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.

Thank you, Harry, and good afternoon, everyone. I'll provide a brief overview of our financial results and also invite you to review our first quarter financial release, and our 10Q for a more detailed description. We reported $25 million in revenues in the first quarter of 2021, in line with our prior guidance. This represents a 72 percent growth quarter of a quarter and a 46 percent growth from Q1 2020, as we now can report revenues without any accruals or reserves. We continue to see ASP improvements in a quarter, which gives us confidence our revenue cycle management efforts will sustain increasing liquidation. We believe the vast majority of the operational improvements we've implemented last year, combined with the benefits of our growing in network position and increasingly favorable average risk NIPT coverage by government and commercial payers, will all converge to deliver a progressively strong financial performance in 2021. So far, in the first quarter of 21, we generated an ASP upside of nearly $2 million compared to the first quarter of 2020, most of which is related to NIPT average risk upside. On a full-year run rate basis, that represents almost $8 million upside before adding volume growth and further expected liquidation improvements, which is a very encouraging sign. Based on current trends, we expect Q2 2021 overall revenues to return to growth compared to the first quarter of 2021. As a result, we're maintaining our 2021 core revenue guidance range. 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 growing volume demand and rising ASPs. As Harry previously mentioned, COVID was a transient opportunity for us. And since we are focused on our core business, we are choosing to no longer provide 2021 COVID volume and revenue guidance. While it was very much an opportunistic offering, we generated a positive and growing ROI on that original investment. Our first quarter COGS and COGS per test increased slightly compared to the fourth quarter due to non-recurring compensation expenses, but remained stable otherwise. Following implementation of cost control measures in Q4 2020, We continue to maintain a disciplined approach in managing our operating expenses to ensure it is more in line with the progression of our top-line revenue performance, but in parallel, we're maintaining appropriate resourcing of our key R&D programs. We also are increasing our focus on opportunities to extract non-dilutive capital and reduce cash burn as we continue to drive towards break-even and profitability ex-R&D for the core business by the end of 22, early 23 time frames. SGN expenses were $36.9 million during the first quarter of 2021, a slight increase compared to the fourth quarter, largely the result of non-recurring compensation expenses, but remained stable otherwise. R&D expenses were stable at $11.7 million during the first quarter, the result of stage-gated investment strategy where we allocate incremental R&D spend based on programs achieving various de-risking milestones. Our key R&D projects are progressing very well, as Ari explained earlier, and all remain well-funded. First quarter 21 net loss was $32.3 million, which includes $14.8 million of income from change in fair value of the derivative liability associated with the 2025 convertible notes we issued in December. First quarter 21 operating cash flows were negative $48.6 million compared to negative $72.3 million in the fourth quarter of 20. The main difference between the two quarters relate to $39.2 million in scheduled government and payer settlement payment made in December 20. As a reminder, we now have $24.3 million remaining in settlement payments, which are payable over the next three years. These payments will significantly diminish beginning in 22, significantly reducing our capital requirements in that respect. During the first quarter, we raised $25 million in gross proceeds through a private placement, and had a cash balance of $65 million at the end of the first quarter of 2021. With that, I will now turn the call back over to Harry.

Thank you, Eric. Progenity has several catalysts that are anticipated to create value in the coming quarters, and we are excited about the future. Key examples are strengthening performance of the core revenue business, including strong contribution from NIPT average risk reimbursement, precluded validation study results in June, July of 21, followed by a targeted launch by Q4 2021 and multiple GI program clinical milestones that I described earlier, coupled to partnerships, likely continued partnerships. The milestones we discussed today and as presented as supporting materials in normal course should enhance value as we make progress with our core business and advance our innovation pipeline. A number of our innovations address vast markets and in certain instances have the potential to be commercially transformational. Further, certain of our innovations can readily support multiple significant partnerships, which we expect to realize as we continue to de-risk our programs through execution by generating data. We are working towards achieving break-even profitability of our core business and intend to fully exploit various options that reduce our capital needs by generating, for example, non-diluted capital through various means available to us whilst reducing our operating costs. We are excited by the near-term potential and the optionality we provide for value creation. With that, operator, we are now ready for questions.

As a reminder, if you have any questions at this time, you may press star and the number one on your touchtone telephone. And if your question has been answered or you wish to remove yourself from the queue, you may press the pound key. Our first question comes from the line of Steven Ma of Piper Sandler. Steven, your line is now open.

Okay, great. Thank you. And thanks, guys, for taking the questions.

Hey, Steve.

Hey, so first one, I appreciate you guys are not giving COVID volumes going forward, but is there any way you guys could give us the core women's health volumes? And the reason I'm asking, I'm doing some quick math here. to chart it back into the volumes and revenues. And just rough on top, it looks like the volumes in women's health were sequentially flat. And I was just hoping if you guys could just square away, if they are sequentially flat, help us square away the disconnect as, you know, typically Q1 is typically a very strong quarter for NIPT testing. And given some of the other women's health testing companies, we expected volumes to be a lot higher. So any color would be appreciated.

Yes, Stephen, thanks for the question. So, yes, they're generally flat for both core and COVID. The difference is largely related to previous statements we made at one of the conferences where February was a little bit challenging in Texas. We had some bad weather that affected demand dynamics a little bit. And secondly, you know, Harry talked about it, you know, we're still in the process of some of the transitions on the sales channel. So that is both combining to the stable quarter-over-quarter volume. Hopefully that helps.

Yeah, okay, yeah, that helps. All right, thanks. And then next question, on the Crohn's and colitis funding, Is there any way you can give us some more detail or color, you know, potentially the amount of the funding, the timeframe of the funding, and any limitations of use on the funding?

Eric Schmidt Yeah, so this is Eric. I'll cover this. This is a cost-sharing arrangement, so it will not necessarily show as revenue. It's more of a joint spending on the studies that are targeted by the program. So it's not overly critical in terms of the dollar. What matters is really the studies that it supports.

And it's a contribution towards maturing the DDS further. That's the main focus, and that leads to studies.

Okay, got it. Okay, so the funding is strictly for the DDS development? Correct.

Correct.

Okay. All right. Great. That's helpful. And maybe if I can sneak in one last one. You guys mentioned, gave us a little bit of an update on NADL4, but could you remind us again on the timing and next catalyst for the NADL4 development?

I would say the next catalyst is probably going to be Q3, and I'm hoping that it will be a demonstration that the technology has got to the point where now we can move it into what I would call optimization and then on to... verification and validation. Based on current run rates, I would say progress, I would say we should be ready to commercialize probably towards the end of the second quarter, beginning of the third quarter next year. Okay?

Okay, great. Thank you so much.

Thanks, Stephen. Next question comes from the line of Andrew Cooper from Raymond James.

Thanks for the question, guys. Maybe first, just kind of looking at the gross margin and sort of the cost of goods, understand there's always some moving parts there, but with volume sort of flattish, It looks like the cost per test, you know, moved around a little bit. Is there anything to really point to there specifically? I know you talked about a couple things in the script, but can you just kind of size, you know, what maybe was the pro versus con in one queue cost per test to help us think about the margin trajectory from here as volumes continue to recover?

Yeah, so what I tried to mention in the section on finance is that The temporary increase in Q1 is really more related to a combination of face compensation, accruals, and other related expenses. The actual COGS per test otherwise remains stable. So if you want to forecast COGS profile, if you back that out, the prior quarter level is more indicative of the run rate.

Okay, so closer to what we saw kind of in the 4Q level is what the kind of true direct cause was. Okay, that's very helpful. And then, you know, maybe one on some of the data we've gotten in the GI precision medicine I guess can you help me think about what majority means when we think about majority of payloads reaching their target and then how that plays into sort of the clinical utility of a drug and, you know, what a payload not reaching the target might mean and how we think about that clinically and sort of what the bogeys are that you need to hit there would be helpful.

I'd be happy to do that. Generally, most drugs have situations where they don't meet their objectives. So it's not uncommon in our world. So here, for the human study, which is the one that's most important for your question, is 11 out of 12 of the devices actually hit their target. And the only one that didn't was an interesting phenomenon where the device left the stomach and then was sucked back in. And that's really a small software tweak to overcome that sort of rare event, but it occurs. So then beyond that, what we found is the majority of the devices, i.e. eight out of those 12 devices actually released the drug. And the reasons where they didn't release was that this was the first batch of manufactured devices, and there were some learning curve tweaks that we need to make. So ultimately, by the time we're ready to do human studies, I mean IND and 2A, which is way in the future, these devices should be way better than 90%, 95%, or even approaching beyond 95%. in terms of their effectiveness. Now, if they don't discharge, you will not receive a dose, which is not the end of the world in the correct place. Okay? So that would be really the only sort of issue around that. And you can recover the device if you wanted to, you know, confirm that. But that would be really your primary, you know, downside here. Now, other than that, The devices, based on the input that we received, seem to be, I'll use the word, safe and well-tolerated by the human subjects. So it's really, I've got to say to you, it's better than we expected at this point of the evolution of the device, and it's remarkable that we're able to hit the ileocecal junction, which is exactly where you want to be, i.e., the beginning of the colon, or the very terminus of the ileum. So we're able to hit that 11 out of 12 times already and achieve pan-colonic distribution when that occurred, okay? Which is, again, what you need to see because colitis begins in the rectum and usually makes its way up to the cecum.

Okay, perfect. That's super helpful context. Maybe just one more. shifting, shifting a little bit, but on preeclampsia, you know, it sounds like everything's moving, moving as expected and moving forward. Well, so just maybe the latest and greatest thinking on, you know, building the sales force around that, prepping your existing force to really hit the ground running there. And, uh, if anything's changed since sort of the last conversations we've had about, uh, about any of those dynamics.

No, I don't think anything's changed. Uh, you know, in the beginning, you're not, we're not going to go pan national. with the test. It's going to be a targeted launch and there's more than enough capability and that capability across its value chain is being trained and materials are being produced. And once we have the validation data, we're going to publish and then we're going to expand our education programs. So everything is lining up just as expected. There's not going to be a need to really ramp the sales force for that per se, because it's already a fairly substantial sales force. We may need to bring in additional skill sets into the sales force and into marketing and into the support functions, but that's really just an incremental investment. Because one of the exciting things about this precludia is that it's the primary client, if you like, is the OBGYN. which is where we're already focused on today. Okay, so we expect to get operating leverage and other benefits as we go forward. And, you know, really I'm quite excited, quite excited because this is a very difficult biology to navigate and a very difficult clinical environment to navigate. And hopefully with the success of the validation study, we get to see how it's received in due course and plays in the market and how the adoption rate advances and, of course, how reimbursement proceeds. And we're encouraged by what we're hearing about, by the way.

Great. That's it for me. I appreciate the questions again. Thanks, guys. Thanks, Andrew.

Next question comes from the line of Catherine Schultz of Baird.

Hey, guys. Thanks for the questions. I guess first, just on the core business, you guided the second quarter up sequentially. Any further comment on what you expect in terms of the magnitude of that increase and what you're expecting for sequential volume growth versus ASP benefits?

Yeah, so we're probably going to stay with the statement that I made a little bit earlier because you have a lot of moving pieces. So I think we feel comfortable that we're going to be in a position to grow But we'll have to provide further updates as we progress, you know, on the quarter.

Okay, got it. And then you mentioned seeing a lot more interest in some of your precision medicine applications. Are there particular platforms, whether it's OBDS, DDS, Poldiax, or the sampling device where you're seeing the most interest? And, you know, what are your expectations for additional partnerships this year?

Yeah, I'd say the most interest is in the OBDS. And, you know, you just have to take my word for it. The interest is growing. And, you know, we have mega caps who are interested. And, you know, what we've noticed is as we generate more data, there will be more feasibility studies with pharma. But the demand for those feasibility studies is softening as we generate more data. And I think if we continue to execute and generate data, you're going to see broader relationships. There's also interest in the DDS. There are discussions ongoing now. They're not as advanced as the OBDS. There's also discussions for the platforms with various parties that have expressed interest, for instance, for the SIBO capability. And also, there's a transaction in the works, and it's for the RSS. Okay, so there's broad interest, but where we believe the greatest impact is going to result is with the drug programs. I mean, the data, you know, based on the feedback we've received that we've shared with you today is profound, and soon you'll be seeing evidence of human performance, and I think it's quite profound as we go along. And the devices, even at this relatively early stage in their evolution, they're super functional. They actually are performing better than we thought, than we anticipated at this stage. Now, also the SIBO opportunity, which we're going a little slower with, we're going to take it to the point where we generate clinical data that we could then use to hopefully advance it in partnership with others. So, and that's a vast opportunity, and what excites me the most is the feedback we get from the gastroenterology community, including the college, where they have a thirst for a technology that can do what we're proposing the SCBDS can do. So this is beginning to go, since everyone wants, the feedback I get is you need validation, Well, here's data that's validating. And it's both performance data in terms of the device, tolerability data, coupled to what looks like efficaciousness and gives us a sense of what the tolerability profile might be for these heavy drugs. So this is quite powerful in its own right. It de-risks things for us. And then the rest, you know, will happen in due course. Okay.

All right. Got it. And last one for me. You mentioned the OBDS partnership you signed last year is progressing as expected. What are the next steps there and what kind of updates should we be expecting on that partnership? And then I think your IONIS partnership is divided into a few parts. So what's the timeline about hearing about the results of that?

And the potential to attend? Yeah, absolutely. So the first partnership is moving into the preclinical stage with the partner's drug, and we expect to have data on that in probably Q3, Q4. So in other words, it's clearing its initial milestones, and we're getting down to, in a way, making the sausage, right, which is Does the device work? The other thing I want to share with you, which is interesting, there's an evolution in thinking away from canine as a model and into the porcine model for a number of reasons, because it's actually much more representative of the human GI. So that's a learning that we as a group have. Now, the IONIS partnership is at the ground floor, but it's spinning up very rapidly. And again, it really is a mutual partnership. We understand what we know, and they understand antisense arguably better than anybody and their needs. And that's a whole area that requires oral delivery for those markets to really come to pass. So it's a meeting of two partners, and hopefully in the next two or so quarters, we'll have a preclinical update. on the IONIS arrangement. Now, I will say there is some risk that some of these don't work because of the nature of the molecule, for example. But, you know, at this point, based on the data we're seeing, we feel quite optimistic. And I'll leave it at that. And you should expect to see, you know, other partnerships in this space. And I would say that you should... I'm not going to... I'm not gonna say the timing of them, but I would say there's interest from other parties. What I will add is this. We're getting to the phase where we're generating our internal preclinical data, and because we're really talking about changing the bioavailability, demonstrating bioavailability, that is the endpoint, because a lot of these drugs are well-known and well-characterized, and they're in the pipelines or they're on the market today. for a number of these partners. So the burden of proof is preclinical data, preferably in the porcine model. That's it. Then I think if that goes well with our drugs, and remember the only other thing I would add is that we've already demonstrated that if you take the OBDS, but not in an automated form, and use an endoscope to position it, that we get compelling bioavailability for proteins and peptides. So we've already demonstrated that. We know that. Now we're trying to show that we can do it with a standalone, fully automated device, which essentially looks like a pill that you ingest, but then it takes over from there and then delivers the drug. That's what we're trying to show. That's where we're at. So replicating our initial data and observations but with a fully automated device that effectively looks like a normal pill. Okay, so we're very close to generating this data and that will fuel additional partnerships, but also I think our prospective partners will forego feasibility studies because effectively we're generating that data in advance. Okay, and we'll share that as that story unfolds and evolves.

Great, thank you.

Thank you, Catherine.

Again, if you have any questions, please press star 1 on your touchtone telephone. The next question comes from the line of Sung Jin M of BTIG.

Hi, this is Janet calling in for Sung Ji. Thanks so much for taking the question. So firstly, at this point, hi. So firstly, at this point, what kind of impact are you seeing on prenatal revenues from the average risk population? And what's baked into your assumptions for the average risk contribution in your guidance for 2021?

Right, so it's definitely increasing. And as I mentioned, just in Q1, We had about $2 million of upside associated with this. So you're already at the $8 million annual run rate. And if you add additional payers, we're gradually covering it. Once you get through the normal ASC 606 trailing revenue recognition requirements, you can see that it can grow during the course of the year. We're not providing the breakdown of exactly how much from average risk and IPT is in the Core Revenue Guidance because we have a lot of different moving pieces that contribute to this, but it's material. And that's why we wanted to highlight its contribution to this quarter. Hopefully that helps.

That's helpful. Thank you. So maybe just one more on pre-Euclidea. Given the recent data presented, including at APOG, would love to get any additional feedback you might be getting from clinicians ahead of the launch, if any.

Well, the next step is the validation study, and the feedback we're getting is that, and especially from the MFMs, is that they're quite excited that this test could make a difference for helping the OBGYN. That's not to say that the MFM won't find use, but they really believe it could really aid the OBGYN, because you get a very large number of cases where the patient may complain with headaches, for example, and that could be a red alert. So they light the profile, they light the performance to date, and it really hinges on validation, ultimately, which is just weeks away. So let's wait and see around the corner. Now, what I will add is all the studies today have been consistent. We're getting a good reaction. ACOG was definitely very supportive in accepting our work there, so it shows their interest. So overall, things are in a great spot given for where we are. But, you know, very shortly we'll have a validation study with over 1,300 subjects, and that's going to, you know, lay the foundation for launch of the LDT, primarily directed towards OBGYNs, but also helpful to MFMs in certain cases. Does that make sense? Yeah, that's helpful.

Thank you. Thanks again for taking the question.

Thank you. You're welcome. Thank you.

Next question comes from the line of Dan Leonard of Wells Fargo. Dan, your line is now open.

Thank you. Just a quick housekeeping question as we're on the hour here. So you mentioned that Avero is no longer marketing COVID testing, but is the Corp Regenity Labs, are they still marketing COVID testing, or have you shut down the marketing at both brands?

We've essentially stopped marketing COVID testing. And the business we're receiving are from existing clients. Maybe there's some incremental activity, but effectively we're refocusing all our efforts onto our core business. And even though it was accretive to us, you know, the... volatility that we were seeing just made it less interesting and really it's all hands on deck for the core business and that's exactly what we did even though it was an accretive business and will continue to be accretive because it's covered its costs. Okay, thank you.

Good. Thank you.

Again, if you Again, if you have any questions, please press star 1 on your touchtone telephone. And there are no further questions at this time. I will turn it back to Dr. Stylis.

Thank you. 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, everyone.

Thank you so much to our presenters and to everyone who participated. This concludes today's conference call. You may now disconnect. Have a great day.