VRS.V: Q3 Update / New Core Data - Analyst Blog
December 03 2012 - 10:30AM
Zacks
VRS.V: Q3 Update / New Core Data
By Brian Marckx, CFA
Q3 Financials
Verisante (V.VRS) / (VRSEF) filed their Q3
2012 financials for the period ending 9/30/2012. Operating
expenses of $688k remained in-line with the first two quarters of
the year and were well below our $1.2 million estimate due to lower
than modeled stock-based compensation. Net loss and EPS were
$700k and ($0.01), also in-line with the first two quarters of 2012
and compared favorably to our $1.2 million (loss) and ($0.02)
estimates.
Cash burn (including capitalized R&D) was $1.3 million and
$3.8 million for the three and nine months ending 9/30/2012 - which
was right within our expectations. VRS exited Q3 with $2.8
million in cash and liquid investments.
To read our full research report on Verisante, download it here: Q3
Update / New Core Data
Operational Update
> Aura: VRS is now field testing Aura at five
leading dermatology clinics throughout Canada, including in
Vancouver, Edmonton, Oakville, Montreal and Markham. The
expectation is that this will provide feedback in order to make any
necessary refinements to usability and the software. Once
completed, this should lead into the commercial roll-out - which is
now anticipated in early 2013. This is a slight delay from
prior expectations which had Aura on the commercial market in late
2012. Nonetheless, VRS expects to have Aura generating
revenue in Canada, Europe and Australia during the early part of
2013. Management notes that they continue to receive positive
feedback from the medical community relative to Aura's
functionality, utility and viability as a tool for early detection
of skin cancer in clinical practice.
We note that while we've slightly pushed back our assumptions
for the anticipated initial commercial roll-out of Aura (from late
2012 to early 2013), perhaps more important is that we continue to
believe that (as we first detailed in our initiation report on VRS
in Feb 2011) VRS can be highly successful over the long term based
on the combination of the technology incorporated into Aura (and
related competitive advantages) as well as VRS's business/revenue
model. As we've explained in the past, we think Aura can be
more competitive than MELA Science's Melafind device from a
clinical perspective (for a number of reasons including superior
accuracy, menu of indicated uses/label, speed of scans, probe
size).
And using the initial Melafind commercial roll-out as a
yardstick to measure potential early interest in Aura, we think
VRS's device could be very well received upon launch. MELA is
about 6 months into their U.S. (and Germany) roll-out and noted
that to-date they've placed (or have agreements to place) about 125
units. Note that VRS/Aura-to-MELA/Melafind isn't an
apples-to-apples comparison for a variety of reasons, not the least
of which is Melafind is approved for sale in the U.S. while Aura is
not (Aura is approved for sale and will initially launch in Europe,
Australia and Canada - the U.S. market could be 2+ years
away). There's also differences in the revenue models,
selling/proposed selling prices, consumables pricing, etc.
Despite these differences, the Melafind roll-out does provide at
least some insight into interest from physicians as well as the
willingness of patients to pay out of pocket. MELA noted on
their Q3 2012 earnings call that feedback and interest from
dermatologists has been positive and that some practices using
Melafind are successfully charging upwards of $225 per exam
(despite no third-party reimbursement). Utilization, MELA
noted, is currently at approximately one use per installed unit per
day.
We think all of this suggests that Aura could be very well
received upon launch (particularly given potentially significant
advantages of Aura over Melafind) and begins to answer the question
about whether lack of reimbursement will be a deal-killer (it
appears it will not be) for physicians/clinics/hospitals to buy (or
lease) the device and for patients to pay out-of-pocket for an
exam. And as a reminder, while VRS's Europe/Canada/Australia
launch will likely initially target dermatologists, Aura is not
restricted to use only by dermatologists which opens the door for
VRS to detail to other health care providers including general
physicians, skin care clinics, oncology practices, and imaging
centers.
> Distribution: In September VRS announced that
they signed an agreement with BO-Pharma to be the exclusive
distributor of Aura in the Benelux (Belgium, Netherlands,
Luxembourg) countries. BO-Pharma is the largest independent
medical device distributor in the Benelux areas and has a
particular focus on dermatological products.
Clarion Medical, VRS's Canadian distributor who will also be
responsible for servicing Aura, recently completed technical
training on Aura. In preparation for the commercial roll-out,
Verisante is now putting together marketing materials and working
with BO-Pharma and Clarion in training their sales reps.
Distribution in Australia has yet to be announced but we presume
this will be a near-term event.
> New Core Data: New study data using
Verisante's exclusively licensed technology which is expected to be
incorporated into a lung cancer detection device called Core,
affirmed positive results from an earlier pilot study. The
studies used VRS's Raman spectral analysis combined with
autofluorescence to detect cancer. The recent data comes from
a larger sample size (267 samples) compared to the smaller (129
samples) pilot study and also used the latest generation Raman
system technology. The result was an improvement in the
already impressive 91% specificity seen in the pilot study with
only a slight reduction in sensitivity (which was 96% in the pilot
study) in the ability to differentiate localized high grade
dysplasia and carcinoma from benign lesions. The new study
results will be presented by BC Cancer Agency researchers in a
poster entitled Characterization of Pre-Neoplastic and Neoplastic
Bronchial Lesions Using Laser Raman Spectroscopy at the BC Cancer
Agency Annual Conference (Nov 29 - Dec 1) and at SPIE Photonics
West 2013 (Feb 2 - 7, 2013). Verisante will also be in
attendance at SPIE Photonics West, which is billed as the world's
largest and most influential photonics and optics event with over
1,500 companies exhibiting and 20,000 attendees. VRS's Aura,
as noted below, is a finalist for a SPIE Prism
Award.
As a reminder, results of the small (129 samples from 26
patients) pilot study which used Verisante's Raman system
technology, combined with white light and fluorescence bronchoscopy
(technology which Verisante acquired in June 2011) for the early
detection of lung cancer were published in the July 2012 issue of
the Journal of Thoracic Oncology. Results showed that
when Verisante's Core lung cancer detection device (using Raman
technology) is combined with the ClearVu and ClearVu Elite
endoscopy system (which Verisante acquired) the number of false
positives were reduced by over 75% compared to traditional
endoscopic methods.
As we've noted in the past that while the results of these
studies are encouraging, as is Verisante's continued efforts to
move their lung cancer detection program forward, we feel it is
still too early to reasonably judge the potential for approvability
of the device. In addition, management's current major focus
is with getting Aura commercialized. As a result, we feel it
is appropriate to continue to not incorporate a contribution from
Core in our model until there is more information to comfortably
judge the probability of regulatory approval and gauge launch
timelines. If and when that happens, we will update our model
accordingly – also as we noted in the past, this could potentially
add significant upside to our current revenue and earnings
estimates (especially given the relatively large size of the lung
cancer diagnostics market).
> Award Nomination: Verisante's Aura has gained
significant recognition and racked up an impressive number of
awards related to novel, high-potential medical device technologies
over the past 18 months. This streak could be extended and
include a SPIE Prism Award, which Aura has been named as a finalist
for. The winner of the award, which honors the best new
photonic products on the market and is selected from entries
throughout the world, will be named at the 2013 Prism Awards
banquet on February 6th in San Francisco. Aura is in good
company as one of three finalists in the Life Sciences and
Biophotonics category - the other two finalists include a
microscope objective from imaging giant Olympus and an ultrafast
laser from Femtolasers.
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