Q4 2012 Financial Results
By Brian Marckx, CFA
Q4 2012 Financial Results
On January 11th
DiagnoCure Inc. (Toronto:
T.CUR
)
reported results for the fiscal fourth quarter ending October 31,
2012. Revenue of $143k was just shy of our $166k
estimate. Revenue consisted of $137k (+9% yoy) in royalties
from Hologic Gen-Probe related to Progensa PCA3 and $5.9k of
royalties booked related to Previstage sales from Signal
Genetics.
While Progensa royalties only came in slightly below our
estimate (which we revised lower following Q3 results), they
remain somewhat of a disappointment. As was the case in Q3,
management points to prolonged economic weakness in Europe as the
hindrance to growth of ex-U.S. sales of PCA3. Also as we
noted following Q3 results, it continues to remain unclear what
the issue(s) are that have apparently stunted the roll-out in the
U.S. following FDA approval of the test which happened in
February 2012 and Hologic's acquisition of Gen-Probe in
August. We have again made some (slight) downward revisions
to our forecasted sales of Progensa and the related royalty
revenue to DiagnoCure.
The earnings release also notes that DiagnoCure and Signal
Genetics entered into a settlement agreement relative to
Previstage. The agreement calls for Signal to pay $200k and
CUR will regain all rights to Previstage. CUR will write
off approximately $507k in A/R that they had been carrying
related to monies owed from Signal from sales royalties as well
as for the R&D services contract. We note that at the
end of Q3 CUR had been carrying $707k in A/R due from Signal so
it appears the $200k settlement figure is essentially a carve out
of that A/R balance. It's unclear to us why CUR agreed to
what seems like extremely favorable terms for Signal - although
CUR's press release indicates that they were motivated to
mitigate any litigation expenses/risks.
With Signal now completely out of the picture CUR management
noted on the call that they will pursue a marketing, sales,
licensing agreement with one or more established reference labs
to sell and process Previstage. As this is still on the
front-end management could not provide specifics or
timelines. As a reminder, given the ambiguity surrounding
the future of Previstage we removed all Previstage royalties as
well as R&D revenue from Signal Genetics from our model
following Q3 results. Until there's more clarity on the
potential future of Previstage our model will not include any
contribution from the product. Meanwhile, CUR noted that
they are continuing with R&D activities of Previstage
development, including the VITAR
studies.
Net Income, EPS
Net income and EPS came in at ($2.0) million and ($0.05)
compared to our ($1.2) million and ($0.03) estimates - the
difference mostly attributable to a $650k non-recurring
impairment charge.
Cash balance (including investments) stood at $5.8 million at
10/31/2012, compared to $6.5 million at the end of Q3
(7/31/2012). Management indicated that 2013 full-year cash
burn is expected to be $1.7 million - $2.0 million, down from
approximately $3.0 million used in 2012.
Outlook Mostly Unchanged
As we had already made adjustments to our model related to the
hiccup with Previstage as well as made meaningful downward
revisions to our ramp in PCA3 following Q3 results and with no
significant surprises in the Q4 earnings release or conference
call, our financial model remains mostly unchanged from our
previous update.
We look for total revenue of $820k in 2013 (all of which is
PCA3 royalties), growing to $6.5 million in 2015, this is
adjusted from $1.1 million in 2013 and $6.8 million in
2015. With the close of fiscal 2012, we now model out to
2016 in which we estimate revenue of $9.1 million. As we've
explained in the past, long-term our outlook has always been
mostly driven by an elongated ramp in PCA3 royalties so the
hiccup with Previstage, even if prolonged or even permanent, has
a much more muted effect on our long-term outlook and modeled
revenue.
Our DCF-generated valuation remains at approximately
$1.80/share, unchanged since our last update. We are
maintaining our Outperform rating.
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