By Brian Marckx, CFA
Verisante (TSXV:VRS .V)(OTC Markets: VRSEF)
filed their Q2 2012 financials for the period ending 6/30/2012 in late August. Operating expenses were $669k, down slightly from the $773k in the year-earlier period. Net loss and EPS were $659k and ($0.01) compared to $759k and ($0.02) in Q2 2011.
Cash burn remains very much in-line with our projections. Management continues to manage capital well, keeping operations lean while continuing to make meaningful progress with product development and pre-launch marketing and investor-awareness activities.
Cash burn (including capitalized R&D) was $1.4 million and $2.6 million in the three and six month periods ending 6/30/2012. VRS exited Q2 with $3.5 million in cash and short-term investments.
Field Testing Ongoing
Verisante continues to make progress with field testing of Aura and last week announced that they placed more beta units in Canada for that purpose. The device is now or has already been tested by doctors and consenting patients in British Columbia, Alberta and Ontario. VRS notes that they expect field testing to continue over a period of about 2 - 4 months during which data and feedback will be collected and used to make any necessary final refinements to usability and the software. This is expected to be the final step prior to commercialization of Aura.
Rodman & Renshaw Presentation
Thomas Braun made a presentation at a Rodman & Renshaw conference held in NYC last week where he outlined the key competitive advantages of Aura and summarized the company's near-to-mid term commercialization strategy. Some of our key take-aways, which mostly relate to timelines, include;
- The clinical study of Core for lung cancer being conducted at the Lung Tumor Center at Vancouver General Hospital should complete by this Summer and results published by year-end
- Registration for sale of Aura in Mexico and Brazil began about 3 months ago (as a reminder Aura is already approved for sale in Europe, Canada, Australia, New Zealand and South Africa)
- Commercialization timelines by territory (per a presentation slide);
o Canada: device sales commence in late 2012. Disposable end-cap sales begin early 2013. Service contract revenue begin early 2014.
o Europe/Australia/New Zealand/S.Africa/Mexico/Brazil: device sales commence in late 2012. Disposable end-cap sales begin early 2013. Service contract revenue begin early 2014.
o U.S.: device and disposable sales begin late 2014
- VRS's targeted roll-out strategy remains unchanged. Initially they expect to target dermatologists ("early adopters"), then general physicians ("innovators"), and finally other health care providers including skin care clinics, oncology practices, and imaging centers
- VRS continues to work on the pre-IDE process related to an eventual FDA filing. VRS is working with their U.S. consultant to put together their pre-IDE submission (which should be "any day now"). Following the submission, VRS will meet with FDA (potentially sometime near year-end) where the agency is expected to provide specific guidance relative to the U.S. regulatory approval pathway. The current expectation (which remains unchanged) is that FDA will want VRS to conduct a multi-site clinical trial (n= ~1,000 including at least 100 melanomas) in support of an eventual PMA filing. The trial is expected to take about 1 year to complete. Assuming a 12-month turnaround by the FDA, a reasonable best-case scenario could have Aura on the U.S. market in late 2014. As we note below, given the slight delay in the IDE process (initially an IDE meeting was expected earlier in 2012), we have pushed back our assumed U.S. launch of Aura from late 2014 to mid-to-late 2015, which provides some cushion for further delays.
- VRS expects revenue from service contracts (in all territories) could be meaningful following the expiration of an initial 12-month warranty period
We continue to model an initial launch in late 2012 with an immaterial amount of revenue in the current year but showing a steep ramp throughout 2013. We had previously modeled Aura to launch in the U.S. in late 2014 but given the slight delay in the IDE process (initially an IDE meeting was expected earlier in 2012), we have pushed back our assumed U.S. launch of Aura from late 2014 to mid-to-late 2015 (slightly more conservative than management's late-2014 guidance, which provides some cushion for further delays). Updates to our model mostly effect years 2014 - 2015 with a much more muted impact over the longer-term.
As commercialization (ex-U.S.) is now expected to be a near-term event, we are now using DCF as our valuation methodology. Key inputs to our 10-year DCF model include a 10% discount rate and 2% terminal growth rate. Our DCF model values VRS at about $2.70/share (which is very much in-line with our prior valuation of $2.60/share).
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