Pacific Edge Limited (PEB) Earnings Call Transcript & Summary

Good morning, everybody. My name is Peter Meintjes, Chief Executive Officer of Pacific Edge, and welcome to our FY '24 financial results. On the call and in the room with me is my CFO, Grant Gibson; and remotely available for questions are Chairman, Chris Gallaher; and Director, Sarah Park. Please take note of the disclaimer, as everything we say today is subject to this important notice and disclaimer. So we're going to walk through a quick agenda here and look through some of the highlights of FY '24. We're going to look at what we've been doing from a strategic delivery standpoint, our financial performance, ESG and outlook. And number 5, we'll take some questions at the end. So starting with the highlights. Over the last year, we have seen a 3% increase in global testing volumes. We have seen an increase in -- of 22% in the operating revenue over FY '23. This has resulted in a net loss after tax of $29.5 million. But importantly, we want to highlight for investors that the first half and the second half were dramatically different as we have responded to the uncertainty from Novitas and that there is a -- has been a drop in monthly cash burn in the second half compared to the first half of 24%, leaving us with $50.3 million cash and cash equivalents. But as we've gone through the year, we have refocused the business on the clinical development of Detect+ and Monitor+. We'll talk about that in more detail through the deck. We have recently published the clinical utility of Cxbladder Triage from the STRATA study that we were running in The Journal of Urology and presented in a paradigm shifting session at the AUA 2024. In August, we did restructure our commercial operations. We focused on profitable territories and on non-Medicare revenue streams. And we have reduced the average monthly cash burn by 24%. We have improved cash collections, and this is something we provided more detail of to investors than we have previously, with an average sales price increasing by 18% in the current half over the second half in '23. We have adjusted our sales messaging with renewed focus on the clinical and economic value of Cxbladder and we are well prepared for all outcomes; awaiting a decision on Medicare coverage. Just as a brief reminder to all of our investors is how we create value. So we are focused on adoption, retention and revenue generation in the immediate and short term. Longer term, we are focused on evidence generation, coverage and guidelines. And long term, we are focused on research, development and innovation to drive value for investors. Our results have shown that we have -- growth has slowed in the second half and with the draft proposed by Medicare. But overall, there is a 3% increase to 32,633 tests, therefore, the total laboratory throughput for the year. And we show here how that has changed between FY '20 and FY '24 being relatively flat with 3% growth. We've also broken it down by test type to show the breakdown between Triage, Detect and Monitor. And we've also shown not just the total tests but also the commercial test, which are the ones that we're able to bill for. The second half has been characterized by capital preservation and looking for new revenue sources, and this has provided us with some level of resilience. So we've demonstrated that we are committed to maintaining a strong balance sheet, and we are continuing to manage cash carefully. We are also -- we have had a strategic response to the proposal from Novitas to the draft and we introduced what's called the enhanced patient responsibility, where we've asked patients to pay for some fraction of the test in the situation where their insurer declines to pay for the coverage. We've also had a deeper focus on value-based and institutional accounts, most notably, of course, Kaiser. We've refocused our clinical evidence development program to deliver on the outputs and the endpoints that are needed for coverage and guidelines to ultimately establish coverage certainty, the best example being the rapid acceleration of STRATA. We continue to look for ex U.S. opportunities, though we do advise investors that these are still in business development and a relatively small where they are in the Middle East and Israel, the Latin American countries or indeed through our operations in Southeast Asia where we are largely working through distributors. So the foundations for growth are through our U.S. sales. And we have, through the course of the second half -- so well, firstly, we reduced our sales force in August. But subsequently, we did -- we adopted a policy of not backfilling sales reps as we look to conserve cash because it takes a while to train new sales staff. And with the uncertainty, the length of time it takes to train new sales staff, the trade-off was not there. So we adopted a position of not backfilling, which has resulted in the sales force actually becoming more efficient on a test per head count basis. There are some other consequences associated with that. Sales territories are larger and more challenging for our reps. But our focus has been on the larger and more reliable accounts and scaling volume within those accounts. We've also, again, echoing my point from earlier, we've focused very strongly on communicating the clinical value and the economic value associated with risk stratifying patients to reduce the number of cystoscopies. So this slide is -- includes some new information or relatively new information. The top sales force efficiency graph was published in the quarterly shareholder report in April. But what we're showing here is, as the number of sales FTEs have been reduced, we -- and we continue to focus on cash preservation that we're actually able to demonstrate a form of sales force efficiency, and that is actually up 59% over the same period. So we anticipate that given this is a novel analysis shared with investors that there may be some questions on this, but we view this as an overall positive given the situation that we are navigating. Another important metric that we direct investor attention to is the improvement in the average sales price. And as you know, we collect revenue from insurers. In many cases, the insurance companies pay and they are reliable. And in other situations, they do decline and we have to appeal to get paid for our tests. In some cases, when the appeals have been exhausted, we now are electing to bill patients through an enhanced patient responsibility and that manifests in an increased average sales price. We've also increased the utilization of appropriate patient types from the Kaiser Permanente population, which increases the proportion of Kaiser in our overall mix, which positively affects the ASP. And we have received Medicare investment for Triage since January 2023, which improves that as well. And in terms of appealing when denied by typically Medicare Advantage payers, having medical necessity documentation and improving that element of our business operation also has been paying dividends. So while overall throughput and overall revenue is down, the efficiency of our operations as demonstrated through ASP has been improving. When we talk about selling the value, the clinical and economic value of Cxbladder, we're really wanting to highlight one critical thing. And that's that for 100 patients that may present to their physician with microhematuria, only 5% of those are likely to actually have cancer. And as a consequence, there's a large number of cystoscopies that are being done on patients that are -- that don't have cancer. And in most cases, these can be safely avoided. However, the current guidelines do say that all of those patients should receive a cystoscopy. By integrating Cxbladder, you can reduce the number of cystoscopies to find the same number of patients and so only performing 22 cystoscopies to find the same 5 cancer based on the rule out rate published for the Detect test. What this results in from an economic standpoint is that it is an average of $500 of savings to the payer component or to the hospital system of $500 per test using national average data as published in our budget impact model, again, something that we are quite proud of. We continue to drive activity in the Asia Pacific, and we continue to consolidate in New Zealand. And so one of the things -- the trends that's pleasing here in our effort to be -- to operate more profitably and with a longer-term view, we've reduced the number of evaluations and spent quite a bit of time migrating our customer base over from either free evaluations or medium-term trials over to commercial volume. And so you can actually see an uptick there from the first half to the second half, increasing the commercial test and, of course, the percentage of commercial tests out of the total number of tests. We continue to strengthen our operations from the inside, while there are these external forces that we can't control. And we have focused on electronic medical record integration, specifically at Kaiser. We are developing a customer portal, which we hope to be able to deployed to customers in the next couple of quarters. And we've improved our internal lab operations and customer service teams with a range of performance excellence programs that specifically look at detailed -- highly detailed KPIs that we manage them to -- in an effort to improve the systems across the board. The most important digital achievement, I think, of the last year was, of course, our EMR integration at Kaiser and that did go live in November, and we have continued to update the markets in modest ways about that -- about the progress and about what that change means. We think it's very important that we don't distill out for investors the performance of a single customer. So we don't -- we take an approach that we won't break down the specific throughput of revenue associated with Kaiser Permanente. However, we do also think it is important for investors to understand qualitatively that this has been a highly meaningful change inside the Kaiser system. Instead of patients receiving a kit in their own home, from using the in-home sampling system, they now provide a urine sample when they visit a Kaiser physician. They are -- Kaiser manages the inventory across the 15 sites for us, which we consider to be a great operational improvement. All 15 sites across Southern California are now ordering and the volumes are increasing at all of those sites. There are regular meetings of the chiefs of those sites where Cxbladder adoption is a key discussion point. And in something of a unique opportunity within the context of the Kaiser system, Pacific Edge staff have been included on some of those calls to help answer questions for any of the sites that may be adopting more slowly. And so the opportunity, overall, for Southern California is quite significant. Southern California represents about 37% of the 12.6 members covered by Kaiser Permanente, and we are continuing to work with the regional chiefs of Northern California, Mid-Atlantic and all of the other regions within Kaiser to grow beyond this. But we are not yet ready to inform the market of time frames for those rollouts. We believe that the best evidence that we can provide the remaining sites of the Kaiser system is the successful rollout in Southern California that delivers the value that we have proposed and that the folks at Kaiser that implemented have established with their institution. So as we demonstrate that to them with their own data, that's going to be the strongest and most expedient path forward to other Kaiser locations. From a research development and innovation standpoint, we have offered products in hematuria evaluation and in surveillance for quite some time. These products have served us well, but we have continued to invest in better performing products. And the first publication on Detect+ was back in, I think, December of '22 where we highlighted improved performance. In fact, we highlighted that the performance was so good it would replace the value proposition of Triage because it is the best rollout test, it has the highest NPV and it would be the best Detect test, which has the highest sensitivity and highest PPV. So we've reduced the need -- we've reduced the confusion when we need only a single product for hematuria evaluation that we will be able to use with our customers for that value proposition. While we haven't commented publicly about the road map for Monitor+, we will be extending those DNA markers to the Monitor product and taking -- and developing a Monitor+ product that we also expect to have some improved performance. And as and when we achieve those milestones, we'll advise the market. So another really important element of our future is -- for Detect+ is the price that Medicare may pay for this test. As you know, we currently enjoy a price of $760 for our RNA-only test. And as we've added the DNA markers, we've got Detect+ a new code and we will be attending the pricing meeting on June 25 to establish a new price for Detect+. In the last quarterly update, we gave a description as to what that process looks like inside Medicare. It's largely a mechanical process where they look at the resource utilization required to run the first test. They look at the resource utilization to run the DNA component of the test. And we are expecting that they will add those 2 together to determine the new price of a test. We're not yet able to guess for the market what that price will be. But we are anticipating that we will enjoy a higher price and a higher margin for that test and we will know sometime in the next -- or sometime within 3 months of that meeting, the market is typically advised of the results of that meeting. Of course, the question I have received most regularly over the last 2 years relates to our coverage position with Novitas. And importantly, Pacific Edge has -- well, Cxbladder has remained the covered test in all forms over the last 2 years since the proposals and drafts for genetic testing for oncology have been around from Novitas. We have continued to keep investors informed through the quarterly shareholder reports. But the most important thing that we can communicate here is that there has been very strong opposition from our community and very strong support for us as a company and diagnostic -- sorry, urine-based diagnostic tests in general. We have been able to channel that support into the appropriate feedback mechanisms after getting the draft -- sorry, the final version turned into a draft again in July, going through an appropriate notice and comment period. We've undertaken additional meetings with Novitas and with Medicare. So in November, we met with Medicare and Medicare requested that Novitas meet with us in January, and Medicare were part of that call as well. And Medicare asked us -- or sorry, asked Novitas to consider those meetings and the associated presentations to be part of the official comment record, which, again, does not guarantee any result but does guarantee that we are being taken seriously. We have, I think, the note is on a different slide, but we have, as a consequence of publishing Strata and even though it is outside of the comment period window, we have informed Novitas of the STRATA clinical trial, so they are aware of that information as well. Either way, we expect to know a result by the 26th of July this year. And if we do not hear from Novitas a final decision, the proposal will expire and the status quo will continue. So our strategic responses to the Medicare determination, if we get an affirmation of coverage, we expect -- we have plans in place for all outcomes, but we need to look at the specific text, what it means for our current products, what it means for our future products and look at the appropriate way to grow again. Pacific Edge is a growth story. And so we would expect to return to growth on affirmation of coverage and we would make those decisions following a strategic review of plans that are already in place. In the loss of coverage, we would explore all of our legal options. We would extend our enhanced patient responsibility to patients who have Medicare Advantage and Medicare, and we would further review the structure of our operations to reduce our cash burn and preserve capital in line with the existing times we have made to the market. And we will continue to explore all of the other strategic alternatives that could support the company through to regaining Medicare coverage and advancing the commercialization of Cxbladder globally. Long term, it's important to remember that our focus is on clinical evidence generation. We do continue to work towards AUA guidelines inclusion for all of our products. NCCN only has post-diagnosis guidelines. So Monitor is the only appropriate product there. but we continue to work for Monitor being included in NCCN guidelines as well. And we continue to invest in medical affairs and the digitalization initiatives that will enable clinicians who continue to order Cxbladder to follow clinical pathways on all appropriate patient types. So we wanted to highlight for investors, we've used this slide a number of times before, but -- about the process that the AUA and the NCCN and EAU follow. So NCCN and EAU have annual revisions to their guidelines. And with NCCN, we make a submission based on new evidence, and we ask them to revise their guidelines because they don't cover hematuria evaluation. We don't expect that they will accept the evidence from the STRATA clinical trial that's recently been published, but future evidence for Monitor, we expect to submit in that forum. The EAU do their own work without submission, and they publish guidelines around March every year, and there have been some updates to the guidelines, let's say, that biomarkers may have value in the initial evaluation of hematuria, which is new, they have previously only said that biomarkers may have value in the surveillance setting. So that is while the EAU is not generally recognized in the United States, it is obviously recognized in Europe. And while we don't currently operate in Europe, but it's still important to understand progress that we are making in those guidelines. The one that matters the most for us, the most consequential, of course, is the American Neurological Association. And we want to highlight for investors that the AUA have made amendments to non-muscle invasive bladder cancer to guidelines where they -- in January after reviewing the literature and they gave Cxbladder a mention by name in the Future Directions section. So that is not a guidelines inclusion, but it is a promising technology to watch. And we view that as generally a positive sign that when we are able to publish more information on monitor the guidelines committee at AUA will be looking to see whether they can adopt. So STRATA was published. The paper itself went live during the session and that is shown here on screen, featuring Dr. Lotan. But I wanted to just give a small digression because it's not just about the results that we've achieved here today or that we have achieved that we can now go and talk about. It's also about how the Pacific Edge team created this result. And this result involved -- the clinical research associates has been for 6 weeks traveling pretty much nonstop around the United States to pick up all the CRFs that were necessary to accelerate this time line because the AUA notified us in January to say, hey, if you can turn your abstract into a full manuscript that they would put it on a path for expedited review. And so to be able to accelerate a study by 9 months is an extraordinary feat and one that I'm delighted that my Chief Medical Officer, Tamer Aboushwareb, spearheaded. But he got the entire clinical science team and medical affairs team to work above and beyond in terms of number of hours per week, days spent away from one's family, to deliver this result in a time frame that was really quite close to impossible. Nonetheless, we did it, and we managed to get a peer-reviewed -- manuscript ready for the peer review process by the 29th of February and then we had to wait until that was ultimately published and accepted. So moving on to what the result actually was. So we have demonstrated for the first time in a randomized clinical trial that a Cxbladder product, specifically Triage, can safely reduce cystoscopies by up to 59% when that Triage result is shown to a physician. That is a tremendous result that responds to any question when we ask a physician, would you defer a cystoscopy or avoid a cystoscopy for this patient and they respond back, where is the evidence for that. And so the evidence is now here, it's unequivocal and that overcomes a major sales objection, and we are very proud of that achievement. Nonetheless, the hard work is still ahead of us because we have to communicate this to the market through our sales teams, through our medical affairs team, but the result itself is fantastic. As noted on an earlier slide, we have submitted that publication to Novitas. We have included this in our clinical dossier, which we have -- which we use to discuss with hospitals and strategic accounts and payers. And we are also using the data that was brought in quickly. We are able to use data from STRATA to further improve the Detect+ algorithm for the clinical launch when it is ready. Our first opportunity to promote the STRATA paper was at the AUA, and we had a great brand presence there. We have largely cut back on marketing expenses, but we also wanted to share with investors that where we can take innovative approaches to getting Cxbladder in front of the eyeballs of urologists, we do so. And we have very high-quality marketing and we leverage the opportunity to advertise on elevators in the main hotels associated with the conference in both of them. We also had the opportunity to present at a veterans association specific meeting, sub meeting. And we have a number of micro meetings in meeting rooms with key accounts, folks who are doing clinical studies with us and other business development opportunities, maximizing the away-from-booth value being at a conference as well. One of the narratives that we have been very keen to foster is around our catalysts for coverage certainty. And so here, we have listed, obviously, all of the publications that we see coming and to the best of our ability, when we expect they will be published. And of course, what type of evidence they are. And as a consequence of what type of evidence they are, you can then make your own assessments about our ability to secure coverage on those bases. So STRATA is the clinical utility evidence of Triage. The clinical utility evidence is obviously something that is critical to Guidelines Committee. Historically, it is -- the clinical utility has not been critical for the purposes of coverage. But the -- one of the important features of the STRATA study is that it also validates the performance characteristics of Cxbladder Triage in a novel population compared to all prior studies. So I won't go through all of the individual studies here, but this is to highlight that we have a road map of key events that can catalyze us to either a more robust version of coverage or re-coverage in the event that we do lose coverage from Novitas. Importantly, I want to point out the Kaiser Permanente real-world evidence publication. So we work very closely with Kaiser. We do not govern this time frame. But because of our close partnership, and their desire to be seen as leaders in this area, we have a reasonable degree of confidence that, that can -- that publication can be used for a reconsideration request in Q2 2025. We also wanted to highlight just a high-level theme in our industry is that the FDA has published its final rule to regulate lab-developed tests and also that Pacific Edge is prepared for all of this. The final rule was published on April 29, asserting that they have the right to regulate Cxbladder and other medical -- and other LDTs as medical devices under the act from 1976. What that final rule proposed was that there is enforcement discretion for premarket approval for currently marketed tests and those that are New York State accredited. So we are currently marketed test and we are New York State accredited, meaning that we expect to receive enforcement discretion. New Cxbladder tests may be required to follow the steps of the phaseout but currently pose no risk to our Detect+ launch plans. And while we welcome regulation, we actually do believe that this proposal from the FDA is wrong, that it does not foster the right approach for laboratory-developed tests. And we prefer that the FDA find the path to creating the regulatory framework that it needs to regulate the LDT industry through an act of Congress. Regardless of our position, we are prepared, and we are already adapting. And I think it's important to kind of establish the -- how much more does Pacific Edge need to do to meet the requirements of the FDA. And because the -- I think the immediate reaction from a number of investors that there's quite a considerable increase. And the reality is that's not the case. We work in a highly regulated environment already where we are compliant with clear cap, New York State. We are already underway with introducing ISO 13485, which is an IBD standard, for our urine sampling system, our collection device in the New Zealand lab, and it is an incremental gain to add new requirements to an existing quality management system that we have. So we believe we are prepared and we will continue to comply with any FDA changes. We do believe that the FDA will face some legal challenges, though those have not eventuated yet, and we do expect that some of these time lines will be adjusted. But we are actively resourcing all of our departments to be able to comply with all of these regulations, and we'll continue to do so. So as we're ready for the launch of our new Detect, the launch for Monitor is further away, we need to ensure that we have the digital and lab operations that can support that. We also are working to simplify Cxbladder, and that is an aim -- there's several aims associated with Cxbladder simplification, but to reduce technician time, lower cost of goods, lower turnaround time and to be able to increase throughput and increase automation, which we can measure through internal KPIs of how much throughput we have in the lab compared to the number of staff that we have in there. We aim to create an IVD-ready kittable version of Cxbladder for a centralized deployment that the time lines that have not been established, but that will support our international market expansion opportunities. And we have recently completed the analytical validation of an automated end-to-end lab workflow for RNA and DNA and we will actually publish that analytical validation, one of the coverage catalysts on an automated Cxbladder for Triage, Detect and Monitor, targeting publication in Q3 2024. So moving on to Grant for the financial performance.

Great. Thanks, Peter. I'll just take you complete through the high points of the financials for the financial year ending 31st of March '24. So revenue was up 22% year-on-year, and that was driven by the increased volumes and more importantly, an 18% increase in the average sales price that we saw with users tests, the restructure of the sale of operations late in the second quarter of the year, the focus on % profitable territories saw the second half revenue declined 17% half-on-half. While that said, the average sales FTE in the last quarter dropped 51% on the same period last year. The positive news, even though it's still reasonably small volumes, APAC revenue grew 62% year-on-year to contribute $1.4 million to the revenue line. And that contributes 5% to the overall group revenue. This is a key metric for us is the second half cash burn. So we focused predominantly in the second half to try and reduce that cash burn while increasing investments and strategic imperatives. So we successfully reduced that cash bearing 24% half-on-half from $15.6 million, down to $11.9 million. Cash on hand at $50.3 million at the end of March '24 is expected to be sufficient to regain coverage in the event of a noncoverage determination. If we look at the high-level numbers, year-on-year is what is normally focused on, but I don't think that comparison actually tells the full story. So we'll look at half-on-half as well. Revenue was up 22% year-on-year, but down 17% half-on-half as we talked about. However, the reduction in revenue was more than matched by the reduction in expenses, which were down 15% half-on-half and that resulted in a reduced net loss in the second half. More importantly, the operating cash burn, while up 1% year-on-year, was pleasingly down 28% half-on-half. And looking at that reduction in expense, the operating expenses were down 15% half-on-half despite increasing the investment in research. Research expenses were up 42% year-on-year and up 20% half-on-half as the group focused on clinical evidence of catalyst for covered certainty and intended product development focused on Detect+ and Monitor+. Our lab operations were down 9% half-on-half, driven by volume. And sales and marketing, as we discussed earlier, with the quarter 2 restructure, dropped 22% half-on-half as the group concentrated on profitable territories. I'll hand back to Peter.

Thank you, Grant. So we wanted to just end with a couple of slides here, reminding our investors -- well, perhaps, no reminding is necessary that Pacific Edge is founded on improving social outcomes. We have a mission to help improve people's lives and patient outcomes by providing leading solutions for the early detection and management of cancer because we envisage a world where the early diagnosis and better treatment of cancer is within reach of everyone. And so Cxbladder delivers actionable information that can be used to advance the standard of care that physicians offer to patients, improve patient experience, quality of life and health care outcomes, reduce the total cost of care for value-based or capitated health care systems and deliver health care equity to poor and/or rural communities. Some of the evidence for this is the improved access due to availability in primary care across New Zealand as we've moved from secondary care to primary care. And in Te Whatu Ora Canterbury, it's already been published that urological waiting list fell by 25% without compromising care. Patients can receive a kit delivered to their home with in-home sampling, meaning that we can provide nationally the same kind of service that you would find in any city. And so this is going to be our first year of ESG reporting, and we wanted to highlight a couple of social, environmental and governance goals that we have been advancing. So our culture is one where high levels of staff engagement and participation in development opportunities is important and acted on. So we have an active program of diversity, inclusion and fair remuneration and the staff engagement I hopefully highlighted for you earlier in terms of how our team banded together for accelerating the STRATA study. We've reviewed all major suppliers for compliance with modern slavery and human rights policies. And our health and safety record has that we have 0 lost time due to injuries. We have a very regimented and effective health and safety process at Pacific Edge. On the environmental side, this is our first year of mandatory reporting under the Aotearoa New Zealand Climate Standards, delivered with FY '24 as a baseline year. Our environmentally sustainable procurement policy introduced -- was introduced, reflecting new sustainable purchasing requirements. From the government side, we -- governance side, we have -- we use an FMEA risk management framework embedded across the business with routine reporting to our Board. And we maintain a sophisticated compliance regimen with regulatory quality, health and safety and manufacturing standards in every country in which we operate. On the government side, we are delivering stability for investors as we have announced some changes to directors with Chris Gallaher and Mark Green announcing retirements. So Chris, who was appointed in July, is set to retire as the Chair following the appointment of a successor and a structured handover later this year, and he's available on the call to answer any questions related to that or anything else. Mark Green appointed in May 2021 is electing not to seek reelection and will retire at the ASM meeting in September, as previously announced. And the Board's Nomination Committee has commenced a process to appoint a new chair and consider the recruitment of new independent directors. So in summary and outlook, we are ready for all outcomes. We have taken the necessary steps to manage cash already, and we expect to manage cash reserves if Medicare coverage is retained or until re-coverage in the event of a negative determination. We will continue to focus on -- sorry, we will continue to focus our business on the clinical development of Detect+ and Monitor+ for guidelines inclusion and increased coverage certainty to secure the future of our business. We are going to be focusing on the commercial operations and profitable territories, non-Medicare revenue streams and on cash collections. And we showed that existing focus through the improvement of ASP already. We're going to emphasize the clinical and economic value of Cxbladder in our sales messaging. And in terms of the possible headwinds, we think most of our investors are aware of this, but of course, there remains this picture of a possible noncoverage determination from Novitas on a new -- from the new proposed LCD and there is also a possible negative physician and patient reaction to the enhanced patient responsibility when we pass that on to the patients when commercial insurance denies the claim. However, we want to focus investors on the fact that there are more catalysts than there were a year ago and we're having the same conversation. So there is a possible re-coverage determination or an affirmation of coverage from Novitas after they follow the proper procedure. There -- we have discussed the possibility of Detect+ pricing using a crosswalk process from the 25th June meeting with CMS. A range of new clinical evidence for driving coverage certainty. And it is also just going to be a focal point for us as a business is everything related to preparing for a product launch, again the data of which is not announced that we are preparing aggressively internally, is a tremendous catalyst and motivator within the business to get -- to bring Detect+ to market. And another potential catalyst is in the event of a negative scenario and in the event that we elect to pursue litigation, success from that channel would also act as a catalyst for investors to take care -- take notice of. So with that, I will end, and we will open the line for questions.

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

I might just start on what was kind of a positive piece in the result is just price per test essentially. I'll just be keen for you to, I guess, talk through the run rate through the second half in terms of the evolution of that and potentially where you were at the end of the last quarter, which then flows into, I guess, the trajectory or outlook in terms of continuing to improve that percentage of tiers paid for? And then within that, I'd be keen for you just to specifically expand on, I guess, the test mix within that by product.

Thanks, Matt. So the run rate, of course, has -- it has -- it would follow a diminishing returns curve. Like once we've made all the possible gains, it becomes increasingly difficult to have any more. These are off the back of specific initiatives, though, and while we have quantified them internally, we're not going to quantify them externally. It comes off the back of a concerted effort to improve our documentation, specifically for the purposes of primary claims and appeals to Medicare Advantage payers. It comes off the back of special projects, with payers who may have a high denial rate or have initiated clawbacks with us, which also happens. So we established a special project and then we go in and we negotiate with them and we say, "Hey, why is this actually happening? Here's all our evidence." And sometimes we have to take that through an appeals process through the ALJ -- up to the ALJ level within the Medicare appeals process. It's also something that is affected by the patient responsibility. So we've got more revenue coming in from patient responsibility. The increasing component of Kaiser in our payer mix also increases the ASP. So all of those things are elements that increase -- that have allowed us to get that 18% gain over the last year. It is very difficult to predict how much more we can get. However, the gain is baked in, and that's the key thing that we want to inform shareholders of. We want to make sure that you understand that once we -- this is not something that we expect to go back the other way again. Of course, the Novitas decision would completely change that landscape. But assuming a continuation of coverage, this is something that our ASP has, to a greater or lesser extent, permanently increase to a higher bar.

That's good color. I appreciate it. Then just on Kaiser. I suppose given it's within Southern California, I'd be keen to hear your thoughts around how you're thinking about the ability to penetrate on a per population basis relative to New Zealand, acknowledging you're well below where you are in New Zealand today. But you've -- there's a period of time now where you've got more familiarity with Kaiser's usage, et cetera. So I'd be keen for any comments there. Or you'd be talking volume.

Yes. Look, probably the most honest way to answer that question is this: We had the step change that comes as a consequence of implementing the EMR. And we're now in the incremental growth phase. And as we -- we advise investors and analysts, I think, all the time that even a step change is going to be a modest one. So what I'm trying to kind of foreshadow here is that the hard work is still ahead of us to continue to grow with inside the Kaiser system. But that all indicators are blinking green light please go ahead. There are -- the leadership of Kaiser is very happy with the way that the rollout has gone so far. There are individual urology folks, some I met at the AUA, inside Kaiser system, some people I don't know by name that came up to me and said, "This has been absolutely revolutionary in my practice. I'm the Chief at XYZ location. And I am really pushing all of my team to adopt this because I can see the value that this is delivering for me personally." So there are anecdotal stories like that. So there's still plenty of room to grow in Southern California. And as I mentioned before, we've got to get -- we've got to treat Southern California like the blueprint for the rest of California. And again, we think we're on track for that. It is difficult to talk about timing for that. And it is also possible that the remaining Kaiser locations could make a single decision. Right? That is an option that's available to us, but that is more difficult for us, and we think it is more responsible to just forecast growth within Kaiser more uniformly.

Your next question comes from the line of Rob Morrison.

So first of all, a really good job of managing the cash burn. It's really pleasing to see that improvement in collectability, and you're also a real good job to the clinical team who managed to get that study out so quickly, super impressive. So starting off, I just want to clarify something right. So requirements -- if Novitas' proposal to rescind your coverage were to go through, one of the requirements they have is that you get into NCCN guidelines. But so -- and you've just really STRATA, right, which seems to have been well received by the AUA. So if STRATA enabled favorable Cxbladder inclusion in AUA guidelines, do you reckon Novitas would still be able to remove coverage?

So that's a great question. So it is a slight oddity in the way -- in the approach that Novitas took by specifically calling out NCCN by name because NCCN actually encompasses a range of different oncology disciplines that all treat their discipline differently. And I'll just give you a quick example. So prostate cancer, for example, does have early detection guidelines because they wanted them. The bladder cancer with a group within NCCN does not want early detection guidelines, and so there aren't any. And that's just -- so there is no option for Triage and Detect to receive NCCN guidelines inclusion. But Novitas did, in their final version from June 2 last year, they did provide what they call an alternative path to re-coverage. And they -- so you can have your -- you can apply for a reconsideration request on the LCD if you don't fall into any of the ClinGen, OncoKB and NCCN biomarker databases. And that's one of the reasons why they did the evidentiary review at that time, which we believe they did a poor job of that and have rebutted it. But the point is there is a path to reconsideration that is outside of those 3 databases, and one of the most compelling things that they would need to reconsider is or they would use in any reconsideration is guidelines inclusion. So what I'm trying to say is that if for early detection, i.e., hematuria valuation, Detect and/or Triage were to receive a favorable mention in an AUA guideline or guideline amendment that, that could be used to facilitate a reconsideration request with Novitas under the current or future LCD and that, that would be considered highly compelling evidence that they should cover the test.

Okay. That's super clear. So I think your run rate for year-on-year volume decline in Q4 was negative 19%. I'm just wondering if you can comment on what that was -- the exit run rate was. So what I mean, did that deteriorate over the half? Or...

So I just confirmed with Grant, it doesn't look like we have that number to hand. So Rob, maybe that's one we can discuss later.

I'll slip another one then if that's okay. So just wondering if you're hearing about competitor tests either from your sales force or just people you're talking to in the industry.

Yes. So we think it's really important to put a lot of qualifiers around competitors. So there are and have been for some time, tests that are urine-sampled that detect either DNA or RNA or protein. So they use some kind of biomarker in urine that makes some claim relating to bladder cancer. Typically, when those are published, they have published analytical validation or developmental data that has no clinical significance, and they are looking -- it's really just a scientific publication. But not all of them. Some of them do -- actually do clinical studies. Then it's also important to understand what is the level of evidence, have they used samples from a freezer where they know the paired biopsy result, and they can calibrate their algorithms accordingly to massively inflate the performance characteristics. So that has happened, too. And so there are products that make competing claims and there are products that use technology that, broadly speaking, completes -- competes with us. But there are no other current products that are actually -- that are covered. And there is one other company that is making a claim that they are covered. But if you actually do your diligence, we believe that they are not, specifically because of they're in the MolDX region and MolDX agreed to now look at the proteins. And so because MolDX has changed from being DNA- and RNA-only to also include proteins in their purview, we believe that the claim that this company is covered is false. But they have received a -- the most likely scenario that they have received a paid claim from Medicare, which again, just as an anecdote, is something that can actually even happen by accident. And we think that, that is the basis for their claim. So the most important thing is regarding competition. Do you have gold-class quality evidence? And that is why we focus on clinical evidence generation, and we have the strongest evidence of all of the companies in this space. And the second best way to put a moat around your business is execution. And that is something that, again, while we have seen a drop-off in our ability to execute as a consequence of cash conservation over the last year, we are still by far the most well-known brand in the space. And pending certainty from Novitas, we think we can double down on that already strong brand recognition. And we believe we're extremely well positioned to outcompete any competitor.

Your next question comes from the line of Christian Bell from Jarden.

First question for me. So it's related to Novitas. The last meeting you had with them was January, which you mentioned would be included as part of the review and comment to -- review and sort of comment section per Medicare orders. Are you able to just give an overview of that discussion and then as best as possible translate to how you're sort of feeling more positive or negative about their final decision? And did they also provide any confirmation they would include the STRATA data that you submitted in April, given that sort of missed the window of opportunity.

I'll answer the last one first. They have not provided confirmation that they will consider it. We believe it is likely given the level of scrutiny, but we cannot confirm that they will consider it. However, if they don't, that is another opportunity for us to use it for reconsideration immediately in the event of a negative decision. So that can sort of self-correct. In terms of the meeting from January, the broad outline, we've maintained all along. Novitas are not necessarily a bad guy here, right? They have problems that they are trying to solve. And so they've made a proposed LCD, and we think they've got it wrong. And part of the reason they get it wrong is they are tasked with -- the same people inside Novitas, they're tasked with approving every therapeutic in that area within their geography, every medical device and every diagnostic test, whether it is for oncology or some other purpose. That's an enormous remit. And there's absolutely no way that they can be experts in everything. So when you understand that it's really important to be combative second, but to wear the white hat first. And that means going in and educating them and say, "Hey, we know that you may not be experts in the standard of care in urology, and the standard of care, specifically, for bladder cancer. But here is how it really works. Here is the role that our test plays in enhancing the standard of care in bladder cancer, educating them on hematuria valuation, educating them on surveillance. And when you take that education approach, again, we think that is the path to greatest success. We also believe that it is important to highlight to them because we don't think that they were paying attention to all of the nuances associated with Pacific Edge. We are a tiny component of the things that Novitas look at. So we have to make sure that we are in double bold font and right in front of their faces with all of the key information. So we outlined the time line by which we were initially -- because prior to 2020, there were several reconsideration requests that did not result in coverage. It was only in 2020 that it did result in coverage. So we outlined that time line for them. We walk them through it. Then we outlined our -- the issues that we believe are posed by the draft and the issues that we experienced in the evidentiary review. And then we also included, and we think this is very important, we also included potential legal arguments. Those are not the focus of the presentation, but because they are now officially part of the comment record, Novitas will have to respond to some of those legal arguments that are a bit challenging nature rather than the -- wearing the white hat and being educational in our approach. So we're with both approaches.