Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Transgenomic, Inc. (NASDAQ:TBIO)

Q4 2013 Results Earnings Conference Call

March 12, 2014 05:00 PM ET

Executives

Paul Kinnon - President and CEO

Mark Colonnese - Chief Financial Officer

Analysts

Matt Hewitt - Craig-Hallum Capital

Operator

Good day. And welcome to the Transgenomic Fourth Quarter and Fiscal Year 2013 Financial Results Conference Call. All sites are currently in a listen-only mode. But please note there will be a question-and-answer session later on in the call.

Also note today’s conference will be recorded and will be accessible both by phone and internet. Please refer to the press release about this conference call on the company’s website transgenomic.com for further detail.

The company has asked that I read the following statement. Management will make comments today that contain forward-looking statements. Forward-looking statements are any statements that are made that are not historical facts. These forward-looking statements are based on current expectations of the management team and there could be no assurance that such expectations will come to fruition. Because forward-looking statements involve risks and uncertainties Transgenomic’s actual result could differ materially from management’s current expectations.

Please refer to the press release, the company’s 10-Q, 10-K, and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time sensitive and is accurate only at this time. If any portion of this call is rebroadcast, retransmitted, or redistributed at a later date Transgenomic will not be reviewing nor updating this material.

I will now turn the call over to Transgenomic’s President and Chief Executive Officer, Paul Kinnon. Please go ahead sir.

Paul Kinnon

Good afternoon everyone and thank you for joining us on today's conference call. I am joined today by Chief Financial Officer Mark Colonnese, we have a few prepared comments.

I'll start by providing you an overview of our ongoing progress on future plans then Mark will walk us through the operating results for the fourth quarter and the full year 2013. And following this we will open the call up for some follow-on questions.

The last quarter 2013 marked a turning point for Transgenomic, when the Board of Directors asked me to take the helm and lead the revitalization aimed at optimizing the value of our company's many assets.

It's still early days in that assets and the transition. But I'm pleased to report that we are making excellent progress by implementing key initiatives to achieve this goal, initiatives that we believe will begin to contribute to the company's results later in this year.

The goal is to leverage our products, our distinctive technology in assets, our distribution infrastructure and our expertise to make Transgenomic, a leader in personalized medicine, providing products and services to improve patients’ outcomes globally. A cornerstone of this strategy is optimizing our commercial execution by building a network of world-class partners and collaborators to leverage our resources, while achieving great market access and operating efficiencies around the globe. These initiatives are designed to achieve greater commercial reach and enhanced efficiencies in all for our business units focusing resources in our portfolio in internally developed assets to have large current and future commercial potential and allowing us to refocus our internal resources on our areas of strength developing advance technologies, test and companion diagnostics using our proprietary and unique technologies for ultra high sensitive products, while focusing our internal sales and marketing efforts on tests for ray, genetic disorders in the U.S. where we’re a market leader.

Another benefit of this strategy in these premier relationships send the clear signal to a reenergize Transgenomic as providing the advanced molecular diagnostic technologies and products, the industry wants and needs. We expect they will also contribute to our drive to become the go-to partner for the developments of companion diagnostics, the true builder for an industry that is increasingly focused on genomics as a means for selecting treatments and defining outcomes for patients. Along with the major shift in our business strategy we have moved to strengthen the financial position of the company and to requalify for listing on NASDAQ further signaling the Transgenomic is back on track as an industrial player to watch.

I will briefly discuss our programs with some of these key initiatives for you. So as we are pleased with our progress to-date in establishing strategic partnerships and channel collaborations with market leading organizations. Our existing partnership with PerkinElmer, PDI, MD Anderson Cancer Center and Amgen are great examples of the world class partnerships we aim to secure going forward. Each of these organizations brings us expertise and expanded market access for key products and product lines.

An example is PerkinElmer, a growing global force in molecular diagnostics handling all our ex-U.S. marketing distributing activities for our molecular diagnostic kits, oncology products including CRC RAScan, CRC RASseq and our ACE portfolio. These are all used on PerkinElmer’s lab chip platform. The initial results from our customers in PerkinElmer is that these products have been well received in Europe and we are optimistic about seeing this business grow as we move through 2014.

Our collaboration with PDI’s [mesh] life cardio [predict] in the U.S. is another example of the breadth of strategic relationship we are pursuing. As we previously disclosed we are in initial test phase of this collaboration and we have seen an uptick from the inbound test orders in January and February. We are optimistic that this will continue as cardio predict gains acceptance in the marketplace and we will keep you informed of this test phase and how it develops further.

Last year our product development collaboration with Amgen reached a key milestone when we launched our CRC RAScan and RASseq kit in Europe detect low level KRAS and NRAS mutations in candidates for treatment with Panitumumab, Amgen’s EGFR inhibitor for metastatic colorectal cancer. Amgen continues to be a key client of our business unit. And additionally, the sales of this project is now being offered through PerkinElmer as a distribution partner in Europe. CRC RAScan and RASseq are early entrants into the emerging markets for companion testing for cancer drugs. Establishing collaborative relationships with leading companies, developing and marketing new cancer therapies is a core strategy for Transgenomic going forward and will allow us to pave the way for additional product launches and entries into the marketplace on a global basis.

Earlier, more efficient access to DNA analysis is expected to revolutionize cancer therapies going forward by greatly increasing its practical utility. In Q4, the interim results of our ongoing scientific collaboration with MD Anderson Cancer Center represented the leading scientific meeting.

This collaboration is designed to validate the ability of our breakthrough technology, ICE COLD-PCR to enable the tracking and monitoring of cancer therapy using cell free DNA circulating in the patient’s blood, therefore eliminating need for invasive and costly biopsies.

The ICE COLD-PCR technology greatly increases the sensitivity of genetic analysis. Its ability to detect and identify low genetic mutations is supported by multi-validated studies confirming detection of mutations, a low level of sensitivity that is upto 400 and 100 times better than that achieved with traditional Sanger sequencing and next-gen sequencing respectively.

The MD Anderson Study fairly confirmed the outstanding sensitivity of ICE COLD-PCR, demonstrating that in hypersensitive patients tested, it detected the same KRAS and BRAF genetic mutations in cell free DNA circulating in the patients as were found conventional tissue biopsies from primary tumors. We believe that the broad use of ICE COLD-PCR has the potential to revolutionize cancer screening, diagnosis, monitoring and therapy selection by giving healthcare providers the ability to perform safer, less invasive, costly procedures, and more frequently assessments of the cancer and its mutations all through DNA analysis of simple blood draws.

In addition to our existing relationships with leading cancer research institutes including Dana Farber, NYU Langone and University of Nebraska, we are working to establish additional scientific collaborations with other leading research organizations to support realization of the broad clinical and commercial potential of this remarkable technology.

Our efforts to establish a wide variety of partnerships around ICE COLD-PCR received a boost earlier this year when we received an important new patent that further reinforces our intellectual property, protecting ICE COLD-PCR technology platform.

This new patent further strengthens our position as we move to leverage this exciting technology in both our patient testing business and with our pharmaceutical and biotechnology customers.

We are also partnering to enhance our own technology. In 2014, we announced a strategic partnership with Horizon Discovery for the collaboration development of improved genetic diagnostic tests incorporating their state of the art controls. We believe access to Horizon’s technology will significantly benefit our growing biomarker identification business.

Turning to the financial front, after the close of two (inaudible) fourth quarter in late February, Transgenomic announced that the company has successfully completed a financing on favorable terms by raising $7 million via a convertible preferred stock placement with Third Security, a life science investment firm founded by R.J. Kirk who is well known investor. We view the additional infusion of capital as an important growth of confidence in our revitalization and commercialization efforts and it strengthens our financial position as we work to increase revenues and achieve operating efficiencies.

In addition, during the fourth quarter the Board approved the 1-for-12 reverse stock split and the company filed an application to list on NASDAQ Capital Market. The proposed return to the NASDAQ expected to benefit the company through greater visibility and access to capital, and increased share liquidity. We’re also investing in upgrading key staff and focusing internal programs essential to realizing the value of our high potential products and technologies.

In November, Steve Miller joined us as Senior Vice President and General Manager of the Patient Testing Business Unit. Steve brings over 22 years of sales and marketing, business development reimbursement experience in the diagnostics and biotechnologies industry. And he has a proven track record of successfully commercializing molecular diagnostics test on a global basis. We’re earmarking resources to critical market development and commercialization activities for key products such as ICE COLD-PCR. For example, tomorrow we’re sponsoring an industrial webinar on a transformative nature and potential of ICE COLD-PCR for managing cancer therapy using circulating free DNA as a process referred to as liquid biopsies.

The excitement around this topic is shown by the fact that hundreds of potential customers are signed up to participate. MD Anderson scientist is helping lead this webinar and we expect to conduct more programs like this when going forward to drive the commercialization and acceptance of our products into the multiple marketplaces.

While we still have a way to go here at Transgenomic, we are very encouraged by our progress over the past few months, we believe we are on the right track and we look forward to reporting on our continued progress in the coming months.

With that overview, I will hand the call over to Mark Colonnese. Mark?

Mark Colonnese

Thanks Paul. Good afternoon everyone. We released our financial results about an hour ago, so I hope that you have had a chance to review the numbers. I will start today with an analysis of the fourth quarter results. So net sales in the fourth quarter of 2013 were $6.2 million compared with $7.3 million for the same period in 2012. The decline in 2013 is mainly due to decreased test volume in the laboratory services segment, principally in the neurology business, and an unfavorable shift in product mix.

Regarding the mix change, as many of you recall, in last year’s fourth quarter, our lab caught up about half of the major backlog of NuclearMitome test that had built up last year when we shifted production of the test to a new lab. The NuclearMitome test is a comprehensive panel that is one of our more expensive tests hence the unfavorable comparison that incurred in this year’s fourth quarter. The decline in the lab segment though was partially offset by significant 35% increase in the genetic assays and platform segment as we actually had a terrific quarter in that business due to higher unit sales of instruments in the U.S. and Europe.

Gross profit was $2.6 million or 41% of net sales compared with the gross profit of $3.5 million or 49% of net sales in the same period of 2012. This decrease in gross profit was mainly due to lower margins in the laboratory services segment and their volume related.

Operating expenses were $6.2 million in the fourth quarter of 2013, a reduction of about 600,000 compared to the $6.8 million in the prior year. The decrease in operating expenses was primarily due to reductions in our lab services field sales force as we reduced the size of our field force in the middle of 2013 to make our marketing spend more appropriate to the level of revenues in that business. Also affecting the comparison on a favorable side was a lower bad debt provision in the fourth quarter of 2013 compared to the prior year.

In the other expense category, we recorded a $0.3 million non-cash expense related to warrant revaluation in this year’s fourth quarter compared to $1.2 million of income in 2012. The expense in 2013 reflected a higher value being assigned to the warrants as a result of a rise in the company stock price last quarter while conversely the expense in 2012 is due to decline in the stock price in that year.

In summary, the net loss for the fourth quarter of 2013 was $4 million or $0.05 a share compared with the net loss of $2.3 million or $0.03 per share in the fourth quarter of 2012. The vast majority of this increase in the net loss was due to the change in non-cash warrant revaluation. This is evidenced by the fact that our modified EBITDA was a loss of $2.6 million in the fourth quarter of 2013, only slightly higher than the $2.4 million loss in the same period of 2012.

Cash and cash equivalents were $1.6 million at the end of 2013 compared with $4.5 million as of the end of the prior year. We did take the opportunity to restock our coffers earlier this month with a $7 million convertible stock placement on quite favorable terms. This funding was accompanied by a debt restructuring that will defer approximately $1.5 million of debt service payments from 2014 to 2015. This provides the company with capital that we will use to execute on our business plan this year.

Turning to the full year comparisons, net sales for the 12 months ended December 31, 2013 were $27.5 million compared with $31.5 million in 2012. As in the fourth quarter, the decrease from last year was largely driven by reduced revenues in the Laboratory Services segment, and reflected the lower test volumes again largely in the neurology business. However, for the full year comparison this shortfall was partially offset by higher contract revenue that we had associated with a major collaboration agreement last year.

Gross profit for the full year 2013 was $12.5 million or 45% of sales, compared with gross profit of $15 million or 48% of net sales in 2012. The decrease in gross profit again was largely attributed to lower test volumes in our Laboratory Services segment.

Operating expenses were $28.3 million for the 12 months ended December 31, 2013, compared with $24.5 million in the prior year. This increase was due to higher costs related to our Laboratory Services field sales force in the first half of 2013 at which point the reductions were made and a higher bad debt provision earlier in the year.

Our unfavorable comparison in other expenses was again due to the accounting impact on our warrants. In 2013, there was $1.9 million less income from warrant revaluation than in 2012. This reduction in non-cash income resulted from a modest decline in the company’s stock price over the full year of 2013 versus a significant decline in 2012. Under the accounting rules, we record more income as the stock price declines. As such the net loss for the 12 months ended December 31, 2013 was a shade under $16 million or $0.19 per share compared with a net loss of $8.2 million or $0.13 per share during the comparable period of 2012.

So at this point, I’ll turn the call back to Paul.

Paul Kinnon

Thank you very much Mark. At this point operator, we’re ready to open the call to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We’ll take our first question from Matt Hewitt with Craig-Hallum Capital. Please go ahead.

Matt Hewitt - Craig-Hallum Capital

Good afternoon, gentlemen and thank you for taking my questions. First one for me, the assays or the tools segment, the tools segment itself was up modestly here and a nice performance there. I am wondering how much of that was contribution from equipment sales versus the assays themselves?

Mark Colonnese

Yes. In the fourth quarter, we had a very nice improvement that actually saw our full year sales in that segment maintain, actually slightly grow for the first time in a few years. In the fourth quarter, those were largely instrument sales that our team sales largely in Europe and in the U.S.

Matt Hewitt - Craig-Hallum Capital

And those are the way it sort of subtracts?

Mark Colonnese

These are principally on [obvious] systems that we -- these are high ticket systems that major labs will bring in as they move to automate some of their processes and this is equipment that we OEM.

Matt Hewitt - Craig-Hallum Capital

Okay, all right. As far as, the clinical lab segment I think you explained that it was -- challenges in the neurology business. How much of that decline would you say was related to that versus some of the ongoing reimbursement challenges that the entire industry has been facing?

Mark Colonnese

Yes, I think the neurology -- most of it was volume related issues in the company that were unrelated to the reimbursement. I think we like everyone else in the industry have had our reimbursement challenges and they contributed modestly to the decline in sales, but the unit declines had to do with, as I mentioned the NuclearMitome test that were made up very strongly in the last quarter of last year and then just general volume declines, basically the competition in neurology.

I would want to add though that we actually have a new team onboard that we brought on late last year and a new leader Steve Miller to run that. And we have already seen a very significant increase; recapture I guess is probably a better word in volumes as we started the first quarter this year in that neurology business. So I think we have addressed those issues and I am happy to see the progress that we made this year.

Matt Hewitt - Craig-Hallum Capital

Okay. So as far as looking at the first quarter is concerned, you anticipate that it should pop back up to the high $3s-$4 million range is that the way to think about it?

Mark Colonnese

I don’t want to give guidance here. That’s not something that we typically do, but I would say that Neurology -- I would tell you that the Neurology segment has seen a tremendously strong recovery back to levels that we saw in the first half of last year.

Matt Hewitt - Craig-Hallum Capital

Okay, alright.

Paul Kinnon

Mark’s alluding to the fact that when we said we were upscaling the organization, that’s one of the areas where we think we have significantly improved the level of our staff and the ability for them to go out and achieve our goals.

Matt Hewitt - Craig-Hallum Capital

Okay. Regarding ICE COLD-PCR and you touched on it a little bit, there is the webinar tomorrow. What are your expectations for that platform this year, what type of milestone should we be watching for to monitor that progress?

Paul Kinnon

So, we plan on releasing more collaborative data, revalidating and validating this performance, it’s used as a liquid biopsy tool to generate significant data. That will be ongoing at the regular conferences like ASCO and [CO]. We will probably do a couple more releases on partnerships and collaborations, not all of them being academic collaborations, but really trying to drive into the commercialization phase. And that’s where we will be focusing on it. Our first goal will be bringing it into the biomarker identification business and then further going into the other markets and the other business as we progress in the coming years.

Matt Hewitt - Craig-Hallum Capital

So from a financial perspective, do you anticipate that starting to contribute on a revenue basis this year or do you see, -- is this year really about laying the ground work and the commercialization efforts paying off in 2015?

Paul Kinnon

It will be an impact in the biomarker identification business on the revenue basis because it will be used in collaborative programs rather being paid for our services with pharma and biotechs and then in the future it will be bringing revenues into the markets as we develop and commercialize it from there.

Matt Hewitt - Craig-Hallum Capital

Okay. That’s a good update and it kind of leads into my next question. As far as the clinical trials business is concerned, I think back to when the Amgen agreement or partnership was announced last year, it generated a fair amount of activity. New potential partners are reaching out to you. Has that translated into incremental business, how is the clinical trials segment functioning today and what can we anticipate from that this year?

Paul Kinnon

Yes. I mean we see that business as a very big area for our growth, we’ve got some very strong relationships. And those releases on that activity that we carried out last year, will actually grow this year as well with other customers. We’ll be attending some seminars and enormous amount of interest as we say on the ICE COLD-PCR, and we see a growth market for us. And that feeds the rest of the business and allows us to take the technology into other markets as well.

So, that’s really the first gating process, get that relationship, grow that relationship with the pharmas and biotechs, develop these assays with them and then move them through the continuum of the biomarker business, the patient testing business and our clear testing and also the genetic assays and platforms marker and our partners such as PerkinElmer. So, that’s our first step grows our builder foundation and allow us to move forward. So, we see that market expanding and we’ve got a lot of interest and we will be capitalizing on that interest in the coming months.

Matt Hewitt - Craig-Hallum Capital

Okay. Are there any significant trials already in queue and you are just waiting for a partner to kick those off? I mean, in the past, there have been some million dollar trials kind of sitting in queue.

Paul Kinnon

Yes. So if you think of it from the point of view of the -- the million dollar trial starts off as you know a $150,000 to $100,000 and $150,000 study, that study then improves and as time goes on. We had a few of them in 2013, we expect to have a lot more in 2014 and then 1 or 2 of them, we’ll move through the pipeline. And it’s like any other sales process; you start off with 10 or 15 [you then end] with 5 or 10.

So, we’re optimistic that we can move some of them through the pipeline and bring them forward to that larger scale, and we’ll see how that progresses and keep you informed.

Matt Hewitt - Craig-Hallum Capital

Okay, alright. Thank you. Maybe one last one from me, and then I’ll go hop back in the queue. As far as the cash positions concerned, congratulations on the additional funding, as I look at your balance sheet today, you should be fine for the near future. But when do you anticipate getting to a cash flow breakeven or if you prefer an adjusted EBITDA breakeven standpoint, is that something we can anticipate maybe later this year or do you think that’s early ‘15?

Mark Colonnese

Yes. We haven’t set a timeline on that but I do think that the cash that we raised earlier this year should certainly get us into 2015. That’s our full expectations.

Matt Hewitt - Craig-Hallum Capital

Okay, all right. Thanks. I’ll hop back in the queue.

Paul Kinnon

Okay.

Operator

Thank you. (Operator Instructions). Mr. Hewitt, you may continue.

Matt Hewitt - Craig-Hallum Capital

All right, just a couple of follow-ups. Number one, NASDAQ, you’ve submitted to list, has there been -- has your listing application been accepted, any sense of the timeline for that?

Mark Colonnese

Yes. Matt, I think you ask such great questions; everybody just wants to sit back and listen to you.

Matt Hewitt - Craig-Hallum Capital

Right, absolutely.

Mark Colonnese

Yes. I think we mentioned before, we filed the application in December. We’ve gotten the response back from NASDAQ. We’ve answered all the questions. The last issue that we’re aware of, the only one that’s unanswered at this point in time is that the normal requirement from NASDAQ is that you have to have 3 Independent Board Members on an audit committee. At the present time, the company only has 2. But this is an activity that our Board undertook some time ago. And I think in the very near-term, we should have some news that would resolve that final issue. And then, we think it’s going to be a very short time before NASDAQ allows us to go forward.

Matt Hewitt - Craig-Hallum Capital

Right, fantastic. Last one for me and it’s something that I am sure you’ve gotten questions about. I’ve actually been getting questions periodically, recently, I’ve gotten a few. There is another lab in company in the space that has highlighted the use of ICE COLD-PCR utilizing urine. And I am curious if -- and I know that -- if I am not mistaken, there is some existing relationship, Board member is also an employee there, I think was just [then] CEO there. Do you have a license in place or does Trovogene have a license in place or how is that being handled between the two companies?

Paul Kinnon

So, we continue to review the competitive situation and monitor the marketplace. As you are aware, it’s a very, very aggressive and a fast moving market. We’re continuing to monitor it. We address those issues. And as we see it will implement, we will have a strategies we need to, going forward. We’re aware of them and we continue just to monitor situation. And we’ll appraise the marketplace if anything material comes to happen.

Matt Hewitt - Craig-Hallum Capital

Okay, alright. Well that I think about hits all of them. So thank you very much for taking my questions again.

Paul Kinnon

[Thank you] Matt.

Operator

(Operator Instructions). We have no further questions at this time. I will turn it back to the management for closing remarks.

Paul Kinnon

So thank you very much. We appreciate your participation and interest. And we would like to thank everybody for attending the call and look forward to speaking to you in the near future.

Operator

Ladies and gentlemen, this does conclude this conference for today. We appreciate your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Transgenomic's CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts