Pacific Edge Limited (PEB) Earnings Call Transcript & Summary

Good day, and welcome to the Pacific Edge Half Year Financial Results Announcement Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. David Darling, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good morning to all of you and to our new shareholders in Australia. This will be an early morning start for you to make the call. So thank you all for joining the call this morning. With me this morning, I have Chris Gallaher, the Chairman of the Board of Directors; Sarah Park, the Chairman of the Audit and Risk Committee; and Grant Gibson, our Chief Financial Officer. Over the last few months, you have heard from us many times as we have concluded our dual listing on the ASX and our capital raise for growth. So I propose to keep today's results presentation quite focused and then answer any questions you have at the end. Please see our disclaimer on Slide 2 that applies to today's presentation. Can we please start on Slide 3? In particular, this has been a very busy 6 months for the Pacific Edge team with some big structural milestones under our belt and good growth and are well challenged by COVID-19. We dual listed on the ASX in September, which provides us with access to a wider pool of investors and the opportunity for further analyst coverage. We successfully concluded a 2-phased capital raise that needed us $103 million of growth capital. The first phase totaled $80 million was completed in September and is included in the half year results. The second phase was the retail offer to existing shareholders, which totaled $23.5 million and will be included in the FY '22 full year results. The capital raise was strongly supported by both you and existing shareholders, and we were pleased to welcome several international reputable funds to our register. The proceeds will enable us to leverage the commercial milestones that we have achieved to date, particularly those achieved in 2020 and to accelerate our growth strategy in all markets. Our goal is to push hard in the United States and to open up commercially in Australia and Southeast Asia. Our strategy is well considered, has been validated and is locked in. We are delivering on it and making good progress, although at times, not necessarily as fast as we would like in this pandemic world. The U.S. remains our biggest market opportunity. However, we are excited by the opportunity that exists in front of us with both Australia and Southeast Asia. The recent changes to the EAU guideline wording for bladder cancer biomarker tests open the door and may make some parts of Europe an exciting opportunity as well. We derive approximately 95% of our revenue from the U.S. at present, and we have been pushing hard to grow our revenue. To that end and as promised, we have grown our sales force by 75% compared to the same time last year. We have staffed 2 new sales territories, up from 19 to 21 and we have added a number of support roles to support our growth. Whilst our direct sales force delivers most of our revenue, we are also focused on gaining institutional adoption of sales added by large health care organizations. Kaiser Permanente is the first of these to be concluded, and we were pleasantly surprised by the earlier-than-planned commercial adoption of a second Cxbladder product. This is testament to the clinical utility of our products and is very positive validation from one of America's largest integrated health care provider and payer organizations. In New Zealand, we have been very successful in targeting the institutional health care providers with more than 70% of New Zealand's population now being covered. We continue our drive to gain 100% population coverage for Cxbladder in contemporaneously to ship each public health care provider on to multiple Cxbladder products. Over 1H '22, we have added a number 2 public health care providers using Cxbladder in their mainstream commercial use. Any outcomes over the last 6 months has been a publication of 2 further clinical papers and the US [ Related ] Journal, The Journal of Urology, both highlighting the increase in clinical utility gained from the use of Cxbladder. The first paper outlines the significant increase in clinical resolution that can be achieved from the combined use of multiple Cxbladder products and the evaluation of a patient presenting to the clinic with hematuria. This is the first time that the clinical benefits of this novel integration of Cxbladder products has been validated. The second paper was a real-world look at in the United States of the use of Cxbladder's patient in-home sampling system, highlighting the benefit of this, particularly in the COVID-19 ceiling. Currently, under analysis is the Singapore study. We have integrated the 5 large public health care providers in Singapore into a single study to provide the Southeast Asian specific [indiscernible] performance. The publication of this evidence is on track for publication in early 2020 -- '22 and will be the trigger for our Southeast Asian commercial launch. Globally, we have seen progressive resurgence of COVID-19, creating restrictions to our access to hospitals, clinics and physicians as the Delta variant spreads. Health care organizations are also moving resources to priority areas to respond to COVID-19, and we have seen this with Kaiser Permanente. This has led us to become creative in how we engage with these customers and how we provide the exposure to them. Their needs have changed. And with the pandemic has become a growing awareness of Cxbladder's ability to help them manage their patients at home, our patient in-home software system, virtual selling to the physicians and the quick adaptation of our people to remote working have proven successful in this constantly evolving environment. While our momentum has been hampered by the COVID environment, our teams have continued to deliver positive progress on key commercial initiatives. This has resulted in a strong uplift in key matrics. Looking at some key elements of our commercial progress in the last 6 months, the inclusion in the CMS' LCD last July enabled reinvestment from the Centers for Medicare and Medicaid services, driving a step change in our revenue and cash receipts. CMS reimbursed tests accounted for 65% of total U.S. commercial test volume during the period. Cxbladder Detect and Cxbladder Monitor, the 2 Cxbladder tests included in the LCD accounted for 95% of the total U.S. commercial test volume. The U.S. remains our primary market and accounted for 81% of our total lab throughput, 81% of commercial test volumes and 93% of operating revenue. We can expect the U.S. to continue to be the most significant portion of our total group performance as U.S. operations and sales are scaled up and as we begin our commercial growth into Australia and Southeast Asia. At the end of the 6 months of 1H '22, we had 28 sales reps up from the 16 that we have -- that have been employed for the most of FY '21. As planned, we will add a further 2 sales reps to join the team by the end of this month. A key part of enabling our growth plans for Kaiser Permanente is the integration of Cxbladder into their patient referral system and electronic medical records. However, this has yet to be concluded and continues to constrain the growth rate expected from this important customer. One of the reasons for this is the reallocation of internal resources due to COVID-19, which I mentioned previously. Despite this, COVID adopted the second Cxbladder product and commercial test [indiscernible] continue to grow. The recent Cxbladder clinical publications supporting the combined use of multiple Cxbladder products will further evolve how urothelial carcinoma is diagnosed and managed, and Cxbladder once again delivering a greatly enriched clinical position for urologists. These papers also provide additional support in favor of inclusion and guidelines and national standards, which remains the key component that will drive more speed adoption of Cxbladder. So looking at our financial results, we have been pleased to see that the momentum in the second half of the last financial year has continued with good growth in test volumes, resulting in increased sales and cash receipts. This is particularly pleasing given the resurgence in COVID-19 restrictions. As the disease and access improves, we expect to see a further positive impact on our business. For the first 6-month period, Pacific Edge reported an uplift in revenue of 66% compared to the first half FY '21, offset by increased costs led by investment into sales and marketing, resulting in a net loss after tax of $9 million, an increase of 27% on the prior comparative period. The recent capital raise of $103.5 million has significantly strengthened the company's balance sheet. As of 30 September 2021, net cash, cash equivalents and short-term deposits were $91.6 million. This excludes the $23.5 million raised in the retail offer, that was completed post period end in October 2021. We saw a strong growth in test numbers compared to the preceding half year. Total laboratory throughput increased 62% on the first half and 24% on the prior 6 months period to total 11,136 tests. Commercial test volumes increased 64% on PCP and 24% on the prior 6-month period to 9,192 tests. Our commercial test volumes accounted for 83% of total laboratory throughput, up from 82% in FY '21. The U.S. continues to maintain its importance in our commercial success, accounting for 81% of both lab throughput and commercial tests. If we look at lab throughput by test type, Cxbladder Detect continues to be the most popular test in the U.S. This is to be expected with [indiscernible] being the first test launched in the United States and also one of the 2 tests included in the LCD. As we grow with Kaiser Permanente, we expect to see a similar test pattern -- test use pattern that is being seen in New Zealand with a dominant -- for both Cxbladder Triage and Cxbladder Monitor, the 2 products that they have adopted. I'll now pass your call to Grant Gibson, our CFO, to discuss revenue growth and expenditure.

Great. Thanks, David. So total revenue for the half year increased 66% to $6.7 million, and this includes gross income. Operating revenue from Cxbladder sales increased by 62% on the first prior comparative period to $5.4 million. This record result reflects the continued positive impact from the commercial milestones achieved in the first half of '21, particularly the LCD inclusion for Cxbladder Monitor and Cxbladder Triage from 1st July 2020 as well as growing adoption in use by urologists and health care organizations. The cash receipts from customers increased 110% to $5.4 million, reflecting the positive impact of cash reimbursement from CMS and increased volumes. Operating expenses increased 41% as we invested for growth and particularly into sales and marketing efforts in the U.S. Our laboratory costs -- our variable costs have increased in line with our test throughput growth. Research and development costs have been lower than budgeted with patient recruitment for our clinical studies hampered by COVID-19. Again, we would expect normal levels to recommence as COVID-19 restrictions are eased. The biggest increase in expense as been from the investments in the sales team with an additional 12 sales reps as well as marketing and support costs. Finally, our general costs are up, mainly as a result of investment in people capability and costs relating to our ASX listing. I'll now hand you back to Dave.

Thank you, Grant. The U.S. market remains a primary focus. And looking forward and beyond FY '22, we expect continued growth despite COVID-19, driven by our big rep sales team, our push into institutional and large national accounts and the start of our commercial journey into Australia and Southeast Asia. Our rest of world markets being New Zealand, Australia and Southeast Asia are markets of strategic importance, and we have commercial plans tailored for execution in each market depending on its commercial maturity. New Zealand have led the world with the adoption of multiple Cxbladder products and has been seen by the global urology community as a new way to improve patient outcomes, whilst lowering the cost of detection and management. The results from the clinical trials in Singapore are on track for publication in early 2022 and will form the basis of our planned commercial rollout in Southeast Asia, which is expected to become a market of scale for Cxbladder over time with an accessible population base [ somewhat there ] United States. In Australia, customers have continued their user programs during FY '21, with the expectation that on successful conclusion that will progress to commercial customers. We have a positive outlook for FY '22 and beyond and are well positioned to capitalize on the opportunities available to our company. The objective for us over FY '22 is to continue the growth of our revenue and increase the relevance of Cxbladder products by putting our products into the hands of physicians to make a difference to patients' outcomes. Our challenge has been to adapt to the new operating environment dictated to us by the global pandemic and our focus in the U.S. is to scale the use of Cxbladder by Kaiser Permanente and other large health care organizations and to grow our direct sales force to drive sales. We will be actively seeking to increase reimbursement coverage for all of our Cxbladder suite of products and achieve a positive shift in guideline inclusion language following the publication of clinical utility evidence for Cxbladder. Our growth momentum over the last 6 months, despite the ongoing headwinds from COVID-19, confirms the validity of our global growth strategy and our market tactics. We have a committed and experienced team with significant funding in place to allow us to scale and to continue to deliver revenue growth and value creation. We are confident in our future and the actions we are taking now are positioning us to accelerate our growth trajectory once COVID-19 restrictions ease. Thank you for your time this morning. I'm going to hand now over to Chris Gallaher, the Chairman of the Board, who'd like to say a few words. Thank you, Chris.

Thanks, Dave. And before we did take questions, I can't let the opportunity go by without acknowledging the contribution of Dave Darling over 19 years in the development of Pacific Edge. This will be Dave's last results presentation, and I'm sure he'll miss this if it goes forward into retirement. But he's leaving the business at a very strong platform to accelerate the growth of the business, particularly in the USA. A particular welcome, as Dave heads off into retirement next year, to Peter Meintjes -- Dr. Peter Meintjes, a newly appointed CEO. We've secured a place for Peter and his family in MIQ, and he will be starting in denizens as the Chief Executive Officer in mid-January. So Dave, on behalf of the board and behalf of investors, I'm sure there'll be more farewells to come, but we couldn't let this opportunity go in by without saying thank you for 19 years of commitment, passion and leading a business in a great place to really drive forward now, particularly into the U.S.

And with that, I will hand over to the moderator to pick up questions.

[Operator Instructions] We'll take our first question from -- go ahead.

That's fine. In the meantime, while we're waiting for people to come online. There's a couple of questions that have come through. So I'll ask the first one. This one is from [ Kevin ]. Can you provide an update on the current status of getting the second and possible third large health care provider in the U.S. in addition to Kaiser Permanente?

Thanks, Grant. Kevin, thank you for the question. Yes, as you all know, we have a large number of institutional and national accounts on our priority list, and we're working with those accounts previously. It's -- we're squeezing them through the pipe towards greater commercial traction and some are using Cxbladder, and we're looking to get them widely instituted in the organization. Some are concluding their user programs. So it's an ongoing process. Yes, it's a significant priority for us. Whilst the current sales reps provide us with the revenue, institutional accounts providers with the hearts and souls and minds of an institution that will commit to the technology. And those accounts require less maintenance from our sales reps on the ground. Hope that answers your question.

Excellent. Thanks, Dave. Another question just come in from [indiscernible]. How much growth are we seeing from Kaiser Permanente despite the delay on the integration?

Kaiser Permanente launched the commercial process in December last year and been progressively rolling out across the organization. The key thing for the organization is to ensure that the user experience from the physicians is top-notch, and that will really only occur when they are able to go into their systems and queue patients straight through to referral for treatment of management, which includes the use of Cxbladder. And then when they go back into that system, they expect to see the results all laid out for them. And until they see that -- and if they don't see that, that detracts from the user experience. So whilst they're growing, we don't expect to see a ramp in growth from Kaiser until they finish the commitment of the resources to integrate the coding to make that happen, but it's promised to us. It's on track, but it's taking us time to get done. Despite that, Kaiser Permanente launched on -- launched their commercial use of Cxbladder Triage which came well ahead of our expectations. So they're loving the products, and they're going well. Thank you.

Great. And the last one, just before we open to questions from the floor. So it's not a question. It's just to thank you from Andrew Ott, and he just wishes to pass on his thanks [indiscernible] for your work over the past 19 years. Thanks, Andrew.

Thanks, Andrew.

At this time, we'll take our first question from -- over the phone from Christian Bell.

I'd just like to firstly acknowledge this as your last call day as CEO, so congratulations. And I'm sure you'll continue to be close by. And then I hope you enjoy the long life with hunting and fishing trip. So I've just got a few questions. So just noting while your quarterly volumes have been increasing, so have the number of sales reps, obviously, so just trying to untangle that. Are you able to please give us a sense of the monthly sales rate for your established base of 16 reps over the past 2 quarters?

Thanks, Christian. That's -- we don't have those numbers with us here on this call. But obviously, when we recruit a new sales rep, they can take usually between 6 and 9 months before they hit the ground and generate any significant sales. So over that period of time, we've had people coming on from [ Demige ] right through to today picking up another 12 people. So they're progressively adding to that pile. So if you get an increase and you've gained some sales from a new person, but you lose some sales from an existing sales rep because one of the key accounts is just closed and they can't get in the door. So you have a lot of to and fro as positives and negatives on that number. But we can talk to you in a follow-up discussion and give you a little bit more color on that, if that's helpful.

Yes, that would be great. So I mean just at a high level, though, would you say that your sort of established core sales reps is probably more responsible for the uplift to date?

Yes. The core guys are the guys that carry the can, so to speak. They are the guys that have got the skilled at. They also have urologists that have adopted the technology and they are the ones that go back to when times are tough. It makes them an easy sales because those urologists continue to place orders, and you can manage them virtually. So it's a lot easier for those existing sales reps to do that. So we're buying ourselves some time for our new sales reps to feel their feet underneath them, to get their accounts up and running and contributing to the bottom line. So we look forward to a strong last quarter of the year.

Okay. Cool. Next question, just volumes for October and obviously, November hasn't finished yet, but I mean, are you still continuing to see sort of monthly -- month-on-month growth?

Yes. So pretty much the same pattern. The ups and downs of COVID and the integration of these people as previously described. With our fear ones from COVID, we're tracking quite well. We're very comfortable with where tracking things.

Okay. Next one. So for the payers that are already paying for Cxbladder, just noting you've got some of the other big names that are paying, but they haven't given a reimbursement coverage decision yet. We've got value in the process, and do you have any idea why some of the other big ones haven't followed UnitedHealth? Yes, are you able to sort of talk to that?

Sure. Yes, that's a tricky one. So these health care providers and the payers generally have their hands full during this COVID window. And so we have no visibility on how they're progressing internally. They have their own internal evaluation teams that carry out their evaluation and provide an outcome that they usually pass on to the market as soon as they have concluded that decision. So we'll just expect to see them when they turn up, Christian. They'll continue to travel through the pipe. It's a very contestable area, a lot of competition out there for an individual person's insurance dollar. And if you can gain an advantage in your insurance plan by having a [indiscernible] better, that's a marketable opportunity. So that provides quite a positive pressure to get these discussions to conclude positively in our way.

Cool. And then just who would be -- are you able to sort of say who would be the most progressed next Kaiser that you've been working with? Who's the most yet the next sort of closed system health care provider, who's the most progressed?

No, you can't really determine who that's going to be because you can be actively engaged with one organization. And then in the background, an organization can be concluding their internal discussions. They can sign up from their tech boards and their medical boards and then all of a sudden through the window, so they can come and make you completely unseen, so to speak. All we know is that we continue to work with them and address their needs. And hopefully, we'll get them through as fast as we can get, we can get them there. Tough question to answer.

Do you sort of expect at least 1 in the next 6 or 12 months or...

Couldn't tell you. But sure, I mean, they could come at any time.

Okay. Cool. And then just one final one for me. Just in the presentation, you said you were expecting to be at 30 reps by the end of November. We're kind of near the end of November now. Is that sort of true now that those 30 reps are operating?

There's a couple in the pipe right now as we speak, on track.

Okay. So we can kind of assume that we will be at 30 by the end of the month?

Correct.

We'll take our next question from Matt Montgomerie with Forsyth Barr.

Can you hear me, Dave?

Yes. Thanks, Matt. I can.

Yes. Firstly, echo Christian's comments and well done on the tenure, Dave. And best of luck for the future. Maybe if I start off with just backing on that last question. So if we take the sort of 30 reps at the end of November, would you expect growth through the remainder of the year? I previously remember that was potentially 30 at the end of FY '22. But if we're there at the end of November, just wondering if you'd expect further growth for the few months?

Yes. Matt, we do expect growth from these people, but what you can't predict is just how quickly they come online and how quickly the sales region that they're in is impacted by COVID. So there's a lot of -- there's quite a bit of confidence interval around expectations there. So yes, the whole goal of bringing them forward was to gain more traction as quickly as possible to bring particularly with these 2 new sales regions take quite a lot more work to get your first urologists up and running. So that's a challenge that we wanted to get on to really and try and get as probably on the track as we can before the final quarter, which will be clearer Thanksgiving, clearer of Christmas. And that last quarter is usually quite a strong one as soon as we get clearer of the Christmas day. Right now, we're in the group of 3 days of holiday for Thanksgiving in the U.S.

And then maybe this was covered in the presentation, but just on the Kaiser systems integration, just wondering if you could shed any light on timing where we could get some sort of completion or clear run and if there's any sort of material contribution in the half from Kaiser?

Yes, Kaiser continued to contribute right from the get-go in December, but we really do need the resources coming back online and we had, at one stage, all 4 of our programmers' release were coding for the integration of our software directly onto their platform. They use an old CMS system and its coding, but they've modified it heavily. And we use a third-party integrator to help us do that with 10 coders at the third-party integrator, and we had about 10 in Kaiser working on it. And Kaiser [indiscernible]. So there's one remaining step is to conclude the small amount of coding that's left. And then the -- as a separate team of people who validate the coding before they will go live as you can appreciate, plugging anything into medical record system that is a challenging event for an organization, particularly one of the scale of Kaiser Permanente. So we are being very patient. We've learned to be very patient with Kaiser. We know we'll win. We know that they love the technology, and technology is doing great things for them. It was great to see them move forward quickly on to triage. Triage is always the initial bottle. They wanted to get to Triage. They wanted Monitor as well because of number of urologists [indiscernible] where the particular challenges lay. And so they started with Monitor and has moved quickly to Triage, so on and up. We just need to get this one event sorted and hold you with. So things are easing on in California. Hopefully, we'll get those resources reallocated to the project, and we'll conclude as time will get [indiscernible].

Great. And then maybe lastly, just on the back payment for the CMS tests, just any insight into conversations around that or any changes there? Or if it's more similar to what we were seeing historically?

Yes, it's just -- it's a long squeeze that one. We've got to be cognizant that we work with both the medical contractor who manages our national relationships and also the national office in order to get this through. So this is technical one too that's -- it's taken a long time. They generally are [indiscernible], but any -- we don't account for this in any way other than if we get some upside there, that would be just icing on the cake. So as you know as we progress whether we have any success there.

And at this time, there are no additional questions over the phone. [Operator Instructions] It appears that we have no additional questions in the queue at this time.

All right. Thank you very much. And I would like to conclude this presentation and discussion session on the 1H '22 results for Pacific Edge. Thank you all for your attendance, and we look forward to talking to you again soon.

Thank you. And that does conclude today's conference. We do you all for your participation. You may now disconnect.