Start Time: 16:34
End Time: 16:57
Vermillion, Inc. (NASDAQ:VRML)
Q4 2013 Earnings Conference Call
March 6, 2014 4:30 PM ET
Thomas H. McLain – President and Chief Executive Officer
Eric J. Schoen – Secretary, Chief Accounting Officer and Vice President-Finance
Ladies and gentlemen thank you for standing by. Welcome to the Vermillion Q4 2013 Earnings Call. During the presentation all participants will be in a listen-only mode and afterwards we will conduct a question-and-answer session. (Operator Instructions) As a reminder the call is being recorded Thursday, March 6, 2014.
I would now like to turn the call over to Thomas McLain, President and Chief Executive Officer. Please proceed.
Thomas H. McLain
Thank you, James. Good afternoon everyone and thank you for joining us. It’s a pleasure to speak to all of you. Today, we will talk about our operational successes from the past year and how that sets the stage for future growth. But before I get into those specifics I will turn the call over to our Vice President of Finance and Chief Accounting Officer, Eric Schoen, who will take us through our fourth quarter and full year 2013 results. Eric?
Eric J. Schoen
Thanks Tom. Today, we filed our fourth quarter and full year 2013 financial results in a press release, which is available for download via the investors section of our website at www.vermillion.com. Our Form 10-K we filed with the Securities and Exchange Commission later in March.
We began 2013 with a strong emphasis on cash conservation and expense management, as we start to raise capital. In 2013, we raised $30.9 million in new capital from a number of investors with a proven track record and a strong network in cancer, oncology and diagnostics. That allows us to increase our spending and add resources to drive growth in advanced strategic development programs.
Our focus on building market awareness and driving increased OVA1 test volumes in select markets supported by our Vermillion field sales reps drove a 29% gain in reported product revenue for the year. This performance was driven by an increase in both realized revenue per test and test volumes of significance our commercialization partner Quest Diagnostics reported for the first time that realized revenue per test was in excess of 50% of the $650 list price for OVA1 in 2013.
On test volume Vermillion field sales reps drove more than a 15% increase in test volumes in territories they cover. However, for 2013, this growth was mostly offset by volume declines in areas not covered by our field sales team. Total revenue for the full year 2013 increased 23% to $2.6 million compared to $2.1 million in 2012. Total revenue in 2013 included $2.1 million from product sales of OVA1 and $454,000 of license revenue.
Product sales at OVA1 in 2013, included $851,000 from approximately 17,000 tests performed at the fixed fee of $50 per test and $1.3 million for the 33% royalty reported by Quest Diagnostics for 2013. By comparison revenue in 2012 included $1.6 million from product sales of OVA1 and $454,000 of license revenue. Product sales of OVA1 in 2012, included $824,000 from approximately 16,460 tests performed at the fixed $50 per test and $816,000 for the 33% royalty reported by Quest Diagnostics for 2012.
The 33% royalty represented approximately 13,700 OVA1 tests reported by Quest Diagnostics as resolved in 2012 at an average royalty rate of $60 per test. As a reminder, the resolved volume includes both reimbursed and unreimbursed tests for which Quest Diagnostics considers the payment status as final as of December 31. Test that do not yet have a final resolution for 2013 will be included in a future true-up report.
Overall, our product revenue increased 29% in 2013 compared to 2012. This was due to three factors. First, our reported revenue comprised of the $50 fee per test, plus the Quest Diagnostics royalty to Vermillion increased 14% to $125 per test, compared to $110 in 2012. Second, test results by Quest Diagnostics for purposes in the true-up report increased 22% to 16,745 compared to 13,700 in 2012.
Finally, overall OVA1 volume increased 3% to 17,000 in 2013, compared to 16,460 in 2012. Again that was greater than 15% growth in territories supported by Vermillion field sales force, which is mostly offset by declines in other markets.
Operating expenses for the three months ended December 31 and for the full-year 2013 was $3.3 million and $11.3 million respectively. Operating expenses included $0.6 million and $0.9 million in non-cash stock-based compensation expense in the three and 12 months ended December 31, 2013 respectively. This compares with operating expenses of $2.4 million and $11.4 million for the same three month period and full fiscal 2012. Operating expenses included $0.5 million and $1.3 million in non-cash stock-based compensation expense in the three and 12 months ended December 31, 2012 respectively.
Annual operating expenses were consistent in 2013 compared to 2012, although we exited 2013 at a much higher run rate than 2012 due to current investments in our platform migration and next generation test development as well as an increase in our research and development headcount.
Net loss for the fourth quarter was $1.8 million, as compared to $1.4 million in the same year-ago quarter. Net loss for 2013 was $8.8 million, as compared to $7.1 million in the prior year. However, the prior year net loss was reduced by one time below the line gains of $2.5 million. Weighted average shares outstanding were $25.2 million for the fourth quarter of 2013 and $20.9 million for the year ended December 31, 2013 for a net loss of $0.07 a share and $0.42 per share respectively. Cash and cash equivalents at December 31, 2013 were $29.5 million. The company utilized $2.9 million in cash in the fourth quarter of 2013 including our IVD instrument purchase to support the platform migration program.
The company expects cash utilization of between $3.5 million and $4 million in the first quarter of 2014 to expand commercialization support for OVA1 and advanced key development programs. Our common shares outstanding are $35.8 million; this includes that 8 million shares issued in the May 2015 private placement which raised net proceeds of $11.8 million and the 12.1 million shares issued in December 2013 upon exercise of common stock warrants that raised an additional $17.6 million in proceeds.
In addition to providing capital to fund our 2014 to 2016 strategic plan, two new board members were nominated by these new shareholders as part of the transaction. In September 2013, Dr. Eric Varma, joined our board of directors bringing significant financial and commercial experience in the life sciences. Dr. Varma is currently a partner at Oracle Investment Management, Vermillion’s largest stock holder. In December 2013, James LaFrance was nominated by Jack W. Schuler, joined the board and was elected chairman of the board. Jim brings extensive experience in both cancer diagnostics and market development for new technologies.
Now, I will turn it back to Tom.
Thomas H. McLain
Thank you, Eric. 2013 was certainly a transformative year for Vermillion. In May, we outlined three key strategic objectives for the year. First, taking over our leadership role for growing tax volume and revenue in the U.S. versus relying on our strategic alliance with Quest. Second, growing our customer base by migrating the OVA1 test to a platform that is available globally. And third expanding our addressable patient base by developing a next generation ovarian cancer test and pursuing new indications. Our key operational objective for the year was straight forward to take on the leadership role for increasing OVA1 test volumes and revenues in the U.S. market. Quest Diagnostics continues to be an important partner in making the test widely available. But at the beginning of the year, it was clear that Vermillion needs to build awareness of OVA1 versus today’s standard of care and drive the use of the test to improve patient outcomes. The test volume and revenue results that Eric presented are key measures of our success in this effort.
But in addition a number of other actions are underway that are redefining Vermillion as a medical technology and diagnostics company focused on women’s health and gynecologic oncology. Those efforts include new clinical publications, new clinical partnerships, patient advocacy for ovarian cancer detection, medical education and an expanded marketing and sales presence in the U.S. With the addition of Marian Sacco, as Senior Vice President, Sales and Marketing and Chief Commercialization Officer in December, we have a team in place that is experienced and accomplished in developing new products in markets both in the U.S. and worldwide.
In terms of clinical publications 2013 marked a watershed year for OVA1 and for bringing focus to improving the care for women with ovarian masses and ovarian cancer.
First, we more than doubled the number of full peer-reviewed primary clinical research articles on OVA1’s clinical performance. Second, that series of three research articles highlighted just how serious the unmet need continues to be for better care of ovarian cancer patients through appropriate referral and treatment by a cancer specialist. One of these show that among over 13,000 ovarian cancer patients, almost two-thirds of women failed to receive NCCN standard of care, this led the studies author to be quoted on the front page of the New York Times, saying that if we could just make sure that women get to the people best trained to take care of them, the impact would be greater than that of any new chemotherapy or biological agent. And that is exactly why OVA1 was developed and launched.
In February 2013, the results of our second pivotal trial of OVA1 were published in the top clinical specialty journal gynecologic oncology. The paper authored by Dr. Robert Bristow of UC Irvine Healthcare, studied a new cohort of 494 adnexal or ovarian mass surgery patients enrolled from non-gynecologic oncology doctors. That’s almost double the number in our original FDA submission. Two other studies published in the American Journal of Gynecologic Oncology were subset analysis. Looking at OVA1 performance across 1,000 surgeries at 44 sites nationwide and with more than 250 cancer diagnosis. This cumulative clinical data provides the evidence that is needed to demonstrate that OVA1 is a valuable addition to imaging and clinical impression in assuring the risk for all stages and all types of ovarian cancer in women undergoing adnexal surgery.
OVA1 had significantly higher sensitivity than CA125 or the overall American College of Obstetrics and Gynecology or ACOG method without predicting an increase in the number of referrals in this study. Earlier detection is essential to changing the mortality associated with ovarian cancer. When added to clinical assessment OVA1 detected 95% of all early stage malignancies and 93% of unruptured or stage 1 ovarian cancers in these surgical patients.
OVA1 detected 85% of early stage cancers missed by clinical assessments and 88% of early stage cancers missed by CA125 that is a game changer. Looking forward, we expect at least one more subset analysis publication and we have focused our further studies on the impact of OVA1 on downstream outcomes, quality of care, and healthcare efficiency. We expect to announce these significant collaborations over the next three months.
With these peer-reviewed and comprehensive new studies completed in 2013, our focus is now on a tactical U.S. commercial relaunch of OVA1 in 2014, by increasing our sales force, increasing our gynecology and primary provider relationships, actively engaging with health plans to support our customers and escalating our attention to advocacy for women and their families.
Our results for 2013 confirm what we are learning from ongoing market research. Gynecologists will respond favorably to outreach from our field sales reps and they will increase their use of OVA1 testing. This give us confidence that with focused effort, increased call frequency, medical education events and more visibility at hospitals and hospital systems. Our efforts will lead commercialization at the primary healthcare customers. Those primary customers are gynecologists, physician assistants, primary care and general surgeons and that will lead to increase clinical adoption and increase volume of tests in 2014.
Turning now to our efforts with payers. The most significant reimbursement development in 2013 was the final CMS determination related to pricing for OVA1. In September, CMS published a preliminary recommendation, the diagnostic test like OVA1 that use algorithms to generate those – their results MAAA tests would not be covered under the Clinical Lab Fee Schedule process.
Vermillion engaged in dialogue with CMS, with the FDA and industry organizations about its position. Under the final CMS determination, issued in late November it authorized Medicare contractors to price OVA1 using a gap-fill method, not crosswalk.
Gap-fill considers the market value for the test. This was a significant change from external expectations and it sets a President for CMS recognizing the value of biomarker developed tests and linking how they are priced to the value they bring to clinical decision-making and healthcare efficiencies. We will pursue a gap-fill price for OVA1 in 2014.
Turning briefly to our research and product development pipeline. In 2013, we significantly expanded Vermillion’s long standing collaboration with the Johns Hopkins School of Medicine. The Johns Hopkins Center for biomarker research and translation is one of only five academic national biomarker reference laboratories and it lead the initial OVA1 development.
In our expanded collaboration, this center is supporting our platform migration and next generation OVA1 programs. In 2013, they presented an important proof-of-concept showing higher specificity without sacrificing sensitivity in a five biomarker panel, this was presented at the Annual ASCO meeting in Chicago. Both the platform migration and next generation programs are advancing on schedule. We have submitted our pre-submission request with FDA, to agree on a regulatory path for moving OVA1 to a path IVD automation platform. This platform migration is key to our ex-US commercialization strategy as well as our next gen test plans.
We’ll update you on our progress as we move through key milestones in 2014. Vermillion is also looking at other pipeline opportunities to leverage our increasing commercial focus and customer relationships.
To summarize our progress in 2013, we finish the year with continued growth in tests for OVA1, increase realized revenue per test and 29% growth in product revenue. We finished with an expanded commercialization plan for the U.S. market in 2014, which will rollout at the upcoming SGO, ACOG and ASCO annual meetings and with a worldwide strategy focused on 2015 and beyond. We finish the year with significant new clinical data published in the leading peer-reviewed journals that define the value of OVA1 in the care of women with ovarian masses.
And we finish the year with clarification of our CMS position for OVA1 coverage, to use a gap-fill method in 2014. We also finish the year with progress on development of OVA1 on a global test platform for launch in 2015. And we also finish the year after making advances in developing a new biomarker tests for accessing ovarian cancer risk. Our remarks have largely focused on a recap of our 2013 accomplishments, we realized that we’re not providing explicit financial guidance for 2014 on today’s call. We are redefining our approach to the U.S. market and as these significant developments unfold over the next weeks and months, we’ll announce them with press releases and on upcoming conference calls.
In closing, we understand that this is a challenging and changing marketplace, there are risks ahead, but our opportunities are also significant in our OVA1 successes our business strategy and the initiatives in collaborations in place position us to make significant progress in 2014.
James that concludes our remarks and we’re ready for questions.
Thank you. (Operator Instructions) There are no questions at this time from the telephone lines.
Thomas H. McLain
All right, well thank you very much James and we want to thank you for your participation on today’s call and we look forward to updating you about our progress as we move through the year.
Ladies and gentlemen that does concludes the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you.
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