Renalytix Plc (NASDAQ:RNLX) Q3 2023 Earnings Call Transcript June 9, 2023
Renalytix Plc reports earnings inline with expectations. Reported EPS is $-0.13 EPS, expectations were $-0.13.
Operator: Good morning, and welcome to the Renalytix Conference Call to Review Third Quarter 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. And 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. Sir, please go ahead.
Peter DeNardo: Thank you, Chris. Thank you all for participating in today’s call. Joining me today from Renalytix to provide formal remarks are James McCullough, Chief Executive Officer; Tom McLain, President; and James Sterling, Chief Financial Officer. 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 with potential for KidneyIntelX to receive regulatory clearance from the FDA, the commercial prospects of kidney intellect, 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, June 9, 2023. I’ll now turn the call over to James McCullough. James?
James McCullough: Thank you, Peter, and good morning. As we close our fiscal year 2023, we are approaching what will be a simple and powerful message to primary care providers across the country for our lead product, KidneyIntelX. One, we accept all insurance; two, patient outcomes improve when you use it; and three, as anticipated, KidneyIntelX is FDA approved. Completing these three pillars would assure KidneyIntelX will be accessible across all of primary care and we’ll have achieved a distinct product proposition in a largely untapped market that could benefit millions of Americans with diabetes and kidney disease. And in anticipation of securing this diagnostic trifecta, we are moving to advance the KidneyIntelX commercial footprint to win adoption across large groups of primary care providers who are helping patients with diabetes and kidney disease.
Our expanding real-world evidence proves these patients can get better and more equal access to the care they need through the health care systems in independent practice offices and through government institutions. KidneyIntelX is a unique medical device that combines blood-based biomarkers and with key features in the patient’s electronic medical record, all processed by an artificial intelligence-enabled multimodal algorithm. Our goal has been to create a safe and clinically validated artificial intelligence-enabled prognostic test results that can be easily used by a primary care provider to better understand the patient’s risk of developing kidney failure at a very early stage. This is important because it is at the early stages when therapy, specialist involvement and behavior modifications can have the greatest effect to keep people healthy and productive.
We believe KidneyIntelX’s Exhibit A as to how artificial intelligence using clinical and biological data can be harnessed in a clinical product capable of being regulated by FDA, reimbursed by insurance, including Medicare and subject to rigorous real-world evidence validation. KidneyIntelX also provides us with the blueprint for future product development that uses important biomarkers, electronic data features and powerful algorithms to create the best-performing, safest and ethically responsible medical devices. With broad insurance reimbursement, definitive outcomes data and an FDA regulatory pathway insight, our commercial strategy is clear. We are focusing on regions of the United States where there are large populations of individuals with diabetes and kidney disease and where insurance reimbursement for KidneyIntelX is fast approaching a super majority status.
Our regional focus for the remainder of calendar 2023 is in Illinois, New York, North Carolina and South Carolina, Texas and Florida. As of this quarter in Chicago, Illinois and the New York Metro area, our estimated insurance payment for KidneyIntelX from a combination of groups like Medicare, Medicaid and private payers have already exceeded 90% of the KidneyIntelX eligible testing population. During the third quarter, we secured insurance coverage with EmblemHealth, covering over 3 million lives in New York and Connecticut, and more recently with CareFirst BlueCross BlueShield, which is the largest health care plan in the U.S. Mid-Atlantic region. In total, CareFirst serves 3.4 million members in Maryland, Washington, D.C., in Northern Virginia as well as the federal employee program FEP administered by CareFirst.
This agreement complements Blue Cross Blue Shield contracts already secured with Wellmark Blue Cross Blue Shield in Iowa, South Dakota, with an estimated 2 million covered lives and Blue Cross Blue Shield of Illinois, with an estimated 8 million covered lives. Our recent coverage contract wins with leading insurance groups are reinforcing our approach to developing strong data evidence defining the health economic consequences of uncontrolled kidney disease and validating KidneyIntelX in real-world use. We expect this momentum with insurance contracts to accelerate with an anticipated successful conclusion with FDA. To expand our commercial footprint, we announced in May, the selection of EVERSANA, a global leader in life science commercialization services.
EVERSANA will launch its field deployment and training solutions with Renalytix to cost-effectively build awareness across key parts of the United States, beginning this summer. This EVERSANA-Renalytix model is expected to accelerate the adoption of KidneyIntelX. Our President, Tom McLain, will discuss this in more detail shortly. As we signaled last quarter, we completed the milestone of transitioning to long-term commercial insurance payments for patients tested at the Mount Sinai Health System. During this transition, there was a short-term adverse impact on testing volumes. Importantly, Mount Sinai has this month issued a population health update to all physicians to include the KidneyIntelX testing in the diabetes kidney disease care pathway, based on their newly published KidneyIntelX utility evidence.
We expect additional health systems will likely do the same given the important positive results from the growing body of positive real-world evidence. Two recent studies presented at the National Kidney Foundation Spring Clinical Conference illustrate the following: First, Atrium Health System demonstrated KidneyIntelX testing accurately assesses the higher risk for progression of chronic kidney disease in black patients versus other races. This is an important precursor in addressing health care access inequalities within this patient population. Notably, within Atrium, a KidneyIntelX test result led to increased prescription of SGLT2 inhibitor drug therapy to provide improved care for black patients. Second, researchers from the University of Illinois, Chicago and the University of Utah presented a contemporary analysis of type 2 diabetes and kidney disease in the Veterans Health Administration population.
The higher incidences and poor outcomes in the veteran population versus the U.S. population at large, demonstrated the need for risk assessment in early-stage kidney disease is recommended by the VA’s care directive titled Chronic Kidney Disease Prevention, Early Recognition and Management. Please look for significant new real-world evidence data to be released at the American Diabetes Association 83rd scientific sessions from June 23rd to June 26th this month. I will now turn over to Tom McLain, our President, to discuss additional aspects of our commercial progress. Tom?
Tom McLain: Thank you, James. With anticipated FDA approval for KidneyIntelX, we’re in preparation for a focused expansion of our commercialization of KidneyIntelX in the U.S. The New York City metro area continues to be the most significant market opportunity for Renalytix. Having demonstrated the clinical benefits of KidneyIntelX testing in the real-world evidence study at Mount Sinai, we’ve completed the conversion of test payment to commercial payers. Building on that success, we’ve initiated expansion into large clinical practice groups in the New York Metro area. They provide many of the same benefits of launching KidneyIntelX into a health system with the added opportunities to accelerate time lines and to engage payers to support the program.
We also expect to add additional health system partnerships in the New York Metro area during fiscal year 2024. A second area of focus for expanded commercialization is in the Advocate Health regions, including the Carolinas, Georgia, Illinois and Wisconsin. Last December, Atrium Health merged with Advocate Aurora Health to form Advocate Health. With the combined — the combined health system serves nearly 6 million patients annually, and it’s the fifth largest non-profit integrated health system in the nation. Our real-world evidence study with Atrium Wake Forest has produced utility evidence that can expand commercial testing in the southeastern U.S., focused on a combination of Atrium Health locations, large practice groups and other health systems.
In addition, with the benefit of Blue Cross Blue Shield, Illinois coverage, we are generating initial test demand in large practice groups and hospitals in the Metro Chicago area. Third, over the past 12 months, we have developed sales, e-marketing and clinical intelligence on what can drive successful expansion in the primary care office in new markets? We will apply that knowledge in partnership with EVERSANA in Texas and Florida, beginning this summer. These states represent significant opportunities in terms of number of eligible patients and access to the primary care practice. EVERSANA will support the hiring and employee of 100% dedicated sales reps in those markets, and they will also help us improve sales force effectiveness through a comprehensive program combining our KidneyIntelX sales training materials, along with their disease state and sales effectiveness programs.
Our agreement with EVERSANA provides that these salespeople can transition over to become Renalytix employees. I look forward to updating you on our advances during future earnings calls. I’d now like to turn the call over to James Sterling, who will discuss our financial results for the quarter. James?
James Sterling: Thanks, Tom. Today, we issued our quarterly SEC filing under U.S. GAAP that includes 3- and 9-month financial results for the periods ending March 31, 2023, which corresponds to our third quarter of the 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 $724,000 compared to $812,000 reported for the third quarter of the prior fiscal year. As James noted earlier, and which we highlighted in last quarter’s call, our revenue in the quarter was impacted by the transition to commercial payment for testing at Mount Sinai. Order mechanisms are now restored and testing has resumed at the hospital system there.
Operating expenses were $11 million on a GAAP basis, reduced from $14.7 million in the prior year period. This reflects the result of actions we took over the last year to lower operating expenses through program, vendor and employee reductions and an ongoing focus on maintaining cost controls prior to testing volumes and revenue ramping. Net loss for the third quarter of fiscal 2023 was $12.1 million or $0.14 per share. This was down from $14.7 million or $0.20 per share for the third quarter of fiscal 2022. We ended the quarter with $33 million in cash as of March 31, 2023. Operator, we can now open the call for questions.
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Q&A Session
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Operator: [Operator Instructions] Our first question will come from Dan Arias of Stifel. Your line is open.
Dan Arias: Good morning, guys. Thanks for the questions here. Tom or James, to Tom’s point on the importance of the New York Metro area, can you just maybe talk about the ramp path forward for usage at this point and the headwinds that may or may not exist? And, obviously, it’s been a long and winding round here, at least as it relates to the New York City area. So, to what extent do you feel like you’re past the various issues you’ve encountered when it comes to just the way that things work at institutions like Mount Sinai? And how do we think about heading into 2024, the successive volume increases that we could expect perhaps?
James McCullough: Thanks, Dan. I’ll let Tom answer most of this. I think it has been a long winding road. And we have learned an enormous amount about the complexities of introducing a new technology into primary care. The advantage of working closely with Mount Sinai is we’re able to get in and really understand all of the intricacies associated with integrating and deploying in advanced prognostic throughout the medical system, the electronic medical record system, understanding all the behavioral issues associated with physician ordering interpretation and action and it has been quite complex. The good news is we have a significant amount of know-how, which has been accumulated. And I think we’ve mentioned this in the past, this is making other deployments that we’re doing substantially easier than when we did it the first time in Sinai.
So, I think the road is getting clearer. We’re obviously humble and cautious about predicting how that road goes. But it’s very nice to see the diversity of insurance, coverage coming in. That’s a huge validation. It’s very nice to see that we’ve been able to switch to a full commercial pay model. That was a major canyon to get over, and we’ve now done that. And the clinical system needed to buy into the commercial transition that was not trivial. And there had to be an awful lot of evidence to show that KidneyIntelX works, it works well, and it is something that could be used by primary care. So, there are a lot of validation points which are coming around this for the future. But Tom, please comment further.
Tom McLain: Thanks, James. Just, Dan, building on what James commented on, I want to point out two things that were accomplished in the quarter at Mount Sinai are very significant that we went through an evidence development program with them. But during the third quarter, they agreed to the conversion to a commercial payment model within the system and that was significant because of the — how seriously a health system like Mount Sinai takes that. And secondly, as James said, to have population health work with clinical medicine to issue that guideline and bulletin update that incorporates KidneyIntelX into their testing. It’s very significant, not only there, but for other health systems. The second point that can often be lost is in the course of amassing the real-world evidence for Mount Sinai because they have a diverse population that also is a diverse payer population.
