Verici Dx plc (63V.F) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Verici Dx plc interim results investor presentation. [Operator Instructions] The company may not be in a position to answer every question it received in the meeting itself. However, the company will review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Sara Barrington, CEO. Good afternoon.

Welcome, everybody, and thanks for attending today's presentation. Just a technical point, there is a slight buzzing on my line we haven't been able to get rid of. I do apologize, and we will do our best to manage it as well as we can. So let's get into the presentation. Just because it's always good to do a little bit of a reminder, we'll quickly go over a summary of the company before getting into the update. So just to remind everybody or for those that are fairly new to the story, the situation of the company is that we are in kidney transplant diagnostics. And we're in a field where there is a high degree of transplant rejection, up to about 50%, which has led to a significant need for increasingly accurate and specific diagnostics, and that's what we are addressing. Our underlying platform is RNA signature. So that's gene expression. And the reason that, that is significant is that it enables clinicians to be very proactive and much more personalized in their care. And the RNA, in which is the effectively, all the messaging of the system and the signatures are the ones of messages of note enable us to produce kind of the next generation of testing. We have focused our research on 3 complementary tests covering the full spectrum and when pre-transplant, early acute rejection and late stage. That technology was developed over the last decade by Barbara Murphy. It's already been in peer review journals, but as we have continued to test and validate and develop those tests, more publications are on their way. One product, which it is in commercial launch, one product has completed the validation. That's Clarava, the pre-transplant all previously announced. And 1 product has its end point, or its final end point in 15 months, although we will look at interim analysis along the way, that's Protega. And then obviously, one of the issues that we have addressed early on is both the regulatory and the reimbursement pathway, and we've made significant progress on both. Just a reminder, it's the "so what?" question in diagnostics. There is a dilemma for the clinician that we address. And then it's one of immunosuppression levels. If you talk to most clinicians, they will say that they generally are over -- not dosing. That sounds terrible, but their protocols would lead to a one size fits all. They suspect it may be too high. And there aren't difficulties with overtreatment, which is about drug toxicity, viral infections. Essentially, if you're going to suspend the immune system, there are always side effects. But if you undertreat, of course, then you run the risk of graft loss. And they know that they do not have enough information. Our tests directly affect those decision-making points. And again, just to remind you, Clarava answers the question "how aggressive or benign is the patient's immune system likely to be in the event of a transplant?" We tested in kidney. It is likely to apply more widely across organ transplants. Tutivia is the post-early acute rejection effectively in the first year. That one answers the question "is the patient likely to be experiencing a rejection event that the body cannot deal with and the clinician needs to intervene?" That one was addressing an unmet need of the first 90 days where many tests were -- are confounded as a more accurate. It can be run anywhere as early as the first week post-transplant, but it does basically generally apply for the first year. And then Protega, which is the long-term outcomes usually affected by fibrosis, answers the question of "is that patient likely to be developing fibrosis in that risk of long-term failure?" So after that quick reminder of the company's products, just want to move into our update for the first half of this year. We do have 2 clinically validated products now, Tutivia. We have issued some positive clinical feedback in previous presentations, so I do urge you to look at those for -- in the past presentations, one of the things I will also urge you to do is follow us on social media as we're able to distill some of our clinical interviews into videos for dissemination, and you can hear for yourself directly from the clinicians. Obviously, publications are key to adoption, and we believe our peer review publication is imminent. Clarava is also -- was validated during the year. We did make that announcement in July, and then that is on track for a commercial use. Obviously, that's a very novel test, commercial adoption or be very much looking for what we call real-world evidence studies and dissemination of those results by the clinicians there. We do have a pathway in terms of publicizing through conferences, and we submit abstracts to those just as we did with Tutivia, and it will follow a very similar path. We did get a reimbursement rent. That is going through final comments right now, the median of $2,650. That was above our market expectations. We went through a gapfill process. That means, essentially, we put together a cost analysis so that they can work out cost plus view. They agreed with our files and our analysis, and so that was a price that we have ended up. That's very competitive, sits very nicely against competitor products. We do have further progress on the Protega product insofar that the patient enrollment was completed this year. And then the final end point is a 2-year outcome. We would pull off interim review before them. We continue to file. We've now got 18 accepted patents across 5 patent families, and of course, the key ones here this year were 2 U.S. patents, protecting both the commercial products that was a key win for us. And obviously, we do continue to file as we go and develop and progress with our discoveries. On the regulatory side, we're now up to 49 states for the clear audit. The last one is New York. That is recognized as always taking the longest and will be subject to an audit, which we would expect next year and -- but that's very much outside of our control. That's to do with their scheduling for when they come to visit out-of-state facilities, but that is the last one. In terms of the approvals, Medicaid is now approved in 15 states with a further 12 pending. And obviously, we continue to work our way through that and private payers in the areas as alongside the progress that we make on Medicare. And then we -- sorry, struggling with the slide there. We continue to develop on our research asset, as you've always heard over previous presentations. We call it the research asset or the data asset, probably at some point, should probably brand that as a bit more for commercial use. But essentially, we've always said that research collaborations and data analysis is a key to progress in the entire industry, and that is something that we will be progressing on. So as we look at the progress this year, a couple of head issues. One was in terms of the center adoption. We had already discussed the CMS clarifications. That was short-term confusion. We do see that unwinding now as centers have finished their internal reviews, and we do see that resolving in Q3. That has obviously slowed us down in our first adoption in the early adoption sites, but that is now reducing. Logistical issues also is something that we were assessing. We did find something in our sample collection that was slowing centers down in terms of their collection and adoption. We have now resolved that. And then obviously, given the current climate in terms of the markets, we have been very focused with the small sales team for this year to contain costs and to really leverage this learning that we're making from the early centers. Obviously, that is something that we will need to address next year. The technical assessment file is the -- is fundamental to getting coverage on to Medicare. That is dependent upon the peer review publication. We do have expected -- sorry, we have experienced a little bit of a slowdown on that acceptance of the publication. I think that's resolved. I think it has been strengthened by some of the comments and taken us into areas that maybe we wouldn't have published on, but I think actually do strength on the paper. So I think a short-term pain for a long-term gain there. And then obviously, once we have got that in a format that we can put it into the technical assessment file, we'll be putting that in and we do expect that to be imminent. There is a review process from that TA files, so we now expect '24 rather than '23. But I think it's just really a question of months rather than anything too significant on that. Revenue mix. Obviously, we noted the slower adoption of Tutivia during the CMS clarifications. And I do see a number of questions on that. We will drill down that on a little bit more. What we did see though is in our forecast, we have been focused on the clinical sales rather than the research sales, and we are seeing an increased interest in those research collaborations. And so what we are seeing is a different mix of revenue this year as we go towards the end of the year. That has enabled us to keep our guidance unchanged on our cash runway. Looking forward, obviously, what we did see was in Q3 a doubling of those centers, and we are seeing that lockdown now free up, and we are looking for more centers before the end of the year. We do get and we continue to get excellent clinical feedback and very good results in the clinic. And obviously, we can't announce everything. So I would urge you -- and again, we do put up the link, but I would urge you to follow us on social media, so you can follow things like clinician videos and interviews and blogs so that you can see the progress of that test in the marketplace. And then obviously, as we -- we were very pleased with the pricing. We're not expecting anything to particularly change before the end of the year. Haven't seen anything come through on comments, so that price is likely to be adopted at the end of this year. Clarava. Excellent result this year. We continue to work with clinicians to understand how to put this into clinical practice, and there has been a high degree of interest in assessing the test further under real-world conditions, which I'm very pleased to announce, and that should facilitate a commercial launch before the end of the year. We do obviously have to make an assessment. We do have an options ahead of us in terms of working out whether we would go through a sales and distribution arm or whether we would build up our own sales team. That one will resolve before the end of the year for next year. But one other thing, is obviously, I put a total number here just to indicate what a total direct sales force would look like. But obviously, we would bring these people on slowly and organically. The progress on the publications, I do think it did strengthen the publication at the end of the day. And we're looking to make an announcement in the forthcoming weeks or months on that. And then obviously, we had the options to monetize our research opportunities. It did give us a time to sit back and assess what would be the commercial value of those assets. And when we looked at that, we did come up with an assessment that in fact it's -- the total value exceeds total cash raised to date, just to give an indication of the value of something like that within the business. Just to give a little bit more color on what we keep talking about is the data or the research asset. This is something that we have collected from our clinical trial. When we went through that, we collected a number of specimens. That was both blood urine, tissue. We are able to then distill that into the entire transcriptome, so you have both samples and you have data there all matched with clinical data, patient outcomes, the biopsy slides, et cetera, it makes -- and on a longitudinal basis. So it makes it a very valuable research facility for not only us but in the community, and we do see -- expect to see more collaborations that we can announce. Some we'll be able to announce, some we won't, but that is definitely starting to pick up. And obviously, as responsible for that change in emphasis on the revenue expected from this year. David, over to you.

Thank you, Sara. Good afternoon, everybody. So in terms of our cash flow in the 6 months. So cash out from operating activities just over $4.7 million. Now that compares to the comparative period last year of $5 million. In terms of investing. So we spent $23,000 on CapEx and then $83,000 on patents. That's the work that Sara was referring to earlier in terms of the prosecution of new patents and maintaining existing. And then on financing, interest of $122,000 in and then interest and lease payments of $94,000. The vast majority of that lease payments is the rental on the Tennessee lab because that's the way accounting [ one at this debt ]. And then in terms of -- so overall cash, just over $5.2 million, as we've said, based on our revised expectations in terms of revenue and higher-than-expected revenue expectations on research-related revenue as we maintain our view of cash runway through to mid-2024. In terms of the income statement, we recorded some revenues in the period, which was nice, giving us a gross margin of $16,000. Admin expenses, the big expenses remain wage and salaries, so $1.8 million for the period with an average of 14 people in the period, and we have 14 people in the business as we speak today. The prior period, it was $1.3 million, but we had an average of 10. And then on R&D spend, much lower than the prior period, $1.6 million compared to $2.3 million in the prior period. And again, that will continue to come down as we pass the hump of our expenditure on R&D, and the rest of the income statement is fairly self-explanatory. In terms of the balance sheet, so the biggest item in that tangible is the cost of the build of the CLIA lab, which we did last year. The intangible asset itself is primarily the cost of the license and the costs that we have incurred on the subsequent patents. And then in terms of the payables, just referred to the fact that the majority of that is accruals, and the majority of that is the site accruals. This is where we are estimating costs, which have yet to be built by the sites on the clinical trials. And then lease and right of use, the majority of that is the property lease, which, as I say, is just the way it has to be accounted for these days in terms of the rental -- future rental payments on our lease in Tennessee. Back to you, Sara. Thank you.

So I'm going to just end on a -- just on these leads. I think it is a useful source of information on the company as we go through. And obviously, as I've noticed, I think it's interesting to watch some of the clinician interviews as they come through, and we will also promote some of the other activities as we can. So we've put up the links there. But I think it's probably time to just move to Q&A.

[Operator Instructions] But just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor dashboard. As you can see, we've had a number of questions submitted throughout today's presentation. If I could just ask you just to read out those questions and give response to it as appropriate to do so, and I'll pick up from you at the end.

Okay. Okay. Some of these questions are very long, so I'll summarize. I think that there is focus on our cash position. One of the comments that I would make is, obviously, as we look at some of our historical cash needs, one of the high cost was clinical trial. Those are tapering off now. And so as we look going forward, our forecast is a natural drop-off, and some of the costs are coupled with careful cash management and obviously, income from revenues. I think we've covered -- in terms of the delay on the publication, we did have a couple of rounds from the peer review process. And I do believe that, that was positive. As I said, it was -- I think it has strengthened the paper and enabled us to go into, for example, comparisons to understand where the test sits in the marketplace and clinical practice. And I do believe that, that long term will address some issues that would have come up in the sort of marketing process. So I think it was a positive rather than a negative. We've got a price question. And obviously, a couple of questions on did we provide free tests. We did not. So we actually did not do an early access program. That would be where you do provide test for free. We did an early adopter program instead, which is effectively a white glove working with centers very carefully to sort out issues such as logistical ones and enabled us to strengthen our offering into the marketplace. The price that we have built out has been the price that you've seen out there for this year. And then, obviously, nothing that we have given for free at the moment. The only way that we would do that is if we were doing structured studies on Tutivia. CMS. The reduction in revenues as opposed to being impacted by testing being limited to a single biomarker test for patients encounter. I think this is the confusion. Part of the confusion that was experienced in the marketplace as they worked out where each test strength was. One of the things that I think, as I said to you was very -- was in our favor is it has enabled centers to realize that we have quite a few niche areas where we are distinctive from other tests. And as they are looking through where they use various tests that part in testing, we have got early adopting sites that have recognized the early message is very strong with Verici, and it enables them to try the test in their clinical practice without necessarily sacrificing anything else, and that is how they have got around this issue. You're right. In past, clinicians may have tried to test side by side. That's not available. But we have found that we can be slot into the time continuum so that they can make those assessments and trust the test over time by using it earlier than they would be able to use other tests. And then over time, obviously, that will be implemented as perhaps they choose between tests and use our test later on in the process. So I do think that this 1 test per patient encounter will ultimately be beneficial to us as it reduces competitors being able to use what they call multi-modality. Our test has balanced accuracy. So we do cover both ends of the spectrum PPV and NPV. And we have been able to be adopted early in that continuum so that -- where I don't see that we've been negatively impacted by that ruling, only positively. And then the only negative aspect of the CMS ruling was just confusion. On that, I will note some interesting feedback that we've got, which was a couple of centers actually noted that they've given them an opportunity to review their protocols. So although that they had sort of gone into an internal review from that CMS ruling, it had given them an opportunity to actually adopt new technology. And so I think over time, we will see that to our benefit. Clarava. Clarava is going to be reimbursed by hospitals in the short term if it's within what we called 72-hour rule. And therefore, it will be not necessarily a CMS play as to Tutivia is. And so it will not be subject to the same local coverage determination and guidance. We have mentioned urine-based testing. Yes, I wanted to indicate that, obviously, that was one of the specimens that we had collected with the view to either do research collaborations or our own development or a combination of both. But yes, there is interest in recognizing that urine may have a place to play in the marketplace, particularly as it opens up longer-term testing in the at-home market. So we thought it was important to collect that alongside the blood and the tissue and everything else that's in that biobank. And the longitudinal information is obviously something that's quite unique in the industry and is garnering a lot of interest across the board. Here, we have a lot of questions on revenue forecasts and a degree of certainty. I think obviously, any test that -- any health care product as they launch, it may be lumpy. We always assume that it's going to be a nice smooth line in very early years. I am very encouraged by the fact that now we've got increased interest in the marketplace. We are seeing an uptick. And then obviously, we do need to tailor our expectations of what we can do in revenue forecast with obviously, the amount of folks that we can employ in the balance between cost control and cost spending and investment in that area. What we are seeing though is a sort of uptick of interest. And obviously, in health care, where you're looking at trust and other, that sort of peer-to-peer recommendation and the publication, all of those are important in terms of adoption. And I think that I'm very encouraged by the fact that we are seeing that increase. It becomes an exponential growth. So we are still looking fairly confidently into the success of Tutivia into next year. Yes, the first half of the year, we were always expecting modest revenues. It was a little fall short of where we were going to be, but the first 6 months, we weren't expecting client revenues. In any case, we have indicated that we are behind. And obviously, that does have a knock-on impact, obviously, when you're looking at exponential growth. But obviously, you've recognized that in our warning of that of the change in revenue mix and the update of analyst expectations on that. But yes, I don't know that you can extrapolate straight from the first 6 months. And certainly, low revenue was always expected there, and we don't -- it takes a while for centers to come on board. So even though you're getting the sale, it takes a while for them to come on board and then to do recurring revenue of orders from the same center. So yes, not a straight-line extrapolation there. Other territories. Yes, there are -- if we wanted to launch in Europe, we have assessed that, first of all, we had clinical centers in Europe. Secondly, we went there to see what the level of enthusiasm for those centers were and what's their general interest in Europe in terms of technology like this. And the answer was yes. We would need to go through a regulatory process to get that end market access issues. So at the current time, although there's interest from other parts of the world, we are focusing our resources on the U.S. market, but I would love an opportunity in the future to explore those other markets in due course. Repeat testing. Yes, there is. And the current practice is that tests are run multiple times over the course of the patient journey. I think you'll see in our estimations that we would expect at least 3 times in the first year. So with Medicare and Medicaid, that is covered. And we are also producing interesting information on that monitoring issue, which actually may promote more repeat testing as we go along, and we will publish that in due course. Just to be clear, I have not signed up for any distribution partners as yet. And that is something that we actively consider for next year, but we have not signed anyone nor have we made any decisions on that, but it is an option for us. And so the current processes to finish out the year with the early adopting sites and address a wider adoption next year. I think I covered everything. I do apologize if I've missed anything. We will go through these questions again to see if I've covered anything, not covered anything. And then certainly, if you do feel that you would like something cover, do reach out to our Investor Relations to be able to get a written response.

Perfect. Sara, David, thanks very much there. As you said, I think you have addressed all those questions from investors. And of course, the company will review all the questions submitted today, and we'll publish those out on the Investor Meet Company platform. But just before redirecting investors, brought you their feedback, which is particularly important to you both, Sara, could I just ask you for a few closing comments?

Yes. I want to thank everybody for the continued interest in Verici. Obviously, this first year has been a little bit more challenging than we expected, but I'm very pleased to say that we appear to be on the other side of that. And I think if you were going to get a big challenge the first year, as you get for the impact on low revenues is quite small rather than later on in our adoption curve. So I think on the other side of it, I'm encouraged by the level of interest that we're getting in now both of our tests. And I think I would also like to take a moment to say how proud I am with the team and the work that they have done. It's quite astounding how much we've managed to progress with such a small team as we continue to be very focused on cost containment and extending the cash runway as long as possible.

Perfect. Sara, David, thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. This only take a few moments to complete but I'm sure be greatly valued by the company. On behalf of the management in Verici Dx plc, would like to thank you for attending today's presentation and good afternoon to you all.