, and as far as finishing them, it varies country by country, but with the experience I have gained over the last few months, each of those studies one they start, it will start to look like they will take about four or five months to finish.

Jeffrey Frelick - Canaccord Genuity

Okay, great. Thanks guys.


(Operator instructions) Our next question is from Greg James from [Indiscernible]. Please go ahead, sir. Hi, Mr. James. I am sorry. It seems that he removed himself from the question queue. (Operator instructions) I show no further questions at this time. So that would conclude our question-and-answer session. I would like to turn the call back over to management for closing remarks.

Stephen T. Lundy

We appreciate everybody joining the call today, and we continue to look forward to reporting on our progress in the future and thank you very much.


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

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