Epigenomics AG (ECX) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Epigenomics AG's conference call regarding the half year results 2020. [Operator Instructions] Let me now turn the floor over to your host, Mr. Frederic Hilke. Go ahead, please.

Thank you very much, Julia. Hello and welcome to Epigenomics' first 6 months 2020 conference call. 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. Before I hand over the presentation to Greg, let me point out some of the usual 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 first half year 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 include: CMS' initiation of the National Coverage Determination process for Epi proColon in late February of this year; inclusion of Epi proColon in the 2020 NCCN guidelines; and just last week, the publication in the Journal of the National Cancer Institute which concludes that Epi proColon is the test of choice for patients who are not willing to participate in FIT or colonoscopy screening. Additionally, we completed a capital raise in March which, coupled with cost-cutting measures taken in connection with COVID-19, ensure the company is financed well into Q1 2021. Within approximately 2 weeks, CMS will issue their preliminary National Coverage Determination for blood-based CRC screening tests, including Epi proColon. We are more confident than ever that CMS will issue a positive coverage determination for Epi proColon because we have checked every single box of CMS' coverage criteria. CMS' ultimate criteria is whether a test is reasonable and necessary for Medicare beneficiaries. We believe Epi proColon has met this standard. The test meets the reasonable criteria because it is FDA-approved, documenting its safety and efficacy. There is peer-reviewed published clinical utility data, the overwhelming positive support during the public comment period. The test is included in the NCCN guidelines. And now with the JNCI publication, there is published peer-reviewed evidence that Epi proColon is cost-effective and the test of choice for patients unwilling to participate in FIT or colonoscopy screening. The test is necessary as there are an estimated 9 million Medicare beneficiaries who are not willing to participate in FIT or colonoscopy screening. As the only FDA-approved blood-based test available for these patients, Epi proColon has the opportunity to save over 225,000 Medicare lives. Clearly, there is ample evidence Epi proColon is reasonable and necessary for Medicare beneficiaries. In April of this year, NCCN included Epi proColon Septin9 into their 2020 guidelines. Specifically, Septin9 is not recommended for routine screening but can be considered for those who refuse other screening modalities. This language is consistent with our FDA label, which is for the unscreened and aligns with the recent Journal of the National Cancer Institute publication. Last week, the Journal of the National Cancer Institute published a key study that stated Epi proColon was the test of choice for individuals not willing to participate in FIT or colonoscopy screening. Annual Epi proColon testing was found to be clinically more effective than Cologuard every 3 years and annual FIT testing. This key publication was authored by individuals who are investigators for the CISNET network. CISNET is the National Cancer Institute-sponsored group who uses simulation modeling to improve our understanding of cancer-control interventions in prevention, screening and treatment. This group and specifically the cancer models they develop are used as a basis for USPSTF and ACS guidelines. In addition, this is the group CMS uses to analyze cost effectiveness and coverage determinations for CRC screening strategies. We believe the MISCAN colon model used in this publication will not only influence the upcoming CMS coverage decision, but it will also be the basis for the upcoming USPSTF guidelines expected in 2021. The key clinical outcome data from the publication is summarized in figure 1. Without CRC screening, approximately 110 individuals will develop colon cancer and 44 will die per 1,000 patients. As you can see from the graph, annual testing with Epi proColon will reduce the incidence and mortality of CRC more than annual FIT and Cologuard every 3 years. What is interesting to note is the clinical benefits of annual stool DNA testing in comparison to Septin9 testing. Despite 92% sensitivity versus 68% sensitivity, the incidence of CRC is nearly identical, and the mortality is equivalent between the 2 tests. The clear implication is that even if future blood tests have increased sensitivity, their impact to clinical outcomes will be negligible. On top of that, nearly all future blood-based test and development are next-generation sequencing-based. This technology is expensive and will require a price point close to stool DNA. Based upon the publication, we know that annual stool DNA testing is extremely cost ineffective. Thus, we believe Epi proColon is well positioned to be the test of choice for an extended period of time. Revenue for the first half of 2020 was EUR 322,000. The decrease between the first half of 2019 and 2020 was due to the effects of COVID-19 during Q2. Our adjusted EBITDA improved to negative EUR 5.7 million from negative EUR 7.2 million from the same period the prior year. We finished Q2 with EUR 8.7 million in cash and marketable securities. Our current liquidity gets us well into Q1 2021. Due to the continued uncertainty surrounding the effects of COVID-19 and like many publicly traded companies, Epigenomics is pulling our revenue guidance for 2020. However, the company maintains its previous adjusted EBITDA guidance of between negative EUR 10.5 million and negative EUR 12.5 million and cash consumption guidance in the same range. During the first half of 2020, we executed all of 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 by the end of this month and position Epigenomics as an organization with a significant growth trajectory in 2021 and beyond. Thank you for joining our first half 2020 earnings call. I will now open the call for questions.

[Operator Instructions] And we have our first question. It's from Dennis Berzhanin from Pareto Securities.

This is Dennis Berzhanin, Pareto Securities. One question I have on the guidance. I know you mentioned that you pulled the guidance given the COVID-19 interruptions, but you've already seen some positive trends in June and July. Could you expand a little bit on that? How exactly has testing come back? And looking to the future, do you expect any change in colorectal cancer testing patterns considering the fact that people might be more careful going to the doctors and so forth?

Yes. Dennis, thank you very much for the question. So what we are seeing in the United States is that screening rates for all cancers are down significantly. So colon cancer screening rates are down, breast cancer, cervical cancer, and it's really all tied to the fact that patients are not going in for their routine physicals and routine screening right now because of COVID-19. So what happened is -- what you've seen is that testing across the United States, other than COVID-19 testing, was down dramatically in April and May. And we, like everyone else, has seen some uptick in July and August. The problem is, is that with COVID-19 right now, no one knows what's going to happen next week, next month, 3 months from now. So the reality is it didn't make sense for us to continue revenue guidance when we just have no idea what's going to happen with COVID 19. I mean what we do know is that there's a lot of people not getting screened right now. So we think there is a unique opportunity that once Epi proColon is covered with the final coverage determination at the end of November, there's actually going to be a lot of pent-up demand for patients who haven't been screened, and we believe the blood test will be a unique alternative for many of those patients. So we do believe 2021 will be a very, very positive year for us. But for right now, the revenue guidance is not really part of our story. We have a very low revenue guidance for this year because reimbursement is not going to kick in until the end of November. So what we focus on is managing our cash and our cash burn, and that's why we know and we feel very confident about our forecasted adjusted EBITDA, which is a more relevant guidance number for us right now than anything else.

Perfect. That makes sense. And just a follow up. I know you mentioned that there is, of course, a lot of uncertainties, not just with COVID, but also with this reimbursement decision coming up in 2 weeks. But assuming it is positive, and obviously, there is a lot of factors speaking for that, could you give us a little bit, maybe not all the numbers, but just a flavor of how you expect the ramp-up to be in 2021? Which -- how should we expect to be the first year of Epi proColon? How high can the sales theoretically go? And also, do you still need to spend a lot of -- in marketing investments and so forth? How much would that be? And also, second question, would you have a conference call on August 28 when CMS issues the proposed decision?

Thanks, Dennis. Yes. We're very much looking forward to the announcement within a couple of weeks. We -- like we've said many times, we do believe it will be positive. We would envision having a call upon that news. So as we look at volume estimates in 2021, we haven't given guidance yet on test volume or revenue volume for '21, we do believe -- I mean there is significant growth potential in 2021. I mean if you just think of the unscreened market alone, there's 35 million patients who haven't been screened. With this recent Journal of National Cancer Institute publication, the data is very clear that our test is very effective, more effective than Cologuard. So we expect that the market will respond positively to that. Not only is the performance outstanding relative to reducing the incidence and mortality of cancer, it is also much more patient-friendly and it's a blood test. So we think there's huge opportunity for us going into 2021. As we get closer to 2021, we'll give guidance at the appropriate time.

Great. Appreciate it. Those are all my questions. Look forward to the proposed guideline for CMS.