TrovaGene's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: TrovaGene, Inc. (TROV)
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TrovaGene, Inc. (NASDAQ:TROV) Q4 2013 Earnings Conference Call March 17, 2014 5:00 PM ET

Executives

Stephen Zaniboni - Chief Financial Officer

Tony Schuh - Chief Executive Officer

Dr. Mark Erlander - Chief Scientific Officer

Analysts

Sung Ji Nam - Cantor Fitzgerald

Yi Chen - Aegis Capital

Operator

Good day, everyone and welcome to the TrovaGene Fourth Quarter and Year End 2013 Financial Results Conference Call. All participants will be in a listen-only mode. (Operator Instructions) Please also note, today’s event is being recorded.

I would now like to turn the conference call over to Stephen Zaniboni, Chief Financial Officer of TrovaGene. Please go ahead.

Stephen Zaniboni - Chief Financial Officer

Thank you for joining us on our fourth quarter and year end 2013 conference call. As most of you know, we are focused on developing and commercializing molecular diagnostics designed to detect and monitor genetic mutations associated with cancer from your own specimen. As such, medical oncologists can frequently obtain samples that provide real-time information about a cancer patient’s disease progression, level of response to therapy and prognosis. Additionally, our tests have potential to be used by the millions of cancer survivors to monitor for disease reoccurrence over their lifetime.

We are in the process of expanding the body of clinical evidence supporting our year-based cell-free DNA platform through collaborations with major cancer treatment centers and integrated healthcare networks. This year we expect that the advances we have made with our technology will become more apparent in terms of their utility in the clinic and impact on patient outcomes. Our intellectual property estate protecting our technology is strong and growing and includes methods of extracting, preparing and detecting cell-free DNA and RNA in the year end.

Before moving on I must remind you with the risk inherent in our business and ask you to consider the following information regarding forward-looking statements. Statements in this call about the company’s expectations, applications of its technology, markets, launch of tests, and other statements that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are based on management’s current beliefs, assumptions, estimates and projections. Actual results may differ materially from those projected in the forward-looking statements for various reasons, including risk associated with product and diagnostic test development, government regulation, market acceptance, limited commercial experience, dependence on key personnel, obtaining financing, and other factors discussed in the company’s periodic reports filed with the SEC.

With that said, the format of this call will be as follows. First, our Chief Executive Officer, Tony Schuh, will review our recent progress, Dr. Mark Erlander, our Chief Scientific Officer, will give a brief technology update and also talk about our clinical programs and finally, I will summarize key financial results and review the company’s goals and objectives for the year. A question-and-answer session will follow the call.

I am now pleased to introduce Tony Schuh, TrovaGene’s Chief Executive Officer.

Tony Schuh - Chief Executive Officer

Thank you, Steve. In 2013 TrovaGene transitioned from a technology development company to one focused on the clinical validation of our innovative cancer monitoring platform. Our BRAF V600E mutation assay was successfully developed and released to our CLIA lab and we expanded our collaboration with MD Anderson Cancer Center. The first clinical results from this collaboration were presented at the AACR Molecular Targets and Cancer Therapeutics conference last October. This data established strong concordance between tissue biopsy and the ability to detect oncogene mutations using our urine based molecular diagnostics. We also saw early data demonstrating the ability of our assays to monitor treatment response in the patients over time.

During 2013 we signed several additional clinical study agreements with leading cancer centers and we entered into research collaborations with the pharmaceutical company and two large molecular diagnostic and life science companies PerkinElmer and Lumina. This year we are off to a strong start with our urine based multiplex KRAS mutation assay just released to our CLIA lab utilizing Next Generation Sequencing technology. We recently announced the clinical collaboration with U.S. Oncology which is focused on evaluating our quantitative KRAS mutation detection and monitoring test to improve the care of metastatic pancreatic cancer patients particularly when other methods to track those patients and their treatment progress falls short. As many of you know, the U.S. Oncology is owned by McKesson and is one of the largest networks of integrated community based oncology practices in the country.

I would like to highlight two key strategic initiatives that we are focused on executing this year. First is to expand the breadth of our platform by increasing the number of CLIA-ready oncogene mutation tests. As I previously mentioned our KRAS mutation test has been developed through utilizing Next Generation Sequencing or NGS as detector which is a significant achievement for TrovaGene as the development of our assay pipeline is now highly scalable using NGS technology. By leveraging the experience and knowhow we have gained from developing our multiplex KRAS test with NGS, our ability to expand our assay portfolio can now be accelerated significantly.

Our other key strategic initiative is to continue to build the body of clinical evidence demonstrating the utility of our cancer monitoring platform. We believe that to succeed at improving the standard of care for cancer monitoring. Strong clinical evidence and physician experience must be established to support broad adoption of our tests by the healthcare system.

Our collaborations with major cancer centers like MD Anderson and large healthcare networks like U.S. Oncology demonstrate that you are making great progress in this regard. Executing on these collaborations and entering into additional agreements with healthcare networks and academic centers remain high priority activities at TrovaGene. We now have six ongoing clinical programs. And in addition to expanding this effort, we expect that study results will be published or presented throughout the year and provide more insight into the value of our cancer monitoring platform. For instance, we expect to report clinical results at two major oncology conferences by mid-year.

At the upcoming AACR Conference in April, our collaborators at MD Anderson will provide additional clinical data from an ongoing study using our urine-based BRAF mutation assay to detect and monitor mutational status in patients longitudinally. And at the ASCO Conference in late May and early June, we have submitted two abstracts, one in collaboration with MD Anderson and another in collaboration with both MD Anderson and Memorial Sloan-Kettering for the detection and monitoring of BRAF mutations with (indiscernible). We ended 2013 by validating our innovative platform with top cancer centers and we are looking forward to the progress we expect to make this year with more of our oncogene mutation tests reaching oncologists and potentially improving the care that they deliver to their cancer patients.

With that, I would like to turn the call over to Dr. Erlander.

Dr. Mark Erlander - Chief Scientific Officer

Thank you, Tony. TrovaGene’s objective is to demonstrate with our platform the clinical utility for non-invasive near real-time detection and monitoring of oncogene mutations for any tumor type. Toward that end, we are implementing a clinical study strategy based on our collaborations with key opinion leaders, healthcare networks and leading pharmaceutical and biotechnology companies. With these collaborations, we seek to further demonstrate concordance of mutational status between our urine-based diagnostics and tissue biopsy. We also seek to determine responsiveness and potential existence for therapy by monitoring tumor mutations longitudinally that is over time for each patient.

In essence, our diagnostic tests are being designed to produce clinical evidence that can become part of a new standard of care for managing cancer patients providing clinically important information that is beyond the current standard of care, which primarily relies on repeated imaging. We now have two urine-based oncogene mutation tests available through our CLIA lab, one to detect the BRAF V600E mutation, which is commonly associated with melanoma and other cancers and the other for the detection and monitoring of KRAS mutations, which is important for determining the disease status of patients diagnosed with colon, lung and pancreatic cancers among others. We currently have 10 additional active oncogene mutation assay programs in our pipeline, each of which is planned to be transferred into our CLIA lab and become available to clinicians when assay validation is complete.

Earlier today, we announced the availability of our urine-based KRAS oncogene mutation assay, which utilizes NGS as opposed to our BRAF V600E assay, which utilizes droplet digital PCR. To be clear, our proprietary platform leverages the leading commercial NGS and droplet digital PCR technologies for our laboratory developed tests. Towards the middle of 2013, we developed and improved certain proprietary technologies that enabled us to achieve the same limit for detection with NGS as we have with droplet digital PCR for our urine-based oncogene assays.

Our sample preparation seamlessly integrates with both platforms giving us great flexibility as we go forward. With NGS, we have the ability to sequence an entire targeted area of an oncogene and examine multiple mutations simultaneously. This compares to droplet digital PCR, which is very useful for single mutations of interest. NGS allows us to scale by developing one assay for a set of oncogene mutations. And as a result, the integration of our proprietary sample preparation and primary technologies with NGS will significantly accelerate the rollout of our line of multiplex oncogene mutation assays going forward.

As TrovaGene moves from the technology development phase to one with several ongoing clinical programs, I can say that physicians we are collaborating with are enthusiastic about our cancer monitoring platform. For instance, our collaborators at MD Anderson saw an opportunity to use our BRAF V600E mutation test in a group of patients with histiocytic diseases including Erdheim-Chester disease and Langerhans cell histiocytosis or LCH. These diseases have reasonably been linked to be BRAF mutations in over 50% of patients and our collaborators on their own began to test histiocytic patients with our assay. Interestingly many of these patients are difficult if they are not impossible to biopsy. In most of those diagnosed with LCH are young children. Because of this physicians felt that our urine based BRAF mutation test can provide a robust solution for the diagnosis and monitoring of these patients for treatment effect. These physicians are investigating our technology in histiocytic patients.

This study is still ongoing and has expanded to multiple centers. We can say however if the data look promising thus far and we do expect their clinical results from these investigator led studies will become available later this year. While histiocytic diseases affect a relatively small number of patients, we believe that strong performance of our assay in this unique population could encourage use of our BRAF mutation test in this indication with potentially favorable reimbursement when adopted in clinical practice. Importantly physicians are seeing and demonstrating the value of our urine based cell free DNA platform as the clinical evidence supporting our technology continues to build.

Thank you for you attention and I would now turn the call over to Steve Zaniboni to present the financial results for the recent period.

Stephen Zaniboni - Chief Financial Officer

Thanks Mark. TrovaGene’s financial results for the fourth quarter and full year are as follows. For the three months ended December 31, 2013, TrovaGene reported a net loss of $1 million or $0.05 per share as compared to a net loss of $6.3 million or $0.43 per share for the three months ended December 31, 2012.

Operating expenses were $2.9 million for 2013’s fourth quarter as compared to $1.6 million for the same period in 2012. Operating costs includes non-cash expenses related to stock based compensation of $0.3 million and $0.2 million in the respective periods. Also impacting the net loss was a non-cash change in the fair value of derivative instruments. For the three months ending December 31, 2013 this charge resulted in the gain of $1.8 million as compared to a charge of $4.3 million for the same period in 2012. Net cash used in the fourth quarter of 2013 was $1.9 million.

Financial results for the 12 months ended December 31, 2013 are as follows. For the full year TrovaGene reported a net loss of $11.8 million or $0.70 per share as compared to a net loss of $11.6 million or $0.89 per share for the same period in 2012. Operating expenses were $10.9 million in 2013 as compared to $5.3 million in 2012. In 2013 and 2012 operating costs included non-cash expenses related to stock based compensation of $2.1 million and $0.7 million respectively. Also impacting the net loss was a non-cash change in the fair value of derivative instruments for 2013. This change resulted in a charge of $1.1 million as compared to $6.7 million for the period of 12 months ending December 31, 2012.

Shares of common stock outstanding used in calculating per share results increased from 13.1 million at the end of 2012 to 17 million at the end of 2013. The net cash used for the full year ending December 31, 2013 was $8 million. At the end of 2013, TrovaGene had cash and cash equivalents of $25.8 million compared to $10.8 million at the end of 2012. The company completed a $15 million registered direct offering on July 31, 2013, also raised an additional $4 million from equity sales through our ATM facility and received $3.6 million from the exercise of warrants during the 12-month period ending December 31, 2013. We believe our current cash position will enable us to meet our operating needs into 2015.

For the remainder of 2014, our goals and objectives are as follows: first, conduct additional clinical studies at major oncology centers and through collaborations with integrated healthcare networks; second, present and publish clinical results for the studies using TrovaGene’s molecular diagnostic platform as they become available; third, complete CLIA development and release additional urine-based tests for the detection and monitoring of multiple clinically actionable oncogene mutations in parallel; fifth, enter into additional R&D collaborations with pharmaceutical companies, and lastly, expand and enter into new partnerships with strategic diagnostic and life science companies.

In conclusion, TrovaGene is well positioned to leverage its investment and its intellectual property, scientific research and collaborations to build a better clinical pathway for cancer monitoring with the goal to improve the standard-of-care for cancer treatment.

This concludes our prepared remarks. Operator, we are now ready for questions and answers.

Question-and-Answer Session

Operator

We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Sung Ji Nam from Cantor Fitzgerald. Please go ahead with your question.

Sung Ji Nam - Cantor Fitzgerald

Hi, guys. Thanks for taking the questions. I was wondering if you could talk about I know you obviously addressed what your strategies are for this year and in terms of further demonstration of the concordance between tissue biopsy in urine and looking at monitoring tumor mutation longitudinally? And was wondering at what point you think I guess what does it take to get to a point where you can actually generate revenue from these partnerships? I am just trying to kind of get a sense of is that number of papers out there, number of patients involved in the clinical trials, I mean clinical validation process or if you could provide more color around that? That would be helpful.

Tony Schuh

Hi, Sung Ji. This is Tony.

Sung Ji Nam - Cantor Fitzgerald

Hi, Tony.

Tony Schuh

So, it is around what you touched on. I mean in order we are of course attempting to offer clinical utilities that significantly exceeds the basic ability or the basic information that you get from determining mutational status in a biopsy or in resected tumor tissue. What we have been able to is to attract this mutation in the patient over time and obtain information about tumor dynamics. And in order to drive adoption for this in the clinic and in order to effectively market such an application, you need to have clinical data that are supporting that you can do this. We now expect that the data that we show at AACR and at ASCO will be the first meaningful dataset in support of this facility. We also expect publications to come out. And with that, we believe that in the third quarter of this year, we are in a position to start what you would call a marketing launch to start and go out to oncology hospitals and supported by these data to promote the adoption of these tests. So that’s the gatekeeper you see availability of reviewed clinical data that has statistical meaningfulness and we believe third quarter this year we are – we have enough out there to go and start to promote these tests.

Sung Ji Nam - Cantor Fitzgerald

Okay. And then as you are looking at all the major oncology centers and as well as the integrated healthcare networks, what type of criteria are you looking for, are there particular – is it just kind of whoever is interested or available at this point or are there specific criteria as you are selecting these partners at this point if you could talk about that that will be great?

Tony Schuh

So criteria, one is if you look at a hospital you are looking at you want to work with hospitals that are NCCNs or large recognized oncology hospitals and you want to work with opinion leaders because that’s where you get the support for the adoption of your technologies in the field. And also the large leading academic centers are those hospitals where there is most experienced with if you once sold the off label treatment of patients with the targeted therapy. So to be specific they are patients that have colon cancer that is BRAF positive and they want to treat that patient with a BRAF inhibitor not only the melanoma and lung cancer patients. So they have the most urgent need for tools to monitor the response of a patient in an off label treatment situation.

And then second the integrated healthcare providers these – the interesting point here is whenever you have that organization that provides on the one side the clinical service and provides on the other side the insurance service. These are the organizations that have the best defined need to come up with a standard of practice how will they integrate genomic information over time in the management of their patients. If you are because as you have to provide the care, so you want to be when you compete with other hospitals you want to be able to make the statement that you are operating at highest clinical standards you can’t close your eyes from progress.

And on the other side you have to be concerned about how you integrate this in your organization such that it is cost effective and that is for us of course the ideal situation because we believe that monitoring the genomic signals, cancer genomic signals in these patients longitudinally allows you to manage these patients better identifying non-responders earlier, see the emergence of resistant mutations earlier, see warning signs that indicate that you should change the therapeutics strategy earlier and so on. So that’s pretty much the two target pools for us right now top cancer centers because there is most activity with exploring targeted therapies in off label situations and integrated healthcare providers because there is the best defined objective to develop best practices how to integrate this into clinical practice such that you improve care, but also improve the economics of care.

Sung Ji Nam - Cantor Fitzgerald

Okay, that’s helpful. But I guess I was wondering more along the lines of how much push and – how push and pull in terms of are you guys getting is there a lot of interest out there or where you have to kind of – where you are in a place where you can be more selective about your partnerships or is it still not wide, not broadly looked at even across some of the – among the opinion leader, key opinion leaders, etcetera. And to that point just trying to get a sense of how much of the cell-free nucleic acid detection either in urine or plasma or I guess maybe even in plasma, are a lot of these potential partners you are looking at, is this something they are looking at right now and talking it, it being proactive about engaging that and getting involved more heavily or is it still a very much lot of push on your part having to generate more data and things like that.

Tony Schuh

So I would say there is – that is a strong pull from the clinical maybe and let me give you a few numbers on that. What relates to our mid last year when we started with our clinical studies, we were hunting these patient samples down one by one and we would get 10 samples in a month and every time a clinical sample would arrive it was an event for the company. And we as of December last year, January this year, this sample rate is around or above 100 specimens per month. So the intensity of that sample flow increased by an order of magnitude.

The second number for every clinical study or evaluation that we engage in be turned right now four or five requests down simply because we can’t scientifically entertain all these studies. We could do that from a laboratory capacity standpoint we could run the samples, but when you engage in a study there is much more to it in terms of workload than running the samples about the study design, the statistical design, the evaluation and managing fluid. So we can only respond to a fraction of the studies that are requested from us at this time. And last but not least, the clinicians that we work with that evaluates our technology for monitoring of cancer using a systemic sample, they are all engaged in multiple studies. So these are not one-off studies. If you go to MD Anderson and say okay, how many studies are running in MD Anderson monitor cancer patients from a systemic sample? It’s more than a dozen, it’s not just one. And if you go to Memorial Sloan Kettering, it’s probably the same and so on and so on. So these are these data.

And then also if you see how explosively the adoption of sequencing resected tumors and biopsies in order to determine the initial mutation profile how this is growing, I mean, (indiscernible) stated that three weeks ago publicly that he expects to sequence 10,000 patients in 2014, 15,000 in 2015, and 20,000 in 2016 just one hospital. So this space of obtaining genomic information to classified cancer and to then also use the knowledge about these mutations in order to monitor that cancer over time, it’s exploding. And there is a very, very strong pull from the clinical site.

Sung Ji Nam - Cantor Fitzgerald

Okay. And then one last one from me, I think you touched on it in your prepared remarks a little bit, but so a KRAS assay came out a little bit later than anticipated? And I think that was because you guys are validating a new methodology, the Next Gen Sequencing based methodology. Looking ahead and you addressed that you will be – the process will be accelerated given that knowledge, been validated with Next Gen Sequencing? I was kind of curious as to what do you think could be a bottleneck for as you are launching these new assays in your pipeline? Do you see largely the patient sample, the sample size or other factors that might play into it or does it have to do with how you are prioritizing which of the assays to launch at what point?

Tony Schuh

So at this point in time, I think the bottleneck is in access to patient samples that are the right samples for the very issue that you want to validate, but at the risk of causing more confusion there than clarity, that aspect is actually one of the aspects that’s significantly mitigated by Next Generation Sequencing, because the detector gives you a very specific readout of the target sequence that you read rather than just color. The effort that you have to undertake to validate the specificity of your analytical readout is much, much more feasible. And specifically, if you want to develop a digital PCR assay for a very rare mutation, then you might really spend a lot of time till you have enough samples there to validate this assay while with the next gen sequencer when you observe this mutation because the sequence that tells you though so and you have a specific read out. I don’t know was that a good answer for your question I am...

Sung Ji Nam - Cantor Fitzgerald

Yes that’s helpful. Thank you so much.

Tony Schuh

Thank you.

Operator

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

Yi Chen - Aegis Capital

Hi. Thank you for taking my questions. My first question is kind of similar along the line of the previous question asked, it’s that when do you expect to start generating meaningful revenues from the sale of your Next Generation Sequencing based tests?

Tony Schuh

So as I mean as stated before for the steps or the critical milestone for the adoption of a molecular diagnostic test which offers novel clinical utilities is that you provide meaningful data that supports your claims or support these utilities. And we believe that in the third quarter of this year we will have a sufficient data set to what you would say in compliance with what clinical standards are to go out and promote these tests to the oncology community. And then we expect that the outcome fourth quarter we should see revenues developing and again maybe one surrogate marker is that we are – have a 10X volume of sample flow that developed over half a year or already now into so fourth quarter.

Yi Chen - Aegis Capital

Okay, got it. My second question is when can we expect to see peer review publication based on the data of your clinical trials.

Tony Schuh

Mark do you want to answer that?

Dr. Mark Erlander

Yes, sure it will be 2014, this year moving forward you submitted one paper for peer review and we have two more in the pipeline for submission this year. So I think what I would say in a very broad sense is that you will start to see this publicly with peer reviewed articles through the course of 2014.

Yi Chen - Aegis Capital

Okay. Thank you.

Operator

And ladies and gentlemen, that concludes today’s question-and-answer session. We thank you for attending the TrovaGene fourth quarter conference call. You may now disconnect your telephone lines.

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