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Edited Transcript of VRML earnings conference call or presentation 8-Aug-19 8:30pm GMT

Q2 2019 Vermillion Inc Earnings Call

AUSTIN Sep 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Vermillion Inc earnings conference call or presentation Thursday, August 8, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Chris Goulart

Vermillion, Inc. - SVP of Commercial Operations

* Robert Harry Beechey

Vermillion, Inc. - CFO

* Valerie Barber Palmieri

Vermillion, Inc. - CEO, President & Director

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to Vermillion's Second Quarter 2019 Conference Call. My name is Galeen, and I will be your coordinator for the call today. (Operator Instructions)

As a reminder, this conference is being recorded today.

Leading the call today is Valerie Palmieri, President and Chief Executive Officer; Bob Beechey, Chief Financial Officer; and Chris Goulart, Senior Vice President of Commercial Operations. After the prepared remarks, we will open the call for Q&A.

Before we begin, I would like to remind everyone that statements made during this call, including the Q&A session, relating to Vermillion's expected future performance, future business prospects or future events or plans are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, actual outcomes and results are subject to risks and uncertainties and could differ materially from those forecasts due to the impact of many factors beyond the control of Vermillion. The company assumes no obligation to update or supplement any forward-looking statement, whether as a result of new information, future events or otherwise. Participants are directed to the cautionary notes set forth in today's press release as well as the risk factors set forth in Vermillion's annual report filed with the SEC for factors that could cause actual results to differ materially from those anticipated in the forward-looking statements.

At this time, I would like to turn the conference over to Valerie Palmieri, President and Chief Executive Officer. Valerie?

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Valerie Barber Palmieri, Vermillion, Inc. - CEO, President & Director [2]

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Thank you, Galeen. Good afternoon, everyone, and thank you for joining us today. This afternoon, we will review our second quarter accomplishments, financial performance as well as provide updates on our third quarter developments and plans.

Our core mission is to transform the state of women's health globally starting with ovarian cancer. We aim to ensure that all women have the best solutions available to assess their personalized risk of cancer at an early stage when it matters most. 39 women die in the U.S. daily of ovarian cancer, and we are working very hard to change this tragic statistic. We continue to be encouraged by the response from health care providers and patients to OVA1Plus. We are also very excited to share the publication of our clinical research demonstrating that OVA1 improves ovarian cancer detection for all women with marked improvement in African-American women.

We had 3 goals for the quarter: significant and continued commercial momentum with OVA1Plus, payer traction in significant markets, publication of key data with a core focus on improved detection of ovarian cancer in African-American women as well as our initial publications on our second-generation technology. Chris will cover Vermillion's commercial momentum in detail, but I briefly want to share key managed care highlights from the quarter.

In June, we announced that Blue Cross Blue Shield of Texas and Blue Cross Blue Shield of Arizona are now offering preferred coverage for Vermillion's ovarian malignancy risk assessment test. These 2 providers an brought an additional 6 million lives under contracted coverage. We also continue to have discussions with other nationals and large regional payers.

Regarding key publications, I'm happy to report we have recently had a total of 3 manuscripts published in peer-reviewed journals, and 1 additional manuscript has been accepted for publication but remains under embargo. In addition, we have an abstract which was recently accepted at the European Society of Gynecologic Oncology regarding our third-generation technology, which will apply to a watch-and-wait population. Chris will discuss this further during the commercial update.

I'm now moving on to the studies. Regarding our CA125 disparity studies and publications, we have several in the queue. The first 2 studies collectively demonstrate that OVA1 improves ovarian cancer detection in all women and especially in African-American women when compared to other standards of care, including CA125 or the CA125 plus HE4 combination, better known as risk of malignancy algorithm ,or ROMA.

Regarding our first study, it was published in June 2019 in biomarkers in oncology and was authored by Dr. Dunton and colleagues. This first study was compromised (sic) [comprised] of 1,029 women, 853 caucasian women with 250 malignancies, 153 African-American women with 24 malignancies. The study demonstrated that OVA1 demonstrated a sensitivity of 79.1% versus 54.5% with HE4 and CA125. This is a 45% improvement in ovarian cancer detection in African-American women.

We will also be reporting in our second study once it is published as it is still under embargo. This study is a direct comparison between OVA1 and the 38-year-old standard of care, CA125. Results are to follow.

Regarding our third study, it will be a multi-site African-American population study. A prospective IRB study is under final review at Albert Einstein hospital in Philadelphia to enroll over 200 patients initially with diverse ethnicities to confirm our findings. Once approved, we expect to initiate multi-center studies across the U.S.

Regarding the next 2 manuscripts, which are focused on Overa, Vermillion's second-generation Multivariate Index Assay, 1 was published in July in Advances in Therapeutics, and the second will be published in the Journal of Surgical Oncology. The Advances in Therapeutics publication written by Dr. Shulman and colleagues retrospectively investigated the performance of Overa versus CA125 and CA125 plus HE4 in over 993 patients. This study demonstrated that Overa had the highest performance in early-stage ovarian cancer risk detection with a 90% sensitivity versus CA125/HE4 at 76% and CA125 alone at 63%, and this is based on the ACOG guideline cutoff of 200 units per ml.

The second manuscript to be published in the Journal of Surgical Oncology demonstrates that Overa improved the ovarian cancer detection performance of current imaging methods which include ultrasound and CT scans as part of the clinical workup versus imaging alone. In this study, 878 patients, transvaginal ultrasound alone, had a sensitivity of 74%, but used in conjunction with Overa, the sensitivity increased to 93%. In CT scan alone, it had a sensitivity of 78%, but used in conjunction with Overa, the sensitivity increased to 96%. Overa improved imaging sensitivity by a marked increase, thus improving the overall care pathway detection rate.

To recap, we are in the early innings of fully commercializing OVA1Plus. We will continue to leverage the data on disparities demonstrating superior performance of ovarian cancer detection in African-American women. Our goal is to become the standard of care risk assessment tool for all ethnicities. We believe 2019 is a major inflection point with our new second-generation product, our commercial team investment, strong data and growing payer coverage.

At this point, I'd like to turn the call over to Chris to share some of our commercialization results in the second quarter. Chris?

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Chris Goulart, Vermillion, Inc. - SVP of Commercial Operations [3]

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Thank you, Valerie. I'm pleased to provide an update on our commercial efforts. We believe our 2-pronged approach with the decentralized platform channel and the direct sales channel is the right strategy to drive adoption. We believe the decentralized agreements will help to drive test adoption as well as integrate into the care pathway of the respective institutions and OB/GYN super group. We plan to continue to work on this model to drive wider adoption of OVA1Plus and our expanded portfolio.

In our direct sales channel, at the end of Q1, we completed the sales foundation development with 20 sales territories and 30 full-time commercial employees, including leadership, marketing, managed care and customer experience. In Q2, this fully staffed sales force made considerable gains with 35% volume growth over Q1 and 66% year-over-year. We saw continued momentum in July with volume growth year-over-year for the month of July in excess of 70%. As discussed when we last spoke, half of our sales team was newly hired in Q1 2019. It takes approximately 2 quarters to experience a newly opened territory's full impact. We expect to continue to see continued growth from these newly opened territories on the back half of 2019.

Our physician additions continue to grow. We ended Q1 with an average of 573 physicians ordering per month. During Q2, that comparable number was 728. We continue to add new physicians, and the total of ordering physicians in July was 763. In Q2, we added a total of 596 first-time attending physicians, which represents a 38% increase over the number added in Q1 2019. Taking a step back, we increased the number of customers by 50%; and new customers, 82%, year-over-year.

We continue to improve our KOL network in our territories. We now have a total of 40 KOLs. The continued expansion of our KOL network has placed subject matter experts in all 20 of our sales territories in order to provide local education to OB/GYN generalists. This KOL network, mostly comprised of gynecologic oncologists, has been extremely receptive to our OVA1Plus test. OVA1Plus launched in the fall of 2018 and has largely driven the interest of our KOL community. As discussed on previous calls, OVA1Plus reduces the false positive rate by 50% over the first-generation OVA1 test.

OVA1Plus has been the foundation for our growth in the first half of 2019. OVA1Plus has helped OB/GYN generalists and gynecologic oncologists better assess the risk of malignancy for adnexal masses.

We are on track with our new product introduction. The first product is the addition of genetic testing. Approximately 15% of ovarian cancer is due to a genetic predisposition. We announced last quarter that we will be rolling out the incorporation of genetic testing into our pelvic mass risk assessment management portfolio. This offering includes a hereditary breast/ovarian cancer panel as well as a prenatal carrier screening panel. We launched this product offering in June 2019. We expect to realize some volume in Q3 with increasing volume in Q4. Customer reception of our HBOC test has been positive thus far.

The second product launch is for pelvic mass patients further upstream. It will provide a solution for a suspected benign pelvic mass patients who are in surveillance and not planned for surgery based on clinical assessment and imaging assessment. Today, approximately 0.5 million to 1 million women in the U.S. have a pelvic mass which is monitored for a period of time prior to surgery or the patient does not move forward with surgery. We have developed an algorithm based on 7 protein markers with rule-out and rule-in algorithms. We plan to launch this product in the first quarter -- the fourth quarter of 2019. In preparation for this launch, we had our abstract accepted at European Society of Gynecological Oncology and are planning the submission of 2 manuscripts to top journals in Q3. The foundation of this product will be a laboratory developed test, or LDT, so that we can improve the algorithm on an ongoing basis. But the initial prospective study design will be designed with an FDA clearance foundation in the future.

I would like to turn the call over to Bob for a review of our financial results. Bob?

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Robert Harry Beechey, Vermillion, Inc. - CFO [4]

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Thank you, Chris. Let me first begin by addressing our current NASDAQ listing status. On August 2, we received a deficiency letter from the NASDAQ stating that for the preceding 30 consecutive business days, the closing bid price for Vermillion common stock was below the minimum $1 per share requirement for continued inclusion on the NASDAQ.

As provided in the NASDAQ rules, we have 180 calendar days until January 29, 2020, to regain compliance with the minimum bid price requirement. We may achieve compliance during this period if the closing bid price of Vermillion common stock is at least $1 per share for a minimum of 10 consecutive business days. If we fail to regain compliance on or prior to January 22, we may be eligible for an additional 180-calendar-day compliance period. We anticipate curing this deficiency for improved fundamentals in Q3 and Q4 as we continue to drive momentum and adoption.

Now turning to our financial results. Product revenue for the second quarter of 2019 was $1.1 million, a 75% increase from 2018 in the second quarter. Revenue on a per-test basis was $352 in the second quarter of 2019 compared to $337 in the first quarter of 2019 and $333 in Q2 of 2018. The number of OVA1 tests -- OVA1Plus tests performed during the second quarter of 2019 increased 66% to 3,129 units compared to 1,884 units in the prior period.

Our gross profit in the second quarter was 36.5% compared to 15.8% in the prior year. We expect our gross margin to expand as we ramp volume and achieve scale.

Total operating expenses for the second quarter of 2019 were $4.5 million compared to $2.9 million in the prior year. The increase is primarily driven by the expansion of the commercial team.

The net loss attributable to common shareholders for the second quarter of 2019 was $4.3 million as compared to a net loss of $3 million in the same period of the prior year.

During the second quarter, we had some onetime expenses and timing issues with some sales expenditures hitting in the same quarter. We paid success fees to consultants on the legacy contracts in support of winning managed care contracts awarded in 2019. These services have since been brought in-house at a significantly lower run rate. In addition, we incurred start-up costs, including legal consultations and IT setup costs associated with the launch of our genetics offering.

Our second quarter sales and marketing also reflected simultaneous charges for ACOG and our national sales meeting, which, while recurring for 2019, hit in -- both hit in Q2. Lastly, we settled the previously accrued vendor dispute in Q2.

Cash and cash equivalents at June 30, 2019, was $16.1 million. On July 2, 2019, the underwriter exercised its option in connection with our Q2 financing to purchase 2.8 million shares of Vermillion common stock at a price of $0.80 per share and resulted in additional proceeds to the company of $2.1 million.

In addition, the company is eligible to receive $2 million of additional financing from the state of Connecticut upon reaching certain employment milestones. We anticipate achieving such milestones in the course of executing our operating plan in 2020.

Company utilized approximately $3.7 million in cash from the second quarter of 2019, which should be viewed in light of the timing of hiring new sales representatives in the first quarter and the onetime and timing expenditures discussed earlier. As the commercial team continues to gain traction and experience, and as we launch new products, we expect our cash utilization to decline sequentially as our sales increase.

I'll now turn it back to Valerie.

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Valerie Barber Palmieri, Vermillion, Inc. - CEO, President & Director [5]

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Thank you, Bob. Before we open up the call for Q&A, let me reiterate our optimism for building the company for success as we execute on a larger mission to serve the 20 million women in the U.S. with both low- and high-risk masses and getting the right treatment from the right doctor at the right time.

Our work and our products are at the forefront of changing the standards of care and the detection of ovarian malignancies. We believe we are helping close the gap in detection and, more importantly, survival. We continue to be encouraged by the response from health care providers and patients to OVA1Plus.

We set out with 3 goals for the Q2: number one, significant and continued commercial momentum with OVA1Plus; number two, payer traction in significant markets; number three, continued publication of data with a core focus on CA125 disparity and our second-generation technology. We accomplished all 3.

We are also ahead on our planned launch of our OVA360 portfolio, including genetics and soon-to-be Symptom Index and ethnicity-specific risk assessment. We believe OVA1Plus, coupled with our disparity data, will become the standard of care in public mass risk assessment for ovarian cancer.

It is now time that all women of every socio-economic background receive the best possible care, and we are proud and excited to make that happen.

We are now happy to open the call for Q&A and answer any of your questions. Operator?

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Operator [6]

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(Operator Instructions) There appear to be no question. I'd like to hand the call back over to management for closing remarks.

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Valerie Barber Palmieri, Vermillion, Inc. - CEO, President & Director [7]

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In closing, we believe we have a strong commercial foundation in place, and we are excited about the future. We have a sizable commercial footprint, a guideline-endorsed in differentiated tests, a deeper product portfolio within the same call point and over 50% of the lives under coverage. We believe we are in a position to support growth for the long term. Our end goal is to serve a large global public mass population and overall women's health market with a platform coupled with proprietary science and data tools, which will drive better health and well-being to each patient we serve.

Thank you for joining us today, and we appreciate your support and interest in Vermillion.

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Operator [8]

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This concludes today's conference call. Thank you for participating, and have a pleasant day.