Biora Therapeutics, Inc.

Welcome to the Progenity 4th Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. Ask a question during the session. You will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I will now turn the call over to Robert Aul, Managing Director with Westwick ICR, Progenity's investor relations firm.

Thank you, Operator. Good afternoon, and welcome to Progenity's fourth quarter 2020 financial results conference call. Joining me on the call are Dr. Harry Stiley, Chairman and Chief Executive Officer, and Eric Desbarbis, Chief Financial Officer. Before I turn the call over to Dr. Stiley, I would like to remind you that today's call will include forward-looking statements within the meaning of the federal securities laws, including the but not limited to the types of statements identified as forward-looking in our annual report on Form 10-K that we will file later today and our subsequent periodic reports filed with the SEC, which will all be available on our website in the investor section. These forward-looking statements represent our views only as of the date of this call and involve substantial risks and uncertainties, including many that are beyond our control. Please note that the actual results could differ materially from those projected in any forward-looking statement. For a further description of the risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements, as well as risks related to our businesses, please see our periodic reports filed with the SEC. A slide deck with some supplemental fourth quarter financial information is also now on the website, but it will not be directly referenced by the speakers on the call today. With that, I will now turn the call over to Dr. Harry Stiley, Chairman and CEO of Progenity.

Thank you, Robert, and thank you all for joining us this afternoon. We made significant progress during the fourth quarter, both with our revenue-generating business and especially with our innovation pipeline programs. In Q4 2020, we made progress in stabilizing our core revenue business. In addition to revenue cycle improvements that are beginning to strengthen ASPs, we continue to witness strong new customer acquisition and in-network expansion by adding national and regional contracts. Further, we advanced our discussions for in-network status with our remaining large commercial payers and saw additional commercial and government payers covering average risk and IPT. These factors, which will continue to grow in contribution, are helping lay the foundation for sustained growth in 2021 and beyond. We maintained a disciplined approach to managing our operating expenses during the quarter through a combination of reduction in force and cost controls, whilst maintaining appropriate resourcing of our key R&D programs. Eric, our CFO, will provide more details later in the call. During the quarter, we raised $180 million gross proceeds in December 2020 from a concurrent secondary equity offering and issuance of convertible notes. In addition, in Q1, we raised $25 million in gross proceeds from a private placement with two leading healthcare-focused investment funds that were drawn especially to our innovation pipeline. We view this increasing investor engagement positively and it allows us to extend investor focus beyond our core molecular testing business and into our innovation pipeline, which is now progressing at an accelerated pace. We were able to see evidence that our core business in the fourth quarter of 2020 was stabilizing and reported 82,000 tests, including 56,000 core molecular tests and 26,000 COVID-19 tests. In the quarter, we continue to witness customer turnover primarily due to changes we implemented during 2020 to strengthen our revenue cycle management and our billing process. As we approach the end of the first quarter of 21, the headwind of account attrition due to the aforementioned changes continues to significantly weaken. By contrast, we continue to secure new business with significant success. These new accounts are now increasing in productivity and beginning to help offset losses due to account attrition. I'm also pleased to share that during the fourth quarter, Progenity further increased its in-network covered lives with an additional one million lives from new contracts with regional payers. Separately, we're advancing in our efforts to achieving network status with remaining large commercial payers, and we're hopeful we can add a significant number of covered lives with access to our product portfolio in 2021, which should lead to a further expansion of our commercial presence. We further expect that our NIPT revenue and ASP will gradually improve as more payers begin to reimburse for average risk NIPT. Several key commercial payers, including more recently Fidelis Centene and Humana, as well as multiple state Medicaid programs, have begun offering coverage for average risk. As a result, many of our payers currently cover average risk. and most have indicated that it's a permanent shift in their medical policies. We expect that a rising ASP for average risk and IPT will make an important contribution to our revenue as it represents a significant and growing aspect of our product mix. As a reminder, in September, we expanded our carrier testing screening menu to better align with payer medical policy coverage, which we believe will also result in improved revenue NSP in the coming quarters. We have already converted approximately 80% of our carrier screening book of business to this payer line menu. In January, we implemented a patient cost estimator nationally that provides transparency to the patient's responsibility early in the testing process, and this program has further helped drive revenue and expand our business. We expect to begin realizing benefits from these changes in 21 with significant volume and revenue contribution from our NIPT and carrier testing product lines. We did experience a transient impact from the recent winter storms in Texas, a major market for us, and across the eastern United States. We remain confident that Q1 2021 ASP will show growth over Q4 as we continue to stabilize the business and establish our growth trajectory over the coming quarters. To serve our patients and physicians, we launched our COVID-19 testing nationally within our channel, in January. While our core women's health molecular testing business remains by far our priority, COVID-19 testing is helpful to both margins and volumes. For planning purposes, we continue to view COVID-19 testing as a transient opportunity and will adjust our efforts accordingly to respond to the rapidly changing testing demand dynamics while aiming to maximize the opportunity. We are working diligently to demonstrate that our revenue generating business is a strong and positive contributor to a success and expect this to become more explicit as we progress in 21. A quick note with respect to our ongoing litigation matters. While we continue to believe them to be unfounded and expect to vigorously defend our position, we're not going to go into detail on this call and refer you to our disclosures in our 10-K. Progenity is innovation-driven, and in this regard, throughout Q4, we have achieved development and critical risk-reducing milestones across our pipeline programs. During the fourth quarter of 2020, we made significant progress in our development efforts in the field of preeclampsia, a complex syndrome, by achieving a key milestone in analytical and clinical verification for our LDT rule-out test, now branded Precludia. The test, a multi-biomarker test with algorithmic analysis, is primarily intended for use by the OBGYN and MFM physicians to rule out preeclampsia in symptomatic patients. We are pleased with how our assay and platform are performing, and an abstract with data from our clinical verification study, PRO-129, was recently accepted as a late-breaking abstract at the 2021 Virtual ACOG Annual Clinical and Scientific Meeting in May. We have also initiated clinical sample testing for Pro104, a validation study which is expected to read out mid-year. During the fourth quarter, we held a virtual pre-eclampsia R&D day event During this event, we shared analytical and clinical verification data, as well as perspectives and insights from physicians and patient advocacy groups. The event provided additional understanding about the current unmet needs in managing pre-eclampsia. It also provided color on how our tests will help add clinical value by identifying pregnancies that can safely be prolonged, reducing unnecessary preterm deliveries. In other words, the Precludia test has the potential to improve outcomes and enhance the quality of pregnancy care. We are currently processing and analyzing samples from our Prevalidation cohort, a subset of randomly selected samples from the PRO104 study. The Prevalidation subset and the PRO104 study will further challenge the operational readiness of our production systems. further define our target population and expand upon our understanding of the heterogeneity of the broader patient population. Assuming successful clinical validation, Precludia would be the first and only preeclampsia rule out test in the U.S. for symptomatic patients in their third trimester of pregnancy. As a reminder, Precludia is a global opportunity and we also intend to realize that potential in the future. We recently completed research with payers using a third party to better understand how they would characterize the value of Precludia testing, and we were very encouraged by the findings indicating their understanding of the economic burden of the disease and our value proposition. More to come on the commercial impact in the future. Our commercial team is diligently preparing for the launch of Precludia in the second half of 2021. including plans for our targeted physician experience program, Salesforce training, and marketing campaigns. These activities will increase and accelerate as we move into 22. Moving to our single molecule detection platform, we continue to make progress with the development of the platform and its first assay, our next generation NIPT test in natal form. As a reminder, we announced in the fourth quarter we had achieved high target specificity across tens of thousands of multiplex single molecule detection probes, resulting in a measurable dose response to fetal fraction. This achievement enabled assay integration and initial performance benchmarking. This capability is critical, especially given ACOG's recent opinion highlighting the essential need to quantify fetal fraction in NIPT tests. We believe that Inatal 4 has the potential to reduce NIPT direct COGs by up to 50%, allow for a faster turnaround time, and achieve equivalent performance to sequencing. With these features, InNatal 4 is expected to usher in new opportunities for us to fuel growth in the NIPT market. In addition to genomic solutions such as NIPT, our single molecule detection platform has the potential to detect known RNA, epigenomic, and protein biomarkers with high sensitivity and low cost. The platform will be suitable for additional pipeline projects including several oncology opportunities in the near future. Moving to GI precision medicine, we continue to advance programs into key preclinical and clinical studies, now using fully autonomous devices where available. In targeted therapeutics, we recently announced initiation of an important clinical study for a drug delivery system, DDS, which in combination with a drug and proprietary formulation will be used to initially treat ulcerative colitis and other GI-related diseases. The company started its first clinical study with the fully autonomous DDS, evaluating the capsule's safety and tolerability in the gastrointestinal tract of normal, healthy volunteers. The study will also collect the first clinical data on the ability of the DDS to auto-locate and accurately deliver a payload to the ileocecal junction or colon, a key delivery site for the treatment of ulcerative colitis and Crohn's disease. This study will investigate the in vivo behavior of the DDS using the well-established method of scintigraphic characterization. Gamma scintigraphy will be used to validate the DDS GI localization as well as the drug delivery mechanism using a saline solution payload that includes radioisotopes. The DDS capsule will be evaluated in a single dose application in three separate dosing cohorts. Results of the study are expected in the second quarter of this year. If successful, this study will represent a significant milestone and build upon the promising preclinical testing done to date. This will enable us to advance our pipeline for both of our lead candidates, the JAK inhibitor tofacitinib via the 505b2 pathway and the monoclonal biotherapeutic, Adalimumab, which we have manufactured under contract. The oral biotherapeutic program, OBDS, for the systemic distribution of biomolecules orally has also advanced, and we expect to update you on our next key milestone shortly, showing for the first time the performance of our fully autonomous device in a canine model. We believe that the OBDS platform has the potential to transform how biotherapeutics are delivered orally. In our PLDX SIBO program, we continue to advance the technology with ongoing assay validation, and we are on track to initiate a clinical pilot study with fully autonomous devices in the second half of the year. As a reminder, the PLDX can perform a range of fluorescent tests based assays for a variety of GI-related pathologies without the need for capsule recovery, with the first indication being small intestinal bacterial overgrowth, or SIBO. There are over 100 million annual patient visits with signs and symptoms resembling those of SIBO. In a recent interview, SIBO expert Dr. Satish Rao communicated that the PLDX has the potential to be the new gold standard for evaluating suspected SIBO patients. Our assay for quantifying bacteria compared favorably to endoscopic aspiration followed by microbiology and received the small bowel section award at the ACG conference last October. A sampling program based on the RSS Capsule is designed for both discovery and diagnostics and continues to progress well. Initiation of the first clinical study with fully autonomous devices is on track for the second quarter this year. The RSS will enable us to recover preserved microbial cellular and omics samples from predetermined known locations in the GI tract. Once the RSS is recovered from the store, two samples drawn from the same location can be extracted for analysis by a range of benchtop systems. We continue to be actively engaged with additional potential pharma partners as we advance our precision medicine pipeline and expect developments on that front, especially as we generate data with our autonomous devices. With that, I'll now turn the call over to Eric Despavis for a discussion of our financial results for the fourth quarter of 2020.

Thank you, Harry, and good afternoon, everyone. I'll provide a brief overview of our financial results and also invite you to review our fourth quarter financial release and our 10-K for a more detailed description. During today's call and in line with our third quarter call, I'll describe our sequential quarterly performance focusing on our third and fourth quarters of 2020. We also include year-over-year performance in our disclosures, but we believe this sequential comparison is more meaningful as progeny transitions to a largely in-network operation and reflects the impact of the COVID pandemic, which was not a factor in 2019. We reported $14.3 million in revenues in the fourth quarter of 2020, net of a $10.7 million reserve for potential payer settlements. As shown on page 12 of our earnings deck, Q4 2020 revenues before accruals were relatively flat compared to Q3, which is consistent with our prior guidance. While our Q4 volume was slightly lower than in Q3, we started to see some ASP improvements in December before payer settlement provisions, which gives us confidence our revenue cycle management efforts can generate increased ASPs. We believe the vast majority of the operational improvements we've implemented last year, combined with the benefits of our increasing in-network position and favorable average risk and IPT coverage by government and commercial payers, will all converge to deliver a strong financial performance in 2021. As a result, we maintain our 2021 overall revenue guidance range. While uncertainties remain around COVID-19 testing demand dynamics, We believe the transition to growth of our core molecular testing business will continue to progress through 2021, and we expect to see the benefits of gradually growing volume demand and rising ASPs. We expect Q1 2021 core and overall revenues to be largely flat compared to Q4 2020 before payer reserves, but we anticipate continued strengthening of ASPs as we achieve stabilization of our business a trajectory that's consistent with our internal forecasts. While ASPs based on our reported revenues appear lower in the fourth quarter, our Q4 total ASP excluding payer settlement provisions effectively increased by 3%, in spite of an increase in COVID tests in our volume mix during the quarter. This was the result of a 10% increase in our core molecular testing ASP during the fourth quarter, as we are gradually seeing the benefits of our revenue cycle management programs. This positive trend is continuing so far in Q1. Our fourth quarter COGS and COGS per test decreased slightly compared to the third quarter due to lower volume overall and a shift in volume mixed during the period. SG&A expenses were $33 million during the fourth quarter of 2020, a slight decrease compared to the third quarter largely the result of cost control measures put in place during the quarter, combined with a 9% RIF we had announced back in November. R&D expenses were $11.12 million during the fourth quarter, a 14% decrease during the fourth quarter, mainly the result of stage-gated investment strategies where we allocate incremental R&D spend based on programs achieving various de-risking milestones. Our key R&D projects remain well-funded. Fourth quarter 2020 net loss was $75.5 million, which includes a $10.7 million reserve for payer settlement and $18.4 million charge for change in fair value of the derivative liability associated with the 2025 convertible notes we issued in December. Fourth quarter 2020 operating cash flows were negative $70.1 million compared to negative $51.3 million in the third quarter. The main difference between the two quarters relates to $29.6 million in scheduled government and payer settlement payments made in December. As a reminder, we now have $24.4 million remaining in settlement payments, which are payable over the next three years. During the fourth quarter, we raised $118 million in gross proceeds through a concurrent equity and convertible notes issuance and had a cash balance of $92 million at the end of 2020. We believe we have a cash runway that will allow us to deliver improved operating performance and achieve critical R&D pipeline catalyst events into the second half of 2021. While we remain receptive to additional funding opportunities, we intend to maintain a disciplined approach to securing additional capital. With that, I will now turn the call back over to Harry.

Thank you, Eric. As we look through 21 and beyond, we have many drivers of value creation and revenue generation at Progenity. We believe we will return to sequential quarterly growth driven by the differentiation of our products and services and by recognizing the benefits of increasing network coverage and improving reimbursement outlook for average risk NIPT. We are especially excited about the progress and transformational potential of our R&D pipeline as we prepare to launch Precludia and Inadl4 in our channel. In 2021, we anticipate meeting development and or launch milestones for our Precludia and Inadl4 tests. These products will help further differentiate our core business. We believe that our precision medicine platform will continue to gain momentum as we generate more preclinical and clinical data, initially fueling partnerships as a source of non-diluted capital and ultimately products and services that address high unmet need and vast markets. Progenity is well positioned for compelling value progression in the coming months and years. With that operator, we are now ready for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Stephen Ma with Piper Sandler. Your line is now open.

Oh, great. Thank you. And, Heron, Eric, thanks for taking the questions today. Thank you, Steve. Hey, Stephen. Hey. A couple on the payers. Could you give us a little bit more color on your current in-network transition, the billing revenue cycle management efforts? You said account attrition is weakening, but when should we expect these issues to be behind you? And are you expecting more customer turnover this year? And then finally, can you give us an update on the Anthem and United in-network discussions?

Okay, so, Steve, this is Harry. A couple of things. One, there will always be attrition in one's business, okay, and that goes for anybody, okay? However, the attrition due to our efforts last year, we expect it to essentially wind down to zero or close to zero by the end of this quarter. So, on a go-forward basis, we should really start seeing and getting visibility on the underlying volume growth, and that's based on the significant new customer acquisition we've made in the last couple quarters. So I'll stop there, see if you've got any more questions about that. The other part of the question was revenue. As you transition from out of network to in network, the business model changes. And what was working for us in the past is no longer sufficient in the present, as we are now predominantly networked. And we've got the opportunity to actually implement a whole range of initiatives, which we have been and will continue to do so, that will just drive liquidation, which will appear as ASP and ultimately rising revenues. And I believe we're just beginning to harvest the fruits of our investments today, and there's a lot more to come. Okay? So that gives you a sense. And we've highlighted a couple, but there are numerous efforts that are being directed to achieve enhanced liquidation and take full advantage of the in-network opportunity. And that's that part of your question. And then we are advancing our discussions with both Anthem and have recently reengaged with United. And I would say things are moving as expected. And we've said in the past that it's quite likely that we reach resolution and in network status with Anthem. hopefully in the next couple of quarters, but that's never absolutely predictable. As we see that happening, you should expect us to increase investment in sales, to take full advantage of the 44 million lives that will be available to us. And of course, this is predicated on things continuing to go well. And we re-engaged with United. And hopefully, if not this year, next year, we can build on our relationship with them also. And that's really the last two major commercial players that we have in front of us in terms of completing the network transition.

Okay, great. Thanks for the color. And maybe one more on NIPT, and maybe this is for Eric. You know, you mentioned there's some tailwinds following the ACOG guidance change, and you've observed that, and you expect to continue to observe that. But on the revenue recognition for average risk, are you going to be booking those revenues on an accrual basis, or do you need to build up a payment history with those that are newly covering average risk?

Yeah, it's the latter. You need to build a liquidation pattern before you start recognizing that higher ASP on all new volumes. That's basically the rules. The good news is that we're seeing that improvement already in December, the core, and, you know, the trend continues in Q1. So we're already ahead, if you want, of our original plan, if you look at a guidance, you know, average ASP that we had guided to. So we're very, very happy with that trend.

Okay, and you think that's going to be six to nine months to kind of build up that payment history?

Yeah, it will continue to build over time, absolutely. And you combine this with new payers gradually adding coverage, and as Harry talked about, if you add additional in-network coverage, then all of this leads to less friction in the process to basically get reimbursed for the test. So we see this very positively. Okay.

Okay, great. I'll hop back in the queue. Thank you.

Thank you. Thanks, Lisa.

Thank you. Our next question comes from Catherine Sharpie with Baird. Your line is now open.

Hey, guys. Thanks for the questions. I guess first, I appreciate your comments on starting to see some of that account attrition winding down. Can you just talk about any monthly volume trends for NIPT and carrier screening that you saw in the fourth quarter and so far in the first quarter?

Do you take it, Eric? Yeah, so we saw positive signs at the end of the year in terms of volume demand profile, and that trend seemed to be also very positive in January. As Harry mentioned a little bit earlier, we did have some weather disruptions that did affect a little bit patient behavior, if you will, but also the ability to operate labs. When you have a few states that lose power, basically, it just affects it if you want the trend. So that's why we kind of updated our guidance for Q1. But the overall message there is that we're seeing really good trends starting to build up, especially in terms of the new accounts that we've been winning, gradually adding demand. in terms of volume. So all of this is basically gradually coming together.

Okay, got it. Yep, that's helpful. On the $10.7 million accrual you took in the fourth quarter, I believe the initial amount that Anthem had talked about was around $27 million and You've talked about how usually you can settle those for less than the original amount. But how confident are you that that 10.7 number is the right number?

So I would say we are very confident that this is a reasonable accrual. We use our best judgment based on the status of the negotiation and the discussion so far. So we have a high comfort level. that this is a good base to use as a reference.

Okay. And then maybe my last one, we'll spend some time on the precision medicine side. You know, just any update on how the pharma collaboration you signed for OBDS last August is progressing so far?

Yes. It's actually advancing to the preclinical stage. which we expect to engage in towards the end of the second quarter. Okay, so it's moving very nicely. Great interaction with both the strategic oversight group there as well as the project team. And we're making great progress. And that's basically it. So hopefully soon. We'll all gain more visibility because we're about to hopefully... share more in a public context.

Great, thank you. Thank you. Our next question comes from Sanjeev man with BTIG. Your line is open. Hi, thanks for taking my question.

Harry and Eric, when you guys talk about take gaining new accounts, could you maybe talk about what's driving there? Are you displacing competitors there? And you know, kind of what what kind of efforts are you making in order to drive that?

Yeah, so in every case, we're displacing competitors. And so these are accounts we're winning in direct competition. If you recall, when we talked about account attrition, these are accounts that we're literally losing. They're ending up with competitors, but we're losing them. We're not losing them to the competitor in the direct sense. But in this case, we are securing business directly from competitors at a pretty high rate for us. And the reason why we're doing this is probably multitude reasons, but obviously we believe our products are differentiated, our services are differentiated, and increasingly we're using sophisticated tools that help us target the needs of accounts and positions in a much more much more, if you like, rifle shot kind of a way than we've been able to do in the past.

Okay, got it. And then I don't know if you're able to talk to your customers about in 804 yet, but we'd love to hear any feedback you might be getting kind of from potential customers in terms of the value proposition of that test.

We've had primarily, if you like, discussions with KOLs And the focus is always on the top line quality of the data, but they're very excited about the idea of a much faster turnaround because there's a demand for that. There's a need amongst consumers for a very rapid turnaround so folks can get their data as quickly as is possible. So I would say that's where things are resonating with our initial discussions in terms of the advantages this particular platform will offer. And of course, another advantage which could also be coming to the customer, but certainly will help us, is we anticipate a direct COGS reduction of around 50%. And that would be one of the key drivers to helping our business break even XR&D by the end of 22 or into the first half of 23. So we're excited about that. And that also gives us more pricing flexibility in the marketplace should we choose to take advantage of it so we could access more customers through partnerships and other relationships in a cost-effective win-win kind of a way.

Gotcha. That's very helpful. And then Lastly for me, in terms of the reduction in spores, obviously you're looking to manage your costs, but at the same time you have some new products that you're about to commercialize. So how should we think about, you know, is this the right size commercial infrastructure that you currently have, or would there be plans to potentially further add more headcount going forward?

The exciting thing is that both Precludia and Inno4 are in our existing channel, and we've got a relatively mature distribution and support capability in that channel. Now, there will be an opportunity to expand and invest both with additional skill sets to support sales, for example, as well as as we get access to more accounts because we're a network. And the other thing is Precludia is anticipated to open more physician doors and give us access to a lot more doctors' offices because of its uniqueness and novelty. And that, in addition to growing a network, will necessitate investment in the field force to achieve a broader reach. Okay. But these would be relatively incremental investments given the scale of our footprint today.

Gotcha. Thank you very much.

You're welcome. Thank you.

Thank you. Our next question comes from Andrew Cooper with Raymond James. Your line is now open.

Thanks for the questions, guys. A lot has been covered. Maybe just one. You know, we've heard from a lot of the players at this point on the COVID side of things that things have really slowed down. You sort of stuck with your numbers there. When we think about what that looks like for the year, you know, is there something you can give us in terms of, you know, visibility or contracting into what that looks like through the rest of the year? Have you, you know, won, you know, screening contracts or anything like that that you could shed a little bit of light on?

Yeah, we've secured contracts, and I won't go into the details of where we're finding opportunity for obvious reasons. So we have secured a significant number of contracts, but like you said, for us, this is really an incremental opportunity, and our focus is the core business, both now and in the long run, and we've been consistent about that. Now, we are taking advantage of this opportunity, and it is, you know, the dynamics have changed recently, but, you know, it's very hard to forecast where we're going to end up, you know, through this year, okay? So if you believe in additional waves, that will drive demand, and you're going to be in position to exploit those waves as and when they arrive. And then, of course, as the winter comes in, kicks in towards the end of the year, The view is there will be additional spikes. So that's what I will tell you. But recall, this is really an optional opportunity for us. It provides additional margin and some volume. And I'm going to invite Eric because he's bursting to add to my points.

Well, so what I wanted to add, Andrew, is and that's why we specify the overall revenue range. because right now we're already ahead compared to the guidance on ASPs so far. So what we view is that we're going to have a few pluses and minuses as you move throughout the year. And as a result, we feel pretty comfortable with the guidance range that we have currently. We'll give some updates later during the year as things progress.

No, that's great. Certainly appreciate that it's hard to predict and I'd much rather see you outperform on the core and some shortfall on COVID, if that's what it is. But maybe on some of the core, just real quick for a follow-up. When you're out there and you talk about winning more new accounts and, you know, the excitement around preeclampsia, I think in that there's some unmet need out there. When your sales folks are out there, I mean, what level do you feel like there's been any changes as you've gotten, you know, an award on some of the data and things like that to where has the demand, you know, and the excitement around for Euclidia really ramped up as launch is approaching or any changes in sort of how you feel like the market is perceiving this product over the last several months?

I think it's premature because we've not really promoted it. in the channel at this stage. And any excitement or interest is based on whatever we've shared with the public today. But as you, I don't know if you picked up on this, we have an abstract accepted, a late-breaking abstract accepted by ACOG for a presentation in May. And we look at that as a great sign that the clinical community is is paying attention and obviously interested in learning more about our precludio tests. So that's a good sign. We're going to really ramp up our efforts post-validation study and use the findings both from our prior studies as well as validation to drive market education and market reach. And the other dimension of that is to drive clinical utility studies and that will also result in a broad education and receptivity of the market. Now, we've engaged payers, and we'll go into this a bit more in detail in the future once we turn to commercialization opportunities. And this is a second occasion we've gone back formally to payers, and we're really excited that we've also got two super strong partners representatives of the payer opportunity set in the form of Jeffrey Orton and Sam Nesbaum on our board. And they've been quite helpful. So look, the payers seem to really get the economic benefit of a rollout test. It didn't require a lot of explanation. And there's great receptivity. And that's the other important thing. It's not just education of the physician and the patient. is are the payers getting what you're doing, and are they seeing sufficient value in order to accommodate payment for the test? And the answer is yes, and it's gonna be evidence-based, and arguably the most critical piece of data in addition to the validation study is gonna be our clinical utility program that we're gonna launch essentially post-validation. So all these events are going to conspire to build both awareness, educate the channel, educate the market, and ultimately achieve reimbursement. Okay. Great. Appreciate it.

Thank you. Our next question comes from Dan Leonard with Wells Fargo. Your line is now open.

Thank you. So first a question on the guidance for your core molecular business in 2021. You're run rating at about 225,000 tests in core, but you're guiding for about 300,000 in 21. Can you bridge one to the other for me? What provides the lift from the 225 to the 300 in buckets, if you will?

I think it's pretty straightforward. One is the attrition that we've experienced due to our billing process efforts is expiring. And that's a very large headwind that will be in the rearview mirror, essentially as we speak. Secondarily, if we look at the account acquisition that has occurred, the team has delivered a very significant number of new accounts in the last few quarters. Those are going to begin to kick in. And that's just about reflecting early on in our numbers. Okay, and those two are the biggest drivers. The third is expansion of the sales force, okay, which we anticipate in the next quarter or so. So those are really the drivers that will give us the top line that we've seen. And I think it would be, you know, not correct to judge the performance based on you know, our recent trends because they were unusual and transient trends, however significant they were to our business, that are basically playing out. Okay, they're basically done. Okay, so I think all these reasons are going to help fuel and drive the business on a go-forward basis. And then on the top, on the other end is, we've already seen Actually, we are ahead. If you look at where we thought our annual ASP would end up for 21, we are already materially ahead of that. Now, of course, we need to sustain that ASP, but as we've hinted and as we've pointed to, there are a great many irons in the fire yet to play a role, and we expect if anything, ASP to harden on a go-forward basis. Okay? So those are the reasons. And that, of course, doesn't factor in Precludia, which is in our channel. And we'll start, you know, all right, it's towards the end of the year, but it will enable us to build up our presence, build up the channel education. And I believe that's going to open doors and potentially result in pull-through menu. But I see that more as a 22 effect with a marginal 21 effect. Those are the reasons.

And then, Eric, I think you provided some comments on Q1 given weather and all that, but I missed some. What were the comments on Q1?

Yeah, so what I said, the reason why we're guiding to a relatively flat quarter is because in February, there were storms and power outages in Texas and the Midwest. And this is a pretty substantial market for us. So that has a little bit of an impact. It kind of delays and postpones certain things. so you don't get all the full benefit of the trends.

I mean, for example, our Vero site, our Vero business in Texas was adversely impacted for, I believe, between seven and ten days. And FedEx and UPS did not resume services into Texas for at least that period. Okay? So, yes, you're going to... scramble and recover quite a bit of that volume, okay, but you're not going to get all of it, okay?

Okay. And then just finally, given the importance of average risk in IPT, can you remind us of your core molecular, you know, what proportion of that in 2020 was in IPT, what proportion of that was average risk, and maybe you know, finally, what proportion you weren't getting paid on, so we could think about the potential lift here?

Yeah, so that's pretty straightforward. So approximately two-thirds of our volume is NIPT, and about two-thirds, 62% or so, of our NIPT volume is average risk, and we were being paid on a tiny fraction of our average risk. Okay, so I think I've said in the past, and I'll say it again, that if we take volume run rates that we were averaging last year and assume about 100% payment, which is not likely to occur, it might be more like 85%, but then you've got to factor in volume growth, we could expect $40 million, plus or minus $5 million, to drop to the bottom line and therefore be recognized as revenue. that's not being recognized today in the coming quarters. It's a material benefit, if you like, that again goes to your first question, that's how do you expect to grow volume and therefore revenues and so on and so forth. The other thing we're seeing and we're hearing is that the demand for average risk in the channel is increasing. And that suggests that there was latent demand that was probably being served by serum testing that now, because of the ACOG guidance, those physicians are feeling more comfortable about prescribing average risk for their patients. So we're seeing evidence of that, too, in the last few months.

Okay.

Thank you. You're welcome, Dan.

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Harry Stiley for closing remarks.

Thank you all once again for participating on the call, and thank you for your interest in progeny. If you have any additional questions, please feel free to contact us. Have a good evening or good afternoon, everyone. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.