Pacific Edge Limited (PEB) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the First Half Results for Financial Year '24. I'm Dr. Peter Meintjes and with me is CFO, Grant Gibson.

Good morning.

So just an important reminder, we agreed to abide by all the rules on the slide, particularly in regard to our forward-looking statements. So we're going to go through a brief summary of the first half highlights. We're going to have a little reminder around the delivery of our strategy. We'll look at our financial performance. We'll discuss our outlook, and then we'll take questions from the audience. In terms of the highlights for the first half. Importantly, the global testing volumes are up 22% over the first half of '23. Our commercial test volumes are up 24% over the first half of '23, which corresponds to a growth in operating revenue of an increase of 50%. We have continued to make a loss to generate that growth of $15.1 million, and that leaves us with a cash balance of $62.2 million of cash and cash equivalents. So importantly, throughout this half, while we have seen volume growth, it has been tempered by the reorganization late in the second quarter in response to the Novitas draft, but the immediate focus of our business has been on the profitable sales territories, alternative revenue streams and cash preservation rather than top line revenue alone. We have a longer-term focus, an uncompromising focus on the generation of high-quality clinical evidence for guidelines inclusion to give the Cxbladder product coverage certainty. And we have also undertaken a sales messaging emphasis shift to focus more clearly on the clinical value proposition to support the enhanced patient responsibility and the patient assistance program as well as including messaging around the health economics through the publishing of our budget impact model and a focus on strategic accounts. So specifically, this strategy is unchanged. We continue to generate value for shareholders through 3 pillars: adoption, retention and revenue generation as the top pillar, evidence coverage and guidelines is the second pillar and research and innovation as the third pillar. And our results for this half, we have continued to grow despite the headwinds that we see here. Again, restating that the total lab throughput is up 22%, a similar increase in commercial testing volumes and the breakdowns of the various products are shown here for Triage, Detect and Monitor. We do, of course, acknowledge that there is uncertainty facing the business, is for the last several months, we have been aware of Novitas' evidentiary review, which has published its final. And then the final was retired, but then republished a few weeks later on July 27 New Zealand Times. So we then undertook a tremendous ground operation to get physicians who order our tests to submit opinions during the comment period to Novitas. We had a key opinion leader publish an article with their views on bladder test. We had Clinical Advisory Council members from one of the MACs present on behalf of the AUA, LUGPA, and AACU to Novitas and First Coast operations for sister MAC to Novitas. And both the open public meetings, where oral comments are provided and the written comments which Novitas is required to respond to have demonstrated an extraordinary level of support from the urology community, something for which we are very grateful and we believe it can be beneficial to securing a positive outcome. However, this is a largely closed process from here. We are unaware of any progress Novitas is making in terms of finalizing and so the time lines that we outlined here that they must finalize or withdraw the LCD by July 26, 2024, but if they elect to finalize this either in its current form or in any altered form, they can do so at any time during the next few months, but it takes at least 45 days before it can become effective. While the U.S. market remains our #1 priority, and we are continuing to grow in that market, we have devoted some resources to derisking our business by looking for opportunities in other markets. And that was actually something that was ongoing prior to the June news from Novitas. But we have modest levels of activity in Israel, the LATAM countries through our PEDUSA operations. And we are also looking internationally through in the APAC region, where we have signed distribution agreements in Vietnam, the Philippines and Malaysia. So we will look to activate those over the coming months. We have undergone restructuring and redimensioning events in the last quarter that we advised the market we would undertake where the sales territories have reduced from 29 to 17. To ensure the success of our enhanced patient responsibility and patient assistance programs, we've focused in a more detailed way on the clinical value, the economic value and the patient value in the messaging. We've increased the expectations of our sales force, which is not without its challenge, sales territories are larger as a consequence of this change. But we are expecting an increase in throughput per salesperson and also an increase in the throughput per physician and 2 of the metrics we've historically reported to the market. Wherever possible and in an uncompromising fashion, we are accelerating our clinical evidence generation program and focusing on the monitoring of existing studies, which is what we do to ensure that every patient that is enrolled in the study can have their data used in our final analysis is ongoing, is emphasized and is driving us to a rapid completion. That was most notable with STRATA, but continue to be a focus for DRIVE. We have observed in the most recent quarter, a decrease and an impact to our business in terms of the ordering clinicians. Many of those are clinicians who ordered only a few tests. Some were clinicians that ordered multiple tests. But in all cases, as we've gone out and visited the customers who may have reacted to some of the news, we've been able to ensure that those customers remain loyal to at Pacific Edge. So one other milestone that has been long talked about at Pacific Edge was that we have economic value to systems who would adopt Cxbladder at a productized level within their institution. And so we've developed a budget impact model. And we first talked about this at the Annual Shareholder Meeting back in July, and this has become an increasing focus of our messaging as we look to sell to capitated systems, integrated delivery networks and other large customers that would look to establish a defined clinical pathway for Cxbladder across their networks. And it's also very important that the way that we constructed this budget impact model was to compare directly to the AUA guidelines and then to introduce Cxbladder for just one crucial component and that is the risk stratification into high, intermediate and low risk patients for microhematuria. And this messaging is for the health economics component is exactly in line with the protocol that we have proposed for the CREDIBLE clinical utility study. So we are intending to demonstrate that the pathway that has the optimal clinical utility also has the optimal health economic utility for systems and payers. We have continued to grow in New Zealand and while the APAC region makes up a minority of our revenue, it is pleasing that we have had our largest quarter, and that's off the back of growth in New Zealand. A number of small successes here where the Nelson/Marlborough region advised us that they were going to move Triage from being ordered a secondary care to primary care. And we are continuing to work with key opinion leaders in New Zealand with a protocol to utilize Cxbladder nationally, and we'll advise it when we make progress on that. As mentioned earlier, Australia and the Asia Pacific continued to be resourced as areas of future growth, but they are still in business development with modest volumes coming in there, but we are optimistic that they will move out of evaluation through the distributors and into commercial routine. So as we have looked to focus as a business, one of the other things that we can do is ensure that we are operating as efficiently and effectively as possible. While we have had very recent success was the Kaiser EMR implementation. We understand that this can serve as a model for any organization, hopefully, with lower complexity because Kaiser is a very, very large system. The smaller practices can benefit in the same way as Kaiser can from the introduction of EMR. And having got our #1 EMR focus out of the way, we are looking to deploy a customer portal and to standardize EMR integrations with customers, which can dramatically reduce, it can improve the efficiency of ordering and the customer experience. Just to note on the Kaiser EMR rollout, so Kaiser's EMR is called HealthConnect, and we are now live in that interface as of November 14. Initial volume is being sent through that interface to our lab. So it is working. There are 15 facilities in the Southern California region that are eligible to order, and we are working with the folks at Kaiser, who have the most experience from the former ordering pathway, which was in-home sampling only to ensure that all of those physicians continue to order those tests for their patients as they migrate to a new model and then look to expand further across Southern California and then consider using the evidence in Southern California, how we can expand beyond that. And we will continue to update the market as and when appropriate about progress with Kaiser. And so underpinning our future prospects are a migration away from 2 hematuria evaluation product to a single hematuria evaluation product. And so we are focusing very heavily on the clinical evidence generation for Cxbladder Detect. It has improved performance characteristics, and we are continuing in the development stage and analytical validation stage with monitored plots and for improved performance in the surveillance setting as well. Crucial to our long-term success is guidelines inclusion. Our evidence generation program is focused on that. And so just as a reminder, our most relevant guidelines group is the American Neurological Association. However, NCCN is also important. And internationally, the European Association of Urology is also important. The list of our clinical studies is below there in the boxes, but probably more relevant is to move to the next slide and just talk you through our road map. So the STRATA study is now in the data cleaning -- sorry, in the records review and follow-up phase. And as soon as that is complete, we will go into data cleaning and look to close out that study with the publication. Hopefully, that's clear from the road map that you're looking at. DRIVE is also enrolling as fast as possible so that we can move that study to completion as well. One of the key things about those 2 studies is these are legacy studies that were all paper-based. Rather than at the last moment, convert them to digital studies, we are having to complete them on a paper basis. So they are taking a significant amount of effort to wrap up. However, when completed, we'll be able to divert resources that are currently on those studies to the other studies and ensure that those go according to plan. The microDRIVE study is another one that I would never want to miss the opportunity to highlight. The microDRIVE study is pretty special. What you'll notice is that the time frame for execution is very short and the number of patients that we're expecting to enroll is quite high. It's 1,000 patients for that study. And the reason we're able to achieve that kind of rate of enrollment is because we have contracted with a single VA site, that's Veterans Association site. And that site has access to patients within the entirety of the VA system and act kind of like a contract research organization. This allows us to enroll patients literally at a rate that it’s faster than we can monitor them. And we rely quite heavily on that contracted partner for our ability to execute there, but they are very experienced at it. And so we're delighted to have the first patient in and to already be underway with that study. So the time lines for that are very aggressive. As we look at the other future studies, we've got a pooled analysis for the clinical validation of Detect+. We will elect to validate it in 2 populations, which is why you see 2 publications submitted, one on the microhematuria population, which is our primary and one of the gross hematuria which is secondary. The CREDIBLE study is a clinical utility study that compares the current standard of care by the AUA guidelines of risk stratified using clinical factors to the standard of care with Cxbladder implemented to do the risk stratification for you. And that study is now ready to begin pre-activation with all of the various contracting, et cetera. And we hope to get the first patient in by around this time next year. In the surveillance setting, LOBSTER was actually our first fully digital study and first study with the appropriate monitoring resources from the get-go and is enrolling very steadily. And so we're well on track according to these time lines here with the LOBSTER study. And the U.S. clinical utility surveillance study is a proposed study, and we are not yet working on the protocol for that. That's in early discussions, but we expect to have to perform a clinical utility study for surveillance as well according to a defined protocol for optimal guidelines inclusion. So a couple of topics that we have. We've raised in several prior occasions is the importance of the clinical dossier, and we continue to add every new publication on Cxbladder to their clinical dossier, and we use that for submission to NCCN or to know the test. And we also use it to help establish ourselves in new markets. We are amplifying the messages through Podium's presentations and posters on a regular basis at conferences, although the level of activity has been scaled back to ensure appropriate cash conservation. But we continue to work on the publications associated with all of the work that we do and to appropriately communicate our medical data. And we have an active KOL relationship building program, and this helps us with all of the different professional associations, and it helps us with finding appropriate clinical trial sites, and it also helps drive revenue in a commercial sense as well. There was news a couple of months ago, and we made an announcement to the market just to highlight for investors that the FDA is interested in regulating the LDT space. But we also really want to make sure we're appropriately contextualized this for the investment community. And since that time, there's been a number of experts weigh in publicly and so we'll provide this slide as a kind of consensus view of the status quo. Yes, the FDA is interested in regulating LDTs, but they face an enormous number of challenges to do so essentially because the framework in which they would like to regulate it known as the Medical Device Amendments of 1976, is not a very good framework for the regulation of LDT primarily due to the fact that laboratories are not manufacturers and laboratories vary their tests on a regular basis. This has long been recognized. And indeed, the VALID Act was proposed to kind of address both the FDA's concerns and the concerns of the laboratory community. And unfortunately, in the United States, the Congress failed to pass that. Pacific Edge consequently does not support regulation under the Medical Device Amendments of 1976, but Pacific Edge welcomes, and we'll respond appropriately to FDA regulation through an active Congress, but we will continue to prepare for both eventualities. Our third pillar, research and innovation, as described earlier, focused on enhancing our existing product line DNA markers. And so we're working with R&D, digital and lab operations to ensure that we can launch Detect+ in both clinical labs and PEDNZs and PEDUSA. We are looking to simplify the Cxbladder product, which there's no better time to do that with them when you're essentially making it more complicated by adding DNA and RNA in a single workflow that creates a really important opportunity to ensure that they were also looking to simplify in terms of the amount of technician time it uses, how we can lower cost of goods, improve the turnaround time and ultimately increase the number of the throughput and reduce handle time through increased automation. We're going to continue to focus on meeting all of the compliance hurdles that an IVD company would need, and we are continuing to engage with industry and academic researchers on collaborations to identify any unmet clinical needs in bladder cancer diagnosis and management for which we can provide a solution. So I will now turn over to CFO, Grant Gibson, to talk about the financial performance slides.

Great. Thanks, Peter. So some of these figures have been mentioned before, but it's worth highlighting again the strong operating revenue performance, up 50% on the prior year to $13.1 million. And there's also an increase on the second half of last financial year, up 20% on that period. So the driver of that is higher volumes and higher average payment on the tests that we're performing and getting paid for. The composition of our revenue is still largely based out of the Americas with 95% of our revenue derived from that region with APAC delivering another 5% as Peter has mentioned. There is a focus to increase the revenue from outside the Americas. We take a bit of a look deeper into some of the numbers. So in addition to the operating revenue growth, total revenue is also up 22% on the prior year to $16.6 million. It's worth noting that in the first half of 2023, there was an additional $3 million of foreign exchange gain, and that compares to the $700,000 in this half. Operating expenses were up 32% on the first half of '23 and 10% on the second half, so the driver of that is largely headcount. We invested in headcount and additional expertise when we are seeking revenue growth. As we've discussed, we have restructured the sales area in particular, and we expect to see a reduction in that expense for the second half of this financial year. The other components that have had an impact on our expenses has been the legal expenses that we've incurred in combating the Novitas decision and we will see how that progresses. Loss for the year is $15.1 million. And that compares to $10.2 million for the first half, and it's a reduction of $16.9 million in the second half of last financial year. Cash receipts have continued to grow strongly, up to $13.6 million, which is an 86% increase on the prior financial year. We've got a very strong balance sheet with $62.2 million in cash and short term to public. That's a reduction of $15.1 million on the second half of last financial year. And that cash burn is at the same level as the second half of last financial year. We have a bit more of a look at the expenses, the operating expenses. So our lab costs increased 37% period-on-period. That's driven largely by volume increases and also increasing freight costs. Research, as Peter has mentioned, is up 48%, and the driver is one of those pillars that we have discussed and in particular, the commencement of the microDRIVE clinical study. Sales and marketing is up 26% on the prior period, and that's focused on the additional headcount that we have recruited. And as we mentioned, with the restructuring, we're expecting that cost to decrease into the next half of the financial year. Our general and admin cost is up 26% on the prior half. And it's up 6% on the second half of the 2023 financial year. Thank you, Pete.

Thanks, Grant. So as we look to have our first year of ESG reporting, we've put this slide together to remind everyone, of course, firstly, on Pacific Edge is that is a very strongly socially focused business. Our mission is to improve the lives of patients with the diagnostic tools that we develop. And in many cases, some of the things that we developed, we are able to improve healthcare equity outcomes, particularly with things like the in-home sampling system that we've developed and to actually reduce the costs in -- to healthcare payers. We have, from a governance perspective we've integrated oversight of the ESG matters, including carbon reporting into the Audit and Risk Committee Charter. And then regarding New Zealand Climate Standards, we've measured carbon emissions, Scope 1, 2, 3 in FY '23 and positioned to provide base year data in FY '24. We're working closely with advisers to do all of this and developing strategies and policies and evolving our risk management framework to meet those reporting requirements. Within the context of New Zealand and again, just highlighting how we -- how Cxbladder can reach not just the urban centers, but can also reach all the rural communities. We focus on promoting healthcare equity through our in-home sampling and direct-to-patient activities. So finally, as we look forward, Pacific Edge expects to manage the available cash and that is sufficient to support the company even in the event of an adverse Medicare coverage decision through to regaining coverage. The process that may take up to 4 years but with interim coverage attempts with every piece of new evidence. It's important in parallel to remind everyone that we remain a covered test and it remains -- it remains possible that we continue to have coverage with a positive over test decision. So we have -- we refocused the business to appropriately handle that uncertainty. We are focused on clinical development for guidelines inclusion and increased coverage certainty for Detect+ and Monitor+. And we have initiated a selling focus on clinical value as the driver of higher throughput per headcount and higher throughput per clinician. Of course, the headwinds remain -- there is the possibility of non-coverage determination from Novitas on a proposed -- new proposed LCD after following the appropriate procedure. There's also a possible negative physician or patient response to the enhanced patient responsibility for commercially insured patients, which has been active for a couple of months now. But there are also catalysts for our business, and it remains particularly possible that we retain our coverage after Novitas have reviewed our responses to their comments and after they have followed the appropriate procedure. It is -- as mentioned earlier, we are -- we have New Zealand KOLs that have submitted Cxbladder as a proposed clinical pathway for a national implementation safe product. And there is always the possibility that clinicians that we have been working with for some time will be generating clinical utility evidence that we are not currently aware of and they may elect to publish that on their own, independently about. And that, of course, could be a catalyst supporting the adoption of Cxbladder. In summary, we have world-leading technology. We have a strong balance sheet, and we are effectively navigating the headwinds that we -- that have come our way, and we are establishing a foothold in new markets as well. So thank you, everyone, for listening in. We are now happy to take questions.

[Operator Instructions] And your first question comes from the line of Matt Montgomerie from Forsyth Barr.

I'd like to start on the cost base. I know it's a sensitive talk, but I was just wondering if you could provide a little bit more detail around the exit run rate in the cost base because as you pointed out in your release, restructuring changes were only made late in the quarter. So I'm just wondering if you just give us a feel for where sort of the true basis now in the cost base. And if you think there's further scope for more?

So Matt, I mean, the slide I would guide you to is where we have reduced from 29 sales territories to 17. That's the primary area where there's been the reduction. The -- it is also important to remember, even though it was -- there was a reduction in force there. There was also a reallocation of resources to focus on the generation of clinical evidence. And so where it was appropriate that we had someone who could help the clinical evidence generation side in terms of site monitoring and so forth, we elected to shift headcount from one area of business to another. And in some cases, we have continued to add headcount in a small capacity to ensure that we can stick to those aggressive timelines for clinical evidence development. But that's specifically the best slide to guide you. And that's probably all we can say at this point.

I appreciate all that, but I think just to correction my question is on the basis of the LCD not proceeding, which is, I guess, in essence, how you've orientated the business, not necessarily that's going to take place. But where do you think the cost base on an annualized basis would bottom -- would something like $40 million feel appropriate in terms of building up the cash burn trajectory from here? Because I know you've got guidance essentially for the cash burn.

Yes, look, Matt, we're thinking about this in terms of the 4-year time horizon. And we are, of course, modeling through scenarios. So right now, we are modeled for coverage uncertainty. We are not modeled for loss of coverage. And I think we've been -- we've established that with the market. So in the event of a loss of coverage, there are additional steps that we would need to take to ensure the 4-year year runway is maintained. But so we essentially keep 2 plans for everything so that we get coverage certainty positively, and we get coverage certainty negatively. And in both of those scenarios, we expect to be able to manage our cash over the 4 years until we have regained coverage for the Detect+ and Monitor+.

Okay. That's good. I was just wondering as part of the EMR or the EMR integration with Kaiser, the sense I've got -- is that potentially renegotiations with Kaiser potentially with respect to pricing alongside maybe more volume commitment? Are you able just to comment on sort of the implications of potential renegotiations that have taken place?

No. So obviously, those negotiations are confidential, and we hope that our colleagues at Kaiser will maintain the same levels of confidentiality that we will. What we are comfortable with having the market understand because this is just a normal business practice to help drive the rollout. There is -- we will incorporate into the contract the concept of discounting associated with volume, but we would not comment beyond that. But comfortable for your models, Matt, I think it's important that right now, you should stick to what you understand today about the Kaiser model. The volume increase hasn't occurred yet. That is something that we will work on over the coming months. And we've done our best to negotiate an outcome that is good for both Kaiser and us. But importantly, recognizing some of the other comments that you may be aware of from the folks at Kaiser is that our product, even at its current price, already saves their system money that there were not mine. And as a consequence, even though we are in discussions around the level of discounting associated with volume we already know that we save them money. So I think you can use that as you think about how steep those discounts might be.

Great. That's good color. Maybe just one more in terms of pricing per billable test was quite a robust number in the half. Are you able just to comment on where specifically you're seeing the uptake? I'm assuming it's sort of in the other U.S. bucket and you're able to sort of drive more billable test throughput?

Yes, I can touch on that, Matt. So one of the changes that we've seen in the last year, of course, is the addition of Triage into the payment by Medicare. So we're now getting paid on that where previously we weren't. We have seen a general uptick in the amount we're getting paid and the frequency, the success that we are getting paid as an increase in our clinical data comes out and more awareness amongst all the payers. The other component we have started to see the changes that we talked about in that July-August period, where we are starting to see an impact from our patient pay. So that is beginning to be seen. It's still late in the half that we're actually beginning to see that, but that is beginning to have an impact on our average revenue per test. So those are the 3 things that are really driving that increase. The other thing to note really is that the FX has had very little impact on the revenue half on half on half. So it's a real driver as the average increased price per test.

Your next question comes from the line of Rob Morrison from Craigs Investment Partners.

Congratulations on some good revenue growth, especially given what must have been a pretty tough final quarter. So kicking off with Kaiser so from what Matt said as well, so now there's an EMR -- your is in place, will volumes just start to run naturally on their own or do we like or ramp well on their own or do we have to wait for the implementation of a contract to expect that?

We are not waiting on any other elements of this process to ramp. The limiting factor for the ramp was the EMR. So that is now available to us. But as you can imagine, it is not a light switch. It requires education, but we can also say that education of Kaiser physicians has been ongoing prior to this. As you may remember, we were -- we've been forecasting that this is in the works for quite some time, and Kaiser have known the exact same thing internally. And so they are preparing for this. But yes, it's not a light switch -- and Kaiser intends to drive the education of their own physicians on this. But as with any project of this nature, I think it is important to sort of proceed with caution. And so right now, everything is working from a technical standpoint, we need to start to drive adoption. But very, very soon after we've seen adoption in this new framework, we need to revisit. And we just do this as part of standard account management. We go in and we set a clinical review with the -- are you -- firstly, are you actually implementing it the way you said you would? And if you are implementing it the way you said you are you seeing the changes that you expected to see. So that -- we're going to set a review point for [indiscernible] obviously, we're not going to be disclosing that, but we will have a review with Kaiser to see how they're tracking against their own expectations and against our expectations. And that's just good account management. But also, I just want to make it clear, we're not going to be reporting on Kaiser progress separately in any kind of quantitative fashion. The Kaiser throughput will be something that we expect to report in our total throughput numbers.

Okay. Okay. Got it. Yes. So the rate limiting step has been eliminated and now we can focus on ramping things up. Speaking of that actually, so Novitas, I understand that you're in the part of the process where Novitas won't really speak to anyone. But I think it was previously mentioned that an important bottleneck for them is that they have to reply to all comments submitted over the comment period, and therefore, they can't make a decision before that. So first of all, do you know if they've finished replying toward those comments? And then secondly, I believe Kaiser presented some data to them. Do you know if that changed their thinking at all?

So maybe I'll answer the second one first. No, we don't know if they changed their thinking at all. They haven't corresponded with us. But the way that they respond to the comments and this is important is they write what another type of LCA, Local Coverage Article. It is a type of local coverage article that is called a response to comments article. And in that, they basically have a table and they say something like, and you can actually see the one from -- that was co-published on June 2 U.S. time from the last version that went final. They responded to the comments they have received. We received 14 comments about the Cxbladder product and we agreed that it -- or we disagreed that it should be covered and that kind of thing. So they can be very general in how they respond to the comment or they can be very specific in how they respond to the comment. And there is no hard requirement on whether they are specific or generic that just is a requirement that they respond to every comment. So they may collate and say we received 17 letters of outlining to us that the male bias and Pacific Edge studies is not appropriate, and we agree that male bias and the study is actually not appropriate -- sorry, not an appropriate criticism because, of course, they're studying the male bias because the incidence of bladder cancer is male biased. So that's how the response to comments would come. And so everyone would become aware of it at exactly the same time. It will be published through the CMS reporter coverage database.

Okay. And sorry so have they made their way through all those comments yet such that they can make a decision soon.

There's absolutely another way for us to tell and yes.

Okay, sweet. And sorry, I'll just slip a final one in. So test volumes because I understand second quarter was pretty tough, right? Because from what I see, it seems like you had a month that where you thought you would have lost coverage, right? So I imagine there was some confusion with customers and perhaps more importantly, you're reorganizing the sales force. Can you talk about how 3Q volumes are looking to-date or if you kind if you don't want to, then, perhaps you could comment on what exit rates were doing at the end of 2Q in terms of volumes?

So yes, we're not going to make any comment on Q3 volumes. So that will come in January. But maybe I'll just try to give a reasonable degree of color here. The sales force are at the front line of these kinds of things. They have had to combat messaging with customers where customers tell them, oh, so we've heard you've lost Medicare coverage, and we say, no, that was proposed, and we are still a Medicare-approved test. They have to deal with that stuff at the front line. But we've equipped them to do so. But that is an addition -- when we talk about the headwinds that we're facing with our team on the ground, those are the kinds of things that they have to address. Similarly, if there is a -- if there are other vendors out there selling cystoscopy products or single biomarker urinary biomarkers for bladder cancer. They may also want to promote their test and are happy to spread rumors. So these are just, in my view, these are very ordinary things for us to combat but they do manifest in depressed numbers and we just have to combat it with time. It's also fair to say that the pivot that we have undertaken -- from a messaging standpoint to really stress the value of Cxbladder in terms of risk stratification is something that -- and I think you've published extensively on this in your work, Rob, is that our customers are often using it adjunctively. So to convince them that adjunctively is not the appropriate way to use our tests and that they should be using it for risk stratification purposes and that works outside the Kaiser system that is going to potentially have some short-term consequences. But it is one of the most important things that we can do as a business because if we are driving genuine behavior change in our position, that's when we'll see sticky customers. That's when we'll see growth in throughput per ordering position. And so -- but those -- navigating that kind of messaging pivot in the United States while facing all these other headwinds is a 12-month project, 12-month campaign.

[Operator Instructions] And your next question comes from the line of Christian Bell from Jarden.

First question from me. Can you talk about the 2 scenarios, coverage uncertainty and loss of coverage, again, combine with the fact that you think of the special cash reserves in both scenarios. Are you able to just please talk to like what kind of volumes are underpinning that like after the debt on the in the second quarter, you obviously think that was one-off and you speak a U- or V-shaped recovery? And then how does that sort of change in the case where you actually lose Medicare cover?

So I might actually just use your metaphor there, Christian. So we're obviously doing everything that we can to make it a V-shape recovery rather than a U-shape recovery because that's only going to happen through active leadership and active management. So that's our focus. But at this stage either of them are possible. But we are doing everything that we can to have our sales reps out there meeting the physicians that they don't know in their larger territories, getting underway with that, calling on the IDNs and other strategic accounts as a matter of practice through our national accounts team. So all of those things are in flight, but you can -- yes, I don't think we can guarantee a V-shaped rebound, but that is what we are working towards.

And how does that change though in the case you actually in coverage and the patient becomes more responsible for making payments themselves like how does your thinking change this?

So there's a sense in which our thinking doesn't change at all, and that is because our priorities don't change. Our priorities are that we will restructure as necessary to ensure that we have profitable territory. There are obviously a different set of underlying assumptions in the event that we have to provide ABN to customers to be able to build for Medicare patients who would get denied on the basis that it's not a Medicare covered test. I think some of that information we put into the market back in June when we were first confronted with this situation. But we -- to try to answer the question a little better we are prepared for both of those eventualities with a different set of underlying assumptions regarding revenue, throughput and ASP. The hardest one to predict is actually the impact that it will have on throughput. And again, we've acknowledged that in our outlook slide.

And you have to just please give some color as to how -- your sort of recovery profiles on Kaiser, like I know you're not going give numbers, but is it a majority, a minority of sort of throughput and the recovery part?

Look, it's too early to say. But Kaiser remains an important component of Pacific Edge's future and how we drive that -- so how we drive adoption through the hospitals in Southern California and then extend that through to Northern California and all of the Kaiser system -- those are all priorities for us as a business. And while there would need to be additional business cases and additional EMR development, having an actual example of a system is within Kaiser that is already executing is the best possible business case. So we put our best foot forward with the focus in SoCal. And if this demonstrates to Kaiser, what we expected to, we will -- that will be how we -- leveraging that is how we move into the other areas of the Kaiser system. So we're laser-focused on the Southern California opportunity.

Okay. And then just on the sales reps, you've gone from 29 [indiscernible]. What is it actually in terms of sales reps numbers? You were 37 in March, I think. So what is that now? And the event of loss of coverage, what do you expect that to go through.

Yes. So we have historically reported on what that means in terms of direct headcount. And right now, we are talking about the 17 territories, which -- each of which would have an account executive. We are talking about 2 regional sales directors who -- we are talking about 3 national account managers, one of which is focused exclusively on the veterans' administration and of course, leading that organization as a VP, and we also have 4 people in the virtual team.

So that's 22 in direct and 4 in the support team if we use like-for-like compare to what you guys did?

That sounds right. That's right.

So that would lead you to -- what do you see this to sort of go down on the loss of coverage side? How much more would you cut?

Sorry, Christian, it's a bit hard to hear you on this line, but you're saying how much more would we cut in the event of a loss of coverage?

Yes, that's right.

Obviously, we would not disclose that information. And again, our priorities remain unchanged. Our priorities are that we have to be able to establish profitable territories.

That does conclude our phone Q&A session. I'd like to hand back to the team for any online questions.

Great. Thank you. There's no further questions coming through online. So the phone calls have done a good job there. That wraps up the conversation.

Yes, thank you very much, everyone, for listening in. We'll have more results in January.

Thank you, everyone.