Renalytix PLC (RNLX) 2023 Q1 法說會逐字稿

Good morning. Welcome to the Renalytix conference call to review first-quarter fiscal 2023 financial results. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Peter DeNardo of CapComm Partners for a few introductory comments.

Thank you, [Shreen]. Thank you all for participating in today's call. Joining me today from Renalytix are James McCullough, Chief Executive Officer; and James Sterling, Chief Financial Officer, to provide formal remarks and Tom McLain, President; and Fergus Fleming, Chief Technology Officer are also on hand for the Q&A session.

Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that relate to expectations or predictions of future events, results or performance are forward looking statements.

Examples of these statements include without limitation, the potential benefits, including economic savings of KidneyIntelX. The potential for KidneyIntelX received regulatory clearance from the FDA. The commercial prospects of KidneyIntelX, including whether KidneyIntelX will be successfully adopted by physicians and distributed and marketed, our expectations regarding reimbursement decisions and the ability of KidneyIntelX to curtail cost of chronic and end-stage kidney disease, optimize care delivery, and improve patient outcomes, trends in our market and potential benefits of government policy change, the impacts of COVID-19 and other world events on our business, our expectations for hiring product development, strategic partnerships and collaborations, reimbursement decisions, clinical studies and regulatory submissions, our business strategies and future growth, including plans, expectations and opportunities for financing our operations and revenue projections and guidance.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a description of the risks and uncertainties associated with our business, please refer to the Risk Factors sections in our annual report on Form 20F that was filed on October 31, 2022, with the Securities and Exchange Commission.

All forward-looking statements made on this call are based on management's current estimates and various assumptions. Renalytix disclaims any intention or obligation, except as required by law, to update or revise any projections or finance or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information, is only accurate as of the live broadcast today, November 30, 2022.

I'll now turn the call over to James McCullough. James?

Thank you, Peter. Good morning and good afternoon. Since we reported our year-end results just a month ago, my comments will be focused on summarizing recent achievements in the setup for a successful beginning to calendar 2023. Since July, the start of our fiscal year 2023, we can look back at several important milestones, including publication of key utility data showing effectiveness of KidneyIntelX in the primary care office, expanding on multiple categories of insurance payment for KidneyIntelX, including Blue Cross Blue Shield, Medicaid and Medicare, demonstrating continued growth in testing adoption with our first million dollar revenue quarter ending this September and pivoting to a lower overhead structure to extend cash runway.

Progress with insurance continues to be an important highlight. In the September quarter alone, we have secured new major insurance contracts and established Medicare payments. This brings our total number of secured contracts to 30, excluding Medicare and Medicaid. We have also begun detailing plans with a large US health insurance company to provide KidneyIntelX testing directly to their own physician care network. This insurance company has also agreed to provide us with coverage concurrent with this direct-to-physician program.

We believe partnering with insurance companies to implement testing across physician-managed networks can be a significant driver for expanding KidneyIntelX adoption in calendar 2023 and will demonstrate the value of KidneyIntelX for improving care for millions of patients.

Our stakeholders should look forward to additional payer contract disclosures in coming months. A primary contributing factor for our success in securing insurance coverage is real-world evidence that KidneyIntelX is working. This body of evidence which takes years to design and implement is now showing that KidneyIntelX can make a real difference in helping doctors and care for patients.

This week, we announced newly released utility data for over 1,600 patients. Results across 75 doctors at 20 clinical sites showing the importance of KidneyIntelX testing and helping head off the worst effects of kidney disease and diabetes at the primary care office. These results were just published in the widely read Journal of Primary Care and Community Health. We have already started pulling together subsequent monitoring patient test data and expect to continue publishing rolling results on the effectiveness of KidneyIntelX in the real world throughout calendar year 2023.

As a reminder, real-world evidence results will now begin to be incorporated from multiple medical center sources, including Wake Forest Baptist Health in North Carolina. From an operations and test processing standpoint, our laboratories conform to the highest quality and regulatory standards. This is obviously essential if we are to be prepared to support patient testing nationally post FDA De Novo marketing authorization. Our systems and laboratories have now been subject to and past 12 inspections from multiple agencies.

This level of quality assurance is another important facet that instills confidence and doctors when it comes to KidneyIntelX testing results. Of note, the regulatory environment is evolving. Congress recently passed the medical device user fee agreement or MDUFA-5. MDUFA-5 is a five-year agreement that provides operation funding for FDA and provides additional incentive funding at the agency meets key performance goals. We believe MDUFA-5 is a factor in improving FDA's ability to help innovative companies bring life-saving technologies to the market.

FDA has also issued a proposed rule to drive towards convergence between the current FDA regulations and ISO-13485 requirements. Renalytix has pursued and achieved full ISO-13485 compliance and certification. We welcome this proposed rule and believe that KidneyIntelX is well positioned from a competitive industry standpoint.

As we discussed in previous quarterly call, we can expect to look forward to a milestone heavy short-term. In terms of our FDA process, well, there is never a guarantee. We believe we are reaching a logical conclusion in the process with a De Novo marketing authorization decision as early as the March quarter. As previously discussed on our call, on our last call, Medicare coverage to a local coverage determinations, also a potential for KidneyIntelX in the first half of calendar 2023.

I would now like to turn it over to James Sterling, who will discuss our financial results for the quarter. James?

Good morning. We issued our financial results for the quarter ended September 30, 2022, which is our first quarter of the 2023 fiscal year. Figures I will discuss here are based on our GAAP financials and quoted in US dollar, which is our reporting currency. For the quarter, we recorded revenue of approximately $1 million, double the $500,000 we reported for the first quarter of the prior fiscal year.

Operating expenses were $12 million on a GAAP basis, as compared to $12.1 million in the first quarter of fiscal 2022. Our operating expense reflects a reduction of $2 million to $3 million per quarter since we announced our efforts to reduce expenses. Net loss for the first quarter of fiscal 2023 was $12 million or $0.16 per share. This is compared to a net loss of $10.1 million or $0.14 per share in the first quarter of fiscal 2022. We ended the quarter with $31 million in cash as of September 30. We remain committed to preserving cash where possible while retaining the ability to grow sales.

Operator, could we now please open the call for questions.

Thank you. (Operator Instructions) Dan Arias, Stifel.

Good morning, guys. Thanks for the questions here. James, as we're starting off the new year, I was hoping maybe you could just set expectations for where geographically, and with respect to certain institutions, we should look for KidneyIntelX usage to ramp most notably in the near term and then across the quarters? And then recently you did make mention of some new areas that there might be news on or where you're trying to establish commercial relationships. Can you just help us with what we should think about new business development as well?

Yes. Thank you, Dan. Good morning. As we discussed, we are narrowing the focus and following the coverage. The insurance coverage, that is. Because where we are developing what I would term super majority coverage, where you now have a sequence of insurance payers covering a significant majority of a population in a specific region, that's where the business goes. And I disclosed that we are focused on Illinois, New York, and North Carolina as three primary examples where we can concentrate resources, that also helps us with cost controls.

So we're not doing ubiquitous distribution across the United States today, we're really focusing on areas where insurance coverage is prevalent. And that helps in a number of ways. One of which is, you significantly reduce the risk that a patient ends up with a bill, which is a real no-go, especially at primary care, which is our target audience for preventative health care in diabetes and kidney diseases where you have to do it as a primary care.

So I would focus on those three areas for the moment. We've made substantial progress, we've announced or we've disclosed recently Medicare and Blue Cross Blue Shield coverage in Illinois. You should expect to see that pattern to continue with broader insurance coverage in New York and also North Carolina. However, if insurance coverage, supermajority coverage does develop in other states, that doesn't mean we can't reflex and move into those states.

And one of the interesting things that we brought online as a direct-to-physician capability through our portal, myIntelX, which is now up and running, and we are receiving physician orders through myIntelX. So that allows us to move into a territory where insurance company develops without doing a hospital system integration. That doesn't mean ultimately, we don't want to do a hospital system integration because that helps. But we are certainly now have the capability to move into a territory with developed insurance, with myIntelX be contesting in a very short period of time without a significant upfront investment, which is key, obviously in this current market environment where cash maintenance is very important.

I also do expect in 2023, we will continue to see progress with the VA system. And I do expect that, as I mentioned in the call, the insurance-led initiatives are starting to emerge. So the health economics, the cost benefits of understanding who's at risk and who's not in these large populations early and intervening are significant. If you get in early and you practiced preventative medicine, you've cut the cost for the insurance company down dramatically, especially in this space with diabetes and kidney disease.

So we are initiating an insurance-led program, direct to their own physician network. This is a large insurance company. You should expect additional news on this. And we think that this is a very interesting model. Obviously, going forward, it took time to get to this point, we had to generate a lot of real-world evidence to show the benefit of KidneyIntelX. We are now doing that and publishing on it. And that's giving us a whole new level of conversation with insurance companies. They are now struggling to figure out how do we control the cost here.

So in summary, look at Illinois, look at New York, look at North Carolina, and look for opportunistic selective moves where we have insurance-led initiatives or where we start to develop super-majority coverage across very large populations and look for direct-to-physician initiatives with myIntelX.

Okay. That's helpful. And then maybe just a follow-up on that topic of reimbursement. If I remember correctly from the call a couple of weeks ago, I think the application for an LCD had been submitted and accepted. Do you think that a draft coverage policy could show up in a similar timeframe as the FDA approval, which I know that you mentioned is an uncertainty in itself, but just from a timing perspective, does it look like meetings and conversations that you'll have with CMS are tracking towards our first quarter or second quarter of the calendar year-type timeframe? Thanks.

Yes. So I'll let Tom answer that. And timing is always difficult. But with that caveat, it looks like -- when it rains, it's going to pour. So we may see a confluence of events here going into the next calendar year. But Tom, why don't you answer specifically?

Sure. Thanks, James. The contractor that we're working with Dan, has quarterly open meetings. So it is possible that there could be a coverage determination for consideration at either of those meetings.

Okay, terrific. Thank you, Tom.

Thank you, Dan.

Thank you. (Operator Instructions) Mark Massaro, BTIG.

Hey, guys, thank you for the questions. I think going through my notes and just remembering the last call, I believe the majority of your volumes came from Mount Sinai. I guess can you just maybe provide us with an update of what procedures you have in front of you with the VA, just to try to increase volumes across the VA hospitals? I recognize that working with the VA can be challenging given that I think you have to go hospital to hospital, but can you just give us an update there? And to what extent do you think the VA can start to really build relative to your overall volume mix?

Yes, it's a very good question. The VA remains a very important opportunity, especially because we have secured coverage through the 10-year government contract. And it is taking longer because the VA is very complicated as you point out. But I think it would be helpful, Tom, if you could answer from an operation standpoint and also from a technology standpoint for some of the opportunities coming up in the VA. Fergus, if you could chime in after Tom?

Sure. Thanks, James. So Mark, VA is a significant opportunity for us. There is a large population that would benefit from KidneyIntelX testing. The traditional approach with the VA, which is to secure contracts like laboratory services agreements, and contracted purchase agreements. We are making the initial gains there by entering into those agreements. But with the super majority insurance coverage that James has spoken about, it's giving us the opportunity to have those government account execs now also call on physicians in the community.

And that is an important opportunity with coverage and payments like James has described. But it also opens up the opportunity to provide KidneyIntelX's testing for veterans who are receiving care in community practice offices. That's allowing us to drive volume in the VA centers that will be important evidence of utilization for securing expanded laboratory service agreements and purchase contracts.

So it's very synergistic with what we're doing to develop that direct to primary care practice model. And that's becoming an important driver for that part of the business, the VA side of the business as well. On the technology front, Fergus?

Yeah, as we scale within the VA and grow those volumes and grow those relationships with individual VA facilities. One of the key drivers is ensuring that we can deliver this solution in a seamless, frictionless way to the [ordering] provider. Quite at the same time being very cognizant and adherence to the strict data protection and privacy framework that applies within the VA. To address those challenges, we have been very fortunate to work with at a national level with the VA on a novel solution, whereby we're working on deploying our KidneyIntelX solution within the VA's own cloud infrastructure, so that we can provide the same level of ease of use that applies to other health systems to all ordering physicians within the VA by allowing them to order the test and receive the results within their own IT infrastructure, without the need for us to extract their data and be subject to the very strict regulatory framework that would therefore apply.

So we've crossed some significant milestones in recent weeks in relation to that program, and we're now moving into a new phase of implementation, whereby we will begin to deploy our code into the VA's own cloud infrastructure, which they call the enterprise cloud. And we'll be one of the first companies to partake in that type of an endeavor. So that's happening in parallel, as volumes grow, as they [already have brought] service agreements to come into place, this ability to be able to deliver that service to seamless order and reporting infrastructure will be pivotal.

Okay, great. It's nice to see that you're getting paid through the ICR process for Medicare. Would it be possible for you to clarify, are you getting paid on the majority of the claims that you're submitting to them? Or are you getting paid on all of them? Just any sense for how the ICR process is going?

Tom, do you want to respond to that?

Sure. No, we're not commenting on the specific payment practices of the contractor. That's something that works itself out over time. But what I can say is, we're very pleased with what that payment practice has been to date.

Okay. And then maybe just last one for me. It looks like you picked up a couple of commercial payer contracts, which is nice to see. Can you give us a sense for what your outlook looks like for commercial payer contracts for fiscal 2023? Do you think that some other payers are looking to other key achievements, whether it's a Medicare LCD or perhaps even an FDA approval?

Or do you think that you know, a lot of the conversations you're having with payers is really around your dossier and the data that you've presented?

On that one Mark, the pivotal piece of evidence always for a payer is published, peer reviewed evidence, that clinicians adopt the product that you're offering, and that it impacts care delivery. And that is the importance of the publication that was announced this week. That is real world evidence that shows a task like KidneyIntelX, which is directed to change chronic disease care in the primary care office which has been a goal of population health initiatives across the country for a long time.

But it's showing that this test is utilized by physicians. It does change what they're doing in the care management of patients and it benefits them clinically in as little as six months. So for us, that type of evidence for any product like KidneyIntelX, that is the definitive evidence for payers that drive those coverage determinations. So with the publication of that data, we are strongly optimistic about our ability to expand and execute new coverage agreements in 2023.

Perfect. Congrats on the publication, and I'll hop back in the queue.

Thanks, Mark.

Thank you. (Operator Instructions)

Operator, are there any other questions?

Yes, we do have one more question. Yi Chen, HCW.

Thank you for taking my questions. You mentioned that during the quarter, 80% of the tests were billable. Do you expect the percentage to improve or remain stable going forward?

We would expect -- Yi Chen, Thank you. We would expect the percentage ultimately to increase with increasing coverage, but we're actually very pleased with that percentage at the early stage. Tom, do you have anything to add to that?

No, I think that's fair. With things like being on the clinical lab fee schedule, with the coverage determinations that are in place with Medicare payments, all of those factors impact how the test is paid for, whether or not there are coverage agreements in place. And yes, overall, looking at KidneyIntelX and the stage that we're at with commercial launch, we're very happy with the level of coverage that we're seeing.

I think it's important to note again that there is at a large intrinsic value, which has been accumulating through the real-world evidence program. The data results just published as Tom mentioned, showing benefit within six months, we believe is exceptional and quite novel in this space. And these data results take years to put together, they're very expensive. But once they're in place, they now begin to continue to accumulate.

So the real-world evidence program is not only very strong, but it's growing. And it will continue really on every six-month basis to put up new and additional longitudinal data to support use of KidneyIntelX for primary care. And this, as Tom mentioned, goes directly to generating coverage determinations, percentage of coverage, et cetera. So we're really -- I believe, at with insurance payment, we are very much at an accelerating point. In 2023, we'll continue to see regions, including large population center regions developing comprehensive coverage across large populations.

Were all the billable tests were paid at $950 per test?

Yes. So our list price for the tests is set at $1,200. Our contracts for payment of the tests have been at $950 or more.

Got it. Could you share with us the latest feedback from the FDA regarding the De Novo application? Is the FDA awaiting additional clinical evidence? Or is the existing clinical evidence sufficient for the FDA to make a decision?

Fergus?

Hi, Yi Chen. At this moment in time, the FDA have all the information that we have requested and we provided all the data and analysis that have been requested through the breakthrough process. There is no pending data requests from the FDA at this moment in time.

Okay. Thank you.

Thank you. I'm currently showing no further questions in the queue. Thank you all for participating. This concludes today's conference call. You may now disconnect.