Biora Therapeutics, Inc.

Good afternoon, everyone. Welcome to the Progenity First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, you may press star-zero on your touchstone telephone. And I will now turn the call over to Robert Ohl, Managing Director with Westwick ICR, Progenity's investor relations firm.

Thank you, Operator. Good afternoon, and welcome to Progenity's first quarter 2021 financial results conference call. Joining me on the call are Dr. Harry Stiley, Chairman and Chief Executive Officer, and Eric Desbarbas, 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 but not limited to the types of statements identified as forward-looking in our quarterly report on Form 10Q 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 Investors 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 business, please see our periodic reports filed with the SEC. A slide deck with some supplemental first 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 Q1 with our revenue generating business, but especially with our innovation pipeline programs. And this is the area I want to focus on first during our call today, as a company plans to enhance its focus on strategic biotech areas, having, in our opinion, the highest possible value generation potential as our GI precision medicine and preeclampsia programs. It has become clear to us that investors are currently placing more value on large unmet medical needs that can be alleviated by high-margin therapeutics and molecular diagnostics. We have made clear progress in our Precludia test, with several recent studies showing a high probability of accuracy that could lead to significant commercial use. We have already initiated an analysis of our Pro104 validation study, which upon satisfactory completion, will trigger our commercialization phase by Q4 As a reminder, preeclampsia is the second most common cause of maternal mortality in the U.S. with more than 700,000 women presenting each year with signs and symptoms of possible preeclampsia. Preeclampsia is a global scourge and an effective operator independent test that aging diagnosis is simply not currently available. Preeclampsia is associated with a range of signs and symptoms, hypertension, protein urea, but also, for example, headaches, edema, and GI pain. The only way to currently treat preeclampsia effectively is to deliver the baby before 37 weeks, resulting in premature delivery with an increased risk in health consequences and healthcare costs if that were to occur. A test ruling out preeclampsia in women with signs and symptoms, such as precludea, has the potential to transform patient management. especially in our intended use population, which is primarily represented by the OBGYN. In order to rule out asymptomatic women, clinicians need a high degree of confidence in a negative score. This is why Precludia is optimized for negative predictive value, or MPV, which is driven statistically by sensitivity and the prevalence rate. Adherence to the ACOG guidelines generates, at best, an NPV of 83%, and this performance represents the standard of care today in the U.S. Indeed, ACOG, in their 2019 guidelines for preeclampsia, discourages approaches based on positive predictive value, or PPV, which is statistically driven by specificity, which is not as important for a high NPV test. A false positive means our test cannot rule out the risk of the patient for developing preeclampsia, so these patients would be subject to the same existing standard of care. We identified eight protein biomarkers through our research initiatives into the disorder and have developed a multivariate algorithm-based test as an LDT immunodiagnostic. Furthermore, over a number of years, we have developed a sophisticated and growing understanding of our actual clinical practice and insights into the clinical heterogeneity in relation to preeclampsia management in the US. Precludia is designed to have a high NPV of at least 95. As a reminder, our NPV has consistently exceeded 97% at a 10% prevalence. in the intended use population, corresponding to a gestational age of 28 weeks to 37 weeks, the window where most preeclampsia occurs. With our clinical verification study, which was presented last week at the ACOG annual meeting, we determined a rollout window of up to 14 days. This was corroborated in pre-validation and will be pressure tested in our PRO 104 validation study. In other words, our NPV test result rules out with high confidence preeclampsia for up to 14 days. The patient that is ruled out can be managed less conservatively, and ideally, the pregnancy can be extended. With many patients, it is possible that more than one test or one of our tests will be used per patient. This will be determined by the physician based on signs and symptoms of patient's gestational age, whether the patient is ruled out and whether testing is occurring on either a one or two week cadence. We announced on Wednesday last week the results of our Precludia pre-validation work, which demonstrated commercial laboratory readiness and also showed test performance in our intended use population to be consistent with our PRO-129 verification study with sensitivity greater than 87% and an MPV greater than 97% at a prevalence of 11% in a rule-out window of 14 days. The specificity was determined to be 66%. These data reflect the ongoing de-risking in our Precludia program, and they position us strongly for our validation study. As a reminder, we also announced we completed assay testing and are now initiating data analysis of the PRO-104 clinical validation study samples. We plan to share headline performance data from this study in the June-July timeframe. I am pleased to report that we are on track to meet our previous disclosed validation milestone. Assuming our precludea rollout test performs as expected in the PRO-104 validation study, we plan to begin a targeted launch by Q4 2021 and believe the performance level we've seen so far, coupled with market education, should facilitate initial commercial adoption and the clinical utility study. As a result, we are now just a few months away from launching a new product in an existing channel addressing a clear unmet need in a multi-billion dollar US market. I could not be more excited about the potential for this test to positively change clinical practice in the management of preeclampsia and to generate economic benefit to the health system. It will be an important complement to our existing women's health test portfolio and provide a differentiated test menu for OBGYNs and MFNs. Beginning 2022, preclude years, expected high margins, and anticipated adoption rates should positively contribute to our revenues and help drive our core business to profitability. We recently completed research on payers using a third party to better understand how they would characterize the value of precludia testing. We were very encouraged by the findings, indicating payers have an understanding of the economic burden of preeclampsia and of the precludia test value proposition. This pricing study reinforced our initial work, signaling compelling reimbursement that supports a U.S. $2 billion to $3 billion opportunity. at performance levels consistent with the ratification and pre-validation studies. Future publication of our work today, including validation, a clinical utility study, and additional health economic studies, should drive our reimbursement goals. Precruiter has potential as an IVD immunodiagnostic and also has a global market opportunity. The other area of major progress this past quarter is our GI precision medicine pipeline. We continued during the first quarter to advance key preclinical and clinical studies, especially for our drug pipeline, now using fully autonomous devices. Let's start with our drug programs. The first program update is around the significant progress we've made in our targeted therapeutics program. The goal of this program is to deliver high-dose pharmaceuticals to specific locations along the GI tract. This could become a multi-billion dollar platform if we are successful partnering it with major pharmaceutical companies and advancing our pipeline. I am pleased to share that in the quarter, we met our previously reported key milestones for the drug delivery system, DDS. In this program, we are developing drug device combination products that deliver proprietary subutilized formulations of drugs with our DDS to the site of disease in the GI tract, thereby maximizing the available dose in tissue and achieving pan-colonic distribution, important for disease impact. Furthermore, our platform results in reduced drug breaking through systemically, demonstrating potential for a greatly enhanced therapeutic safety index. We are first targeting the estimated $15 billion inflammatory bowel disease market with our two lead drugs, PGN001, adilumumab, a monoclonal antibody, and PGN600, tofacitamib, a small molecule normally absorbed in the stomach and upper GI tract, with our initial focus being ulcerative colitis. To bring this point home even further, Earlier this week, we announced that we secured funding from the Crohn's and Colitis Foundation's IBD Ventures Program to further develop Progenity's first-in-class oral DDS for delivery of targeted therapeutics for IBD. As a reference, only 5% of submitted projects received funding last year from the Fund Selection Committee. This endorses that our drug-device combinations have real potential to improve patient outcomes by delivering higher drug concentrations at the site of disease to improve efficacy while limiting systemic uptake to enhance safety. To illustrate this potential, we completed our first clinical study with the fully autonomous DDS, evaluating the capsule's safety and tolerability in the gastroenterostinal tract of 12 normal, healthy volunteers. The study also collected the first clinical data on the ability of the DDS to both 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. The single administration study used a well-established method of scintigraphic characterization to validate the DDS-GI localization as well as the drug delivery mechanism. using a saline solution payload that includes radioisotopes. Preliminary analysis indicates the majority of DDS devices performed as intended and autonomously and accurately identified entry into the colon, releasing its liquid payload, resulting in pan-colonic distribution. No safety issues were reported. This is the first time we have demonstrated fully functional targeting and delivery capability in humans. and builds on our previous clinical work demonstrating location in both healthy and disease-bearing patients. We will now continue advancing the DDS towards further clinical studies to deliver therapeutics, our therapeutics. We also completed a preclinical study evaluating the safety, tolerability, and PKPD effects of a seven-day administration of PGN600, Sejubilase tofacitinib delivered by DDS, at doses of 25 milligrams or 10 milligrams per day, with direct comparison to a standard oral-administered tofacitinib tablet at 10 milligrams per day in 12 dogs. This was the first study evaluating PGN600 as a combination product of the company's proprietary solubilized formulation with tofacitinib delivered with the DDS. Preliminary analysis subject to final audited study report indicates PGN600 has a favorable tolerability profile that the DDS function as intended in the majority of doses and resulted in significantly higher tofacitinib concentrations in colon tissue with lower systemic blood concentrations than the equivalent 10 milligram dose delivered by a standard oral tablet. Tissue tofacitinib levels and tissue to plasma ratios of tofacitinib levels along the length of the colon were at least 25 to 50 times higher, respectively, with PGN600 at 10 mgs daily compared to the standard oral tablet formulation at the same dose. These results demonstrate that PGM-600 proprietary liquid formulation can achieve a panclonic distribution facilitating mucosal penetration. In addition, no evidence of tissue damage was observed by histology at either 25 mg or 10 mg of PGM-600. The results of this study will help inform the clinical dosing of PGN600, with data suggesting that a dose lower than currently commercially available tofacitamib formulations may lead to significantly greater tissue drug concentrations and materially reduced systemic exposure, potentially resulting in enhanced efficacy and lower systemic side effects. We plan to update you in the next quarter or so with data from our ongoing clinical study in patients with UC using the monoclonal biotherapeutic Humara delivered by Enema, which are both proxies for our PGN001 adilumab and our DDS platform. So far, preclinical experiments in mice and swine give us increasing confidence that DDS PGN001 could be effective in humans. The data we shared with you today in humans and in canines demonstrates the potential of the DDS to transform the treatment of UC by maximizing the available dose at the site of disease while greatly reducing systemic exposure of these potent drugs. We believe our DDS platform promises to materially advance the treatment of GI disease, initially for IBD and UC. Our strategy begins with transforming established drugs with known efficacy and safety profiles but has the potential to materially enhance any compatible drug directed at treating GI localized disease, and in this instance, enables new effective IBD treatment regimens such as rapid induction and drug combination therapies. While the DDS is designed to treat GI localized disease with minimal systemic breakthrough, the oral biotherapeutics program is designed to achieve oral delivery and to maximize systemic distribution of biotherapeutics, especially monoclonal antibodies, but also other proteins, peptides, and nucleic acids. Our prior proof-of-concept studies using endoscopic placement of a non-ultimated oral biotherapeutic delivery system, OBDS, achieved 27 percent bioavailability as a percentage of IV for Humara, a monoclonal and dulaglutide SC fusion to two GLP-1s in porcine models, representing unprecedented bioavailability for monoclonals and a fusion protein. Recently, we initiated preclinical studies of our lead candidates, PGN0B1 adalimumab, a monoclonal, and PGN0B2 GLP-1 agonist, a peptide. utilizing a fully autonomous OBDS. The goal of these studies is to demonstrate bioavailability of our lead sublubilized drug candidates with an automated OBDS and those of our pharma partners in comparison to parenteral administration. We believe that the OBDS platform, which includes a mechanical device, has the potential to transform how biotherapeutics are delivered orally, potentially opening a vast market This platform can be utilized with multiple different therapeutics that meet a broad envelope, operating envelope and PKPD characteristics. Our first partnership with a major pharma is advancing as expected. Recently, we announced an exciting new partnership with Ionis, leveraging our mutual capabilities to explore the use of the OBDS platform for delivering antisense oligonucleotides. If successful, this work has the potential to lead to a broader partnership with our owners, but may also enable further partnerships based on antisense, RNAI, and potentially vaccine delivery. As we indicated previously, now that we have a fully autonomous device and are generating preclinical data, we are witnessing an acceleration of pharma interests in partnering with us. We are confident that given the advances today, and hopefully continued compelling preclinical data, we will have opportunities to enter into additional partnerships that provide validation, risk sharing arrangements, and a significant non-dilutive capital component. We look forward to providing further updates. Moving to our GI diagnostic activities, in our PLDX SIBO program, We continue to advance the technology with ongoing assay validation and are on track to initiate a clinical pilot study with fully autonomous devices in the second half of the year. The progress made so far with auto-allocation performance in the DDS programs translated into additional de-risking for both the RSS and the PLDx programs. As a reminder, the PIL-Dx capsule can perform a range of in situ fluorescent-based assays for a variety of GI-related pathologies without the need for capsule recovery. In this regard, it is a digital technology that you can ingest at your convenience and transmit the assay data to a wearable receiver. Our first product is the Smart Capsule Bacterial Detection System, SCBDS, for evaluating small intestinal bacterial overgrowth, or SIBO. There are over 100 million annual patient visits with patients showing signs and symptoms resembling those of SIBO, and current diagnostics are invasive and rely upon custody, endoscopy, and microbiological culture, and or inaccurate breath tests. Based on feedback and public statements from our KOLs, including the American College of Gastroenterologists, this presents the opportunity for the SCBDS to become the standard care for evaluating suspected SIBO. Beyond SIBO, our PLDx program is beginning to generate potential interest in other infectious disease areas. and also inflammatory bowel disease, colorectal cancer, pancreatic disease, and liver diseases. Moving to our sampling program based on the recoverable sample system, the RSS, a capsule designed for both discovery and diagnostics. This continues to progress well. Initiation of the first clinical study with the fully autonomous devices is on track to begin in the second quarter this year. To conserve financial resources, we are currently focusing the majority of efforts on our drug programs as we look to generate capital to supplement our other potential sources of funding. Completing our innovation pipeline update is our single molecule detection platform. We continue to make progress over the past quarter. While the development of the platform, and it's supposed to be our next generation NIPT test in NIDA4. We continue to believe that NIDA4 has the potential to reduce RNA epigenomics by up to 50 percent and achieve equivalent performance to traditional sequencing. In addition to genomic solutions such as NIPT, our single molecule detection platform has the potential to detect known RNA epigenomics and protein biomarkers with high sensitivity and low cost. This platform has the greatest potential, however, for oncology testing. Now I will discuss our molecular testing business. Our core business achieved revenue growth of 72% quarter over quarter, with 46% growth over Q1 2020. The turnaround of our core lab business continues to gain momentum, especially with strongly improving ASPs, that are already ahead of our internal year-end targets. Revenue cycle improvements beginning last year are having an increasingly accretive impact, which we believe will accelerate momentum in the second half of 2021 and into 22 and beyond. Average risk NIPTs also being reimbursed faster than our internal forecasts as our new carrot testing panels. The margin contribution from this should accelerate with volume as we further improve liquidation. I'm also pleased to share that Aetna selected Progenity as one of their preferred NIPT providers. We have come a long way with Aetna. The restructuring process to our sales channel because of our in-network transition and billing improvements initiated in Q4 of last year is advancing, and the account attrition resulting from it continued its path to stabilization in the first quarter of 2021. We continue to see provider acquisition and rising tests from new and existing providers. We are close to turning a corner with volume as we strengthen our sales force, our processes, and our productivity. Our affiliate Averro Molecular that provides COVID-19 testing is diverting resources from COVID to focus on core revenue opportunities. Averro is maintaining a COVID testing offering but will stop promoting the service primarily because demand characteristics have changed and we are focusing our commercial efforts on our core business. I'm also pleased to share that during the first quarter, progenity further increases in network covered lives with an additional 3.3 million lies from our new contracts with regional payers. Separately, we're advancing in our efforts to achieve in-network status with the remaining two large commercial payers, and we're hopeful we can add a significant number of covered lies with access to our product portfolio in the second half of 2021, which should lead to a further expansion of our commercial presence. Going forward into the balance of 21 and into 22, we anticipate a number of catalysts that will continue to drive margin improvements and should increase test volumes, these being benefiting from rising demand for average-risk NIPT and carrier testing, improving reimbursement for NIPT, advancing our in-network transition from the anticipated launch of our precludea test by Q4, a highly differentiated product in our existing channel. Furthermore, in 22, we should be fully benefiting from broader average risk reimbursement. The expected margin improvements may also help provide a differentiated advantage and drive increased demand for NIMPT services, especially from other labs and health systems. Our molecular testing business is beginning to show signs of returning to be a positive contributor to our success, and that will synergize with the launch of our Precludia test, and we expect this to become more explicit as we progress into 2021 and beyond. With that, I'll now turn the call over to Eric Desparves for a discussion of our financial results for the first quarter of 2021.