Q4 2019 Earnings Call
Okay.
[music].
Good afternoon, ladies and gentlemen, and welcome to the Vermillions fourth quarter 2020 Conference call. My name is dog and I'll be your coordinator for the call today.
At this time, all participants ARNA listen only mode.
Following management's prepared remarks, well open the call for your questions.
As a reminder, this conference is being recorded today.
Leading the call today, or Valerie Palmieri, President and Chief Executive Officer, Bob BG, Chief Financial Officer, and Chris Well Art Senior Vice President of commercial operations.
After the prepared remarks, well open the call for Q1 night.
Before we begin I would like to remind everyone that statements made during this call, including the cumin recession relating to vermilions 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.
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Although the company believes that the expectations reflected in such forward looking statements are based upon a reasonable assumptions actual outcomes and results are subject to risks and uncertainties and could differ materially from those anticipated due to the impact of many factors beyond the control of Vermillion.
The company assumes no obligation to update or supplement any forward looking statements, whether as a result of new information future events or otherwise.
Participants are directed to the cautionary note set forth in today's press release as well as a risk factors set forth in Vermillions annual report and third quarter 10-Q filed with the FCC for the factors that could cause actual results could differ materially from those anticipated in the forward looking statements.
At this time I'd like to turn the call over to Valerie Palmieri, President and Chief Executive Officer.
Thank you Valerie you may begin. Thank you operator, good afternoon, everyone and thank you for joining us today.
This afternoon, we will we view, our fourth quarter and full year 2019 accomplishments financial performance as well as provide an update on the current actions, we're taking to manage the immediate cobot 19 disruption and the longer term actions to come out stronger. When this is all behind US we firmly believe our technology.
And its pipeline will be vital to reduce health care burden in cost overall it is all about getting the right patient to the right Doctor and finding the cancer at its early stage, which is the core of our company.
I will focus first on the impact of the global pandemic, which is having on our company that situation is obviously top of mind for investors and we will also discuss the trajectory of the business prior to the crisis.
We have begun to see an impact on volume during the last week, we have a four part strategy to deal with the pandemic number one is to ensure the employee safety and business continuity, we have adjusted to 100% remote for office space in place nationwide.
We have also having our sales team no longer make face to face calls in offices to share both employee customer and patient safety.
The lab operations requires on say essential employees that being said, we have stratify the team in such that it's an infection incurred it would be localized and not impact the entire workforce does the lab could continue to operate.
In addition, we had three to six months of reagents and stock depending on the volume.
We're also in conversation with the manufacturer to ensure a consistent supply over the six month timeframe as well.
And one last point, we're proactively managing the employee base with on play check in Zoom video calls to ensure we are not just taking care of the physical aspects of the business, but also the mental wellbeing of law.
Number two cash preservation and liquidity management.
We are naturally reducing all travel entertainment and discretionary spend as well they are faring investments where possible as an offset to expected reductions in revenue.
We're also maintaining our commitment to critical product development, while reducing spend on higher risk research.
In regards to capital management, Bob will review, our strategy with respect to federal and local loans, which we intend to fully take advantage of.
The third part of our plan is maximizing productive use of employee time and emerging from the crisis stronger.
Our commercial team is focused on maintaining relationships with existing customers remotely and ensuring we resumed our trajectory upon return to normalcy.
We're also developing virtual territory management through a number of tools, including virtual sales rep visits digital marketing social media and it provider patient watering portal.
For new prospects remote learning assessment sessions are being developed to continue to expand our customer base. During this pandemic.
Our billing and collections teams are optimizing their scripts as well and spending more time on collections or they are and appeals of denied claims to ensure a maximum collection efforts.
And the last part of our plan number four is continuing to work on a product development pipeline and planning for recovery.
Well, we reduced our longer term investment in discovery, we're capitalizing on this time to focus our efforts in the development of open next and Endo check. These studies will initially be perspective, and retrospective and we're continuing all activities to get these studies completed.
I'm now turning to the fundamentals in the business as we continue to be pleased with our trajectory prior to cobot.
We disclosed in our earnings release today, three significant developments number one thing that has executed preferred and network contract agreement with us finally.
It's in network agreement adds another 16 million lives for contracted plans and includes not only over one photos era and their ovarian and carry a genetic testing panels as well.
This was a nice win.
The pricing will be affected April 1st 2020, while we do not disclose specific contract pricing. We're pleased with the final prices to which we agreed.
Number two we have fast tracked revising our state of Connecticut Department of economic community development financing.
Prior to the Cobot 19 event, we recently called it concluded an amendment to our agreement.
With the state of Connecticut relative to target employment levels.
As you recall in the past, we announced a 4 million dollar loan I watch, which we received 2 million in 2016.
The additional 2 million is based on revenue and revise employment milestone, which we view as achievable.
And lastly on the payer front, we have made considerable advances in our state Medicaid coverage. We have added a total of nine state Medicaid plans to a positive coverage list with major states being in Mexico in South Carolina, which are expansion territories for our team.
We have also have many more on the way.
Having just coverage in place it's critical to managing this underserved population as we believe over one is the only technology available today that has adequate sensitivity for early stage ovarian cancer detection and specifically African American women.
Chris will cover Vermillions commercial momentum in detail, but I just want to summarize the impact of our investment in commercialization. We have had four consecutive quarters of strong growth from Q1 Q4 2019.
Our over one plus volume grew year over year, 27% in Q1, 66% in Q2, 82% in Q3 and in Q4, we recorded year over year growth of 93%.
We actually were running much higher early in Q4, but we did have some holiday impact in late November and December 2019, which tempered growth, which Chris will discuss in detail.
We did resume our trajectory post the holidays in Q1.
One last comment before we move onto the commercial update.
The growth curve, which we have experienced in the last six months post hiring of the second phase of sales reps has now surpassed the volume per day, driven by quest at the height of over one adoption.
We believe this isn't mainly driven by the adoption of our second generation technology, Oh, there as part of over one plus and we have truly solved for the specificity gap and we're still in the early innings of changing the standard of care in the U.S.
At this point I'd like to turn the call over to Chris to share our commercialization resulted in the fourth quarter as well as discussed our innovation pipeline Chris.
You Valerie.
I'm pleased to provide an update on our commercial efforts.
We believe our two pronged approach with the de centralized platform channel and the direct sales channel is the right strategy to drive adoption.
The de centralized arrangement should help to drive test adoption as well as integrate into the care pathway or the respective institution in super groups.
These works deal have a significant lead times in some work very closely.
We are uncertain at this point if the deals we are working on will lose some momentum.
<unk> 19 pandemic.
You will continue to work in this model as we seek to drive wider adoption of over one floor.
In our expanded product portfolio.
Moving on to our direct sales channel our Salesforce is another quarter further in French in their respective territory I'm pleased to report that over one plus continues to gain traction in the marketplace.
In Q4, this fully stop sale for made considerable gains with 8% quarter over quarter volume versus Q3, and 93% growth year over year.
Please note the sequencing of the holidays on the calendar in late Q4 gave rise to the three weeks, which were outliers in the quarter.
We have provided an earnings deck, where the graph of weekly sales trend lines and one can clearly see Thanksgiving and Christmas last new year holidays, and outliers from the trend.
We also continue to see momentum in Q1 2020, but as we discussed earlier, it's too early to conclude where we stand in these early days of this panda.
In terms of total ordering physician.
2629 physicians ordered a one clock in the fourth quarter.
An increase of 1189 from Q4, 2018, which had a total position count.
Fourteenforty.
A growth of 83% year over year.
As compared to Q3 2019 be group customers, 66% you every year.
We actually increase our overall customer growth year over year Q4.
With regard to new position.
I'm pleased to report that we continue to see growth in new position. In addition.
During Q4 2019, we added 524, new position compared to 326 during the same period in 2018.
An increase of 61%.
We will be focused on maintaining these customers through the pandemic.
And believe we will receive the growth trajectory and accelerated new product introduction.
I would also like to provide an update on our upcoming product enhancements.
First we are closing the disparity yeah, I know varied detection wood to published papers here in December we initiated a study with I signed medical so.
The largest independent academic academic medical center in Philadelphia.
The goal of this study is to review the disparity in African American women is well it's other ethnicities.
Based on our published data.
Warren is 2.38 times more sensitive since the 125 in African American women, 79.2% versus 33.3% sensitivity using the 2007 eight cod cut off.
Second.
We'd like to update everyone or third generation ovarian cancer risk assessment test, which is now branded is over that.
We have developed I or be approved perspective ear retrospective studies to interrogate the sensitivity and specificity in the watch and wait cohorts.
As discussed on prior calls.
Moving to act is designed to address the watch and wait population, which is monitored two to four times per year per patient.
We believe that this past will help clinicians and patients to better understand the risk of malignancy and if surgery can be delayed.
We also discussed on prior calls our future itself, which is an aid and the action that endometriosis. The brand name for the SAP is endo chat.
This is a large unmet need in the lead you why and community as Ed you'd be trios, it's treated based on symptoms.
And then I'm able to be detected without a surgical biopsy.
And Joe Jackson will address this patient population with it here in the U.S. of roughly six to 7 million.
We will provide further updates on future calls after the anticipated launch date of our perspective trial.
Lastly, we have another test and the pipeline, which is now branded at over inherits. It is based on her SAP in protein Biomarkers interrogated by a new machine learning algorithms to monitor those who are genetically predisposed with gene such as rocket one and two.
And here it will have an algorithm train for the asymptomatic high risk population.
Currently.
Conditions can already see 125 in conjunction with ultra sound to assess risk.
We feel that our algorithm will outperform its current standard of care and provide better early detection.
Moving onto our genetics offering our growth continues we recently made changes to our piano and our service offering to prepare for our expanded offering of over one floss risk assessment in conjunction with hereditary breast and ovarian cancer panel.
We are planning to launch in Twentytwenty, a combined report, which will allow clinicians for the first time to see over one plus results along with H.B.L.C. status on the same reports with an interpretation.
This will give clinician and opportunity to evaluate proteins and genetic.
In the evaluation and management of patients.
Burberry and risk of malignancy.
Coupling our overall technology with genetic predisposition is essential for proactive patient management using a multi modality approach.
Despite covered 90.
We anticipate making progress on our portfolio development and we're very excited about the formal roll out of our products pipeline.
Our new products will impact the entire patient lifecycle and the age of puberty within their Chuck to watch and wait with other docs, hi, rich screening with over inherits just surgical risk assessment with over one plus.
Please see our new investor in earnings deck after a million dotcom.
At this point I would like to turn the call over to Bob for review of our financial results Bob.
Thank you Chris.
Listen draw worry Herbert circulated the continued volume growth in the fourth quarter 2019 in first quarter 2020.
Comment on our profitability trends cash preservation of liquidity strategy as well as NASDAQ listing status.
The trend and profitability has been strong with gross profit on open one plus.
The fourth quarter at 48% as compared to the prior year fourth quarter, 36% increase you're on your gross margin percentage is probably driven by volume leverage offset by a decline in price.
Sequentially gross profit margin was down from Q3 to Q4 from 53% to 48% driven by increased investment in kids as we expand the customer base.
Our average unit price mistreatment $33 in the fourth quarter versus 366 in the fourth quarter 2018. The main driver of the year on year decline was payer mix with substantial increase in patients direct out of pocket payment in specific geographies.
The $333 in the fourth quarter was down slightly from the third quarter you pay your friend $45 as we had some robin to catch up in the third quarter from prior periods, which did not recur in the fourth quarter.
I've been refining or estimates to be more accurate overtime as we gain more experience with payers.
As Robert mentioned, we've made progress on the Sigma contracts as well as Medicaid credentialing to improve our pledged overtime.
We're also driving insurance admissions first why don't patients to pay out of pocket.
In addition, CMS recently extended the pampers uptake process from 2021 to 2022 for the 890, something better care price the maximum down when addressing one allowed it's 10%. So we have limited downside and that element of our pricing.
Our parents utilization for the fourth quarter was $2.9 billion, which continued or downward trend or cash balance at December 31st 2019 was 11.7 million as we announced today, we successfully amended the terms of our state of Canada could financing with respect to the target employment level.
In the state the revised unemployment milestones are such that we anticipate it shouldn't them in 2020 [noise].
So closely monitoring government loans and grants at the state and federal levels as the regulations and legislations legislation gets finalized.
We'll take hold manageable, so two systems to maintain or somewhat workforce to 40 stores over more commercial operations post cobot 19.
Regarding our NASDAQ listing status as we disclosed in January the NASDAQ granted us an extension to regain compliance with the minimum one dollar bid price by July 27 2020.
Our intention is to achieve a compliance above one dollar trading price prior to the deadline, primarily driven by significant strategic partnership announcements were nevertheless closely monitoring those ducs position on its they will consider issuing extensions due to the pandemic.
This time, they've made no campbell changes, but they have indicated there are continuing to evaluate the situation.
We previously announced the wind down of our I'd be de business, which was completed in the fourth quarter, we elected not to present the business as discontinued operations as the closer does not represent a strategic shift our primary mode. It was too low <unk> focus on or fail ovarian business and not allow the RV business.
To distract from those efforts. In addition, the RBC results of operations are separately disclosed in the financials, enabling appropriate analysis of the impact of the closure I'll now turn it back to Valerie.
Thank you bye bye.
Before we open up the call for queuing <unk>, let me restate our optimism for building the company for sustainable growth for the near term in long term.
We are all adhering to the government guidance to bend the curve on the spread of Cobot 19 and are hopeful this will come to a swift conclusion as soon as possible.
We're striving to strengthen our position during the restriction we are all experiencing in order to come out of this much stronger and the end.
In parallel.
We are executing quickly on our larger mission to serve the 20 million women in the U.S., starting with ovarian cancer risk assessment serial pelvic mass monitoring and eventually tackling the largest disease endometriosis.
Keep in mind, the hereditary ovarian cancer monitoring test opening here. It is incremental to this market and its pocketed products will be for women with and without a mass.
Ovarian cancer accounts are more death than any other cancer of the female reproductive system and is the only gender specific cancer with greater than a 50% mortality rate.
Our work in products are at the forefront of changing the standards of care in the detection of are there any malignancies.
We believe we are helping close the gap and detection and more importantly survival for women.
For 2019, we set out with four major goals number one driving continued test adoption in volume growth, we posted Q4 year over year volume growth of 93%.
Number two.
Increased growth of our customer base, we finished the year with Q4 year over year growth of 83% with the majority of reps, having only six to nine months in the field through Q4.
Number three increase innovation with evidenced development, which resulted in five new publications and five new patents.
And lastly, leveraging our overall infrastructure to drive margin expansion and we have seen over one plus gross margin expand some 26% versus 46% full year year over year.
In terms of Q2 2020 goals for volume customer growth and profitability, we will be able to get more clarity as cobot 19 progressive.
In the near term, we believe Evolent plus coupled with our disparity differentiation enginetics will become the standard of care in pelvic mass risk assessment for ovarian cancer.
For the longer term. We're also moving forward on our planned launch of our over next watch and wait Endo check for enemy trio says and lastly over inherit for high risk genetic predisposition monitoring.
End goal is incorporation of proteins jeans, and other modalities to detect gynecologic disease, which cannot be detected via traditional biopsy.
In time.
Our goal is to become the liquid biopsy standard for all these diseases inclusive of all ages stages and most of all all ethnicities.
It is now time that all women of every socio economic background, we see the best possible care and we are proud and excited to make that happen.
We're now happy to open the call for acuity and answer any of your questions operator.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question you pay press star one on your telephone keypad a confirmation tunnel indicate your line is in a question Q.
You May press Star too if you would like to remove your question from the Q.
For participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star key one moment well we poll for questions.
Our first question comes from the line of Jeb Terry with average.
Dania investment management. Please proceed with your question.
Good afternoon.
[noise] Sally.
Hello.
I can hear your job is bad Oh, Oh, I'm, sorry, I'm, sorry, I'm, sorry to have them here I, just said, though and you okay right.
Right your voice Oh positively.
Well there as well so can you refresh what are your head count is total and then what's your headcount in your sales force is.
And how you view that going forward it sounds like you'll be able to retain everybody.
Yes, I'm, so tough right now today, we have 20 reps in the field and we have as we talked about some of the expansion territories. So it's not necessarily additional headcount right now we've looked at some territories because as I see adding cigna thing and actually getting Cigna priced we had since territories that are now expansions.
So the headcount total is 20.
And we intend to keep it at 20.
Okay, [laughter] girls worse and worse.
Yes, if these overall I think it's usually precisely drew.
Okay.
And so relative to the current situation I gather then.
Virtually all years your reps have succeeded in winning business and can you give us a sense of how that how the year started out all Oh no.
Following the strong fourth quarter I know all bets are off as far as what this quarters like I'm just curious.
If you could comment on on what the what the.
Early momentum out of told you.
About a acceptance.
Yeah, No I would say that early momentum was very strong. So we mentioned that we had the and we had some hiccups or in the holidays what happened during the holidays, where because Christmas and new year's wasn't Wednesday, we find doctors were taking though entire weeks off so it's almost like we lost a couple of weeks and you can see a a chart actually with.
The earnings deck chart, we're doing something different this as of this earnings call is it a deck chart just to show you.
The picture of those weeks and you can see the trend line. So we were trending and this is actually in the chart. We had an annualized run rate of 16 to 17000, as we were leaving the year and Weve continue that trajectory on in Q1, as well and and we have up to last week. We saw the volume was continuing and then.
We have seen last week, we've seen some fall off and I think its pockets I think the fall if that were seeing of course due to co that is uncertain hot spots offices are closed other parts of the country are not moving as fast as lets say New York City I'm. So I do think that there is gonna be a transition over time as this wave of cold cold It goes over the country.
But but so far in Q1, we were very excited about the momentum coming into like coming into Q1.
So as we speak then there are still testing before on the doctors, you're still seeing patients to [noise].
Lesser but still broken forgotten Frac, yeah, I have to say [noise] you know depending on the day the volume could be you know down depending on the day, but part of the problems. We don't understand what percentage of the population we were testing where acute versus how many had chronic pain. So the Q patients probably we're getting the blood.
Just first this chronic pain, maybe they're dealing with it and there's gonna be volume you know in the future also we don't understand what percentage of the specimens collected via annual exam. So so at some of it's we're still early in this so I don't want to make any conclusions just yet, but I'd say that Ah you know our test is a little bit.
Different than a annual exam screening test, but we do know in certain areas the country to that elective surgeries are being delayed. So Ah I think time will tell them, we'll get more information, but going into co that we were very pleased and even coming out of co that a week into coated we're sort of enough.
Watch and see mode.
Okay, and then could you, but again I know you [laughter] guitar these questions about reimbursement.
Help us understand where where you are now the cigna's onboard and.
And you. Unfortunately, you know with added some more that's more state approvals.
Yes. So two things one is you know we were looking forward to this getting cigna contract accreted for awhile and getting this done thing because he's done before it covered two kilometers thing is going crazy right now, but getting this done is a big win for us, but it's not only a win for Ova as he pointed out in the.
They are.
Earnings call, it's and it's a win for all their I would just a second generation test as well as more importantly is the genetics panels. So we now are in contract with Cigna on genetics and in contact with signal for over a technology and those will have as I said as April 1st we're going to begin.
Billing cigna directly and that will have that's that current volumes right now the pricing for that volume is you know most of that's a patient price right, which is the lower price. So that volume immediately flips to a thing the price and then the second part of your question is the Medicaid Medicaid is I believe.
A huge opportunity for us from twofold. One is it's a population it's been underserved number one number two as we know the technology. That's then that we compete against is the 40 year old standard of care and we do not know that technology is have subpar performance with African American women.
Even in our studies in Asian woman in Philippines. So we do 'em, we do believe that Medicaid could be quite frankly, a large opportunity for us and Ah I would assume two with co that you know there's gonna be some demand that's lower now, but then we'll pent up once everyone can get out of their houses and go see their doctors or go to the clinics.
Very good for some reason I'm thinking cigna.
Revenue per case could be over 500 is that my recalling that correctly.
No. We don't usually we don't usually disclose pricing, but yes. So I would say, it's definitely north of 500, and I'd say to on the Medicaid side, but didn't mention the pricing on that but the Medicaid is also priced very well and you know where Medicare pricing zone as they at 897.
Fantastic.
Forgetting thank you.
Thank you.
Oh.
Our next question comes from the line of Chuck Frazier with see more capital. Please proceed with your question.
Hey, Valerie I, just want make sure I heard heard of Cry Hater I just want to make sure I heard you correctly.
So you're suggesting that you're seeing disparities confirmed and the Philippine population I hear that right.
Yes.
And and do you feel those disparities.
In order of magnitude, it's kinda early days to called out obviously, but do you feel those disparities.
In the neighborhood of Mysteries machine and the African American population or do you feel that they are a bit needed from that still significant.
I think it's in that neighborhood net Zip code.
It's a little bit different are going to details, but yes de Philippine data.
As a you know quite frankly, how we.
Started to really understand this and and we will be having more details regarding the Philippines is it's not public domain right now, but that study will be coming to close.
Very soon a the into this year and so we will be and so there there may be multiple papers coming out of this instead of just the prospective study with a generation to test there'll be multiple papers are coming out of the Philippines data.
Thank you so much.
Welcome.
There were no further questions in the queue I'd like to hand, the call back to Valerie for closing remarks.
Thank you.
In closing with the fluid cobot situation, we're doing the right things to drive sustainability and growth.
With our commercial footprint, a guideline indoors and differentiated test a differentiated portfolio of tests within the same call point and substantial payer coverage coverage. We believe we are in a position to support continued growth and profitability.
Our end goal is to serve a large global pelvic mass population and overall women's health market with a platform coupled with proprietary science and data tools, which will drive better health and wellbeing to each patient we serve thank you for joining us today and we appreciate your support support and interest in Vermillion.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.