StageZero Life Sciences Ltd

TSX:SZLS

Earnings Call Transcript

[Operator]

Good morning, everyone, and welcome to the StageZero Life Sciences First Quarter Financial Call.

[Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Rebecca Greco of StageLight -- StageZero Life Sciences. Rebecca, over to you.

[Rebecca Greco]

Thank you very much. Good morning, everyone, and thank you for joining the StageZero First Quarter 2024 Earnings Conference Call. Joining me today is StageZero, Chairman and CEO, James Howard-Tripp.

Please note that management's discussion today will contain forward-looking statements about anticipated results and future prospects. Forward-looking statements involve a number of risks and uncertainties and StageZero's results may differ materially from those discussed today. Investors should consult the company's ongoing quarterly filings and annual reports for additional information on risks and uncertainties relating to these forward-looking statements. Investors are cautioned not to rely on these forward-looking statements. The company disclaims any obligation to update these forward-looking statements, except as required by law.

On today's call, management will refer to non-GAAP adjusted EBITDA. This metric excludes certain items discussed in our press release under the heading Discussion of Non-GAAP Financial Measures and any other items that management believes should be excluded are available in the financial tables in the first quarter 2024 financial results, can be found on the StageZero's website.

With that, I'd like to turn the call over to James Howard-Tripp, StageZero's Chief Executive Officer. James, please go ahead.

[James Howard-Tripp, executive]

Thank you, Rebecca, and good morning, everyone. Thank you for joining us today. On today's call, we will refer only to the Q1 2024 financials that have been filed on SEDAR.

I wish to address the still-pending 2023 year-end financials. On April 2, 2024, we put out a press release announcing the delay in the filing of the 2023 year-end financials and explain that due to the company not having the full financial resources to fully pay the auditors to complete the 2023 audit, and thus established in the independent opinion, the financials will be delayed. The company is working on rectifying this. The Ontario Securities Commission granted our company 90 days to complete the filing. Once a failure to file Cease Trade Order being enacted. Therefore, StageZero has until July 3 to file its year-end financials and associate documents. We're working to file ahead of that deadline. However, we will not make a May 31, 2023, filing deadline as initially referenced in the press release of April 2, 2024. We will continue to update this as we move forward and we'll do this on a regular basis.

Turning now to the actual financials. Key things, in fact, let me go to the next slide. We actually had a very busy Q1 for a whole variety of reasons. One, to directly address 2 issues. One is the revenue figure that was quoted in the 8 period review for Q4 of 2023 is incorrect. The correct number is approximately $675,000 for the quarter, which essentially puts it in line with the previous quarter. We will update on all of the financials -- the corrected financials when we do the audited financials when we post the audited financials.

The second thing is a decline in revenue during Q1, this was due to staff illness. We run a relatively small team, very specialized, highly specialized, and we had just a very unfortunate run from a lot of people being ill at the same time and full productive periods of time. That affected our ability to actually adequately deal with patients on an immediate basis, and we're dealing with all of the backlog right now. The advantage, obviously, is that we have a backlog. We're still getting new patients. We're continuing to feed them in and things are returning to normal. So we expect all of that to play out positively as we move forward.

In addition to that, we advanced Aristotle, a huge focus on Aristotle at this point. We built Care Oncology to back it all up. We, in actual fact, have a very definite advantage versus most other groups in the multi cancer diagnostic space, I'll talk about this as we go along, by having this setup. So it's not only Care Oncology, it's the telehealth piece as well. But Aristotle is where the thrust is. Aristotle is what you will hear most about this year as we drive on through, and to that extent, we've been very busy putting partnerships in place that we feel confident will give us very good revenue potential for this year.

So to talk to that specifically, we've added a new lab group, multi-lab group right across all of the U.S. in addition to the others that we have had during the Q1. The reach is both into the U.S. and in Canada, and that's an advantage for us, and they have a particular set of partners, which focus on individual patient groups but also employers, and we're beginning work with them. Aristotle will be key with all of that but we also have an opportunity to bring a AVRT into that, obviously, backed up by the clinic. So we're looking forward to that. And we'll talk to revenue potential on that in a moment.

Second to that, we've added a new multicenter clinic group into the west of the country, specifically focused into Western Canada as well as Western U.S. They're in the process of going live right now, heavy focus on Aristotle as we drive it down through, and we're looking forward to getting that running as well.

The third piece is that we are working with a very large executive health group to offer multi-cancer screening across Aristotle. This is from the Canadian side. We will provide more details as we move forward with this. We'll have a nice announcement to make as we formally go live with them. But they're an exceptional group and it's an ideal clientele for us as what is for them. We also expand the capabilities all the way through this.

In addition to that, we've taken the opportunity to reorganize the Richmond lab. As we came out of Aristotle, there were a series of surplus aspects that we had, we've been able to significantly reduce cost as we've driven through all it is. I think if you look at the Q1 financials, you see a very significant increase in gross margin. Our gross margin now across all of this is 58%. We're looking to improve that a little as we move forward, and that obviously is a very big advantage. I think particularly important when you compare us to other lab groups, other lab groups tend to run at a very much lower gross margin. It also begins to move us more to being able to stand on our own 2 feet.

The final piece here is that we formalized business development in Europe, and we're preparing for the launch of the upgraded COC protocol 2.0. Europe is 780 million people. So as that drives through, we have a business development lead into Europe, very well connected building out with a whole series of new partnerships allows us to work with upgraded pricing across all areas and we're moving to that quite aggressively. We have an interest in taking Aristotle to Europe. For that, we obviously need regulatory approval, so we're beginning to move down that path, but that is key as well.

I'll talk now -- I missed a slide, let me go back one. Here we go. Just want to talk to upcoming catalysts. Again, just to reemphasize that for this year, it is Aristotle that is the key focus on this. With the partnerships that we currently have in place, we believe these can take us to a very good revenue level. We will obviously look to continue to add partnerships as move out during the year but with just the partnerships in place right now, we see significant revenue potential. Therefore, the focus entirely is of getting these live, getting these out, getting these fully operationalized. And that's the key piece. Again, it's backed up through all of the Care Oncology side from a clinic perspective, as I talked about.

We want to expand the Care Oncology U.S. aspect into the employer market in the U.S. Bear in mind that, that's the AVRT program. Aristotle tells cancer today, AVRT tells cancer tomorrow that allows us to triage through all patients that test positive, and that is a key piece. The first question you get from employers when you talk to them is to say, right, you're going to flag a whole series of my employees positive. What are you going to do with them? And they don't have systems in place. We need to have systems in place and this like where you need. We're literally the only group that has that full follow through that can help from screening through early diagnosis through to getting referrals and manage patients down the way. It's taken us time to build it but it is working.

As we've talked about, the launch of the Care Oncology protocol 2.0 into Europe is key. And then the 2 studies as we bring them up. And you think about 2 studies in different ways. One is not only where they would take the business, but in terms of catalysts or increased exposure of who we are and what we are.

So I'll move now briefly to discuss the competitive landscape because we got a significant number of questions on this. And I won't belabor this but simply to say that right now, the signs is playing in our favor. We find that circulating tumor cells and cell-free DNA and actual fact is, it's falling into this favor. I would go as far as to say that NCI conference a little while back, with respect to all it is actually predicted that those 2 technologies would not make the grade because, one, they're not tissue-specific tissue of origin, specific enough, and two, they are not good at finding early-stage cancers. I think we can see that with respect to where some of these companies are going.

Additionally, as we continue to refine our algorithms, remember that behind what we do is machine learning and a degree of artificial intelligence. We continue to refine our algorithm. And as we're doing that, our results in actual fact are getting better and better in terms of specificity and sensitivity. So right now, as one group has characterized us for likely the industry leading, we need to continue to expand that as we drive it all the way through. Remember that we're not only specific, we're multi-cancer. We are early stage as well as late-stage and because it's just a blood draw, it is relatively noninvasive.

If you contrast this to a variety of other tests around everything from full body MRI to the single cancer test, you will see that, first of all, sensitivity and specificity or the accuracy of these methods drops off markedly. And so we'll get a lot of discussion about the fact that you need to be at, let's say, 99% specificity with the sensitivities that are in the high 90s but much we generally are in that area, but one forgets that it puts us streets ahead of the single tests in terms of where they are. So we have a very significant advantage. We need to just make sure that we continue to roll it out. We will do that.

Revenue streams are important. I think as we've talked about it, we run an integrated system. Therefore, it works in multiple ways. If you look at Aristotle, Aristotle USD 949, we do a single Aristotle test. That is what we get. We have 1,000 patients within this, so 1,000 patients is essentially $1 million as you drive it through. So that's the revenue potential off of doing Aristotle alone.

However, we combine Aristotle with the metabolic panel in other words, AVRT as we drive it through, you add the additional $795 million. We then know that a significant number of patients test positive within this. So they, therefore, come into the risk factor modification program, notably with the employees in order to be with executive health groups as you drive through. That, therefore, allows us to continue to work with them over time.

The TREAT Clinical Program is essentially $2,500. Therefore, the partnership model gives us a much broader revenue base, allows us, as we've talked about before to treat the patients quarter after quarter. Therefore, we have an ongoing revenue stream. I'll go back to discussion right at the very beginning of this, where we talked about the issues with revenue during Q1, those patients didn't go away. Those patients are there in backlog as we're able to come back and to actually get them pull into the program, we continue to drive that forward. So the good thing is that the model is sticky, the patients stay with us, they get tested quarter-over-quarter.

In addition to that, we continue to build out the additional supplemental program offerings, for example, Mental Health as well as some nutritional, these tie into not only what we can offer by the Care Oncology side but they tie to what we can do with employers, too, particularly as we work with the AVRT. That is key.

I'll talk briefly to the METRICS study. We have identified several sources of funding for both of the studies, both on the Aristotle side as well as on the glioblastoma side. We are moving down these as well. But also because METRICS, METRICS would be multi-center with not only the U.K. but would also be into Europe as well as North America. We have an ability to pull it forward.

And I think at this point, I'll take a moment just to talk a little more about what the Care Oncology program is because I had a discussion with a shareholder last week, where I think as we're going through this particular person said, "Gosh, I hadn't realized you did all of this", that is because it came from a friend of this that is just newly being diagnosed with cancer, and they said, well, could we help? Yes. Obviously, if we were screening with Aristotle right in the beginning, yes, we can help, we can drive it there but once you are diagnosed with cancer, we can help as well.

And so as we talked about it by running someone through the Care Oncology program, what we do is adjunctive to standard of care. So standard of care would typically be surgery for us, would be a radiation therapy second, if you require it will be Chemotherapy third, if you require it. We typically feed in, in the latter stages of this. So we are in addition to what that is. What we do is we work with metabolic aspects within all of the programs. And we help make, for example, the chemo more effective, we hope make the immune response more effective. And as a result of that, we all look for better outcomes.

We have some remarkable results. Out of all of this, the METRICS study as we did in glioblastoma, we showed this, where in that study, we actually doubled overall survival rate in the first 18 months of treatment. So you put all of this together in terms of the packages, what we do, you add the telehealth component to it. We have a very solid program offering and a very unique program offering.

Sorry, just waiting for the slides to catch up. There we are. So on the Aristotle side, and again, just to reinforce, even though I'm talking about the Care Oncology side, Aristotle is our primary focus for this year. It's the one you should expect to hear a lot about. The Aristotle cancer studies are key to us as we build out not only in terms of what we might ultimately want to do with the FDA but in terms of what we would want to do in Canada as well as Europe. And so as I mentioned, we have identified sources of funding in addition to obviously funding that would come internally, key of that.

What we are looking for is to provide a means of rapidly screening patients that are referred into these centers. Right now, they're referred in very often tens of thousands of patients referred in with a presumed possibility of having cancer. The starting point for a lot of these patients is not a given. Patients have to be worked up. That work up is often not terribly well to find it can be very resource intensive, very time consuming and very expensive.

The belief here is that by running them through Aristotle because we are cancer-specific, because we screen for the most common cancers, we can provide a definitive yes or no in order to move these patients through to further work up. That will be a major advantage. It should shorten time. It should reduce resource need, it should reduce cost. The obvious advantage to this is that it positions us very well as a program for all of this. We're getting more and more pick up on this as we move through as we go forward. Bear in mind that, as I talked about, we could then tie it back through all of the TREAT programs as well.

So we are moving these forward as aggressively as we can. Funding is obviously key around this and so funding whether it would be from our own abilities or from external funding sources. That allows us to move it forward. So you should fully expect to hear more about this. That is it at this point. We wanted to provide you with as much of an update as we can.

Guidance has been that we take written questions only. So we're going to ask people to submit written questions. We will answer your questions, the key ones we will post broadly so that everyone can see those, and we will drive through from that. Other than that, thank you for attending. We will keep you as up-to-date as we can as we move out through the next few weeks.

Thank you, operator.

[Operator]

Thank you very much, James. We will now conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.