Renalytix Plc (NASDAQ:RNLX) Q2 2023 Earnings Call Transcript

Renalytix Plc (NASDAQ:RNLX) Q2 2023 Earnings Call Transcript March 30, 2023

Operator: Good morning and welcome to the Renalytix Conference Call to review Second Quarter and First Half Fiscal Year 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, Michelle. Good morning and welcome to the Renalytix conference call to review second quarter and first half fiscal year 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. Thank you all for participating in today’s call. Joining me today from Renalytix to provide formal remarks are James McCullough, Chief Executive Officer; Thomas McLain, President; and James Sterling, Chief Financial Officer. In addition, Fergus Fleming, Chief Technology Officer will be on hand to join us for the question-and-answer 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 of 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 financial projections or forward-looking statements whether because of new information, future events, or otherwise.

This conference call contains time sensitive information and is accurate only as of the live broadcast today, March 30, 2023. I’ll now turn the call over to James McCullough. James?

James McCullough: Thank you Peter. Good morning or good afternoon. Since our last quarterly report Renalytix has made several fundamental advances including completion of $20 million capital round with significant new institutional investors, reaching the next prime points for our results on the KidneyIntelX real world evidence study, expansion of insurance coverage for KidneyIntelX, the transition to a permanent, long-term commercial insurance payment model at Mount Sinai Health System, execution of a cooperative research and development agreement with the U.S. Veterans Health Administration, and further progress towards FDA de novo marketing authorization of KidneyIntelX. Tom McLain will speak to these finer points in his prepared remarks.

In the March quarter we have completed the milestone of transitioning to a permanent long-term commercial insurance payment model for patients tested at the Mount Sinai Health system. This transition is taking place with the expected expiry of the exclusive coverage contract with Mount Sinai, established with $6 million of KidneyIntelX testing as part of the real world evidence study program which began in 2021. Key to this transition was our ability to secure a diversity of commercial insurance for KidneyIntelX for a significant portion of the diabetes and kidney disease population in New York City. This transition would not be possible without established payment from Medicare, Medicare Advantage and other large New York City concentrated payers.

This includes a recently disclosed coverage contract with the second largest nonprofit payer in the United States with 3.2 million members and another coverage contract secured with a large value based care insurer covering 1.8 million members. We are now experiencing a high rate of payment across both public and private insurance carriers in the New York region at or above our established Medicare pricing of $950 per reportable result. This model is being successfully replicated in other major regional markets for KidneyIntelX such as Illinois and the Carolinas. We continue to receive payment from the National Government Services for Medicare claims under the individual claim review process. Our coverage, determination application for a local coverage determination is under review by NGS and has been updated to incorporate the real world evidence data from Mount Sinai.

For the remainder of 2023, we expect to report expanded progress on our long term stated primary business goal of insurance coverage with State Blue Cross Blue Shield programs, Medicare, Medicare Advantage, Medicaid and other for profit and not-for-profit payers. We continue to believe and have seen a growing number of demonstrations that investment in our real world evidence data generation is helping to drive insurance reimbursement, physician use, and will eventually support the road for inclusion and clinical guidelines. As a reminder, KidneyIntelX real world evidence result was first published in the Journal of Primary Care Community Health on November 28, 2022 showed that KidneyIntelX was influencing clinical behavior in favor of early therapeutic intervention and timely referral to specialists.

Most importantly and what we didn’t expect to see so soon was that patients tested by KidneyIntelX showed improvements in two long time standard metrics HBA1C levels for diabetes health and UACR or urine albumin to creatinine ratio for kidney health. We expect that if the trend continues the potential for KidneyIntelX to change these two metrics and other measures of kidney health in such a short time period can have enormous impacts on healthcare costs and reduction in patient suffering. We are currently writing up results from the next real world evidence time point at 12 months, which will be publicly released as early as this summer. A real world evidence data development for which there is no shortcut in time or money continues to showcase the value of KidneyIntelX particularly in the hands of primary care physicians practicing preventative medicine.

Also in the current quarter, we were pleased to build a fresh infusion of 20 million into our capital base made-up of new and well-funded institutional holders. While we continue to look for opportunities to reduce expenses and optimize capital deployment, this remains a delicate balance as we need to maintain the necessary fixed overhead for our product and commercial model going forward in the highly regulated U.S. clinical diagnostic market. Finally, the Incredible March report from the World Obesity Foundation predicting that over half of the world’s population will be obese or overweight by 2035 means that kidney disease, obesity and diabetes, all of which run hand in hand will continue to be one of the largest and costliest medical conditions in history.

The report further indicated that failure to improve prevention and treatment of obesity would have a total negative economic impact of over $4 trillion or nearly 3% of the global GDP. More than ever, we will need the early and accurate prognosis that KidneyIntelX offers to identify which patients are at highest risk for uncontrolled kidney disease progression, kidney failure and dialysis. And most importantly, who should be treated early to prevent the majority of the downstream disease effects. I will now turn over to Tom McLain, our President to discuss FDA and our commercial progress. Good morning, Tom.

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Thomas McLain: Thank you James, good morning. I would like to take a moment to provide some additional details on our progress towards securing Food and Drug Administration de novo marketing authorization. First some of you have asked what exactly is de novo marketing authorization? In the FDA’s own words, a de novo request provides a marketing pathway to classify novel medical devices for which there is no marketed predicate. Since there is no FDA predicate for our pioneering KidneyIntelX test, a de novo marketing authorization request was the agreed pathway during our initial with FDA in 2018. We were subsequently granted a review process under breakthrough device designation, which is allowed for more frequent discussion with FDA reviewers for complex, novel medical devices.

As noted in the Securities and Exchange Commission filing we submitted on March 21st, the review process with FDA for KidneyIntelX continues at an advanced stage. In conjunction with a successful outcome of this review, the FDA will prepare a reclassification order and pursue certain internal activities for KidneyIntelX prior to communicating a final decision. In effect, the reclassification order will set standards and controls for the first time for this novel class of tests. The FDA has indicated to the company that in order to provide sufficient time for the completion of this process, FDA is working towards a decision date by the end of Q2 2023. It is important to point out that we have responded timely and comprehensively to all questions the FDA has submitted to Renalytix.

The FDA has a dedicated team of experts working on our request, reflecting the novelty of KidneyIntelX and the extensive set of information submitted for their review. This information includes relevant data on the KidneyIntelX clinical application in kidney disease, the inclusion of novel biomarkers in combination with health record data and machine learning models, and supporting software and cybersecurity controls. With this complexity in mind, we can appreciate the care and thoroughness that FDA is exercising during this interactive review process, knowing that KidneyIntelX is a breakthrough technology that can potentially have an impact for a long period of time in 10s of millions of patients in the United States and internationally. While there are no guarantees of a marketing authorization, we remain optimistic and we are working diligently with the FDA towards a successful outcome.

Next, in regard to our commercial progress, we’ve begun to experience the benefits of establishing permanent long-term commercial insurance payment and publication of successful KidneyIntelX real world evidence developed within a system as large and influential as the Mount Sinai Health system in New York. We’ve pushed this all without discounting KidneyIntelX test pricing below the Medicare and General Services Administration established pricing of $950 per test when expanding our insurance coverage. The transition to commercial payment for testing at Mount Sinai that James mentioned earlier will have a short term negative impact on testing volumes predominantly for the month of March. This will be reflected in a revenue reduction for the full quarter ending March 2023.

Further, as is customary when diagnostic products move to scaled commercial billing, the average selling price for KidneyIntelX will now also include a minority percentage of discounted testing for patients qualifying for financial assistance and for out of network testing. Turning briefly to the VA, in January of this year we announced completion of an agreement with the Veterans Health Administration to integrate KidneyIntelX test ordering and reporting across all VA electronic health records systems making KidneyIntelX eventually accessible to the approximately half million veterans with diabetic kidney disease. This integration will streamline operations to overcome a significant adoption hurdle and enable access to KidneyIntelX for this large at risk patient population.

The program will be implemented on a phase basis. Turning to health systems, we are working with Atrium Health to expand beyond the real world evidence program to make the test widely available across their health system. This is enabled by our progress towards significant regional payer coverage. We expect to launch primary care education programs in our fiscal Q4 and we’ll also work with Atrium to expand EHR integration beyond their Wake Forest Baptist clinical sites. Success here could also create the opportunity to expand this program to Illinois and Wisconsin. Atrium Health merged with Advocate Aurora Health in 2022 and the combined entity Advocate Health is now the fifth largest health system in the United States. Our sales force outside of Mount Sinai is focused on direct sales in the primary care practice using our MyIntelX portal.

In the current quarter, we’ve seen a significant ramp up at testing based on the publication of real world evidence demonstrating that based on KidneyIntelX risk assessment, care improves both Type II Diabetes and chronic kidney disease. We also have established billing practices that assure the test is accessible and affordable for their patients. I look forward to providing updates on these multiple opportunities for test adoption and revenue growth in future quarters. I’d now like to turn the call over to James Sterling, who will discuss our financial results for the quarter. James.

O. James Sterling: Thanks Tom. Today we issued two financial reports. First is our six-month interim report under IFRS accounting, and the second is our quarterly SEC filing under U.S. GAAP that included three and six months financials. Both reports are for the periods ending December 31, 2022, which corresponds with our second quarter of fiscal 2023 and our half year results. 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 total revenue of approximately $1.2 million compared to about $600,000 we reported for the second quarter of the prior fiscal year. Our revenue in the quarter comprised of about $1 million of testing revenue, and $200,000 pertaining to services.

Operating expenses were $10.1 million on a GAAP basis, down from $14.1 million for the prior year period. This reflects in part the success of actions we announced in August 2022 to lower annual expenditures by over $12 million through program, vendor, and employee reductions. Net loss for the second quarter of fiscal 2023 was about $10.4 million or $0.14 per share. This was down from approximately $15.3 million or $0.21 per share for the second quarter of fiscal 2022. We ended the quarter with $23.8 million in cash as of December 31st. This cash figure does not include the fundraise of approximately $20 million we closed in early February. Operator can we now please open the call for questions.

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Q&A Session

Operator: . Our first question comes from Dan Arias with Stifel. Your line is now open.

Daniel Arias: Hey, good morning, guys. Thanks for the questions. James, maybe just digging in on test volumes here, 1300 tests I believe this quarter, which is up a bit from 1200 last quarter. What came from Mount Sinai versus the other institutions? And then for the non-Mount Sinai portion of this makeup Wake Forest, Utah, St. Joe’s, what should we think about those kicking into gear and starting to ramp volumes? And the overarching question is, under the assumption that you have for the FDA and reimbursement, what’s sort of your working projection for a sequential ramp in volume over the course of the year regardless where the volumes come from, I mean, it sounds like we’re going to take a step down here in 3Q so I guess, where’s the confidence that by the end of the calendar year, you’ll be materially higher on volumes than you are now?

James McCullough: Thanks Dan and good morning. A couple of things to unpack, the majority of the testing volumes coming from Mount Sinai. That is starting to change. So we are seeing Green Shoots, for example, with direct to primary care physician sales which is a completely different channel and that’s through the MyIntelX portal. That is something that we are focusing on now and starting to build. The other thing that’s happening is where we’re effectively making the transition to full commercial pay models across the board, so the key thing is can you get reimbursement across a broad enough population in a region. I’ve referred to it before, a supermajority coverage. We call it greater than 70% of patients in a region who have some form of insurance coverage for KidneyIntelX.

That is, when you can start to drive commercial testing volume. We saw that emerge person first in Illinois, where we have I believe, now close to 90% of patients indicated use — KidneyIntelX indicated use for kidney and diabetes with some form of insurance coverage. That’s quite an achievement. And so therefore, we’re pushing for direct to PCP sales in the Illinois region, and we’re also moving towards integrating with different hospital systems there as well. So revenue growth out of Mount Sinai is now available for us with that super majority coverage in Illinois. We expect that same dynamic to be occurring shortly, in other regions of the United States, including New York City. The commercial, the conversion to a commercial contract with Sinai is quite a milestone, we had to have full data.

With the real world evidence it had to be successful. We had to have independent physician review using KidneyIntelX in the wild in the Mount Sinai Health System. And I think everybody should expect some additional news coming out of the Mount Sinai Health System about how that transition is going to take place. And again, because we’re able to execute on a number of payer contracts in the New York City, we’re now in a position to make that transition. As part of that transition, yes, that will impact revenue for the March time period as we make that shift. But it is a critical milestone to get off of the original contract with Mount Sinai, we could only have done it with a number of different payer contracts in place. So the timing was actually quite exquisite, that we’re able to get to the point where we can jump off the Sinai contracts for payment into the diverse full commercial model which is required.

So we expect that the June quarter and quarters going forward, you should start to see a diversity of revenue from different places of MyIntelX directed position. You should see it from prepended, integrated hospital initiated ordering. And you should also now begin to see it from independent insurance companies who’ve now done the health economics and data analysis on KidneyIntelX, including the recent large not for profit insurance group that we’re working with, who will be taking a look at innovative ways to provide KidneyIntelX testing to their own primary care physician bases. And so, while we’re not going to give a forecast, what we’re now seeing is multiple channels where KidneyIntelX can grow. And we are seeing for the first time, an environment where you have a super majority or a diverse comprehensive insurance base, which can allow us now to market directly to primary care physicians.

And again, I just want to point out that you cannot get substantial scaled sales without having a full cohort of commercial payers online because we primary care physician cannot hear from a patient that they’ve received a bill for $950. It’s just a non-starter. So what you’re seeing now is the emergence of comprehensive diverse insurance, you’re seeing the opening up of different channels, direct to primary care, integrated hospital system, population health supported adoption, and of course now we are seeing a whole new category which is insurance lead potential adoption for KidneyIntelX.

Daniel Arias: Okay, okay. So just to that point, I mean, because there’s volumes and then there’s revenue, is your point that the test volume ramp shouldn’t be dramatically different from the revenue ramp because you need reimbursement which triggers revenues in order to drive volumes, or should we think about test volume improvement, sequential improvement over the next four to six quarters being beyond revenues, the way that it sometimes does with a test that’s in the early stages of being paid for?

James McCullough: Yeah, the delta between test volume and revenues or billable tests is not going to be huge, because we are now enabling diverse, comprehensive insurance in specific regions that we are rolling out to. So we’re not — we have to be careful, right, in this capital markets with capital resources, we have to be very careful. So, as we stated in the past, we’re focused on specific regions where we have comprehensive insurance and we can then move forward with billable testing, and apply direct sales, etc. So the difference between billable testing and test volumes is not going to be huge, there will always be a little bit of a difference. I think, where you are going to see a delta, which again, I don’t think is going to be significant but it will be there is between the average revenue recognizable price per test and the test volume.

So you can’t just go $950 for every test that you run, right. And especially because we’re moving into, although it’s a small minority, there are people who will need KidneyIntelX testing. We want to expand access to everybody we can. There’s a huge health equity component here. So there will be people that will be federally means tested, for who we have a different pricing. And there will be people that are cash pay or self-insured. So — or who are out of network, but that’s a standard, customary thing that you see when you start to roll testing into a distributed reimbursed model. Tom, I don’t know if you want to add to that, did I get that right.

Thomas McLain: You did a great job there, James. And again, reiterating that we intend to focus our building volume in regions where we have that super majority coverage. And Dan that type of discipline and focus should help to minimize that disconnect between realized price per test and our contracted rates versus what is typical at this stage for a company like Renalytix.

Daniel Arias: Okay. Okay. If I could just ask one follow-up on the VA. You started off the year with some progress there on integration of the test into the EHR complex. To what extent was that the barrier to faster adoption versus more just sort of personnel related issues like the bureaucratic nature of the VA, just how fragmented the systems are, I’m just getting — at the end of the year, it felt like there was a little bit of a slog in the VA, I’m just wondering how much better you feel about the situation now, given that you’ve had some EMR progress there?

James McCullough: I’ll let Tom answer that thoroughly but it’s a lot of slog, it’s not a little bit of a slog. I think that we substantially underestimated the complexity of rolling in that system. At the same time, we are working through this and there’s a significant population of diabetic kidney disease patients available, and obviously being able to get into a national integration is going to help but Tom, please characterize it.

Thomas McLain: Sure. I think there is a bureaucratic slog at VA as you both have stated. We didn’t fully appreciate how much worse that would become during an environment of COVID, post COVID. And the consequences of all the budget pressures that the cost of the COVID pandemic put on to the VHA. That said, we are now at a point where people are raising their eyes back up and looking at other health care challenges and how they can be dealt with. As we did that the access to patient health information and how we worked with the VHA system, because of the government’s requirements for protecting veteran’s health information, those were significant. Renalytix will be the first laboratory given the opportunity to develop this EHR solution using the VA cloud, where we’ll be able to basically get access to data run our test in the VAs environment.

And we think that’s going to be a significant enabler as we go forward. It’s not going to mean that VA starts to ramp up instantly and we’re all across the system right away. There’s the development for that, and then educating and introducing that across centers. But it will certainly be a significant help to us with the success of that development effort, which we’re initiating with the VHA right now.

Daniel Arias: Okay, super. Thank you, guys.

James McCullough: Thanks, Dan.

Operator: Please stand by for our next question. Our next question comes from Mark Massaro with BTIG. Your line is now open.

Unidentified Analyst : Hello, this is Vivienne on for Mark, thanks for taking the question. So do you have any outlook for visibility if the 950 ICR rate can continue over the course of 2023, I think you also mentioned getting paid above 950 in some instances and talked about diversity and revenue going forward, so just any guidance you can share on ASP? Thanks.

James McCullough: Yeah, we’ve been very — thank you, we’ve been very consistent that we do not want to compromise the Medicare price. And I don’t see us doing that in the foreseeable future. That’s a very important point for us. And being paid by Medicare on individual claim review at the 950 price as far as we see is going to continue. There are other contracts which exceed that price but we are very happy and very pleased. We’re very happy and very pleased where we are in terms of pricing and margin and KidneyIntelX and we think it’s a unique position. And it continues to be validated as we expand insurance covers to other significant players. So I think our confidence that that is the price is very high and will continue forward.

Thomas McLain: If I could reiterate on the Medicare price, our Medicare price for our test code is set on CMS clinical lab fee schedule, that’s a public process national process. And there is a period that CMS has specified for reconsideration of that price. And we are in a cycle where the earliest that the $950 price would be reconsidered, would be for the year beginning January 1, 2026. So that price is locked in until then, for our reimbursement code. And certain contracts that we execute are set at a premium to Medicare price. So that is what leads to pricing above the $950 price for certain contracts.

Unidentified Analyst : Okay, perfect, thank you. And then could you just provide an update on the number of private payers that you’re in contract with and if you could potentially share the number of covered lives as well? And then just a follow up to that, I think you’ve also talked about peer review or real world evidence moving the needle for payers. So can you just update us on any timing we should expect there on real world evidence publication? Thanks.

O. James Sterling: Sure and I’ll answer the one on real world evidence. This has an enormous intrinsic value for Renalytix and when we started the company again, we took a look at what would it take to get national comprehensive reimbursement and at the top of the list was data generation. And there are no shortcuts here in terms of costs and in terms of time. So from the very beginning of the company we started to invest heavily in generating the type of real world evidence that would be convincing to clinicians, payers, regulators, everybody that’s required that KidneyIntelX was in fact validated and it works in the wild, particularly at the primary care level, which is our focus market. So it became critical for us to demonstrate that KidneyIntelX in the hands of primary care physicians, generalist physicians made a difference.

And we are now demonstrating that and we’re demonstrating that at scale. That real world evidence program is just getting started in terms of pumping out results. As we move along in 2023, we are adding large institutions, academic medical institutions that are looking at KidneyIntelX, we’re also expanding the breadth of that real world evidence to look at specific issues like health equity and diverse populations. So this is a substantial body of work that we will keep giving. We’ve just started to publish the results and again, what I mentioned in my prepared remarks is we’ve been very pleasantly surprised by the observational impacts on HBA1C and UACR, the two critical measurements for diabetes and kidney health that we didn’t expect to see so soon.

The fact that we’re observing these changes inside of a 12-month period, is quite remarkable. I don’t think that that’s ever been demonstrated before. And so KidneyIntelX is working, it’s working very well, that has direct impacts on health economics, meaning, how much money does it save if you deploy KidneyIntelX across primary care, which is a critical equation for insurance reimbursement. So all of this is interconnected and we are now demonstrating that that real world evidence data is having an impact on our ability to get coverage. So the real world evidence is very important. We have just processed a 12-month time period in our Mount Sinai Health System real world evidence program. We will be releasing those results and putting them into circulation through conference publications and peer reviewed publications, starting as early as this summer.

And that, again, is an ongoing program we expect to release results every six months off of the real world evidence. So that investment has been very worthwhile. And Tom, I’ll turn it over to you on the reimbursement question.

Thomas McLain: Thanks, James. On the reimbursement side, we’ve achieved payment with Medicare under the individual claim review process, which is a nationwide coverage. We also have a contract with the Federal Government under the General Services Administration. Beyond that we’ve executed 37 private payer contracts, we provide that information on our website. You will see that we’ve concentrated those efforts in markets that are significant for near-term growth of KidneyIntelX revenues, markets like what we’ve discussed today, New York City and New York State, Illinois and in the Carolinas. In addition to that we’ve established payment with 26 other payers that are important to those regions and we’re at a point now where we are positioned for that type of super majority payment, where we’re looking to drive revenues for KidneyIntelX at a large scale.

Unidentified Analyst : Awesome, thanks for taking the questions.

James McCullough: Thank you.

Operator: . The next question comes from Jens Lindqvist with Investec. Your line is now open.

Jens Lindqvist: Hi guys, couple of questions for me. First of all, there’s a growing body of evidence relating to predictive genetics and CKD. I mean, including but not exclusively, Apple 1 . How are you looking at that, is that is that a potential threat to KidneyIntelX, would you like to at some point incorporate that or combine it with a test in its current form? That’s my first question. The second question is on the prime CKD initiative in Europe, what you’re expecting from that in terms of a commercial outcome, and also how you look at the opportunity in Europe more generally, because it would seem to me like KidneyIntelX will be quite well positioned for uptake in the sort of more integrated European healthcare systems? Thank you.

James McCullough: Yes, thank you. Jens we’ll bring Fergus in on this discussion. Just quickly, KidneyIntelX is an expandable platform, it was designed that way. So we can add biomarkers, we can add genetic components, we can add patient record features, all of which ultimately move into this precision medicine equation, which was subtyping disease to specific groups. So it is a powerful design. And with a regulatory platform and a reimbursement platform, what we’re establishing now is the ability to roll additional versions or additional enhancements of KidneyIntelX into an established reimbursement regulatory pathway. So again there’s a lot of intrinsic value associated with moving KidneyIntelX forward in the regulatory and reimbursement framework, which I think is absolutely necessary if you’re going to get standardized, broad scale adoption, so that any physician can use it.

There are a lot of folks who are creating homebrew tests or algorithms. The challenge for all of them is how do you get somebody else to use it outside of the immediate purview of the person who’s creating it? Well, you have to regulate it and you got to get paid for it, which is a very expensive, time consuming process, which puts KidneyIntelX in a class of its own. And we expect to move forward with different versions of KidneyIntelX as we move along. So no, I don’t see any competitive threat at the moment. And I don’t see one in the foreseeable future, because it does take so much time and money to generate the evidence, the validation to get through the regulatory, and the very complex reimbursement pathway that we’re now validating. So those are significant competitive barriers to entry.

And we continue to have expansive relationships with different groups to be able to examine other features that we can add to improve KidneyIntelX or create new versions. But Fergus, please, please step in.

Fergus Fleming: Yes, hi Jens. Interestingly, I think both of your questions are somewhat linked, and that while there is a lot of research going on in terms of how data and genetics can be used to generate insights into chronic kidney disease and other chronic conditions, they’re very much at a population level of screening and early risk prediction in undiagnosed patients, which is somewhat different to the spectrum in which we operate in. And it’s also largely based on discovery at discovery levels for sub phenotypes or subclasses of disease for pharmaceutical companies to target. So in the short-term we were not seeing anything that is commercially scalable and implementable at the clinical level. Interestingly, the prime CKD program really comes from the overlying context, underlying context and biomarkers, and the biological imprints that you get from circulating biomarkers are the most impactful way of understanding what’s happening in the presence of disease and in the presence of therapeutics targeting that disease.

An essential element of the prime CKD program is not just the basic research and data around those biomarkers, and how they can shine a light on therapeutic benefit and therapeutic effect, but our role in that program is very much how you bring those findings to the clinic and the translational aspect of that from a regulatory and business process perspective. So I think prime CKD really seeks to address some of the major challenges that exist in terms of bringing these novel therapies and novel insights to the clinic. In relation to moving on to how that impacts on the role of KidneyIntelX in Europe. There is something that we are currently exploring in terms of what’s the best model by which we will deploy at the KidneyIntelX platform in Europe in relation to the asset methods, the source of data and how to collect data in a fashion that meets all the requirements around GDPR, etc.

So it is something that we’re looking at. And again, prime CKD serves as a vehicle by which we can engage with regulators in some of those questions. Because that is another central tenant of the prime CKD broken. So I think we’re going to benefit greatly from having access to a stakeholder group, having access to the leading clinical and scientific researchers in the field, and really understanding the challenges of translating this type of precision diagnostic solution in Europe.

Jens Lindqvist: Okay, that’s great. That’s very informative. Thank you.

Operator: . Our next question comes from Randy Baron with Pinnacle. Your line is now open.

Randy Baron: Hi, guys. Good morning. Can you hear me?

James McCullough: Yes. Hey, Randy.

Randy Baron: Good morning. I have one question for James and one for O.J. James, it seems to me I mean, your comments on the FDA were very brilliant and positive. Has there been a I don’t know change in tone or outlook or are you more positive today about FDA than you were call it six months ago?

James McCullough: I am. I think we’ve done a significant amount of work. I have to caveat to say until you have FDA, you don’t have it. Just to be very clear. But we’ve done an enormous amount of work, we have superb, third party advisors, many of whom were ex-FDA. And as we have gotten deeper and deeper into what is a very complex process, we’re not going for a me too product. We’re not going for something light, we are going for a new classification, we are going for something that has a lot of implications for how you bring a risk assessment, a prognostic and advanced prognostic test, to the front end of a very large disease category. And this takes a lot of time, a huge amount of data. FDA has been very thorough in reviewing that data.

And so my confidence has grown over time and I think the team internally and the expert advisory team would agree. Again, there’s no guarantees. We’re very humble in this process, but we’re also pleased that FDA is indicating specific timing to us. I’d hoped it would be in the March quarter, just fine if it’s in the June quarter. And obviously, we’ll keep the market up to date as we get additional information. But achieving FDA in the near-term would be a lot of fun at this point, given that we got breakthrough device designation in I believe May of 2019, COVID notwithstanding. But this will be quite an achievement if we’re able to cross the line.

Randy Baron: We’re all rooting for you. O.J., let me shift to you. I really love to get your take on cash burn, let’s call it on average for the quarter. In other words, you’re not giving guidance, we don’t have a test. But if you’ve got 40 something million in cash, how far down the runway does that get us, does that get us to profitability, just give us some high level color on what we should expect for cash burn? Thanks.

O. James Sterling: Yep. So comfortable that we’ve got the cash to get through the next few important milestones. So FDA if it comes, LCD demonstrates some revenue growth and diversity away from Mount Sinai. So, those key areas you can’t yet comment on whether that’s enough cash to get us to profitability, but gets us on our way there. And I think as we’ve demonstrated in February there is a good set of institutional investors, including new investors that have an interest in Renalytix. So we’ve demonstrated an ability to raise capital if we need it. So I feel pretty good overall in where we are. And certainly for the next 12 months we’ve got the ability to throttle expenses as needed, depending on how revenue comes in. And I think you’ve seen in the last couple of quarters, we have successfully reduced cash burn as well. And so I think things look okay.

Randy Baron: Okay, I am sorry, I just missed your actual answer. Should we model closer 10 million a quarter, 5 million a quarter, like just directionally how should we think about cash burn?

O. James Sterling: Right, well, you’re asking for forward-looking guidance for that question which we don’t give.

Randy Baron: Let me ask the question O.J. If the burn rate was historically 10 million, could it conceptually get as low as 6 million or 7 million, are there some structural reasons why cash burn cannot fall below a certain level?

James McCullough: Well, of course, there are reasons why certain level in which cash can get below on the burn. So theoretically, could cash get as low as 6 million or 7 million, sure, but I am not saying on this call that anybody should be modeling that.

James McCullough: You talking about cash burn rate, Randy, or cash balance?

Randy Baron: Yeah. James, I’m just trying to get a sense of, you got 43 million cash, you did a wonderful raise bringing some real players, which I think is great, and suggest that there’s a lot of support in the institutional market for what you’re doing. But obviously, in this market like you said, you never know how the capital markets are going to go and if they’re going to be open again. So I think it’s a fair question to say, how far could this conceptually get us? So if you take 40 divided by to O.J. just response 7, the worst case scenario starts to get a sense that this could push us really deep into calendar 2024, am I correct thinking about it that way?

James McCullough: I think there are quite a few variables. So it becomes impossible to answer. We can get a long way with the cash that we have. The question is, do we end up for example, with a strategic partnership. What does the landscape look like after FDA assuming we get a positive decision? Are we now and investors should hold our feet to the fire, showing evidence that with comprehensive coverage we start to scale testing adoption. Do we have additional systems in the pipeline that are going to come online. And obviously, all of this comes in the context of controlling the cost basis. So there are a number of different levers, I think the most important thing is we are reaching a point where we’ve got three legs of the diagnostic stool, which are necessary to grow a significant revenue base, reimbursement, data, and regulation.

Once you mitigate those three, it becomes a sales and marketing exercise. And the sales and marketing exercise is either difficult, easy, or easier dependent upon the efficacy of your data, and the diversity and depth of your insurance coverage. And things I can point to which gives a lot of optimism for this model, going forward in terms of ultimately generating revenue, which reduces cash burn on a quarterly basis and frees up the capital markets to give us access to capital at lower cost is we have fabulous data. And we have clearly demonstrated that the original mission, before we spend a nickel when we started the company was reimbursement, reimbursement, reimbursement. And we’re validating that now in a way that I think is incredibly important.

It’s not just one coverage contract with one Medicare contractor. We are now demonstrating Blue Cross Blue Shield coverage, large for profit, large nonprofit, Medicare, Medicare Advantage. I’m trying to think of another diagnostic company example that has been able to generate the diversity of coverage and maintain hold the price that Medicare set back to an earlier question. So the answer to your question is, I am actually quite optimistic that in 2023 we cross the Rubicon. So we check off start to completely check off the box of data, real world evidence, which is now being published, diversity of insurance reimbursement and concentration in specific regions with high populations of diabetes and kidney disease like Chicago, Illinois, like New York, the Carolinas, where the vast majority of people will have some form of insurance coverage to KidneyIntelX.

And then of course, let’s see what goes on with FDA, it’d be nice to get it here in the short term, so now we check off the regulatory box. Now, it’s strictly a function of what type of sales force do we hire into those regions. And we prove in those specific regions that we can generate significant testing adoption against our established reimbursement coverage, then we can turn to Wall Street and say look, without spending gobs of cash to roll out nationally, we can say, here are three or four major markets, we have shown that we can get comprehensive reimbursement and we have shown that we can get testing adoption. We now want to go back to the capital markets at some point in the future, hopefully, when interest rates have leveled off, hopefully when the market has come out of its malaise.

And people can say, yeah, this is something that’s worth financing to grow out nationally, and then subsequently internationally, because it’s wide open. I don’t see us having any direct competition today. Because everybody wants to compete with us, it’s going to have to invest in a multi-year multicenter, very expensive program to generate real world evidence to show the thing works. And they’re going to have to go through a regulatory process and the reimbursement process, there are no shortcuts. So the answer your question is we’ve got the cash to be able to prove that model in specific, large population, key major markets like Chicago, New York, and the Carolinas, and we’re probably going to add one other. And that doesn’t have to break the bank to do that.

So it takes a while to evolve, to understand exactly how to get to that business model to prove that, that’s where we are right now.

Randy Baron: James, that’s excellent. Let me get one last really quick one, then I’m going to hop back in the queue, you started that preamble with a comment about partnerships, is that back on the table, we haven’t heard about that in some time, I guess it’s about a really quick update and thank you so much for your time today, guys?

James McCullough: Yeah, the partnership discussions have always been ongoing. And there was definitely a major kill in partnership discussion, everybody pulled back the reins on the horses. And again, we continue to have discussions with digital health companies, we continue to have discussions with pharmaceuticals, major pharmaceutical companies, we continue to have discussion with medical device companies. To me, there is so much synergy here, everybody needs to get the primary care if you want to deal with the biggest cost in medicine, full stop. It’s not the specialty groups that ultimately govern control of cost of medicine over the next 10 to 20 years, it’s chronic disease management at an early stage. And that’s primary care.

There are many people that are focused on that and need to get there, we happen to have a very interesting entry point, which is kidney disease and diabetes. And so — and people recognize this, and as we continue to get more and more insurance coverage, as we continue to put out more data, hopefully as we get a regulatory approval here to me it becomes black and white, that KidneyIntelX is a unique and significant entry point into the vast expanse of primary care. It’s not without its challenges, there’s huge education challenges, there are huge awareness challenges. And it requires investment to do that. But we’re opening the door to a very unique and broad entry point into primary care at the front end of one of the largest chronic diseases that’s out there, that has a significant value.

And that has not gone unnoticed across a number of different potential strategic partners. I think, we got a long way last year. And I think what happened is everybody I saw it and I talked to, senior executives at large corporate and they said, look we aren’t doing anything until we find out where this economy is going, the stock market, etcetera. So everybody pulled back. I’m now starting to see a revival of activity. And again, I’m not predicting what’s going to happen here for us, but I’m more encouraged that there will be opportunities available for us, hopefully in 2023. If we’re able to get FDA on top of that, then this becomes a very unique proposition when we eliminate regulatory risk. We’re working on eliminating reimbursement risk and the data is coming out.

So it just takes time and unfortunately, it’s interesting running a NASDAQ public company that’s subject to this quarter by quarter reporting value, it often doesn’t — we lose sight of the fact that we’re continuing to build a significant amount of intrinsic value and the story is continuing to develop in a very real way. That’s peer reviewed and published and regulated and reimbursed. And, that is going to lead to some very good things. So yeah, I feel the clouds are lifting again, and I feel activity on a strategic level, a strategic partnering level is starting to open up again. We’re certainly seeing that the dialogue so stay tuned.

Randy Baron: Well we are rooting for you.

James McCullough: Thank you.

Operator: Our next question comes from Chaitanya Gollakota with H.C. Wainwright. Your line is now open.

Chaitanya Gollakota: Hey, this is Chaith on behalf of Yi Chen and thank you. I mean, most of my questions have been answered. So I’ll just — the one quick question on the FDA review process, what’s the nature of questions or concerns that the FDA is posing to you? Thank you again.

James McCullough: Thank you for the question, Fergus.

Fergus Fleming: Yes. Thank you for the question. It’s very diverse as we mentioned in the prepared statements. This is a very comprehensive package of information covering a lot of diverse fields from data science to biomarker technology to a new clinical indication. So the questions reflect the complexity that the FDA have to generate an understanding of, in order for them to arrive at a decision around the safety and efficacy of the device in the first instance. And also in order to inform the future regulations and controls and the reclassification desk definitely spoke about. So the questions are reflective of the novelty and complexity of what we are undertaking with the FDA, and it’s been very cooperative and interactive. So hopefully that answers your question.

Chaitanya Gollakota: Yes, thank you.

Operator: At this time, I show no further questions. This concludes today’s conference call. Thank you for participating. You may now disconnect.