Biora Therapeutics, Inc.
Q4 2020 Earnings Call Transcript

Published: 18 Mar 2021

[Operator:]

Welcome to the Progenity’s Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. I will now turn the call over to Robert Uhl, Managing Director with Westwicke ICR, Progenity’s Investor Relations firm.

[Robert Uhl:]

Thank you, operator. Good afternoon and welcome to Progenity’s fourth quarter 2020 financial results conference call. Joining me on the call are Dr. Harry Stylli, Chairman and Chief Executive Officer; and Eric d’Esparbes, Chief Financial Officer. Before I turn the call over to Dr. Stylli, I would like to remind you that today’s call will include forward-looking statements within the meaning of the federal securities laws, including but not limited to the types of statements identified as forward-looking in our annual report on Form 10-K that we will file later and our subsequent periodic reports filed with the SEC, which will all be available on our website in the Investors section.

[Dr. Harry Stylli:]

Thank Robert, and thank you all for joining us this afternoon. We made significant progress during the fourth quarter, both with our revenue generating business and especially with our innovation pipeline programs. In Q4 2020, we made progress in stabilizing our core revenue business. In addition to revenue cycle improvements that are beginning to strengthen ASPs, we continue to witness strong new customer acquisition and in-network expansion by adding national and regional contracts. Further, we advanced our discussions for in-network status with our remaining large commercial payors and saw additional commercial and government payors covering average risk NIPT. These factors which will continue to grow in contribution are helping lay the foundation for sustained growth in 2021 and beyond. We maintained a disciplined approach to managing our operating expenses during the quarter through a combination of reduction in force and cost controls whilst maintaining appropriate resourcing of our key R&D programs. Eric, our CFO, will provide more details later in the call. During the quarter, we raised $118 million gross proceeds in December 2020 from a concurrent secondary equity offering and issuance of convertible notes. In addition in Q1, we raised $25 million in gross proceeds from a private placement with two leading healthcare-focused investment firms that were drawn especially to our innovation pipeline. We view this increasing investor engagement positively and it allows us to extend investor focus beyond our core molecular testing business and into our innovation pipeline, which is now progressing at an accelerated pace. We were able to see evidence that our core business in the fourth quarter of 2020 was stabilizing, and reported 82,000 tests, including 56,000 core molecular tests, and 26,000 COVID-19 tests. In the quarter, we continued to witness customer turnover, primarily due to changes we implemented during 2020 to strengthen our revenue cycle management and our billing process.

[Eric d’Esparbes:]

[Dr. Harry Stylli:]

Thank you, Eric. As we look through ‘21 and beyond, we have many drivers of value-creation and revenue generation at Progenity. We believe we will return to sequential quarterly growth, driven by the differentiation of our products and services, and by recognizing the benefits of increasing network coverage and improving reimbursement outlook by average risk NIPT. We’re especially excited about the progress of transformational potential of our R&D pipeline as we prepare to launch Precludia and Innatal 4 in our channel. In ‘21, we anticipate meeting development and our launch milestones by Precludia and Innatal 4 tests. These products will help further differentiate our core business. We believe that our precision medicine platform will continue to gain momentum as we generate more preclinical and clinical data, initially fueling partnerships as a source of non-dilutive capital and ultimately, products and services that address high unmet need and vast markets. Progenity is well-positioned for compelling value progression in the coming months and years. With that, operator, we’re now ready for questions.

[Operator:]

Thank you. First question comes from Steven Mah with Piper Sandler. Your line is now open.

[Steven Mah:]

Great. Thank you. And Harry and Eric, thanks for taking the questions today. A couple on the payors. Could you give us a little bit more color on your current in-network transition, billing, revenue cycle management efforts? You said account attrition is weakening. But, when should we expect these issues to be behind you? And, are you expecting more customer turnover this year? And then, finally, can you give us an update on the Anthem and United in-network discussions?

[Dr. Harry Stylli:]

Okay. So, Steve, this is Harry. A couple of things. One, there’ll always be attrition in one’s business, and that goes for anybody. However, the attrition due to our efforts last year, we expect it’s essentially winding down to zero or close to zero by the end of this quarter. So, on a go forward basis, we should really start seeing and getting visibility on the underlying volume growth. And that’s based on the significant new customer acquisition we’ve made in the last couple of quarters. So, I’ll stop there, see if we got any more questions about that. The other part of the question was revenue. We’ve made -- as you transition from out-of-network to in-network, the business model changes. And what was working for us in the past is no longer sufficient in the present, as we are now predominantly in-network. And we’ve got the opportunity to actually implement a whole range of initiatives which we have been and will continue to do. That will just drive liquidation which will appear as ASP and ultimately rising revenues. And I believe we’re just beginning to harvest the fruits of our investments today. And there’s a lot more to come, okay? So, that gives you a sense. And we’ve highlighted a couple, but there are numerous efforts that are being directed, to achieve enhanced liquidation and take full advantage of the in-network opportunity. And that’s that part of your question. And then, we are advancing our discussions with both Anthem and have recently reengaged with United. And I would say, things are moving as expected. And as we said in the past that it’s quite likely that we reach resolution and in-network status with Anthem, hopefully, in the next couple of quarters, but that’s never absolutely predictable. When that -- as we see that happening, you could expect us to increase investment in sales to take full advantage of the 44 million lives that will be available to us. And of course, this is predicated on things continue to go well. And we reengage with United. And hopefully, it’s not this year. Next year, we can build on our relationship with them also. And that’s really the last two major commercial payors that we have in front of us in terms of completing the in-network transition.

[Steven Mah:]

Okay, great. Thanks for the color. And maybe one more on NIPT, and maybe this is for Eric. You mentioned, there’s some tailwinds following the ACOG guidance change. And you’ve observed that and you expect to continue to observe that. But, on the revenue recognition for average risk, are you going to be booking those revenues on an accrual basis, or do you need to build up a payment history with those that are our newly covering average risk?

[Eric d’Esparbes:]

Yes. It’s the latter. You need to build a liquidation pattern before you start recognizing that higher ASP on all new volumes. That’s basically the rules. The good news is that we’re seeing that improvement already in December, the core. And the trend continues in Q1. So, we’re already ahead, if you want, of our original plan, if you look at a guidance, average ASP that we had got to. So, we’re very happy with that trend.

[Steven Mah:]

Okay. And you think it’s going to be six to nine months to kind of build up that payment history?

[Eric d’Esparbes:]

Yes. It will continue to build over time, absolutely. And you combine this with new payors gradually adding coverage. And as Harry talked about, if you add additional in-network coverage, then all of this leads to less friction in the process to basically get reimbursed for the test. So, we see this very positively.

[Steven Mah:]

Okay, great. I’ll hop back in the queue. Thank you.

[Operator:]

Thank you. Our next question comes from Catherine Schulte with Baird. Your line is now open.

[Catherine Schulte:]

Hey, guys. Thanks for the questions. I guess, first, I appreciate your comments on starting to see some bad account attrition winding down. Can you just talk about any monthly volume trends for NIPT in carrier screening that you saw in the fourth quarter and so far in the first quarter?

[Dr. Harry Stylli:]

You take, Eric.

[Eric d’Esparbes:]

Yes. So, we saw positive signs at the end of the year, in terms of volume demand profile. And that trend seems to be also very positive in January. As Harry mentioned a little bit earlier, we did have some weather disruptions that did affect a little bit patient behavior, if you want, but also the ability to operate labs. When you have a few state abuse power, basically it just affects it, if you want the trend. So, that’s why we kind of updated our guidance for Q1. But the overall message there is that we’re seeing really good trends starting to build up, especially in terms of the new accounts that we’ve been winning, gradually adding demand in terms of volume. So, all of this is basically gradually coming together.

[Catherine Schulte:]

On the $10.7 million of accrual you took in the fourth quarter, I believe the initial amount that Anthem has talked about was around $27 million and you talked about, hey, usually you can settle those for less than the original amount. But, how confident are you that that $10.7 million number is the right number?

[Eric d’Esparbes:]

So, I would say we are very confident that this is a reasonable accrual. We use our best judgment, based on the status of the negotiation and the discussion so far. So, we have a high comfort level that this is a good base to use as a reference.

[Catherine Schulte:]

Okay. And then, maybe the last one, we’ll spend some time on the precision medicine side. Just any update on how the final collaboration you signed for OBDS last August is progressing so far?

[Dr. Harry Stylli:]

Yes. It’s actually advancing to the preclinical stage, which we expect to engage in towards the end of the second quarter. Okay. So, it’s moving very nicely, great interaction with both, the strategic oversight group there, as well as the project team. And we are making great progress. And that’s basically it. So, hopefully soon. We will gain more visibility, because we -- hopefully share more in a public context.

[Operator:]

Thank you. Our next question comes from Sung Ji Nam with BTIG. Your line is now open.

[Sung Ji Nam:]

Hi. Thanks for taking my questions. Harry and Eric, when you guys talk about gaining new account, could you maybe talk about what’s driving value displacing competitors there and kind of what kind of efforts you are making in order to drive that?

[Dr. Harry Stylli:]

So, in every case, we are displacing competitors. And so, these are accounts we’re winning in direct competition. If you recall, when we talked account attrition, these are accounts that we’re literally losing, they’re ending up with competitors. But we’re losing them. We’re not losing them to the competitor in the directions. But, in this case, we are securing business directly from competitors at a pretty high rate for us. And the reason why we’re doing this is probably multitude reasons. But obviously, we believe our products are differentiated. Our services are differentiated. And increasingly, we’re using sophisticated tools that help us target the needs of accounts and physicians in a much more, if you like, rifle shot kind of a way than we’ve been able to do in the past.

[Sung Ji Nam:]

Okay, got it. And then, I don’t know if you’re able to talk to your customers about Innatal 4 yet, but we’d love to hear any feedback you might be getting kind of from potential customers, in terms of the value proposition of that?

[Dr. Harry Stylli:]

We had preliminary, if you like, discussions with KOLs. And the focus is always on the top line quality of the data. But, they’re very excited about the idea of a much faster turnaround. Because there’s a demand for that, there’s a need amongst consumers, for very rapid turnaround. So, if I can get that data as quickly as is possible. So, I would say, that’s where things are resonating with our initial discussions in terms of the advantages, this particular platform will offer. And of course, another advantage, which is -- could also be coming for the customer, but certainly will help us, is we anticipate a direct COGS reduction of around 50%. And that would be one of the key drivers to help in our business become breakeven ex-R&D by the end of ‘22 or into the first half of ‘23. So, we’re excited about that. And that also gives us more pricing flexibility in the marketplace, should we choose to take advantage of it. So, we can access more customers through partnerships and other relationships in a cost effective win-win kind of a way.

[Sung Ji Nam:]

Got you. That’s very helpful. And then, lastly, from me, in terms of the reduction in force, obviously, you’re looking to manage your costs, but at the same time you have some new products that you’re about to commercialize. So, how should we think about is this the right size or -- commercial infrastructure that you currently have, or will there be plans to potentially further add more headcount going forward?

[Dr. Harry Stylli:]

The exciting thing is, both Precludia and Innatal 4 are in our existing channel. And we’ve got a relatively mature distribution and support capability in that channel. There will be an opportunity to expand and invest both with additional skill sets to support sales, for example, as well as we get access to more accounts because we’re in-network. And the other thing is Precludia is anticipated to open more physician doors and give us access to a lot more doctors’ offices, because of its uniqueness and novelty. And that will -- that in addition to going in-network will necessitate investment in the sales force to achieve a broader reach. Okay? But, these would be relatively incremental investments, given the scale of our footprint today.

[Operator:]

Thank you. Our next question comes from Andrew Cooper with Raymond James. Your line is now open.

[Andrew Cooper:]

Thanks for the questions, guys. A lot has been covered. Maybe just one. We’ve heard from a lot of the players at this point on the COVID side of things that things have really slowed down, you sort of stuck with your numbers there. When we think about what that looks like, for the year, is there something you can give us in terms of visibility or contracting, and so what that looks like through the rest of the year? Have you won screening contracts or anything like that that you could shed a little bit of light on?

[Dr. Harry Stylli:]

Yes. We secured contracts, and I won’t go into the details of where we’re finding opportunity, for obvious reasons. So, we have secured a significant number of contracts. But, like you said, we -- for us, this is really an incremental opportunity. And our focus is the core business, both now and in the long run. And we’ve been consistent about that that we are taking advantage of this opportunity. And as you know, the dynamics have changed recently. But, it’s very hard to forecast where we’re going to end up through this year. So, you believe in additional ways that will drive demand, and you’re going to be in a position to explore those ways as and when they arrive. And then, of course, as the winter comes in -- kicks in towards the end of the year, the view is there’ll be additional spikes. So, that’s what I would tell you. But recall, this is really an optional opportunity for us. It provides, provides additional margin and some volume. And I’m going to invite Eric as he’s bursting to add to my points.

[Eric d’Esparbes:]

Well, so, what I wanted to add Andrew is -- and that’s why we specify the overall revenue range. Because right now, we’re already ahead, compared to the guidance on ASP so far. So, what we view is that we’re going to have a few pluses and minus, as you as you move throughout the year. And as a result, we feel pretty comfortable with the guidance range that we have currently. We’ll give some updates later during the year as things progress.

[Andrew Cooper:]

No, that’s great. Certainly appreciate that it’s hard to predict. And I’d much rather see you outperform on the core and some shortfall on COVID, if that’s what it is. But, maybe on some of the core just real quick for a follow-up. When you’re out there and you talk about winning more new accounts, and the excitement around preeclampsia, I think in that there’s some unmet need out there. When your sales folks are out there, I mean, what level there’s been any changes that you’ve gotten an award on some of the data and things like that, where, as the demand, and the excitement around Precludia really ramped up as launch is approaching or any changes in sort of how you feel like the market leader perceiving this product over the last several months?

[Dr. Harry Stylli:]

I think, it’s premature because we’ve not really promoted it in the channel at this stage. And any excitement or interest is based on whatever we shared with the public today. But, as you -- I don’t know, if you’ve picked up on this, we have an extract accepted -- abstract accepted by ACOG code for a presentation in May. And we look at that as a great sign that the clinical community is paying attention and obviously interested in learning more about the -- about our Precludia test. So, that’s a good sign. We’re going to really ramp up our efforts on post-validation study, and use the findings, both from our prior studies, as well as validation to drive market education and market reach. And the other dimension of that is to drive clinical utility studies. And that will also result in a broad education and receptivity of the market. Now, we’ve engaged payors, and we’ll go into this a bit more detail in the future, once we turn to a commercialization opportunities and initiative -- and this is a second occasion, we’ve gone back formally to pairs. And we’re really excited that we’ve also got to super strong representatives of the payor opportunity set, in the form Jeffrey Alter, Sam Nussbaum on a Board and they’ve been quite helpful. So, look, the payors seem to really get the economic benefit of the rule-out test. It didn’t require a lot of explanation. And there is great receptivity. And that’s the other important thing. Okay? It’s not just education of the physician and the patient. It is, are the payors getting what you’re doing and are they willing -- are they seeing sufficient value in order to accommodate payment for the test? And the answer is, yes. And, it’s going to be evidence-based. And arguably the most critical piece of a data in addition to the validation study is going to be our clinical utility program that we’re going to launch essentially post-validation. So, all these events are going to conspire to build, both awareness, educate the channel, educate the market, and ultimately achieve reimbursement.

[Andrew Cooper:]

Okay, great. I appreciate it.

[Operator:]

Thank you. Our next question comes from Dan Leonard with Wells Fargo. Your line is now open.

[Dan Leonard:]

Thank you. So, first, a question on the guidance for your core molecular business in 2021. Your run rate is about 225,000 tests in core, but you’re guiding for about 300,000 in ‘21. Can you bridge what went into other forming -- what provides the lift from 225 to 300 in buckets, if you will?

[Dr. Harry Stylli:]

I think, it’s pretty straightforward. One is the attrition that we’ve experienced due to our building processes efforts is expiring, and that’s a very large headwind that will be in the rear view mirror, essentially as we speak. Secondarily, if we’re looking at the account acquisition that has occurred, the team has delivered a very significant number of new accounts in the last few quarters. Those are going to begin to kick in. And that’s just about reflecting early on in our numbers. Okay? And those really -- those two are the biggest drivers. The third is expansion of the sales force, okay, which we anticipate in the next quarter or so. So, those are really the drivers that will give us the top-line as we are seeing. And I think it would be, not correct to judge the performance based on recent trends, because they were unusual and transient trends, however, significant lever to our business that are basically playing out, basically done. So, I think, all these reasons are going to help fuel and drive the business on a go forward basis. And then, on the top -- on the other end is, we’ve already seen -- actually we are ahead, if you look at where we thought our annual ASP would end up for ‘21, we are already materially ahead of that. Of course, we need to sustain the ASP, but as we hinted and as we pointed to, there are a great many irons in the fire, the yet to play a role. And we expect, if anything, ASP to harden on a go forward basis. So, those are the reasons. And that of course is -- doesn’t -- factor in Precludia, which is in our channel. And we’ll start right towards the end of the year. But it will enable us to build up our presence, build up the channel education. And I believe that’s going to open doors and potentially result in toll free menu. But, I see that more as a ‘22 effect with a marginal ‘21 effect. So those are...

[Dan Leonard:]

And then, Eric, I think you provided some comments on Q1 given weather and all that, but I missed some. What were the comments on Q1?

[Eric d’Esparbes:]

Yes. So, what I said the reason why we’re guiding to a relatively flat quarter is because in February, there were storms and power outages in Texas and the Midwest. And, this is a pretty substantial market for us. So, that has a little bit of an impact. It kind of delayed and postponed certain things. So, you don’t get all the full benefit of the trends.

[Dr. Harry Stylli:]

I mean, for example, we -- our Avero business in Texas was adversely impacted for, I believe, between 7 and 10 days, and FedEx and UPS did not resume services in Texas for at least that period. Okay? So yes, you’re going to scramble and recover quite a bit of that volume. But, you’re not going to get all of it. Okay?

[Dan Leonard:]

Okay. And then, just finally, given the importance of average risk NIPT, can you remind us of your core molecular, what proportion of that in 2020 was NIPT, what proportion of that was average risk? And maybe, finally, what proportion -- you weren’t getting paid off? So if you think about the potential lift here.

[Dr. Harry Stylli:]

So, that’s pretty straightforward. So approximately two-thirds of our volume is NIPT and about two-thirds, 62% of or so of NIPT volume is average risk. And we were being paid on a tiny fraction of our average risk. Okay? So, I think, I’ve said in the past and I’ll say it again, that if we take volume run rates that we were averaging last year, okay, and assume about 100% payment, which is not likely to occur, it might be more like 85%, but then you got to factor in volume growth. We could expect $40 million, plus or minus $5 million to drop to the bottom line and therefore be recognized as revenue that’s not being recognized today in the coming quarters. It’s a material benefit, if you like, that, again, goes to your first question is, how you expect to grow volume and therefore revenues, and so on and so forth. The other thing we’re seeing and we’re hearing is that the demand for average risk in the channel is increasing. And that suggests that there was demand -- that there was later demand that was probably being served by serum testing that now because of the ACOG guidance, those physicians are feeling more comfortable about prescribing average risk for their patients. So, we’re seeing evidence of that too in the last few months.

[Operator:]

Thank you. I’m not showing any further questions at this time. I’d now like to turn the call back over to Harry Stylli for closing remarks.

[Dr. Harry Stylli:]

Thank you all once again for participating on the call, and thank you for your interest in Progenity. If you have any additional questions, please feel free to contact us. Have a good evening or good afternoon, everyone. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.