Renalytix plc

Good morning, and welcome to the Rinalytics Conference call to review the third quarter fiscal year 2024 financial results. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Peter DiNardo of Capcom Partners for a few introductory comments.

Thank you, Livia. Thank you all for participating in today's call. Joining me today for re-elect's formal remarks are James McCullough, Chief Executive Officer, and James Sterling, Chief Financial Officer, and Howard Doran, President, is on hand for our question and answer session. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. Examples of these statements include, without limitation, the potential benefits, including economic savings of Kidney Intel X, the commercial prospects of Kidney Intel X, including whether Kidney Intel X will be successfully adopted by physicians and distributed and marketed, our expectations regarding reimbursement decisions, and the ability of kidney intellect to curtail costs of chronic and end-stage kidney disease, optimize care delivery and improve patient outcomes, trends in our market and potential benefits of government policy change, the impact of COVID-19 and other world events on our business, our expectations regarding product development, strategic partnerships and collaborations, reimbursement decisions, clinical studies and regulatory submissions, are business strategies and future growth, including plans, expectations, and opportunities for financing operations and revenue projections and guidance. These statements involve material risks and certainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a description of the risks and uncertainties associated with our business, Please refer to the risk factors section of our annual report on Form 10-K that was filed on September 28, 2023 for the Securities and Exchange Commission. All forward-looking statements made on this call are based on management's current estimates and various assumptions. Renalytics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 15, 2024. I'll note that due to regulatory restrictions under the UK Takeover Code, when we can and cannot share at this time about the formal sales process, we are limited in the comments and information we can provide today. But suffice it to say that if there is material news to disclose about any developments, we will provide updates transparently as required. I'll now turn the call over to James McCullough. James?

Thank you, Peter. Good morning. Good afternoon. We have experienced a productive beginning to the 2024 calendar year. On February 8th, Medicare Contractor National Government Services issued a draft local coverage determination, or LCD, for kidney and telex. This follows an over three-year process, including two public hearings, submission of extensive outcomes utility and regulatory data, and a significant volume of claims submitted to Medicare, which have now been reimbursed. We expect a final coverage determination to be issued in the near term. On March 14th, Kidney IntellX was included in the final International Clinical Guidelines for Chronic Kidney Disease, known as CADIGO. Guidelines are followed by doctors, hospitals, and insurance payers throughout the world and are a critical milestone for establishing broad use of an advanced diagnostic tool such as Kidney IntellX. Also in March, we disclosed the formal sale process for the company after receiving an approach from a large, well-capitalized diagnostics company. Since this approach, additional potential acquirers have now joined in the discussions. While restricted on what we're able to say, we expect the sale process to be competitive, given our substantial regulatory outcomes data and reimbursement achievements, and now the inclusion of Kidney IntellX in clinical guidelines. In March and April, we completed common stock equity financing rounds, which extended our runway and provide us with further optionality to maximize shareholder value, whether as a standalone business entity or as part of a bigger business enterprise. In April, we officially launched our FDA-authorized KidneyIntelX.dkd product version and are now receiving commercial test orders. This will rapidly supplant the original KidneyIntelX laboratory-developed test, or LDT. KidneyIntelX.dkd pricing remains the same at $950 per test, and we have established broad insurance reimbursement on a distinct CPT code for KidneyIntelX.dkd in the clinical lab fee schedule. We have been steadily reorganizing the company through expense reduction and a hard turn to focus on sales growth, culminating with the appointment of Howard Duran to the position of president at the end of April. Difficult changes were made to conserve cash by optimizing our organization on sales, with a year-over-year headcount reduction of 50% and an overall OpEx reduction of approximately 40% year-over-year. That is close to a 60% overall expense reduction from peak, and we continue to look at near-term options for further expense reduction without impairing our ability to grow revenue. Renalytics has now become a sales and marketing play into a wide open market with 14 million diabetic kidney disease patients in the United States. The global population of diabetic kidney disease patients is much larger, with many companies now reaching epidemic disease levels. We are in discussions with potential international distribution partners to reach these patients now that Kidney IntellX is FDA authorized and in the international clinical guidelines. Towards the end of 2023, we hired and trained a small direct-to-physician sales force in the United States, which has just completed the first full quarter of operations in March. The sales force is composed of experienced performers in the diagnostic industry, and I am pleased to report that we are already seeing a change in the breadth and volume of individual physician test ordering. The new sales force has achieved a 33% increase in direct to primary care test order rates quarter over quarter, a growth 10, which while early, we are seeing continuing into the current fourth fiscal quarter. In calendar 2024, we have implemented a series of ordering process improvements around the FDA product launch, which took place in April. Specifically, We have improved our customer-facing offering to ease physician ordering and increased patient access to blood draw services. Our market focus is on a limited number of territories, such as New York, where there are large populations of patients with diabetes and kidney disease, and where we have achieved comprehensive insurance coverage for kidney and telex. These territories pose the best near-term opportunities to foster adoption of kidney and telex while accelerating test sales. We believe FDA authorization in combination with a local coverage determination if and when issued and clinical guidelines inclusion makes Kidney IntellX the only choice for preventative precision medicine prognosis in this large chronic disease population. Finally, we have received several questions regarding FDA's April 29th published final rule on laboratory developed tests or LDTs. While we felt the final rule was more flexible than language proposed in the original drafting, it is clear that diagnostic testing is entering a new era of tighter regulation and exacting standards that will require everyone launching an advanced innovative test such as Kidney IntellX to consider the significant capital investment and long timelines required for a full FDA review process. By achieving FDA authorization for Kidney IntellX, This has increased the high barriers to entry around our business and technology. Particularly for diagnostic technologies that address very large markets such as chronic kidney disease and are capable of setting new clinical standards of care, we believe FDA regulation is becoming the default pathway to achieve comprehensive insurance reimbursement. Without regulation, very difficult to get paid in the future. We believe our decision to invest heavily upfront in real-world outcomes data and a full FDA de novo review process were the right ones and add significantly to the franchise value of KidneyIntellX.dkd and the KidneyIntellX artificial intelligence-enabled platform technology. I will now turn it over to James Sterling, our Chief Financial Officer. James.

Thank you, James. Hello, everybody.

Today, we issued the financial results for the third quarter of fiscal year 2024, which ended March 31st. Our GAAP financials were filed today on Form 10Q. Figures I will discuss here are based on our GAAP financials and quoted in U.S. dollars, which is our reporting currency. For the third quarter, we recorded revenue of $535,000 compared to $724,000 for the third quarter of the prior fiscal year. As a reminder, the prior year comparative period included tests that were performed under the original $6 million contract with Mount Sinai, which has since concluded. Testing at Mount Sinai has since been run under a standard commercial billing model. 806 tests were processed during the quarter, of which 82% were billable. Encouragingly, testing locations continue to diversify away from what had been largely dominated by a single hospital system, with tests outside of Mount Sinai now accounting for nearly half of the total, up from about 30% 18 months ago. As James stated, We're experiencing increasing test order velocity from our direct-to-physician sales force and expect the FDA de novo authorized version of the kidney and telex test to be onboarded with other health system providers in calendar 2024, following its official launch last month. Last quarter, we reported that NGS resumed consistent Medicare payment for tests under individual claims review. allowing revenue recognition in that quarter of 318 tests billed to Medicare, including 205 tests from earlier periods. Payment from NGS has continued on a consistent basis. Operating expenses for the third quarter were $6.5 million on a GAAP basis, down 40% from $11 million for the prior year period. This reflects the significant actions we took to lower operating expenses, including a 50% reduction in headcount as well as vendor spend reductions. Certain of these steps followed our FDA de novo authorization, which allows us to focus spend on the sales and marketing organization. Through these efforts, we've reduced our cash burn to under $5 million per quarter, which is 40% lower than the fiscal second quarter and half the level of a year ago. Net loss for the third quarter of fiscal 2024 was $7.7 million, or 8 cents per share. This was down 36% from a net loss of about $12.1 million, or 14 cents per share, for the third quarter of fiscal 2023. We ended the third quarter with approximately $4.7 million in cash as of March 31st. This does not include the approximately 6.4 million net proceeds from the second tranche of the March pipe financing, nor the $1.5 million from the registered direct placement announced last month. We raised aggregate gross proceeds of $13.5 million in those financings. We continue to explore ways to carefully control operating costs without impairing our ability to grow test volumes and revenue. Operator, we can now please open the call for questions.

Certainly. Ladies and gentlemen, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 1-1 again. Please stand by while we compile again a roster. Now, first question coming from the lineup, Dan Arias with Staple, Yolanda Silverman.

Good morning, guys. Thank you. James, what's been the feedback from clinicians and payers on the guideline changes and the LCD? I mean, it seems like as much as anything else that's taken place for you guys, those should be what moved the needle on test usage. So can you just talk to how you see the impact of those changes? I'm sure the answer is they're going to be tremendously helpful, but what I'm really looking for is some discrete details on just where you expect to see the changes first as a result, the extent to which they might change, and if they're not going to change, what the remaining sticking points might be for those folks at the stakeholder level. Thanks.

Yeah, it's a very good question, Dan. Good morning. We continuously update our communication with payers, including national payers, and obviously we're in the final stages of LCD with the milestones. And that includes, obviously, FDA. It includes updated outcomes data. It includes the draft LCD, which is a significant milestone. And then, of course, guidelines. So we've had a continuous stream of updates going out to the payer community. I'll give you one anecdote. We talked to the CMO of a major insurance plan who said, LCD with guidelines, that's checkmate. So we expect that with the issuance of a final LCD, we've crossed the threshold for comprehensive payment throughout the United States. I can't see a reason why Given the health economics data, the benefits of Kidney IntellX, third-party real-world usage of Kidney IntellX, which has now been published on Outcomes, this thing makes a difference not only in kidney health as measured by GFR slope, but also in diabetes as measured by HbA1c. So this is advanced preventative medicine. It works. It works very well. for a variety of reasons. And it's working at a time when there are a whole sequence of new drug therapies, which are quite expensive, including SGLT2 inhibitors, GLP-1 agonists. And how are you going to figure out which patients are at risk early on to be able to prescribe these drugs? So Kidney Intellect sits right at the heart of the whole health economics equation in precision medicine, which includes early identification, diagnosis, prognosis, therapeutic treatment, and really is the gateway to controlling cost and outcome. And that has been evidenced now extensively in outcome studies, and that's one of the reasons we got put into the guidelines. So I do think we are very well positioned in calendar 2024 for comprehensive insurance coverage, and so far the feedback has been very good. There's never any guarantee, but we do feel that we're in a very good position. And the other thing I'll point out, Dan, is we're doing this in a very short period of time. It's always difficult when you get here because people want to see sales ramp. People want to see building of the business, but The reality is that to be able to produce longitudinal outcomes data, get through a multi-year FDA de novo marketing process, get into the guidelines, and start a commercial organization in five years is a very short timeline. So 2024 is going to be very interesting in terms of knocking through the rest of the insurance coverage.

Okay. Yeah, I certainly hear you on five years being short at the corporate level, as you can imagine, investors. Less short for investors, that timeline is. So, I mean, to that point, 800 tests during the quarter, which is down from 1,000 or so last quarter. I think that was down from 1,300 the prior quarter. Very simply, when do you think we reverse trend and stay up on a test volume trajectory? And along those lines, to OJ's point on non-Sinai volumes, volumes that aren't coming from Mount Sinai, can you just talk about where we are with Wake Forest, St. Joe's, Utah, et cetera? Is there a point where just in aggregate those getting off the ground should start to be meaningful on a quarter-over-quarter basis? Thanks.

I think it's this year, and the reduction in total test volume is a function of us switching over to full commercial pay with Mount Sinai. This has been frustrating for me. Mount Sinai Health System is a fabulous partner. It is quite complex operating in that environment. That was our first launch customer. And as you know, we did that under a very specific environment with a defined contract to make the jump from that defined early stage contract under IRB control to a proper commercial testing. has been a challenge. We think that that is starting to work out now. And the interesting thing for me is we've now added the important optionality of growing direct-to-physician sales. And Howard will talk about that in a little bit. But the direct-to-physician sales is very much a bright light, and that is under our direct control. We also do expect to be seeing value coming out of the Atrium Wake Forest launch. And we do expect to see other groups coming on board. And I'll make one statement. It's been quite a balancing act to reorganize the company. It's like flying an airplane, slow down and go down. Difficult to achieve. We're now getting through the final stages of that where we've substantially reduced the operating burn reorganize the human resources platform, brought new people on board like Howard and a new sales force, which is now has one quarter under its belt. So I would expect that we're going to see a leveling off and an increase without forecasting in testing volume activity. And most importantly for me, the breadth of the testing volume activity. So we're not just totally dependent on Mount Sinai. as a single source customer. And that took place in 2024.

If I may add, James, the numbers, Dan, that you had listed were total tests, including non-billable study tests. And we have curtailed the study tests quite a bit. after the terrific data, after the 12-month point, and also it was a great opportunity to save some money. If you looked at just the billable tests, the decline is a lot less dramatic than what you indicated, mainly flat, more or less. And so I just want to make that important distinction. If you just looked at billable tests, it's a much better picture.

Okay, that's helpful. OJ, since you brought it up, James mentioned in a non-forecasting way that he thinks volume should be able to ramp here in the coming quarters in a forecasted way. Would you agree with that?

Yes. Well, I'll stick to a non-forecasted way. But yes, there's certainly a path for volumes to be increasing. And the work that Howard is doing, particularly in the independent primary care side, It's pretty exciting. I just want some nice growth there.

Okay. Thank you, guys.

Thank you. And our next question, coming from the lineup, Randy Barron with Pinnacle Associates. Your line is open.

Hi, good morning. Can you guys hear me?

Yes. Good morning, Randy. Hey, I have a couple administrative questions and then two broader ones. Just really quickly, it was encouraging, at least for me to hear, that more bidders seem to have come out in this process since the initial unsolicited inbound in March that you got. Understanding the constraints that lawyers put on you, is it fair to say that that process potential acquisition is active and ongoing?

So it is active, and we are restricted, so I won't comment specifically on the process, but... I will say that it is not every day, in fact, it's quite rare that you find a product services like Kidney Intellix that addresses such a large market. In the case of the United States, it's about 14 million patients with diabetes and kidney disease. That's wide open. And that has a price attached to it of $950. per reportable result, which gives us a very significant margin, and which now has been de-risked on a regulatory front. We are largely de-risking it on a reimbursement front and is now in the clinical guidelines. And again, the data, which is so important, which we've invested heavily in, which has allowed us to get insurance reimbursement and get in the guidelines and get through FDA, is very good. and affects not only kidney health, but also diabetes health. So here you have a singular product, and with the new look from FDA on laboratory-developed tests and the expense associated with doing this, the barriers to entry are very high for a blood-based, biomarker-driven, artificial intelligence-enabled in vitro prognostic. So this really is the only precision medicine preventative solution at the front end of this huge disease funnel. And we are not surprised that that would attract significant interest from multiple players, not just in the diagnostic industry. Obviously, we have to continue with our sales and marketing effort, and we want to increase optionality here. Strategic partnering is an option. Acquisition is an option. all of which allow us to address this significant market. But this is a product that is rare to find. So we're not surprised that this process would be competitive.

Great. And then, OJ, just an administrative question for you. You guys did a series of raises in the quarter. What's pro forma cash today?

So we reported $4.7 million increase. in cash on March 31st. I haven't in the past given a spot cash balance during these calls, so we won't change that policy now. But $4.7 million in cash on March 31st, and that does not include the $6.4 million from the second tranche of the pipe, nor the $1.5 million from the registered direct. And that $4.7 million figure was from 45 days ago. I should arm you with enough information to do your estimate, but that's the detail that I can provide now.

Okay. And then just two really quick broad questions. Howard, I guess this is for you and James. It was interesting in the script to hear you talk about the breadth and volume of test changes at the direct-to-physician level. I missed the number. I think you said 30% or 33% growth, but can you just talk broadly about you know, what you've done on sales and marketing activity, what did the reorganization to align our commercial activities do? How many salespeople do you have now, et cetera?

Thanks for the question, Randy. Yes. So, you know, first and foremost, we pretty much have retooled the entire sales team from when it was last summer. We actually have four members of the team that actually are legacy that have been with us since between 2021 and 2022. We had three additional folks that are remaining from our training class that we had this past August. And we brought in three new folks as we discussed on the last call this December. So their first time in the field really was this January of this current quarter. So big change is just the folks that we have. And just as we talked about on our last call, that these folks come with, the new folks come with strong diagnostic background, Half of that group comes with nephrology experience in their past, so they know the big practices. They're able to get into some of the key thought leaders, et cetera, and just the general nephrologists that are out practicing that are very supportive of our efforts but also can also assist us with going out to the PCPs with a recommendation because they're part of the referral pattern. So having folks that can knock on those doors in addition is also helpful. We've taken a look at our marketing materials, and I just think, you know, one of the biggest triggers is having the one-year outcomes data that came during this period allow us to really complete the story. You know, we have a test that's very simple to understand what it does. Obviously, it gives you the low, medium, and high-risk test results of the patient. But now the first question a PCP or a nephrologist, for that matter, was going to ask is, what do I do with this information? Is it actionable? And now that there's a lot more tools in the toolkit from a standpoint of what you can do therapeutic-wise for these patients, there's a lot of choices. So clearly we are seeing evidence in our outcome study where in the high-risk category, for example, there was a 61% increase in patients that were being put on SGLG2s. So we've answered the question is what does the test do? Is it actionable? Yes. And then, again, the third thing that we're highlighting in all of our materials are what are the outcomes. And there's really five distinct things when you think about it that we're really highlighting and referencing right now. One is just the clinical betterment of the patient. One is, James had mentioned a moment ago, GFR. So when GFR flattening of the decline occurs, that means kidney function is being withheld or the decline in kidney function is actually more stabilized is what I mean by that, which means it extends the runway to potentially further negative outcomes. So it's about a 50% reduction in the lowering of that GFR result that is causing that assistance. When you go to UACR, which is a measure of kidney damage, we're also seeing a reduction in UACR based on the medication. So kidney health in general, the progression of the disease is slowing. So that's very important. And then the three additional factors are all fetus measures. One is because we're doing UACR testing in the combination with our test. That's a HEDIS checkpoint. One-third of patients in this study also saw a retreat in their blood pressure down to 140 over 90 back in normal range. That's a HEDIS function. And also lowering an A1C would seem statistically significant in our high-risk and intermediate-risk patients. That also is a HEDIS reduction. So there's three distinct quality measures associated with HEDIS. as well as improvements in kidney health that are coming out of this outcome study. So that was really sort of the last piece of the story that we didn't have, and that's been incorporated in a much tighter, simpler message for the clinicians to understand. So I would say those are the two biggest variables. New team with broader experience coupled with better data and a very streamlined approach on the advantages of kidney telex DTD.

That's great, Howard. And then my last question, and I'll go back in queue. This is, I guess, James, for you. You know, Dan clearly touched on the importance of the LCD. It sounds like an event. To my knowledge, when I looked, I didn't see any negative comments in the open comment period. So when do you expect finalization to happen, and what are the implications?

Yes. The National Government Services has until September to issue That's the standard timeframe. We could see it sooner than September. The implications are significant, especially in combination with guidelines. These processes are not easy at all. They take a long time. There's a lot of data production required. especially when you're innovating in an area where there's been nothing before you. So really, prediction early of chronic disease risk is a difficult thing to do. And we saw this with FDA. The level of proof and validation required to get through these government organizations and to be able to declare risk with accuracy early and do it in a way that it's simple for a primary care physician to interpret, even though there's a lot of technology back end. This requires a significant amount of validation, a lot of data, a lot of process. Getting Medicare coverage into such a large population is going to be a major event. for us and not easy to replicate. And I think, you know, the comments I'm hearing, I gave you one earlier on, is that you really enter a new paradigm when you are in the guidelines and you've got this long-term Medicare coverage in place. And with the health economics data, with the clear advantage of Kidney IntellX, in terms of preventative medicine, I don't see a case why an insurance company does not cover kidney Intellix. And for progressive thinkers, I don't see a case why insurance companies don't educate physicians on the benefits of using kidney Intellix. Everybody wins. The insurance company wins. The patient wins. Obviously, we will win. The government wins because they're spending an inordinate amount of money on patients that fall into dialysis, which published in JAMA last year, first year alone for dialysis cost, treatment for kidney failure is over $200,000 a year. And everything's a time and a place. We have the drugs now that are available. Insurance coverage, they have very good data. And pharma is now out. educating with us on the importance of diagnosing kidney disease, especially if you have diabetes. So the equation now becomes very simple, right? It's if you have diabetes, you have to be diagnosed for kidney disease. Do you have it or don't you? And if you have diabetes and kidney disease, you have to understand your risk because we know the top 10 to 15% of patients at high risk by kidney IntellX have a greater than two-thirds chance of experiencing an event, significant decline in kidney function or kidney failure over the next couple of years. The bottom 50% of patients, regardless of stage and grade, you can be moderate stage kidney disease. But if you're at low risk by kidney IntellX, you are highly unlikely to progress. So this is not a marginal equation. This is a very strong, to me, black and white equation at the front end of this huge disease funnel. And we can now, for the first time, rapidly and in an easy way for the primary care physician to determine who should be treated and who's really at risk and who's not. So everybody benefits with Kidney Intel X. And the payoff comes very quickly because the cost of not catching people early is so significant. So we can eliminate a whole lot of sufferings. across millions of patients and a whole lot of cost. This really is the paradigm for how you manage chronic disease. And not to go too much further, but this is the issue that we all face in clinical medicine going forward. How do we manage chronic disease? Because you can't treat everybody. Populations are too large. And if you don't have prognosis early, accurate early prognosis, accurate early risk assessment, you've already lost the war. And here we now have an FDA approved, beautiful outcomes in the guidelines, and now with an LCD, the equation is really complete. And we've achieved what should be now the standard of care around the world for early stage prognosis in this big disease state. So I do think the LCD issuance is a key and critical validation. and is going to help start to move the clinical community towards adoption.

That's great. Good luck.

Thank you. And our next question, coming from the line up, Mark Mazzaro with VTIG. Your line is open.

Hey, Mark, we can't hear you. You may be on mute.

Oh, sorry about that. Can you hear me now? Yes, now we can hear you. OK, yeah, thanks for taking my questions. So you guys got into final Cadego guidelines two months ago. And in the past, you've disclosed metrics like number of commercial payers, number of Medicaid contracts. I think roughly 40 private payers and call it 35 state Medicaid contracts. Do you have an update on the payer coverage that you have today? And in the last couple of months, has there been any movement towards engaging payers in a greater capacity? And maybe could you just remind me who you have? Obviously, you've made some reductions in headcount, but do you have a team of folks in front of commercial payers at this time?

Yes, and I'll take that last question. The headcount reduction has obviously been painful. And we have ended up with what I think is an efficient market access group, which is the group that interacts with payers. We have also, we have a third party billing group that we've been working with for a while now who has taken on more and more of the burden. administration burden because as you get more and more payer contracts, there's a larger administrative burden that goes along with maintaining those payer contracts. And so we've been able to find a more efficient mix there. And again, as I said originally earlier on in the call, this is a dynamic process. I've learned an awful lot about how do you create comprehensive payer coverage. It's very difficult, right, because You have different payers with different ideas of value based care, different ideas of health economics, different drivers. There are early adopters, mid adopters and late adopters. There are national payers, there are local payers, there's Medicare, Medicaid. This is an incredibly complex equation and it requires an enormous amount of data and proof. And I think, you know, for example, For us to be able to get contracts like Texas Blue Cross Blue Shield, which covers over 8 million members, and Illinois Blue Cross Blue Shield, which I believe covers over 8 million members, Emblem Healthcare in New York City, these are very sophisticated groups. They look at the data, and they require a lot of diligence before they issue a coverage determination, especially for an advanced diagnostic test like kidney and telex. Many of them are now requiring outcomes data. not just utility data. And that requires time, a time function, which is a significant investment. And there's no shortcut. Many of them require FDA. Otherwise, you're deemed to be experimental. So we've been very fortunate because from the very beginning at Renalytics, we set this dynamic up. We knew this was going to be an uphill fight to get this. And we've all died on the hill of reimbursement. And if you can't get paid, You know, you have a big research project. You don't have a business. So, we knew from the very beginning we had to generate outcomes data. We made the choice to go through FDA. And all of this, of course, was focused on getting to the guidelines as well. So, it has been a continual update process. Having been put in the final guidelines is a major help because we are no longer experimental. Nobody can say, oh, you know, you're just a laboratory developed test. Now we can point to a whole sequence of major payer decisions and draft LCD guidelines, FDA outcomes data. I cannot see a reason why a healthcare insurer, especially with the risk exposure to chronic kidney disease and diabetes, right? This is not just, we're not screening people here. These are patients walking into a primary, a very busy primary care physician office, with a complex disease, multiple complex diseases, that could represent a significant short-term actuarial risk. There's no reason, no logical reason why you shouldn't understand the risk of that patient. And we're now talking about adding very expensive drug prescription to the table. So prognosis, precision medicine prognosis, which is kidney and telex, which can be utilized by the primary care physician. This is key. It's got to be very simple. It's got to be rapid. It's got to be very actionable, which is what we spend a lot of time and money figuring out and having it regulated. This becomes critical to managing the disease and all of the downstream suffering and all of the downstream expense. It becomes critical to the health equity equation in the United States. And I'm pounding the table here because this is the solution for managing chronic disease. getting in early at the primary care level and understanding risk. From there, all of the clinical decisions can be made. And if you don't understand risk, and we see this now in the real world data, physicians are not understanding risk without kidney and telex, and we see the consequence. Today in the United States, still 50% of the people who enter hemodialysis do it through the emergency room. We're still having crash catheterizations we're now prescribing $1,500 a month psychobiologics into patients who may respond or not, who may not be high risk. So unless you understand where you are on the risk spectrum, unless you understand the ability to characterize the disease, and you can do it in a very simple way, which is not easy, then you can't control it. The LCD is a significant event for us, and we're continuing to update the payer landscape. I don't have all of the numbers in front of me, but a lot of them are listed on the website, and we do issue 8Ks with material events. I would like to see national payers coming on board. They're spending an awful lot of money that they don't need to spend on late-stage kidney disease. If they implement Kidney Intellects across their systems, it is now abundantly clear that preventative medicine goes in place and you start to prevent progression and you get a much better characterization on these huge populations that you're now insuring. So I think we're in a win-win position for 2024 to knock off the rest of the insurance coverage.

Okay, that's helpful. And certainly it would be great to see the LCD go final by September or sooner. I know in the past, James, you talked about a potential opportunity to get an NCD, you know, the National Coverage Determination. Is that still a pathway you guys are looking at, or is it really just more about, you know, getting the LCD and just going from there?

It still is a possibility. We are speaking with CMS. We are speaking with FDA. But I think for all practical purposes, an LCD finishes the game for us. And just to remind everybody, National Government Services is the Medicare contractor that is going to issue, that has issued the draft LCD. And as long as we process samples in our New York laboratory, we can now bill at $950 to national government services and get paid. We're being paid now under a convention called ICR Individual Claim Review. It's a little bit cumbersome. So the issuance of an LCD again will be another incremental smoothing into the clinical pipeline. But we can take a sample from any Medicare beneficiary anywhere around the world. As long as we process that sample in our New York laboratory, we can build Medicare. A final LCD means that we can service the entire Medicare population with Kidney Intellex.

All right, that's great. Last question for me, Howard. I appreciate the update on the commercial organization. It sounds like there are approximately 10 people on the sales force. Do you expect to stay there this year? You know, I understand that cash burning capital is something you have to keep your eye on. But yes, should should we expect you to stay flat at 10 this year or is there potential to add to that? And then, you know, if there was no rate limiting factor with capital longer term, How do you see a healthy Salesforce? What would that look like in a couple of years?

Sure, Mark. Yes, so you're correct. We are currently at 10 in regards to what we have today. We are always looking at opportunities that we're opening doors with now as far as access to larger groups. And we have a couple of things that we're working on currently that if those came to fruition today, we would be adding potentially one or two folks. At the end of the day, though, what we're really trying to prove out is what's the productivity that we can see with the new team in its first year. So that's really the measuring stick that we're paying the closest attention to. But yes, we would be in very small opportunities. We'd be still cautious and deliberate because of the spend, but there are a couple inflection points that we want to maximize that would not be able to be covered by our existing team. We will, you know, certainly as those come on board, we certainly will, you know, talk about those. But that would be the ads. I think what we have as far as the markets we're in, as we've discussed before, you know, we follow the actual need markets that have a high penetration rate of type 2 diabetics with chronic kidney disease overlaid with very favorable, you know, managed care. Those markets right now for us are Ohio and North Carolina, New York, Florida, Texas, and Louisiana. And so as much as we've been talking about the LCD and additional reimbursement, those are just very strong markets for us across the board. Strong from a standpoint of need, strong from a standpoint of having the managed care contracts and programs that we need to be successful within those. So from an expansion standpoint, yes, it would be a lot of still looking at opportunities that have those same characteristics, right? We want to go to places first where there's a tremendous need coupled with who has the best reimbursement. And look, I've had sales organizations of many sizes. Obviously, the number that we would put in the field and deploy would be the type of funding we have at the time. So that's a little hard to answer that one hypothetically without discussing if you had X dollars, what would you do? I could be more direct there. But just, yes, we want to expand We want to continue to raise. We know we can, you know, we can drive results now at the PCP level, and we want to magnify that over time. I just couldn't give you a firm number as we sit here today, other than the couple additional ads that I foresee over the next couple months most likely do some other events that we're working on.

Okay, great. Thanks, guys.

Thank you. And our next question coming from the line of Yichen with HC Ren, where your line is open.

Good morning. This is Ashton on for Yi Chen. Thank you for taking our questions. First question is, what are the hurdles for wide adoption of the test in the VA system? Also, what is the estimated timeframe to achieve cash flow break-even?

So the VA system took me to school.

I thought that when we had a General Services Administration contract, which we still have, which is important, by the way, for also retaining the price point. One of the great lessons in reimbursement is if you come down on price or you negotiate a lower price to somebody else, you never get it back. So having the General Services Administration lock in the price at $950 is which obviously covers the VA system, and having CMS also crosswalk to a $950 price, that is the price point. And we have not backed down on that price point, and that retains the margin and the value for the addressable market. But the VA system, I think we substantially overestimated. We were overoptimistic on what we were able to achieve. We had national support. And we really viewed VA going into it as one entity. And it turns out there are something like 170 different individual sites in the VA. Many of them operate differently. And it became incredibly complex in that system to roll out an advanced prognostic like kidney and telex. There were many ironies, inefficiencies, and We over-hired to go after VA, and we had to do a complete about-face. I still think it's a fabulous market space. There are over a million diabetic kidney disease patients. There are veterans who we should be taking care of that would benefit from Kidney Intel X. And at a future date, I want to go back in to the VA and integrate patients. because I do believe it's an important market space, and I do believe we can come from a top-down approach and gain traction. But again, in this capital markets environment, which I've never experienced before, I've never experienced such a derating in a sector, and I never thought that we would have such limited access to the capital markets. we had to drop the VA effort by and large. So I do not expect the VA will be part of our plans in calendar 24. If conditions approve in calendar 25, we'll go back in. But we've learned a few lessons there. It's one of the reasons we've reorged around Howard and his experience having been very successful with broad diagnostics launches, including in cervical cancer and other areas. And we're now focused on a limited, high-performing sales force in very specific regions where we have high insurance coverage, large rates of diabetes, and maybe a large clinical provider working alongside us. It takes you a while to figure out the model that's really going to take off. Where does adoption come in? This has been an ongoing question, and I look at it in two lenses. One, we are still a young company, believe it or not. You know, we really didn't launch Kidney IntellX in force on a commercial basis until just over a year ago. And we are just in April launching the FDA-approved Kidney IntellX, so last month. And diagnostics is the worst business, and it's the best business. It's the worst business because you've got to cross all of these mountains. FDA, you know, Medicare reimbursement, outcomes data, and now guidelines. You've got to cross all of those things before a very conservative and codified clinical infrastructure says, okay, this should be ready now to use as a standard of care. We've now crossed all of those things, and this is where I believe diagnostics becomes a very good business. because the various entry are very high behind us, the deeper I get into diabetic kidney disease, it becomes even more clear how significant a problem this is. And not only is it not going away, but it's growing. And, you know, we've got to do something about it. And the something about it is you've got to know early what your risk is. I came out of the prostate cancer world. And the analog is very clear. When do you want to know you have cancer? As soon as possible. Because it changes your treatment paradigm, it changes your outcomes, your suffering, and it changes the cost. The same is true with kidney disease. All of us on the phone are eventually going to start to lose kidney function as we get older. The question is, does it matter? For most of us, it doesn't. But for a significant percentage of us, it's going to matter a lot. And the sooner we know the sooner we can treat it. And we have drugs to treat it now. We didn't five, six years ago, not like SGLT2 inhibitors and GLP-1s. So there's no rational reason why, to me, with a FDA-approved precision medicine prognostic product that is now in the guidelines and is paid for by insurance, that this is not set up for broad adoption. And it's a matter of time. Right now, the capital markets isn't giving us much time and that's okay, but things change. Interest rates will eventually come down. Uh, and investor sentiment will change. So for us, it's one foot in front of the other. We have a very focused, high performing sales force that is going into very specific regions. We're not boiling the ocean. We've learned an awful lot over the last couple of years about what the messaging is to the physician. who is ordering Kidney IntellX. And that messaging right now is very clear. Hey doctor, we have a tool which goes after one of the major complications in your diabetes patient. And it's FDA approved. We accept all insurance. It's in the clinical guidelines. So it's guidelines standard of care. And here's what happens when you use it. Not only do you improve your kidney disease, but you improve your diabetes patient's health. The rationale is very strong. It's comprehensive. It's data-driven. We've invested heavily in the data, which now put us in a good position to drive adoption incrementally. We've got to watch the cost. That's critically important. But we've got the right team in place. We have right-sized the organization, so we're not burning a ton of cash for a – a Medicare reimbursed clinical diagnostic company, services company. Our operating burn is actually quite good. And now we just got to keep our nose down and put one foot in front of the other. And I think the adoption will come. I think it is a function of time at this point. The LCD is going to help when the final is issued. That will raise visibility again. And now the question is, how do we maximize shareholder value? And that comes down to optionality and optionality comes in the form of a competitive strategic process. It comes in the form of runway, which is a function of equity capital. So we want to have a long runway as possible, uh, so that we can run a competitive process or we can continue to grow the business on an incremental basis. We have a number of significant opportunities in front of us in 2024, in terms of additional hospital partners, additional. areas where we can roll out. And it's a very powerful message when you walk into the primary care and say, primary care physician, and say this is a simple, actionable solution, which is covered by insurance and FDA approved and in the guidelines. So I, you know, for the first time we are in the position where we have checked all the boxes. And I cannot believe that adoption will not follow. Of course we have to prove it. And I think now that we built a direct-to-physician sales force of high performers under great leadership, again, that provides us with additional optionality to prove out the business model.

Thank you so much for that.

And next question is, what is the estimated timeframe to achieve cash flow break-evens?

Yes, so we're not going to answer that because that's a forecast, which is not what we're going to do, but certainly our break-even point is much lower than it was. Okay. Thank you for your time. Thank you. Appreciate it.

Thank you. And as a reminder, to ask a question, please press star 1-1. Our next question coming from the lineup, Bobby Demmer with DM Capital Partners. Your line is open.

Hey, guys. Thanks for taking the call. Can you hear me? Yes, we can. Okay. I want to tailor this towards Howard. It's kind of building on what you're talking about here. You had 806 tests that you reported in the core, and you said that 82% of those were billable. So back of the envelope, that takes us to 660 billable tests. Of that number, how many of those were system-driven, and how many of those were salespeople-driven?

So, OJ, we have about 40% of that number, Bobby, is the actual PCP sales, and the other is Sinai, roughly.

It's Sinai. And do you have Wake in that mix, or is it just Sinai? Just Sinai. Okay. And is that the mix that you expect to go forward with, 40, 60 salespeople, the system, Drew? Yeah.

No, I would actually expect that, you know, in the not too distant future, that PCP would be the largest bucket of our business, right? We'll have the enterprise accounts and we'll have PCP. But in the future, I would expect PCP to be the largest chunk of our business volume.

Like flipping those?

I would hope to do even better than that, but yes.

Okay. Okay. And kind of looking at growth trajectory here, if you've got kind of 40% of those as PCP salespeople driven, that's, you know, call it 300. Just lower 300 tests. Just use that number. You have seven salespeople that have been there for quite a while now, since August. Okay. How are we looking at those salespeople who have been around and getting to, say, 1,800 tests out of those salespeople as opposed to 300 tests out of those salespeople?

Yeah, so I would say a couple things. One is, at one point, we had a much larger sales organization, correct? So the three people that I called legacy earlier actually have three very productive territories that, you know, they're the right profile of folks that we obviously wanted on the team. So that's that first group. The group that started in August, again, that's still fairly new. So we've got a couple of quarters under their belt. And then, of course, we have three new folks that started in December who this past quarter is their first. So, you know, what we have as far as the new team is we've got one data point, right? We've got the quarter that we're talking about now. We alluded to in our comments in the original script that we anticipate this quarter to be similar in growth rate to this past. And beyond that, that gives us our second data point. At that point, I'll be able to look at what's occurring, momentum, et cetera, to start thinking a little bit more broadly as far as further down the line. But for right now, I'm focused on this current quarter and not necessarily four or five quarters out depending on growth rate to hit the numbers that you're talking about. I just don't want to make a projection on a data point of one. I want to get this current quarter under our belt, take a look at it, and I think I'd better answer that a little bit more definitively next call.

You're bucketing these seven salespeople and the new three salespeople in the same bucket regardless of how long they've been operating and working their sales channels?

No, I wouldn't necessarily say it that way. I'm just saying that we are looking at the directory of what it takes with a slightly different profile of person and different background set and what they can do and how rapidly can they do it. And we didn't expect really anything for the first month or two. So what we're really looking at is only a few months of data on particularly the new folks and seeing where that trajectory is going. To date, we're very pleased with it. And I expect it to continue to be better over time. But I just think it's too early. Even again, with the folks starting in August, they're relatively new. We've made some changes, et cetera. I just think you're asking a question that's a little further out than what I'm comfortable projecting to you today.

Okay. I mean, just because James was talking about distance or runway, right? Because the market, I think, is going to have to see, you know, sales volume here pick up.

And I think we will have catalysts that will allow that to be better, you know, upon time. I just, you know, again, with the team settled, we're happy with what we have today. We have one quarter under our belts with that group. And I will feel a little differently as far as, you know, more future discussion once we conclude this quarter. That's all I'm trying to indicate to you.

All right. Well, thank you for answering that. One more, if you don't mind. Sure. What do you expect the conversion rate to be for getting in front of doctors? As far as new doctors per quarter? Yeah, new doctors per quarter, and then once you're in front of those doctors, what kind of conversion rates are you expecting?

Yeah, so, you know, I would say if I was going to just take a step back and if you were going to ask me what's the thing that surprises me the most on a positive, I would say that our clinical message now is very tight. And getting a clinician to say that they're interested in the test, I'm not going to call it easy because it's not. It's still hard work. But the message is very sound and it holds together and they get it. The most challenging part is patient identification. You know, so it's them being able to go into their patient data and finding, all right, who are all my type 2 diabetics? Who have I staged with chronic kidney disease? And who has the clinical features that we need to actually run our tests? That's the biggest barrier to broader adoptions. And it's a slower process. It takes a lot of handholding. And it's not yet a sticky business. We are working on ways to make it more sticky by making ordering simpler, providing better nephrology access, or excuse me, providing better phlebotomy access and taking some of the barriers that have been pushed us on in the past. But the most important thing is getting them into that rhythm of identifying patients before they come in for their next checkup. That's the biggest challenge. So our adoption is definitely different than it was in the past. We are seeing an uptick on how quickly the doctor closes today, the tests they start ordering over the subsequent months. We are definitely seeing a change of behavior there. But I think we can even have a bigger inflection point as we continue to hone on a very simple way for them to identify these patients. And when they have them identified, we will definitely see conversion ramp change, I think, quite a bit.

Okay. And finally, I'll let you go. I'm trying to gauge how much of the 14 million TAM we can expect Rinalytics to capture. And if you have 100, just using round numbers, if you have 100 new PCP presentations, how many of those doctors do you expect or do your salespeople, are they being expected to convert to actually order a test? And those who have ordered a test, how many following tests is the expectation going to be for those salespeople? out of that particular doctor who orders.

I mean, that's just a granularity that we've just chosen not to disclose yet. I mean, again, we're looking at all the things that you've just described, right? What I'd like to do is get another quarter under my belt to be more definitive. Again, it's a green team that we're doing some good things, but you're asking the right questions and you're asking about the right measurements, and that's just not a granularity that we're ready to go to.

Okay, well, I appreciate your time. Thank you.

I think it's important to note that there are a whole sequence of incremental changes which come together to reduce the resistance in the clinical pathway. Obviously, patient identification is one of them. One of the things that Howard has brought to the table is a sequence of incremental improvements. I referred to this in the script reading. But, for example, the physician order requisition sheet. We revised that in a compliant fashion. And we revised that to be now FDA compliant with the FDA product launch in April. But it's a much simpler procedure from what we originally had. And that's a function of experience in the real world. Increasing phlebotomy access, absolutely critical. And these are mundane things. But collectively, they add up to reducing the resistance in the pathway, which lead to better adoption. So we've now significantly increased the access of patients to blood draw stations across the country, and that took us a while to figure that one out. But all of these changes add up, and I believe will be reflected in the adoption cycle. Howard, I don't know if you want to add anything to that.

No, I think that's right. What we're really trying to do is make it easier to do business with us, right, and really improve the customer experience. And the more that we raise that, you know, back to your question, then, you know, we can start thinking about, you know, deeper penetration and so forth. But we have streamlined a lot of processes because, again, we are a send-out test, right? So we are disruptive to their workflows. to, you know, to utilize us, which there's, you know, other companies are in the same boat. So that's not, that's not a negative. It's just, it's a reality. And it takes some work and it takes some, you know, some strong relationship building to keep that pedal on those until they hit their rhythm. And once they hit their rhythm, then things can happen more systematically. But there's a lot of touch points, particularly in the early few months of, you know, an integration in an office that needs to be, you know, couple times a week so you know back to your question is you know we're still measuring all the things that you were referring to but i just don't think we have enough time to give you the the you know an answer that i would feel highly confident in so that's a lot of the learnings that we're still doing but yes a lot of profit uh process improvements are going over very well i mean just a simple one just to point out what james is talking about a better you know easier to use form? Well, if it takes three minutes to fill out the old one and it takes about 30 seconds to do the new one, the office thinks very favorably towards that, right? I mean, it takes them less time and we're asking them to actually add time to where they're already doing it during their day. But more importantly, our test only requires three clinical features now. It used to require seven with the LDT. Those are seven results that someone in that practice had to go look up and put it onto our test requisition form. Now they only have to go get three, and those three are actually very commonly used. So it's a real easy lift to ask for those. So there's a lot of little things that may not sound that big to you, but when you're out there and the clinician, it's big and important to them, and we're addressing them one by one. So that just, again, it goes back to what you're asking is, will that help us ramp this business faster? The answer is yes.

Thank you. And our next question coming from the lineup, Jens Linkvist with Investec. Your line is open.

Hi, they're all just a couple of quick ones for me. First of all, on the pricing, the 535,000 of revenue you reported for the quarter, I mean, that translates into just over $800 per billable test, which is quite a bit off the 950 that Mount Sinai is committed to paying under that new commercial agreement which has been in place through this quarter, if I understand it correctly. So could you just help me understand that dynamic, please? There appears to be some pretty heavy discounting in the PCP channel, and is that something we should extrapolate going forward? So that's my first question. The second one is on the strategic review that is ongoing at the moment. I appreciate you probably can't say too much about it, but Could you provide some form of indicative timeline here? Because the strategic review, I guess, will determine for how long potential acquirers are allowed anonymity, et cetera, under the takeover code. So when can we expect some form of update in terms of whether you will pursue an M&A route or a different strategic option for commercialization? Thank you.

So on the strategic option, again, we're limited in what we can say. And I'm now becoming familiar because this is a UK convention. And it was impressive to me under the UK convention how seriously the takeover panel takes approaches. And if there's a whiff of a strategic interest in a company, then you have an obligation to let the market know. And so this was a little bit more than a whiff with regard to us and the unsolicited approach. So we had an obligation to announce. The advantage of announcing is, and again, I'm not an expert, I'm not a lawyer, so please take this with an element of grain of salt, but now that we have announced, it creates a much easier process to talk to additional players without disclosure requirements. And so the process will take its own life. I don't know the timeline. People that are looking at this include large you know, company players that have long timelines and leads. And obviously, the more sales that we accrue in that process, the better it will be. So taking a little bit of time is not a bad thing. But, you know, again, and I don't want to say anymore, but we do expect the process to be competitive and we'll continue to move along. And ultimately, what happens, I don't know. But again, it goes back to maximizing the shareholder value and creating optionality in what is an incredibly difficult market right now. In terms of pricing, and I know Jay will cover this, the price is $950, and we do not discount that for all intents and purposes. You know, we fought hard to achieve CMS pricing at 950, General Services Administration pricing at 950. That is our price, and we will not compromise. However, within the complexity of the insurance infrastructure, not every test ultimately gets paid. This is standard convention. So we would expect, and I know, Jay, you correct me, an average price going forward of somewhere in the mid-800s.

So, right. So the math you're working out, Jens, is not the result of any discounting. So it's 806 total tests. 82% are billable. So... 662 billable tests and not every one of those is recognizable right away because some of them are covered by insurance that we don't don't have a contract with many of those do ultimately pay and if they don't pay the full 950 we do appeal those etc so the difference you see there is just a result of that timing so about 80 percent of that billable testing volume is immediately recognizable that goes into the into the revenue line the rest ultimately at least some of the rest we collect over time.

Okay, thank you.

Thank you. And I'm showing no further questions in the queue at this time. Ladies and gentlemen, this concludes today's conference. Thank you all for your participation, and you may now disconnect. you Bye. Thank you. Thank you.

Thank you. Bye.

Good morning, and welcome to the Rinalytics Conference call to review the third quarter fiscal year 2024 financial results. At this time, all participants are in listen-only mode. We will be facilitating our question and answer session toward the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Peter DiNardo of Capcom Partners for a few introductory comments.

Thank you, Livia. Thank you all for participating in today's call. Joining me today for re-elect's formal remarks are James McCullough, Chief Executive Officer, and James Sterling, Chief Financial Officer, and Howard Doran, President, is on hand for our question and answer session. Before we begin, I'd like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made during this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. Examples of these statements include, without limitation, the potential benefits, including economic savings of Kidney Intel X, the commercial prospects of Kidney Intel X, including whether Kidney Intel X will be successfully adopted by physicians and distributed and marketed, our expectations regarding reimbursement decisions, and the ability of kidney intellect to curtail costs of chronic and end-stage kidney disease, optimize care delivery and improve patient outcomes, trends in our market and potential benefits of government policy change, the impact of COVID-19 and other world events on our business, our expectations regarding product development, strategic partnerships and collaborations, reimbursement decisions, clinical studies and regulatory submissions, are business strategies and future growth, including plans, expectations, and opportunities for financing operations and revenue projections and guidance. These statements involve material risks and certainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a description of the risks and uncertainties associated with our business, Please refer to the risk factors section of our annual report on Form 10-K that was filed on September 28, 2023, for the Securities and Exchange Commission. All forward-looking statements made on this call are based on management's current estimates and various assumptions. Renalytics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, May 15, 2024. I'll note that due to regulatory restrictions under the UK Takeover Code, when we can and cannot share up this time about the formal sales process, we are limited in the comments and information we can provide today. But suffice it to say that if there is material news to disclose about any developments, we will provide updates transparently as required. I'll now turn the call over to James McCullough. James?

Thank you, Peter. Good morning. Good afternoon. We have experienced a productive beginning to the 2024 calendar year. On February 8th, Medicare Contractor National Government Services issued a draft local coverage determination, or LCD, for kidney and telex. This follows an over three-year process, including two public hearings, submission of extensive outcomes utility and regulatory data, and a significant volume of claims submitted to Medicare, which have now been reimbursed. We expect a final coverage determination to be issued in the near term. On March 14th, Kidney IntellX was included in the final International Clinical Guidelines for Chronic Kidney Disease, known as CADIGO. Guidelines are followed by doctors, hospitals, and insurance payers throughout the world and are a critical milestone for establishing broad use of an advanced diagnostic tool such as Kidney IntellX. Also in March, we disclosed the formal sale process for the company after receiving an approach from a large, well-capitalized diagnostics company. Since this approach, additional potential acquirers have now joined in the discussions. While restricted on what we're able to say, we expect the sale process to be competitive, given our substantial regulatory outcomes data and reimbursement achievements, and now the inclusion of Kidney Intellex in clinical guidelines. In March and April, we completed common stock equity financing rounds, which extended our runway and provide us with further optionality to maximize shareholder value, whether as a standalone business entity or as part of a bigger business enterprise. In April, we officially launched our FDA-authorized kidneyintelx.dkd product version and are now receiving commercial test orders. This will rapidly supplant the original kidneyintelx laboratory-developed test, or LDT. Kidneyintelx.dkd pricing remains the same at $950 per test, and we have established broad insurance reimbursement on a distinct CPT code for kidneyintelx.dkd in the clinical lab fee schedule. We have been steadily reorganizing the company through expense reduction and a hard turn to focus on sales growth, culminating with the appointment of Howard Duran to the position of president at the end of April. Difficult changes were made to conserve cash by optimizing our organization on sales, with a year-over-year headcount reduction of 50% and an overall OPEX reduction of approximately 40% year-over-year. That is close to a 60% overall expense reduction from peak, and we continue to look at near-term options for further expense reduction without impairing our ability to grow revenue. Renalytics has now become a sales and marketing play into a wide open market with 14 million diabetic kidney disease patients in the United States. The global population of diabetic kidney disease patients is much larger, with many companies now reaching epidemic disease levels. We are in discussions with potential international distribution partners to reach these patients now that Kidney IntellX is FDA authorized and in the international clinical guidelines. Towards the end of 2023, we hired and trained a small direct-to-physician sales force in the United States, which has just completed the first full quarter of operations in March. The sales force is composed of experienced performers in the diagnostic industry, and I am pleased to report that we are already seeing a change in the breadth and volume of individual physician test ordering. The new sales force has achieved a 33% increase in direct to primary care test order rates quarter over quarter, a growth 10 which, while early, we are seeing continuing into the current fourth fiscal quarter. In calendar 2024, we have implemented a series of ordering process improvements around the FDA product launch which took place in April. Specifically, We have improved our customer-facing offering to ease physician ordering and increased patient access to blood draw services. Our market focus is on a limited number of territories, such as New York, where there are large populations of patients with diabetes and kidney disease, and where we have achieved comprehensive insurance coverage for kidney and telex. These territories pose the best near-term opportunities to foster adoption of kidney and telex while accelerating test sales. We believe FDA authorization in combination with a local coverage determination if and when issued and clinical guidelines inclusion makes Kidney IntellX the only choice for preventative precision medicine prognosis in this large chronic disease population. Finally, we have received several questions regarding FDA's April 29th published final rule on laboratory developed tests or LDTs. While we felt the final rule was more flexible than language proposed in the original drafting, it is clear that diagnostic testing is entering a new era of tighter regulation and exacting standards that will require everyone launching an advanced innovative test such as Kidney IntellX to consider the significant capital investment and long timelines required for a full FDA review process. By achieving FDA authorization for Kidney IntellX, This has increased the high barriers to entry around our business and technology. Particularly for diagnostic technologies that address very large markets such as chronic kidney disease and are capable of setting new clinical standards of care, we believe FDA regulation is becoming the default pathway to achieve comprehensive insurance reimbursement. Without regulation, very difficult to get paid in the future. We believe our decision to invest heavily upfront in real-world outcomes data and a full FDA de novo review process were the right ones and add significantly to the franchise value of KidneyIntellX.dkd and the KidneyIntellX artificial intelligence-enabled platform technology. I will now turn it over to James Sterling, our Chief Financial Officer. James.

Thank you, James. Hello, everybody.

Today, we issued the financial results for the third quarter of fiscal year 2024, which ended March 31st. Our GAAP financials were filed today on Form 10Q. Figures I will discuss here are based on our GAAP financials and quoted in U.S. dollars, which is our reporting currency. For the third quarter, we recorded revenue of $535,000, compared to $724,000 for the third quarter of the prior fiscal year. As a reminder, the prior year comparative period included tests that were performed under the original $6 million contract with Mount Sinai, which has since concluded. Testing at Mount Sinai has since been run under a standard commercial billing model. 806 tests were processed during the quarter of which 82% were billable. Encouragingly, testing locations continue to diversify away from what had been largely dominated by a single hospital system, with tests outside of Mount Sinai now accounting for nearly half of the total, up from about 30% 18 months ago. As James stated, We're experiencing increasing test order velocity from our direct-to-physician sales force and expect the FDA de novo authorized version of the kidney and telex test to be onboarded with other health system providers in calendar 2024, following its official launch last month. Last quarter, we reported that NGS resumed consistent Medicare payment for tests under individual claims review. allowing revenue recognition in that quarter of 318 tests billed to Medicare, including 205 tests from earlier periods. Payment from NGS has continued on a consistent basis. Operating expenses for the third quarter were $6.5 million on a GAAP basis, down 40% from $11 million for the prior year period. This reflects the significant actions we took to lower operating expenses, including a 50% reduction in headcount as well as vendor spend reductions. Certain of these steps followed our FDA de novo authorization, which allows us to focus spend on the sales and marketing organization. Through these efforts, we've reduced our cash burn to under $5 million per quarter, which is 40% lower than the fiscal second quarter and half the level of a year ago. Net loss for the third quarter of fiscal 2024 was $7.7 million or 8 cents per share. This was down 36% from a net loss of about $12.1 million, or 14 cents per share, for the third quarter of fiscal 2023. We ended the third quarter with approximately $4.7 million in cash as of March 31st. This does not include the approximately 6.4 million net proceeds from the second tranche of the March pipe financing, nor the $1.5 million from the registered direct placement announced last month. We raised aggregate gross proceeds of $13.5 million in those financings. We continue to explore ways to carefully control operating costs without impairing our ability to grow test volumes and revenue. Operator, we can now please open the call for questions.

Certainly. Ladies and gentlemen, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, simply press star 1-1 again. Please stand by while we compile the Q&A roster. Now, first question coming from the lineup, Dan Arias with Stiefel, Yolanda Sultman.

Good morning, guys. Thank you. James, what's been the feedback from clinicians and payers on the guideline changes and the LCD? I mean, it seems like as much as anything else that's taken place for you guys, those should be what moved the needle on test usage. So can you just talk to how you see the impact of those changes? I'm sure the answer is they're going to be tremendously helpful, but what I'm really looking for is some discrete details on just where you expect to see the changes first as a result, the extent to which they might change, and if they're not going to change, what the remaining sticking points might be for those folks at the stakeholder level. Thanks.

That's a very good question, Dan. Good morning. We continuously update our communication with payers, including national payers, and obviously we're in the final stages of LCD with the milestones. And that includes, obviously, FDA. It includes updated outcomes data. It includes the draft LCD, which is a significant milestone. And then, of course, guidelines. So we've had a continuous stream of updates going out to the payer community. I'll give you one anecdote. We talked to the CMO of a major insurance plan who said, LCD with guidelines, that's checkmate. So we expect that with the issuance of a final LCD, we've crossed the threshold for comprehensive payment throughout the United States. I can't see a reason why given the health economics data, the benefits of Kidney IntellX, third-party real-world usage of Kidney IntellX, which has now been published on Outcomes, this thing makes a difference not only in kidney health as measured by GFR slope, but also in diabetes as measured by HbA1c. So this is advanced preventative medicine. It works. It works very well. for a variety of reasons. And it's working at a time when there are a whole sequence of new drug therapies, which are quite expensive, including SGLT2 inhibitors, GLP-1 agonists. And how are you going to figure out which patients are at risk early on to be able to prescribe these drugs? So Kidney Intellect sits right at the heart of the whole health economics equation in precision medicine, which includes early identification, diagnosis, prognosis, therapeutic treatment, and really is the gateway to controlling cost and outcome. And that has been evidenced now extensively in outcome studies, and that's one of the reasons we got put into the guidelines. So I do think we are very well positioned in calendar 2024 for comprehensive insurance coverage, and so far the feedback has been very good. There's never any guarantee, but we do feel that we're in a very good position. And the other thing I'll point out, Dan, is we're doing this in a very short period of time. It's always difficult when you get here because people want to see sales ramp. People want to see building of the business, but The reality is that to be able to produce longitudinal outcomes data, get through a multi-year FDA de novo marketing process, get into the guidelines, and start a commercial organization in five years is a very short timeline. So 2024 is going to be very interesting in terms of knocking through the rest of the insurance coverage.

Okay. Yeah, I certainly hear you on five years being short at the corporate level, as you can imagine, investors. Less short for investors, that timeline is. So, I mean, to that point, 800 tests during the quarter, which is down from 1,000 or so last quarter. I think that was down from 1,300 the prior quarter. When, very simply, when do you think we reverse trend and stay up on a test volume trajectory here? And along those lines, to OJ's point on non-Sinai volumes, volumes that aren't coming from Mount Sinai, can you just talk about where we are with Wake Forest, St. Joe's, Utah, et cetera? Is there a point where just in aggregate those getting off the ground should start to be meaningful on a quarter-over-quarter basis? Thanks.

I think it's this year, and the reduction in total test volume is a function of us switching over to full commercial pay with Mount Sinai. This has been frustrating for me. Mount Sinai Health System is a fabulous partner. It is quite complex operating in that environment. That was our first launch customer. And as you know, we did that under a very specific environment with a defined contract to make the jump from that defined early stage contract under IRB control to a proper commercial testing. has been a challenge. We think that that is starting to work out now. And the interesting thing for me is we've now added the important optionality of growing direct-to-physician sales. And Howard will talk about that in a little bit. But the direct-to-physician sales is very much a bright light, and that is under our direct control. We also do expect to be... seeing value coming out of the atrium Wake Forest launch and we do expect to see other groups coming on board and I'll make one statement it's been quite a balancing act to reorganize the company it's like flying an airplane slow down and go down difficult to achieve we're now getting through the final stages of that where we've substantially reduced the operating burn and reorganize the human resources platform, brought new people on board like Howard and a new sales force, which is now has one quarter under its belt. So I would expect that we're going to see a leveling off and an increase without forecasting in testing volume activity. And most importantly for me, the breadth of the testing volume activity. So we're not just totally dependent on Mount Sinai.

as a single source customer uh and that if i take place in 2024. if i'm sorry to interrupt if i may add james uh the numbers dan that you had listed were total tests including non-billable uh study tests and uh we have court curtailed the the study test quite a bit uh after the terrific data, after the 12-month point, and also it was a great opportunity to save some money. If you looked at just the billable tests, the decline is a lot less dramatic than what you indicated, mainly flat, more or less. And so I just want to make that important distinction. If you just looked at billable tests, it's a much better picture.

Okay, that's helpful. OJ, since you brought it up, James mentioned in a non-forecasting way that he thinks volume should be able to ramp here in the coming quarters. In a forecasted way, would you agree with that?

Yes. Well, I'll stick to a non-forecasted way, but yes. There's certainly a path for volumes to be increasing, and the work that Howard is doing, particularly in the independent primary care side, is Pretty exciting. I just want some nice growth there.

Okay. Thank you, guys.

Thank you. And our next question, coming from the lineup, Randy Barron with Pinnacle Associates. Your line is open.

Hi, good morning. Can you guys hear me?

Yes. Good morning, Randy. Hey, I have a couple administrative questions and then two broader ones. Just really quickly, it was encouraging, at least for me to hear, that more bidders seem to have come out in this process since the initial unsolicited inbound in March that you got. Understanding the constraints that lawyers put on you, is it fair to say that that process of potential acquisition is active and ongoing?

So it is active, and we are restricted, so I won't comment specifically on the process, but... I will say that it is not every day. In fact, it's quite rare that you find a product services like Kidney Intellix that addresses such a large market. In the case of the United States, it's about 14 million patients with diabetes and kidney disease. That's wide open. And that has a price attached to it of $950. per reportable result, which gives us a very significant margin, and which now has been de-risked on a regulatory front. We are largely de-risking it on a reimbursement front and is now in the clinical guidelines. And again, the data, which is so important, which we've invested heavily in, which has allowed us to get insurance reimbursement and get in the guidelines and get through FDA, is very good. affects not only kidney health but also diabetes health so here you have a singular product and with the new look from FDA on laboratory developed tests and the expense associated with doing this the barriers to entry are very high for a blood-based biomarker driven artificial intelligence enabled in vitro prognostic so this really is the only precision medicine preventative solution at the front end of this huge disease funnel. And we are not surprised that that would attract significant interest from multiple players, not just in the diagnostic industry. Obviously, we have to continue with our sales and marketing effort, and we want to increase optionality here. Strategic partnering is an option. Acquisition is an option. all of which allow us to address this significant market. But this is a product that is rare to find. So we're not surprised that this process would be competitive.

Great. And then, OJ, just an administrative question for you. You guys did a series of raises in the quarter. What's pro forma cash today?

So we reported $4.7 million yesterday. in cash on march 31st i don't want to i haven't in the past given a given a spot cash uh balance during these calls so uh we won't change that policy now but 4.7 million in cash on march 31st and that does not include the 6.4 million uh from the second tranche of the pipe nor the 1.5 million from the registered direct um so and now that 4.7 million figure was from uh 45 days ago so That should arm you with enough information to do your estimate, but that's the detail that I can provide now.

Okay. And then just two really quick broad questions. Howard, I guess this is for you and James. It was interesting in the script to hear you talk about the breadth and volume of test changes at the direct-to-physician level. I missed the number. I think you said 30% or 33% growth, but can you just talk broadly about you know, what you've done on sales and marketing activity, what did the reorganization to align our commercial activities do? How many salespeople do you have now, et cetera?

Thanks for the question, Randy. Yes. So, you know, first and foremost, we pretty much have retooled the entire sales team from when it was last summer. We actually have four members of the team that actually are legacy that have been with us since between 2021 and 2022 and We had three additional folks that are remaining from our training class that we had this past August. And we brought in three new folks as we discussed on the last call this December. So their first time in the field really was this January of this current quarter. So big change is just the folks that we have. And just as we talked about on our last call, that these folks come with, the new folks come with strong diagnostic background, Half of that group comes with nephrology experience in their past, so they know the big practices. They're able to get into some of the key thought leaders, et cetera, and just the general nephrologists that are out practicing that are very supportive of our efforts but also can also assist us with going out to the PCPs with a recommendation because they're part of the referral pattern. So having folks that can knock on those doors in addition is also helpful. We've taken a look at our marketing materials, and I just think, you know, one of the biggest triggers is having the one-year outcomes data that came during this period allow us to really complete the story. You know, we have a test that's very simple to understand what it does. Obviously, it gives you the low, medium, and high-risk test results of the patient. But now, the first question a PCP or a nephrologist, for that matter, was going to ask is, what do I do with this information? Is it actionable? And now that there's a lot more tools in the toolkit from a standpoint of what you can do therapeutic wise for these patients, there's a lot of choices. So clearly we are seeing evidence in our outcome study where in the high risk category, for example, there was a 61% increase in patients that were being put on SGLT2s. So we've answered the question is what does the test do? Is it actionable? Yes. And then again, the third thing that we're highlighting in all of our materials are what are the outcomes? And there's really five distinct things when you think about it that we're really highlighting and referencing right now. One is just the clinical betterment of the patient. One is, James had mentioned a moment ago, GFR. So when GFR flattening of the decline occurs, that means kidney function is being withheld or the decline in kidney function is actually more stabilized is what I mean by that, which means it extends the runway to potentially further negative outcomes. So it's about a 50% reduction in the lowering of that GFR result that is causing that assistance. When you go to UACR, which is a measure of kidney damage, we're also seeing a reduction in UACR based on the medication. So kidney health in general, the progression of the disease is slowing. So that's very important. And then the three additional factors are all fetus measures. One is because we're doing UACR testing in the combination with our test. That's a HEDIS checkpoint. One-third of patients in this study also saw a retreat in their blood pressure down to 140 over 90 back in normal range. That's a HEDIS function. And also lowering an A1C was seen statistically significant in our high-risk and intermediate-risk patients. That also is a HEDIS reduction. So there's three distinct quality measures associated with HEDIS. as well as improvements in kidney health that are coming out of this outcome study. So that was really sort of the last piece of the story that we didn't have, and that's been incorporated in a much tighter, simpler message for the clinicians to understand. So I would say those are the two biggest variables, new team with broader experience coupled with better data and a very streamlined approach on the advantages of kidney telex DTD.

That's great, Howard. And then my last question, and I'll go back in queue. This is, I guess, James, for you. You know, Dan clearly touched on the importance of the LCD. It sounds like an event. To my knowledge, when I looked, I didn't see any negative comments in the open comment period. So when do you expect finalization to happen, and what are the implications?

Yes. The National Government Services has until September to issue That's the standard timeframe. We could see it sooner than September. The implications are significant, especially in combination with guidelines. These processes are not easy at all. They take a long time. There's a lot of data production required. especially when you're innovating in an area where there's been nothing before you. So really, prediction early of chronic disease risk is a difficult thing to do. And we saw this with FDA. The level of proof and validation required to get through these government organizations and to be able to declare risk with accuracy early and do it in a way that it's simple for a primary care physician to interpret, even though there's a lot of technology back end. This requires a significant amount of validation, a lot of data, a lot of process. Getting Medicare coverage into such a large population is going to be a major event. for us and not easy to replicate. And I think, you know, the comments I'm hearing, I gave you one earlier on, is that you really enter a new paradigm when you are in the guidelines and you've got this long-term Medicare coverage in place. And with the health economics data, with the clear advantage of Kidney and Telex, in terms of preventative medicine, I don't see a case why an insurance company does not cover kidney Intellix. And for progressive thinkers, I don't see a case why insurance companies don't educate physicians on the benefits of using kidney Intellix. Everybody wins. The insurance company wins. The patient wins. Obviously, we will win. The government wins because they're spending an inordinate amount of money on patients that fall into dialysis, which published in JAMA last year, first year alone for dialysis cost, treatment for kidney failure is over $200,000 a year. And everything's a time and a place. We have the drugs now that are available. Insurance coverage, they have very good data. And pharma is now out. educating with us on the importance of diagnosing kidney disease, especially if you have diabetes. So the equation now becomes very simple. If you have diabetes, you have to be diagnosed for kidney disease. Do you have it or don't you? And if you have diabetes and kidney disease, you have to understand your risk because we know the top 10 to 15 percent of patients at high risk by kidney IntellX have a greater than two-thirds chance of experiencing an event, significant decline in kidney function or kidney failure, over the next couple of years. The bottom 50% of patients, regardless of stage and grade, you can be moderate stage kidney disease. But if you're at low risk by kidney IntellX, you are highly unlikely to progress. So this is not a marginal equation. This is a very strong, to me, black and white equation at the front end of this huge disease funnel. And we can now, for the first time, rapidly and in an easy way for the primary care physician to determine who should be treated and who's really at risk and who's not. So everybody benefits with Kidney IntellX. And the payoff comes very quickly because the cost of not catching people early is so significant. So we can eliminate a whole lot of sufferings. across millions of patients and a whole lot of cost. This really is the paradigm for how you manage chronic disease. And not to go too much further, but this is the issue that we all face in clinical medicine going forward. How do we manage chronic disease? Because you can't treat everybody. Populations are too large. And if you don't have prognosis early, accurate early prognosis, accurate early risk assessment, you've already lost the war. And here we now have an FDA approved, beautiful outcomes in the guidelines. And now with an LCD, the equation is really complete. And we've achieved what should be now the standard of care around the world for early stage prognosis in this big disease state. So I do think the LCD issuance is a key and critical validation. and is going to help start to move the clinical community towards adoption.

That's great. Good luck.

Thank you. And our next question, coming from the line up, Mark Mazzaro with VTIG. Your line is open.

Hey, Mark, we can't hear you. You may be on mute.

Oh, sorry about that. Can you hear me now?

Yes, now we can hear you.

Okay, yeah, thanks for taking my questions. So you guys got into final CADIGO guidelines two months ago, and in the past, you've disclosed metrics like number of commercial payers, number of Medicaid contracts, I think, you know, roughly 40 private payers and call it 35 state Medicaid contracts. Do you have an update on the payer coverage that you have today? And, you know, in the last couple of months, has there been any movement towards engaging payers in a greater capacity? And maybe could you just remind me who you have, you know, obviously you've made some reductions in headcount, but do you have a team of folks in front of commercial payers at this time?

Yes, and I'll take that last question. Now, the headcount reduction has obviously been painful. And we have ended up with what I think is an efficient market access group, which is the group that interacts with payers. We have also, we have a third party billing group that we've been working with for a while now who has taken on more and more of the burden. because as you get more and more payer contracts, there's a larger administrative burden that goes along with maintaining those payer contracts. And so we've been able to find a more efficient mix there. And again, as I said originally earlier on in the call, this is a dynamic process. I've learned an awful lot about how do you create comprehensive payer coverage. It's very difficult, right? You have different payers with different ideas of value based care, different ideas of health economics, different drivers. There are early adopters, mid adopters and late adopters. There are national payers. There are local payers. There's Medicare, Medicaid. This is an incredibly complex equation and it requires an enormous amount of data and proof. And I think, you know, for example, For us to be able to get contracts like Texas Blue Cross Blue Shield, which covers over 8 million members, and Illinois Blue Cross Blue Shield, which I believe covers over 8 million members, Emblem Healthcare in New York City, these are very sophisticated groups. They look at the data, and they require a lot of diligence before they issue a coverage determination, especially for an advanced diagnostic test like kidney and telex. Many of them are now requiring outcomes data. not just utility data. And that requires time, a time function, which is a significant investment. And there's no shortcut. Many of them require FDA. Otherwise, you're deemed to be experimental. So we've been very fortunate because from the very beginning at Renalytics, we set this dynamic up. We knew this was going to be an uphill fight to get this. And we've all died on the hill of reimbursement. And if you can't get paid, You know, you have a big research project, you don't have a business. So we knew from the very beginning we had to generate outcomes data. We made the choice to go through FDA. And all of this, of course, was focused on getting to the guidelines as well. So it has been a continual update process. Having been put in the final guidelines is a major help because we are no longer experimental. Nobody can say, oh, you know, you're just a laboratory developed test. Now we can point to a whole sequence of major payer decisions and draft LCD guidelines, FDA outcomes data. I cannot see a reason why a healthcare insurer, especially with the risk exposure to chronic kidney disease and diabetes, right? This is not just, we're not screening people here. These are patients walking into a primary, a very busy primary care physician office. with a complex disease, multiple complex diseases, that could represent a significant short-term actuarial risk. There's no reason, no logical reason why you shouldn't understand the risk of that patient. And we're now talking about adding very expensive drug prescription to the table. So prognosis, precision medicine prognosis, which is kidney and telex, which can be utilized by the primary care physician, this is key. It's got to be very simple. It's got to be rapid. It's got to be very actionable, which is what we spend a lot of time and money figuring out and having it regulated. This becomes critical to managing the disease and all of the downstream suffering and all of the downstream expense. It becomes critical to the health equity equation in the United States. And I'm pounding the table here because this is the solution for managing chronic disease. getting in early at the primary care level and understanding risk. From there, all of the clinical decisions can be made. And if you don't understand risk, and we see this now in the real world data, physicians are not understanding risk without kidney and telex, and we see the consequence. Today in the United States, still 50% of the people who enter hemodialysis do it through the emergency room. We're still having crash catheterizations we're now prescribing $1,500 a month psychobiologics into patients who may respond or not, who may not be high risk. So unless you understand where you are on the risk spectrum, unless you understand the ability to characterize the disease, and you can do it in a very simple way, which is not easy, then you can't control it. The LCD is a significant event for us, and we're continuing to update the payer landscape. I don't have all of the numbers in front of me, but a lot of them are listed on the website, and we do issue 8Ks with material events. I would like to see national payers coming on board. They're spending an awful lot of money that they don't need to spend on late-stage kidney disease. If they implement kidney IntelliX across their systems, it is now abundantly clear that that preventative medicine goes in place and you start to prevent progression and you get a much better characterization on these huge populations that you're now insuring. So I think we're in a win-win position for 2024 to knock off the rest of the insurance coverage.

Okay, that's helpful. And certainly it would be great to see the LCD go final by September or sooner. I know in the past, James, you talked about a potential opportunity to get an NCD, you know, the National Coverage Determination. Is that still a pathway you guys are looking at, or is it really just more about, you know, getting the LCD and just going from there?

It still is a possibility. We are speaking with CMS. We are speaking with FDA. But I think for all practical purposes, an LCD finishes the game for us. And just to remind everybody, National Government Services is the Medicare contractor that is going to issue, that has issued the draft LCD. And as long as we process samples in our New York laboratory, we can now bill at $950 to national government services and get paid. We're being paid now under a convention called ICR individual claim review. It's a little bit cumbersome. So the issuance of an LCD again will be another incremental smoothing into the clinical pipeline. But we can take a sample from any Medicare beneficiary anywhere around the world. As long as we process that sample in our New York laboratory, we can build Medicare. A final LCD means that we can service the entire Medicare population with Kidney IntellX.

All right, that's great. Last question for me, Howard. I appreciate the update on the commercial organization. It sounds like there are approximately 10 people on the sales force. Do you expect to stay there this year? You know, I understand that cash burning capital is something you have to keep your eye on. But yes, should should we expect you to stay flat at 10 this year or is there potential to add to that? And then, you know, if there was no rate limiting factor with capital longer term, How do you see a healthy Salesforce? What would that look like in a couple of years?

Sure, Mark. Yes, so you're correct. We are currently at 10 in regards to what we have today. We are always looking at opportunities that we're opening doors with now as far as access to larger groups. And we have a couple of things that we're working on currently that if those came to fruition today, we would be adding potentially one or two folks. At the end of the day, though, what we're really trying to prove out is what's the productivity that we can see with the new team in its first year. So that's really the measuring stick that we're paying the closest attention to. But yes, we would be in very small opportunities. We'd be still cautious and deliberate because of the spend, but there are a couple inflection points that we want to maximize that would not be able to be covered by our existing team. We will, you know, certainly as those come on board, we certainly will, you know, talk about those. But that would be the ads. I think what we have as far as the markets we're in, as we've discussed before, you know, we follow the actual need markets that have a high penetration rate of type 2 diabetics with chronic kidney disease overlaid with very favorable, you know, managed care. Those markets right now for us are Ohio and North Carolina, New York, Florida, Texas, and Louisiana. And so as much as we've been talking about the LCD and additional reimbursement, those are just very strong markets for us across the board, strong from a standpoint of need, strong from a standpoint of having the managed care contracts and programs that we need to be successful within those. So from an expansion standpoint, yes, it would be a lot of still looking at opportunities that have those same characteristics, right? We want to go to places first where there's a tremendous need, coupled with who has the best reimbursement. And look, I've had sales organizations of many sizes. Obviously, the number that we would put in the field and deploy would be the type of funding we have at the time. So that's a little hard to answer that one hypothetically without discussing if you had X dollars, what would you do? I could be more direct there. But just, yes, we want to expand We want to continue to raise. We know we can drive results now at the PCP level, and we want to magnify that over time. I just couldn't give you a firm number as we sit here today, other than the couple additional ads that I foresee over the next couple months, most likely do some other events that we're working on.

Okay, great. Thanks, guys.

Thank you. And our next question, coming from the line of Yichen with HC Ren, where your line is open.

Good morning. This is Ashton on for Yi Chen. Thank you for taking our questions. First question is, what are the hurdles for wide adoption of the test in the VA system? Also, what is the estimated timeframe to achieve cash flow break even?

So the VA system took me to school.

I thought that when we had a General Services Administration contract, which we still have, which is important, by the way, for also retaining the price point. One of the great lessons in reimbursement is if you come down on price or you negotiate a lower price to somebody else, you never get it back. So having the General Services Administration lock in the price at $950 is which obviously covers the VA system, and having CMS also crosswalk to a $950 price, that is the price point. And we have not backed down on that price point, and that retains the margin and the value for the addressable market. But the VA system, I think we substantially overestimated. We were overoptimistic on what we were able to achieve. We had national support. And we really viewed VA going into it as one entity. And it turns out there are something like 170 different individual sites in the VA. Many of them operate differently. And it became incredibly complex in that system to roll out an advanced prognostic like kidney and telex. There were many ironies, inefficiencies, and We over-hired to go after VA, and we had to do a complete about-face. I still think it's a fabulous market space. There are over a hundred, I'm sorry, there are over a million diabetic kidney disease patients. There are veterans who we should be taking care of that would benefit from Kidney Intel X. And at a future date, I want to go back in to the VA and integrate because I do believe it's an important market space, and I do believe we can come from a top-down approach and gain traction. But again, in this capital markets environment, which I've never experienced before, I've never experienced such a derating in a sector, and I never thought that we would have such limited access to the capital markets. we had to drop the VA effort by and large. So I do not expect the VA will be part of our plans in calendar 24. If conditions approve in calendar 25, we'll go back in. But we've learned a few lessons there. It's one of the reasons we've reorged around Howard and his experience having been very successful with broad diagnostics launches, including in cervical cancer and other areas. And we're now focused on a limited, high-performing sales force in very specific regions where we have high insurance coverage, large rates of diabetes, and maybe a large clinical provider working alongside us. It takes you a while to figure out the model that's really going to take off. Where does adoption come in? This has been an ongoing question, and I look at it in two lenses. One, we are still a young company, believe it or not. You know, we really didn't launch Kidney IntellX in force on a commercial basis until just over a year ago. And we are just in April launching the FDA-approved Kidney IntellX, so last month. And diagnostics is the worst business, and it's the best business. It's the worst business because you've got to cross all of these mountains. FDA, you know, Medicare reimbursement, outcomes data, and now guidelines. You've got to cross all of those things before a very conservative and codified clinical infrastructure says, okay, this should be ready now to use as a standard of care. We've now crossed all of those things, and this is where I believe diagnostics becomes a very good business. Because the barriers to entry are very high behind us, the deeper I get into diabetic kidney disease, it becomes even more clear how significant a problem this is. And not only is it not going away, but it's growing. And, you know, we've got to do something about it. And the something about it is you've got to know early what your risk is. I came out of the prostate cancer world. And the analog is very clear. When do you want to know you have cancer? As soon as possible. Because it changes your treatment paradigm, it changes your outcomes, your suffering, and it changes the cost. The same is true with kidney disease. All of us on the phone are eventually going to start to lose kidney function as we get older. The question is, does it matter? For most of us, it doesn't. But for a significant percentage of us, it's going to matter a lot. And the sooner we know the sooner we can treat it. We have drugs to treat it now. We didn't five, six years ago, not like SGLT2 inhibitors and GLP-1s. So there's no rational reason why, to me, with a FDA-approved precision medicine prognostic product that is now in the guidelines and is paid for by insurance, that this is not set up for broad adoption. And it's a matter of time. Now, the capital markets isn't giving us much time, and that's okay, but things change. Interest rates will eventually come down, and investor sentiment will change. So for us, it's one foot in front of the other. We have a very focused, high-performing sales force that is going into very specific regions. We're not boiling the ocean. We've learned an awful lot over the last couple of years about what the messaging is to the physicians was ordering Kidney Intellex. And that messaging right now is very clear. Hey, doctor, we have a tool which goes after one of the major complications in your diabetes patient. And it's FDA approved. We accept all insurance. It's in the clinical guidelines. So it's guidelines standard of care. And here's what happens when you use it. Not only do you improve your kidney disease, but you improve your diabetes patient's health. So The rationale is very strong. It's comprehensive. It's data-driven. We've invested heavily in the data, which now put us in a good position to drive adoption incrementally. We've got to watch the cost. That's critically important. But we've got the right team in place. We have right-sized the organization, so we're not burning a ton of cash for a – a Medicare reimbursed clinical diagnostic company, services company. Our operating burn is actually quite good. And now we just got to keep our nose down and put one foot in front of the other. And I think the adoption will come. I think it is a function of time at this point. The LCD is going to help when the final is issued. That will raise visibility again. And now the question is, how do we maximize shareholder value? And that comes down to optionality and optionality comes in the form of a competitive strategic process. It comes in the form of runway, which is a function of equity capital. So we want to have a long runway as possible, uh, so that we can run a competitive process or we can continue to grow the business on an incremental basis. We have a number of significant opportunities in front of us in 2024, in terms of additional hospital partners, additional areas where we can roll out. And it's a very powerful message when you walk into the primary care and say, primary care physician, and say this is a simple, actionable solution, which is covered by insurance and FDA approved and in the guidelines. So I, you know, for the first time we are in the position where we have checked all the boxes. And I cannot believe that adoption will not follow. Of course we have to prove it. And I think now that we built a direct-to-physician sales force of high performers under great leadership, again, that provides us with additional optionality to prove out the business model.

Thank you so much for that.

And next question is, what is the estimated timeframe to achieve cash flow break-evens?

Yes, so we're not going to answer that because that's a forecast, which is not what we're going to do, but certainly our break-even point is much lower than it was. Okay. Thank you for your time. Thank you. Appreciate it.

Thank you. And as a reminder, to ask a question, please press star 1-1. Our next question coming from the lineup, Bobby Demmer with DM Capital Partners. Your line is open.

Hey, guys. Thanks for taking the call. Can you hear me? Yes, we can. Okay. I want to tailor this towards Howard. It's kind of building on what you're talking about here. You had 806 tests that you reported in the core, and you said that 82% of those were billable. So back of the envelope, that takes us to 660 billable tests. Of that number, how many of those were system-driven, and how many of those were salespeople-driven?

So, OJ, we have about 40% of that number, Bobby, is the actual PCP sales, and the other is Sinai, roughly.

It's Sinai. And do you have Wake in that mix, or is it just Sinai? Just Sinai. Okay. And is that the mix that you expect to go forward with, 40, 60 salespeople, the system, Drew? Yeah.

No, I would actually expect that, you know, in the not-too-distant future that PCP would be the largest bucket of our business, right? We'll have the enterprise accounts and we'll have PCP. But in the future, I would expect PCP to be the largest chunk of our business volume.

Like flipping those?

I would hope to do even better than that, but yes.

Okay. And... kind of looking at growth trajectory here um if you've got kind of 40 of those as as pcp sales people driven that's you know call it three just lower 300 tests just use that number you have seven sales people that have been there um for quite a while now um since august um How are we looking at those salespeople who have been around and getting to, say, 1,800 tests out of those salespeople as opposed to 300 tests out of those salespeople?

Yeah, so I would say a couple things. One is, you know, at one point we had a much larger sales organization, correct? So the three people that were, I called legacy earlier, actually have three very productive territories that, you know, they're the right profile of folks that we obviously wanted on the team. So that's that first group. The group that started in August, again, that's still fairly new. So we've got a couple of quarters under their belt. And then of course, we have three new folks that started in December who this past quarter is their first. So, you know, what we have as far as the new team is we've got one data point, right? We've got the quarter that we're talking about now. We alluded to in our comments in the original script that we anticipate this quarter to be similar in growth rate to this past. And beyond that, that gives us our second data point. At that point, I'll be able to look at what's occurring, momentum, et cetera, to start thinking a little bit more broadly as far as further down the line. But for right now, I'm focused on this current quarter and not necessarily four or five quarters out depending on growth rate to hit the numbers that you're talking about. I just don't want to make a projection on a data point of one. I want to get this current quarter under our belt, take a look at it, and I think I'd better answer that a little bit more definitively next call.

You're bucketing these seven salespeople and the new three salespeople in the same bucket regardless of how long they've been

operating and doing their work in their sales channels uh no i wouldn't necessarily say it that way i'm just saying that you know we are looking at the directory of what it takes with this slightly different profile of person and um different background set and what they can do and how rapidly can they do it and you know we didn't expect really anything for the first month or two So what we're really looking at is only a few months of data on particularly the new folks and seeing where that trajectory is going. To date, we're very pleased with it. And I expect it to continue to be better over time. But I just think it's too early. Even again, with the folks starting in August, they're relatively new. We've made some changes, et cetera. I just think you're asking a question that's a little further out than what I'm comfortable projecting to you today.

Okay. I mean, just because James was talking about distance or runway, right? Because the market, I think, is going to have to see, you know, sales volume here pick up.

And I think we will have catalysts that will allow that to be better, you know, upon time. I just, you know, again, with the team settled, we're happy with what we have today. We have one quarter under our belts with that group. And I will feel a little differently as far as, you know, more future discussion once we conclude this quarter. That's all I'm trying to indicate to you.

All right. Well, thank you for answering that. One more, if you don't mind. Sure. What do you expect the conversion rate to be for getting in front of doctors? As far as new doctors per quarter? Yeah, new doctors per quarter, and then once you're in front of those doctors, what kind of conversion rates are you expecting?

Yeah, so, you know, I would say if I was going to just take a step back and if you were going to ask me what's the thing that surprises me the most on a positive, I would say that our clinical message now is very tight. And getting a clinician to say that they're interested in the test, I'm not going to call it easy because it's not. It's still hard work. But the message is very sound that it holds together and they get it. The most challenging part is patient identification. You know, so it's them being able to go into their patient data and finding, all right, who are all my type 2 diabetics? Who have I staged with chronic kidney disease? And who has the clinical features that we need to actually run our tests? That's the biggest barrier to broader adoptions. And it's a slower process. It takes a lot of handholding. And it's not yet a sticky business. We are working on ways to make it more sticky by making ordering simpler, providing better nephrology access, or excuse me, providing better phlebotomy access and taking some of the barriers that have been pushed us on in the past. But the most important thing is getting them into that rhythm of identifying cases before they come in for their next checkup. That's the biggest challenge. So our adoption is definitely different than it was in the past. We are seeing an uptick on how quickly the doctor closes today, the tests they start ordering over the subsequent months. We are definitely seeing a change of behavior there. But I think we can even have a bigger inflection point as we continue to hone on a very simple way for them to identify these patients. And when they have them identified, we will definitely see conversion ramp change, I think, quite a bit.

Okay. And finally, I'll let you go. I'm trying to gauge how much of the 14 million TAM we can expect Rinalytics to capture. And if you have 100, just using round numbers, if you have 100 new PCP presentations, how many of those doctors do you expect or do your salespeople, are they being expected to convert to actually order a test? And those who have ordered a test, how many following tests is the expectation going to be for those salespeople? out of that particular doctor in those orders.

I mean, that's just a granularity that we've just chosen not to disclose yet. I mean, again, we're looking at all the things that you've just described, right? What I'd like to do is get another quarter under my belt to be more definitive. Again, it's a green team that we're doing some good things, but you're asking the right questions and you're asking about the right measurements, and that's just not a granularity that we're ready to go to.

Okay, well, I appreciate your time. Thank you.

I think it's important to note that there are a whole sequence of incremental changes which come together to reduce the resistance in the clinical pathway. Obviously, patient identification is one of them. One of the things that Howard has brought to the table is a sequence of incremental improvements. I referred to this in the script reading. But, for example, the physician order requisition sheet, we revised that in a compliant fashion. And we revised that to be now FDA compliant with the FDA product launch in April. But it's a much simpler procedure from what we originally had. And that's a function of experience in the real world. Increasing phlebotomy access, absolutely critical. And these are mundane things. But collectively, they add up to reducing the resistance in the pathway, which lead to better adoption. So we've now significantly increased the access of patients to blood draw stations across the country, and that took us a while to figure that one out. But all of these changes add up, and I believe will be reflected in the adoption cycle. Howard, I don't know if you want to add anything to that.

No, I think that's right. What we're really trying to do is make it easier to do business with us, right, and really improve the customer experience. And the more that we raise that, you know, back to your question, then, you know, we can start thinking about, you know, deeper penetration and so forth. But we have streamlined a lot of processes because, again, we are a send-out test, right? So we are disruptive to their workflows. to, you know, to utilize us, which there's, you know, other companies are in the same boat. So that's not, that's not a negative. It's just, it's a reality. And it takes some work and it takes some, you know, some strong relationship building to keep that pedal on those until they hit their rhythm. And once they hit their rhythm, then things can happen more systematically. But there's a lot of touch points, particularly in the early few months of, you know, an integration in an office that needs to be, you know, couple times a week so you know back to your question is you know we're still measuring all the things that you were referring to but i just don't think we have enough time to give you the the you know an answer that i would feel highly confident in so that's a lot of the learnings that we're still doing but yes a lot of profit uh process improvements are going over very well i mean just a simple one just to point out what james is talking about a better you know easier to use form? Well, if it takes three minutes to fill out the old one and it takes about 30 seconds to do the new one, the office thinks very favorably towards that, right? I mean, it takes them less time and we're asking them to actually add time to where they're already doing it during their day. But more importantly, our test only requires three clinical features now. It used to require seven with the LDT. Those are seven results that someone in that practice had to go look up and put it onto our test requisition form. Now they only have to go get three, and those three are actually very commonly used. So it's a real easy lift to ask for those. So there's a lot of little things that may not sound that big to you, but when you're out there and the clinician, it's big and important to them, and we're addressing them one by one. So that just, again, it goes back to what you're asking is, will that help us ramp this business faster? The answer is yes.

Thank you. And our next question, coming from the lineup, Jens Linkvist with Investec, your line is open.

Hi, just a couple of quick ones for me. First of all, on the pricing, the $535,000 of revenue you reported for the quarter, that translates into just over $800 per billable test, which is quite a bit off the 950 that Mount Sinai is committed to paying under that new commercial agreement which has been in place through this quarter, if I understand it correctly. So could you just help me understand that dynamic, please? There appears to be some pretty heavy discounting in the PCP channel, and is that something we should extrapolate going forward? So that's my first question. The second one is on the strategic review that is ongoing at the moment. I appreciate you probably can't say too much about it, but Could you provide some form of indicative timeline here? Because the strategic review, I guess, will determine for how long potential acquirers are allowed anonymity, et cetera, under the takeover code. So when can we expect some form of update in terms of whether you will pursue an M&A route or a different strategic option for commercialization? Thank you.

So on the strategic option, again, we're limited in what we can say. And I'm now becoming familiar because this is a UK convention. And it was impressive to me under the UK convention how seriously the takeover panel takes approaches. And if there's a whiff of a strategic interest in a company, then you have an obligation to let the market know. And so this was a little bit more than a whiff with regard to us and the unsolicited approach. So we had an obligation to announce. The advantage of announcing is, and again, I'm not an expert, I'm not a lawyer, so please take this with an element of grain of salt, but now that we have announced, it creates a much easier process to talk to additional players without disclosure requirements. And so the process will take its own life. I don't know the timeline. People that are looking at this include large you know, company players that have long timelines and leads. And obviously, the more sales that we accrue in that process, the better it will be. So taking a little bit of time is not a bad thing. But, you know, again, and I don't want to say anymore, but we do expect the process to be competitive and we'll continue to move along. And ultimately, what happens, I don't know. But again, it goes back to maximizing the shareholder value and creating optionality in what is an incredibly difficult market right now. In terms of pricing, and then OJ will cover this, the price is $950, and we do not discount that for all intents and purposes. You know, we fought hard to achieve CMS pricing at 950, General Services Administration pricing at 950. That is our price and we will not compromise. However, within the complexity of the insurance infrastructure, not every test ultimately gets paid. This is standard convention. So we would expect, and I know, Jay, you correct me, an average price going forward of somewhere in the mid-800s.

So, right. So the math you're working out, Jens, is not the result of any discounting. So it's 806 total tests. 82% are billable. So... 662 billable tests, and not every one of those is recognizable right away because some of them are covered by insurance that we don't have a contract with. Many of those do ultimately pay, and if they don't pay the full 950, we do appeal those, et cetera. So the difference you see there is just a result of that timing. So about 80% of that billable testing volume is immediately recognizable. That goes into the revenue line. the rest ultimately, at least some of the rest we collect over time.

Okay, thank you.

Thank you. And I'm showing no further questions in the queue at this time. Ladies and gentlemen, this concludes today's conference. Thank you all for your participation, and you may now disconnect.