Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LPDX > SEC Filings for LPDX > Form 10-Q on 14-May-2013All Recent SEC Filings

Show all filings for LIPOSCIENCE INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for LIPOSCIENCE INC


14-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the fiscal year ended December 31, 2012 appearing in our Annual Report on Form 10-K filed with the SEC on March 27, 2013. Overview
We are an in vitro diagnostic company pioneering a new field of personalized diagnostics based on nuclear magnetic resonance, or NMR, technology. Our first diagnostic test, the NMR LipoProfile test, directly measures the number of low density lipoprotein, or LDL, particles in a blood sample and provides physicians and their patients with actionable information to personalize management of risk for heart disease. Our automated clinical analyzer, the Vantera system, was cleared by the FDA in August 2012 and became commercially available in December 2012. The Vantera system requires no previous knowledge of NMR technology to operate and has been designed to significantly simplify complex technology through ease of use and walk-away automation. We plan to selectively place the Vantera system on-site with national and regional clinical laboratories as well as leading medical centers and hospital outreach laboratories, which we believe will facilitate their ability to offer our NMR LipoProfile test and other diagnostic tests that we may develop. We are driving toward becoming a clinical standard of care by decentralizing our technology and expanding our menu of personalized diagnostic tests to address a broad range of cardiovascular, metabolic and other diseases.
To date, the NMR LipoProfile test has been ordered over 9 million times, including nearly 2 million times during 2012, and the number of tests ordered has grown at a compound annual growth rate of approximately 28% from 2007 to 2012. The NMR LipoProfile test is reimbursed by a number of governmental and private payors, which we believe collectively represent approximately 150 million covered lives.
We currently perform all NMR LipoProfile testing at our certified and accredited laboratory facilities in Raleigh, North Carolina. We intend to accelerate clinician and clinical diagnostic laboratory adoption of the NMR LipoProfile test and future clinical diagnostic tests by increasing access to our technology platform through the launch of the Vantera system. We have entered into agreements with some of our current clinical diagnostic laboratory customers to place the Vantera system in their laboratories, and we are also in discussions with additional laboratory customers who have indicated a similar interest in the placement of the Vantera system. In addition, we are placing the Vantera system with academic centers that are collaborating with us to develop additional high value diagnostic assays based on NMR technology. We will retain full ownership of any Vantera analyzers placed in third-party laboratories and will be responsible for support and maintenance obligations. In general, we expect that the number of Vantera analyzers that will be placed in our clinical diagnostic laboratory customers' facilities will depend on their demonstrated annual production volume for the NMR LipoProfile test and their ability to increase demand for our tests.
We believe that the inherent analytical advantages of NMR technology will also allow us to expand our diagnostic test menu. We are currently developing NMR-based diagnostic tests for use in the prediction of diabetes, including the assessment of insulin resistance, and we are investigating opportunities to develop new diagnostic tests for other diseases.
We have incurred significant losses since our inception. As of March 31, 2013, our accumulated deficit was $50.8 million. We expect to incur significant operating losses for the next several years as we seek to establish the NMR LipoProfile test as a clinical standard of care for managing a patient's risk of cardiovascular disease.


Table of Contents

Financial Operations Overview
Revenues
Substantially all of our revenues are currently derived from sales of our NMR LipoProfile test to clinical diagnostic laboratories, physicians and other healthcare professionals for use in patient care. For the three months ended March 31, 2013 and 2012, sales of the NMR LipoProfile test represented approximately 96% and 93%, respectively, of our total revenues. The remainder of our revenues is derived from sales of standard analytical chemistry tests, which we refer to as ancillary tests, requested by clinicians in conjunction with our NMR LipoProfile test, as well as revenue from research contracts. Ancillary tests are non-FDA approved blood tests that any clinical laboratory can process. Customers may order these tests from us at the same time as the NMR LipoProfile test for convenience. These tests are not run on our NMR technology platform, but instead are run on a traditional chemistry analyzer. We anticipate that the proportion of our revenues represented by sales of the NMR LipoProfile test will continue to increase as we increase the number of these tests performed for our customers.
The following table presents our revenues by service offering and source:

                            Three months ended March 31,
                                  2013                  2012
                                   (in thousands)
Revenues:
NMR LipoProfile tests $        13,090                 $ 12,867
Ancillary tests                   308                      513
Research contracts                218                      403
Total revenues        $        13,616                 $ 13,783

Our revenues are driven by both test volume and the average selling price of our NMR LipoProfile test. We expect to increase the proportion of our business conducted on a wholesale basis through clinical diagnostic laboratories as compared to our direct distribution channel in which clinicians order the test directly from us. We expect this trend to continue as we decentralize access to our NMR LipoProfile test by placing the Vantera system directly in third-party laboratories. For direct sales, the price we ultimately receive depends upon the level of reimbursement from Medicare or commercial insurance carriers. Clinical diagnostic laboratories purchase our test at prices that we negotiate with them, which will continue to be the case for NMR LipoProfile tests performed using the Vantera system, whether the analyzer is located on-site at the customer's laboratory or at our own facility. These clinical diagnostic laboratories are responsible for obtaining reimbursement from third-party payors or directly from patients. The average selling price of our tests sold to these laboratories is less than that for tests we sell directly to clinicians. We expect that our overall average selling price will continue to decline in the near future, as we increase the proportion of our business conducted on a wholesale basis through clinical diagnostic laboratories. We expect this trend to continue as we place the Vantera system in third-party laboratories, as the price we receive for a test performed on-site at third-party laboratories using the Vantera system will generally be less than the price for the same test performed at our own facility. We do not, however, expect that our revenues, income from operations or liquidity will be materially affected by an erosion of average selling price due to changes in the channel mix, as we believe that the increase in test volumes through these laboratories and the number of laboratory customers offering our NMR LipoProfile tests will outweigh the impact of decreases in average selling price, especially if demand increases for Vantera system placements.
During the initial rollout period for the Vantera system, we expect that most Vantera placements will be with our existing clinical diagnostic laboratory customers. As a result, we anticipate a gradual shift in the NMR LipoProfile tests performed from our existing laboratory facility to our customers' facilities. We expect that the reduced volume in the number of tests performed at our facility will be partially offset by growth in NMR LipoProfile test orders from new clinical diagnostic laboratory customers who may not initially meet our test volume criteria for a Vantera system placement. Our revenues from ancillary tests, while a diminishing portion of our business, are similarly dependent upon our rates of reimbursement from various payor sources. For example, Medicare reimbursement rates are established by the Centers for Medicare and Medicaid Services, or CMS, each year. Changes in Medicare reimbursement rates are dependent on a number of factors that we cannot predict. Reductions in reimbursement rates for these ancillary tests would reduce our overall revenues from these tests.


Table of Contents

Cost of Revenues and Operating Expenses
We allocate certain overhead expenses, such as costs associated with information technology, rent, utilities, insurance and depreciation of general office assets to cost of revenues and operating expense categories based on headcount and facility usage. As a result, an overhead expense allocation is reflected in cost of revenues and each operating expense category. Cost of Revenues and Gross Margin
Cost of revenues consists of direct labor expenses, including employee benefits and stock-based compensation expenses, cost of laboratory supplies, freight costs, depreciation of laboratory equipment, leasehold improvements, royalties paid under license agreements and certain allocated overhead expenses. Since the Vantera system became commercially available in December 2012, our placement costs and associated service and maintenance support have been included in cost of revenues. We expect these expenses to increase in absolute dollars as we support our customers' use of the Vantera system, although we expect these increased expenses to be offset by increased revenues from additional test volume. During the three months ended March 31, 2013 and 2012, our cost of revenues represented approximately 21% and 17% , respectively, of our total revenues.
Our gross profit represents total revenues less the cost of revenues, and gross margin is gross profit expressed as a percentage of total revenues. Our gross margins were approximately 79% and 83%, respectively, for the three months ended March 31, 2013 and 2012. We expect our overall cost of revenues to increase in absolute dollars and as a percentage of total revenues as we continue to increase our volume of tests performed, including tests performed by third-party laboratories using the decentralized Vantera system. Research and Development Expenses
Our research and development expenses include those costs associated with performing research and development activities, such as personnel-related expenses, including stock-based compensation, fees for contractual and consulting services, travel costs, laboratory supplies, fees associated with collaboration agreements and allocated overhead expenses. We expense all research and development costs as incurred.
During the three months ended March 31, 2013 and 2012, our research and development expenses represented approximately 23% and 16%, respectively, of our total revenues. We expect that our overall research and development expenses will continue to increase in absolute dollars as we develop additional in vitro diagnostic assay candidates that can be performed using the Vantera system.
Sales and Marketing Expenses
Our sales and marketing expenses include costs associated with our sales organization, including our direct sales force and sales management, and our marketing, managed care and business development personnel. These expenses consist principally of salaries, commissions, bonuses and employee benefits for these personnel, including stock-based compensation, as well as travel costs related to sales and marketing activities, marketing and medical education activities and allocated overhead expenses. We expense all sales and marketing costs as incurred.
During the three months ended March 31, 2013 and 2012, our sales and marketing expenses represented approximately 49% and 40%, respectively, of our total revenues. We expect our sales and marketing costs to increase, both in absolute dollars as well as a percentage of our total revenues, as we expand our sales force, increase our geographic presence, and increase marketing and medical education to drive awareness and adoption of the NMR LipoProfile test. General and Administrative Expenses
Our general and administrative expenses include costs for our executive, accounting and finance, legal, and human resources functions. These expenses consist principally of salaries, bonuses and employee benefits for the personnel included in these functions, including stock-based compensation and professional services fees, such as consulting, audit, tax and legal fees, medical device excise tax, general corporate costs and allocated overhead expenses, and bad debt expense. We expense all general and administrative expenses as incurred.


Table of Contents

During the three months ended March 31, 2013 and 2012, our general and administrative expenses represented approximately 24% and 16%, respectively, of our total revenues. We expect that our general and administrative expenses will increase, primarily due to the impact of the medical device excise tax, described below, and the costs of operating as a public company, such as additional legal, accounting and corporate governance expenses, including expenses related to compliance with the Sarbanes-Oxley Act of 2002 and investor relations expenses.
Medical Device Excise Tax
In March 2010, President Obama signed into law a legislative overhaul of the U.S. healthcare system, known as the Patient Protection and Affordable Care Act of 2010, as amended by the Healthcare and Education Affordability Reconciliation Act of 2010, or the PPACA. The PPACA includes provisions that, among other things, require the medical device industry to subsidize healthcare reform in the form of a 2.3% excise tax on U.S. sales of most medical devices beginning in 2013. Regulations implementing the tax were finalized in December 2012, but the long-term impact to our company remains uncertain as some members of Congress are working to delay enactment of the tax. While we continue to evaluate the impact of this tax on our overall business, this tax is applicable to the sales of our NMR LipoProfile tests and could adversely affect our results of operations, cash flows and financial condition. During the quarter ended March 31, 2013, our sales of the NMR LipoProfile test resulted in excise taxes of $0.3 million from this tax, which we have recorded in the statements of comprehensive (loss) income as general and administrative expense. Other Expense
Interest income consists of interest earned on our cash and cash equivalents. During the three months ended March 31, 2013 and 2012, this income has not been material, although we expect our interest income to increase as we invest the net proceeds from our initial public offering.
Interest expense consists primarily of interest expense on our loan balances and the amortization of debt discounts and debt issuance costs. We amortize both debt discounts and debt issuance costs over the life of the loan and report them as interest expense in our statements of comprehensive income.
In December 2012, we refinanced and paid off our then existing indebtedness with Square 1 Bank (or Square 1), which was comprised of a term loan with an outstanding balance of $3.8 million and revolving line of credit with an outstanding balance of $3.5 million. As part of the refinancing, we now have term loans from Oxford Finance with an outstanding balance of $9.8 million as of March 31, 2013, net of debt discount in the amount of $0.2 million, and a term loan from Square 1 with an outstanding balance of $5.9 million as of March 31, 2013, net of debt discount in the amount of $77,000, as well as a new revolving line of credit with Square 1 with a maximum borrowing capacity of $6.0 million and no outstanding balance as of March 31, 2013. Under the new credit facility, the term loans carry a fixed interest rate of 9.5%, while advances under the line of credit will continue to carry a variable interest rate equal to the greater of 6.25% or Square 1's prime rate plus 3.0%.
Other (expense) income primarily consists of costs incurred as a result of changes in the fair value of our preferred stock warrant liability and gains and losses on sale or disposal of assets. Prior to our IPO, the fair value of preferred stock warrants was re-measured at the end of each reporting period prior to our initial public offering, and changes in fair value were recognized in other (expense) income. Upon completion of our initial public offering in January 2013, the preferred stock warrants automatically converted into warrants to purchase common stock and no further changes in fair value will be recognized in other (expense) income.


Table of Contents

Critical Accounting Policies and Significant Judgments and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions. We believe that of our significant accounting policies, which are described in Note 1 to our financial statements appearing elsewhere in this report, we believe the following accounting policies involve a greater degree of judgment and complexity. A critical accounting policy is one that is both material to the preparation of our financial statements and requires us to make difficult, subjective or complex judgments for uncertain matters that could have a material effect on our financial condition and results of operations. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations:
revenue recognition;

accounts receivable and allowance for uncollectible accounts receivable;

stock-based compensation expense; and

income taxes.

During the three months ended March 31, 2013, there were no significant changes in our critical accounting policies or estimates. See Note 1 to our financial statements included in this Quarterly Report on Form 10-Q and under the heading "Description of Business and Significant Accounting Policies" in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on March 27, 2013, for additional information regarding our critical accounting policies, as well as a description of our other significant accounting policies. Results of Operations
Comparison of Three Months Ended March 31, 2013 and 2012 The following table sets forth, for the periods indicated, the amounts of certain components of our statements of comprehensive (loss) income and the percentage of total revenues represented by these items, showing period-to-period changes.

                                   Three months ended March 31,                    Period-to-period change
                                        % of                        % of
                          2013        Revenues        2012        Revenues         Amount          Percentage
                                                (in thousands, except for percentages)
Revenues               $  13,616        100.0  %   $  13,783        100.0  %   $        (167 )          (1.2 )%
Cost of revenues           2,850         20.9          2,318         16.8                532            23.0
Gross profit              10,766         79.1         11,465         83.2               (699 )          (6.1 )
Operating expenses:
Research and
development                3,132         23.0          2,147         15.6                985            45.9
Sales and marketing        6,659         48.9          5,565         40.4              1,094            19.6
General and
administrative             3,307         24.3          2,250         16.3              1,057            47.0
 Total operating
expenses                  13,098         96.2          9,962         72.3              3,136            31.5
(Loss) income from
operations                (2,332 )      (17.1 )        1,503         10.9             (3,835 )             *
Total other expense         (516 )       (3.8 )         (234 )       (1.7 )             (282 )             *
(Loss) income before
taxes                     (2,848 )      (20.9 )        1,269          9.2             (4,117 )             *

Net (loss) income $ (2,848 ) (20.9 )% $ 1,269 9.2 % $ (4,117 ) *

* Percentage not meaningful


Table of Contents

Revenues
Total revenues decreased by 1.2% to $13.6 million for the three months ended March 31, 2013 from $13.8 million for the three months ended March 31, 2012. Revenues from sales of our NMR LipoProfile test increased to $13.1 million for the three months ended March 31, 2013 from $12.9 million for the three months ended March 31, 2012, resulting from growth in the number of NMR LipoProfile tests sold, particularly to our clinical diagnostic laboratory customers.
The overall number of NMR LipoProfile tests increased by 9% to approximately 518,000 tests for the three months ended March 31, 2013 from approximately 477,000 tests for the three months ended March 31, 2012. This volume growth reflected the impact of an increase in the number of our sales representatives and greater geographic coverage of our sales force, as well as increased market acceptance of our test. The overall average selling price of NMR LipoProfile tests decreased 6.4%, to $25.25 for the three months ended March 31, 2013 from $26.99 for the three months ended March 31, 2012. This decrease in average selling price was primarily the result of certain reductions in price for some clinical laboratory customers based on their achievement of higher test volumes set forth in their agreements with us, as well as the continuing shift in channel mix toward high-volume clinical laboratory customers. The percentage of our total NMR LipoProfile tests sold through direct distribution channels decreased from 6% for the three months ended March 31, 2012 to 3% for the three months ended March 31, 2013. This continued shift reflects our current strategy of accelerating the adoption of our NMR LipoProfile test through clinical diagnostic laboratories, which we expect will result in fewer tests ordered through direct channels and an overall decrease in average selling price. Revenues from sales of ancillary tests decreased to $0.3 million for the three months ended March 31, 2013 from $0.5 million for the three months ended March 31, 2012. The decrease in revenues from these ancillary tests was primarily driven by the shift in testing mix and an overall reduction of reimbursement rates from Medicare. Revenues from our clinical research clients were approximately $0.2 million and $0.4 million for the three months ended March 31, 2013 and 2012, respectively.
Cost of Revenues and Gross Margin
Cost of revenues increased by 23.0%, to $2.9 million for the three months ended March 31, 2013 from $2.3 million for the three months ended March 31, 2012. This increase resulted primarily from the increase in the number of NMR LipoProfile tests sold to patient care clients during the three months ended March 31, 2013. This additional testing volume resulted in higher material costs and required additional personnel, which increased our compensation, benefit and allocated costs. We also experienced higher costs associated with site preparation, instrument installation and customer service support as we prepared for the launch of the Vantera system at third-party customer sites. Gross profit as a percentage of total revenues, or gross margin, decreased to 79.1% for the three months ended March 31, 2013 from 83.2% for the three months ended March 31, 2012. The decrease we experienced in gross margin resulted primarily from the costs incurred in 2013 associated with the launch of the Vantera system at third-party customer sites.
Research and Development Expenses
Research and development expenses increased by 45.9% to $3.1 million for the three months ended March 31, 2013 from $2.1 million for the three months ended March 31, 2012. This increase was partially the result of $0.4 million in higher salaries and benefits due to increased headcount within our research and development function, including recruiting fees and stock-based compensation expense for stock option grants and restricted stock unit grants to certain research and development employees. The total number of our research and development employees increased to 48 at March 31, 2013 from 42 at March 31, 2012. We also experienced a $0.4 million increase in consulting fees for conducting external research and development studies in support for our publication efforts and other engineering projects and $0.2 million in higher allocated expenses due to increases in information technology and facility costs. As a percentage of total revenues, research and development expenses increased to 23.0% for the three months ended March 31, 2013, as compared to 15.6% for the three months ended March 31, 2012.


Table of Contents

Sales and Marketing Expenses
Sales and marketing expenses increased by 19.6%, to $6.7 million for the three months ended March 31, 2013 from $5.6 million for the three months ended March 31, 2012. This increase was primarily driven by an increase of $1.2 million in compensation and benefit costs, training, and travel and entertainment-related expenses as a result of the growth and expansion of our sales organization. The total number of our sales and marketing employees increased to 86 at March 31, 2013 from 68 at March 31, 2012. These increases were partially offset by $0.1 million in lower marketing expenses resulting from the timing of various marketing programs and campaign efforts. As a percentage of total revenues, sales and marketing expenses increased to 48.9% for the three months ended March 31, 2013 from 40.4% for the three months ended March 31, 2012. General and Administrative Expenses
General and administrative expenses increased by 47.0%, to $3.3 million for the three months ended March 31, 2013 from $2.3 million for the three months ended March 31, 2012. The increase was primarily attributable to $0.5 million in higher professional fees, largely from additional accounting, tax, legal and consulting fees associated with the expansion of our business operations and compliance obligations in connection with becoming a publicly traded company. In . . .

  Add LPDX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LPDX - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.