Renalytix Plc (NASDAQ:RNLX) Q1 2023 Earnings Call Transcript

Renalytix Plc (NASDAQ:RNLX) Q1 2023 Earnings Call Transcript November 30, 2022

Operator: Good morning and welcome to the Renalytix Conference Call to review First Quarter Fiscal 2023 Financial Results. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today’s call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Peter DeNardo of CapComm Partners for a few introductory comments.

Peter DeNardo: Thank you, . Thank you all for participating in today’s call. Joining me today from Renalytix are James McCullough, Chief Executive Officer; and James Sterling, Chief Financial Officer to provide formal remarks and Thomas McLain. President; and Fergus Fleming, Chief Technology Officer are also on hand for the Q&A session. Before we begin, I’d like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. Examples of these statements include, without limitation, the potential benefits, including economic savings of KidneyIntelX, the potential for KidneyIntelX to receive regulatory approval from the FDA, the commercial prospects for KidneyIntelX including whether KidneyIntelX will be successfully adopted by physicians and distributed and marketed, our expectations regarding reimbursement decisions and the ability of KidneyIntelX to curtail cost of chronic and end stage kidney disease, optimize care delivery, and improve patient outcomes, trends in our market and potential benefits of government policy change, the impact of COVID-19 and other world events on our business, our expectations for hiring, product development, strategic partnerships and collaborations, reimbursement decisions, clinical studies and regulatory submissions, our business strategies and future growth including plans, expectations and opportunities for financing our operations, and revenue projections and guidance.

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a description of the risks and uncertainties associated with our business, please refer to the Risk Factors section and our Annual Report on Form 20-F that was filed on October 31, 2022 with the Securities and Exchange Commission. All forward-looking statements made on this call are based on management’s current estimates and various assumptions. Renalytix disclaims any intention or obligation except as required by law to update or revise any projections or forward-looking statements whether because of new information, future events or otherwise.

This conference call contains time sensitive information and is only accurate as of the live broadcast today, November 30, 2022. I’ll now turn the call over to James McCullough. James?

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

Progress with insurance continues to be an important highlight. In the September quarter alone, we have secured new major insurance contracts and established Medicare payment. This brings our total number of secure contracts to 30, excluding Medicare and Medicaid. We have also begun detailing plans with a large U.S. health insurance company to provide KidneyIntelX testing directly to their own physician care network. This insurance company has also agreed to provide us with coverage concurrent with this direct to physician program. We believe partnering with insurance companies to implement testing across physician managed networks can be a significant driver for expanding KidneyIntelX adoption in calendar 2023 and will demonstrate the value of KidneyIntelX for improving care for millions of patients.

Our stakeholders should look forward to additional payer contract disclosures in coming months. A primary contributing factor for our success in securing insurance coverage is real world evidence that KidneyIntelX is working. This body of evidence, which takes years to design and implement is now showing that KidneyIntelX can make a real difference in helping doctors and care for patients. This week, we announced newly released utility data for over 1,600 patients, results across 75 doctors at 20 clinical sites showing the importance of KidneyIntelX testing and helping the worst effects of kidney disease and diabetes at the primary care office. These results were just published in the widely read Journal of Primary Care and Community Health.

We have already started pulling together subsequent monitoring patient test data and expect to continue publishing rolling results on the effectiveness of KidneyIntelX in the real world throughout calendar year 2023. As a reminder, real world evidence results will now begin to be incorporated from multiple medical center sources, including Wake Forest Baptist Health in North Carolina. From an operations and test processing standpoint, our laboratories conform to the highest quality and regulatory standards. This is obviously essential if we are to be prepared to support patient testing nationally post FDA De Novo marketing authorization. Our systems and laboratories have now been subject to and passed 12 inspections from multiple agencies. This level of quality assurance is another important facet that instills confidence in doctors.

when it comes to KidneyIntelX testing results. Of note, the regulatory environment is evolving. Congress recently passed the medical device user fee agreement for MDUFA V. MDUFA V is a five-year agreement that provides operation funding for FDA and provides additional incentive funding if the agency meets key performance goals. We believe MDUFA V is a factor in improving FDA’s ability to help innovative companies bring lifesaving technologies to the market. FDA has also issued a proposed rule to drive towards convergence between the current FDA regulations and ISO 13485 requirements. Renalytix has pursued an achievable ISO 13485 compliance and certification. We welcome this proposed rule and believe that KidneyIntelX is well-positioned from a competitive industry standpoint.

As we discussed in previous quarterly call, we can expect to look forward to a milestone heavy short-term. In terms of our FDA process, while there is never a guarantee, we believe we are reaching a logical conclusion in the process with a De Novo marketing authorization decision as early as the March quarter. As previously discussed on our call, on our last call, Medicare coverage to a local coverage determination is also a potential for KidneyIntelX in the first half of calendar 2023. I would now like to turn over to James Sterling, who will discuss our financial results for the quarter. James?

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James Sterling: Good morning. Today, we issued our financial results for the quarter ended September 30, 2022, which is our first quarter of the 2023 fiscal year. Figures I will discuss here are based on our GAAP financials and quoted in U.S. dollars, which is our reporting currency. For the quarter, we recorded revenue of approximately $1 million, double the $500,000 we reported for the first quarter of the prior fiscal year. Operating expenses were $12 million on a GAAP basis, as compared to $12.1 million in the first quarter of fiscal 2022. Our operating expense reflects a reduction of $2 million to $3 million per quarter since we announced our efforts to reduce expenses. Net loss for the first quarter of fiscal 2023 was $12 million or $0.16 per share.

This is compared to a net loss of $10.1 million or $0.14 per share in the first quarter of fiscal 2022. We ended the quarter with $31 million in cash as of September 30. We remain committed to preserving cash where possible, while retaining the ability to grow sales. Operator, could we now please open the call for questions?

Q&A Session

Operator: Thank you. And one moment for our first question. That will come from the line of Dan Arias with Stifel. Please go ahead.

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

James McCullough: Yes. Thank you, Dan. Good morning. As we discussed, we are narrowing the focus and following the coverage, the insurance coverage that is, because where we are developing, what I’ve termed, super majority coverage where you now have a sequence of insurance payers covering a significant majority of the population in a specific region. That’s where the business goes. And I disclosed that we are focused on Illinois, New York, and North Carolina as three primary examples where we can concentrate resources that also helps us with cost control. So, we’re not doing ubiquitous distribution across the United States today. We’re really focusing on areas where insurance coverage is prevalent. And that helps in a number of ways, one of which is, you significantly reduce the risk that a patient ends up with a bill, which is a real no go, especially at primary care, which is our target audience for preventative healthcare in diabetes and kidney diseases where you have to do it as a primary care.

So, I would focus on those three areas for the moment. We’ve made substantial progress. We’ve announced or we’ve disclosed recently Medicare and Blue Cross Blue Shield coverage in Illinois, you should expect to see that pattern to continue with broader insurance coverage in New York and also North Carolina. However, if insurance coverage super majority coverage does develop in other states, that doesn’t mean we can’t reflex and move into those states. And one of the interesting things that we brought online is a direct-to-physician capability through our portal, myIntelX, which is now up and running. And we are receiving physician orders through myIntelX. So that allows us to move into a territory where insurance company develops without doing a hospital system integration.

That doesn’t mean ultimately we don’t want to do a hospital system integration because that helps, but we are certainly now have the capability to move into a territory with developed insurance with myIntelX and be contesting in a very short period of time without a significant upfront investment, which is key obviously in this current market environment where cash maintenance is very important. I also do expect in 2023 we will continue to see progress with the VA system. And I do expect that as I mentioned in the call, the insurance led initiatives are starting to emerge. So, the health economics, the cost benefits of understanding who’s at risk and who’s not in these large populations early and intervening are significant. If you get in early and you practice preventive medicine, you cut the cost for the insurance company down dramatically, especially in this space with diabetes and kidney disease.

So, we are initiating an insurance led program direct to their own physician network. This is a large insurance company you should expect additional news on this. And we think that this is a very interesting model obviously going forward. It took time to get to this point. We had to generate a lot of real world evidence to show the benefit of KidneyIntelX. We are now doing that and publishing on it and that’s giving us a whole new level of conversation with insurance companies that are now struggling to figure out how do we control the cost here. So, in summary, look at Illinois, look at New York, look at North Carolina and look for opportunistic selective moves where we have insurance led initiatives or where we start to develop super majority coverage across very large populations and look for direct-to-physician initiatives with myIntelX.