StageZero Life Sciences Ltd T.SZLS

RE:GEN History

[polo11]

goldbug83 wrote: (New to T.GEN and just starting my DD) What precipitated the fall from $1.80 to $0.01 in 2015? Was it simply a profitability issue and problems with their joint venture partners? 

COMMERCIAL ACTIVITIES
Innovative Diagnostic Laboratory, LLP
IDL is a national clinical reference laboratory specializing in personalized blood-based tests used to find, understand and treat cancers. It operates from a single facility in Richmond, Virginia, that is capable of servicing the entire United States. IDL was formed in the second quarter of 2013 as a limited joint venture between GeneNews, Health Diagnostic Laboratory, Inc. (“HDL”) and Cobalt Healthcare (“Cobalt”). HDL contributed lab and business management services, including IT and back-office support; Cobalt contributed contract sales expertise; and GeneNews contributed the lead product, ColonSentry®, and new product expertise. Until May 15, 2015, the partners each owned a 331⁄3% share of IDL; GeneNews and Cobalt have bought out HDL’s share and now own 50% each (see “Recent Developments” for details of the May 15 transaction that resulted in this change).

Early successes at IDL in 2014 saw enthusiastic acceptance of ColonSentry® by physicians, with more than 65,000 tests ordered during the year. IDL’s product offering was expanded by in-licensing lung and prostate cancer tests— the EarlyCDT®-Lung and Prostate Health Index (“PHI”) tests, respectively—and by adding 16 other supportive tests. Total test sales grew meaningfully during the first three-quarters of the year: the three-party structure was working.

However, in the midst of this 2014 ramp-up, HDL, was identified by the US Department of Justice in an investigation, and HDL’s focus shifted away from IDL. Growth of test sales slowed, and reimbursement was not maximized. In September 2014, GeneNews and Cobalt offered to purchase HDL’s share of IDL and GeneNews began to take a proactive role at IDL.

Beginning in January 2015, the finance, reimbursement and back-office roles were undertaken directly by IDL employees, instead of by HDL, and the IT infrastructure was brought in-house from HDL. To improve reimbursement, IDL engaged another third-party billing company and hired a senior reimbursement executive. This resulted in an increased sophistication of IDL’s billing process and the successful renegotiation of several of its onerous contracts without penalty.

In May 2015, GeneNews’s and Cobalt’s buyout of HDL was completed, and each partner now owns 50% of IDL (see “Recent Developments”); GeneNews and Cobalt have begun to restructure the partnership to better reflect the current contribution of the partners and to focus the organization on reestablishing growth in both sales of tests and payments. With greater leadership and control over IDL’s activities, we began focusing our efforts in the second quarter on re-establishing IDL’s growth trajectory. On the sales front, this has meant bringing the Cobalt contract sales force in-house and realigning their compensation, adding marketing and sales support, building an inside-sales effort to support sales representatives and regions not yet fully covered by the sales force and beginning the establishment of contractual relationships with hospital and large practice groups.

Page 2 of MD&A

GeneNews Limited Management’s Discussion & Analysis

With respect to billing and reimbursement, in June 2015, IDL switched over completely to the larger, more sophisticated third-party billing company to provide rapid daily claims submissions; a more complete claims process, including all levels of appeals; a complete appeals program allowing for better management of patient responsibility pricing; and full appeals management, which is expected to result in higher average payments. Growing sales and improving reimbursement are IDL’s top priorities for the second half of 2015.

The following table illustrates sales of tests and selected financial results for IDL through 2014 and the first half of 2015:

in thousands of US$, except numbers of tests	Q1 2014	Q2 2014	Q3 2014	Q4 2014	Q1 2015	Q2 2015
Total tests (including ColonSentry®)	15,861	49,819	51,056	46,327	39,584	34,981
ColonSentry®	10,846	22,942	17,288	14,387	11,398	9,524
Total revenues	463	1,658	4,345	2,594	2,718	2,421
Total expenses	3,077	6,713	7,414	4,935*	5,672	4,624*
Net loss	(2,614)	(5,055)	(3,069)	(2,341)*	(2,954)	(2,203)*

*Adjusted for a provision that had been included in Q4 2014 total expenses and net loss but that was reversed, in full in the second quarter of 2015 as a result of a successful renegotiation of an agreement with Beckman Coulter, Inc. (“Beckman”; see “Prostate Health Index test” below).

IDL has processed over 235,000 tests to date; more than 85,000 of these were ColonSentry®. With the launch of three major cancer diagnostics and 16 supportive tests, IDL continues to expand its test menu.

ColonSentry® commercialization

The ColonSentry® test assesses an individual’s current risk of having colorectal cancer through a simple blood test. Colorectal cancer (“CRC”) is one of the biggest killers in the United States, claiming more than 50,000 lives per year. Although CRC is a preventable and treatable form of cancer when detected early, people often delay or avoid being tested until symptoms appear. Patient discomfort with common test options like colonoscopy or stool-based tests continues to drive high noncompliance with recommended screening guidelines, resulting in late-stage detection when CRC is least curable.

Sales of ColonSentry® at IDL grew rapidly during both the first and second quarters of 2014, driven primarily by the expansion of the IDL sales force. As discussed above, during the second half of 2014 and continuing in the first quarter of 2015, HDL’s business challenges necessitated shifting in the primary focus at IDL to the refinement of its organizational structure. This shift in focus negatively affected sales of ColonSentry® and other tests at IDL.

The immediate priority at IDL is to reestablish growth in all tests, with ColonSentry® being the lead test. To this end, IDL has adopted the measures outlined above with respect to both the sales effort and the billing and reimbursement changes. ColonSentry® has been well accepted by the medical community and patients, with 65,000 tests ordered within the first full year. As IDL begins to build sales again, it is seeing market enthusiasm for the test continuing. IDL expects these and other steps to improve sales and reimbursement in the latter half of 2015.

EarlyCDT®-Lung
In keeping with IDL’s strategy to focus on products and tests that lead to early cancer diagnosis, IDL in-licensed a second product, EarlyCDT®-Lung , which it added to its menu in January 2014. EarlyCDT®-Lung is an antibody- based blood test that can indicate when a patient has an increased risk of lung cancer. Lung cancer is the leading cause of cancer deaths among adults in the United States, taking the lives of more people each year than colon, breast, prostate and pancreatic cancers combined. Lung cancer claims more than three times as many men as prostate cancer and nearly twice as many women as breast cancer.

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GeneNews Limited Management’s Discussion & Analysis

As a part of the May 15, 2015, transaction with HDL, IDL confirmed its role as a sub-licensee of EarlyCDT®-Lung and, as such, is responsible for sales contacts, billings and collections. Although HDL filed for Chapter 11 bankruptcy protection in June 2015, its subsidiary, Central Medical Laboratory, LLC (“CML”), has continued processing the tests. IDL is in discussions to ensure processing of these tests continues uninterrupted.

Prostate Health Index (“PHI”) test

In April 2014, the PHI Test Agreement with Beckman, which allowed IDL to add Beckman’s PHI test to its menu of cancer assays, was announced. The PHI test is a simple blood test that is three times more specific in detecting prostate cancer than the prostate-specific antigen (“PSA”) test. While the PSA test is currently the most widely used screening test for prostate cancer, it is generally recognized that PSA results can often indicate the possibility of prostate cancer when none is present. The PSA test is based on the fact that men with higher levels of PSA are more likely to have prostate cancer. However, higher levels of PSA can also be caused by a benign enlargement or inflammation of the prostate, leading to many false-positives for cancer and ultimately unnecessary, invasive biopsies with an increased potential for patient harm. The PHI test helps physicians distinguish prostate cancer from benign conditions by using three different PSA markers (PSA, free PSA and pro2 PSA) as part of a sophisticated calculation to more reliably determine the probability of cancer in patients with elevated PSA levels.

IDL launched PHI in mid-2014, and reception to and uptake of the test were encouraging. However, the initially forecasted sales levels were aggressive, and IDL did not meet its contracted sales volume. As a result, at December 31, 2014, IDL accrued $5.5 million related to its shortfall on the annual volume specified under the PHI Test Agreement. However, this agreement was successfully renegotiated without penalty in May 2015, and the accrual has been reversed. Additional tests were also licensed in May 2015 and they are expected to be available in early 2016.

As IDL refocuses on expansion of the sales effort and growth in test volumes, higher test volume and revenue for PHI is expected. It is not only primary care physicians and urologists who see the benefit in PHI, larger hospital groups have shown interest as well.

BreastSentry®: pro-NT and pro-ENK biomarkers

In October 2014, we in-licensed two biomarker assays—pro-NT and pro-ENK—that may aid physicians in identifying those women in the general population who have the highest risk of breast cancer. These assays were developed by sphingotec GmbH, which is best known for the discovery and development of biomarker assays.

Breast cancer is the second leading cause of cancer deaths in women in the United States and is exceeded only by lung cancer. The American Cancer Society estimates that in 2015 approximately 231,840 new cases of invasive breast cancer will be diagnosed in women and approximately 40,290 women will die from the disease. As with most cancers, early identification of high-risk patients and intervention are the keys to improved clinical outcomes.

Many breast cancer cases are not due to genetic inheritance and, unlike other blood tests on the market that look for genetic indicators for breast cancer, pro-NT and pro-ENK are biomarkers that, when measured in a simple blood test, indicate the level of a woman’s risk for breast cancer. BreastSentry®, the name under which we expect to market the completed test, is being validated as a lab-developed test at IDL and is expected to be available in early 2016.

RECENT DEVELOPMENTS
Financing
In August 2015, we accepted subscriptions for a nonbrokered private placement offering reflecting amended terms whereby each unit comprises one common share and one warrant; each warrant entitles the holder to purchase one common share for $0.50 on or before September 15, 2017. These amended subscriptions total approximately 3.96 million units at a price of $0.32 per unit for gross proceeds of approximately $1.27million. The closing is expected to occur on or around August 18, 2015 and is subject to TSX approval.

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GeneNews Limited Management’s Discussion & Analysis

Increase of stake in IDL

Effective May 15, 2015, our wholly owned subsidiary, GeneNews (USA), Inc., entered into a purchase agreement with Cobalt and HDL under which we and Cobalt have acquired HDL’s one-third share of IDL. We now own 50% of IDL, as does Cobalt. The aggregate purchase price was US$4.0 million. We paid US$1.0 million in cash and issued a one-year secured note payable in the principal amount of US$1.0 million for our share. The note payable will accrue interest until maturity at a rate of 2% per year. The purchase agreement contains customary representations, warranties and indemnification provisions.

2015 warrant exercise and expiries

Effective February 1, 2015, 5,736,916 share purchase warrants, exercisable into 1,003,609 common shares with an exercise price of $1.44 per common share and expiring on February 1, 2015, were exercised for total proceeds of $1,445,197. On the same date, 9,993,359 share purchase warrants expired. Effective June 1, 2015, 2,360,091 share purchase warrants, exercisable into 413,012 common shares with an exercise price of $1.44 per common share, expired unexercised.

Short-form amalgamation of Canadian GeneNews entities

Effective January 1, 2015, we completed a vertical short-form amalgamation in accordance with to the Business Corporations Act (Ontario) with our wholly owned subsidiaries, GeneNews Corporation and GeneNews Inc. As a result of the amalgamation, all of the issued and outstanding shares of each of the subsidiaries were canceled, and we have assumed all the assets, obligations and liabilities of each of the subsidiaries. No securities of GeneNews were issued in connection with the amalgamation, and our share capital remains unchanged. The amalgamation did not have any significant effect on our business or operations. These steps were taken to further streamline the administration of our Canadian operations.

OUTLOOK

With the buyout of HDL’s interest in IDL complete (resulting in our holding a 50% ownership interest in IDL) we can focus again on growing and expanding the early cancer diagnostic test menu and revenues at IDL. Both GeneNews and IDL are in discussion with several entities to license in their products for commercialization by IDL. Several of these are novel, proprietary diagnostics and IDL would be the sole US laboratory offering the tests. It is IDL’s business strategy to develop a testing menu that will allow it to operate as a leading cancer diagnostic lab focused on early detection.

We believe strongly in the capabilities and the potential of IDL. Should the opportunity present itself, we would further increase our level of ownership in IDL. 

Read more at https://www.stockhouse.com/companies/bullboard/t.gen/genenews-limited?postid=25332897#lReGPOKOlqXP7GQ3.99