MDxHealth SA (MDXH) Earnings Call Transcript & Summary

Good day, and welcome to the MDxHealth Fourth Quarter and Full Year 2020 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Michael McGarrity. Please go ahead, sir.

Thank you, Serge, and thank you all for joining us for our 2020 full year release of results for MDxHealth. With me today is Ron Kalfus, Chief Financial Officer. While we still find our operating environment significantly impacted by the global pandemic, MDxHealth is well positioned to emerge even stronger than when the pandemic began to impact our business in Q1 2020. I can confidently state that based on the following: volumes for our ConfirmMDx test declined 18% for the full year 2020, which is significantly favorable to the estimated 48% decline in prostate cancer screenings in the U.S. market. And in the fourth quarter, we saw growth from Q3 sequentially for the second quarter in a row. In addition, the number of our urology customers who have adopted Confirm as part of our standard clinical diagnostic pathway has continued to accelerate in 2020 even amidst the pandemic. For our SelectMDx tests, volume declined 39% in 2020, again, favorable to market decline, as we would expect Select to more closely track with a number of screenings. More importantly, we saw Select volume grow sequentially in Q4 for the second consecutive quarter. And we view this as positive and consistent with the increased ordering of Confirm, as our base of urology customers more frequently utilize our menu of products in their clinical workup of patients and would expect that to become evident in the following quarters. We are also very excited about the inclusion of our Select test in the National Comprehensive Cancer Network or NCCN guidelines in 2020. Let me be clear that we view this inclusion in the gold standard NCCN guidelines as an important milestone for our Select test, and we are confident that Medicare patients will be provided access to Select as part of that standard. It should be noted that we have seen elastic response to the previous easing of pandemic-related lockdown restrictions in the U.S. And while this varies by geography and will likely continue to fluctuate and/or moderate through the acute period of the pandemic, we are confident that our customer base remains well intact and that our volumes will recover, likely led by Confirm with Select to follow as patient flow and associated cancer screenings return. Our operating discipline and cash collections were evident and consistent in 2020, with operating expenses down $8 million or 19% year-over-year. Cash collections were down for the year but at a slower rate than the decline in our test volume, with our cash burn further declining by 2%, all pointing to our commitment to sustainable operating discipline and responsible capital allocation. Ron will comment further on our financing in January that we believe reflects investors' confidence in our commitment to focus on execution. While we remain prudent and fiscally responsible, the addition of new capital will allow us to continue to execute on our strategic plan to expand our capabilities to provide new diagnostic opportunities in the active surveillance and monitoring of prostate cancer. I would also like to share our view forward from a menu perspective and our confidence that our sales team is fully restructured, best-in-class and has not only been productive and opportunistic during this limited access period of the pandemic, but our sales team is poised to execute on our growth initiatives. And we look forward to leverage this urology channel for additional opportunities going forward. But first, let me turn the call over to Ron for a review of our financial and operating results for 2020. Ron?

Thank you, Mike. The pandemic has indeed presented challenges not just for MDxHealth but across the global health care industry. While we have experienced reductions in volumes and associated revenue, we are beginning to see signs of recovery, evidenced by a sequential increase in volume since the low point in late April. Total revenue for 2020 was $18.5 million, up 57% from 2019 reported revenues of $11.8 million and down 16% from pro forma 2019 revenues of $21.9 million, which we view as favorable relative to the industry downturn. ConfirmMDx revenues represented over 90% of product revenue. Gross margins on products and services were 43.6% for the full year 2020 as compared to pro forma gross margins of 46.2% for 2019, a reduction of 2.7 percentage points, largely the result of fixed costs across lower volumes. Total operating expenses in 2020 were $35.2 million, an improvement of $8 million over 2019. Excluding noncash expenses, such as depreciation, amortization and stock-based compensation, operating expenses improved by $2.4 million or 7% over 2019, primarily the result of consistent and continued operating discipline. Turning to payer coverage. Recall that in August 2019, Palmetto GBA, a Medicare administrative contractor that assesses molecular diagnostic technologies under its Molecular Diagnostic Services or MolDX program, issued a positive draft Local Coverage Determination referred to as an LCD, recommending coverage for the SelectMDx test. Following communications with Palmetto related to the retirement of the previously issued draft LCD, last year, the company submitted the requested update to its technical assessment. We continue to be engaged with MolDx administrators as well as our clinical advocates and key opinion leaders in prostate cancer and will provide updates as warranted. We are eager to finalize the coverage by Medicare for our Select test. This concludes my brief overview of the results, and I will now turn the call back to Mike. Mike?

Thanks, Ron. I hope it is clear that even amidst the challenges presented by this environment, Ron and I and our entire team across all of our operating functions remain committed to and believe in our focus on execution and our clear path to build value. I am very confident in the fundamental drivers of our business that provide the basis for this belief will become clear and obvious as we go forward. And while we will not be providing specific guidance for 2021 due to the uncertain impact of the pandemic on patient visits and office-based urology practices, I would like to emphasize our expectations on what we will advance and deliver going forward. First, as urology grew practices in general and our customer base specifically move towards standardization of menu and laboratory service providers as well as adoption of clinical diagnostic pathways, we expect to leverage this trend into sustainable growth for our company. Specifically, we track, measure and manage through adoption of our Select and Confirm tests as part of a clinical pathway into our customer base in addition to standardization of our menu adoption. This effectively reflects how urology and pathology practice manages their patients from positive PSA through the diagnostic pathway and applies our menu to confidently, in a clinically actionable way, guide their treatment decisions. As the pandemic lifts, we will provide additional visibility to our progress in driving sustainable growth in both units and revenue. Second, we remain very confident that our Select test will be covered by Medicare and associated commercial and private payers. This confidence is based on our demonstrated evidence of market opportunity, market demand, clinical validity and clinical utility, and most importantly, adoption by the urology community and inclusion in the gold standard NCCN guidelines. We are confident that Medicare patients will be provided coverage for this best-in-class diagnostic. Third, as I noted in our Q3 results release, we have refocused our R&D from product support and advancement of our current menu to now investing into menu expansion of the clinical diagnostic pathway that will supplement and contribute to our future growth. Our efforts are twofold and complementary and take advantage of assets, feasibility and/or data that we hold within MDxHealth. As you know, our existing menu of Select and Confirm applies to the front end of the diagnostic pathway testing at-risk patients prior to a cancer diagnosis, while our current R&D pipeline efforts now focus on clinically actionable information for diagnosed cancer patients. Our first and most advanced developmentally, which we will temporarily referred to as AS-MDx prior to launch, will provide diagnostic confidence for clinician, following a positive biopsy to identify if that patient should be considered for active surveillance as opposed to aggressive treatment or surgical intervention. This is a well-characterized market, and we are confident that we can provide standardization advantage from both a representative and clinical laboratory provider to our customer base. Additionally, patients in active surveillance require annual monitoring to confirm that it is still the appropriate pathway. Currently, undergoing annual biopsy is the standard of care, the standard that can be a challenge from both a diagnostic and patient compliance perspective. We are confident that our second test and menu addition, MonitorMDx, will provide quickly actionable information for both clinicians and patients in active surveillance. While I will provide additional view on timing and launch of these menu expansion tests on future calls, we would not expect to deliver AS-MDx, or we would -- I'm sorry, we would expect to deliver AS-MDx in advance of MonitorMDx. We do not anticipate launch of these new tests or an impact on our revenue in 2021, but we are committed to focus in investment and execution of this pipeline, which will make MDxHealth the only company in the prostate cancer space that can take a patient from positive PSA all the way through the diagnostic pathway. So as we look forward, we carry the highest sense of responsibility to our commitment of focus and execution. Please be certain that in the interim, we remain not only engaged but encouraged by the pipeline of customers that we are building through the efforts of our sales and marketing team. And while it is too early to characterize, we believe there is an accumulation or backlog of delayed physician and patient interactions and that future demand will reflect the associated return of flow through our customers' clinical pathway and will contribute to our future growth. While we would expect our Q1 results to be largely in line with Q4 2020, we anticipate our subsequent quarterly results to reflect these efforts. In addition, we will remain focused on urology and prostate cancer and take advantage of growth opportunities through what we now believe is our best-in-class commercial channel. Finally, as noted, we are also confident that we can and will advance coverage of our SelectMDx test and file the same coverage adoption and associated revenue contribution as ConfirmMDx. And while we cannot comment on current follow-up or timing with regard to Medicare coverage, we are and will be advancing our efforts with commercial and private payers in the U.S. Finally, I would like to again communicate very clearly that throughout the coming year, our team will be singularly focused and dedicated to driving sustainable growth of our menu to advance the diagnosis and treatment of prostate cancer and that our commitment to focus and execution will continue to serve as the foundation for growth and value creation for all of our stakeholders, including patients, customers, employees and shareholders. Thank you for your interest in and support of MDxHealth. And Serge, I'll turn the call back over to you if there are any questions.

[Operator Instructions] We'll take our first question from Lenny Van Steenhuyse from KBC Securities.

First question from my side was, if you look at menu expansion and test developments of both AS-MDx and MonitorMDx are positioned in a place in the diagnostic pathway where competition is higher compared to the pre-biopsy setting of Confirm and Select. So I was wondering how do you look at differentiation in this more competitive market, so to speak?

Lenny, thank you. I think I were to answer that with 2 separate comments. One, we agree that AS-MDx has, as I commented, a well-characterized market. Candidly, at the risk of selling competition as a positive, I would represent that we view that as positive, right? We think that, that's a well-characterized market with established reimbursement, and we're confident that we can deliver a diagnostic that will compete favorably with the current offering. And that on the monitor side, we actually believe that we're meeting or will meet an unmet need that there is currently not a great solution, not unlike Confirm for annual monitoring of patients in active surveillance. So we think it's a -- we're very confident that, that menu expansion, again, provides that full diagnostic pathway. And Lenny, I would say that we really believe that there's an advantage to and benefit from being the sole provider of the full menu of test for these patients within a clinical practice and one lab that can take a patient, like I said, from positive PSA all the way through the pathway. Is that helpful?

All right. Yes, very much. And if I may follow-up on that with a more fringe question perhaps. In the past, there was also a mention of the development of a point-of-care version of SelectMDx. So I was wondering if this project is still alive and whether this may or may not become more relevant, let's say, as the LCD comes into play.

Yes. I don't have a specific comment related to that. I think that we're in the process of, I would say, focusing on advancing the best pathway to adoption of our Select test in both the urology setting and potentially in the primary care setting. And I'll provide further context to that going forward. But right now, in our current commercial channel into urology, we view our offering as ideally suited to delivering and driving adoption.

And there are currently no further questions in the queue. [Operator Instructions] And our next question comes from Thomas Vranken from KBC Securities.

Yes. One of the key focuses that were communicated in the past was also to drive up the utilization rate of current tests, in other words, meaning more tests being conducted per practitioner. I was wondering, could you give some more granularity as to how successful MDxHealth has been in this regard? Is there any evolution you can give us in terms of being conducted per practitioner or how this evolved over the past couple of years?

Yes. Thomas, I understand the question. I'll answer it this way that yes, we do track adoption of an associated volumes with our customers. And while we don't currently communicate obviously a metric related to that, when I refer to a clinical pathway, it's -- that's really the term that we use internally and measure to and manage with regard to adoption and that a customer has really adopted it, for lack of a better term, as a compliant way from both the urology provider, pathology and the practice to take a patient through the Select, Confirm and then what we believe will be our active surveillance offering. So you can expect a little more clarity as we go forward there. But right now, what we're seeing is really clear visibility that is taking hold. And it's a really clear refocus and restructuring of our commercial execution in the field from our sales team. So we feel very, very positive about that. And I think, Thomas, we'll be able to provide you a better look at that going forward.

Okay. And then maybe a follow-up question, more on the reimbursement side of things. So we understand that, that reimbursement is, of course, key in the business case for SelectMDx. But reimbursement coverage can, of course, also go beyond Medicare when we're looking to private insurers and other payers. Could you elaborate or give us some more detail on to which extent MDxHealth is focusing on maintaining coverage from those private insurers and then -- and which share of volume they represent at the moment? Is there any insight you can give us on that?

Yes. I think our best proxy for that is Confirm. So we believe there are 2 catalysts for coverage for broad commercial coverage, and that's NCCN guidelines and Medicare coverage. And so it's very clear that we -- if you look at Confirm, there's kind of a normal distribution of coverage across the array of payers. And we think that Select will follow Confirm based on those catalysts, of which we've, for lack of a better term, confirmed NCCN guidelines. We are clearly awaiting Medicare coverage, and then we would expect commercial and private payers to follow. So we are confident that, that provides real leverage into our P&L and results, and we'll look forward to reporting on that as we go forward in the coming quarters.

Now our next question comes from Thomas Guillot from Degroof Petercam.

Okay. Just maybe a follow-up compared to last question. It's regarding the trend that you expect for SelectMDx this year. When you look at the curve of the adoption by private payers for ConfirmMDx, you see, let's say, a stabilized trend between the moment where SelectMDx has been included into the NCCN guidelines, has been covered by the Medicare coverage. Do you expect that SelectMDx will rather pick up this year or will follow a similar trend than ConfirmMDx?

So I guess, I want to make sure I answer your question. I think there's 2 components to the adoption, right? Our volume is a little -- clearly, the pandemic is influencing our volume and adoption, right? So if you normalize, we are -- what we know and what we're confident in -- with our customer base is adopting both Select and Confirm as part of their pathway. What we would expect is, as patient flow returns that, that adoption becomes obvious and evident. And then clearly, coverage coming over our Select test will really follow -- if I understand your question, as I commented to Thomas, it will follow the same, we believe, curve of payer coverage and associated revenue against that volume. So what we've done, we have not made the decision to stop marketing our Select test pending reimbursement. We're very confident that our sales team is focused on presenting our menu of tests as the -- really the gold standard of like the diagnostic pathway. So we're -- that's an investment, obviously, because we carry that cost prior to reimbursement. But we're confident that, that will -- that return on investment will become clear and evident as we go forward with coverage coming over. Did I answer your question, Tom?

Yes, absolutely.

There are no further questions in the queue. This concludes today's Q&A session and conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.

Thank you.