Vyant Bio, Inc. (VYNT) Q4 2015 Earnings Call Transcript
Published at 2016-03-10 23:38:14
Paul Arndt - Managing Director of LifeSci Advisors Panna Sharma - Chief Executive Officer Ed Sitar - Chief Financial Officer
Bill March - Janney Montgomery Scott Robert Brown - Imperial Security Ben Haynor - Feltl and Company
Please standby we’re about to begin. Good day and welcome to the Cancer Genetics Inc. Fourth Quarter and Full-Year 2015 Earnings Call. Today’s conference is being recorded. And at this time, I would like to turn the call over to, Paul Arndt, Managing Director of LifeSci Advisors.
Thank you, Tom. And thank you for joining us for Cancer Genetics’ fourth quarter and full-year 2015 earnings conference call. On the call today are company President and Chief Executive Officer, Panna Sharma; and Chief Financial Officer, Ed Sitar. The Company issued a news release this afternoon highlighting the company's financial results and progress on operations and are, available under the Investor Relations' section of the company’s website. Following the Safe Harbor statement, Panna will provide an overview of the fourth quarter and full-year 2015, including recent events and company activity. Ed Sitar will then provide a summary of the quarterly and 12-month ended December 31, 2015 financial results. We’ll then open up the call to questions. I’d like to remind everyone that various remarks about future expectations, plans, and prospects constitute forward-looking statements for purposes of Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Cancer Genetics cautions that these forward-looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated, including risks described in the company’s filings with the SEC. Any forward-looking statements made on this conference call speak only as of today’s date, Thursday, March 10, 2016, and Cancer Genetics does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today’s date. This conference call is being recorded for audio rebroadcast on Cancer Genetics’ website at www.cancergenetics.com. All participants on this call will be in listen-only mode. The call will be followed by a question-and-answer session. With that, I’d like to turn the call over to President and CEO, Panna Sharma for his opening comments. Good afternoon, Panna.
Thank you, Paul, and thank you everyone for joining us on the call to review our fourth quarter and full-year 2015 earnings. To start, I’d like to provide a brief overview of Cancer Genetics, particularly for those of you who may be new to our story or has been following our evolving company. Cancer Genetics is an emerging leader in providing critical genomic and biomarker information for the personalization of oncology treatment. Our proprietary disease focused and clinically validated genomic panels and services support the work of many clinical centers, hospitals, as well as biotechnology and pharmaceutical companies and research organizations. We have a unique and unparalleled global infrastructure for the development and delivery of oncology diagnostics from bench-to-bedside through our state-of-the-art facilities in the U.S., as well as India and China. We currently have research collaborations with 18 leading academic and research centers, including Mayo Clinic, Memorial Sloan Kettering, the National Cancer Institute, Columbia University, Moffitt Cancer Center, the Keck School of Medicine at USC to name a few. These collaborations allow us to leverage the vast innovation going on in oncology, biomarkers and genomics today, allow us to rapidly validate our insights, to power our tests and services and then provide unique access to translational oncology programs both for our clinicians and physicians as well as our biopharma partners. Our vision is to be the oncology diagnostics and companion diagnostics partner from bench-to-bedside. This is especially critical today in our industry as a fundamental business model of laboratory based genomic and molecular diagnostic companies, is rapidly changing. And we feel that our proprietary technology, our scope and our business model will make us an enduring and clear leader in this industry as it continues to have impact on patient care. Now, let me provide a summary of some of our key achievements during the past year and then outline our priorities and some of our business objectives for ‘15. During 2015, our team accomplished a number of significant milestones in terms of revenue growth, development of new industry leading capabilities, securing new biotech and pharma customers and increasing our impact on cancer patients. Let’s review some of those areas. Starting with revenue growth, I’ll provide a few highlights as Ed will dive into the details following the strategy update. For the year ending December 31, 2015, our total revenue increased 77% over the prior year to $18 million from $10.2 million in ‘14. Of significance was our biopharma services business which increased 106% about doubled to $11.6 million over 2014. In addition, our gross profit margin improved significantly to 22% during 2015 and allowed us to have $3.9 million in gross margin dollars, an improvement from 17% or $1.7 million in 2014. We’re very focused on continuing to improve gross profit margin and this is an area of focus in the company. Now that we have integrated response genetics or LA based acquisition in solid tumors. We’re very focused on streamlining the operations, finding additional synergies in terms of workflow and maximizing our capacity. I’d also like to point out now in our fourth quarter, our total revenues during Q4 2015 were $5.5 million up 37% from the corresponding period in 2014. This included approximately $1.8 million from our acquisition of response based in California and we’re extremely pleased with the initial contributions from response genetics in the fourth quarter and look forward to an even more impact throughout 2016. As we review our key achievements in 2015, the development of some additional new capabilities, especially in immuno-oncology as well as acquisition where solid tumor portfolio with response, that would give you an update on the integration of response which was completed in Q4 2015. Our long-term vision to being that bench-to-bedside partner, it’s important to have both solid tumors as well as hematological capabilities. So broadening our business, increasing our addressable market and getting expertise from the West Coast where nearly 35% to 40% of testing occurs was an important development of our strategy. This transformative transaction brought us expertise in solid tumors, it enabled us to really be that bench-to-bedside partner and it included the only FDA-cleared test for cancer of unknown primary. So, we are now, with now state-of-the-art molecular portfolio in both solid tumor and blood cancer and more importantly are now able to bring this both to clinicians as well as to the biotech and pharma community. We’ve been extremely pleased with the initial customer reception and penetration that we’re receiving and have sold several accounts. We also continue to expect further integration of RGI and that integration will allow us to achieve an additional $10 million plus in revenue for CGI this year. And it’s added another $4 million to $5 million in future contract revenue from clinical trials. The combined company also now has expanded reach into new geographies with the sales force now that’s very heavily also focused in the Southeast and West which complements our traditional mid-West and East Coast sales force. And we’ve been working hard to transform response into center of excellence for solid tumors. As I mentioned, we also adopted the ALCHEMIST trial which we’ve also grown since taking it over in October. In addition to the integration of the RGI facilities and majority of the response that we’ve brought on have already been integrated into our existing structure since closing the acquisition in October, with streamline operations significantly by integrating sales, billing, finance, IT, biopharma operations, quality assurance and improving medical review and clinical review procedures. This has allowed us to decrease the operating cost structure by nearly 33% in that facility. And we have several other synergy items that we’re going after this quarter and also into Q2. Because achieving significant cost synergies, we’ve also stabilized clinical volumes and begun signing new contracts with pharma companies as well. So, I think on multiple cylinders we’re beginning to achieve the list that we wanted. Beyond the RGI integration, another area that we’ve made significant progress is through our unique portfolio of genomic tests and panels. And again, this portfolio is what allows us to be valuable to the biopharma community and very importantly valuable long-term to the clinical community. We launched our myeloid cancer panel in 2015, a comprehensive NGS panel for improving the diagnosis and clinical management in myeloid cancer patients. This was done with an international consortium of experts and utilizing pioneering technology from aluminum. This is a clinically actionable panel and not only has it allowed us to gain several new pharma customers but also this is now in routine clinical setting. And we’re doing several myeloid cancer panels for centers around the U.S. already. Current methods as you know for diagnosing this challenging disease is very time consuming, very expensive and often times you end up with disaccording results from labs. This process can be confusing for patients, challenging for clinicians. So we believe that focus myeloid delivers a genomic assessment comprehensively from one panel and more importantly it allows you to map and monitor the patient’s tumor over time. Also in the second quarter, we launched a very important test for the five most common solid tumors in Asia and the broader Asian market. We did this through a partnership with a leading regenerative medicine company ReproCELL. That same panel now is being brought into the clinical market this year in India. And there are over 370,000 patients in India alone annually. And we think this panel will be critical for us to establishing and continuing to grow our India operation and migrating purely from discovery work today to discovery and clinical. Most recently also in 2016 we launched a comprehensive portfolio of test and technologies to help measure and monitor immuno-oncology markers and select patients for targeted therapies. There are several therapies in the market today that require assessment of these immuno-markers such as KEYTRUDA. And so this portfolio is already available not only just for clinical trials but also patient care. And it’s available at both our East and West Coast centers of excellence. And in addition, the West Coast center was also offering the FDA-approved PDL1 antibody for selection patients that are most likely to benefit from a lot of these powerful new immuno-oncology drugs such as KEYTRUDA. Immuno-oncology is an important element to developing a winning business. As you know, immuno-oncology has already seen several blockbuster drugs in the market. And analysts' project that this will be nearly 40% or 50% of all spending on cancer drugs by 2024. Every major pharmaceutical company in the top 6 today has very active large immuno-oncology programs that complement their targeted drug programs. So, we’re really well positioned to be a partner for them by having a comprehensive immuno-oncology and immune monitoring capability along with our traditional genomic biomarker and genomic panel content. In that sense we’re positioned very early and more importantly in a right time to expand our revenue potential in both the clinical setting as drugs are brought to market and also in the clinical trial setting. As such our integrated offering, we think sets us apart and we’ll be critical to expanding our value proposition going forward. During 2016, we’ve already closed several trials and we expect this to add to our pharma revenue and to our closed contracts as we move forward. Another area of progress during 2015 was the expansion of our biopharma contracts and partnerships. We now have contracts of 8 of the top 10 biopharma companies. We’re supporting over 80 clinical trials. In Q4 alone we started 8 major trials as well as several smaller trials and studies. But all of these were big top 5 pharma companies. And again, we expect the similar type of start rate in Q1 and Q2 as well. Our biopharma revenues increased or closed contracts with biopharma has increased over 650% since 2012. And we expect this type of growth going forward. In addition, as I said earlier, our research collaborations are central to developing innovation. Of particular note is our joint venture of the Mayo Clinic, Oncospire Genomics, where we’re beginning to bring into market this year two very important panels, one is in multiple myeloma, the M3P profiler. This panel will identify patients that need to get followed up earlier. It will help determine the best treatments. And again, it’s a very unique panel and compared to other blood-borne panels, it has content that other panels don’t have. And it has the ability to provide in very accurate way what the therapeutic response and patient prognosis is. This is designed with input from thought leaders at Mayo and across the field. It’s been presented at over five posters and publications at ASH. And it has the potential to change the paradigm of testing by eliminating the need for traditional cytogenetics FISH, other single biomarkers and it also provides information on clonal evolution in multiple myeloma. This is really a very important and very unique kind of almost model system for how the future of cancer testing will be done. We think this is an important paradigm shift because number one: price point is comparable if not better than doing other single test and very importantly the information can be monitored over time. So, this information will be conveniently provided in one single panel. And more importantly this innovation is already beginning to generate revenue since it’s been selected for multiple clinical trials with some of the big pharmas and we have several thought leaders that are preparing to send multiple myeloma testing now to CGI as we bring it up in the clinical study. I should also mention that we entered into a series of collaborations in 2015 as a result of our focus in germline cancers, and germline mutation monitoring. As I mentioned in some of my prior calls, understanding germline genetic variance and mapping that with somatic, we think is the future. We think just doing somatic assessment alone and not understanding the germline is one of the missing pieces and really getting the personalized profile. And so, we entered into a relationship to Moffitt Cancer Center, where we’re beginning to understand germline genetic variance as predictors for some of the side-effects with chemotherapy and potentially side-effects for other drugs as well. So our comprehensive vision is, not just across all the cancers but also really by assessing the cancers’ genome as well as the individuals’ genome to optimize manage and guide therapy. Our partnership with ICON which we announced mid last year continues to make meaningful opportunities for CGI. Today the pipeline generated with ICON represents nearly 25% to 30% of the opportunities that we’re going after at any given time. And more importantly it puts us in front of biopharma customers that we traditionally have not been working with. We recently completed a number of cross-training initiatives across the global sales force, their scientific affairs teams, their medical directors and we’ve already realized several new wins. We’ve entered into multiple new RFPs as a result of this collaboration. And we expect an even greater impact during 2016. Our ability to offer the unique genomic and immuno-marker testing alongside ICON’s proven central lab expertise and capabilities should drive meaningful traction for us in ‘16 and beyond. And we already expect seven-figure revenue contributions from the ICON alliance over the next several quarters. On the reimbursement front, there are now 180 million covered lives roughly that are represented by our agreements with national and regional networks. Most recently, in early ‘16 we signed an in-network provider agreement with the Healthcare network Blue Cross Blue Shield in Minnesota providing an additional 2.6 million members of the Blue Cross Blue Shield planned access to our diagnostics and genomic services. And we think continuing now with national peers and accountable-care organizations will allow us to even have a greater reach for our testing and our capabilities. Before I turn it over to Ed for financial results, I’d like to outline some of our priorities for 2016. We made lot of strong progress last year on our initiatives. And many of those will carryover this year. First, we’re going to continue focusing on biopharma partnerships and new contracts. We think that very importantly this industry is going to continue to change because the pace of innovation is continuing to increase. And the tests and technologies that are used today in clinical trials are rapidly making their way into the routine clinical setting. So, leveraging our broader capabilities or broader footprint, we expect more contracts and larger contracts as they move from Phase 2 to Phase 3 in many of these trials and also, very importantly as we generate good success with our pharma partners. Second, we can anticipate continued expansion of our unique portfolio to genomic tests and panels. We’ve launched our Oncomine which is a very unique panel for solid tumor, which gives copy number as well as fusion and mutation data. We’re launching our lymphoid panel which is able to address not only a variety of B-cell cancers but also supports therapeutic selection. And also we’ll be launching our hereditary panel in Q2, which we think will not only help change the type of discourse that patients have with their doctors and with their genetic counselors, but we’re also including several new features in the hereditary cancer panel in areas of predisposition from an inherited basis that aren’t available today in the commercial available panels. And finally we have the renal panel that we expect to come out in Q2 as well. And we then will be making more announcements about the renal panel both in clinical trials as well as with some of the big partners that we’re working with. Another major initiative for us as you know has been payer contracts and reimbursement. We continue to make very good progress on that. We announced not only agreement to these payers but also their desire to really enter into providing reimbursement for our focused next-gen sequencing panels and also our FDA-cleared tissue of origin test as well as our Fact cervical test. These are important and unique tests that are central to these discussions. Another major initiative for us this year also is our migration to becoming a cash flow positive and breakeven company. We anticipate that we’ll continue to make those top-line improvements. But also we’ll make meaningful improvements to our cost structure so that our goal is to become a breakeven company in early ‘17. So, we think both in our business model, our capabilities and our portfolio were unique high-value partner for the precision medicine industry, one with a strong history of innovation, execution, growth and leadership. Our teams are very well focused on our 2016 priorities, not only to become income positive in ‘17 but also to continue to drive meaningful clinical actionable innovation into the market. So, with that, I’ll turn it over to Ed, for Ed to review in detail our recent financial results.
Thank you, Panna, and good afternoon everyone. Since our last conference call we’ve been heavily focused on the integration of our California acquisition and streamlining our internal operations in both cost and investments. My discussion today will focus on changes in the fourth quarter of 2015 versus the fourth quarter of 2014 and the 12 months ended December 31, 2015 versus the 12 months ended December 31, 2014. For additional information please refer to our Form 10-K for the year-end December 31, 2015 which is now available on our website. Let’s begin with the recently completed fourth quarter. Total fourth quarter revenue was $5.5 million, a 37% increase over 2014. Biopharma services revenue was $3 million including $0.5 million in revenues from our recently acquired LA operation. Clinical revenues were $2.4 million including $1.3 million in revenues from our recently acquired LA operation. Discovery services revenues were $0.2 million. Excluding the impact of our recently acquired LA operation, biopharma services decreased 11% as compared to the fourth quarter of 2014 due to project timing and variability in project completion. Gross margins were 13% or $0.7 million which compares to 23% or $0.9 million in 2014. Although we have moved quickly in rationalizing and integrating the operations in Los Angeles, the fourth quarter was burdened by the not yet complete impact of those changes and lower volumes at the LA operation has emerged from this previously troubled financial situation. Cost of revenues increased $1.7 million to $4.8 million principally due to the acquisition of our Los Angeles operations. While revenue increased 37%, total operating expenses increased by 15% and totaled $7.9 million compared to $6.9 million in 2014. We continue to believe there is significant potential for leverage in our business as we scale. In Q4 and early Q1, we have taken a number of steps to integrate operations across all sites and eliminate inefficiencies which will produce additional leverage benefits. R&D expenses decreased $0.4 million to $1.4 million primarily due to lower losses from Oncospire our joint venture with Mayo Clinic. In 2016 we see R&D being flat with Q4 levels as we rationalize investments in this area. G&A expenses increased $0.9 million to $5 million from $4.1 million. The primary driver for this change or the legal consulting cost related to the acquisition of response genetics of about $900,000. Sales and marketing expenses increased $0.5 million to $1.7 million primarily due to the cost from the acquired businesses. We have completed the rationalization of the existing sales force with the acquired one and have modified staffing in the process. We expect a much lower run rate of sales expenditures in 2016. Our GAAP net loss in the fourth quarter was $5.7 million or $0.48 per diluted share compared to a loss of $0.55 per diluted share in 2014. Included in our loss are non-cash charges of $0.7 million for stock compensation approximately $0.05 per share and $0.7 million for depreciation and amortization. Turning to the 12 months ended December 31, 2015, total revenues were $18 million, a 77% increase over the corresponding period of 2014. Biopharma services revenues were $11.6 million including $0.5 million in revenues from our recently acquired LA operation. Clinical services revenues were $5.7 million including $1.3 million in revenues from our recently acquired LA operation. And Discovery services were $0.8 million. Excluding the impact of our recently acquired LA operation, biopharma services grew 98% driven by significant organic growth in testing for clinical trials. As I said a few minutes ago, our discovery services generated $825,000 in revenues, we continue to be pleased with our growth in discovery services and believe this provides in-roads for future revenue opportunities in 2016 and beyond. Cost of revenues increased $5.6 million to $14.1 million principally due to cost of revenue from our acquired businesses and increases in outsourcing services and lab supplies from higher volumes. Gross margins were 22% or $3.9 million which compares with 17% or $1.7 million in the 12 months ended December 31, 2014. The improvement in gross margin percentage is attributable to improved utilization of resources and increased volumes. Total operating expenses were $25.3 million in the 12 months ended December 31, 2015 compared to $21 million in the same period last year. The increase is due to 12 months of acquired operations and increased compensation cost. Our GAAP net loss in the 12 months ended December 31, 2015 was $20.2 million or $1.96 per diluted share compared to a loss of $1.80 per diluted share in the corresponding period in 2014. This includes non-cash amounts of $2.8 million for stock compensation approximately $0.28 per share and $1.7 million for depreciation and amortization. Our basic and diluted shares at December 31, 2015 were 10,299,000 and 9,462,000 respectively. Our shares outstanding at December 31 were 13,652,000. We had total cash and cash equivalents at December 31, 2015 of 19.5 million. Now, let’s turn to our recent acquisitions. We have made significant progress following the close of the transaction in October of last year. In terms of synergies, we continue to expect potential savings approximating more than $5 million annually. As Panna noted, we’ve integrated sales, billing, finance, IT, biopharma assurance and quality insurance. This has allowed us a decreased headcount by more than a third. As we previously noted, the most significant opportunity is in the area of revenue synergy and the ability of the combined entity to capture additional market share. We are quite pleased with the impact from our recent acquisition and their contribution of $1.8 million of revenue in the fourth quarter. We expect this operation to contribute $10 million or more of revenues this year. The initial fourth quarter impact provides us further confidence in that estimate and has been a positive start. The final item I want to cover is cash burn in the first quarter 2016. On our website we’ve included a slide deck with some highlights of our earnings release. In that slide deck it actually includes the metrics regarding cash burn and our view of Q1. We estimate that our loss actively with exclusion of non-cash items for Q1 would be $2.9 million down from $1.4 million in 2015. This change is due to a combination of realization of efficiencies that will be streamline operations and not having the acquisition related expenses that we had in Q4. This benefit translates to our total cash consumed. In Q1 of 2016, we expect to use approximately $4 million of cash. If you look at Q4 of 2015 and adjust for - that will not recur in Q1 so this is our annual NOL sale and our one-time expenses related to the acquisitions the comparable number was $5.5 million. As a reminder, these metrics are non-GAAP numbers and Q1 estimates are subject to change. With that, I’ll turn the call back to Panna.
Good Ed, thank you. As we reviewed 2015 was a significant turning point for CGI both in terms of top-line growth, establishing more biotech and pharmaceutical partnerships, increasing our addressable market into the solid tumor space and expanding our footprint. We significantly grew our customer base, we significantly added more meaningful impact to patients and we created new opportunities to generate additional revenue. We continue to focus on the balance of innovation and execution and developing new tests and services that have meaningful revenue opportunity and immediate revenue impact. We believe that we have a portfolio that is well positioned to succeed a service profile that is unlike any other business in our category. And we look forward to a very high-growth 2016 that we think has a multitude of value-creating milestones both on top-line growth and improved cost structure. We continue to take significant steps across our team and our sites to realize the vision of being the oncology diagnostics partner of choice from bench-to-bedside. With that, I’d like to now open the line for any questions.
[Operator Instructions]. We’ll take our first question from Paul Knight with Janney Montgomery Scott.
Guys, this is actually Bill March on for Paul, can you hear me?
Doing well, Panna, how about yourself?
Could you help us walk us through how to think about getting to that 2017 number of cash flow breakeven? And is that going to be coming more from the biopharma services or the diagnostic side of the business? How is the right way to think about the growth trajectory for both verticals?
Yes, the biopharma business as you know can be lumpy. So we’ve kind of looked, do our best to kind of look at that growth trajectory. But we do expect in ‘16 with our models that we have today and kind of our visibility into the pipeline that the majority of our growth will continue to come from the biopharma side. So, for us, we think that we are a breakeven business at that $9 million to $10 million number. And so, we’re, and we might be able to do it earlier actually given some of the changes that we’ve had in our cost structure that we put in place starting in late Q4 and throughout Q1. So, again, for us that $9 million to $10 million quarter, we see that taking place in early ‘17. So, today if you look at our profile of the business we have about, about to Ed’s comment, we have about in our Q4 we had $3 million coming from the biopharma side, $2.3 million coming from the clinical side. We expect that mix to be about the same. Quarter-on-quarter it might vary because of biopharma projects or launch of new projects getting closed out but we expect that mix, the 58% to 60% is due to our biopharma to remain this year. And one or two quarters it might be a lot higher because of project deliverables.
Okay, that’s helpful. And maybe on the pricing side of things, how does the updated suggestion the scheduled pricing that’s going to come into effect in 2016 maybe gives you some better visibility or less pressure as you think about revenues per test this year?
Yes, that’s a very good question and probably one of the broader discussions on test basis. So, in ‘15, one of the things that we’ve been is we’ve been very conservative on revenue recognition on the clinical side of our business, just given all the changes with how NGS may be reimbursed, may not be reimbursed, is it $800 or $1,000, is it $2,000. And so, we’ve been very careful. And yes, I think we’ve been very conservative on the response just because we’ve only had it for a few months now - I mean, sorry, few months in ‘15. So we were pretty careful, I think we marked down a lot of the revenue. And I think over the next quarter or two we’ll price marking it back on a per test basis as we get history. But the recent 2016 initiative let me walk through each technology and what it means to us. First of all, we think that there is going to continue being significant pricing pressure in next-gen sequencing. As I mentioned earlier in my comments, we’re living in an environment today where we have significant NGS capacity across almost all companies, not just CGI. And so, at the same time we have the clinical environment wanting to only pay about $800 to $1,000 for these panels regardless of size, complexity, value add to patient or impact on lives and we all have case studies ranging from the guys at in-vitae to foundation to ourselves. There is case study after case study about how this totally transforms patient care. But they want to pay $800. So, the good news for us at that price point is, at least we have something to hit. And we know that we can make margin at $800 depending on the panel and if we orient our business to staying in at $800 to $1,000 range, we know that there can be a very good healthy business. The biopharma side tends to pay significantly higher. And of course they want a lot more work and specialization and data analysis. And they tend to pay at least twice that number and sometimes much higher. So, I think our margins would be well not as fast as we would like, we anticipate this year low-end about 15% to 20% margin improvement. And I think if the biopharma business skews higher, then it will be higher margin. So, our biopharma business on a per test basis tends to be about 50% to 60% higher on a per test basis all mixed in. So, obviously that contributes more margins because really a lot of the same core operational workflow is done. Now, again, technology by technology, that’s just sequencing. We also do as you know, FISH-FISH, really improved in ‘16. And so that will have an immediate 30% to 50%, increase in the average price on the FISH side. FISH for us as a volume of our business is about 25% to 30%. And so we think that will lift our average price per test by pretty good chunk. But more importantly it will impact even if you have flat volume clinically it will impact our volume in the FISH side again which is about 25% to 30% of our clinical business. On the flow, flow, there are some challenges and some of the multi-panel flow things that we do but that’s been pretty steady. But again, the big issue really comes on sequencing which I know lots of people are not happy with yet. And while the single-marker, single-test, single-marker, gene test and most of those are beginning to disappear. So we’ll have cost savings improvements because we’re doing all of those on the panel. So, again, profiling, I think it’s at $9 million quarter for us. Again to think, we’re tracking now to another bump in Q1 in terms of the average price per test because of the changes in panel and we get speedier recovery to cash because at least some prices are set. So, I think that’s, I think it’s - net all is a positive. And I think our business model is a little bit insulated from some of that clinical side because again the clinical piece is only about 35% or so of our business.
Got it. And then maybe just a last one, any update you could provide on Fact would be helpful. Thanks. Good day.
Thanks. So Fact, we’re going to make some new announcements on Fact. So that continues, the volumes have not picked up as much as we would have liked. But we have a few large labs now that are evaluating the technology. And now with the FISH reimbursement because it is a fish based test, is back up in ‘16. I expect the adoption to go a little bit more seamlessly this year with Fact. We also will be announcing a few new trials with Fact, to extend Fact into a few other cancers because it works for all HPV cancers. So, again, I think we’ll make steady progress with Fact as well this year.
And we’ll take our next question from Robert Brown with Imperial Security.
Good, Robert. How are you?
Good. I noticed that your revenue for the quarter was $5,484,000 and your loss from operation was $7,177,000. How can you expect to breakeven next year if you continue to lose more money than the revenue, this is the second quarter in a row that’s happened? And what sort of, what is being done to help the shareholders here who are all under water now? And I don’t see anything that you’ve said everything sounds fabulous but I don’t see what is being done to cut losses now, is personnel being discharged? We haven’t heard anything about the financials in terms of what is happening right now? Everything is on the calm, but unfortunately we wanted now. Our stock is down dramatically probably the biggest lowest of any stock that we have. And we would like to know what is going to be done to help the shareholders?
Well, let’s walk you through the waterfall of the net loss and the cash. So, I’ll have Ed walk you through the numbers and where we are as well as give you some view on what we’re seeing this quarter. And then, I’ll give you some specifics of what we’ve done to improve.
I just want to know is this quarter going to be better than the last quarter, that’s all. The quarter you reported on.
All right, so we’re going to walk you through the numbers now.
So, let me answer the question this way. We think the first quarter we’ve already said we think the first quarter would be better than the current quarter. And we think we’ll see an improvement in revenue as we think we’ll see, we’ve made changes to the operations. So, we think we’ll see improvements in the gross margin. And as I alluded to in my commentary, we made changes in many areas in the operations which reduced cost. This involves consolidation of functions and to your point some discharging of staff. So we think that the quarter will be improved as we continue to grow revenue, there are utilizations we think that we’ll see the improvement.
So, going back on the cash thing, I think it’s important to walk you through that. So, the net loss for the Q4, the actual cash loss is…
So, our net loss for the quarter was $5.7 million which did include the tax benefit that we get in the fourth quarter. We had non-cash items, primarily stock-based compensation and depreciation of about $1.6 million. So, our net cash loss for the quarter was about $4.1 million.
As you raise money, you raise money to stay in business otherwise you wouldn’t - if you didn’t have that raise where would you have been? You lost $20 million something in the year, I mean, my god, $21 million you lost from operations, $21,377,000 and the year before $19 million too. How can you stay in business at this rate? It’s great what you’re doing, you’re saving humanity but you’re not doing anything for the shareholders. Can we expect better sales and earnings, potential earnings, you say you’re going to be breakeven in early ‘17, so each quarter should be consistently better than the quarter before, is that correct, less losses?
That’s correct. So, the losses…
Yes, are you letting go of people or are you doing things that you should be doing or how are you adjusting. Obviously what you’re doing now is not working, because you’re losing more money than you’re taking in.
Yes, we did the acquisition in Q4, we’re starting a program of streamlining and as you mentioned letting some people go, looking at functions. Again, in the Los Angeles operation, we had over 30%, nearly a third reduction in the cost structure there. We’ve done the same now in a couple of the other sites. We’re getting a lot of synergy steps of having better sales team. And we reduced the sales team by almost a third as well. So, I think you’re going to see a lot of those effects happen during Q1 and Q2. We have a lower cost structure than we did in Q4. And also at the same time, we got top-line growth, it’s not a situation for the shareholders that you’re going to just shrink and be a great company. You’re looking at a category where we have to continue innovating and meeting the demands of the biotech and pharma and clinical communities. So, I think the top-line growth is really the way to drive shareholder value. And again, as Ed mentioned, the net loss seems higher but if you look at it on a pure cash basis, it’s the cash that went out was not more than the cash that came in. Because again we have one-time cost and we have non-cash items. So again, if you look at our slide-deck that we presented on our website, we walked through very carefully the Q4 versus Q1 and the cash change and cash position. And again, I think that does a very good job of showing how we’re becoming more cash efficient. We think that same trend that same improvement will go into Q2, will go into Q3. And so that’s how we plan on getting into a breakeven position by early ‘17.
[Operator Instructions]. We’ll go next to Ben Haynor with Feltl and Company.
Good afternoon gentlemen.
Doing well. On the, it sounds like you’ve done a relatively good job of cost take-out following the acquisition. Just kind of thinking through gross margin and how we should expect that to ramp throughout the year, I know you guys touched on a little bit of it. But should we expect an improvement more back-end loaded or is the kind of Q2 or could we expect something pretty dramatic in Q1 versus the full-year of 2015?
I think Q1 we’ll see definite improvements over Q4 and maybe slightly higher than our full-year. But don’t forget Q4 and Q1 is really the absorption of the response. And so lot of the cost still continue but Q2 we see pretty dramatic increase in gross profit. And we also see some pretty big new trials starting in Q2 as well. So these are larger kind of backed type trials that allow you to have the efficiencies of this kind of scale that we’re putting in. So, a lot of those trials have just begun now or planning on beginning in early Q2. So I think Q1, will see sequential improvement both in cost structure as well as in income. But Q2 I think you’ll see a pretty big jump and again in Q4. So, Q2 and Q4 we see in our model at least step wise some pretty big jumps because of launch of new products like the hereditary panel, starting of new trials. And those two I think are really agendas we’ll be driving for margin improvement. And again, our goal is to get again about 15 plus points in margin improvement this year and another 15 to 20 next year.
Okay, that’s helpful. And then, can you talk a little bit about the biopharma backlog and where that sits today and how you see that tracking through this year?
Yes, so what we look at is, what you were referring to is contracted revenue with biopharma. We don’t refer to it as necessarily as backlog but our contracted revenue with the pharma partners in Q4 grew by about $4 million to $5 million from the acquisition and the organically another $4 million to $5 million. And we’ve seen the same so far in this quarter, actually more so far in January and February. So, we actually think that this year our internal goal in terms of additional new contracts is to hit an additional roughly $26 million to $30 million in new contracts that will add to our existing $35 million to $40 million in contracts that we’ve signed. So, but don’t forget also as we ramp up these trials, we’re burning off those contracts too. So, our net book to bill ratio is something we’re beginning to follow and track.
Okay. And then on the recently launched Oncomine, could you talk a little bit about how that differs from maybe some of the other solutions that are out there on the market?
Yes, so with Oncomine, we’ve been evaluating a solid tumor panel. And we think there is considerable institutional desire to have a focused solid tumor panel. And we looked at it, we looked at what some of the response people were doing. But the NCI started a trial, the NCI match. And it’s a basket trial and they’re using the Oncomine panel for that. In addition, we’re very comfortable that the Oncomine has a pathway to FDA clearance that’s being supported by Thermo/Life Technologies/Ion Torrent. And so we’ve partnered up with them. We’re one of the few labs that, has the Oncomine up and running. It is a challenging panel, it’s definitely not easy but it reports mutations, copy numbers and fusions. And there are several new fusion-based drugs and targeted therapies that we’re hoping that we’ll be the center to do a lot of that trial work as a result. And so, we’ll be making announcements because of that. So, we did a lot of survey in the field, we talked with thought leaders, we looked a lot of the different panels, we looked at what would be reimbursable clinically to the earlier Bob Brown’s point but what do we do for shareholder value. We wanted to launch it. We knew it is a big addressable market, we knew this could be potentially tens of millions of dollars in this panel alone. But we took a lot of painstaking steps to make sure that was going to be reimbursed that we have a reimbursement pathway to the clinical side. And then we have ample support in the biopharma partners to want to use it both in their targeted trials as well as their basket trials. And basket trials are becoming more and more enrolled, there is not very many of them but they are beginning to pop up. And a basket trial basically is where you’re looking across a whole number of mutations at once and then matching the person based on what the output of the test is. And so that’s a very interesting new model. So I think over the next two years, basket trials will become more commonplace. And these types of panels that give you copy number mutation and fusion data on one panel would be more and more mainstay.
Okay. And is there any clarity at this point as to what would be required for FDA clearance or what the plans might be there?
That mostly is being developed and led by Life Technologies and Thermo-electron, I mean, they kind of do upon their platform. And so, I think we’re really, they’re working with the NCI, they’re working with a couple of other groups. So we’ll obviously do a lot of the testing here we hope, we’re beginning to do that already. And we’ll have the panel available both in the east and west coast because it can be used again for blood for solid tumor. That’s the goal but right now it’s very solid-tumor focused.
Okay, that makes sense. And then lastly from me, just out of curiosity, how is the tissue of origin test doing now that you’ve taken over and done some additional marketing relative to what the previous owner had been doing?
Yes, so, I think there are lots of very little users for the test. Again the test in its hay-day was doing somewhere, our estimates in the $4 million to $6 million type range. So, we expect to bring it back there over the next year too. Again, it’s FDA-cleared which makes the standout from other technology. There is another publication that just came out in December that was put out by Dr. H.H. [indiscernible] from Mayo. That was done. And so again, there is lot of data out there and we’ve really started building the demand. So, we’re going to all the sites that had been using it in the past. We’re actually upgrading the test to run more efficiently and more effectively. In fact, next week we have a major meeting, one of the big technology providers, AFEE that provides the platform that runs on, for some other improvements. But since it is FDA-cleared we’re happy with the performance. We have already increased the volume substantially since Q4. But I think in Q2 and beyond we’ll start tracking it as a separate test and giving guidance. Because again, this is already and FDA-cleared test that really could be pretty high margin contributor for us.
Okay, great. Thank you for that gentleman. That’s all I had.
And ladies and gentlemen that is all the time we have budgeted for today’s call as far as the Q&A goes. And I will now turn the call back over to Mr. Sharma for closing remarks.
Thank you everyone for joining the call. As the questions indicated there is a lot of excitement about what’s happening in the oncology space both in terms of impacting patient care but also as business models change. And we think that we are a very well-positioned company in terms of balance and execution and innovation, which is often times very challenging to do in our industry with a strong history of growth. And I think our evolving marketplace will provide significant shareholder value over time as we continue to execute on our opportunities, introduce cutting-edge new technology especially in immuno-oncology. And again, continue to be the partner of choice for many of the biotech and pharmaceutical companies. So, with that, I thank you guys for joining us this afternoon/evening. And please don’t hesitate to reach-out with questions or comments.
And ladies and gentlemen, this does conclude today’s conference. We appreciate your participation.