Q4 2021 Champions Oncology Inc Earnings Call
Greetings and welcome to the champions oncology fourth quarter fiscal year, 2020.1 earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please.
Please note. This conference is being recorded I will now turn the conference over to your host Dr. Ronnie Morris CEO. Dr. Maura you may begin.
Good morning.
Ronnie Morris the CEO of champions oncology, joining me today is David Miller, our CFO.
You for joining us for our fiscal year end 2021 earnings call before I begin I will remind you that I was making forward looking statements during today's call and that actual results could differ materially from what is described in those statements additional information on factors that could cause results to differ is available on our form 10-Q and form 10-K.
Felicia on the non-GAAP financial measures that may be discussed during the call to GAAP financial measures is available on the earnings release.
We had another year of significant progress successfully expanding our business on core capabilities, while continuing to evolve and deliver on our longer term strategy I would like to key in on our strategy as we embark on some exciting and transformational time.
Since the inception of champions, we had a clear appreciation for the value contained within the rare dataset that we were building.
Our tumor bank and the information we create our unique for several reasons.
Unlike most other tumor models using research our models are highly representative of tumors present with in a clinical setting. This means that the datasets established using our models provide more accurate and relevant insights.
Second our approach using a living tumor bank of Pdx model means that we have a perpetual source of tumor, allowing for a continuous and a deep level of characterization.
We can establish multiple drug response datasets from the same tumor or re interrogate these tumors with newly approved drugs or drug combinations. We can also fully characterize the molecular nature of these tumors using multiple analytical methods as new technologies emerge or are optimized such as proteomics analysis, we can occur.
Fire and integrate this new data into our existing information.
Third by leveraging a living tumor bank a pdx models, we can manipulate these tumors and stimulate important therapeutic on molecular scenarios that are otherwise unavailable in other tumor models. This combination of a unique tumor bank and the phenotypic genotypic in response information combined with our operational excellence have been key elements behind on <unk>.
Good day to aggressively grow our services the value of information and we produce had been proven by the growth in our services business more than 500 pharmaceutical and biotech companies have used Adam relied on the data we created for them across thousands of studies. They have used information in both preclinical and clinical settings to identify.
Yes look for early signs of efficacy identify sub populations and look for mechanisms of action for their drug programs.
We always knew that the dataset being a mass was unique and valuable we were laser focused on expanding our platform services business and becoming a profitable company. After achieving profitability. We started looking for additional business models that would allow us to leverage our information in higher value higher margin businesses that would accelerate our revenue and long term.
Profit growth.
We started this transition last year with the rollout of a new.
We're a platform that would allow customers to derive additional value from our pdx information.
Moving is a revolutionary data interpretation software capable of analyzing proteomics genomics and transcript tomich datasets in real time, providing scientists from the ability to gain novel insights at their fingertips.
The power of alumina and the ability to export data assembled from our pdx models as well as over 20000 cancer datasets that includes thousands of clinical treatment responses.
Not available of any public dataset, we've been licensing this platform to our customers using 8 SaaS model and the uptake has been exciting both large and small companies are represented in the customers that have used this platform's range of analysis and visualization tools in all stages of drug development.
To demonstrate the combined power of our information and alumina analytical tools, we have developed in house computational target discovery expertise to interrogate our datasets using lumens capabilities. This team, which relies heavily on AI and machine learning algorithms has been able to use our deeply characterize dataset to discover novel.
Therapeutic targets.
Computational approaches have emerged as a central mechanism for target discovery in recent years. This approach has the potential to reduce the time required for target discovery and increases the scale at which new drug programs can be initiated however, these computational approaches often suffer from the poor quality of the underlying data set that is available.
For mining.
Our computational approach Leverages, a more complete dataset that is derived from tumor models with a more authentic tumor cell biology, and heterogeneity as a result, our computational analysis identified targets that are overlooked where missed when using other datasets.
Extensive preclinical platform available in our labs also allows us to take the computationally derived targets and quickly and efficiently validate them to date, we have validated more than 6 interesting targets and we are on the process of advancing those targets through the development pipeline.
We plan to invest between $204 million over the next 2 years to bring some of these targets forward to the IND, enabling stage.
You have many options to advance these novel targets, which include partnering licensing or internal development, depending on how far we want to take a compound forward before finding a partner we think each compound could generate upfront payments with milestone and royalty payments on the backend. We are still early in this process, but the interest we have received.
From discussions with with the potential partners is exciting.
While we plan to continue to grow the profitability of our services business. We have increased our R&D spending which is primarily due to investments made in the discovery and validation of therapeutic targets. In addition to the continued development of the lumen software.
In summary, we are evolving our business model to capture more of the value from the proprietary data that we create.
To effect this transformation, we reorganized the company into a dynamic ecosystem of business units centered around a world leading oncology research center that is based off our unique data and experimental platforms. We continue to focus on be excited about our growing core services business.
In addition to our services business, we have added an innovative SaaS business and an AI powered target discovery drug initiative, while both new opportunities are still on the early stages. They are growing in potential and excitement throughout the organization now let me turn the call over to David Miller from a more detailed review of the financial result.
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Thanks, Ronny our full results on form 10-K, we filed with the SEC on or before July 29.
Overall, we had another year of significant financial progress and success.
To grow our revenue in our core research service business and we're anticipating contribution from newly launched platforms, such as moving going forward.
We currently have more than 75 unique users and we're looking for that number to grow in fiscal year 2022.
Our full year revenue for 2021 was a record 41 million compared to 32 million for 2020, representing year over year growth of 28% 8 gross income income from operations was $338000 compared to a loss of $1.9 million in the year ago period.
Excluding stock on the depreciation we recognized income from operations of 2 quite $1 million compared to a loss of $100000 a year ago.
Turning the focus to the fourth quarter revenue increased to approximately $10.6 million compared to $8.8 million in the year ago period, an increase of $1.8 million or 21%.
As discussed on our prior earnings call fourth quarter revenue would be impacted by studies completing earlier than projected and the associated revenue was recognized in the third quarter, leading to the slight decline in quarterly sequential revenue.
We recognized a loss of 456000 ounces for the quarter compared to a loss of 2 million in the year ago period, excluding stock based comp and depreciation we recognized a small fourth quarter gain of $7000 compared to a loss of $1.2 million in the year ago period.
Turning to expenses, excluding stock comp and depreciation.
Our cost of sales was $5.6 million from the fourth quarter of fiscal 2021 versus $5 million for the same period last year, an increase of $621000 or 12%.
Increase was primarily due to 2 factors.
First was an increase of approximately $400000 in costs related to clinical flow studies with a portion of this expense recognized in advance of any revenue.
The second was an increase in our rent expense as we expanded our lab space during the quarter.
This move should provide the additional capacity to match our expected growth. It will result, however in additional rent expense of approximately $250000 per quarter.
As a result of these factors it was added pressure on our gross margin for the quarter, which finished at 47% compared to 43% in the year ago period.
As we move forward, we expect improving margins for a few reasons first as these flow studies complete the revenues will be recognized from some other clubs already recorded. Additionally, we will leverage our new fixed rent costs against increasing top line revenue.
Sales and marketing expense was $1.4 million compared to $1 million in the year ago period for the year sales and marketing expense was $5.3 million compared to $4 million in the year ago period.
The increase was mainly due to compensation expenses, resulting from commissions earned and salary expense as we continued the expansion of our business development team, including the creation of a dedicated women's sales group.
Looking ahead to this year, we anticipate a continued expansion of the business development teams and marketing effort.
R&D expense for the quarter was approximately $2.1 million compared to $1.8 million in the year ago period, an increase of $250000 or 14%.
As Rodney outlined we had embarked on a path to increase our R&D spend to invest in transformative opportunities for the company that strength has begun and we anticipate quarterly R&D expenses to be in the $2 million rate for fiscal year 2022.
For the year R&D expense was $7.2 million compared to $5.8 million last year, an increase of $1.4 million or 23%.
Our G&A expense was $1.5 million compared to a $2.2 million in the year ago period.
Decrease was mainly due to the onetime payment in Q4 of 2022, our CEO for salary not taken in prior years.
Excluding the onetime catch up payment G&A remained flat from the prior year fourth quarter.
For the full year, excluding the acclamation aforementioned payment G&A expense increased $300000 or 10%.
Total G&A will nominally increase due to the overall company growth. It should continue to decline as a percentage of revenue over the year.
Now turning to cash we ended the year with $4.7 million in cash on the balance sheet for the quarter cash used in operations was 2 million, mainly due to the normal variability and the timing on accounts receivable and an increase in prepaid expenses.
Cash used in investing activities was $800000, primarily associated with Capex investment for our flow in that business line.
With our anticipated revenue growth, we expect to be cash flow positive in fiscal year 2022.
We ended our year in a strong cash position with the ability to continue to invest in both our target discovery and our lumen sad platforms outlined by Ronnie.
Information looking back at our fiscal year 2021 result, we reached another annual revenue record as we exceeded $41 million and grew on top line by 28% for.
For the full year, we achieved profitability and we are positioned to capitalize on the exciting opportunities that lie ahead.
For fiscal year 2022, we're projecting revenue growth between 10 and 20%.
As we're nearing the end of our first quarter 2022, we'll provide another update in about 6 weeks. When we report our first quarter results. We will now open the call to questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad.
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Our first question comes from Matt Hewitt with Craig Hallum. Please proceed with your question.
Good morning, gentlemen, thanks for taking the questions maybe the first 1 David on the guidance, 10% to 20% in fiscal 'twenty 2.
Just put up 28% growth I think you've got a pretty nice track record of of nearing 20% growth is that just some conservative.
The reason for bringing in the low end there what what would cause growth to I guess dipped below even the midpoint of the range.
I think it's a combination of 2 factors number 1 yes, we generally what certainly want to be more conservative, but it's still very early in the year. So we don't have the full picture in terms of what's going to occur in the second half of 2022, we're certainly going to strive.
Meet our historical revenue growth percentages.
And the second is simply as we continued to grow them you know.
Hitting those same temperatures become a little bit more difficult certainly there is opportunity for us to match, our historical revenue growth with growth from our existing.
Service businesses, and obviously, the new opportunities that we're looking forward. So it's on.
Obviously being a little bit conservative.
But definitely reasonable and I think if we think 20% that's also a very nice year.
Well thank God.
Okay. Thank you for that and then maybe.
Just a handful of items, there, but I'm going to kind of go through them here. So first on the on the base business. The flow pipeline. So you started booking some deals last year.
Have you actually started to record revenues on those and what is that pipeline looking like what you know how all of those hit starting in fiscal 'twenty 2 the revenue piece of it.
Yeah. So we started recording.
Certainly started recording some revenue.
On it.
Contributing it's not.
A very significant factor to our overall revenue it will become a little bit more in 2022.
It's not going to break make or break the year end in terms of the overall pipeline down on Brian If you want to take it or I can see.
Certainly I think the message has been pretty consistent with that with our flow revenue business certainly took a little while for it to get started and I took a look.
But longer we certainly have seen an uptick and is contributing to our revenue and the pipeline is growing but it's still a little bit behind in terms of our expectations to where we thought we would be at this point.
Got it Okay, and then regarding any kind of moving on to alumina here. So I think he provided the update 75 unique license holders.
You know how have those discussions kind of ramped over the course of the year, what kind of feedback are you getting from customers I think you're probably right now just starting to have the renewal discussions how are those proceeding anything along those lines. Thank you.
Yeah. So we haven't had the renewal discussions yet we're just starting to have those right. Now. So we don't really have any data on that but that's clearly something we're looking at very carefully and we're trying to understand the user base even from the early days.
What are they what do they like about it what what other of the functionality would they like to see so as I think we've said previously in the past. It's still early days, we're still learning a lot about the customer base about who's using it why are they using it.
We're excited by the number of users the number of people looking at the platform.
We've also made a lot of upgrades and we continue to make upgrades to the platform. So.
Still early days optimistic, but we're cautiously optimistic as as we continue to understand why people are using it how they like it.
And what improvements we can make to make them either use it more or have more users.
On the system.
Got it and then maybe last question from me and then I'll hop back in the queue. I think you previously had announced a partnership with BG I Americas any update on how that's proceeding.
That'll do it thank you.
Yeah, we.
The partnership just.
It started so so so so really don't have much to report on that I think the important thing about <unk>.
That partnership is that there are many.
All of the companies like D. G I that produce a lot of data, but don't really have a home for that data and and don't have a place that they can easily transmit that data to the clients who requested data in order to analyze it and look at the data so.
We see that as the first of many of our users to be able to use outside vendors put the data into our system. So that they could easily digest the data analyze it and understand the data.
Understood. Thank you.
Thank you Matt.
As a reminder, if you'd like to ask a question. Please press star 1 on your telephone keypad 1 moment, please while we poll for questions.
Thank you. Our next question comes from Christopher Hillary with Roubaix Capital. Please proceed with your question.
Hi, good morning.
Good morning.
Good morning.
Could you could.
Could you give us a use case.
You're comfortable sharing on movements and.
How you how you see those use cases developing as your as your product offering continues to grow on for sure.
So I'm not exactly sure your question, but I can give you a couple of specifics about kind of who are our users are and so we have a couple of different types.
Types of users currently at this time, we have the biomarin from additions who use it more deeply who actually want to go on and try to analyze and develop and understand on more of a deep level. Some.
Some of the biomarker hypothesis and then we have the principal investigators or the biology that are just looking for the causality or the relationships between different characters characteristics within a tumor or within oncology. So those are those are kind of our users right.
Now we have you know user base that debt.
<unk> includes both institutions, who have who have taken some seats as well as.
So low private investigators within a pharma or or a biotech company.
And that's kind of our user base.
In terms of that debt that that's probably the best way I could answer that question.
Okay. Thank you and then maybe 1 more if you wouldn't mind could you remind us how your database how are you.
You kind of form the database I think assets. He was the primary and secondary kind of ownership of the data rates just as a way for us to continue to appreciate.
On the breadth and depth of your data that these users are accessing.
So the data within our data within our database is a little bit different than the data within lumen luminous luminous is.
A combination of both our data from our database as well as many many public datasets that we have aggregated.
In terms of our data that we bring to the table and our datasets.
Those are derived primarily from our tumor bank.
Are derived from the.
The patients where we have a lot of clinical information and we also have information on treatments that were performed on the tumors within our tumor bank as well as a characterization around those tumors. So it would be the RNA.
And the DNA sequencing proteomics.
And a whole bunch of other levels of characterization.
Okay.
Great. Thank you for your time today.
Youre welcome.
Our next question is a follow up from Matt Hewitt with Craig Hallum. Please proceed with your question.
Alright, Thank you for taking the follow up on.
On the exciting news regarding the internal development plan.
Maybe if you could go in a little bit as far as.
I think you mentioned 6 targets that you've already identified.
How many teams do you or are people do you have working on these plans how far through the process do you I guess envision taking this is something that in some cases, maybe you take it all the way through to commercialization or and others. You know are you looking to license. This once you've proven a valid target.
Just a little bit more color there would be helpful. Thanks.
Yeah sure Matt so.
We're very excited about this initiative, we've talked about it and thought about it for a long time, we have a couple of teams probably right now about 10 internal people some consultants on the outside who are helping us.
Working to identify the targets and then go in back toward labs and to validate those targets, which is a huge advantage from.
From our perspective to be able to take you know many many many targets, which we have.
And go back and actually validate them because that's the key stuff here so.
The range of possibilities once we have a target or multiple as I mentioned.
Some we see a path, where we're going to try to do some of the some of the optimization of a compound ourselves and try to try to go a little further down the path. Some we think that it makes more sense for us to partner with us on.
Another entity and kind of co jointly move that target through the drug development.
[noise] pathway and some we think it is just right for out licensing these targets coming out of our platform. So I think it's a combination approach a lot of it has to do with the type of target or the type of molecule. We're looking for some.
Some I think we feel more comfortable doing ourselves.
A lot of it has to do the economics.
So there's a lot of variables.
Again, as I said before with some of our other initiatives. This is kind of early early stages or early days I think you can you can expect to hear some announcements over the next couple of months, maybe next quarter or 2 on some of these targets and and and how we're dealing with them.
But we're excited and and you know it's kind of early days and we're just.
We're just exploring in mining our data and finding some really interesting stuff out there.
So that's great we look forward to tracking the process. Thank you.
Youre welcome.
Our next question comes from Clay Hoffman, a private Investor. Please proceed with your question.
Yeah. Thank you guys.
For first quarter do you have any guidance on the revenue yet.
I mean, I think it will stick with the overall guidance for the year, which is the 10% to 20%.
Generally not provided.
Specific quarterly guidance.
Okay, and 1 follow up on the targets with any of them be considered orphan status stroke.
No no.
You should not be considered orphan status strokes no.
Okay. Thank you.
Youre welcome.
Thank you ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Dr. Ronnie Morris for closing remarks.
Thank you I just wanted to thank everybody for joining our call. We have some really exciting initiatives as we continue to grow our core businesses. We look forward to the new initiatives, including the SaaS platform as well as our target discovery platform and we look forward to continuing over the next couple of quarters, giving up.
Dates to everybody as we get the news so thank you for joining and we'll speak to everybody in 6 weeks.
Yes.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Okay.