Earnings Call: H1 2023

Oct 5, 2023

Good afternoon and welcome to the Verici Dx plc Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated in the right-hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Sara Barrington, CEO. Good afternoon. Welcome, everybody, and thanks for attending today's presentation. Just a technical point, there is a slight buzzing on my line we haven't been able to get rid of. I do apologize, and we will do our best to manage it as well as we can. Let's get into the presentation. Just because it's always good to do a little bit of a reminder, we'll quickly go over the summary of the company, before getting into the update. Just to remind everybody, or for those that are fairly new to the story, the situation with the company is that we are in kidney transplant diagnostics, and we're in a field where there is a high degree of transplant rejection, up to about 50%, which has led to a significant need for increasingly accurate and specific diagnostics. That's what we are addressing. Our underlying platform is RNA signature, so that's gene expression. The reason that that is significant is that it enables clinicians to be very proactive and much more personalized in their care. The RNA, which is effectively all the messaging of the system, and the signatures are the ones of messages of note, enable us to produce kind of the next generation of testing. We have focused our research on three complementary tests covering the full spectrum end-to-end: pretransplant, early acute rejection and late stage. That technology was developed over the last decade by Barbara Murphy. It's already been in peer review journals, but as we have continued to test and validate and develop those tests, more publications are on their way. One product, Tutivia, is in commercial launch. One product has completed the validation. That's Clarava, the pretransplant, all previously announced. One product, it has its endpoint or its final endpoint in 15 months, although we will look at interim analysis along the way. That's Protega. Obviously, one of the issues that we have addressed early on is both the regulatory and the reimbursement pathway, and we've made significant progress on both. Just a reminder, it's the so what question in diagnostics. There is a dilemma for the clinician that we address, and that is one of immunosuppression levels. If you talk to most clinicians, they will say that they generally are over Not dosing, that sounds terrible, but their protocols would lead to a one size fits all. They suspect it may be too high. There are difficulties with over-treatment, which is about drug toxicity, viral infections. Essentially, if you're going to suspend the immune system, there are always side effects. But if you under-treat, of course, then you run the risk of graft loss. They know that they do not have enough information. Our tests directly affect those decision-making points. Again, just to remind you, Clarava answers the question, how aggressive or benign is the patient's immune system likely to be in the event of a transplant? We have tested in kidney. It is likely to apply more widely across organ transplants. Tutivia is the post early acute rejection, effectively in the first year. That one answers the question, is the patient likely to be experiencing a rejection event that the body cannot deal with and the clinician needs to intervene? That one was addressing an unmet need of the first 90 days where many tests were all confounded. Ours are more accurate. We can be run anywhere as early as the first week post-transplant, but it does basically generally apply for the first year. Then Protega, which is the long-term outcomes usually affected by fibrosis, answers the question of, is that patient likely to be developing fibrosis and at risk of long-term failure? After that quick reminder of the company's products, just want to move into our update for the first half of this year. We do have two clinically validated products now. Tutivia. We have issued some positive clinical feedback in previous presentations. I do urge you to look at those in the past presentations. One of the things I will also urge you to do is follow us on social media as we are able to distill some of our clinical interviews into videos for dissemination, and you can hear for yourself directly from the clinicians. Obviously, publications are key to adoption, and we believe our peer review publication is imminent. Clarava was also validated during the year. We did make that announcement in July, and then that is on track for a commercial use. Obviously, that is a very novel test. Commercial adoption will be very much looking for what we call real world evidence studies, and dissemination of those results by the clinicians there. We do have a pathway in terms of publicizing through conferences, and we submit abstracts to those, just as we did with Tutivia, and it will follow a very similar path. We did get a reimbursement rate that is going through final comments right now, the median of $2,650. That was above market expectations. We went through a gapfill process. That means, essentially, we put together a cost analysis so that they can work out a cost plus view. They agreed with our files and our analysis, and so that was the price that we have ended off. That is very competitive, sits very nicely against competitive products. We do have further progress on the Protega program insofar that the patient enrollment was completed this year. Then the final endpoint is a two-year outcome. We would pull off interim review before then. We continue to file. We have now got 18 accepted patents across five patent families. Of course, the key ones here this year were two U.S. patents, protecting both of the commercial products. That was a key win for us. Obviously, we do continue to file as we go and develop and progress with our discoveries. On the regulatory side, we are now up to 49 states for the CLIA audit. The last one is New York. That is recognized as always taking the longest and will be subject to an audit, which we would expect next year. That's very much outside of our control. That's to deal with their scheduling for when they come to visit out-of-state facilities. That is the last one. In terms of the approvals, Medicaid is now approved in 15 states with a further 12 pending. Obviously, we continue to work our way through that and private payers in the area alongside the progress that we make on Medicare. Then we. Struggling with the slide there. We continue to develop on our research asset, as you've always heard over previous presentations. We call it the research asset or the data asset. Probably at some point should probably brand that as a bit more for commercial use. But essentially, we've always said that research collaborations and data analysis is a key to progress in the entire industry, and that is something that we will be progressing on. As we look at the progress this year, a couple of headwind, head issues. One was in terms of the center adoption. We had already discussed the CMS clarifications. There was short-term confusion. We do see that unwinding now as centers have finished their internal reviews. We do see that resolving in Q3. That has obviously slowed us down in our first adoption in the early adoption sites. That is now reducing. Logistical issues also is something that we were assessing. We did find something in our sample collection that was slowing centers down in terms of their collection and adoption. We have now resolved that. Then, obviously, given the current climate, in terms of the markets, we have been very focused with the small sales team for this year to contain costs and to really leverage this learning that we're making from the early centers. Obviously, that is something that we'll need to address next year. The technical assessment file is fundamental to getting coverage under Medicare. That is dependent upon the peer review publication. We do have expected. We have experienced a little bit of a slowdown on that acceptance of the publication. I think that's resolved. I think it has been strengthened by some of the comments, and taken us into areas that maybe we wouldn't have published on, but I think actually do strengthen the paper. So I think a short-term pain for a long-term gain there. Then obviously, once we have got that in a format that we can put it into the technical assessment file, we'll be putting that in, and we do expect that to be imminent. There is a review process from that TA file, so we now expect that in 2024 rather than 2023. But I think it's just really a question of months rather than anything too significant on that. Revenue mix. Obviously, we have noted the slower adoption of Tutivia during the CMS clarifications, and I do see a number of questions on that. We will drill down that on a little bit more. What we did see, though, is in our forecasts, we have been focused on the clinical sales rather than the research sales, and we are seeing an increased interest in those research collaborations. What we are seeing is a different mix of revenue this year as we go towards the end of the year. That has enabled us to keep our guidance unchanged on our cash runway. Looking forward, obviously, what we did see was in Q3, a doubling of those centers. So we are seeing that logjam now free up. We are looking for more centers before the end of the year. We do get, and we continue to get excellent clinical feedback and very good results in the clinic. Obviously we cannot announce everything, so I would urge you, and at the end we do put up the link, but I would urge you to follow us on social media so you can follow things like clinician videos and interviews and blogs, so that you can see the progress of that test in the marketplace. Obviously, as we were very pleased with the pricing. We are not expecting anything to particularly change before the end of the year. Haven't seen anything come through on comments. So, that price is likely to be adopted at the end of this year. Rather excellent result this year. We continue to work with clinicians to understand how to put this into clinical practice. There has been a high degree of interest in assessing the test further, under real world conditions, which I am very pleased to announce. That should facilitate a commercial launch before the end of the year. We do obviously have to make an assessment. We do have options ahead of us in terms of working out whether we would go through a sales and distribution arm or whether we would build up our own sales team. That one we will resolve before the end of the year for next year. But one of the things, obviously, I put a total number here just to indicate what a total direct sales force would look like. But obviously, we would bring these people on slowly and organically. The progress on the publications, I do think it did strengthen the publication at the end of the day. We are looking to make an announcement in the forthcoming weeks or months, on that. Obviously we had the options to monetize our research opportunities. It did give us the time to sit back and assess what would be the commercial value of those assets. When we looked at that, we did come up with an assessment that in fact, the total value exceeds total cash raised to date. Just to give an indication of the value or something like that within the business. Just to give a little bit more color on what we keep talking about as the data or the research asset. This is something that we have collected from our clinical trial. When we went through that, we collected a number of specimens that was both blood, urine, tissue. We are able to then distill that into the entire transcriptome. So you have both samples and you have data there, all matched with clinical data, patient outcomes, the biopsy slides, et cetera. On a longitudinal basis. So it makes it a very valuable research facility for not only us, but for in the community. We do expect to see more collaborations that we can announce. Some we will be able to announce, some we will not. But that is definitely starting to pick up and obviously was responsible for that change in emphasis on the revenue expected from this year. David, over to you. Thank you, Sara. Good afternoon, everybody. In terms of our cash flow in the six months, cash out from operating activities, just over $4.7 million. That compares with the comparative period last year of $5 million. In terms of investing, we spent $23,000 on CapEx and then $83,000 on patents. That is the work that Sara was referring to earlier in terms of the prosecution of new patents and maintaining existing. Then on financing, interest of 122 in and then interest in lease payments of 94. The vast majority of that lease payments is the rental on the Tennessee lab, because that is the way accounting wants it these days. Then in terms of, so overall cash, just over 5.2, as we have said, based on our revised expectations in terms of revenue and higher than expected revenue, expectations on research related revenues, we maintain our view of cash runway through to mid-2024. In terms of the income statement, we recorded some revenues in the period, which was nice, giving us a gross margin of 16,000. Admin expenses, the big expenses remain wages and salaries, so $1.8 million for the period, with an average of 14 people in the period, and we have 14 people in the business as we speak today. The prior period it was $1.3 million, but we had an average of 10. Then on R&D spend, much lower than the prior period at 1.6 compared to 2.3 in the prior period. Again, that will continue to come down as we pass the hump of our expenditure on R&D. The rest of the income statement is fairly self-explanatory. In terms of the balance sheet, the biggest item in that tangible is the cost of the build of the CLIA lab, which we did last year. The intangible asset itself is primarily the cost of the license and the cost that we have incurred on the subsequent patents. Then in terms of the payables, just refer to the fact that the majority of that is accruals, and the majority of that is the site accruals. This is where we are estimating costs which have yet to be billed by the sites, on the clinical trials. And then lease and right of use, the majority of that is the property lease, which as I say, is just the way it has to be accounted for these days in terms of the future rental payments on our lease in Tennessee. Back to you, Sara. Thank you. I am going to just end on these links. I think it is a useful source of information on the company as we go through. And obviously, as I have noticed, I think it is interesting to watch some of the clinician interviews as they come through, and we will also promote some of the other activities as we can. We have put up the links there. But I think it is probably time to just move to Q&A. Perfect. Sara, David, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q&A tab, which is situated on the top right-hand corner of your screen. But just while the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your investor dashboard. As you can see, we have had a number of questions submitted throughout today's presentation. If I could just ask you just to read out those questions and give responses where it is appropriate to do so, then I will pick up from you at the end. Okay. Some of these questions are very long, so I will summarize. I think that there is focus on our cash position. One of the comments that I would make is, obviously, as we look at some of our historical cash needs, one of the high costs was clinical trial. Those are tapering off now. And as we look going forward, our forecast is a natural drop-off on some of the costs, coupled with careful cash management and obviously income from revenues. I think we have covered in terms of the delay on the publication. We did have a couple of rounds from the peer review process. And I do believe that that was positive. As I said, I think it has strengthened the paper, and enabled us to go into, for example, comparisons to understand where the test sits in the marketplace, and clinical practice. I do believe that that long term will address some issues that would have come up in these sort of marketing process. I think it was a positive rather than a negative. We have got a price question, and obviously a couple of questions on did we provide free tests. We did not. We actually did not do an early access program. That would be where you do provide tests for free. We did an early adopter program instead, which is effectively a white glove, working with centers very carefully to sort out issues such as logistical ones that enabled us to strengthen our offering into the marketplace. The price that we have billed at has been the price that you have seen out there for this year. Then obviously, nothing that we have given for free at the moment. The only way that we would do that is if we were doing structured studies on Tutivia. CMS. The reduction in revenues appears to have been impacted by testing being limited to a single biomarker test per patient encounter. I think this is the confusion, part of the confusion that was experienced in the marketplace as they worked out where each test's strength was. One of the things that I think, as I said to you, was in our favor is it has enabled centers to realize that we have quite a few niche areas, where we are distinctive from other tests. As they are looking through where they use various tests in testing, we have got early adopting sites that have recognized the early message is very strong with Verici, and it enables them to try the test in their clinical practice without necessarily sacrificing anything else. That is how they have got round this issue. You are right. In the past, clinicians may have tried to test side by side. That is not available. But we have found that we can be slot into the time continuum so that they can make those assessments and trust the tests over time, by using it earlier than they would be able to use other tests. Then over time, obviously that will be implemented as perhaps they choose between tests and use our test later on in the process. I do think that this one test per patient encounter, will ultimately be beneficial to us as it reduces competitors being able to use what they call multimodality. Our test has balanced accuracy, so, we do cover both ends of the spectrum, PPV and NPV. We have been able to be adopted early in that continuum so that I do not see that we have been negatively impacted by that ruling, only positively. Then the only negative aspect of the CMS ruling was just confusion. On that, I will note some interesting feedback that we got, which was, a couple of centers actually noted that it had given them an opportunity to review their protocols. So although that they had sort of gone into an internal review from that CMS ruling, it had given them an opportunity to actually adopt new technology. I think over time we will see that to our benefit. Clarava. Clarava is going to be reimbursed by hospitals in the short term if it is within what we call the 72-hour rule. It will be not necessarily a CMS pay as Tutivia is, so will not be subject to the same local coverage determination and guidance. We have mentioned urine-based testing. Yes. I wanted to indicate that obviously that was one of the specimens that we had collected with a view to either do research collaborations or our own development, or a combination of the both. But yes, there is interest in recognizing that urine may have a place to play in the marketplace, particularly as it opens up longer-term testing and the at-home market. So, we felt it was important to collect that alongside the blood and the tissue, and everything else that's in that biobank. The longitudinal information is obviously something that's quite unique in the industry, and is garnering a lot of interest across the board. I think we have a lot of questions on revenue forecasts and a degree of certainty. I think, obviously, any test that any healthcare product, as they launch, it may be lumpy. We always assume that it's going to be a nice smooth line, it very rarely is. I am very encouraged by the fact that now we've got increased interest in the marketplace. We are seeing an uptick. Obviously, we do need to tailor our expectations of what we can do in revenue forecast with, obviously, the amount of folks that we can employ and the balance between cost control and cost spending, and investment in that area. What we are seeing, though, is a sort of uptick of interest. Obviously, in healthcare where you're looking at trust and other, that sort of peer-to-peer recommendation and the publication, all of those are important in terms of adoption. I think that I'm very encouraged by the fact that we are seeing that increase. It becomes an exponential growth. So, we are still looking fairly confidently into the success of Tutivia into next year. Yes, the first half of the year, we were always expecting modest revenues. It was a little fall short of where we were going to be. But the first six months, we weren't expecting high revenues, in any case. We have indicated that we are behind. Obviously, that does have a knock-on impact, obviously, when you're looking at exponential growth. But obviously, you've recognized that in our warning of that, of the change in revenue mix and the update of analyst expectations on that. Yes, I don't know that you can extrapolate straight from the first six months. Certainly, low revenue was always expected there. It takes a while for centers to come on board, so even though you're getting the sale, it takes a while for them to come on board and then to do recurring revenue orders from the same center. So yes. Not a straight line extrapolation there. Other territories. Yes. If we wanted to launch in Europe, we have assessed that, first of all, we had clinical centers in Europe. Secondly, we went there to see what the level of enthusiasm from those centers were, and was there general interest in Europe in terms of technology like this. The answer was yes. We would need to go through a regulatory process to get that and marketing access issues. At the current time, although there is interest from other parts of the world, we are focusing our resources on the U.S. market. I would love an opportunity in the future to explore those other markets in due course. Repeat testing. Yes, there is. The current practice is that tests are run multiple times. Over the course of the patient journey, I think you will see in our estimations that we would expect at least three times in the first year. With Medicare and Medicaid, that is covered. We are also producing interesting information on that monitoring issue, which actually may promote more repeat testing as we go along. We will publish that in due course. Just to be clear, I have not signed up for any distribution partners as yet. That is something that we actively consider for next year, but we have not signed anyone up, nor have we made any decisions on that. It is an option for us. The current process is to finish out the year with the early adopting sites, and address a wider adoption next year. I think I covered everything. I do apologize if I have missed anything. We will go through these questions again to see if I have not covered anything. Then certainly, if you do feel that you would like something covered, do reach out to our investor relations to be able to get a written response. Perfect. Sara, David, thanks very much for that. As you say, I think you have addressed all those questions from investors. Of course, the company will review all the questions submitted today, and we will publish those out on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to you both, Sara, could I just ask you for a few closing comments? Yes. I want to thank everybody for the continued interest in Verici. Obviously, this first year has been a little bit more challenging than we expected, but I am very pleased to say that we appear to be on the other side of that. I think if you were going to get a big challenge the first year, as you get for the impact on low revenues is quite small, rather than later on in our adoption curve. I think we are the other side of it. I am encouraged by the level of interest that we are getting in now, both of our tests. I think I would also like to take a moment to say how proud I am of the team and the work that they have done. It's quite astounding how much we've managed to progress with such a small team as we continue to be very focused on cost containment, and extending the cash runway as long as possible. Perfect. Sarah, David, thank you once again for updating investors today. Could I please ask investors not to close the session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This may only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of Verici Dx plc, we'd like to thank you for attending today's presentation and good afternoon to you all.