MDxHealth SA

Good day, ladies and gentlemen, and welcome to the MDX Health Full Year Results and Business Update Conference Call. As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to Troy Williams of LifeSci Advisors. Please go ahead. Today, we are experiencing a momentary delay. Please stand by.

These forward-looking statements are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the company's most recent annual report. MDX Health expressly disclaims any obligation to update any such forward-looking statements to reflect any changes in its expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based unless required by law or regulation. I will now turn the call over to Mike McGarrity, CEO of MDX Health.

Thanks, David. And thank you all for joining us for our 2021 full year release of results for MDX Health. With me today is Ron Kelfis, Chief Financial Officer. We believe we are at a clear turning point in the growth of MDX Health and that this growth will be sustainable. While we have continued to face headwinds of patient flow and sales rep access associated with the pandemic, we are confident that in 2022, These will all begin to turn to growth-driving tailwinds. I will speak to the specifics of and the basis to our view, and Ron will comment on our financial and operating results for the quarter and year. But first, let me point to a few highlights. Our Q4 revenue grew by 46% over Q4 2020, and our full-year 2021 revenue grew 20% over prior year. demonstrating our efforts to continue to drive adoption of our clinical pathway menu for prostate cancer, even amidst the lingering impact of Delta and Omicron variants associated with the pandemic. These growth rates are particularly encouraging in light of the clear impact of the pandemic on cancer screenings, with prostate cancer screening rates estimated to be down 50%, coupled with sales rep access limited by a similar factor. Absent any surge in the pandemic variance, we are trending toward our pre-pandemic volumes for both confirm and select. We expect this trend to continue and drive sustainable growth going forward. We also are confident that our sales team is engaged in driving both our total ordering physician base and our committed clinical pathway adoption within that base. Internally, we view these metrics as the critical drivers of adoption, unit growth, and revenue. As restrictions ease, patient flow returns, and rep access reopens, we will begin to report on these metrics. Our patient flow has been particularly impacted as our current menu is pre-cancer diagnosis. This is an important delineation as it lends itself to a greater restriction of patient flow compared to patients already diagnosed with cancer. And while prostate cancer rates have elevated during this period due to delayed screenings noted, and positive biopsy rates will likely trend higher for a period, we believe this reflects our underlying growth as we return to normal dynamics in the market. our total ordering urologist has not been adversely affected through the pandemic. And we view this as a leading indicator of our return to growth. It should also be noted that while our test volume increased modestly in 2021, in spite of these factors, our accelerated revenue growth reflects our demonstrated commitment to operating discipline and advancement of our payer coverage and associated reimbursement for our confirmed tests. We are confident that the same growth leverage will apply to our comparable select MDX test volume beginning in 2022, with the finalization of the MoldDx foundational LCD covering our select MDX indication. Moving to our market introduction of a urinary tract or UTI testing service in the last quarter of 2021, we are encouraged by our progress based on a number of leading indicators. First and foremost, our diligence around the market, competitive landscape, and alignment of the UTI test with our focus into urology and fit and adoption within our current menu customer base has been confirmed. Second, we are beginning to see adoption of our UTI offering even amidst the market and access challenges noted. Finally, We expect UTI testing services to begin contributing to revenue in 2022, and we'll provide additional comment on our view forward and guidance for 2022. But first, let me turn the call over to Ron for a review of our financial and operating results for 2021. I'm sorry, for 2020. Ron?

Thank you, Mike. The pandemic has indeed continued to present challenges throughout 2021, not just for MDX Health, but across the diagnostic sector. While volumes remained choppy during the year and grew modestly over 2020, we were able to grow our revenues at a higher rate thanks to improved revenue cycle management and higher average selling prices. Total revenue for 2021 was $22.2 million, an increase of 20% as compared to total revenue of $18.5 million for 2020. Services revenue amounted to $21.9 million, an increase of 21% as compared to $18.1 million a year earlier. Revenue from confirmed MVX represented over 90% of service revenue for all periods. Gross margins for the year were 47.5% for 2021 as compared to 43.6% for 2020, representing a gross margin improvement of 390 basis points, primarily related to a higher average selling price. Operating expenses for 2021 were $37.4 million, up 6% from $35.2 million for 2020. Excluding non-cash expenses such as depreciation, amortization, and stock-based compensation, operating expenses for 2021 were $33.1 million, an increase of 10% over 2020, primarily driven by R&D expenses related to our future product pipeline. Turning to payer coverage, we're awaiting a final local coverage determination, or LCD, for our Select MDX test, which we expect to be issued by Palmetto by mid-year. As you may recall, a draft LCD for biomarkers for prostate cancer published by Palmetto GBA under its MOL-DX program, citing evidence of the clinical utility of Select MDX, was issued in May of 2021. Finally, we ended the year with $58.5 million in cash, strengthened by gross proceeds from our January equity raise of 25 million euros, approximately $30 million, and the November initial public offering on the NASDAQ of $45 million. This concludes my brief overview of the results. I will now turn the call back to Mike. Mike?

Thanks, Ron. I hope it is clear that even amidst the challenges presented by this environment, Ron and I and our entire team across all of our operating functions remain committed to and believe in our focus on execution and our clear path to drive growth. We are very excited that all the fundamentals are in place and that our turnaround of key operating areas and sales talent is complete. All of these factors provide visibility to and confidence in the following guidance for 2022. We expect revenue of between 25 and $27 million, which would equate to revenue growth of between 13 and 21% over our 2021 revenue of 22.2 million. We expect our select MDX test to be issued a final Medicare coverage decision and contribute to revenue and gross margin accretion in the second half of the year. We expect UTI testing services we introduced in late 2021 to also begin to contribute to revenue and gross margin accretion in the second half of the year, and we will provide more clarity of that contribution at the mid-year release. We expect to advance our menu expansion into active surveillance to provide additional growth opportunity, and we'll update on our progress and timelines again at the mid-year. Finally, we believe that our current and expanded offerings will drive our growth based on our earned reputation for laboratory service, accuracy, turnaround time, and menu that will drive standardization to MDX Health. In fact, we know that we are only as good as our customers think we are, and we like that expectation. So as we look forward, MDX Health is committed to being a growth company as defined by my experience with Stryker, which means that we will deliver sustainable growth based on a commitment to focus and execution. And that will serve as the foundation for value creation for all of our stakeholders, including patients, customers, employees, and shareholders. Thank you for your interest in and support of MDX Health And now I'll turn the call back over to Kevin for questions.

Ladies and gentlemen, if you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. Please ensure that the mute function of your telephone is switched off to allow your signal to reach our equipment. Again, it's star 1 to ask a question. Our first question today comes from Jason Bednar of Piper Sandler.

Hey, good afternoon. Thanks for taking the questions here. A few from us today. I guess first, the test volumes were a little lighter than what we were thinking, but I guess curious if you could quantify at all the headwinds you may have been seeing out there from Omicron. And then how you'd characterize patient flow into practices and resulting test volumes here just the last few months has really moved through the worst of the Omicron wave. Maybe talk about exit velocity that you've seen maybe from January to February.

Yeah, hey, Jason. Yeah, you know, we think that, you know, I think not unlike a number of the diagnostics companies, and I think that's where I pointed to a little bit of the difference between our patient population and associated flow pre-diagnosis versus cancer diagnosis. But we are beginning to see this patient flow come back. I think that there was a little bit of a carryover from the end of the year into Q1 with choppiness on on the opening and sales rep access and particularly, you know, at least what we've seen with staffing and capacity within practices. We expect those to turn and we'll be reporting on that turn here as we come out of Q1 and into Q2. Okay.

All right. That's helpful. Thanks, Mike. And I guess maybe as we think about menu expansion for the business with the active surveillance program, Yeah, I guess, how should we be handicapping the timing of a potential launch or introduction here? I mean, you alluded to giving some thoughts later this year. Is that, you know, updating timing later this year, or is that, you know, truly something where we could expect, you know, to actually have something on the market later this year, just to clarify that?

Yeah, and I think the reason why I'm pointing to mid-year is for two or three reasons, you know, Jason, that I think we're noting, right, is we expect really good visibility on a couple of the key drivers. Number one, the the coverage of our select test, two really good visibility to our UTI introduction, uptake and view forward on volume, payer coverage, and adoption through our customer base, and our active surveillance. So we would expect to give pretty clear expectations of potential launch dates, but we would not expect or anticipate any contribution to revenue or P&L for those in 2022. All right.

All right. That's helpful. I'm looking forward to that later this year. And then I guess, you know, final one for me, just totally appreciate all the details around guidance for the year. Very helpful. Is there any way to disaggregate maybe what you're assuming internally with respect to volumes versus price gains for select and confirm what inflection in revenue maybe you might be baking in once that final LCD is received by mid-year. We're all expecting it to occur. And then any other additional detail you'd be willing to provide on what's assumed for UTI, any of those points there would be helpful. Thank you.

Yeah, Jason. So we think our unit volume for both confirm and select will begin and continue to accelerate from here into the mid-year, and that's part of the view that we'll provide there. As far as coverage, we'll have much better visibility to our select. You know, we've made real progress on the confirmed side with kind of three factors, right? Our revenue cycle management, our cash collections, and our coverage, you know, driving additional payer coverage. So, when we look to select, we expect the same Um, you know, to really provide, you know, I think if you look at our, our inclusion in the NCC and guidelines, we expect that to, uh, plus our focus and driving of the pathway to take the unit volume. And then from a revenue perspective, uh, we'll get visibility to our coverage from Medicare. And, uh, that would begin to contribute to our revenue in the back half of the year. So we expect that to start in Q3. and we just don't want to get ahead of any expectations there as far as what contribution and the timing. But we're confident in our coverage and the contribution beginning, and we'll give you good visibility to that for the back half of the year at the mid-year.

All right, perfect. Thanks so much. Thanks, Chase. Our next question comes from Kevin Degatter of Oppenheimer.

Hey, guys, thanks for taking our questions. Maybe just one on UTI. Can you just comment on the early experience on reimbursement, you know, kind of how some of your customers are thinking about the ability to receive reimbursement or existing codes versus, you know, miscellaneous and just kind of where you maybe an updated perspective on how we might be thinking about ASPs for that product?

Yeah, so Kevin, we like what we see on a couple different points from a UTI perspective, and I will highlight them again because I think it's important to note that we're really looking forward to providing some good number guidance. What we like to do is confirm a couple things. Number one, the fit with our call point and our sales reps focus on our current urology customer base, that's been confirmed. Number two, that we can drive adoption into that base from a unit volume perspective and adoption of our test. That's been confirmed. Number three, that if we look at the market, we kind of segment it as those customers that are using traditional culture methods and those customers that are using one of the other main competitors and those customers that are using one of the other main competitors. And I would say that we want to be able to confirm that we can position ourselves well either due to better turnaround, better tests, or better standardization focus of rep and laboratory. That's been confirmed. As far as the reimbursement and payer mix, we have good visibility to payer coverage. What we want to get is a little bit more data as we have with confirm and select with regard to our particular mix and the reimbursement rates from those, both Medicare, commercial, private payers, and then be able to give you a view of the average sale price. But I would say we haven't seen anything in our experience to date that would change any of our view as to our, A, launch of FIT into our test, and B, the growth it can provide our business. Terrific.

And then just maybe one more from us, and that's just on the Salesforce, in particular the U.S. commercial organization. Your current thinking on opportunities to perhaps expand and extend that network in 2022, and specifically as we think about that LCD update, is that a potential inflection point for a more aggressive more aggressive investment into the commercial infrastructure. I'm just trying to kind of put that in the context of the revenue guide.

Yeah, Kevin, I get that. We are not, our revenue guidance does not imply any additional sales, spend, heads, or add to our sales force. We think at this point, based on our 2022 projections and guidance, we're right-sized. We also if we feel we can accelerate growth as patient flow returns and all these factors flip as we know they will, then we'll do that. But it's not incorporated or factored into our 2022 view at this point. Extremely helpful.

Appreciate the update. Thanks, Kevin. We can now go to Mark Massaro of BTIG.

Hey, guys. Thank you very much for the questions. You know, recognizing that SELECT-MDX is a urine-based test pre-biopsy and CONFIRM-MDX is a tissue-based test post-biopsy, is there any reason to think that SELECT is likely to perhaps outpace CONFIRM, just recognizing the sample type and where it sits in the workflow? And then, you know, a second part to that question, Are you seeing urologists holding back ordering select MDX because the Medicare decision is not finalized, or are they ordering regardless of the reimbursement status?

Yeah, thanks, Mark. Okay, a couple points to make. Number one, with regard to the adoption, we kind of like the mix and profile of the two tests in our menu, because the select MDX market from a unit perspective is significantly larger than the confirmed negative biopsy market. And yet the confirmed reimbursement ASP is likely meaningfully higher than the select. So what we think that does is if we drive unit growth, which our sales team will be doing, then we like the way that just drives revenue, right? So if our select Volume goes where we know it will go and our confirmed volume continues to grow. We like that mix for providing really sustainable growth as far as the. The Medicare coverage driving adoption, you know, if you look at our adoption to date. And our units are, you know, our units for 2021. You know, it's clear that we've been able to drive adoption of our, I'm sorry, our select test. Into your algae from a unit perspective. And it's candidly, that has to happen, right? Because we have to demonstrate market appetite, market opportunity, clinical utility, clinical validity. The first thing payers are going to do is, is it being used? So we've demonstrated all that. I think that's been reflected in both the draft LCD and inclusion in the NCCN guidelines from a clinical utility perspective. So we kind of expect all that body of work to begin to drive both volume and clearly now revenue, because that's been a cost carry for the business over the last three years since I've been here. And we're very much looking forward to the accretion of the gross margin that revenue coming over that volume provides. And the same with UTI. Hopefully that answered your kind of two or three points of that question.

Yeah, yeah, that's super helpful. So I guess, you know, you did generate a nice – you did generate a beat on Q4 revenue. You did come in a little bit lighter than us on volume. So, you know, you talked about improved revenue cycle management. Can you just give us a sense for whether or not you had any one-time catch-up payments from prior quarters? And then should we expect any of those, if any, later in 2022? Sure.

Yeah, no is the answer to that second part of your question. So so you know we we acknowledge that predicting the units over the last few months and a couple of quarters has been has been challenging, right? And but but what we feel very positive about is the predictability and project ability of our business based on our driving of units, which we know will begin to become evident obvious this year. And then the real improvement progress on coverage and collection. So no is the answer to, you know, have we, are there any timing aspects to our revenue? If you look at, you know, historically, Ron, we made some real changes to the way that we operate from a discipline perspective, from a revenue cycle management perspective, and from a payer collection perspective. And that's what you're seeing in our, you know, the revenue growth getting a little bit ahead of the units. We like that. that difference, but we know that the other catches up, and then it goes from there. So we don't expect any contraction on our average sell prices or collection patterns over the last couple quarters, and we expect accretion, obviously, on the select volume and the UTI volume.

Okay, great. And then my final question, did you have any – volumes for UTIs in Q4. I had a small number. I understand you soft launch it. I'm really just asking, you know, has UTI been broadly commercialized across your commercial channel nationwide? And I guess I'd be curious if you could just speak to your confidence on understanding how reimbursement will play out for this test. I think it was asked earlier if these are existing or miscellaneous codes, but have you started billing for this test as well?

Yeah, so we did have unit volume in Q4 not material to report. We have now entered into a full launch with our our sales force and will begin to report our volume and revenue associated with UTI. We do expect it to contribute to revenue, and we have had reimbursement experience with a variety of our payers, but I will tell you that Ron and I, and I'll give Ron credit for this, we just want to make sure that we have enough data and experience to be able to give you a good view forward of how we view that contributing to our revenue. We have a clear understanding of the reimbursement landscape, and we have good visibility to that contributing to our 2022 revenue growth.

Okay, great. That's it for me.

Thank you.

Thanks, Mark.

Our next question comes from Thomas Branken of KBC Securities.

Hi, thanks for taking my question. Two from my side. First question is with regards to the select test and the implications of the potential LCD coverage or the anticipated LCD coverage that you're looking at in the coming months. To which extent would you see this as a catalyst for driving further coverage or reimbursement coverage on the private insurers as well?

Yeah, Thomas, first of all, thank you for staying up late and joining us. We appreciate it. Yeah, we kind of view that model as our experience with Confirm where, and I think most comp tests in the space, right, where Medicare tends to be the catalyst for broad commercial private payer coverage. And I will tell you, that's our expectation. And we In advance of that, our coverage reimbursement team has already been very focused on getting payers up to speed on the clinical utility, the clinical value, and the update on the NCCN guidelines such that we would expect that to be the case again as it did with Confirm.

Okay, thank you. And secondly, on the UTI tool, we already talked a bit on how you look at reimbursement moving forward there. I was also wondering how you look at potential guidelines inclusion there. Is this also a relevant aspect for UTI, and how do you look at that?

So, kind of different patient segments there with NCCN applying to our cancer menu. UTI being on the infectious disease side, but I would say that one of the key criteria for us entering the market was that the market itself, the clinical utility or clinical adoption and need for a more rapid, highly multiplexed organism and drug susceptibility test versus traditional culture methods is clear, we believe. And that was part of the again, the criteria for us entering. So we believe that, again, it's a different, it's driven by different value propositions, but we think we have a good understanding and visibility to that. And the most important thing, Thomas, I think is we feel very good about the fit with our sales team, our reach, our customer base, and not being dilutive to our focus with our prostate cancer menu. We think they go together very well in presenting a value proposition to the urologist.

All right. Thank you very much.

Thomas, thank you. As there are no further questions, that concludes today's conference call.

We thank you for your participation and you may now disconnect.