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Rosetta Genomics Ltd. (NASDAQ:ROSG)

Business Update Conference Call

October 2, 2012 10:00 a.m. ET

Executives

Kenneth Berlin - President and Chief Executive Officer

Ron Kalfus - Chief Financial Officer

Anne Marie Fields - Investor Relations, LHA

Operator

Welcome to the Rosetta Genomics Business Update Conference Call. At this time all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session. (Operator Instructions) As a reminder this conference is being recorded October 2, 2012. I would now like to turn the conference over to Anne Marie Fields. Please go ahead, ma’am.

Anne Marie Fields

Thank you. Good morning. This is Anne Marie Fields with LHA. Thank you all for participating in today's call. Joining me from Rosetta Genomics are Ken Berlin, President and Chief Executive Officer, and Ron Kalfus, Chief Financial Officer.

Before we begin, I would like to state that some of the information discussed during this call will contain projections or other forward-looking statements regarding future events or the future financial performance of Rosetta Genomics, including but not limited to, statements regarding the expected timing of products under development and the launch of U.S. commercial operations. I refer you to the documents that the company files from time to time with the U.S. Securities and Exchange Commission, specifically its Annual Report on Form 20-F for the year ended December 31, 2011 and periodic reports filed on Form 6-K. These documents identify important risk factors that could cause actual results to differ materially from those contained in projections or forward-looking statements.

Furthermore, the content of this conference call contains information that is accurate only as of the date of the live broadcast, October 2, 2012. Rosetta Genomics undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. So with that said, I would now like to turn the call over to Ken Berlin. Ken?

Kenneth Berlin

Thank you, Anne Marie. Good morning everyone and thank you for joining us. It’s my pleasure to address you today and to share the many achievements we have made throughout the first nine months of 2012. We are proud of these accomplishments which have allowed us to fortify and expand our leadership in microRNA-based diagnostics.

Not too long ago, we were challenged in raising capital to fund operations and build the business. Today we are a significantly stronger company with more than $30 million in the bank and expanded leadership team with the addition of seasoned industry executives. A strong co-marketing partner for our lead product, miRview® mets(2), and their launch of mets (2) within the U.S. combined with favorable Medicare reimbursement, position us well for growth in the coming quarters.

While there has been considerable volatility in the trading of our ordinary shares since we implemented our reverse stock split, reported positive developments and raised capital, I am pleased to report that year-to-date our stock price is up nearly 150% based on yesterday’s closing price. We have significantly increased our average daily trading volume to more than 1.5 million shares, and our market cap has increased from approximately $2 million to over $60 million, while the enterprise value has grown 15-fold.

We have had a remarkable turnaround during this first nine months of 2012 and this has been the most exciting period for the company since I joined as CEO three years ago. We still have much work ahead in these accomplishments that help put some important pieces in place that we believe position us for more exciting times for Rosetta moving forward.

In a moment I will turn the call over to Ron Kalfus, our CFO, who will review our recent financial performance and cash position with you. Then I will return to provide some color on the company's commercial expansion, R&D efforts and partnership opportunities. During this time I will introduce you to some of the new members of our executive team including Steven Miller, Director of Marketing and Reimbursement, and Guy Malchi, our Executive Vice President of Corporate Development. After the prepared remarks we will open the call to your questions.

Before I turn the call over to Ron, I would like to give you a little background. Ron joined us as CFO this past May. Prior to Rosetta, he was CFO and Treasurer of MabCure, a publicly-traded biotechnology startup company focused on early cancer detection using monoclonal antibodies. Previously he was with the retailer, Toys "R" Us, where he was responsible for SEC reporting and later in the financial planning department managing the Toys "R" Us divisions annual budget. Ron has worked in public accounting where he specialized in audits of medium-sized enterprises and public companies. He is providing valuable strategic leadership to our finance team and we are delighted to have him on board. Ron?

Ron Kalfus

Thank you all for joining us. It is my pleasure to be addressing you this morning. Before I began my discussion of our financials, I would like to take a moment to tell you what drew me to Rosetta Genomics and why I am so excited to be part of this team.

When I first learned about Rosetta, the stock was trading well below where it is today and cash reserves were not high, but the company had a very impressive lineup of products with an equally impressive technology. Coming from a biotech company in a similar space, I recognized how much potential Rosetta had. But really what made the biggest impact on me was meeting the team. This is a team that is filled with dedication and desire to affect people’s lives with remarkable products and breakthrough technology.

Unfortunately cancer doesn’t care who it impacts and it has a potential to affect all of us, god forbid of course. But with a company like Rosetta Genomics that is creating leading diagnostics products and in the future potentially developing therapeutic products as well, I feel good about being part of this battle against cancer. I know I speak on behalf of my colleagues, when I say that we are doing everything within our means to bring our products to as many people as we can in order to positively affect the lives of as many people as possible, all the while keeping our shareholders in mind and creating value for them as well, because without the support of our shareholders we wouldn’t be able to achieve these goals.

I would now like to review our financial results for the first half of 2012. Please note that all comparisons are made with the first six months of 2011 unless otherwise noted. Let me start with our balance sheet highlight. The biggest increase in our balance sheet is of course cash and equivalents, increasing by approximately $6 million since December 31, 2011. I will review our financial fund raising activity in a moment, but as you already know since June 30 we have raised an additional $31 million which provides us with sufficient cash to fund our operations for approximately the next 24 months.

On the liability side our year-end financials as of December 31, 2011 did not yet reflect the $1.75 million convertible debenture that we issued in January. But I am happy to say that by the end of the second quarter, we have paid of this debt in full. Please note that $300,000 of that debt remained on the balance sheet as of June 30. However, this amount was converted into stock in July. So currently we have zero debt on our balance sheet. Related to that is the $2 million embedded conversion feature which will also go away in our Q3 financials given that the remaining $300,000 was converted into stock.

Moving on the P&L. For the six months and the June 30, 2012, our revenues remained more or less unchanged when compared with the first six months of 2011. Revenues for this year do not yet reflect the effects of our Medicare coverage. Just to remind everyone, Medicare coverage was initiated in late May but it usually takes a few months to stabilize. In fact, we are pleased to report that we received our first payment from Medicare in July. We do expect, however, to see an increase in sales in the upcoming quarters.

In terms of our operating expenses, we have experienced a significant reduction in expenses over the prior year, from $4.5 million down to $3.2 million. Most of the reduction in R&D expenses is the result of layoffs that were made at the end of 2011 as part of the company's cost reduction initiatives. SG&A expenses have also been reduced by approximately 5% over prior year. Our net loss after discontinued operations for these six-months ended June 30, 2012, was approximately $6.6 million or $5.35 per share versus $4.2 million or $9.29 per share for the same period last year.

Weighted average number of shares used to compute the per share loss was 1.23 million shares for the 2012 six months period, compared with 448,000 shares for the prior year. While we have experienced reductions in operating expenses, our net loss grew this year due to financial loss of $3.3 million. That is primarily a non-cash expense and is related to the embedded conversion feature of the debenture I just discussed, which again has been fully paid off.

Now let's review the various fund raises that we have had during the year. Since the beginning of the year, the company has raised over $40 million in equity. We certainly are at a different place than we were several months ago. We now have the means to drive our commercial operations which Ken briefly touched on and we will talk more about shortly.

Now let's review these raises more closely. In April we raised $1.4 million for a registered direct offering, issuing 540,000 shares at $2.55 per share. In May we had two additional registered direct offerings. The first on May 16 we sold approximately 632,000 shares at $3.60 per share raising $2.2 million, and the second registered direct was on May 24 where we sold approximately 570,000 shares at $11.60 per share, raising $6.6 million. These three registered direct offerings occurred before the end of our second quarter and are all reflected in our Q2 financials.

During the third quarter, on August 8, we raised $27.5 million through a public offering where we sold $5.5 million shares at $5 per share. Our underwriters exercised their over-allotment option of a couple of weeks later and sold an additional 825,000 shares at $5 per share, raising the company an additional $4.1 million.

Now before I turn the call back to Ken, I would like to mention that we are not going to provide guidance today on burn rates as we are in the process of launched our miRview(NYSE:R) mets2 and have plans for further expansion of the commercial organization. As we move forward, we are beginning a better ability to more accurately project our cost at which point we will be able to provide more guidance in that regard.

And now I will turn over the call back to Ken. Ken?

Kenneth Berlin

Thanks, Ron. As I mentioned earlier it’s been an exciting time for Rosetta Genomics over the past several months. We have significantly advanced and we have successfully completed a series of financings that you just heard about, that provide us with financial underpinnings to advance our strategic growth plans and commercial initiatives.

First I would like to highlight our commercial portfolio and strategy. Developments in targeted cancer therapies are driving the need for more accurate classification of tumor types, which help to guide treatment decisions. Our microRNA technologies with their high reproducibility, robustness and accuracy, are well suited to provide this valuable clinical information. Currently we have four commercially available products in our miRview product line.

miRview(R) mets2 is an advanced test for cancers of uncertain or unknown primary, also known as CUP, which offers a panel of 42 tumor types that can be identified. Data demonstrated in 88% to 92% concordance with clinical, pathological evaluation of the patient. miRview lung accurately identifies the four mains subtypes of lung cancer with a sensitivity of 95% using very small sample sizes such as cytological samples. This classifies neuroendocrine and non-small cell lung cancer and then further sub-classifies non-small cell lung cancer to either squamous or non-squamous. And further sub-classifies neuroendocrine to either small or carcinoid.

miRview kidney classifies the foremost common kidney tumors. Clear cell renal cell carcinoma also known as RCC, papillary RCC, chromophobe RCC and oncocytoma. Validation testing demonstrated an accuracy of 95% and results have been shown to be highly reproducible with inter-laboratory concordance of 98%. And our fourth test, miRview meso which differentiates mesothelioma from carcinomas in the lung and pleura with a sensitivity of 100% and specificity of 94%.

Our near-term strategy is to focus our commercial resources on realizing the commercial potential for the miRview mets2 assay, as it address important unmet medical needs. With an addressable market of approximately 200,000 patients in the U.S. each year and with favorable Medicare reimbursement, it also represents the largest near-term market opportunity for us.

Building on our success with miRview mets2, we will advance our further commercial products to the reimbursement process and then on to full sales and marketing efforts. I would now like to recap for you our recent commercial activities.

In May of 2011 we launched our first commercial efforts with a handful of independent oncology sales professionals on the East Coast, calling on pathologists and oncologists at cancer institutions and clinics. In May of 2012, we received Medicare coverage for miRview mets2. This was a watershed event for the company and has propelled us forward commercial. Currently, we are being reimbursed as a high value molecular diagnostic in our current (inaudible) currently receiving approximately $3570 per test.

So assuming an average selling price of $3000 per test, we are looking at an approximately $600 million total available market opportunity. That’s not to say that we expect the CUP market opportunity to be deeply penetrated overnight. That’s not typically how markets for value diagnostics develop and evolve. Still even modest market penetration can provide us with significant revenues with good margins. In July we executed a co-marketing agreement for miRview mets2 in the U.S. with Precision Therapeutics and their leading oncology diagnostic sales force.

As we announced this morning, the co-marketing effort has been launched and we are looking forward to seeing its impact in the coming quarters. Rosetta Genomics will continue to record all revenues from miRview mets2 and will remain responsible for sample processing and billing. Our plans are to layer an additional Rosetta sales professionals overtime to enhance this co-marketing initiative. Starting the addition of four sales reps and a national sales director. We have also hired a customer service manager who will lead our efforts to ensure world class customer service. We believe this will help distinguish us from the competition and we are already receiving positive feedback from these efforts.

Marketing efforts will continue to center around the ongoing clinical validation of miRview mets2 and the underlying microRNA technology via publications and presentations, which has been and remains a core strength of ours. To date, we have had more than 35 publications in peer reviewed journals relating to our microRNA platform technology which truly demonstrates the robustness of our platform. Clinicians, oncologists in particular, are interested to see data showing how assays like mets2 improve patient outcomes. Studies showing improved outcomes as a result of relying on molecular classifiers for CUP have begun to be published. We believe as more of these studies are published, the greater these CUP assays will penetrate this sizable market.

Most recently we had data published in the May 2012 issue of The Oncologist, which demonstrate the ability of miRview mets2 assay to identify 42 tumor types with high accuracy and to maintain the same performance in samples from patients clinically diagnosed with CUP, showing 88% concordance with clinicopathological evaluation. We are confident that clinical data such as these will continue to validate our technology, provide our sales reps with a compelling value proposition to enhance clinical adoption, and support ongoing favorable reimbursement.

We are directing our sales team to focus more on community oncology accounts as market research indicates this is where there is the strongest need. However, we do recognize the important role played by pathologists, so we insure our support of them both through our sales team as well through our customer service and LAD team. As part of our comprehensive commercial strategy, we plan on developing programs that will drive demand for our products which will include a variety of initiatives including physician education, webinars and more.

Which leads me to introduce you to Steve Miller, Director of Marketing and Reimbursement, who joined us in June and is leading these efforts. Prior to Rosetta, Steve operated his own marketing and reimbursement consultancy. Before that, he spent nine years at Veridex, Johnson and Johnson’s cancer diagnostics company, where he and I worked together and where he was worldwide product Director with responsibility for brand P&L and the development and execution of annual marketing plans. During his last two years with Veridex, Steve also played a key leadership in reimbursement efforts. Earlier Steve was worldwide product Director for the Ortho Clinical Diagnostics blood donor screening franchise. His integration into the team has been seamless and his contributions have already been seen.

As Rosetta Steve will be responsible for driving adoption of our miRview assays, building brand awareness, working with private payers to increase the number of covered lives for our miRview mets2 assay, working with our Medicare carrier to maintain coverage and to advance coverage decisions for our other diagnostic products, and managing and overseeing our customer service team.

In September, Guy Malchi joined our team in the newly created position of Executive Vice President of Corporate Development. Before joining us Guy was General Manager, UK Diagnostic Subsidiary and Head of pharma business at Champions Oncology, where he established the UK and Israeli diagnostics operations as well as designed and implemented the drug pipeline strategy and business plan. In this role, Guy’s successfully negotiated several licensing deals and strategic partnerships with leading biotechnology firms and academic institutions. Before that Guy was the CEO of a private biosimulation startup focusing on advanced simulation and modeling technologies to aid oncology treatment personalization and drug development. And before that Guy was founder and head of European Life Science Practice at TEFEN Management Consulting at London.

Guy will be leading our effort in several areas including efforts to leverage our microRNA platform in partnerships with pharmaceutical, biotechnology, medical technology and diagnostic companies. He will also be helping us to capitalize on our growing commercial operation with strategic initiatives aimed at licensing and/or acquiring new opportunities. In addition, Guy will be helping us to form relationships in key geographies outside the U.S., in places like China, to allow access to our current products to patients in these countries, where we believe there may be good commercial opportunities for us.

Finally, in order to process what we expect to be increasing demand for our assays, we have doubled the capacity of our laboratory operations in Philly. Turning now to our product development initiatives. In 2011 we significant reduced our investment in new product development and streamlined our operations to focus on the launch of our commercial products. As part of these cost saving initiatives we also put on hold much of our research efforts on or body fluid based diagnostic tests.

Moving forward, our strengthened financials allow us to reinvigorate these and other efforts and we are excited to invest in our people and our pipeline. Right now we are conducting a pipeline analysis in order to prioritize projects and make decisions moving forward. We look forward to updating you on the results of this analysis and we will more time in our next update call reviewing pipeline opportunities and programs. In addition, we are reinvigorating our partnering efforts, particularly in the area of companion diagnostics. Despite the progress made following the deciphering of the human genome, success rates in bringing new therapies to the market are still low. As a result, drug companies are investing more in identifying the patient sub-populations most likely to respond to their drug candidates to increase efficiency in drug development as well as to increase the probability of regulatory and reimbursement success.

Our proprietary computational platform enables us to find complex microRNA signatures that can separate potential responders from non-responders to drug treatments. In fact we have done some of this type of work for pharmaceutical companies in the past and are looking forward to ramping up our efforts in this area moving forward.

So now moving ahead, we anticipate a number of value creating milestones over the near-term. Expansion of our management team with the addition of a couple of key hires in the near-term, including a new Chief Scientific Officer, increased traction with the sales of miRview mets2. Ongoing private payer reimbursement from miRview mets2. Ongoing publication of clinical data in support of the clinical utility of the company’s microRNA technologies and initiation of active promotion of miRview kidney and miRview lung.

So in closing, 2012 has been an exciting year of transformation for Rosetta Genomics. While we have accomplished a lot, we are early in the game with miRview mets2 and have a lot more to look forward to achieving on the commercial front. We have a powerful microRNA platform and products with significant market potential. Importantly we have put together an exceptional team of people to guide our strategy and to drive results. We are very excited about our prospects moving forward as we have a number of corporate, commercial and clinical milestones in the months ahead. They we expect will further strengthen our position and create shareholder value.

With that I will open the call up to your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Yi Chen with Aegis Capital. Please go ahead with your question.

Unidentified Analyst

Just a couple of things. If we look at the other commercialized tests that Rosetta possesses, Ken, do you think you could maybe provide us with some color on what the status of reimbursement discussions is at this time on these additional tests and what would be your best guess as to which of these tests might have the best chance of securing Medicare reimbursement or other reimbursement near-term?

Kenneth Berlin

Sure [Raman] good morning. Good questions. You know the great thing about our experience on mets2 is that we have developed a very good relationship with our local Medicare contractor, so we have very open lines of communication with them. And we have been going back and for the with them on our miRview lung and miRview kidney tests. It’s hard to estimate when we might be able to receive coverage and what else if anything maybe required from them in order to receive coverage for those tests.

In terms of sequencing, I do believe that miRview lung is likely to get Medicare coverage before kidney, there is just more data around that product, more peer reviewed publications. And so I think that’s what they are looking for and like I said, it’s hard to estimate when that will occur.

Unidentified Analyst

Okay, that’s very helpful. And one more question if I may, obviously a lot of us aware of significantly greater institutional and pharmaceutical interest in the microRNA space. I am sure you are aware of a company called Regulus which recently filed to go public. It’s active in the microRNA domain from the therapeutics discovery angle. Can you comment on what your expectations going forward for Rosetta in terms of conducting and consummating strategic alliances that are geared towards monetizing your extensive microRNA based intellectual property?

Kenneth Berlin

Absolutely. You know as probably the first commercial entity to fly their trade in the field of microRNA, Rosetta Genomics has the leading intellectual property state. We have exclusively to ourselves, close to one-third of the microRNA sequences and which we have patented. As well as we have access to close to 70% of the microRNA sequences. So it’s a real asset that we are looking forward to monetize. One of the things holding us back from doing that in the past is we just haven’t had the resources available to dedicate to that effort. So we have brought in Guy Malchi, who I introduced earlier on the call. He is our Executive Vice President of Corporate Development.

One of the areas that I didn’t mention in the script that you bring up, is our desire to monetize that intellectual property. So that is one of the things that Guy is going to be working on. And as you full understand, it takes two to get a deal done, so it’s hard to estimate if and when we are going to get a deal done. In terms of monetizing the intellectual property I do know that there has been interest expressed in some our IP, and we will be engaging in discussion with third parties on potentially giving them access on certain terms of that IP. But again it’s hard to project when a deal can occur because it takes two to get a deal done.

Operator

(Operator Instructions) There are no further questions at this time. Please proceed with your presentation or any closing remark.

Kenneth Berlin

Thank you once again for joining us this morning and for your continued support and interest in Rosetta Genomics. I look forward to providing you with an update on our progress when we report our year-end 2012 financial results. Have a good day.

Operator

Ladies and gentlemen that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your line.

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