Epigenomics AG (ECX) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Epigenomics AG conference call regarding annual results in 2020. [Operator Instructions] Let me now turn the floor over to your host, Mr. Frederic Hilke.

Thank you very much, Elena. Hello, and welcome to Epigenomics Investor 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. On today's call, we will be discussing year-end 2020 results. This call is being webcast for anyone who would like to follow the presentation. The link can be found on the Epigenomic's website in the financial reports section. 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 year-end 2020 earnings call. In January, CMS issued the final NCD for blood-based CRC screening with a negative coverage decision for Epi proColon. The company is currently actively working on 2 available options to reverse this decision. First, we continue to pursue reimbursement through legislation and second, we are reviewing the appropriate timing and strategy to appeal the NCD decision within CMS. While we are extremely disappointed and disagreeing with the CMS decision, we are excited by our next-gen version of Epi proColon. The next-gen version incorporates Septin9 and an additional methylation biomarker. This new assay has been validated against 2 prospective clinical sample sets and meets the new CMS criteria for Medicare reimbursement. In addition, the data for our new HCC blood test has been accepted for publication, and we expect it to be released any day. While these 2 tests -- with these 2 tests, we believe Epigenomics has a unique and valuable liquid biopsy pipeline. Additionally, in early February, we successfully completed the placement of a EUR 5.5 million convertible bond that will provide liquidity well into 2022. In the draft NCD decision issued in October of 2020, CMS identified 3 criteria that Epi proColon did not meet. During the proposed to final time period, we were able to successfully change 2 of the 3 criteria. First, the routine requirement for CRC screening was deleted and secondly, the guideline inclusion criteria was deleted. Despite this success, ultimately, Epi proColon was denied coverage because CMS decided to keep the arbitrary point estimate requirements for sensitivity and specificity. Despite numerous experts, including the American Cancer Society and the early research detection network of the National Cancer Institute, telling them this was the wrong approach. We still have 2 possibilities to achieve reimbursement for Epi proColon. First is via legislation. Our bill was reintroduced a couple of weeks ago into the new session of Congress. This bill has taken on a higher profile as blood-based testing for CRC is relevant in 2 key areas of the new administration: racial disparity and the COVID-19 pandemic. CRC disproportionately affects people of color. In addition, COVID-19 has reduced colon cancer screening rate significantly across the U.S. As the only FDA-approved blood test for CRC, Epi proColon has the opportunity to save lives today. These factors have resulted in a significant increase in the bill sponsorship, which is now at 50 co-sponsors within the first 3 weeks since reintroduction. We believe the legislation is a viable path. However, the very nature of legislation makes it difficult to predict timing or the likelihood of success. The second opportunity is to appeal/litigate the decision. The U.S. Senate has just confirmed Javier Vocera as Health and Human Services secretary. HHS is the department that CMS reports into. Next step will be to appoint -- appointment of a new administrator of CMS, which is expected shortly. Each of these individuals will then appoint their respective leadership teams. In order to optimize our appeal strategy, we must wait until these new leadership groups are in place to initiate the appeals process. Once initiated, the appeals process can take between 6 to 12 months. In parallel to our efforts to still achieve reimbursement for Epi proColon, the capital constraints the company faces require us to explore our strategic options at this time. We issued an ad hoc today disclosing that the company has initiated a formal sale process. We have retained a leading health care investment bank to drive these efforts. We believe Epigenomics offers a unique liquid biopsy platform that will be a value to various parties. At this time, we cannot provide any more detail as the process is ongoing. We will notify investors at the appropriate time with relevant news. The financial results for 2020 were in line with the company's latest estimates. Revenue for 2020 was EUR 800,000 compared to EUR 1.1 million in 2019. The adjusted EBITDA improved by EUR 2.8 million and cash consumption improved by EUR 3.9 million as a result of cost cutting measures. Liquidity at the end of 2020 was EUR 4.5 million. With the successful completion of the convertible bond this quarter, we now have sufficient liquidity to reach well into 2022. Our 2021 financial outlook is a revenue range of EUR 400,000 to EUR 1 million, with an adjusted EBITDA and cash burn of negative EUR 7 million to negative EUR 9 million. As mentioned, we believe Epigenomics is a valuable liquid biopsy technology platform. We are focused on maximizing the value of this platform for shareholders at this time. We look forward to future updates. Thank you for joining our 2020 year-end earnings call. I will now open the call for questions.

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

This is Dennis Berzhanin from Pareto Securities. I apologize, I wasn't able to join until a little bit later after the call started. So if I ask the questions that you've already talked about, I apologize for that. But my first question is, if you could -- I was wondering if you could provide some clarity about the current M&A process. At what stage are you currently in? What is the current level of interest? And is the focus to sell the entire company? Or particular assets like the colorectal cancer screwing assay, for example? And then the second question, just wanted to hear a little bit more about the process of Epi proColon. And any major developments in the last few months? And also, I was wondering if you could provide a little bit more color on the legislative pathway for Epi proColon? I know this was talked a lot about in the past -- over the past few years, but there hasn't been too much success there. So I'm just wondering to see what kind of indications are there that gives the more confidence for this option?

Thanks, Dennis. I appreciate the questions. The first 1 in regards to a sale process. We can't provide any more detail than we already have, as discussed, it's ongoing. So I really can't provide any more clarity at this time. In regards to Epi proColon and the recent activities on 2 areas. Number one is in the current version of the product. We are looking to, in essence, reverse the decision and there's 2 pathways to do that, as we discussed, legislation or an appeal. On the legislation, the bill has been reintroduced in this new session of Congress because there's a new administration that started in the United States in January. We do believe that the legislation is a better fit in the new administration. And the reason is that there are 2 key areas of focus for the new administration ratio disparity and dealing with the COVID-19 pandemic. Epi proColon actually has an impact on both of those areas. There is a significant disparity in incidence and mortality for people of color to this disease. And a blood-based test for screening would provide a tool or mechanism to potentially overcome that racial disparity. In addition, the screening rates are down significantly in the United States due to COVID-19. And again, as the only FDA-approved blood test, the ease of use and access to care through a blood test could help offset those declining screening rates. So we are optimistic about the legislation, and we feel good about it. However, it is legislation. So no one can predict for sure, timing or likelihood of success. That is just the way the legislative pathway works. But we feel as good about it as we can at this point in time. The other option is an appeal process. And as we discussed, it's challenging to even initiate that process until the new leadership of health and human services and CMS is selected, initiated and then they picked their leadership teams. That transition is going on right now as part of the new administration. So as soon as that's done, then we will identify the right appeal strategy going forward. But that appeal strategy can take anywhere from 6 to 12 months once we initiate the appeal. So hopefully, that answers your questions,

Got it. Yes. And just one quick follow-up. Just to -- you mentioned a little bit about the screens of patients. And one of the factors for last year, 2020 was with COVID-19, a lot of people were postponing their screening for colorectal cancer, and that's impacted the revenues for that. I was wondering if you've seen the same thing for 2021. Your guidance still seems to be pretty conservative. So I was wondering if there is -- if this factor is still present for 2021 being that a lot of people are postponing their screening due to COVID?

Yes. So there -- we think the screen rates are still down relative to historic norms. We believe they have improved relative to the Hydro COVID-19 last year. But our revenue forecast for the year is more of a reflection of the reimbursement state of the product. So without reimbursement, it would be challenging for us to predict any significant increase in revenue. So that's why we have new guidance where it is.