Labor. Prior to that test, what was the method for predicting preterm births?
Connor, there's really no good risk factors that can predict preterm births, except previous preterm births, which, of course, does not apply to first-time moms, of which 3.6 million moms every year who give birth, a very large portion of which are first-time moms, and short cervix at the onset, which, of course, fewer than 2% of moms have. Before our test, half of moms who give birth prematurely don't have any risk factors. There were no opportunities for the physician to predict that anything will go wrong in the pregnancy.
Okay. So there was no test. It's just, okay, have you had preterm births before and do you have a short cervix?
Bingo.
That's determining if we think you're going to have a preterm labor. Okay. First test of its kind. Where do we stand? Is it FDA approved? Where do we stand on the approval process? We'll start there.
PreTRM test is a lab-developed test or an LDT, and it's overseen by CAP and CLIA in New York State. It's not overseen by FDA. Last year, actually, about April, FDA announced that it will start overseeing lab-developed tests. Unfortunately, they lost the battle in court. In April of this year, or rather March of this year, the rule was pulled back. FDA does not oversee lab-developed tests. We are fully accredited by the institutions that do oversee lab-developed tests across the country.
Okay. That's a good—I want to ask about this because this is a good point of question for a lot of diagnostics companies. Because you are a lab LDT at this point, what does it look like for other tests? First off, is there any risk that you see from additional legislation that would perhaps impact your ability to market an LDT test? Going forward, how difficult is it for someone to get approved for another or get to market another LDT test in the same area?
Interesting you ask. We were actually excited because we were well-positioned to get FDA approved. We were anticipating it when we were building our lab to FDA standards. Our evidence that we developed over the last 10 years put us in a terrific position. That said, FDA is known to oversee medical devices, and it was ruled that lab-developed tests are not medical devices. At this point, we do not see any risk to commercialization. Should FDA at some point in the coming years come back to oversee LDTs, we are still well-positioned. That said, it is actually going to be harder now for LDTs to go for FDA approval, even if they wanted to, because of clear distinction that lab-developed tests are not medical devices.
Okay. All right. Thanks for that. You have an approval that you can go out and market. What is the—so then called the next hurdle would be reimbursements. Where do you stand on reimbursement?
Excitingly, even in the last five years, we're partnering with a national payer, Elevance, who saw the breakthrough that this test could create in improving health of moms and babies as well as saving cost of care in childbirth and the first year of life for the baby if the baby is born healthier with the help of PreTRM tests and the intervention bundle administration. Together, we ran our pivotal trial, PRIME, that we just read out at the major conference, Society for Maternal-Fetal Medicine, in January of this year. We're really looking forward to seeing this huge leg up on many diagnostic companies that wait for years for reimbursement by outset partnering with a national payer.
In addition to that, we are very excited that unlike many diagnostic and life sciences businesses for which Medicaid or Medicare reimbursement trails commercial reimbursement by two-plus years, we've seen the opposite. We've seen an outreach from Medicaid plans across states to us excited about the potential of improving care to moms and babies while reducing cost. We think we will have the opposite exciting momentum where both the commercial and Medicaid plans are going to provide coverage.
Okay. You told me I learned something yesterday where you're going to get national coverage where you're presenting not only the outcomes of the test, but the outcomes of what the intervention is post the results of the test, if I'm not mistaken, which is I've never heard that from a diagnostics reimbursement standpoint. I have to imagine that's pretty powerful.
That's exactly right. This clinical utility data is really unique. Usually, diagnostic companies just provide analytical clinical validation that the test works. We went ahead and tested with 5,000+ patients in our PRIME study, the intervention bundle, which is the low-dose aspirin, progesterone, and care management to show the outcomes of the screen and treat strategy. This is what the community is so excited by. We shouldn't be on the hook as a diagnostic company to demonstrate the overall outcomes. However, having done that, it's going to help this breakthrough innovation get adopted by the community because they see the impact of the intervention.
Got it. What's the timing? When's the soonest you could see a reimbursement decision such that you know exactly how much you're getting paid for the test and by whom?
We do have a Medicare code for about $750. In terms of the coverage decisions, we will try to announce as many as we can as soon as they arrive. We do see a lot of green shoots already where Medicaid plans, MCOs, are starting to run pilots with us to see the impact it can have on their member population.
Got it. Okay. So $750 a test is the basic ASP. And then is the goal to basically would be used in every pregnancy?
Yeah, the back of the envelope, almost. Back of the envelope of taking 3.6 million births per year. If you subtract those with short cervix and those with previous preterm births, that gives us a TAM of about 3.2 million women. The math is simple from there on. It's a multi-billion dollar opportunity.
Yep. Okay. That's great. If you got the test, you got reimbursement. How do you go after that $2 billion-$3 billion TAM? I assume you've got to market to or sell it to the OBGYNs. Is that who the help is?
That's right. We've got a very broad market to conquer. There's about 40,000 OBGYNs in this country. Of course, the maternal fetal medicine specialists in this area are our key champions because they deal with higher risk births. For us to tackle this broad market and 3.2 million births right away would probably be incredibly challenging nationwide. We are taking a targeted approach, selecting a few states, starting with three to five this year to really go after density of adoption in those geographic areas. It's a very high ROI approach. We've selected states that have a D+ March of Dimes grading for the level of preterm birth their states have, where we have already key opinion leaders and champions of our test that can influence the community, where we have good relationships with the payers in that state, and of course, Medicaid.
For us, creating the momentum in three to five states this year on the coattails of the impending publication from the PRIME study is the key goal. As we show what the test can do to reduce the effects of preterm births in those states and show the business case of also cost savings and health economic impact, it will be much easier for us to get uptake across the board. We will expand from there with the plans that have experience with us that we're going to suggest that we continue working together in other states and go from there.
Got it. This is a test that you run in your lab. What is your current capacity and needs to expand capacity for testing volume, both with the five states and then as you expand beyond that?
Our lab is a state-of-the-art lab in Salt Lake City, Utah. We are, with the existing investments in robotics and mass spec technology, ready to run hundreds of thousands of tests. For the next few years, we're very well-positioned for scaling.
Okay. And so you're doing it on a mass spec. I'm assuming the cost of goods are pretty low. So at $750 and at scale, you've got pretty good gross margins?
We do, as expected in the industry, roughly 70%-80% as we ramp up volume. At 3.2 million, as we penetrate the majority of the market, we absolutely can evolve our test to put it on any of the existing ubiquitous platforms. That is probably a few years away.
Okay. Got it. What about, so you're good on manufacturing. What about just from a build-out sales force? Do you have the folks in place right now to go after those five states? And then as you need to build out beyond that?
We are hiring as we speak. Indeed, we've got coverage in several of those states. I'm excited to share that we just brought on board a terrific Chief Commercial Officer, Lee Anderson. He comes to us from Exact Sciences. Prior to that, a long career building Genomic Health and specifically Oncotype, which is arguably one of the biggest diagnostic products in the industry. He is going to take home and grow our team and fill out the capabilities in our team to be able to support this growth.
Okay. So from a cash needs perspective, you've got enough cash to get you at least to those five states between manufacturing, between the sales force, and then at some have you stated you've got enough cash to get to profitability? Or where is your cash burn? And what's your runway right now with what you have?
Yeah. No, we just reported in our quarterly close that we are in great position. We just raised on the coattails of our data additional $57 million. So now we're $215 million. Very fortunate among diagnostic companies in this volatile environment to have through the end of 2028, about four years to get to profitability with this funding. We are very excited to make sure to drive uptake quickly and cost-effectively. Our annual burn rate of cash has been between $25-$30 million. We do have room to grow that with OpEx to ensure that we are spending appropriately on commercial efforts across the country as we scale states and save some dry powder for when the guidelines change, which will be a pivotal event in our marketing and sales efforts to go ahead and expand nationwide.
Okay. Great. So we've got plenty of runway and cash.
Very fortunate. That is one of the distinctive characteristics of us as a diagnostic player.
All right. That's just starting on a $3 billion TAM. You're the only player. There's not a lot of diagnostics companies like that. It's pretty exciting. Let me just maybe less and obviously less important to the near-term story, but what do you do with the test? I mean, first off, you're collecting a lot of data on these tests. Then is there other things that you could test for when you're running the preterm test? Have you looked at that? Or what's in your R&D pipeline? I guess two-part question.
Yeah, absolutely. We've mapped over 300 proteins that get expressed during pregnancy in expectant moms' blood. Of course, a rich pipeline of women's health products that may include preeclampsia, gestational diabetes, gestational hypertension, postpartum depression, and a whole host of different conditions. For us, what's really important is to hit it out of the ballpark with the first test. We already validated and began research on other conditions like preeclampsia and are collecting an extraordinary biobank of 20,000+ samples that we can mine. Of course, our data set has been terrific for us already. In the day and age of AI and with every biomarker test, increasing role is played by algorithms that incorporate other factors into the results. We believe we're incredibly well-positioned to integrate the data and the samples to mine it for future products.
Okay. All right. We've got plenty of time left. I apologize, but this is such a simple story that to me, it's very easy to understand. I don't have a lot more on the PreTRM test. Maybe just give us kind of the questions du jour that everyone else is getting. On U.S. policy, maybe start with tariffs. Any impact from the tariff policy to you guys?
We are lucky to be insulated from the tariff impact because the test is conducted here on the ground in the United States. I do think it will be worth it for me to recap some of the clinical test results on PreTRM because the PRIME study created a really exciting reaction among the community because we showed that we can keep one out of five babies out of the NICU by supporting babies getting born later healthier as opposed to being born more premature without the test and the intervention bundle.
Okay, that's a good idea to have a follow-up question. What's the cost? I don't know. The cost-benefit analysis, obviously, having healthy babies is very important. As you're going to a reimbursement, the $750 cost, how does that compare to what an extra day of stay is in the NICU and then other costs later in the baby's lives?
Glad you asked because this is a unique diagnostic product that doesn't just promise better life in the future by diagnosing a condition. We screen, and the screening and intervention generates savings in a year. For example, there's a couple of pieces of evidence we've published. One was done by Elevance, our partner, even a few years ago, where they've modeled savings from applying the test to 40,000 of their expectant mothers. They found that they will save $1,600 per member screened with the test. Most recently, we reported that economics are as spectacular from our PRIME study.
Specifically, we talked about the number needed to screen, so the number of mothers that need to receive the test in order to save one NICU day, which, by the way, in this country, on average is $4,500, but up to $20,000 if it's a NICU with a lot of machines that are used and it's a premature baby, is just between three and four mothers. Imagine how powerful it is economically. You screen three or four moms, and you save $4,500-$20,000. That doesn't even include the cost of care for the first year of life of the baby, which is even more costly. Average NICU stay for a preterm baby is over 10 days. If you think about the cost of that premature baby, and by the way, one out of 10 babies are born premature. That's an enormous cost to the system.
As a matter of fact, from Medicaid, and about 43% of moms get born on Medicaid, for them, childbirth-related costs represent 27% of all inpatient costs in Medicaid. That is a staggering amount of money. It's over $25 billion overall it costs the country in preterm birth. I'm going back to the economics and this powerful number of number needed to screen between three and four. This is just to save one NICU day. When we compare what is the number needed to screen for preterm test and what's currently in the guidelines, which is transvaginal ultrasound, for transvaginal ultrasound, the number needed to screen number of moms that need to be monitored every two to four weeks, so 4x-8x over pregnancy at between $300 and $800 per screen. This is many thousands of dollars of treatment.
You need to screen 150 moms to save one NICU admission. For us, it's 41 moms. It is more than three times more effective. If you look at the cost comparison of transvaginal ultrasounds throughout pregnancy, the four to six at up to $800 per test versus $750, you can immediately see the benefit to the system.
Got it. Sorry, it just sounds to me like you should be charging a lot more than $750, but I guess.
It's a good point. However, we are eyeing the full market. What we care about in our mission is to ensure that every mom who needs the test gets it. We are operating in the environment when Medicaid is looking to cut $800 billion plus out of its budget. We want to make sure that we are priced for adoption across the board.
You said you've been getting basically inbounds from Medicaid. I mean, what's the reaction on the OB/GYN community? I would assume that they're dying to, I mean, very excited to get this test as well. Kind of what have you seen from the OB/GYN community?
Keeping one out of five babies out of the NICU is unheard of. When we talk to clinicians, they're saying they haven't seen an innovation that does that for decades. For them, it's really critical that we continue publishing our data and sharing with the community how powerful the test is. We're planning to do just that. We have about three to four publications in development. For us, engaging with the clinical community on that data is going to be essential. Of course, the clinical community is going to talk to us about not just how powerful the test is, but also on the efficiency of the interventions, which are very safe and well-known. Low-dose aspirin, 81 mg, and daily vaginal progesterone are well-known in the community.
The care management of a weekly nurse call is one of those that, of course, will be critical in the shortage of nurse staffing resources that need to be directed only to moms who need it because we are unfortunately in a situation where there are more healthcare deserts and fewer and fewer nursing staff that's available.
Got it. All right. If I just look at the Catalyst timeline from now until the end of the year, what are the big, what are the dates and what are the big ones that we should be looking for?
First big one is a publication. We're looking forward to sharing all of the results that showcase how powerful this breakthrough is. I don't have the exact date for you to announce, but it's coming imminently. Second one, of course, is seeing our traction with Medicaid plans, which I do think is going to be a breakthrough for the diagnostic test industry where Medicaid plans are moving so quickly. Last but not least, of course, is the uptake in volume.
Okay. As we get into 2026, you anticipate that at that point, you may be able to give fiscal 2026 revenue guidance or test guidance, things like that. Do you think you'll be in position to do that towards the end of the year, early 2026, by the time you report Q4?
You're right. We haven't been guiding because we want to make sure that we get into a position where we can forecast pretty accurately the volume so that the analysts can make sure to set expectations of the investors that we can meet and beat. I cannot promise Q4 of this year. As soon as we are in great traction position with three to five states and see line of sight of the volume quarter- over- quarter, we will start.
Great. Perfect. Zhenya, thanks for joining us. Very exciting story. We appreciate it. We appreciate everyone that listened in.
Thank you so much for hearing our story. I look forward to talking to you again.
Yeah.