Insight Molecular Diagnostics Inc. (IMDX) Earnings Call Transcript & Summary

All right. Hello. Welcome, everybody. You've got me back, Liza Garcia, UBS Life Science Tools & Diagnostics Analyst. And I am very, very fortunate as I am joined here by the CEO of OncoCyte. And he will be diving into some fireside chat questions. So thank you very much for joining me.

Thanks for having me.

Great. Awesome. So I was thinking maybe we'll start off with the portfolio and kind of walk through it and kind of get a lay of the land for people who may not be as familiar with the OncoCyte story. So let's start off with DetermaRx, the lung cancer stratification test. Could you maybe walk us through the use case here? Let's start there.

Yes. So much familiar with Oncotype DX for breast cancer, early-stage breast. It's a very similar answer that needed to be -- had lung cancers, early-stage lung cancers are typically cured with surgery and no follow-up therapy but just watchful waiting. And what we were seeing this way back in 2011 and '12 when I was actually running the business for Life Tech, and we were building out genomic content for the Ion Torrent. We were looking for content that would have meaning in area of oncology, obviously. And so we found these 2 docs in UCSF that had been done a lot of work on a 14 RNA panel that was very similar to what Oncotype DX was doing, but it was in lung. And so we invested there, followed it. And then obviously, when we sold the Thermo and I left and came to OncoCyte, we decided it was good content, 14 RNAs. We're an RNA company. So we picked it up. And basically, the use case is this, early-stage cancers for lung gets surgery, but no treatment. 30% to 40% of the patients come back in a year and have metastatic disease. And 50% of those patients die within 2 more years. And so it was a big dilemma. I mean breast cancer and Oncotype you got a 10-year window, but lung, you got about a 3-year window. And so we thought, well, let's see if we can pull this off. So sure enough, now we're through all the studies. We've got -- our randomized trial was basically very successful. We had patients that were intermediate or high risk. They went into 2 arms. You had the low-risk arm and then the high and intermediate risk arm. Patients in our arm that were high risk or intermediate risk that were positive for our test but did not get treatment had a 49% 5-year survival. If they were on high risk or intermediate risk and they got treatment, one round of double platinum chemo back then, obviously, because now you could use immune therapy or whatever, they had a 93% 5-year survival rate so significant improvement in outcome, which got us a very rapid path through CMS. And so the test is reimbursed now and we're on the market. The problem with Rx, it's a great test, saved like 1,100 lives so far. We've touched that are high risk that now have gotten some treatment and hopefully extended their life -- and it's very highly reimbursed. The challenge is about a 40,000 patient population. As you know, breast cancer has a really nice screening program. So a lot of cancers found earlier. Lung, we don't have those in place yet and so we aren't final a lot of the early stage lung. But for those patients that do have it, we have a really powerful tool to stratify their risk for recurrence.

Great. All right. But let's talk about adoption trends. So you just kind of went through your earnings yesterday. Pretty good volume growth this past quarter, over 65%. It would be great to kind of think about if you could expand on kind of how you see the adoption trends kind of in your outlook and also patient mix, if you could touch on that as well.

Yes, absolutely. So we -- because we're a small company, we don't have a lot of cash, we chose to sort of target key high incident rates of lung surgeries in the United States. So we started with 10 reps. The pandemic hit, we launched in the middle of the pandemic. That was a very challenging time. So docs weren't seeing reps. But we were able to get those 10 reps out there, and we started to see adoption. And so in the areas where we have reps, we are getting really great adoption. The problem is we only cover about 30% -- 30% to 40% of the U.S. right now. And so obviously, with the change in the environment externally, we are trying to conserve cash. We have enough to get us through '23, into '24. So instead of doubling or tripling the sales force and going after bigger volumes, we're kind of hunkering down and trying to sort of harvest the areas that we're really successful in. So I think you'll see we're going to double the revenue year-over-year this year. We'll probably do 50% to 70% growth in that area next year. And that's kind of what we're targeting internally until we'll see what the external environment looks like. And then we'll obviously add more reps and more territories and then watch it to grow faster, we hope.

Great. All right. So kind of the other piece to the revenue mix. Can you kind of walk us through ASP trends, kind of how we should think about that? And maybe where you stand in terms of the reimbursement environment?

Absolutely. So for Rx, we got reimbursement at $3,150 from CMS. So today, our mix this quarter was an interesting mix, 90% was Medicare, Medicare Advantage. That was really high. We're running about 80%. And so our average AUP for those patient population that's about 3,000 because Medicare Advantage pay a little lower than the $31.50. So we're about $3,000, $3,100 somewhere in there. The private pay, as you know, is a hand-to-hand combat pay. We don't have any -- because it's a small volume and small incident rate of these early-stage loans. We don't really have a lot of people wanting to do contracting. So we go after and adjudicate every claim, and we fight for that. That had started when we first started and launched it. We get about $500 a test. And now, of course, we're up to $1,860, I think, for this quarter. So we've made a lot of progress in the private payer world. We'd like to see that in the 2000s as we get -- to get closer to the Medicare. So that's in terms of Rx. In terms of our portfolio, we just submitted our 2 transplant applications, and we'll get to those. I know I think we had talked about some questions there. And our DetermaIO, which is really our flagship oncology product. We just submitted data that came out at ASCO in colon. So now we validated over 6 tumor types and all 4 major immune therapies. So we really feel like we've made a lot of progress with DetermaIO, and we are going to be submitting in September-October timeframe. We're just waiting for these papers to get accepted for publication. And when they do, we're going to go after bladder, metastatic bladder, triple-negative breast, non-small cell lung and colon. And so we feel like that will be our entry point with CMS to get the reimbursement for DetermaIO.

Okay, great. So submitted. So maybe kind of if you could just walk through the use case for DetermaIO. So everyone's clear, you've obviously laid out the indications, but kind of how that assay.

Yes. DetermaIO is a very interesting application. It's one that we've been following for years. In fact, when I -- in between my leaving Thermo and joining OncoCyte, I ran a little Tech Angel Group and was an investor in this. It's a spun out of Vanderbilt. It's a 2,000 gene classifier that was looking at different arms of treatment for triple negative. One of those arms was immune modulation, and we saw a very high response rate for immune therapy. And so we funded it. It went down to MD Anderson. They got -- fell in love with it for triple negative. We moved it to West Clinic and a really big success in lung. And so when I stepped into the CEO role here at OncoCyte in July of 2019, we acquired the company to really expand the indication. So today, the use cases is, there's a phenomenon that happens in cancer, where a cancer breaks through immune homeostasis, PD-L1 is active. The immune system sees it. It goes and attacks. But the cancer cells are smart. In fact, one of my favorite guys, Siddhartha Mukherjee, who wrote The Emperor of All Maladies, he says that they're insidious little copies of ourselves but all they want to do is survive. So what cancer has learned to do is commandeer the, what we call the tissue repair mechanism. And so it brings mesenchymal cells, it brings in cancer-associated fibroblast. And it basically convinces the immune system that is tissue under repair. And so the immune system says, "Well, I'm not going to go compete with myself, that's autoimmune disease. So it backs off, tumor escapes." What has happened with PD-L1 and TMB, they're both hot signatures, they look at the hot signature for the tumor, but they don't take into account the phenomenon of mesenchymal transition or this tissue repair. And so what we did is we saw this phenomenon. We took 2,000 genes, reduced it to 27 RNAs, and we went out and started studies. And we've had phenomenal success with it. Our P-values across 6 tumor types or 0.004 or 0.008 in terms of predicting for durable response, and we've had great success with it. So the real opportunity right now depends on which tumor type. For instance, in colon, we just released data. MSI-high patients [indiscernible] patients are already eligible for immune therapy. 95% of them, MSI low, or not, we found 27% of those patients that were eligible should be eligible because they had a high durable response in the trial that we did in Italy with atezo. So we feel really good about where we are with the DetermaIO, we're going to submit it. And it does have the opportunity to become a universal CDx because it works across all the solid -- all the immune checkpoint inhibitors. It's not just one or 2. It works across all of them now. So very excited about it. We've had -- we have an early adopter program going. Physicians are using it to help patients that today have are older and sick and may not want to be on chemo. And our test gives them the information if it's cold or hot and a score, do you need combination therapy? Do you really need chemo or not? So that's one use case and obviously, colon where, hey, these patients aren't getting immune therapy today, and we're going to put them into the immune therapy opportunity. So it has multiple use cases, but it really depends on the tumor type.

Okay. So just thinking, I guess, -- how would you describe kind of a patient population or the TAM for this test and maybe kind of if it's -- maybe for 2023 and then like longer term?

Yes. There's 4 test or 4 tumor types we're going to market with or about a -- if you assume a $2,500 reimbursement for these types of tests, which is low -- average for these is a little higher than that, but assume a conservative $2,500, you're looking at somewhere for those tumor types that we can get reimbursed for now, somewhere around $1 billion, $1.2 billion of that market. And some of those is complementary to PD-L1 and some of those PD-L1 is not a good assay, and we are better. And certainly, we're better in every disease area than TMB. And so because it's 27 RNAs, it makes it easy to kit and sell, which we're planning to do with Thermo Fisher on their Genexus instrument. And so we're pretty excited about the assay. 24, 25 as we get more indications. Ultimately, that market is around $3 billion for tests that identify response and immune therapy. Immune therapy, everybody knows these numbers, but analysts are predicting immunotherapy investment to be about $125 billion by 2025, 70% of those patients will not have a durable response. And so we're going to have about a $70 billion, $80 billion worth of expense in the U.S. healthcare system to give patients a $200,000 drug that's only -- not going to have any response and possibly 35% get an autoimmune disease. And so today, there is overtreatment that's been established by ASCO and other people. We just don't have the right biomarker to help with that, and we believe we have it. So we're pretty excited about where we are, and it's early, but the response has been great.

Great. And so you're going to go for CMS submission. You've got the CMS submission. Kind of can you walk us through kind of the timelines around actually kind of securing like reimbursement? And then also, I believe your launch is slated for next year. If you could just kind of?

So we're submitting the -- because it's a proprietary test, we'll have to get our own code. And so our expectation is we'll submit in September. We hope to get a first response and a draft by early Q1, and then we'll go through the process of iterating and questions, and we hope to have a final price by summer of next year so that we can actually launch with reimbursement next fall. So ex-U.S., we are going into the kit mode. So we're going to put it into IVD kits, or IVDR now in Europe. We expect to have those -- validated, that test validated and our IVDR submission late in '23, early '24. So that will be another area for revenue for us as we combine our DetermaIO test with Thermo Fisher's Precision Assay, which is 60-plus genes looking at all the targeted drugs will complement that with our 27 RNA. So even that -- with 20 nanograms extracted RNA in 16 hours, you'll get a full complement of whether it's a target or an immune therapy opportunity. And we think that in Europe, right now, they're very much more focused on smaller panels than large panels. So we like the opportunity, and certainly, Thermo has a great channel there for us.

Great. So just to kind of understand that, your kit strategy, you're going to keep kind of as an O-U.S. opportunity. And then here in the U.S., obviously, there's challenges with samples and regulatory and so keep that. And then here, it would be LDT.

Yes, we'll continue to run it out of our lab in Nashville and California. We have 2 labs, CLIA labs. We have thought about kitting it in the U.S., and that may come in the future. But obviously, we want our -- one of the missions of our company is to take large-scale genomics, put it into usable packages of testing that can be democratized so that everyone has access. And immune therapies aren't just given in big academic centers are given in my little hometown in Middle Georgia. So we want to make sure that there's access. And so we want to -- that's been kind of our mission as a company and kind of my personal mission in life. And so it's great to see these technologies that we've been using in central labs start to get to a point where we can democratize. We haven't made the final decision on that. I suspect we will, but we'll -- right now, for the next 2 to 3 years, it will be an LDT.

Got it. Okay. And then you're also looking at patient monitoring. So let's start with DetermaCNI, where you've done quite a bit of validation work. So let's start with kind of the use case there and kind of how you're positioning in-patient monitoring.

Yes. I advise the Board of ASCO, and I'm on the canceling Board. And so I was in a meeting in 2018, 2017, 2018, a number of the physicians said, Ronnie, you guys saw this in HIV. That was my background in the early days of PCR when I ran Roche Molecular. And the reality is they're like, look, we need a test that tells us sooner than an image that immune therapy is not working because we know it only works in certain small populations of patients. And so I said, well, let's go look. We found a technology in Germany. Obviously, there's MRD. We've been doing -- I mean, at Clarient, we did MRD in 2007 was our first MRD test. And so we know MRD works, but you got to have tumor. And if you don't have tumor, how do you monitor and later-stage patients typically don't get resected tumors. It's neoadjuvant with a biopsy or it's later-stage salvage, so no biopsy. So you end up with a need for pure blood-based test. And so we said we think we can solve that. So we found the technology in Germany, acquired the company, and it's been great for us. And now they're well published across about 6 different tumor types, 1,100 patients, and we have a 93% positive predictive value of disease progression at second cycle of therapy. So it's blood only, you take it at the beginning. Then the first cycle, you draw another set of blood and then the second cycle, you take your third blood draw. And so weeks before MRD can be used, we already have result telling disease progression. And it's much cheaper than MRD because you don't need the big genome upfront to do the bespoke assay. I actually think MRD will be very complementary, and we'll probably end up having both at our lab. But right now, the market that we're going after is the later-stage patients who can't get surgery and cannot be served by Natera and some of these other folks that are offering an MRD. We want to give opportunities for later-stage patients to know we've given an immune therapy. Does it work at second cycle? If it's not, then we should complement it with IL-12. Some of these other complementary drugs are even chemo. And so that's the use case that we're after. And that's the one that our pharma partners and certainly the physicians that are starting to use it in our EAP world and RUO world, that's the one they see as most -- the highest utility. It will fall under the current therapy monitoring LCD. So it will fall under that. So we're about a paper away from being able to go to Gabe and MolDX and submit under that LCD. So hopefully, we'll be able to do CNI no later than midyear next year in terms of submission for CMS.

Okay, great. And just to kind of -- so tumor-naive essentially is kind of the strategy there for the patient monitoring. And then the timeline you're targeting has been next year and the launch you're planning for?

We're going to launch as an RUO because we're getting some pharma interest because pharma, especially these younger pharma companies, biopharma companies, they want to know if their drug is not working in a patient population early so they don't waste a lot of trial money. They want to pull out of that and go to the next one. And we've got some interest that we could be that test that helps them know, oh, this is not an indication for us. So there's some interest there. So we're launching as an RUO for pharma, but we will probably not launch clinically until we actually have submitted for CMS. And then once we submit, we'll probably launch as a clinical application at that point so midyear next year probably.

Great. Well, how about DetermaMx, a little bit longer? It looks like in the timelines, but maybe walk through kind of the development here and use case.

Yes. So the questions are, is the drug working and now is the cancer coming back? And the temptation is to solve both those questions with MRD. But the reality is MRD requires a large amount of tumor. And most monitoring -- my experience because I've been doing this for over 35 years, the monitoring world of micro-diagnostics is really done closer to the patient. It's not typically done in a central lab world. And typically, it's a surrogate type assay that tells you something is changing and then you go for a bigger test that actually tells you what to do. And so we are taking that route. MX as a digital PCR application based on a patented state that we acquired from Chronix, the same company in Germany that we got CNI from. And MX is a test today that's active. That is the same test we're using for transplant, which we'll talk about. But MX in cancer is really to identify a small subset of targets that we see get knocked out by the drug. They go under detectability even with really sensitive digital PCR. And then you monitor so every quarter, a patient would go to the local doc or every 6 months. And then if we saw a spike, you would say, okay, something's going on, draw a blood and run a full exome by this time, probably transcriptome exome in their blood to see what's happening and what's changed in that tumor. And so MX is an exciting opportunity. But given the need to conserve cash, we've obviously, we prioritize that R&D investment, and we're actually focused more on the transplant utility of MX now.

Okay, great. Well, I guess just closing out on kind of the oncology portfolio. What kind of -- what should be the expectations, I guess, in terms of how you're thinking about revenue generation on that side and how to just kind of walk through that bridge.

Yes, our goal is to be the one-stop lab to answer all the critical questions. Do I get chemotherapy in early-stage cancer? If it's later stage, do I give a targeted drug? So we have a test called DetermaTX, which is everyone's foundation medicine knock off. It's the same type of targeted panel. And we have DetermaIO, which is obviously proprietary. So the tissue-based applications to identify what drug to give, those are being sold by our sales force. And obviously, as they all get reimbursed, we'll expand our sales force. We're looking to also find partner sales forces to give us a greater coverage in the United States. The monitoring assays are really a different play because now you're monitoring in the community, you're not really monitoring at the center -- and so that's going to be definitely a partnership, commercial execution play with folks that already have more of a primary care or at least at some level, a community-based care sales force, which we would not be able to go [ afford a build ]. So we're going to do partnerships there. And so looking forward to -- really looking forward to getting the tissue-based assays reimbursed. Obviously, CNI has a huge demand, and it's a big market, as you know, because it's a repeat test. So you get 2 or 3 of those every patient. So again, but we need to get creative as to how we go to market with CNI right now sitting in the current market environment.

Understood. All right. Well, certainly making quite a bit of a progress. And then another area that obviously you're going into is transplant rejection monitoring. I guess let's start with liver, so getting ready to go commercial on this assay. Can you just -- let's start with kind of the use case there and then reimbursement progress and kind of what we should expect there?

Yes. Liver is a -- it's very different than kidney and heart in terms of how we've used the test. And the kidney and heart have benefited from care and Natera being out there and developing the utility for that. So we're very fortunate to come in behind that and not to spend all the money doing that. Liver, we have a unique opportunity because we're the only assay today validated in liver. And so again, it's the patent state, digital PCR patent state from the Chronix acquisition that they had already launched in transplant in Germany, and we're just making -- we're going to make it an assay here in the United States. Liver use case is different. As I said, liver is for -- right after you get a baseline, right after the transplant because you want to have a baseline. But then it really comes later. So after a year because liver [ slugs ] off a ton of donor-drive cell-free DNA. So at the end of the first year, you're going to run another test and you'll probably run a couple after that because you want to create a trend and see what the organ health looks like, different than kidney, which you run at the beginning and you kind of monitor that first you about 7x according to sort of protocols. We think liver is going to be a couple of times upfront and probably a couple of times at the beginning of that second year. And that will be really how we think liver is used. We are early in the launch, in the early adopter program. We have a major transplant center that's really excited about it. And the key opinion leader there is helping us develop the use case for it. But right now, there is a use case. The question is, is it for monitoring or is it also for acute patients who -- liver enzymes are spiking, something's going on, and we run this to confirm versus have to go do a biopsy. And that is where we're really looking right now to see if this is really truly a way to obviate sticking a needle in somebody and getting an understanding of is there organ damage without having to go get a biopsy.

And I'm assuming that would be clinical trials, an incremental clinical trial.

Yes. So that's why we're working with these centers. So the use cases we have today don't really require those have already been validated and we've already been published in those. That use case is something that this center wants to do a trial on. So -- and there's other centers that are interested in that as well. So we'll see where we go with that. VitaGraft is a pretty exciting opportunity. I mean, liver without anybody out there, we're going to be the pioneer there. But we have launched it as an LDT. We have submitted for reimbursement. We've got our first round of questions, which is very normal, you send it, you get questions, and we're answering those questions this week. We got the questions last week. We'll send them back Monday, Tuesday. And we probably hope to hear in September and hopefully get our drafts. So we'll see where we are. Kidney is a little more straightforward. Heart is a little more straightforward in terms of the utility.

Have you disclosed kind of the ASP you're seeking on liver?

Well, the current LCD is about 2,700 for kidney and 2,800 from heart. So we're hoping to fall in between somewhere in that neighborhood. We are a digital PCR method on the monitoring side. We do -- ours is a patient specific. So we actually do look at the patient sample upfront and create a specialized kit for the patient. And then that's the monitoring test that we'll be selling democratizing in a kit to labs around the United States to use for monitoring. So we'll use next-gen sequencing for the selection assay. And so because it's 2 different technologies. Obviously, we have to validate that in terms of kitting and the FDA and all that. So we're -- first thing with the FDA is coming up, so we'll know more about how they're going to look at the selection assay, which is really a single-site PMA for us at our central lab versus everybody will have the kits and be able to run the monitoring.

So transplant informed?

Yes. Exactly. I like that. I'm going to borrow that.