1,000-Lesion Data Looks Positive - Analyst Blog
23 Janvier 2012 - 5:18PM
Zacks
1,000-Lesion Data Looks Positive
Brian Marckx, CFA
Verisante (VRS.V,
V.VRS, VRSEF) continues to pump
out a regular stream of meaningful news, reflecting progress being
made in moving Aura closer towards commercialization and
management's efforts in publicizing the virtues of their
technology.
The highlight of the highlights was this past weekend's
presentation of the 1,000-lesion study data………
RECENT
HIGHLIGHTS
1,000-Lesion Study Presentation: The eagerly
anticipated statistical analysis of the 1,000-lesion study,
Verisante's most pivotal trial to-date, were presented this past
weekend at the SPIE (international society for optics and
photonics) conference in San Francisco. As a reminder,
previously announced preliminary study results on 274 lesions,
indicated a sensitivity of 100% and specificity of 70% for Aura in
the detection of melanoma.
The study included the measurement of over 1,000 lesions from 848
patients. Dr. Haishan Zeng presented the data at SPIE as an
invited keynote speaker. Results showed Aura had a
sensitivity of 99% and specificity of 17% in differentiating all
major cancers from benign lesions. At 95% sensitivity,
specificity in differentiating all major cancers from benign
lesions increased to 41%. In differentiating melanoma from
benign lesions, the data showed Aura had a sensitivity of 99% with
a specificity of 15%. At 95% sensitivity, specificity
increased to 38% in differentiating melanoma from benign lesions.
Although the specificity is lower than what the interim data
showed, this was not a surprise and there were no realistic
expectations that that level of accuracy would carry over to the
full data set. In fact the results are comparably very
compelling relative to clinical trial data from MELA Sciences
Melafind device which showed a sensitivity of 98% and specificity
of about 10% in the detection of melanoma. The study, which
required a sensitivity of at least 95% and included about 1,800
lesions from ~1,400 patients, was the pivotal study Melafind used
to support their FDA approval application. FDA approval of
Melafind, after long delays, finally came in Q4 2011. Based
on the relative strength of Aura's clinical trial data (i.e. - at
95% sensitivity specificity was 41% for all lesions and 38% for
melanoma, compared to ~10% for Melafind), this could potentially
bode well for eventual FDA approval - although FDA approval may
require additional (U.S. based) studies.
Aura also has other advantages relative to Melafind including:
o Aura can be used for the detection of all types
of skin cancer, while Melafind is used only for melanoma.
While melanoma is by far the most serious and deadly form of skin
cancer, it accounts for only about 5% of the disease (basal cell
and squamous cell carcinoma account for about 95% of all skin
cancer cases). Aura may also have utility in the diagnosis of
actinic keratosis, a precancerous skin condition which is estimated
to affect about one-half of the global population (i.e. - the
target market is enormous)
o Aura's probe is relatively small compared to
Melafind's, allowing Aura to scan difficult parts of the body such
as around the eyes and ears, where a larger probe can not
access
o Aura's scan time is almost instantaneous
allowing for full-body scans in minutes whereas MELA's device takes
significantly longer (especially when including the patient
prep-time). Full body scans are clearly the sweet-spot for
skin cancer detection devices as the time-consuming current
clinical "ABCD" diagnostic method is not practical for this.
o Verisante's technology is also being developed
for derivative applications - including for the detection of lung
cancer (and follow-on applications for oral, colon, cervical
cancers)
JP Morgan Healthcare Conference: We met up
with Thomas Braun at the JP Morgan Healthcare conference in San
Francisco about two weeks ago. Although Fair Disclosure rules
limit what we could discuss, our take-away feeling is that the
status of the major points of interest (product development,
regulatory approval progress, integrity of data, commercialization
in initial territories, potential demand/pricing for Aura, feedback
from conferences/presentations, etc.) is
positive.
CE Marking / Australian Approval: November
9, 2011 Verisante announced Aura was CE Marked, allowing the device
to be sold throughout the European Union. Australian
regulatory approval came in mid-December. This follows on the
heels of Health Canada approval which came around
mid-October. Aura is now approved for sale in every territory
that management had been working towards for the initial (pre-U.S.)
roll out of the device. This milestone, in our opinion, is
important from not only the obvious standpoint that Aura has
regulatory approval in key skin-cancer markets, but also from the
perspective that management has delivered on a very important goal
within their expected timeframe.
Popular Science Award: November 16, 2011
Verisante announced that Popular Science magazine awarded Aura a
"Best of What's New" award, naming it as a top technology of
2011. Editor in Chief of the publication, Mark Jannot, noted
that "The Best of What's New Award is the magazine's top honor and
the 100 winners, chosen from among thousands of entrants, represent
the highest level of achievement in their fields."
FDA Regulatory Process: As we have detailed
since initiating on Verisante, FDA approval is expected to be a
considerably longer process than was regulatory approval in their
initial geographic target markets. Nonetheless, the company
is making progress in that direction and in late December announced
that they expect to have an initial meeting with the FDA during Q1
2012 to discuss the potential U.S. regulatory approval pathway for
Aura. Our initial and current expectations (although we have
no particular insight on this) are that approval will need to come
via the PMA process and be supported with data from additional
clinical testing - this upcoming pre-IDE meeting will hopefully
provide guidance on the regulatory pathway as well as what the FDA
will be looking for in regards to supporting
data/information. Our current (as well as initial)
assumptions are that Aura could be on the U.S. market by 2014.
European Distributors: Verisante's
late-December operational update press release also noted that the
company is in the process of selecting distributors and expects to
launch Aura in Canada, Germany, Austria, Switzerland and Australia
in the second half of 2012. This is slightly later than our
early-2012 prior estimate, although given that we model only
minimal sales in 2012 (we have adjusted our near-term revenue
estimates) as a whole, the difference at this juncture is
relatively immaterial.
1,000-Lesion Data Publication: The article
has been submitted for publication and is currently in the
peer-review process.
Mexico and Brazil: Verisante has begun the
registration process to sell Aura in Mexico and Brazil. The
company hopes to obtain registration in Mexico in 2012 and Brazil
possibly in late 2013.
High Praise for "Core": The Canadian Cancer
Society cited a clinical study using Verisante's laser Raman
Spectroscopy in the detection of lung cancer as one of its "Top 10
Canadian Cancer Society Funded Research Stories of 2011"
(link here….. http://bit.ly/whcTOI). In the small
(26-patient) pilot study Verisante's "Core" cancer (lung, colon,
cervical cancers) device candidate was able to detect precancerous
lung lesions with a sensitivity of 96% and specificity of 91% when
used with existing methods (white light bronchoscopy and
autofluorescence bronchoscopy). Results of the study were
published in the July 2011 issue of the Journal of Thoracic
Oncology. Verisante owns or has rights to all of the
technology used in the pilot study including Core's Raman system as
well as white light and fluorescence technology. The
combination of technologies demonstrated an impressively high level
of specificity (low false-positive rate) in the pilot study -
which, depending on the success of future larger studies, could be
very promising for improving the detection of early-stage lung
cancer. However, as we noted when the study results were
first announced (in mid-2011), while the results of the study 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. 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).
Multi-Spectral Imaging License: In July 2011
Verisante entered into a licensing agreement for the global rights
to a rapid multi-spectral imaging cancer technology owned by Dr.
Haishan Zeng (who is also on Verisante's product development team)
and Dr. Yasser Fawzy, both of the British Columbia Cancer
Agency. While Verisante's current main focus will be with
getting Aura (which uses higher sensitivity/specificity Raman
technology) launched, the multi-spectral imaging technology could
potentially be used in a lower cost, follow-on device for the
detection of skin and oral cancer. The lower cost of a
multi-spectral imaging device has the potential to broaden
Verisante's potential customer market, especially with dental
practices and smaller or rural physician clinics with lower patient
throughput. Future derivations could also potentially include
a device using both multi-spectral and Raman technologies.
Verisante is currently working on a multi-spectral prototype
device. If eventually commercialized, the multi-spectral
device would compete against a handful of already available
products in the oral cancer detection application (VELscope,
Identafi, Vizilite Plus, Microlux, etc.), some of which also use
some form of multi-spectral imaging. Despite the competition,
there remains a potentially attractive opportunity for Verisante as
there is unmet demand for a compact, affordable device than has
better accuracy than available products in the early detection of
oral cancer. Our model also does not currently incorporate
any contribution from a potential multi-spectral device - if and
when appropriate, we will update our model
accordingly.
Q3
FINANCIALS
Verisante's financial results continue to be very much in-line with
our estimates. Results for Q3, ending September 30, 2011,
were filed on November 29th. SG&A of CDN $982k was
slightly above our $740k estimate as a result of higher stock-based
compensation. EPS was CDN ($0.02) on net income of CDN
($988k) versus our CDN ($0.01) and CDN ($710k) estimates.
Share count outstanding was 59.5 million, just about dead-on with
our 60 million estimate.
The company continues to manage their cash very efficiently.
Rates of cash burn have been impressively moderate especially given
the progress management has made in hitting development milestones
and marketing via attending/ presenting at industry conferences
throughout the world. Cash used in operations was a fairly
meager CDN $297k in the quarter and just under CDN $800k over the
past nine months. Investing activities used CDN $657k and CDN
$1,080k over the same periods, mostly reflecting the acquisition of
licenses/technology and development costs related to Aura which are
being capitalized. Cash balance, including liquid
investments, was CDN $6.1 million at the end of Q3, compared to CDN
$4.9 million at Q2 quarter-end. The net CDN $1.2 million jump
in cash was a result of CDN $2.1 million in proceeds from the
exercise of 5.4 million warrants (less the aforementioned CDN $954k
used in operating and investing
activities).
FINANCIAL
MODEL
We continue to value Verisante at $2.60 share………As we have noted in
previous updates, our model assumes a selling price for Aura of CDN
~ $45k. This is somewhat conservative compared to
management's current expectations - based on their study of the
market including in-depth discussions with professionals
knowledgeable of the space, Verisante believes a selling price of
at least CDN $60k is very attainable. This could potentially
provide significant upside to our current financial model, which
would in-turn drive valuation higher. As it is now, our
long-term revenue estimates and valuation remain unchanged since
our previous update.
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