President and CEO: Michael Nall
WSA: Good day from Wall Street. This is Juan Costello, senior analyst with The Wall Street Analyzer. Joining us today is Michael Nall, the President and CEO for Biocept Incorporated. The company trades on NASDAQ, ticker symbol is BIOC. Thanks for joining us today there, Mike.
Michael Nall: Thanks. It’s nice to be here with you and the listeners, Juan.
WSA: So starting off, please give us a history and overview of the company.
Michael Nall: Sure. Biocept is a molecular diagnostics company and we specialize in liquid biopsy. Some of your listeners may have heard about liquid biopsy but for those that haven’t, liquid biopsy is a new disruptive technology that’s really taking oncology care to a new level. And what we can do is isolate tumor cells and tumor DNA out of a simple blood sample that normally would require a tissue biopsy to gain the same level of information. So if folks Google “liquid biopsy” they’ll get a lot of hits because liquid biopsies are being used in other parts of medicine as well, but we’re focused on cancer care here at Biocept, and helping folks who have been diagnosed with cancer, and helping them and their physician make sure they get on the right treatment.
WSA: So bring us up to speed on some of your recent news there. You recently had an agreement with VWR and you also put out some financial results.
Michael Nall: Absolutely. We’re growing fast and you mentioned our results. At Q2, we reported that we had grown 30% quarter-over-quarter versus Q1 and 60% year-over-year, so well into the million dollar figure now routinely quarter-after-quarter and growing fast — that was after our first full year of commercialization last year when we launched our full product line. We did make an announcement with VWR, which was important. And Biocept today, primarily, does laboratory testing. So we have a core laboratory in San Diego, and specimens come from all over the world from physicians that need our information to make sure their patients get on the right treatment decision.
So about 80% of the specimens come from the U.S. and about 20% from outside the U.S. One of the key differentiators about Biocept is that we have patents on what we do. We aren’t just a laboratory doing the same kind of testing that other folks do. We’ve got over 20 patents issued on our technologies that we use to perform this testing to be able to get molecular information from a simple draw of blood instead of requiring a tissue biopsy. Part of that includes the way the blood is collected and we have a proprietary and patented blood collection tube. Now the tube is a standard vacutainer tube but the media inside the tube, the preservative that keeps the blood stable for up to 96 hours or up to eight days, depending on the tests that are being run, is proprietary and patented for us.
So we made a deal with VWR, they’re going to market and sell our tubes. And as I mentioned earlier in our conversation, there are other liquid biopsy companies out there as well and they could use our tube and VWR will now distribute it to pursue this big opportunity. For the listeners that don’t know, most of the big Wall Street investment banks and analysts estimate that liquid biopsy overall is a $10 to $20 billion dollar opportunity in the next five years, worldwide, so this could be a huge potential market as we focus on cancer care with liquid biopsies.
WSA: What are the key trends that you’re focusing on right now in this sector and how you are continuing to position the company to capitalize?
Michael Nall: Well, we’ve come a long way over the past three years since we did our IPO. And when we first started talking to physicians and medical oncologists about liquid biopsy, it was a lot of “Well, that’s interesting but how does it work and can we really trust it?”
And based on data we presented and other folks have presented in the industry, physicians are really starting to embrace liquid biopsy. So we’re seeing this uptake now as more and more physicians are choosing our tests. Today, primarily, when tissue biopsies are not possible or practical, and that’s primarily in lung cancer — 60% to 70% of our volume is for folks that have lung cancer — we’re able to give them an answer where there wasn’t one before because of the difficulty in getting a lung biopsy.
But we’re starting to get more and more information in an area where liquid biopsy really shines and that’s for monitoring of disease and treatment response. So in other words, a physician will start to monitor for progression of disease or response to therapy using our blood sample. And if you think about it this way, their only other choice is to use a tissue biopsy, but repeating tissue biopsies for monitoring wouldn’t be practical. So instead with a blood test, we can isolate those cancer cells and cancer DNA and look for response to therapy. So we’re seeing the business evolve from out tests just being used at the time of diagnosis to now starting to be used more and more for monitoring.
WSA: And what are some of the factors that you feel make Biocept and your approach unique from some of the other players in the sector?
Michael Nall: Yeah, that’s a great question. Well, there is one really big difference that physicians like and that’s that we can give them more information than some of the other folks in the space, and that’s because we isolate both the intact cells that are shed from solid tumors into the bloodstream — these are called circulating tumor cells – these are the whole cells. And we can also look for cell-free DNA, which is a DNA fragment. So what happens is that cells breakdown in your body, they release nucleic acid into the bloodstream, and that has DNA fragments in it. We’re going to isolate the fragments, which is where most people are in liquid biopsy, and we can also look at the intact cell, which is a more difficult proposition because if we get the intact cell, we can have tests that require an intact cell for other information such as protein expression. It sounds kind of complicated. But just picture it this way: there are certain tests you need to have a complete cell to do the test for, and there are other tests that you can do very well with DNA fragments. Therefore, most people use the DNA fragments but aren’t able to give the complete information that the physician needs. We do both so we can give a more complete answer. So in fact our tag line is “completing the answer”. So, that’s one huge differentiator between us and other folks that are in liquid biopsy. Another one is what I talked about earlier, and that’s that we’re really a technology company. We have the patents around what we do.
So for investors, the bigger opportunity of Biocept is in the future as we transition to more of a distributed platform model rather than just as a lab. We’ll always have our lab to be able to do new things and test advancements and other uses of the technology. But ultimately in the next few years we want to be able to move what we’ve developed in our own lab, and put that into what are call liquid biopsy “kits” and allow hospitals to do the same type of testing we do. So we’re actively working on that. VWR was the first step to be able to take some of our technologies and put them in the hands of others, and we want to move all of our liquid biopsy technologies out that way as well. So it’s a big opportunity for us, not just here in the U.S. but also outside the U.S. and in territories such as China.
WSA: So what are some of the other goals and milestones that you’re hoping to accomplish over the course of the next six to twelve months?
Michael Nall: Well, the first thing that investors should look for is further growth as we report our results. And so as I said, we just reported Q2, and I’m pleased with those results and we anticipate continued growth as we go through the year and coming quarters. Also, we expect to enter into more and more partnerships both here in the U.S. and outside the U.S. A press release we recently had highlighted an investment from our largest investor, Ally Bridge, which is a strategic health care fund based in Hong Kong. They own about 15% of Biocept today and they made an additional investment recently and they’re advising us as we look to enter into China to find the right strategic partner. So we would anticipate global partnerships as well as additional partnerships here in the U.S. We’ll also be rolling out a way we can partner with pathologists here in the U.S., which should expand ability to grow domestically. This is a strategy, that we believe is also unique to Biocept.
Today, we call primarily on medical oncologists and we get blood samples straight from their office. But as liquid biopsy becomes the standard of care, the hospital systems want to participate in that, so we will have a partnership model rolling out soon, that they can benefit from as well. We’ll be launching more tests as the year goes on. We started with one test back in 2014. Today we have 15 that are validated in our lab to are able to be sent for clinical treatment. We have a several projects with pharma, et cetera, but for clinical treatment, we have 15 tests in our current menu.
We also have more health plan agreements. That’s one thing that investors are always excited about, seeing when we get a payer agreement, and we have quite a few of these. I encourage everyone to review our corporate slide deck that’s on our website if you want to be able to learn more about those health plan agreements.
Finally, more and more clinical study results are important. They are important to get the physician confident in our technology so they will order our tests, and they are also important to potential pharma and strategic partners elsewhere. So those are some of the key milestones to watch for in the coming quarters.
WSA: And, perhaps, you can talk about your background experience, Michael, and who the key management team is there.
Michael Nall: Sure. We’re very thankful to have a fantastic management team here that works with me. I have over 25 years of experience in health care, specializing in general management. And most recently, I was in a company called Clarient, which was at one time one of the largest cancer diagnostic companies in America. We were purchased by GE in 2010. I had been there from the very beginning since 2002, so we really watched the company grow and grew it along the way. I started there as a salesperson. I left there as general manager over the business. I did work three years for GE at which point I was recruited to come here and get back in the entrepreneurial world, which is where I love to be. And I’ve been here at Biocept now for just about four years. Just a few months before we did the IPO in February 2014, I came on board as Biocept. My CFO is Tim Kennedy. Tim has a long background in diagnostics and laboratory operations. He was originally at National Health Labs, which eventually became LabCorp. So a long time in the lab and years of experience.
Lyle Arnold is our chief scientific officer. Lyle is a serial entrepreneur with years of experience in the space. He has 47 issued patents here in the U.S. and 140+ issued worldwide, so a fantastic entrepreneur and inventor as well.
Dr. Veena Singh is our medical director. Veena came to us after being at bioTheranostics, which was part of BioMerrieux, another oncology company that’s based in San Diego. She is a molecular pathologist, did her training at UCSD, and then her molecular pathology fellowship at Cedars-Sinai in L.A.
We have Mike Terry who’s our commercial leader. And Mike has years of experience not just in diagnostics but in liquid biopsy in particular, having previously led commercial operations at Sequenom and Trovagene.
And finally, David Moskowitz is someone who some of the investors may already know or know of. He was a renowned analyst before he came over to the company side and he heads up our corporate communications and corporate capital market strategy. So that’s our executive team.
WSA: And as far as investors and the financial community, Mike, what are some of the key drivers that you want them to better understand about Biocept?
Michael Nall: Well, Biocept is one of the leaders today in this emerging area of liquid biopsy. You know, people always say, “Where is this market at as far as evolution?” And I liken it to baseball. We’re still in baseball season here, and I’d say we’re kind of at the top of the third inning. There’s still a lot of room to grow, so we’re really still at the beginning of this and we’re one of the leaders in the space. And we have a unique offering because we can do both the intact cells as well as the cell-free DNA that allows us to offer a broader menu than folks who are just focused on those DNA fragments, as I explained earlier. We do have the patents on what we do, which is important.
We have over 20 patents now worldwide and that creates value in the company and helps protect us and the markets we go into. So that’s truly a value creator. And then our results speak for themselves. We’re actually getting paid by the major health insurance companies and Medicare, which is somewhat unusual in the diagnostics space. And the reason for that is because we’re focused on the genes that the health plans know are valuable for patient care. Some of our competitors offer only very large panels of genes, a kind of “one size fits all” and therefore, the payers usually don’t like to pay for that because they end up with some tests that might not be helpful for that certain patient. Physicians could order our tests ala cart from our menu of tests, so they can order one test for a patient or they can order ten tests for a patient. It depends on what information they’re looking for, and the health plans favor that. And that’s a key reason why we get paid today for the work we’re doing.
We’ve heard that a lot of diagnostic companies have struggled with getting reimbursed by health plans until they get more established. So we’re actually collecting revenue.
One of the things investors usually like to know is how we’re doing with our cash position. And one metric that’s important to understand is last year at the beginning of 2016, we provided about 5% of the cash needs of our business from operations. And as we exited last year, we grew the business to provide 20% of the cash needs from the operation. So this is the right kind of trajectory and folks can chart our path to break even and ultimately to profitability. Those are just a few key reasons why I believe investors should be excited about our stock.
WSA: Great. So once again joining us today is Michael Nall, CEO and President for Biocept Incorporated. The company trades on NASDAQ, ticker symbol BIOC, currently trading at $1.28 a share, market cap is about $38 million. And before we conclude here, to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
Michael Nall: Well, as I mentioned earlier, there’s a fantastic opportunity in liquid biopsy, which truly is revolutionizing how cancer patients are managed and treated. The big banks estimate the total market here between $10 and $20 billion in the next five years for all aspects of oncology-related liquid biopsy. And Biocept is one of the leaders in that space. We feel, of course, that we are tremendously undervalued, so a great opportunity for buyers to get in. And one other thing to notice is that we are, as far as I know, the only pure-play liquid biopsy company now in NASDAQ. We did have another competitor in the segment but they have recently decided to focus on drug development. So we’re the pure-play liquid biopsy opportunity to get in. And I think as we grow our market share, it’s going to provide a nice opportunity for investors to get a return, perhaps, in the future as an exit plan comes into play.
WSA: Well, we certainly look forward to continuing to track the company’s growth and to report on your upcoming progress. And we’d like to thank you for taking the time to join us today, Michael, and to update our investor audience on Biocept. It was great having you on.
Michael Nall: Thank you very much. It’s nice to be with you all.