Earnings Transcript for BIOC - Q1 Fiscal Year 2021

Operator: Good day, and welcome to the Biocept First Quarter Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jody Cain. Please go ahead.

Jody Cain: This is Jody Cain with LHA. Thank you all for participating in today's conference call. Joining me from Biocept are Michael Nall, President and Chief Executive Officer and Tim Kennedy, Chief Operating Officer and Chief Financial Officer During this call, management will be making a number of forward-looking statements within the meaning of the private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not historical facts and generally can be identified by terms such as anticipates, estimates, believes, could, expects, intends, may, plans, potential, predicts, projects, should, will, would or the negative of those terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those statements, as well as performance or achievements that are implied by the forward-looking statements. In particular, there is significant uncertainty about the duration, severity and impact of the COVID-19 pandemic. This means results could change at any time and the contemplated impact of COVID-19 on Biocept's operations, financial results and outlook is the best estimate based on the information for today's discussion. For details about these risks, please see the Company's SEC filings. The content of this call contains time-sensitive information that is accurate only as of today, May 12, 2021. Except as required by law, Biocept disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. Now I'd like to turn the call over to Michael Nall. Mike?

Michael Nall: Thank you, Jody, and good afternoon, everyone. Today we are reporting outstanding quarterly results, with revenues of $17.8 million, operating income of nearly $2.7 million and our second consecutive quarter of profitability. These results were driven by our quality RT-PCR testing for SARS-CoV-2, as our dedicated team continued to serve our community. In turn, our strong financial performance supports the investments in our core oncology business and more specifically our CNSide cerebrospinal fluid assay, which we efficiently launched late last month. I am also pleased to announce today, an agreement with Quest Diagnostics with whom we will collaborate to give patients access to our target selector NGS lung assay throughout the United States. As you know, Quest is the world’s largest diagnostic laboratory. We expect set up to be completed in the third quarter with availability to accept orders from Quest clients to follow. This is an exceptionally exciting and transformational time in Biocept with the full commercial launch of our proprietary CNSide assay now underway. It’s no overstatement to say that CNSide is paradigm changing for both Biocept and for patients in need of more accurate diagnostics for late-stage cancers. CNSide provides physicians with a significantly improved tool to diagnose and manage patients with tumors that have metastasized to the central nervous system. Since the soft launch of this assay in early 2020, we have seen quarterly volume growth from an increasing number of early adopter physicians with many becoming repeat customers. And this is a trend that we expect will continue. Importantly, we are already seeing that CNSide can positively impact the life expectancy and the quality of life of patients who otherwise might be referred to hospice care. Our CNSide assay is currently validated to identify metastatic cancers in patients originating in the lung and breast which frequently involves the central nervous system. We estimate that the U.S. market for the assay at more than $1 billion annually with approximately 200,000 patients diagnosed with metastatic cancer involving the central nervous system per year. Over time, we plan to expand our CNSide testing menu for additional tumor types and biomarkers including melanoma by year end. We recently highlighted the advantages of our CNSide assay in key opinion leader webinar featuring prominent neuro oncologists Dr. Amir Azadi from the Barrow Neurological Institute, Dr. Nicholas Blondin from the Yale School of Medicine, and Dr. Priya Kumthekar from Northwestern University. I invite our listeners to learn more about CNSide by registering for the webinar on the Biocept.com home page. Our enthusiasm for CNSide stems from its ability to offer physicians a more timely and accurate method to diagnose the presence of metastases to the central nervous system, compared with the current standard of care, which is CSF cytology. In fact, our pilot study show that in approximately 80% of cases of patients with suspected central nervous system involvement, tumor cells were detected using CNSide whereas CSF cytology, only about 50% of cases were detected. Unlike CSF cytology, CNSide has the added advantage of identifying actionable molecular targets. Patients with metastatic cancer involving the central nervous system have the potential for significantly better survival and reduction of neurologic symptoms due to the many advances in treatment, particularly, new targeted therapies. Additionally, identifying specific biomarkers can be critical in treatment selection. For example, in a case study cited by Dr. Azadi during the webinar, a 57-year old woman diagnosed in 2017 was stage-4 HER2 negative metastatic breast cancer showed negative results for CNS involvement with CSF cytology, testing with CNSide on the presence of metastases including HER2 positive cells. Dr. Azadi was able to use this information to prescribe to treatment regimen. As of January 2021, this patient is free of symptoms. Also during the webinar, Dr. Kumthekar noted that at least one patient with HER2 negative breast cancer in her systemic disease was found to be HR2 positive after being tested with CNSide. Dr. Kumthekar was then able to modify this patient’s treatment. Additionally CNSide provides a quantitative cell counts that they can used to identify early trends in patients’ therapy response. This vital information can help physicians determine whether a patient remains on treatment, comes off treatment, or changes treatment. I want to share some upcoming milestones with our CNSide program. We expect to have an update on securing FDA breakthrough device designation in the third quarter. This designation provides patients and healthcare providers with timely access to novel medical devices by speeding up their development via improved clinical trial assessment and review. We also expect this designation will be valuable and our ability to partner with pharma companies that are developing oncology drugs for the treatment of central nervous system metastases and it creates the potential for high value reimbursement within the next year. Given the many advantages of CNSide over alternative diagnostic methods, our goal is to establish CNSide as the new standard-of-care for diagnosing and monitoring patients with metastatic cancers involving the central nervous system. We have developed a clinical pathway intended to produce publications that will influence national oncology care guidelines by 2023. We expect to begin the first part of our Four C study by the end of this year with completion in mid-2022. This study is designed to provide clinical validation for FDA breakthrough device designation. We will then conduct the second part of the Four C study to evaluate CNSide’s clinical utility in order to prove key decision points that can be made based on testing results. We expect to initiate this study in the third quarter of 2022 with completion approximately one year later. We will also be involved in at least one major multi-institutional neuro oncology pharma trial and are working to develop additional related clinical trials with other academic centers of excellence. The objective to release studies will be to establish the use of CNSide in assessing patients’ therapy response and for monitoring patients post-treatment. Turning to our broader oncology business, every patient diagnosed with cancer needs some level of genomic profiling to provide valuable insights in order to help guide physicians with treatment decisions. Historically, one or may be two tissue biopsies were performed during the continuum of patient care. Now with liquid biopsies, whether using blood or cerebrospinal fluid, this testing can be performed far more frequently for monitoring purposes. It’s not surprising that during the early days of COVID-19 pandemic, our oncology testing volume declined. However, we’ve seen a steady increase in volume beginning in 2020 third quarter. We believe this includes an increase in our assays being used for monitoring which sometimes have a lower price point per test. Turning now to COVID-19 testing, our Biocept team takes pride in serving our community during the pandemic by providing quality testing with quick turnaround times. Since June 2020, we have received approximately 390,000 samples for COVID-19. You may have read recently about our announced partnership with the Foundation for California Community Colleges to serve the COVID-19 testing needs of the largest college system in the U.S. This testing could help protect the safety of campus populations and reduce the spread of the virus as California community colleges return to in-person classes. We have already served some athletes in many of the systems 116 colleges and we are excited to expand our service to the general population of some 2.1 million students, as well as teachers and staff. Regarding our expectations for COVID-19 testing going forward, we are encouraged more people are getting vaccinated as we are all ready to get back to normal. That said, many of our customers for COVID testing are assisted living and nursing homes and these facilities still must test on a routine basis. We expect COVID-19 testing will continue to be an important component of our business and will provide meaningful revenues throughout 2021 knowing our expectations could change as the year progresses. As an update with our Aegea Biotechnologies collaboration validation is underway to distinguish new strains of the virus while providing quantitative viral load results. This new assay will likely be especially helpful for our clients reflex testing when patients test positive for COVID-19. The information provided will assist healthcare providers to monitor viral load over time to help determine the next steps with their patients. And with that, I will now turn the call over to Tim Kennedy to review our first quarter financial results. Tim?

Tim Kennedy : Thanks, Mike, and good afternoon, everyone. As Mike mentioned, for Q1 2021, we reported revenues of $17.8 million. This is a significant increase from $1.4 million in Q 1of 2020 and is primarily due to COVID-19 testing. Our revenues included $17.7 million in commercial test revenue, including $16.8 million attributable to COVID-19 testing. In Q1 2021, we recorded 145,110 total accessions. This is a significant increase from 1,306 total accessions in Q1 of 2020 and in line with Q4 2020 total accessions145,129 . Total cost of revenues was $9 million, compared with $2.9 million for the prior year period, with the increase primarily due to COVID-19 related collection kits and consumable expenses. As we continue to leverage the fixed components of our cost, our cost of revenues as a percentage of net revenues decreased by approximately 153% for the first quarter of 2021 from the prior year period. Contributors to the percentage decrease in cost of revenues including better pricing on COVID-19 consumables, and COVID-19 collection kits, as well as lower facility cost related to the move of our facility which we completed in late 2020. R&D expenses for the first quarters of 2021 were $1 million, compared with $1.3 million a year ago, with the decrease primarily attributable to lower facilities cost and cost of revenue allocation to R&D. We expect R&D expenses to increase in the coming quarters as we begin the first Four C clinical study that Mike just previously mentioned. G&A expenses for Q1 2021 were $3.1 million versus $1.9 million in Q1 2020 with the increase primarily due to headcount additions and other expenses related COVID testing. Sales and marketing expenses were $1.9 million, compared with $1.5 million in the prior year period resulting primarily from higher commission payments associated with COVID-19 sales. You may recall that we moved our headquarters from – and our CLIA lab to a new San Diego based facility late last year, while we incurred some expenses related to the move, our new building is designed to meet our commercial development and administrative needs while reducing rent expense and other facility cost by approximately 20% annually. Operating income for the first quarter of 2021 was $2.7 million, and this compares with an operating loss of $6.2 million for the first quarter of 2020 representing an improvement of about $9 million. As Mike stated, we reported our second consecutive profitable quarter with net income of $2.6 million or $0.19 per share on 13.7 million diluted weighted shares outstanding. This compares with a net loss for the first quarter of 2020 of $8.3 million or $1.06 per share on 7.9 million diluted weighted average shares outstanding. We reported cash and cash equivalents as of March 31, 2021 of $14.2 million, compared with $14.4 million as of December 31, 2020. Revenues – sorry, receivables grew by $3 million from 2020 year end which we anticipate will provide for robust cash collections as we move forward in 2021. Additionally, from a cash flow perspective Biocept negotiated a nine month rent free period with the facility move, which rent free period began in January 2021. And finally, revenues from COVID-19 testing and expense management are supporting our investments in our neuro oncology strategy. Based on historical and planned cash usage, we believe that our current cash position and revenue generation will support our business through the second quarter of 2022. However, with the uncertainty introduced by COVID-19 on revenues and collections, our cash runway may be shorter. With that, I’ll turn the call back over to Mike. Mike?

Michael Nall : Thank you, Tim. Before opening the call to your questions, I want to review our corporate priorities which include the following

Operator: [Operator Instructions]

Michael Nall: While we are waiting for the first question, I’d like to remind listeners that if you’ve not watched our neuro oncology webinar, it’s available on the home page of biocept.com. It runs just about an hour and I think you’ll find it to be highly informative. Okay, operator, we're ready for that first question.

Operator: Thank you. Our first question comes from Jason McCarthy with Maxim Group. Please go ahead.

Michael Okunewitch: Yes, it’s Michael Okunewitch on the line for Jason. Thanks for taking the question and congratulations on the great quarter.

Michael Nall: Thank you, Michael. Good to hear from you.

Michael Okunewitch: So, I’d like to just kind of gauge from you guys, how has COVID testing held up into the second quarter as we’ve seen a decline in cases in vaccine roll out? I know that a lot of your target business here is somewhat insulated from that. So has that held up into the second quarter?

Michael Nall: Michael, as you know, the script just now we let folks know that we’ve done 390,000 so far this week. So, that lets people kind of know. The last time we reported I believe was about this time back in April and that was about 40,000 different, Tim, between when we reported in April and now. So that gives you an idea I think of where we are at. And one of the key things to remember is that the bulk of our customers today come from this skilled nursing centers and they are required to continue to test and while we are maintaining all of our clients, I think they are quite happy with this. When we have low positivity rates as we do now and Dr. Dugan is here in the room with me along me shaking his head, there is not a need to retest. Folks may not understand that, previously, when there were higher positivity rates, when you got a positive then, based on the accounting guidance that skilled nursing center is in, they either have to retest all the residents and employees twice a week or three times a week. Now that we are finding very seldom positives and that’s a thankful thing, we should all be thankful for, there is not a need to do the retesting. So that’s where you are seeing the impact so far with our client base. In addition, we are enthusiastic about the ways we could help the colleges, the community colleges that we’ve discussed and that we don’t know, because there is not a policy for the community colleges for how they are going to go back to school. So we know they need to test for athletes which we are doing today and their spring sports such as baseball and others that we are helping with. But as the year progresses and they get their plans together for the year, I think that will inform us a lot about what to expect from that agreement.

Michael Okunewitch: Alright. Thank you. I just like to talk a bit about the full launch for CNSide. I’d like to know, how we should look at that. What kind of differences should we expect? And what are you targeting for the full lunch as opposed to the soft launch from that in 2020?

Michael Nall: Well, I think the reason for the difference, one, we’ve learned a lot over the past year about how valuable this assay can be thus the investment you saw with the actual name CNSide and the way that we are doing the logo. If folks go on to the same there is a lot of going behind it from the marketing side. And other than that, there is a lot we go into it. And it also has to do with who we are targeting. So we’ve started with neuro oncologists. And that’s who folks would see if they go on the webinar and they are the early adopters here. They are doing everything they can to help these patients to get referred to them. The next level then will be the medical oncologists as far as are targeting to expand the bases and they are interested as well. But very often, they are just sending patients to hospice and so what we want to do is, give them an alternative with our test. And we’ll need a little bit more data then they get the bigger list there. So that’s what we are investing in now is the data. And I think Dr. Dugan has some things he’d like to share with that as well.

Michael Dugan : Yes. Thanks, Mike. Michael, the other things that are happening with the commercial launch, the more formal commercial launch is an updated presentation of this test in terms of a test requisition form and a more integrated report that’s easier to read. In addition, you will see more educational materials come out including the publications related to case studies that we’ve already completed and others that will help further explain the role of the test. And then, we anticipate doing additional work with our KOL network, our key opinion leaders to really establish additional studies both investigator initiated studies as well as our own studies to clarify the role of the test and how it’s used in a variety of indications of use.

Michael Nall: Thanks, Mike.

Michael Okunewitch: Alright. Thank you very much. And then, one more I’d like to just see if you could talk just to replay a bit more on in detail about the agreement with Quest and what that means for your core business?

Michael Nall: Sure. Well, this is for our NGS assay that we’ve been working on for now couple of years, folks who recall that we partnering with Thermo Fisher on that. And it’s a targeted panel for lung cancer patients, non-small cell lung cancer patients and it’s used to inform treatment decision. So, ideally, it’s used in both of the time at diagnosis and can also be used for monitoring and restaging along the way and looks for key biomarkers that are all tied to targeted therapies for lung cancer. And so, we develop the assay and have had some discussions over the past few months with Quest as they evaluated various options and they chose Biocept to partner with them as they start to roll out their first next-gen sequencing assays for oncology as well. So, we are very excited about the relationship. As with any big company, it’s going to take a while for us to get onboarded. But we expect that to happen by the end of Q3 and then it start to accept specimens along the way.

Michael Okunewitch: Alright. Thank you very much.

Michael Nall: Sure.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Michael Nall for any closing remarks.

Michael Nall: Thank you. On behalf of our Board of Directors and our hard working team here at Biocept, I want to thank everyone for participating on today's call and for your interest in our company. We look forward to providing an update on our progress during our next conference call in August, when we report our 2021 second quarter financial results. Thanks again, and have a great day.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.