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

Good morning, and welcome to the Verici Dx plc Interim Results Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll. I'd now like to hand you over to CEO, Sara Barrington. Good morning.

Good morning, everybody. And I will just move to the slides. Thank you. Just want to welcome everybody to the interim roadshow for the first half of 2025 and also a follow-up meeting after our financing event, which closed 2 months ago. So just as a quick reminder about who Verici is, we are a kidney transplant company with 3 products, 2 of which are commercialized. And we are at a pivotal point. The last financing was enabling us to move from a milestone-based company into a commercial growth company. We are moving forward on that. So the company has raised GBP 37.5 million to date to walk through the -- all the milestones to get to commerciality. And we have 2 products. I will go through the products in due course. But the most recent milestone that we were waiting to achieve, which we did in April of this year, was to gain coverage from Medicare on our lead product, Tutivia. I'm going to just move forward on that. Just as a reminder about our products, we have 3. They're all based on RNA-based technology and they answer distinct clinical questions. So the pre-transplant test, which is known currently as PTRA, previously known as Clarava answers the question, how likely is or how aggressive is the patient's immune response likely to be when they get a transplant. This is done prior to the transplant. And this is a product that was licensed off to Thermo Fisher. Tutivia answers the question post transplant. How likely is it that the patient is having a rejection event and this is an important qualifier that the clinician needs to intervene with their therapeutic options. And then with Protega, still in development, a longer stage product answers the question, long term, is the patient likely to be having a rejection event that loses the graft in the face of progression for conditions such as fibrosis. And that is still coming out of clinical trials. Just as a reminder, when we talk about our technology, why it's a differentiated product, and let's talk about it in the context of Tutivia. Clearly, when you look at the incumbent biomarkers, they're based on a technology called cell-free DNA. I'm always saying very casually that that's like measuring the debris in the blood after an event. It's an injury marker, and it is referred to as a later biomarker. We are based on RNA. RNA is like the messaging system of the body. And because we're capturing that, it's much earlier, it's a proactive and we produce a risk score to enable clinicians to understand whether the patient is a high risk or a low risk for rejection. Tutivia is commercially available through our direct sales force and Medicare covered -- and as I said before, the pre-transplant test was licensed to Thermo. Let's talk a little bit about the Medicare coverage and why that was such an important milestone for the company. We got a reimbursement price of $2,650, but it's the coverage determination that was important. That's when Medicare agreed to pay that price. And there's -- obviously, with that any sales that we make, both from an accounting perspective, we can recognize the revenue. And from a cash perspective, we now are collecting reimbursement on our tests. For transplant, this is particularly important. Nationally, Medicare covers about 68% of all transplants, and there's a very fast payment cycle. So you're looking at Medicare straight than the traditional Medicare paying between 14 and 21 days. Medicare Advantage is 21 to 30 days. That's where Medicare has outsourced some of the administration of reimbursement to the private payers and there's about 5 operating transplant space. And our experience is the blended average rate for us is about 22 days. So when you're looking at the importance to the company, obviously, this not only enabled us to be fully commercial, but gives credibility. Centers were waiting for this pivotal event. It is a long review. We were about 1 year in review with this -- with CMS, with MolDX. And that credibility from the extensive and deep review does matter into the centers as well as, of course, this is an ease of process. We also found that we had quite comprehensive coverage. We had no exclusions, for example, the nearest gene expression test had been excluded for the first 90 days, and we don't have any such exclusion. Also sets a precedence for the commercial payers. Clearly, as the 5 main underwriters in transplant are also those that do the Medicare Advantage. They are becoming familiar. They are understanding that this is a test that has been deemed to be useful by Medicare, and that sets a good precedence for their own internal discussions with us on a contracting basis. So where have we got to since funding. Obviously, if we look at the first half of the year, you'll see year-on-year, we saw a nice big steep increase there. And obviously, in Q3, we got funding. This was enabling us to expand upon that previous success in terms of commercial market and funding closed at the end of July. So it's really the last 2 months. But what we've managed to do is a stated aim was to hire 2 new salespeople, incremental salespeople, and we've done that. They've both joined, one in August, one in September, and I'm absolutely delighted by the caliber of candidates that we were able to attract. These are very senior, well-seasoned, very experienced people, and it's showing. We had given them 6 months to start making a difference to the business. I think we've stated that at financing, and I'm glad to say that they've already made a difference to the company. So out of the first area to focus in on, I think funding, we had talked about 20 and one more coming on board. So in the last quarter, we've added 9 new centers, 3 of which came from the first new sales hires. So as I said, hit the ground running from that. We also look to increase, as you recall, going through the cycle of how centers come on board. They first find a clinician that's very interested in trying it. We bring them on board. We deliver the kits. They then try -- we're looking for the first champion to try us out. It will be at a low level, then you're looking for that recurring ordering from that clinician, then spreading to the other clinicians into that hospital group or transplant center and then each one of those going through the cycle of recurring and then ultimately, if appropriate, to be included into what might be standard of care measures, either very high regular ordering or a protocol. And we've outlined the number of centers, how they've gone through that pyramid of progression during that value chain. In the quarter, we did see a 19% increase in the number of additional clinicians that's being able to say we're now moving people through from single clinician to multiple clinician or in a situation where there's multiple an expansion into that center -- so very pleased to see that, that's a good growth metric. And we also looked at our underlying volume and saw that the new and upcoming sites had actually doubled the number of orders in that period, Q2 to Q3. So very encouraging sign. The volume overall was consistent with Q2. And so we're really looking for indications that we're poised for that growth in Q4 and I'm delighted to say that we are very confident on that. We also hired a third salesperson who started this week -- so we're looking to make that progression that replaced an incumbent person. So we now have a total of 4 salespeople. And to support that in those territories, we need a clinical salesperson goes in. The clinician says, I'm interested, but I want to talk to your clinical person about how I might use this test. That is a clinical support and that person starts next week, which will add to our existing team and supporting the salespeople out in the field. So all in all, a very encouraging sign in the last 2 months that we will be able to get the growth that we're looking for in Q4. And as we move forward, we have maintained -- although we were late to the party in funding, we're maintaining at the moment our overall revenue targets for the year. And with being inspired by the success of hitting the ground running from our 2 new incremental sales folks. So very exciting news. Just as a reminder on the overall strategy for Verici, why this is quite an exciting opportunity. One always talks about an unmet need, and we do, do that. But often, there's an unmet need where you have to also stimulate the market. We operate in as part of this market in the transplant space where the demand is already there, and we recognize that, that demand is not being met. And Tutivia is well poised to offer a product that can be served in that market. Let me give a little bit more description on that. We estimated when we looked at all the protocols from the centers that we were able to that on average, there's a weighted average of about 12 tests done per patient. And this runs from a low level when it's a low-risk patient and there's less looking at surveillance capacity to a high number of tests when there's a problem, when there's risk to the patient, a high-risk patient that has a condition that the clinician feels that it's very important to monitor. So a weighted average on 28,000 annual transplants of about 12 per patient over probably an 18- to 24-month period gives us when we calculated it about a 900 million addressable market. If we then look down on the kind of testing that happens and how patients are being serviced in the current environment, we worked out that it was about 1/3, 1/3 and 1/3. 1/3 were the very problematic high-risk patients where the current technology is not ideal. It can't -- as a late biomarker in these early periods, clinicians have reported difficulties in using the technology for an injury biomarker when they're in the very first initial times or when they have another condition that kind of compounds the answer. Let me give 2 examples of that. Delayed graft function, it happens very, very early on. And what it is, if I can be very colloquial in this description. So I hope no clinicians are listening. But effectively, as we transport organs, we put them on a glorified medical-grade cold box. It slows down the degradation that's not going to come out today of the organ. But it means that they're kind of cold when they be put in the body, and it takes a while to, if you like, gear up or warm up and it's either slow graft function or delayed graft function, they haven't kicked into action yet. And that means that the clinician doesn't know whether the graft is not going to be accepted by the patient or whether it's just delayed. And we have numerous clinicians and studies that have shown that Tutivia is very, very helpful in this period where cell-free DNA may be co-founded because it's a later biomarker. Another area is a virus. If you go to BK virus, this actually tells the clinician I've got to reduce my level of drug therapy, the immunosuppression therapy there very large drugs. I've got to reduce it to allow the patient own immune system to deal with this virus, but cell-free DNA may indicate that there's a problem and the clinician may conclude that they have to increase the level of immunosuppression. We can distinguish. We don't get compounded by that. And again, these are all areas where we have a kind of niche offering, something where the progression in technology is able to offer clinicians something new. Now we have calculated that 26% of all patients have DGF. This is a very high testing protocol area as well. At the conference that we've just been at, we did an informal panel. Most centers are seeing this rising to between 40% and 60%. And I will come on to why that is in a minute. BK, you can see the percentages there. There are other areas, multiple organ transplants need to be able to distinguish between the two organs, which one is progressing. Cell-free DNA is a very generalized marker. We are more particular, more precise. Also prior transplants. This is a very logical place for us to operate in. When you have a second or a third transplant, they don't remove the injured organ out of the body. They leave it in place. And that is obviously shedding off these late injury markers and will compound a test on the new organ. We don't have that tissue, and so we perform very well. You can see all of that when we toss it out. Obviously, some patients have both. But we think about 1/3 of the testing market is on these high-risk problematic patients and where we perform very well. And obviously, the more generalized later biomarkers do struggle. So that's our entry point. And for anybody that's interested in listening to clinicians discuss their cases in this area, we have a series on the website called Coffee and Cases. It's peer-to-peer webinars, but we do record them for anybody's interest. We have clinicians who go on and pick an area like DGF or BK and discuss how they've used Tutivia successfully in their practice and discuss case studies. And obviously, this is great news for us in terms of KOLs, key opinion leaders talking to their peers. So an entry point. It's about 1/3 of the market also that has been late or skeptical biomarkers where is it useful? Can they use their own clinical judgment or old markers. And we do see a trend in the market to those centers now starting to look at biomarkers. And one of the reasons is this, that there was a CMS or a government initiative to increase the number of transplants. Transplants traditionally has been seen as a better cost-efficient, better for the patient in terms of outcomes, but better for the health care system in terms of the overall bill as transplant is deemed to be a more efficient use of funds over and above endless years on dialysis. And so CMS was looking to increase the number of organs being transplanted at 28,000, they would like to double that. To be able to do that, clinicians are being encouraged to take on more risky organs, but not to allow the rejection rates or other quality measures to increase. So there's this balance. And of course, the answer is to do more testing to make sure that they understand they're ahead of the issues. And so there's about 1/3 of the market that we think will be now looking towards biomarker testing, and we believe we have advantages in that area because we are earlier and more precise. And I think we can offer some strong performance in that area. And of course, lastly, there's the third that already are very familiar with biomarker testing and are using cell-free DNA quite extensively. And then over time, we see clinicians being interested in using our test in that area. So for us, we do have quite a targeted approach to the low-hanging fruit, which gives us an entry point to increase the trust and the usage that ultimately will allow us to kind of expand into the other 2/3 of the market. Obviously, fundraising was important for us to grow 2 salespeople to 4 salespeople. We do believe that we -- ultimately to get national coverage, we would need 12 to 15 people, but this is a good start and obviously building out that commercial team being able to show that growth back to investors is important to us. What about our other product? Obviously, we did do a license agreement with Thermo Fisher. I can tell you that we remain very close with them. We do look at commercializing together. They have started this year in their premarketing activities, looking for centers to expand their trials, to do local use cases, and we work very closely with them. We continue to do that. And then obviously, in the pipeline, we have that third product, Protega, that there is some interest from both clinicians and other partners in terms of seeing that development. A urine-based product, we are looking at and progressing on that platform and those continue as planned. So in conclusion, when we look at this product, I want to emphasize my excitement and my team's excitement at this moment. You can feel when a company starts that growth trajectory, we are there, and we're excited that we were able to do fundraising to be able to start addressing that and return results. On to David and the financial report.

Thank you, Sara. Good morning, everybody. So just on the financial highlights, a few things just to pick off on this slide. Firstly, clearly, the main highlight being the Tutivia revenues, which we were able to recognize in the period, just over $1.1 million. We also recognized in the period the final milestone payment from the Thermo Fisher transaction of $750,000. The other highlight being post the period being obviously our raise in July. It was completed at the end of July, raising just over GBP 6.3 million gross. That's with our cash at the end of September, $5.3 million, that all with our expectations gives us a cash runway through to at least second half of 2026. Sorry. I just wanted to share some insight in terms of how revenue is calculated. It picks up one of the questions that has come in while Sara was talking. There are 6 variables that go into the calculation of revenue, of which the only one we have certainty over is the Medicare price. The one that is the most variable is related to the commercial payers. At the time of doing the projections and at the time of the end of June, we still didn't have any clear knowledge in terms of where that was going to land, which then drives the average reimbursement price below the Medicare price because of the assumptions regarding commercial payers. I can say as we're getting more data on this, the trend is upwards, but we won't know until really the end of December once we have enough data to be able to say where all these variables are landing and therefore, where our average reimbursement price will settle. Just moving on to the primary statements. So on the cash flow, we had cash outflow from operations of just over $3.5 million. Whilst we did recognize revenues on Tutivia just over $1.1 million, there was also -- was about $800,000 of that not been received in cash. So that obviously impacted that number. In terms of investing activities, we still continue to spend a little bit of cash on our patents and updating them. And then the financing activities is the cost related to rent and our capital lease payments. In terms of the income statement, we've talked about the revenues. The cost of sales all relates to the Tutivia revenues, that's giving a gross margin currently at that price of about 70%. In terms of our expenditure, our largest expenditure continues to be payroll, and we were a team of 15 at the end of June. We're currently a team of 18 and with the other individual that Sara referred to earlier, will be up to 19. In terms of our R&D spend on the clinical trial and the like, that cost continues to come down. So just over $650,000 for this period. The comparable period to June '24 was just over $1 million. And then the other big area of spend is on sales support, everything to do with conferences, KOLs, publications, et cetera, leading to an EBITDA loss for the period of $2.8 million. In terms of the balance sheet, so that trade and receivables, the largest balance there being the amount due on tests invoice. Our noncurrent assets, the biggest aspect of that is the patent portfolio. And then in terms of the trade payables, those of you who are familiar with the story will recall that we've continued to -- we've carried for some time $750,000 in accruals being site accruals. This is costs incurred by the clinical sites, which had yet to be invoiced. $350,000 of that was invoiced just before June. So that moved a large chunk from the accruals into the payables line. And then our lease liabilities continue to be lease liabilities on a capital lease and the rental of laboratory in Tennessee as required by accounting standards. Back to you, Sara.

Thank you. So -- as you can imagine, we said earlier about the exciting opportunity. We do have an opportunity. We have a runway to address that. And we're looking very much about Q4 and Q1 performance to demonstrate that growth going forward. So I think it's probably a good time to move to Q&A.

[Operator Instructions] That's great. Well, Sara, David, thank you very much for your presentation. I'd like to remind you the recording of this presentation with a copy of the slides and the published Q&A can be accessed via investor dashboard. As you can see, we have received questions throughout today's presentation. And Sara, at this point, I'll hand back over to you to run through the Q&A, and I'll pick up from you at the end.

Thank you very much. And I'd like to thank everybody for the questions. There's nothing worse than having no questions. So the first one is how likely is European or even global coverage for Tutivia given the 100,000 worldwide kidney transplants? The answer to that, let me just give a little bit of background about what would have to happen to be able to address a worldwide market. We have started in the U.S., and we are under clear regulations that enable us to have one central lab. I don't know what the lab is. And each hospital or transplant center sends those tests into our central processing. So it is a service, we actually give the test result. Long term, should we wish to move from a send out into a kit format, we would need to go through FDA approval. And we have deemed that not to be worthwhile at the current time. When you look at going abroad, obviously, the market has become more fragmented. So to duplicate that model of having a send out, you would want to put a hub either in a specialty lab or in Europe, you've got a very fragmented market. And it's fragmented not only in terms of national borders. The regulatory in Europe is a little bit more universal. But when you come to market access, which is about how you get reimbursed by each company -- each country, then you would need to go country by country. So a couple of things that I think if we were going to do that, first of all, I would look to work with a distribution partner. And secondly, I may well think that it may be a time to move our test from a service into a kit. And for that, I would need some investment and some time and then we could put it through the process. Would I like to do that? Absolutely. Is the time now? No, I think we should focus on the U.S. market. So hopefully, that answers that question. Next question was on about the average price. I think this may have come in before David's explanation on how we come up with an effective price. But just to do a little bit of a refresh, nationally, 68% of transplants are covered by Medicare and the rest, obviously, with private payers. As you know, from some of the more shocking headlines that we had last year or the turn of the year, there is a lot of controversy around the deny, deny, deny mentality or perception from commercial payers. So when you look at the variables, the 6 variables that David outlined to get to a revenue position, part of that is saying what's our effective rate once you take into account private payers who may give you nothing for some of the tests or make up a number or pay full price. And so it is a variable that we are still getting more data on. But obviously, in terms of revenue recognition, we do wait until we have collected on those tests to be able to record revenue. So there's a little bit of lag in the revenue recognition in the effective price and being able to do -- it's not just a simple math, one equals one there. How do you position your test against tests such as AlloSure? AlloSure is a cell-free DNA. Just to refresh everybody in my mind on that. AlloSure is from CareDx, by the way. Natera also have their own product, Prospera. Those are cell-free DNAs. Those are the tests that have a place in the market even alongside Tutivia in my view. They are later biomarkers, they are injury biomarkers. And if you think about it, if you're looking at a low-risk patient where you don't think anything is going on, but you're looking for a biomarker test just to confirm that, I think they have a very strong place to play because if there's nothing being picked up, then nothing is going on. The problem is that at least half the patients and maybe more, the clinician thinks that something is going on. And for us to be able to be a more precise and earlier biomarker, something on a different technology that isn't compounded by such generalized infections, other organs, other injury, other than viruses, cancer, so on and so forth. We think that we offer something refreshingly new and advantageous to the market. And in the clinicians' minds where they think that the issues in transplant are less about rejection and management, which they do with immunosuppression therapy, they're actually more interested about how do they finally titrate the level of they say we over immunosuppress. We're worried about other underlying conditions like infection and cancer. We want looking for tests that can more precisely help us manage the problematic patients so that we get the right kind of dosing. And that is how we see the advantages that we're bringing in that step-up in technology as being highly competitive and differentiated. So hopefully, that answers that question. With 30 centers onboarded, but flat Q3 orders, how soon do you expect new sites to translate into higher tests? So thank you for that question. Yes, it does take a moment for onboarding to happen. So onboarding for us is where the center signs up, says, yes, I'm interested in using your test, but now I've got to go through my internal logistics. We deem someone onboarded once they're in a program that we call LifePoint. It's our customer portal and for receiving orders and issuing test results. There are multiple ways we can do that, but we do have our own portal. So we like to register each center, each clinician into that portal, and they have received collection kits. So they are ready to go. Phlebotomy has those collection kits. So when they place an order, they can send their patient down to -- for a blood draw and then it can be sent into our labs. Then there is the process of ordering. And sometimes it's getting into their own systems, sometimes send out needs to approve it as a test. That's usually a pathology department-driven decision. That may be a monthly meeting. It may be something that we can do earlier with our own mobile phlebotomy. There are various components to that. And then obviously, we have the progression when you're talking about higher testing volume from those where they have placed orders, we are trying it out and now they're saying, actually, I see a place for this. We see that taking months, very quick in some centers, very long in others. But I would say that we would be seeing progression from all 30 of those centers in Q4. So hopefully, that answers. Obviously, the equation on how to get to high volumes from something that's being onboarded may be going into next year. What is the company's understanding of the numbers that we continue to market expectations for the full year. $3.2 million was the expected revenue for 2025, and we have not changed that for Tutivia. Why was the fundraise delayed? Yes. We were waiting for regulatory approval from the tax office, and that took way longer than it ever has done in the past. And it took us a while to get that before we can pull the trigger on the funding. It was frustrating to us all, and the company had to go a little bit into a holding pattern at a time when we really wanted to get on and be growing the business. So yes, I agree. It hurt everybody, and it was incredibly frustrating. I hope we never had that again. Any chance of a tie-up with Tempus. Obviously, I couldn't talk to that. It's an interesting piece of news from [indiscernible]. I'm delighted for them. That's a great platform for them. But obviously, that's a separate company. And any kind of associations and tie-ups and deals that we would do as an individual company, obviously, we'll announce as they arise. I think we've come to the end of the questions.

Perfect. Well, Sara, David, thanks very much for answering those questions from investors. Of course, the company can review the questions submitted today, and we will publish the responses out on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which is particularly important to you both. Sara, could I just ask you for a few closing comments?

Yes. I will pick up on the delay in fundraising. I will say that I was delighted that we could be successful in that and that we have the opportunity now to lean into a wonderful opportunity for this company and this product, the lead product to address a very large U.S. market. And I'm looking forward to delivering some real growth numbers going forward and into next year. So very exciting time, a pivotal time for the company. And I'd like to reflect the excitement of the entire Verici team in saying we're delighted for the support that we got from our shareholders, and we look forward to growing this company over the forthcoming months.

That's great. Well, thank you once again for updating investors today. Could I please ask investors not to close the session -- it should now be automatically redirected to provide your feedback and all the management team can better understand your views and expectations. On behalf of the management team of Verici Dx plc, we'd like to thank you for attending today's presentation, and good morning to you all.

Thank you. Good morning.