Epigenomics AG (ECX) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Epigenomics AG conference call regarding the full year results 2019. [Operator Instructions] Let me now turn the floor over to your host, Mr. Frederic Hilke.

Thank you very much, Alexander. Hello and welcome to the conference call. Today, we will discuss Epigenomics 2019 full year financial results and Q1 2020 preliminary results. My name is Frederic Hilke. I'm the Investor Relations Manager for Epigenomics. With me on the phone is the CEO of Epigenomics AG, Greg Hamilton; as well as Jorge Garces, Chief Scientific Officer of Epigenomics AG. Before I hand over the presentation to Greg, let me point out some legal information. The following presentation will contain expressly or implicitly certain forward-looking statements concerning Epigenomics AG and its business. Such statements involve certain known and unknown risks, uncertainties and other factors which could cause the actual results, financial condition, performance or achievements of Epigenomics AG to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Please find some of these factors described in the safe harbor statement. And now I would like to hand you over to CEO, Greg Hamilton, who will continue with the presentation.

Thanks, Frederic. Good morning, everyone, and thank you for joining our 2019 full year and Q1 2020 earnings call. We have made tremendous progress in the last 6 months towards our goal of Medicare reimbursement. The operational highlights during this time were the November 2019 publication of the microsimulation model in cancer medicine followed by CMS' initiation of the National Coverage Determination process for Epi proColon in late February of this year and most recently, inclusion of Epi proColon in the 2020 NCCN guidelines. In addition, we were able to successfully complete a capital raise in March. We have also implemented key cost-saving measures in light of the global COVID-19 pandemic. These 2 activities provide the company with a cash reach well into and very likely through Q1 2021. On February 28, CMS initiated a National Coverage Determination process for Epi proColon. CMS is under a statutory mandate to issue a proposed determination by August 28 and a final determination by November 28. A positive determination means that starting November 28 of this year, Medicare would reimburse laboratories performing the Epi proColon test for any Medicare beneficiary at a rate of $192. To date, the CMS process is still on track to be completed on time, and CMS has not indicated any change to this timing based upon the ongoing COVID-19 pandemic. The first phase of the NCD process, a 30-day public comment period is complete. A vast majority of the public comments strongly supported coverage for Epi proColon. A broad array of stakeholders ranging from primary care doctors, gastroenterologists, laboratory associations and patient advocacy groups were all aligned in their recognition of a blood-based test ability to increase the screening rates and save lives. As an example, Dr. Alex Fishberg, who is President-Elect of the American Association for Primary Care Endoscopy, commented that the National Colon Cancer Roundtable calls for 80% screening rates. If we are to close these care gaps, primary care needs this test, Septin9, covered as soon as possible. This and the majority of the overwhelmingly positive public comments aligned with the key findings of the microsimulation model published in November 2019 that our blood test has clear long-term benefits for the unscreened. With an FDA approval, a peer-reviewed published microsimulation model documenting that the long-term benefits and harms of Epi proColon are comparable to those of other accepted screening methods and overwhelmingly positive public comments, we are confident that CMS will issue a positive coverage determination. Last week, NCCN published their 2020 guidelines for CRC screening. One of the key changes from their previous guidelines was to add that Septin9 can be considered for patients who will refuse other screening modalities. This addition is consistent with Epi proColon's FDA-approved indication for use, which is that the test should be offered to people who have refused other screening modalities. These unscreened individuals account for over 30 million people. We believe the impact of our blood test among the unscreened will be significant as 70% of all colon cancer deaths in the United States come from the unscreened population. The inclusion of Epi proColon by NCCN recognizes the need for a viable alternative within this group. We also look forward to future NCCN guidelines to include key data, such as an annual recommendation for the test interval, which could be based upon -- on outcomes from the recently published microsimulation paper, which was not referenced by the 2020 NCCN guidelines. These data demonstrate that annual Septin9 screen results in comparable long-term benefits and less harms as compared to the gold standard colonoscopy every 10 years. The cancer medicine publication was not included as part of the latest 2020 NCCN guideline as it was published shortly after their literature review cut-off date and subsequent panel review meeting. In March, we announced the completion of a successful capital increase of approximately EUR 4 million by issuance of approximately 3.6 million shares. The entire offering was fully subscribed by institutional investors from the U.S. and Germany. The proceeds from the raise will fund Epigenomics well into Q1 2021. In light of the global COVID-19 pandemic, we have implemented cost-saving measures across all areas of the business. This includes the introduction of short term -- short-time work for all employees at our Berlin office. While the revenue impact of COVID-19 should be negligible as we don't expect reimbursement until late 2020, it does affect clinical trials and research activities. Thus, we have responded by minimizing operating expenses wherever possible. During this time, the company will continue to fulfill all customer needs and maintain legal, regulatory and financial compliance. Also in March, we announced the postponement of the Annual General Meeting due to various government restrictions on public gatherings. The AGM will now be held as a virtual event and has been rescheduled for June 12, 2020. We expect invitations to go out to shareholders starting next week. 2019 product revenue increased by approximately 20% year-on-year to EUR 1 million. Total revenue decreased from EUR 1.5 million to EUR 1.1 million due to lower licensing revenue from China. Our adjusted EBITDA was negative EUR 13.3 million compared to negative EUR 11.4 million and the net result was negative EUR 17 million compared to negative EUR 12.7 million for the same period the prior year, mainly due to increased R&D expenditure for the post-approval and HCC studies and noncash expenses. The cash consumption was EUR 13.5 million versus EUR 9.6 million due to higher R&D expenditures and changes in working capital. These results aligned with the preliminary results released in March. As it is the end of April, we are also providing preliminary Q1 results. Revenue for Q1 was approximately EUR 200,000 and adjusted EBITDA improved by EUR 400,000 to negative EUR 2.6 million. Cash consumption improved by EUR 1 million based upon positive changes to working capital. Q1 performance was in line with expectations and is included in our estimates for full year guidance. Liquid assets as of March 31 were EUR 11 million. This is inclusive of the capital raise proceeds. We believe these funds will be sufficient to fund operations well into and likely through Q1 2021. Our 2020 financial outlook is a revenue range of EUR 1 million to EUR 2 million as we expect a positive coverage decision at the end of November. Thus, the impact to revenue in 2020 will be limited. The estimated adjusted EBITDA and cash utilization range is negative EUR 10.5 million to negative EUR 12.5 million. These adjusted EBITDA and cash utilization estimates were incorporated into the 2019 audited financial statements, which were completed in early April. Since that time, as we have discussed on this call, we have implemented various cost reduction measures due to the COVID-19 pandemic, and we now expect these numbers to be at the lower end of the range. During the first quarter, we executed all the necessary steps towards our 2020 operational goals of Medicare coverage and preparing for commercialization in 2021. In order to drive commercial success in 2021, we must secure growth capital post reimbursement to effectively market the product in 2021. We believe the positive momentum we have seen over the last 6 months will culminate in a positive coverage decision later this year and position Epigenomics as an organization with a significant growth trajectory in 2021 and beyond. Thank you for joining our fiscal 2019 and Q1 2020 earnings call. I will now open the call for questions.

[Operator Instructions] The first question comes from Dennis Berzhanin from Pareto Securities.