Joel Ackerman - Chief Executive Officer.

Good afternoon everyone. My name is Kyla and I will be your conference operator today. At this time, I would like to welcome everyone to the Champions Oncology Quarterly Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions) Thank you. And Mr. Ackerman you may begin your call..

Thank you. Good afternoon everyone, I’m Joel Ackerman the CEO of Champions Oncology. Thank you for joining us for our quarterly earnings call. After a brief introduction I will cover the most significant updates since our last call, talk about the financial results and then open it up to questions.

Before I start, I will remind you that I will be making forward-looking statements during the call and actual results could differ materially from what is described in those statements. Also, additional information on factors that could cause results to differ is available in our Forms 10-Q and 10-K.

Reconciliation of the non-GAAP financial measures that maybe discussed on the call to GAAP financial measures is available in the earnings release. The most positive event of the first quarter was the signing of our first fully powered clinical trial simulation contract in the TOS business.

As our platform expands and the number of models in the bank continues to grow, our customers have been looking to run larger studies with more models that can replicate the size and power of phase II clinical trials. This study will utilize 100 models of a single tumor type.

This is comparable in size with typical human phase II study, but will cost our TOS client approximately 10% of the cost of the typical human trial. We see this is an important evolution in the use to our technology and a validation of the commercial value of a larger tumor bank.

Booking these studies is very challenging, because of the difficulty and massing the right models and the proper information about these models. For this study we will be using a sizeable number of models from our current bank, supplemented by a large number of models that we have yet to develop.

Overtime, we expect these larger studies will continue to drive revenue growth. However, they do take time to deliver and result in a longer sale cycle and time to revenue recognition than we have had in the past.

The second topic I want to highlight from the quarter relates to finding the patients to enable us to build the models for the study I just mentioned. As background, one of the pressing challenges we faced is getting access to tumor tissue from the types of patients we need to build a clinically relevant tumor bank.

The models our customers are looking for are typically later stage patients who’ve already been treated with chemotherapy. Getting access to tumor tissue from these patients is very challenging, because they do not typically get surgery to remove their tumors and when they do get biopsies there is generally no excess tissue.

This is the reason that our POS business is strategically so important, not because of its commercial contribution today but because of it gives us access to patients and their tumor tissue to enable the establishment of additional models for the bank.

As we look to scale the bank overtime, it is critical that we develop the capability to source patients and tumors as needed to meet the needs of our TOS customers.

During the quarter we made great strides improving to ourselves that our POS team and our medical affairs group have established the capabilities to access clinically relevant patients for new model development. We now have multiple investigator sponsored trials and research collaborations that are active or pending.

These relationships span many of the best oncology institutions in the United States and will serve as proprietary source of tumors for our bank. This capability is essential to the successful implementation of our business plan and the progress we made in putting these relationships and place this quarter was very encouraging.

The third event of the quarter that I wanted to talk about is the FDA's notification of Congress, of its intent to publish a proposed risk based oversight framework for laboratory developed tests. As you probably know our POS business is currently regulated by CLIA at the state level, as a laboratory developed test.

There is a long process ahead as the FDA has not yet officially published the guidance, and once they do, there is a common period and likely a multi stage phase in.

Therefore, it is too early to draw any conclusions about the implications for the POS business, but under the draft guidance we expect to be considered a high risk test and would be ultimately be regulated by the FDA.

We’re obviously going to watch this carefully, but continue to focus for now on developing the quality of our offering and the data to support its benefits to patients.

Looking forward, we do believe the risk associated by the potential for FDA regulation is mitigated by the fact that the core commercial driver of our business is the TOS business selling to pharmaceutical industry, not the POS business. Now let me talk about our financials.

From a financial standpoint, I’ve talked in the past about the volatility in our business and the fact that our revenue was likely to continue to bounce around from one quarter to next. In the last this volatility has generally worked to our advantage. This quarter the opposite is the case.

Stepping back from the results, we remain excited about our prospects over the next few years, as we transition from the proof of concept phase to the scaling face. Our strategy is not geared towards producing smooth results across quarters, but targeted towards developing long term value for our shareholders. Now let me turn to the specific results.

During the quarter we implanted 106 new patient tumors, an increase of 64% over last year. 91 of these implants came from our commercial POS offering which represents 40% year-over-year growth.

We continue to experiment with pricing to find the optimal level that balances the commercial needs of the TOS business with our strategy to accelerate the growth and scale of the tumor bank.

We’ve increased our use of free implants in certain situations to give physician groups experience with the operational and clinical aspects of our technology and to add more tumors to the bank. POS revenues were $341,000 a decrease of 281,000 over the same quarter last year.

Approximately $100,000 of the revenue decline is attributable to the continued decline of revenue from the non-core products we offer. As we stated in the past, we expect this revenue to continue to decline as we deemphasize these products and focus our efforts on our core technology offerings.

For the quarter the non-core revenue was almost zero and is quickly becoming immaterial to our quarterly financial results. The balance of POS revenue decline was primarily the results of lower number of test panels completed and the lower number of test per panel. The decline was largely concentrated in one market outside the U.S.

and was driven by a change in personnel and a particularly strong quarter in the comparable first quarter of fiscal 2014. Because of our stage of development, the actual number of panels done in each corner is still relatively small, so the revenue can be skewed by just a few large test panels in a given quarter.

Stepping back, as I pointed out before, the growth in the number of patients using our technology to speed the growth of the tumor bank is more important metric of success in the actual revenue growth of the POS business. POS cost of sales were roughly the same this quarter as compared to the same quarter last year.

While the volume were down, there are significant fix costs in the business and we did occur some significant costs both one time and ongoing associated with adding implant patient centers in California and Toronto.

This is a good example of the investments and infrastructure and capabilities that we continue to make to support the scaling of the business for the future. Now let me talk about the TOS business. TOS revenues were $1.6 million for the quarter, a 35% decrease over the same quarter last year.

We disclosed on the call last quarter that we were expecting the TOS revenue to be weak. We believe the revenue decline is partly the results of the inherent volatility of our financial results. Our TOS revenues for a given quarter can be heavily influenced by one or two large studies and these can be lumpy over the course of the year.

Also, we do believe that the restructuring of the sales team and TOS that we discussed last quarter has created some disruption in the sales pipeline. Territories and customer were transitioned to new sales reps and this does lead to time delays in getting new work sold.

The new team was hired at the beginning to the summer and we are excited with the increased level of activity we are seeing in the pipeline.

However, because it takes time for the new sales team to get up to speed and because the sales cycle for each study is typically at least a few months and because of the conservative revenue recognition policy we have, the conversion of sales activity to revenue take some time.

This challenge is exacerbated as we pitch larger studies to our customers which have an inherently longer sale cycles than smaller studies. TOS gross margin were 39% for the quarter, versus 63% for the same quarter last year. I would not read anything into the large swings in year-over-year gross margins.

There are lots of factors that impact gross margin on a quarterly basis. Over the long term we will continue to focus on improving our gross margin, by improving our pricing profile with customers and driving down costs by leveraging fixed overhead and finding economies of scale.

Regarding our operating expenses, sales and marketing expenses continue to grow as we increase the sales effort. This is an important investment in the future growth of the company and we think we will pay dividends in continued growth in fiscal 2015.

R&D showed by far the biggest jump in expenses and is one of the major contributors to our negative cash flow for the quarter. The increase and expenses is a result of the definitive decision by the company to invest in the growth of our platform.

We’re adding hundreds of models to the bank each year and are increasing the level of genomic characterization of each model. Simultaneously, we’re engaged in research to broaden our platform to include new tumor types and the ability to test immune therapies. We’re excited about these projects and are committed to investing in them for future growth.

G&A was also up over last year, as a result of our continued investment in growing our senior management team to lead the development of the company. Our cash position at the end of July was $3 million, as you would expect financing is on the top of our priority list and we expect to have more to say about this next quarter.

In conclusion, we continue to make progress towards our goal of creating a unique platform of clinically relevant TumorGraft for patients in the pharmaceutical industry. We’ve accelerated our investment in growing the platform to maximize our prospects for dominating this space and are excited about the future revenue streams this will enable.

This is the end of my prepared remarks. I’ll now open up the call to questions..

(Operator Instructions) And at this time there are no questions. Thank you..

Well, thank you very much all. We appreciate your listening in on the call and we look forward to keeping you updated in the future..

This concludes this afternoon’s teleconference. You may now disconnect your lines..