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Executives

Alison Ziegler – Vice President-Cameron Associates

Gene Cartwright – Chief Executive Officer

Charles Rufai – Controller

Guided Therapeutics, Inc. (OTCQB:GTHP) Q2 2014 Earnings Conference Call August 14, 2014 11:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Guided Therapeutics Inc. Second Quarter 2014 Conference Call. Today’s presentation is being recorded.

At this time, I would like to turn the call over to Alison Ziegler, Vice President, Cameron Associates. You may begin.

Alison Ziegler

Thanks, Lia. Good morning and welcome to the Guided Therapeutics conference call and webcast to discuss second quarter 2014 results. For today’s call, we have Guided Therapeutics CEO, Gene Cartwright; and Company Controller, Charles Rufai, Certified Public Accountant.

During this call, the company will be making forward-looking statements. These statements can obviously differ from actual results that rely on them is subject to risk. Factors that could cause forward-looking statements in this call to differ materially from the actual results are discussed in the company’s Form 10-K for the year ended December 31, 2013 and any subsequent filings with the Securities and Exchange Commission.

At this time, I’ll turn the conference call over to Gene. Go ahead, Gene.

Gene Cartwright

Thanks, Alison. Good morning and welcome. We continue to make progress on the international launch of LuViva with revenues up 65% sequentially from the first quarter, on the shipment of units and disposables to Nigeria, Turkey, Mexico and the UK.

In total, our 11 units were shipped in the quarter, in addition to 4,200 disposables, which while keeping us on pace to generate product sales of $1 million to $3 million for 2014, will likely put us near to the mid to lower end of our guidance set at the beginning of the year. We plan on fine-tuning our 2014 guidance and providing it with initial guidance for 2015 on our third quarter call in November.

To support the anticipated demand and expected sales for LuViva, looking out into 2015, over the course of the next few months, we will be hiring additional production staffs that will enable us to double current capacity of LuViva builds per month.

Shipments to Turkey in the quarter included product under the $3 million Turkish Ministry of Health order. Our Turkish distributor, I.T.E.M. Medical Technologies Group also recently brought three members of their engineering and service team into Atlanta for LuViva technical and maintenance certification.

I.T.E.M. was our first dealer to complete this training and everything went very well. This training will be important as the rollout in Turkey and surrounding countries accelerates over the next few quarters. In turkey in particular, we are seeing growing orders of cervical guide, which is very encouraging given the significantly higher margin profile for the disposables.

During the quarter, we also initiated a number of new evaluation. In the UK, evaluations have started in London and Scotland to support future UK reimbursement, and we have two evaluations underway in France. Several additional evaluations are to begin in Canada in September at (indiscernible) holidays including a 6i clinical study with Cancer Care Ontario.

We also received regulatory approval from Cooper Press in Mexico in the quarter. We shipped two additional units to Mexico in the quarter to be used in public and private clinical evaluations and as demo units to support sale.

Due to high interest from key opinion with leading doctors from the top Guatemala Government Hospital. We added Guatemala to the Territory Manager by our Mexican distributor. LuViva continues to be very well received in developing markets including Turkey, Nigeria, Kenya and Mexico, where cervical cancer remained the leading cause of cancer deaths somewhere in these countries. In developing countries, there is Pap smear or HPV testing done today due to (indiscernible) expensive of setting of laboratory infrastructure.

Additionally, the fact that LuViva gives an immediate result is important, because of the palm of losing patient to follow-up, gets the Paps smear or HPV test takes days or weeks to receive results. Since these LuViva evaluations are typically done in cooperation with the country’s Ministry of Health, even one large evaluation can lead to very significant ongoing sales for LuViva.

In Nigeria, results of the recently completed clinical study are planned to be presented at an all Africa Medical Congress in October by Professor Isaac Adewole, Vice-Chancellor of the University of Ibadan.

Professor Adewole is the top key opinion leader on cervical cancer in sub-Saharan African. If we leverage Dr. Adewole’s results, our distributors in Nigeria and Kenya are working with federal ministries, local governments and non-governmental organizations to the form of LuViva in widespread cervical cancer prevention programs.

Turning to the U.S. market, in July we announced the filings of our amended PMA for LuViva. As you know, we held a face-to-face meeting with the FDA in May where we presented the agency with our proposed answers to questions raised in the September 2013, not approvable there, and to help clarify our final responses. The leading and subsequent communications were constructive and we believe we address the remaining questions, the FDA had about our acquisition.

While the timing from meeting to submission was longer than we initially anticipated due to several factors out of our control. We believe that it was important to confirm, always agreed upon at the meeting (indiscernible) of the filing.

The FDA now has 180 days to respond to our submission, which could take us into January. We were also granted the new patent with 22 claims that support the technology behind LuViva. This important patent extends additional protections and as part of our plan to develop additional patents in the U.S. and worldwide.

In the coming weeks, we plan to announce the initiation of a formal clinical trail for utilizing LuViva as a primary screener, very much like path that we’ve used in U.S. today. Path would be advantages of immediate results and no tissue samples. This plant international study will be conducted by a leading expert in cervical disease and will be used to formally expand our claims for screening outside the U.S.

Around the world, we are seeing the growing interest in LuViva for screening, and continue to hear encouraging stories about how LuViva is detecting cases that may have been this by current standard of care and we are expanding our reach in both new and existing markets to provide a safe and effective alternative detecting cervical disease.

One example of this expanded reach is in Bangladesh where more than 10,000 women die each year of cervical cancer. And our distributor was recently awarded a tender with the government for four units, which should ship out his early as of this quarter.

In conjunction with efforts of our distributor, this tender has laid the ground work for what could be a much larger work to place a LuViva in over 60 women health centers throughout the country. The requisition for funding of this larger program has been officially made by the organizing body to the Ministry of Health. We hope to hear what the ministry’s plans are within the next few weeks, and we will share more details as they become available.

With that, I will turn the call over to Charles.

Charles Rufai

Thank you, Gene. Total revenue for the three months ended June 30, 2014 was about $212,000, this include a $201,000 in sales of LuViva devices and disposables. NIH grants totaling about $11,000 and all that income from realities are about $3,000 for the quarter ended.

Revenue for the same period in 2013 was comprised of product sales of about $116,000, grants with NIH and NCI totaling about $222,000. The net loss attributable to stockholders for the three months ended June 30, 2014 was about $2.2 million, or $0.03 per share compared to a loss of about $2.9 million or $0.04 per share for the same period of last year. Consolidated gross loss of about $70,000 for the quarter just ended, total operating expenses were relatively flat with the declining research and development expenses being offset by an increase in both sales and marketing expenses as well as general and administrative expenses.

For the six months period ending June 30, 2014, total revenue was about $353,000, this include $323,000 in sales of LuViva devices and disposable. Contracts and grant income represented about $30,000 with other income form royalties of about $5,000. Revenue for the same period in 2013 was comprised of product sales of about $248,000. Grants with NIH and NCI totaling about $389,000, and other income from royalties and miscellaneous receipts of about $75,000.

A large decrease in contract and grants revenue related to the termination of certain agreement with Konica Minolta as well as the aspiration of grants income from National Cancer Institute, in the first quarter of 2013. The net loss attributable to stockholders for the six months ended June 30, 2014 was about $3.7 million, or $0.05 per share, compared to a loss of about $4.7 million, or $0.07 per share compared to same period in 2013.

Cash on hand at the end of the quarter was about $485,000 compared to $613,000 by the end of our fiscal year ended December 31, 2015. In the second quarter, we raised $3 million in private placement of 6%, senior convertible notes due 18 months from the date of issuance, with our projected monthly bond rates for second half were up to $250,000 and future estimated sales, we anticipate cash last in probably the third quarter of 2014.

The company will be required to raise additional funds to public or private financing, additional collaborative relationship and other new relationship would continue to evaluate various option to manage our cash requirement, as well as options to raise additional funds including loans. At June 30, 2014 net account receivable based on current invoices totaled about $233,000 compared to our $133,000 at the end of our fiscal year ended December 31, 2013.

The company had about $1.1 million of net inventory on hand at the end of the quarter. At June 30, 2014 the company have outstanding warrants exercisable for about 13 million shares of common stock. The exercise price ranging from about $0.36 to $1.08 per share, averaging about $0.63 per share. This exercise is what – bringing about $8.2 million in cash over the next five years to provide a bit more detail on some of the near time warrant expirations, on March 4, 2015 about 3.6 million warrants will come due with an exercise price of $0.80 for potentially $2.87 million. Additional details on this can be same in our Form 10-Q recently filed. At the end of the quarter the company had about 75.5 million shares outstanding.

I will turn the call back over to Gene. Gene?

Gene Cartwright

Thank you Charles, finally before we open the call to your questions I would like to update everyone on our key goals for 2014. First in July we did file our PMA amendment hopefully moving us toward our ultimate goal of US FDA approval for LuViva. Second continue to grow international sales in LuViva to reach our $1 million to $3 million for 2014. Currently we anticipate being closer to the lower to the mid end of that range, we will continue to focus on customers with a largest disposable volume due to the strong profitability of our Cervical guide disposable. We were pleased with the progress in market such as Turkey in a quarter.

Third ensure we have the necessary capital to fund on going operations and carry the company through to break-even. While we did complete a private placement in the quarter additional capital will be required before the end of the year with the possibility we could receive some funding from one of our distribution partners. Lastly as we continue to get more collection in the market and are better able to forecast sales growth we will increase our investor relations and public relation efforts to raise the profile of Guided Therapeutics.

To that end we will be participating at the Rodman & Renshaw conference in September in New York we hope to see many of you there. We continue to remain optimistic about the future of our company I personally have invested in our company buying stock on the open market over the last month and I’ve also provided additional financial support. I believe strongly that we have a very exciting opportunity in front of us. In closing I’d just like to remind everyone what I believe to be the key reasons that we will ultimately be successful.

First the market for our product is large and the clinical need is significant both as a prelaunch test in more developed countries to address the significant and growing number of false positives with current Pap and HPV screening and as a primary screen test for cervical cancer in developing markets where the Pap, HPV tests are not readily available.

Secondly we continue to get a very positive reception for our product in the market. Third the profitability of our disposable is high and lastly our burn rate is low enabling us to keep cash flow positive on a monthly basis with annual sale of less than $10 million. Thank you for your time we look forward to updating you on our progress in weeks and months to come.

I will now turn the call over to the operator for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And first we will go to (indiscernible). Please go ahead.

Unidentified Analyst

Hi, how are you? Could you give us an idea of how much money you need to raise in the ballpark to reach the $10 million sort of break point?

Gene Cartwright

That’s good question thank you. We haven’t we don’t have a hard estimate. So I am going to give you a little bit more of a – it’s not quite a estimates, it’s better than that, but it’s not a hard estimate. I would say on the order of $10 million.

Unidentified Analyst

$10 million, okay. Next question, you mentioned having a set up as a first line diagnostics, can you tell us which country that is in and how many patients will be treated?

Gene Cartwright

Yes. Today, we don’t have a CE Mark claim for screening, and so we’ve worked with individual customers as they’ve done their own evaluations for screening. We know that’s the case Turkey and its – we are working with other countries like Nigeria and Kenya. And to certain extent, part of our clinical studies in Mexico will be directed to that effort, but the official clinical study that we are running as a company will start partly here in Georgia, and partly in Peru. I think we’ve mentioned that before, but that will start here in the next week or so.

Unidentified Analyst

Okay.

Gene Cartwright

But we don’t have estimates of the total volume I mean it’s – obviously, it’s very large win when you’re screening all women in the age group that they normally been screened for the past year.

Unidentified Analyst

Okay. And one more question about the financing. If you can say, do you anticipate that – you’ll be able to raise the money all at once or do you think it’ll happen sort of in pieces over the next year?

Gene Cartwright

That’s a good question. We are debating that right now. Certainly, their advantages are raising it all at once. It certainly freezes ourselves to focus more in the business and support. But, at the same time, we believe that our stock price is going to go up based on our international sales, and hopefully what response we get from the FDA. And in that case, we potentially raise less, the certain amount of money now at the current stock price and potentially more as the stock price goes up. But, we haven’t made a final decision on that, but that’s the thought process we are going through.

Unidentified Analyst

All right. Thank you.

Operator

And we’ll take our next question from (indiscernible).

Unidentified Analyst

Good morning, everybody, and congratulations on the international sales in onward and upward. My question just is about the amended application to the FDA, can you talk a little bit on what areas that we’re deficient with the first non-approval letter that we got a year-ago, and what the PMA did and hopefully was the FDA…

Gene Cartwright

Yes. I’ll comment, but very broadly if it’s okay. I think that it’s best to not provide too much information on this, but I can provide a little.

Unidentified Analyst

Sure.

Gene Cartwright

And that is – the discussion is really been focused on how to analyze the data. And we had some questions about the way that FDA analyze the data. And so that’s the discussion we’ve been having with them. And we had a very good open discussion in May, they clearly understood the points we are trying to make and we believe that our points are correct. And so, that’s really what it’s about, but more than that I can’t really say.

Unidentified Analyst

Thank you very much.

Operator

(Operator Instructions) And we’ll go to Robert Johnson, Private Investor. Please go ahead.

Unidentified Analyst

Good morning. Have you had any discussions with other related companies about possible development partnerships that companies that are willing to invest in your company?

Gene Cartwright

Yes. I come from a big company background. I know most of the people in companies whether and I’m just going to – while half a dozen companies I could list that you would be familiar with. A part of my job is, I think is to keep those companies aware of what we’re doing. We don’t really have and to potentially seek investments on their part, but we have no real interest in selling the company at this point, because we feel confident that we can grow the business. But it is part of my job to keep these larger companies aware of what we’re doing and I do that.

Unidentified Analyst

Well, I was asking regarding the financing that you need. You could get the $10 million in exchange for a percentage of the company and 10%, 20% something like that?

Gene Cartwright

Yes. and it is part of my discussions with these other companies. I not only keep them updated in what we’re doing, but ask them if they have an interest in investing, just like – just as you describe.

Unidentified Analyst

But you haven’t had any serious discussions though recently?

Gene Cartwright

We in this part like this, where we’re not planning on funding from any large company in the near-term. I wouldn’t roll it out, because they’re certainly aware of what we’re doing in every quarter that we have that shows positive growth makes them more interesting. But at this point, we’re not counting on it.

Unidentified Analyst

Thank you. So are any of them perhaps waiting for FDA approval before they get serious you think?

Gene Cartwright

I would say that that is the key indicator for most of them, yes.

Unidentified Analyst

Thank you.

Operator

And there are no further questions. I’m sorry. We will take a question from [Jerry Matt] (ph) from JJJ Investments.

Unidentified Analyst

Good morning, James. Tell me about the disposable, is anything needed in the United States, or outside the United States and how fast production are they capable of doing as far as anticipated volume coming up?

Michael C. James

Yes. It is manufactured in United States. We have a vendor based in Grand Rapids, Michigan. And it’s – and they are very capable of ramping up production very quickly. So the increase in manufacturing people that we’ve added to double production has been made regarding the manufacturer and assembly of the LuViva instrument, not the disposable, disposable is easy to ramp. The instrument as we don’t need to add many people, but we needed to add more people, because as we look out at some potential large orders coming in, we felt that is important to double our production. Now we’ll be at a level where we can produce 20 units a month.

Unidentified Analyst

Thank you, super.

Operator

And now we’ll go to John Gudelsky, Private Investor. Please go ahead, sir.

Unidentified Analyst

(Indiscernible) I want to thank you for that, but could you just tell a little bit why this added to go with guidance when we’re trying to give it in place of many other opportunities.

Gene Cartwright

Sure, thanks, John. I’ll briefly answer your question. So I did have 24 years experience at Abbott and seven or eight at GE Healthcare, and while I was at GE, I was able to start a business within GE and grew it from four people to 130 people, and that was very satisfying and I had done practically all of the different responsibilities when I was at Abbott. So I was very comfortable in that sort of environment. I did like the small business. and after I left GE, I was looking for a small company with a product either just on the market, or very near going to market, and also a company where the product had big market potential. So, when the Guided Therapeutics opportunity came up, I was very eager and issues really don’t bother me, and solving problems is something that I enjoy working on. so I think the company is our potential and as a result, joined.

Michael C. James

Thank you, Gene. I mean no others filed.

Unidentified Analyst

All right. Thanks, John.

Michael C. James

Thank you very much. and you take care and good luck with the filing.

Gene Cartwright

Thanks.

Operator

(Operator Instructions) And, next will go to (indiscernible). Please go ahead.

Unidentified Analyst

Hi, Gene. How are you?

Gene Cartwright

Hey, [Sean] (ph).

Unidentified Analyst

Let me ask you with guidance reaching success in several of the other countries, especially Turkey, would it be possible to get Konica Minolta back and reestablish that relationship and get hose $2 million grants that we were getting on an annual basis, I mean is that even remotely appealing to you at this time?

Gene Cartwright

Well, I have some experience dealing with Japanese companies have a lot of respect for them. but one thing that is pretty is that they are pretty slow to move and it was just an outcome, even if we wanted to I think that we couldn’t make something happen there as quickly as we need it too, but we wouldn’t roll it out. we have not discussed it here. So we can discuss that off-line after the call, but my sense is in terms of our near-term needs, there won’t be able to happen.

Unidentified Analyst

Great, thank you very much.

Operator

And there are no further questions at this time. So I would like to turn the call back over to our presenters for any additional remarks.

Gene Cartwright

Well, thank you again for joining us. We do feel confident that as the quarters go by, that our sales will grow for a lot of activity in the market and it’s our job to turn that into real sales as we get closer to break-even. So, thanks again and we’ll talk to you next quarter.

Operator

And that does conclude today’s conference. Thank you for your participation. and you may now disconnect.

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