Biora Therapeutics, Inc.
Q1 2021 Earnings Call Transcript

Published: 13 May 2021

[Operator:]

Good afternoon everyone. Welcome to the Progenity’s First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. And 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 first quarter 2021 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 quarterly report on Form 10-Q 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 Q1 with our revenue generating business, but especially with our innovation pipeline programs. And this is the area I want to focus on first during our call today as the company plans to enhance its focus of strategic biotech areas having in my opinion the highest possible value generation potential as our GI Precision Medicine and preeclampsia programs. It has become clear to us that investors are currently placing more value on large unmet medical needs that can be alleviated by high margin therapeutics and molecular diagnostics. We have made clear progress in our Preecludia tests, with several recent studies showing a high probability of accuracy that could lead to significant commercial use. We have already initiated assets of our PRO-104 validation study, which upon satisfactory completion will trigger our commercialization phase by Q4 2021. As a reminder, preeclampsia is a second most common cause of maternal mortality in the U.S., with more than 700,000 women presenting each year with signs and symptoms of possible preeclampsia. Preeclampsia is a and effective operator independent test that aging diagnosis is simply not currently available. Preeclampsia is associated with a range of signs and symptoms, hypertension, protein, urea, but also for example headaches, edema, and GI pain. The only way to currently treat preeclampsia effectively is to deliver the baby before 37 weeks, resulting in premature delivery with an increased risk in health consequences and healthcare costs if that were to occur. It tests really out preeclampsia in women with signs and symptoms such as Preecludia has the potential to transform patient management, especially in our intended use population, which is primarily represented by the OB/GYN.

[Eric d’Esparbes:]

Thank you, Harry and good afternoon everyone. I'll provide a brief overview of our financial results and also invite you to review our first quarter financial release and our 10-Q for a more detailed description. We reported $25 million in revenues in the first quarter of 2021 in-line with our prior guidance. This represents a 72% growth quarter-over-quarter and a 46% growth from qQ1 2020. As we now can report revenues without any accruals or reserves. We continue to see ASP improvements in the quarter, which gives us confidence. Our revenue cycle management efforts will sustain increasing liquidation. We believe the vast majority of the operational improvements we've implemented last year, combined with the benefits of our growing and network position, an increasingly favorable average risk NIPT coverage by government and commercial payers will all converge to deliver a progressively strong financial performance in 2021. So far in the first quarter of 2021, we generated an ASB upside of nearly $2 million, compared to the first quarter of 2020 most of which is related to NIPT average risk upside. On a full-year run rate basis that represents almost $8 million upside before adding volume growth and further expected liquidation improvements, which is a very encouraging sign. Based on current trends, we expect Q2 2021 overall revenues to return to growth, compared to the first quarter 2021. As a result, we're maintaining our 2021 core revenue guidance range. We believe the transition to growth of our core molecular testing business will continue to progress through 2021 and we expect to see the benefits of growing volume demand and rising ASPs. As Harry previously mentioned, COVID was a transient unfortunately for us. And since we are focused on our core business, we are choosing to no longer provide 2021 COVID volume and revenue guidance. While it was very much an opportunistic offering, we generated a positive and growing ROI on that original investment. Our first quarter COGS and COGS per test increased slightly compared to the fourth quarter due to non-recurring compensation expenses, but remain stable otherwise Following implementation of cost control measures in Q4 2020, we continue to maintain a disciplined approach to managing our operating expenses to ensure it is more in-line with the progression of our top line revenue performance, but in parallel, we're maintaining appropriate resourcing of our key R&D programs. We also are increasing our focus on opportunities to extract non-dilutive capital, and reduce cash burn as we continue to drive towards breakeven and profitability ex-R&D for our core business by the end of 2022, early 2023 timeframe. SG&A expenses were 36.9 million during the first quarter of 2021, a slight increase compared to the fourth quarter, largely the result of non-recurring compensation expenses, but remained stable otherwise. R&D expenses were stable at $11.7 million during the first quarter. The result of stage gated investment strategy, where we allocate incremental R&D spend based on programs achieving various de-risking milestones. Our key R&D projects are progressing very well as Harry explained earlier, and all remain well funded. First quarter 2021, net loss was 32.3 million, which includes 14.8 million of income from change in fair value, other derivative liability associated with the 2025 convertible notes we issued in December. First quarter 2021 operating cash flows when they get to 48.6 million compared to negative 72.3 million in the fourth quarter of 2020. The main difference between the two quarters relate to 39.2 million in scheduled government and payer settlement payment made in December 20. As a reminder, we now have $24.3 million remaining in settlement payments, which are payable over the next three years. These payments will significantly diminish beginning in 2022, significantly reducing our capital requirements in that respects. During the first quarter, we raised $25 million in gross proceeds through a private placement and had a cash balance of $65 million at the end of the first quarter of 2021. With that, I will now turn the call back over to Harry.

[Dr. Harry Stylli:]

Thank you, Eric. Progenity has several catalysts who are anticipated to create value in the coming quarters. We are excited about the future. Key examples of our strengthening performance of the core revenue business, including strong contribution from NIPT average risk reimbursement, Preecludia validation study results in June, July of 2021, followed by a targeted launch by Q4 2021 and multiple GI program clinical milestones that I described earlier, coupled to partnerships, likely continued partnerships. The milestones we discussed today, and as presented in our supporting materials in normal course should enhance value as we make progress with our core business and advance our innovation pipeline. A number of our innovations address the vast markets and in certain instances have the potential to be commercially transformational. Further, certain of our innovations can readily support multiple significant partnerships, which we expect to realize as we continue to de-risk our programs through execution by generating data. We are working towards achieving breakeven and profitability of our core business and intend to fully exploit various options that reduce our capital needs by generating for example, non-diluted capital through various means are valuable to us, whilst reducing our operating costs. We are excited by the near-term potential and the optionality we provide for value creation. With that operator, we are now ready for questions.

[Operator:]

First question comes from the line of Steven Mah of Piper Sandler. Steven, your line is now open.

[Steven Mah:]

Okay, great. Thank you. And thanks guys for taking the questions.

[Dr. Harry Stylli:]

Hey, Steve.

[Steven Mah:]

So, first one, I appreciate you guys are not giving COVID volumes going forward, but is there any way you guys could give us the core women's health volumes? And the reason I'm asking, I'm doing some quick math here to turn it back into the volumes and revenues and just rough and tough, it looks like the volumes in women's health were sequentially flat. And I was just hoping if you guys could just square away - if they are sequentially flat, help us square away the disconnect as, you know typically, Q1 is typically a very strong quarter for NIPT testing, and given some of the other women's health testing companies we expected volumes to be a lot higher, so any color would be appreciated?

[Eric d’Esparbes:]

Yes, Steven, thanks for the question. So, yes, they’re generally flat for both core and COVID. The difference is largely related to previous statements we made at the – one of the conferences were February was a little bit challenging in Texas, had some bad weather that affect, you know, affected demand dynamics a little bit. And secondly, you know Harry talked about it, we're still in the process of some of the transitions on the sales channel. So, that that is both combining to the stable quarter-over-quarter volume. Hopefully that helps?

[Steven Mah:]

Yeah, okay. Yeah, that helps, sorry. Thanks. And then next question, on the Crohn's & Colitis funding, is there any way you can give us some more detail or color, you know, potentially the amount of the funding, the timeframe of the funding and any limitations of use on the funding?

[Eric d’Esparbes:]

Yeah, so this is Eric, I'll cover this. This is a cost sharing arrangement. So, it will not necessarily show as revenue, it's more of a joint spending on the studies that are targeted by the program. So, it's not overly, you know, critical in terms of the dollar, what matters is really the studies that it supports.

[Dr. Harry Stylli:]

And it's a contribution towards maturing that the DDS further. That's the main focus. And that leads to studies.

[Steven Mah:]

Okay, got it. Okay. So the funding is strictly for the DDS development?

[Dr. Harry Stylli:]

Correct.

[Steven Mah:]

Okay, alright, great. That's helpful. And maybe if I can sneak in one last one, you guys mentioned, gave us a little bit of an update on Innatal 4, but could you remind us again, on the timing and next catalyst for the Innatal 4 development?

[Dr. Harry Stylli:]

I would say the next catalyst is probably going to be Q3, and I'm hoping that it will be demonstration that technology has got to the point where now we can move it into what are called optimization and then on to verification and validation. Based on current run rates, I would say progress. I would say, we should be ready to commercialize probably towards the end of the second quarter beginning of the third quarter next year. Okay.

[Steven Mah:]

Okay. Great. Thank you so much.

[Eric d’Esparbes:]

Thanks, Steven.

[Operator:]

Next question comes from the line of Andrew Cooper from Raymond James.

[Andrew Cooper:]

Thanks for the question, guys. Maybe first, just kind of looking at the gross margin and sort of the cost of goods, I understand there's always some moving parts there, but with volumes, sort of flattish, it looks like the cost per test, you know, moved around a little bit. Is there anything that you really point to there, specifically? I know, you've talked about a couple of things in the script, but can you just you know, what maybe was, was the pro versus a con in 1Q cost per test to help us think about the margin trajectory from here as volumes continue to recover?

[Eric d’Esparbes:]

Yeah, so I would – what I tried to mention in the section on finances, that the temporary increase in Q1 is really more related to a combination of stock based compensation accruals and other related expenses. The actual COGS per test otherwise remain stable. So, if you want to forecast COGS profile, if you back that out, the prior quarter level is more indicative of the run rate.

[Andrew Cooper:]

Okay. So, closer to what we saw, kind of in the 4Q level, is that the kind of . Okay, that's very helpful. And then, you know, maybe one on some of the data we've gotten in the GI Precision Medicine, I guess, can you help me think about what majority means when we think about majority of payloads reaching their target and then how that plays into, sort of the clinical utility of a drug, and you know what a payload not reaching the target might mean and how we think about that clinically, and sort of what the bogeys are that that you need to hit there would be helpful?

[Dr. Harry Stylli:]

I'll be happy to do that. So generally, most drugs have situations where they don't meet their, their objectives. Okay. So it's not uncommon in our world. So, here right for the human’s study, which is the one that's most important for your question is 11 out of 12 of the devices actually hit the target. Okay. And the only one that didn't, was an interesting phenomenon where the device left the stomach and then was sucked back in. Okay. And that's really a small software tweak to overcome that sort of, you know, rare event, but it occurred. Okay. So, then, you know, beyond that, what we found is the majority of the devices, i.e. 8 of those 12 devices actually released the drug. And the reasons were they didn't release was that this was the first batch of manufactured devices. And there were some learning curve tweaks that we need to make. So, ultimately, by the time we're ready to do human studies, I mean, IND to a – which is way in the future, these devices should be way better than 90%, 95%, or even approaching, you know, beyond 95%, in terms of their effectiveness. Now, if they don't discharge, you will not receive a dose, which is not the end of the world, in the correct place. Okay. So that that would be really the only sort of issue around that, and you can recover the device if you wanted to confirm that. But that would be really your primary downside here. Now, other than that, the devices based on the input that we received seem to be, I’ll use the word safe and well tolerated by the human subjects. So, it's really – I've got to say to you, it's better than we expected, you know, at this point of the evolution of the device, and it's remarkable that we're able to hit the ileocecal junction, which is exactly where you want to be i.e., the beginning of the colon, or the very terminus of the . So we're able to hit that 11 out of 12 times already, and achieve pan colonic distribution, when that occurred. Okay. Again, what you need to see, because colitis begins in the rectum, and usually makes its way up to the .

[Andrew Cooper:]

Okay, perfect. That's super helpful context. Maybe just one more shifting, shifting a little bit. But on preeclampsia, I know, it sounds like everything's moving as expected and moving forward well, so just maybe the latest and greatest thinking on, you know, building the sales force around that prepping your existing force to really hit the ground running there. And if anything's changed, since sort of the last conversations we've had about any of those dynamics?

[Dr. Harry Stylli:]

No, I don't think anything's changed. You know, in the beginning, we're not going to go pan national with the test. It's going to be a targeted launch and there's more than enough capability. And their capability across this value chain is being trained, and materials are being produced. And, you know, once we have the validation data, we're going to publish, and then we're going to expand our education programs. So, you know, everything is lining up just as expected. There's not going to be a need to really ramp the Salesforce for that per se, because it's already a fairly, you know, substantial Salesforce. We may need to bring in additional skill sets into the Salesforce and to marketing and into, you know, the support functions. But that's really just an incremental investment. Because one of the exciting things about this Preecludia is that it's the primary client, if you like, is the OB/GYN, which is where we're really focused on today. Okay. So we expect to get operating leverage and other benefits as we go forward. And you know, really, I'm quite excited, quite excited because this is a very difficult biology to navigate in a very difficult clinical environment to navigate, and hopefully with the success of the validation study, we get to see how it's received in due course and plays in the market, and how the adoption rate advances, and of course, how reimbursement proceeds. And we're encouraged by what we are hearing about by the way.

[Andrew Cooper:]

Great, that's it from me. I appreciate the questions again. Thanks, guys.

[Eric d’Esparbes:]

Thanks, Andrew.

[Operator:]

Next question comes from the line of Catherine Schulte of Baird.

[Catherine Schulte:]

Hey, guys, thanks for the questions. I guess first, just on the core business, you guided the second quarter up sequentially, any further comment on what you expect in terms of the magnitude of that increase. And you know what you're expecting for sequential volume growth versus ASP benefits?

[Eric d’Esparbes:]

Yeah. So we're probably going to stay with the statement that I made a little bit earlier because you have a lot of moving pieces. So, I think we feel comfortable that we're going to be in a position to grow. But we'll have to provide further updates as we progress on the quarter.

[Catherine Schulte:]

Okay, got it. And then you mentioned seeing a lot more interest in some of your Precision Medicine applications, are there particular platforms, whether it's OBDS, DDS, PIL Dx, or the sampling device where you're seeing the most interest? And, you know, what are your expectations for additional partnerships this year?

[Dr. Harry Stylli:]

I'd say the most interest is in the OBDS. And, you know, you just have to take my word for it, the interest is growing. And we have mega caps, who are interested. And what we've noticed is as we generate more data, there will be more feasibility studies with pharma. But the demand for those feasibility studies is softening as we generate more data, and I think if we continue to execute and generate data, you're going to see broader relationships. There's also interest in the DDS. There are discussions ongoing now. They're not as advanced as the OBDS. There's also discussions for the platforms with various parties that have expressed interest, for instance, for the capability, and also, there's a transaction in the works, and it's for the RSS. Okay. So there's broad interest, but where we believe the greatest impact is going to resolve is with the drug programs. I mean, the data, you know, based on the feedback we received, that we've shared with you today is profound. And soon, you'll be seeing evidence of human performance. And I think it's quite profound as we go along. And the devices even at this relatively early stage in their evolution, they're super functional. And they actually are performing better than we thought than we anticipated at this stage. Now, also the opportunity, which now we're going a little slow with, we're going to take it to the point where we generate clinical data that we could then use to hopefully advance it in really, in partnership with others. So, and that's a vast opportunity. What excites me the most is the feedback we get from the GE, the Gastroenterology community, including the college where they have a thirst for technology that can do what we're proposing the SCBDS can do. So, this is beginning to, you know, go, you know, since everyone wants, you know, the feedback I get is you need validation. Well, here's data, that's validating. Okay. And it's both performance data in terms of the device tolerability data, coupled to what looks like efficaciousness and gives us a sense of what the tolerability profile might be for these heavy drugs. Okay. So this is quite powerful in its own right. It de-risks things for us. And then the rest, you know, will, you know, will happen in due course. Okay.

[Catherine Schulte:]

Alright, got it. And last one for me. You mentioned the OBDS partnership you signed last year is progressing as expected, you know what are the next steps there? And what kind of updates should we be expecting on that partnership? And then I think your eye on this partnership is divided into a few parts. So, what's the timeline about hearing about the ?

[Dr. Harry Stylli:]

Yeah, absolutely. So the, you know, the first partnership is moving into the preclinical stage with a partner's drug. And we expect to have data on that in probably Q3, Q4. So in other words, it's clearing its initial milestones. And we're getting down to, you know, in a way making the , which is, does the device work. The other thing I want to share with you, which is interesting, there's an evolution in thinking away from canine as a model into and into the for a number of reasons, because it's actually much more representative of the human GI. So, that's a learning that we as a group have. Now the Ionis partnership is, is at the ground floor, but it's spinning up very rapidly. And, again, it really is a mutual partnership. We understand what we know. And they understand antisense arguably better than anybody and their needs. And that's a whole area that requires a little delivery for those markets to really come to pass. So it's a meeting of two partners. And hopefully in the next two or so quarters, we'll have a preclinical update on the Ionis arrangement. Now, let's say there is some risk that some of these don't work because of the nature of the molecule, for example. But you know, at this point, based on the data we're seeing, we feel quite optimistic. And I'll leave it at that. And you should expect to see, you know, other partnerships in this space. And I would say that you should count, I'm going to say the timing of them, but I would say there's interest from other parties. And again, now what I would add is, is we're getting to the phase where we're generating internal preclinical data. And because we're really talking about changing the bioavailability, you know, demonstrating bioavailability that is the endpoint, because a lot of these drugs are well-known and well-characterized. And they're in their pipelines or on their on the market today, for a number of these partners. So, the burden of proof is preclinical data, preferably in the . That's it. Then I think, as that goes well with our drugs. And remember, the only other thing I would add is that we've already demonstrated that if you take the OBDS, but not in an automated form, and use an endoscope to position it, that we get, you know, we get compelling bioavailability for proteins and peptides. So, we really demonstrated that, and we know that. Now we're trying to show that we can do it with a standalone, fully automated device, which essentially looks like a pill that you ingest, but then it takes over from there, and then delivers the drug. That's what we're trying to show. That's where we're at. So, replicating our initial data and observations, but with an auto automatic – a fully automated device, that effectively looks like a normal pill. Okay. So we're very close to generating this data. And that will fuel additional partnerships, but also, I think, I think our prospective partners will forego feasibility studies, because effectively, we're generating that data in advance. Okay. And we'll share that as that story unfolds, and evolves.

[Catherine Schulte:]

Okay. Thank you.

[Eric d’Esparbes:]

Thank you, Catherine.

[Operator:]

Next question comes from the line of Sung Ji Nam of BTIG.

[Unidentified Analyst:]

Hi, this is calling in for Sung Ji. Thanks so much for taking the question. So, firstly, at this point, what kind of impact are you seeing on prenatal revenues from the average risk population and what's baked into your assumptions for the average risk contribution in your guidance for 2021?

[Eric d’Esparbes:]

Right, so it's definitely increasing. And as I mentioned, just in Q1, we had about $2 million of upside associated with this. So, you're already at the 8 million annual run rate. And if you, you know, add additional payers, we're gradually covering it. Once you get through the normal ASC 606, you know, trailing revenue recognition requirements, you can see that it can grow during the course of the year. We're not providing the breakdown of exactly how much from average risk NIPT is in the core revenue guidance, because we have a lot of different moving, you know, pieces that contribute to this, but it's material, and that's why we wanted to highlight its contribution to this quarter. Hopefully that helps?

[Unidentified Analyst:]

That's helpful. Thank you. So, maybe just one more on Preecludia, so given the recent data presented, including our ACOG would love to know any additional feedback you might be getting some clinicians ahead of the launch, if any?

[Dr. Harry Stylli:]

Well the next step is the validation study. And the feedback we're getting is, especially from the MSM’s is that they're quite excited that this test could make a difference for helping the OB/GYN. That's not to say that the MFM won’t find use, but they really believe it can really aid the OB/GYN, because you get a very large number of cases where, you know, the patient may complain, you know, with a, you know, headaches, for example, and that could be a red alert. So, they like the profile. They like the performance to date. And it really hinges on validation. Okay. Ultimately, which is now just weeks away. So let's wait and see around the corner now. What I will add is all the studies today have been consistent. We're getting a good reaction ACOG was definitely very supportive and accounting and inviting, you know, and accepting our, you know, work there. So, that shows their interest. So, overall, things are in a great spot given for where we are. But, you know, very shortly we'll have a validation study with over 1,300 subjects. And that's going to lay the foundation for launch of the ODT, primarily directed towards OB/GYN’s, but also helpful to MFM’s in certain cases. Does that make sense?

[Unidentified Analyst:]

Yeah, that's helpful. Thank you. Thanks, again, for taking the questions.

[Eric d’Esparbes:]

Thank you.

[Dr. Harry Stylli:]

Thank you.

[Operator:]

Next question comes from the line of Dan Leonard of Wells Fargo. Dan your line is now open.

[Dan Leonard:]

Thank you. Just a quick housekeeping question as we're around the hour here. So, you mentioned that Avero is no longer marketing COVID testing, but is the core Progenity, are they still marketing COVID testing or have you shut down the marketing at both brands?

[Dr. Harry Stylli:]

Yeah, we've essentially stopped marketing COVID testing. And the business were receiving are from existing clients. Maybe there's some incremental activity, but effectively, we’re refocusing all our efforts on to our core business. And even though it was a creative to us, you know, the volatility that we were seeing, just made it less interesting. And really, it's all hands on deck for the core business. And that was, that's exactly what we did, even though it was in accretive business, and will continue to be a creative because it's covered its costs.

[Dan Leonard:]

Sure. Okay, thank you.

[Dr. Harry Stylli:]

Good.

[Eric d’Esparbes:]

Thank you.

[Operator:]

And there are no further questions at this time. I will turn it back to Dr. Stylli.

[Dr. Harry Stylli:]

Thank you. 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, everyone.

[Operator:]

Thank you so much to our presenters and to everyone who participated. This concludes today's conference call. You may now disconnect. Have a great day.