Good day everyone and welcome to the Response Genetics Second Quarter 2014 Earnings Results Conference Call. This call is being recorded. With us today from the company are the Chairman and Chief Executive Officer, Mr. Thomas Bologna, and Chief Financial Officer, Mr. Kevin Harris.
At this time, I would like to turn the call over to Mr. Bologna. Please go ahead, sir.
Thanks. Welcome to our second quarter 2014 conference call. Before highlighting our financial and operational results, Kevin Harris, our CFO will read our forward-looking statement. I will then review our second quarter 2014 financials, summarize where we are, discuss our 2014 expectations and then open the call to questions for Kevin and I.
In addition to the historical information, our second quarter 2014 conference call today contains or may contain among other things, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements concerning our expectations, strategy, future operations, future recruitment, future financial position, future revenues, projected costs, prospects and plans, and objectives of management.
When used in this call the words expect, anticipate, intend, estimate, plan, may, will, believe and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expected.
These forward-looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to update any forward-looking statements in this conference call to reflect any change with regard thereto, or any change in events, conditions or circumstances on which any such statement is based. Tom?
Thanks, Kevin. Let me start by saying, we are pleased with our second quarter 2014 financial, operational and strategic results especially for our DX business for a number of reasons. Namely, total DX revenue increased over 18% relative to the second quarter of last year and nearly 11% over the first quarter of this year. DX revenue was approximately $3.7 million, which is a record for quarterly DX company sales for our company.
Total net DX accessions or the number of samples that we received and processed were also strong, they too increased nicely. I will comment on those details shortly. As anticipated, our second quarter pharma revenue also increased over the first quarter and increased by approximately 4% and we expect pharma revenue to continue increasing over previous quarters for a number of reasons which I will highlight later in this call.
Regarding our gross margin and below the line expenses, our second quarter gross margin increased to 40% from 37% in the first quarter while total operating expenses for the quarter decreased relative to the first quarter, and with that our operating loss decreased as well. That said, I would also like to note that even as we continue to focus on growing the top-line, we will also be prudent in controlling expenses.
Let me now provide insight into our financials. First, I would like to make a few comments about our DX business and more specifically our unit volume which is not evident in the details.
We are pleased to note that our total DX volume again increased relative to the previous quarter that is our total net DX accessions or the number of samples that we received and processed increased 16% over the first quarter of this year. This 16% increase compares to our first quarter 2014 total net DX accession increase of approximately 5% over the fourth quarter of last year. So the bottom-line is this: In 2014 our net DX accessions are both increasing and gaining momentum relative to each prior quarter and that increase is translating into increased revenue. We are pleased to see both 2014 DX volume and revenue increasing each quarter that is both increased relative to the fourth quarter of last year and again relative to the first quarter of this year.
I am also very pleased to note that our TC/PC volume is off to a good start for Q3. We processed record monthly TC/PC volume in July. No question, we believe our TC/PC program is contributing nicely to our strategy of gaining business from larger accounts. It was not that long ago that much of our business came from relatively small accounts that were somewhat difficult to monitor and service.
Our recently introduced Tissue of Origin test also increased nicely over the first quarter of this year. If you recall, we introduced this test in February after acquiring the assets of Pathwork Diagnostics at approximately this time last year. Second quarter Tissue of Origin volume more than doubled over the first quarter of this year.
At our last quarterly conference call, I noted that we were pleased to suggest that all indications were that we won a large multi-year multi-million dollar NCI related award and we expected to begin realizing revenues from it in the third quarter or possibly even in the second quarter of this year. I am pleased to say that we expect to have an announcement about it within the next two weeks. I should also note that our second quarter results do not include any work related to the award.
We are also pleased that with our expanded offerings, namely next-gen sequencing and RNA expression profiling including our immune oncology panel, we are seeing increased results from bids, capability presentations and non-disclosure agreements including requests from big pharma as well as biotech organizations’ molecular focused programs.
Let me now provide more detail about our DX business and near term expectations. As previously noted, our unit volume continues to increase which we believe is a key indicator for future growth. We believe this is sustainable for a number of reasons including but not limited to the following. First, the number of accessions realized per month, per account executive or sales person continues to grow nicely and add numbers that we believe were unimaginable not too long ago. More specifically, for our Tissue of Origin Test which we introduced in February, volume per account executive grew very nicely in the second quarter over that of the first quarter. Additionally, both TC/PC and total volume per account executive again grew over the previous quarter, namely the first quarter grew over the fourth quarter of last year and the second quarter grew over the first quarter. In other words, we believe sales force productivity is relatively strong and continually improving.
In building out our DX commercialization infrastructure, we also recently established what we call the client account services group which we expect will further enhance our customer service experience. With this dedicated group, we are increasing the number of account touch points per day as well as providing dedicated and focused internal back up support for our account executives. Initial results indicate this group is producing the results expected and then some.
On the operational front, we continue to make good progress on enhancing productivity and lowering cost while increasing quality. This is particularly true with our Tissue of Origin test. Even though the test was only introduced recently, we are well along in implementing a second generation reagent program which we expect to further reduce turnaround time and cost of goods sold.
Overall, we believe we have successfully transitioned to a more commercially driven company with a clear and concise focus, namely driving top line growth, while also appreciating bottom line consideration.
Lastly, we are also well along in developing and expect to announce shortly a testing configuration that we believe will further capitalize on our core strength of having a multiple technology, patient centric approach that we believe provides oncologists and pathologists the solid tumor testing results that minimize cost and turnaround time while producing actionable results that work best in today’s cost conscience healthcare environment.
We believe we are uniquely positioned to provide a multitude of options to provide test results on a patient-by-patient basis in a manner that is consistent with the oncologists and pathologists’ preferred means of obtaining information for each patient based on individual patient needs.
Before making some concluding remarks, I would like to briefly comment on our balance sheet. Last week we announced that we secured a $12 million credit facility. We believe this financing is ideally suited for us based on a number of considerations, mainly to-date we have had minimal debt on our balance sheet, less than $2 million. Secondly, we believe this new facility allows us to take down capital as needed. The initial draw was $8.5 million and at our option an additional $3.5 million is available based on the achievement of a revenue milestone. Equally and very important to us, this financing is essentially non-dilutive and as such we believe this serves our shareholders well while it also provides us what we believe is needed to effectively execute on the growth initiatives that we put in place over the last 12 months. And lastly, we believe this capital further enables us to pursue and evaluate transformative strategic opportunities to maximize shareholder value in a timely manner.
Before opening the call for questions, I would like to thank our shareholders for your understanding and consideration for a number of reasons. Needless to say, we are not pleased with our share price and to appreciate that you could be very frustrated would be an understatement. That said we also appreciate that the lab business has and continues to undergo tremendous change and at times uncertainty. Combine that with all the changes that we have had to make to our company over the last couple of years and the frustration could be overwhelming. It’s hard to believe that it was only early last year that we no longer operate our spreadsheets to run our lab, we now have a state of the art laboratory information management system. It was only September that we introduced our TC/PC partnering program a major undertaking by any stretch of the imagination for a company such as ours. It was only early this year that we introduced our Tissue of Origin Test after we acquired the Pathwork Diagnostics assets and expanded our LA lab to begin testing Tissue of Origin samples. And it will be finally in late September of this year that we will have our New York State Inspection as the next step for us to provide testing services for New York State.
I am not attempting to make excuses for our poor share price, quite the contrary, but rather trying to suggest that we have come a long way and today with this financing we expect to have what is needed to build shareholder value. We further believe that with our increase in both DX unit volume and revenue which really began in the first quarter of this year and only after we made so many changes and changes that we did not necessarily always get right the first time, we believe we are well positioned to maximize shareholder value in a well thought out way based on where we were, what we have accomplished, where we are today and what we could expect going forward.
And with that operator please open the call for questions.
Thank you. (Operator Instructions).
Okay and thanks. If there are no questions, let me conclude by saying the following. I like to thank you all for listening to our call and your continued interest in our company. And with that, we look forward to updating you as events unfold going forward. Thanks again.
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the call. You may now disconnect. Everyone have a wonderful day.
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