Q1 2023 CareDx Inc Earnings Call
Speaker 1: I want.
Speaker 2: Greetings and welcome to the Care DX Incorporated first quarter 2023 earnings conference call. During the presentation all participants will be in a listen only mode. Afterwards we will conduct a question and answer session. At that time if you have a question please press the one followed by the four on your telephone.
Speaker 2: If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Wednesday, May 10th, 2023.
Speaker 2: It is now my pleasure to turn the conference over to Greg from the Gilmartin group. Please go ahead.
Speaker 3: Thank you, Jennifer. Good afternoon and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ending March 31st, 2023. The release is currently available on the company's website at www.caredx.com.
Speaker 3: Red CTO Chief Executive Officer.
Speaker 3: Abhishek Jain, Chief Financial Officer, Alex Johnson, President of Patient Testing and Services, and Robert Woodward, Senior Vice President of R&D, will host this afternoon's call.
Speaker 3: Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meeting of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Security's litigation reform act of 1995.
Speaker 3: Any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements?
Speaker 3: All forward looking statements including without limitations our examination of historical operating trends, expectations regarding coverage decisions, pricing enrollment matters, and our financial expectations and results are based upon current estimates and various assumptions.
Speaker 3: These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements.
Speaker 3: Accordingly, you should not place undue reliance on these statements.
Speaker 3: For a list in description of the risks and uncertainties associated with our business, please see our filings with the Security Exchange Commission.
Speaker 3: The information provided in this conference call speaks only to the live broadcast today May 10, 2023.
Speaker 3: Care DX explains any intention or obligation except that's required by law to update or revise any information, financial projections, or forward-looking statements, whether because of new information, future events or otherwise.
Speaker 3: This call will also include a discussion of certain financial measures that are not calculating the court's generally accepted counting principles.
Speaker 3: Reconciliation to the most directly comparable GAAP financial measure may be found in today's earnings released filed with the SEC. I will now turn the call over the Reg.
Speaker 4: Thanks, Greg. Good afternoon, everybody. Thank you for joining us for KDX's first quarter, 2023 earnings conference call.
Speaker 4: As your recall, we ended 2023 having been through a challenging environment in 2022. The four key challenges identified included the growth of the transplant market, marketing and the idea of the low point in transplant since onset of COVID started 2022, changes expectations and diagnostic sector.
Speaker 4: where we focus on achieving profitability and maintaining a strong cash position and increase in the commercial pair mix with a full impact of Medicare advantage and increasing our commercial testing services volumes with new launchers and for driving revenue growth also in our non-testing service business lines.
Speaker 4: I will address the revised billing articles from Moldex shortly. Before I do, I would like to highlight our strong operational performance that saw a successfully executed plan to address those four challenges.
Speaker 4: We continue that effort into Q1 2023, where the company won, delivered its highest ever patient testing services volume and grew faster than the market by eight share points compared to the prior quarter. Two, we delivered cash collections at 110% of testing services revenues for a second consecutive quarter.
Speaker 4: representing approximately 10% year-over-year increase.
Speaker 4: This maintain a strong cash position of 286 million and help generate .7 million in net cash from off-ray activities. Three, we delivered our highest non-medicator revenues through improved pay coverage and collections with a 19% increase in sequential revenues.
Speaker 4: 4. We delivered our highest ever patient and digital solutions revenue quarter as we doubled our contribution from our non-testing services business line.
Speaker 4: We're proud of these results and a strong operational performance and execution in Q1, 2020.
Speaker 4: Now moving on to the billing article changes. We're now faced again with a new set of challenges with the introduction of two revisions to the billing article associated with Medicare coverage of our short-element. The first revision was published on March 2nd and the second on May 4th, 2023.
Speaker 4: addressing these changes required significant management time and the reallocation of organizational resources. We have updated our 2023 plan which is now closely focused on the operational implementation of the requirements for billing articles.
Speaker 4: This will require significant ongoing effort throughout 2023. In parallel, we're aligning the company's cost structure to this new and evolving landscape.
Speaker 4: No more standing up focused on implantation. The company believes the billing articles are inconsistent with the LCDs. Both Naredian and MoldEx's response to public comments explained the intended scope of various LCDs and medical necessity.
Speaker 4: We believe the billing articles were changes to the LCD and not merely a clarification of existing courage by Moldex for kidney services.
Speaker 4: For example, in hard care, mold X direction has changed and they acknowledge that the March Billing article is a change as to its previous Billing article which provided coverage only when Al Shorhart was using a Dungeons & Wins Alamab Heart.
Speaker 4: Adding to this complexity there is uncertainty whether and when Naredian out Medicare, administrative contractor, also known as a Mac, will adopt and issue these new billing articles. To date, they have not adopted either billing article from Olding. Given these factors and out of an abundance of caution, we adopted a conservative approach and paused Medicare reimbursement submissions.
Speaker 4: Falshaw Kinney on March 7, 2023. The board and management team made this decision in consultation with third-party advisors. The decision is designed to give the company further time to understand and evaluate the implications of the March planning article. As a result, we did not submit claims for approximately 3,200 Falshaw Kinney tests for Medicare, reimbursement.
Speaker 4: and did not recognise this revenue representing approximately $8.9 million on these tests in the first quarter of 2023. We refer to these tests as the impacted March test. We will be submitting these tests, plan to submit these tests during Q2. We've had numerous discussions with MALDEF and plan to further discussions with them. We've also reached out to CMS on this matter and plan to reach out to the reading.
Speaker 4: While the transplant centers and care dexplored just and evolve over time, what has been concerning is the impact to patient care during this time of evolution and uncertainty.
Speaker 4: It was unrealistic to have a four-week implementation timeline from when the March billing article revision was issued. Thousands of providers involved in the care of patients had to be educated on new forms and processes.
Speaker 4: Despite this being a near impossible fee, we've focused the organization on these hundreds of centers and practices who were not ready for this change nor had planned for this change, especially centers would be required to update the IT systems. The Transplant Community has spoken out over the last few weeks on this unprecedented situation. The leading professional Transplant Association's ASDS
Speaker 4: AST and ICTLT and the leading patient associations and care from TRIO have all reached out to Moldex Reference matter.
Speaker 4: They also reate the importance of non-invasive molecular testing in transplant patient care and some went as far as to raise concerns about the implementation, timeline and process and implications patient care.
Speaker 4: Transplant Life Foundation, Transplant Families, Transplant Recipients International Organization and the Heart Brothers Foundation, showing that 95% of patients surveyed are concerned that the new Medicaid billing article limits coverage of non-invasive post-transplant tests.
Speaker 4: Furthermore, the majority of patients surveyed believed that reduced coverage of non-invasive blood tests would negatively impact their post-transplant care, and they should have been consulted as part of the process for Medicare policy changes.
Speaker 4: The survey included the views of over a thousand patients as well as caregivers and families.
Speaker 4: year-over-year volume growth. We delivered almost 50,000 tests beating the year-over-year market growth to 10%. We also grew sequentially by 5% versus last quarter beating the minus 3% quarter-over-quarter market growth.
Speaker 4: In Q1, recorded a total revenue of 77.3 million.
Speaker 4: If we had submitted the impacted March Test to Medicare in the first quarter, our total revenue would have been approximately 86.2 million, a year over year increase of 9%.
Speaker 4: In addition, our testing services revenue would have grown 6% to $70.70. Q1 would have been a record quarter for KDX if we factually impact a test that we plan to submit to Medicare in Q2.
Speaker 4: Our non-testing services business continues to live a meaningful contribution to our overall revenues, specifically patient and digital solutions deliver the higher-several revenues of 8.6 million, representing a 39% year-over-year growth. For the first quarter, we reported gap loss of 23.7 million and a non-gap loss of 5.8 million and a Justin Iberdale loss of 6.4 million.
Speaker 4: If we had included the revenue from the impacted March test, we would have recorded a positive adjusted EBITDA of $2.5 million. Notably, we would have achieved our key 2023 goal, which was to deliver a positive adjusted EBITDA in the first half of 2023. Arbyshek will cover this in more detail in his section. Now, update your own efforts to operationalize the changes by the...
Speaker 4: our testing services business line.
Speaker 4: While the following is not an exhaustive list of what the company has been doing since March 2nd, it is truly amazing what has been accomplished over the past nine weeks.
Speaker 4: Since the start of the billing article reached out to 80% of our 550-plus Transplant Centers, Community Hospitals and Practices.
Speaker 4: Each centre, hospital and practice has multiple providers and support stuff that has to be educated requiring us to visit numerous times, with some centres having more than 20 people that need to be educated. For more information visit www.cctexas.gov.au
Speaker 4: This has involved thousands of interactions. We've had to update our internal IT system processes and test requisition forms, also called TRS and workflows.
Speaker 4: All centers using paper to your <expletive> have had to be updated with new requirements and centers using our portal and now being migrated over to our new customer care portal.
Speaker 4: All centers using electronic medical records are being worked on as part of this process and we are dependent on the center adjusting its system workflows. Changes to IT systems need to be scheduled well in advance and working on the center by center.
Speaker 4: Secondly, the effective data implementation was only four weeks after the billing article revision. It should be noted that we began our efforts to operationally implement the March billing article requirements during March to be ready by the effective data March 31.
Speaker 4: While we've made excellent progress, it takes time for transplant centres and healthcare systems to make these operational changes and update their system workflows. We can report now as of the end of April , approximately 50% of the test orders received are now in the new forms and with the new required information. It has taken a hookling effort to get to this stage.
Speaker 4: While we continue making strong progress on the operational implementation, we will not be completed by the end of the second quarter. As an indicator of this uptake and adoption, we have seen a progressive increase in percentage of completed submitted forms. We ended April , as we mentioned, 50% and we're trending in May at 60%.
Speaker 4: and we expect to be at 80-85% of forms with a requisite information by the Salad Fourth Quarter as more transplant center systems are updated.
Speaker 4: Given the impact of the March billing article to our business model, we have taken steps to reshape the organization, which will deliver annualized cost savings of $40-50 million. Arbyshek will cover this in greater detail in his section. Moving on to guidance. Given the uncertainties between interpreting Moldex.
Speaker 4: The RIDIAN positions and our operational implementation taking time will believe it is prudent to withdraw guidance. We will revisit this in our next call to the earnings call once we've gained a better understanding of this evolving landscape.
Speaker 4: So what are the next steps to KDX?
Speaker 4: Firstly, we will implement the updated 2023 plan in response to the revised doing articles by continuing the all hands-on-deck approach to operationalised the plan, physician, centers and practices. Alex Johnson, this team, has done a fantastic job working day and night to get this implemented. We're going to line the organizational structure and strategy as the landscape evolves.
Speaker 4: The management teams have been working on this and that effort is also being led by Arbishek, RCFO. And we're going to be following up with Moldex Nuretion CMS about these changes. Secondly, we'll continue to deliver on the 2023 plan, especially the three Cs. On collections, we have made significant progress over the last two quarters, while testing services collections are greater than testing services' revenues.
Speaker 4: On coverage, we've captured wins from the recent IHLT guidelines, especially with earlier inversions for Alameda as early as two months, and we're in multiple active discussions to increase commercial coverage. There are things significant work as part of our strategic plan, but we're now expecting to see this to come together over the next few months.
Speaker 4: some of these dossiers have been updated. We'll continue to produce and submit clinical data demonstrating the clinical benefits of individual diagnostic tests and our multimodally offerings including heart care.
Speaker 4: Lastly, the company will be leaner, more efficient and aligned to the new and evolving landscape. We have enough cash in our balance sheet and we would do, do not anticipate needing to raise any cash in their future. Before I hand the call of the Arbisek to go to the financials, I want to thank all the employees of KDX who worked tirelessly to educate healthcare providers.
Speaker 4: on the billing article changes and to help transplant centers become operation ready. The efforts were exemplary driven by the unwavering commitment to serving patients and the broader transplant ecosystem, handing over to Arbyshek. Thank you, Red. We are pleased to share results from the first quarter. The key takeaways are...
Speaker 5: Number one, we had a good quarter despite the operational challenges associated with the implementation of the billing article. Number two, we have some early lead indicators to start assessing the financial impact of the billing article. Number three, we now have plans underway to mitigate the financial impact.
Speaker 5: 4. We have been drawing guidance to the due to the factors outside of our control. We had a good first quarter where we delivered on our financial imperative. 1. We maintained a solid cash position of 286 million and generated positive cash from operations for a second consecutive quarter.
Speaker 5: The impact of improved collections has started to show on ASP dynamics.
Speaker 5: 4. We had our highest ever quarterly revenue for patient and digital services business. And number 5, all three businesses improved growth margin year over year. And it would have been a record quarter if we were to consider revenue associated with the impacted March test of 8.9 million as we would have.
Speaker 5: Then reported our highest ever testing services revenue and reported a positive adjusted of data. Let me provide details. Firstly with revenues.
Speaker 5: In Q1, we reported total revenues of 77.3 million down 3% year over year. It's liver to include the revenue as associated with impacted mass test. We would have delivered revenues of 86.2 million over adjusted revenue, representing a 5% increase as compared to the last quarter in 9% year over year.
Speaker 5: This would have been our highest ever revenue in a quarter. Testing Services Revenue for the first quarter was 61.8 million down 7% year ago. Testing Services Revenue including the revenue associated with impacted March test would have been 70.7 million our highest ever testing services revenue in a quarter.
Speaker 5: 4. Adjust rate testing services revenue. Representing 8% growth as compared to last quarter and 6% year-over-year. Our testing services volumes grew by 5% quarter to a quarter as compared to a negative 33% growth for the transplant volumes.
Speaker 5: Also, our testing volume growth of 17% year-over-year beats the market growth of 10%. Despite tough market conditions, strong test volume growth demonstrates the value of our test with proven clinical use.
Speaker 5: Turning to ASP, adjusted testing services revenue growth of 8%, outpaced volume growth of 5%, or would have delivered a positive overall ASP change, an inflection point that we have been seeking with our focused strategic efforts.
Speaker 5: In Q123, we would have improved the ASP despite the continued segments from Wallen Mixchev. Primarily driven by number 1, getting paid for long outstanding medical advantage claims and number 2, having an increased price per test as a result of improved collections in Q422. As a reminder, we use historical collections per test.
Speaker 5: to recognize our revenue for non-Medicare tests in a given quarter.
Speaker 5: Importantly, ASP-ONR paid test continues to be approximately $2,500. We track this measure to exclude the impact of makeshift as a result of our strategy and market dynamics as we had discussed in the past.
Speaker 5: This is a metric that we used to ensure that there is no price degradation for our test.
Speaker 5: the metrics that we use to ensure that there is no price degradation for our tests.
Speaker 5: Our gap testing services go smart and improves to 75% at compared to 73% in the same quarter last year.
Speaker 5: A non-gap testing services growth margin improved to 77% as compared to 74% in the same quarter last year. Half of this improvement in growth margins was driven by volume growth and the impact of improved collections on revenue.
Speaker 5: The rest of the gross margin improvement was driven by two factors. Number one, the positive impact of one time reversal of a crude amount associated with royalty payment and it was partially offset by the impact on gross margin due to unrecognized revenues of 8.9 million associated with impacted mass theft.
Speaker 5: The cost of running these tests has been part of cost of sales. Now turning to non-testing services business. In Q1, our digital and patient solutions business revenue was at 8.6 million a growth of 39 percent year over year.
Speaker 5: and our highest ever for a given quarter for this business line. We are pleased to see our strategy of investing in our digital and patient solutions paying off. In our acquisitions, helping us both drive the business results and strengthen our mouth. Gap and non-GAP growth margin for a digital and patient solutions business were 23% and 31% in the first quarter of 23%.
Speaker 5: as compared to 21% and 28% in same quarter last year.
Speaker 5: Though the non-capros margin improved by 300 basis points year over year, the team is continuing to look for further opportunities to improve.
Speaker 5: Product Business delivered 6.9 million in revenue, similar to same quarter a year ago. GAP Gross margin for our product business was 41% in first quarter of 23S, 25% in same quarter last year.
Speaker 5: Non-Gap Product Gross Margin was 52% in the first quarter of 2003 as compared to 44% in the same quarter last year, an improvement of 800 basis points.
Speaker 5: As discussed in our previous calls, improving growth margins for products business stays the course focus area for the company and they are making good profits at it.
Speaker 5: Turning to operating expenses and adjuster divida. NOMCAP operating expenses for the first quarter was 61.7 million up about a million sequentially from Q422.
Speaker 5: The increase in our GAAP operating expenses was mostly driven by increased legal expenses.
Speaker 5: For the first quarter of 23, we recorded negative adjusted a bit of 6.4 million compared to negative adjusted a bit of 3.7 million in the previous quarter. If we were to consider unrecognized revenues associated with March in fact it has...
Speaker 5: We would have recorded a positive or just a bit of 2.5 million. Turning to cash. We continue to maintain a strong financial profile as emphasized by our robust balance sheet and cash balance of 286 million and no debt. We generated positive cash from operating activities for the second quarter in a row. With a complete commitment, we are now at the end of the day. We are now at the end of the day. We continue to maintain a strong financial profile as emphasized by our robust balance sheet and cash balance of 286 million and no debt.
Speaker 5: Importantly, the first quarter is usually a seasonally weak quarter for cash usage as we pay annual bonus for our employee.
Speaker 5: are focused on cash collections and working capital management contributed to achieving positive cash from operating activities. I would also like to note that we earned 2.7 million in interest income for the first quarter of 23.
Speaker 5: Now to the second takeaway, lead indicators to assess the financial impact of the billing article.
Speaker 5: RECH has already provided color on how the billing article revisions have impacted our strategy and on the operational challenges to implement the changes required for hundreds of transplant centers and the ecosystem around it.
Speaker 5: All of our efforts have now been shifted to operationally implementing the changes required by the billing article. Though we are seeing adoption of revised processes, this is a Herculean effort that could not occur by the effective date of 3 31, especially for our business services.
Speaker 5: Given the significant change complexity and related uncertainty, it is difficult to assess the financial impact of the billing article.
Speaker 5: However, let me share with you lead indicators. Number one, education. The first step in implementing the billing article is the education of the Trans-Narc Center, providers and support teams.
Speaker 5: I'm pleased to inform that we have educated approximately 80% of all centers. It covers 90% plus of our volume for kidney services and the education is ongoing.
Speaker 5: This sets the path for adoption of the new requirement.
Speaker 5: Also, it is important to note that after the first four weeks post the effective rate of billing articles, we are experiencing lower testing volumes as centers and clinicians are still learning, transitioning to the new processes and need to update the IT system.
Speaker 5: Number two, adoption. At the end of April , approximately 50% of our incoming test requisition were on newly implemented forms. That included required information to comply with the billing article. This is trending at approximately 60% in May so far.
Speaker 5: I think it speaks highly of our teams that have been working non-stop to implement new processes and system updates. We expect to continue to see an increase in the adoption to approximately 80 to 85% by the fourth quarter of 23. Number three, claim submission.
Speaker 5: For Electoral kidney tests starting March 31st, 23, we have not been billing any tests to Medicare unless they come with the requisite information on the new test requisition forms. Otherwise, we are going back to the prescribing transplant centers to collect that information.
Speaker 5: I would like to note that this will add significant operational burden on KDF. As shared earlier, there is still a large percent of incoming tests that are coming on old Father Phantar confirmed.
Speaker 5: Also, if a test is pending collection of requisite information, it will impact revenue recognition.
Speaker 5: For our alumni part and LSU heart test, we are continuing to follow our Medical Reembursement mission process.
Speaker 5: In addition, we plan to inform Noridian that until Noridian adopts the revised billing article, KADX will continue to submit Ellishore heart tests for reimbursement only when used in conjunction with Alumapp Heart, including the tests where we have not obtained additional information as required by the billing article.
Speaker 5: However, on June 30, 23, we plan to submit to Medicaid only those tests that meet the billing article requirement.
Speaker 5: Please refer to our 10Q for further discussion on billing articles and its impact and associated with it.
Speaker 5: Turning to our third takeaway on our plans to mitigate the impact of the billing article.
Speaker 5: The billing article will impact testing services business based on the early trends of lead indicators. Therefore, we have started to align our cost structure.
Speaker 5: We expect action. We expect these actions will help drive approximately 40 to 50 million in annualized savings. As we increase our understanding of the financial impact, we will adjust our actions to minimize cash burn. It is important to note.
Speaker 5: that during the transition period of operational implementation, we will require more resources to deal with significant additional administrative burden in certain area.
Speaker 5: Here is a quick summary of various actions that we are taking. We are restructuring our workforce and our goal is to reduce approximately 12% of our headcount as compared to what we had in the beginning of the year. Number two, we are reviewing our test volume specifically in areas where the tests are not covered and are not reimbursed even after a period.
Speaker 5: Number three, prioritization of clinical studies in R&Ds and to stay focused on the most important areas that would help us improve coverage and drive revenues.
Speaker 5: 4. Review of legal spend and reduction of discretionary spend to the extent possible. In addition to looking to reduce expenses, as DREG mentioned, we will continue to focus on our three cities key strategic areas to drive upside.
Speaker 5: review of legal spend and reduction of discretionary spend to the extent possible. In addition to looking to reduce expenses, as Rej mentioned, we will continue to focus on our three C's, key strategic areas to drive upsize. Turning to guidance. We will continue to focus on our three C's, key strategic areas to drive upsize. Turning to guidance. We will continue to focus on our three C's, key strategic areas to drive upsize.
Speaker 5: We will be drawing our 23 revenue guidance at this time given a multitude of unknown variables related to the billing article as we have discussed during this call, many of which are outside of control.
Speaker 5: Specifically, Number 1, interpretation of MOLGIC?s policy in the context of two billing article revisions since March 2nd. Number 2, adoption of the billing article by Noridian and the updation of IT systems by centers to incorporate new test forms.
Speaker 5: Number three, impact of transition on testing services volume during the period of education and implementation. The number three in many colleges and communities wearing%, that would be about 3.5 percent, if not 8 percent.
Speaker 5: 4. Rate of adoption of new firms, percent completion of the requisite information, and success in collecting the information from the TRF.
Speaker 5: We will revisit this in our earnings call for second quarter of 23 once we have gained a better understanding of the evolving landscape.
Speaker 5: In summary, we had a good first quarter. It could have been even better had we not hit the challenges due to billing article revision. All efforts now are on operational implementation of the requirements of billing article division to increase the rate of adoption as much as possible.
Speaker 5: future. We will continue to build on our key strategies by enhancing our efforts to improve coverage and collections areas that we can implement. With that, I'll hand over to the calls to to Ranj.
Speaker 4: Thanks, Abhishek. I think let's have Greg if you can work with the operator to open the line to Q&A. Thank you. Certainly. If you would like to register a question, please press the 1 followed by the 4 on your telephone.
Speaker 2: You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, you can press the one followed by the three.
Speaker 6: And our first question is from the line of Matt Sykes from Goldman Sachs. Please proceed with your question. Matt Sykes Hi, good afternoon. Thanks for taking my questions. Maybe the first one for you, I appreciate the color on the percentage of forms. And Abhishek, I know you said that testing volumes were lower as you see it recently. But maybe just help us frame –
Speaker 4: I'll make some introductory remarks on the handle to get part of that. We have some early read on the market volume and clearly those bit of interim flights that we've gone through, fewer of the complexities as part of that process. For example, some of the standards with EMRs, we actually need to then update the forms on their side, which has created a bit of an issue. It said there is a bit of...
Speaker 5: And of course, as we said, in the first quarter, our testing services volume was pretty solid. But after we have implemented this new test requisition form, it has started to basically, due to the change management of this whole exercise, it started to kind of drop a little bit from that standpoint. It's in the range of...
Speaker 6: and suppose you can change the forms and re-educate the centers. Do you foresee a drop in frequency for some of your tests in terms of that waterfall that you've traditionally had for your testing services?
Speaker 4: Yeah, I'll add some color and then I'll have Abhishek talk as well. Well we've found, Matt, during this process, the key is really getting operationally ready. I mean I think centers with focus less on is this trying to full course surveillance. The question is when will centers be ready and operationally ready? That's the most important thing. And I think…
Speaker 4: With 550 plus centers, we've had to reach out and with many of these centers that weren't ready. That's the key bottleneck, it's this operational implementation. We've had thousands of interactions. If these aren't up, then that sort of discussion goes away. So I think what we've seen is this trend of how do we get the centers up and running.
Speaker 4: and then how do we get these forms in the right format. So I think that's why the team under Alex has made some different progress going to this 50% at the end of April . And now in the start of May, we're starting to see about a 60% range. But let Arbyshek add some more color. Yeah, I think you have covered it pretty well, Reg.
Speaker 4: of issues that were raised such as this, what was known as this seven-day rule and also the requirement for a center to have the, you know, center protocol, for example, which is shifted more to the physician side. Robert will cover that more in detail as questions come up, but there have been some changes that I think will address that as well.
Speaker 6: Got it. If I could squeeze one more in. Just on the 40 to 50 million in annualized cost savings, in terms of how we should think about that phasing in over the course of this year, could you maybe help with an additional color on that? Yeah, sure. Absolutely. So, we have already started to take the actions, and then my sense is that you will start to see...
Speaker 5: In Q3, a proportionate impact will start to happen, right? Not necessarily the full one fourth of that $40 to $50 million, but I would say still a significant portion of that, you will start to see in Q3 and then you'll start to build from there and then Q4 and Q1, you'll probably start to see one fourth of that impact and the benefit start to show up.
Speaker 5: three, a proportionate impact will start to happen, right? Not necessarily the full one-fourth of that $40 to $50 million, but I would say still a significant portion of that you will start to see in Q3, and then you'll start to build from there, and then Q4 and Q1, you'll probably start to see one-fourth of that impact, and the benefits start to show up. Great. Thank you very much.
Speaker 2: And our next question comes from the line of Andrew Cooper with Raymond James. Please go ahead. Hey everybody, thank you for the question. Maybe first, you gave a lot of those comments on the rate of completed forms. But I just want to understand when you say completed forms, are those completed in a way that to your knowledge?
Speaker 2: does meet the requirements for reimbursement or just completing the information that then CMS or Mobius X or Noridian would need to contemplate to decide whether or not to actually reimburse for that test, meaning in the indication where you need to be replacing a biopsy.
Speaker 5: Is it just that there's commentary to support or is it you think this is enough to actually justify the payment? Yeah, I'll make a few comments and then I'll let Robert make a conditional comment said the way we have rolled out the new test requisition forms, we basically specifically ask the information that ensures that.
Speaker 5: whether they are meeting the requirements of the new billing articles. So, yes, if they are complete, that would mean that they are billable. And what the numbers that we have been sharing in our call, I would say the 90% plus of those forms, they are basically billable to Medicare. Okay, that's helpful.
Speaker 2: And then, you know, I think when we initially spoke kind of after the first of the billing articles came out, there was some conversation around some incremental data, some things you could do on multimodality, you know, sooner versus later. I think potentially the comment was, you know, within sort of a month of that early March start. Can you give us an update for where you are in terms of driving...
Speaker 4: you know, more confidence in multimodality as opposed to single modality as the path forward? Yeah, I mean I think multimodality, I'll make some comments and hand over to Robert, but this is an area where, you know, we've obviously seen a lot of, you know, cleaning utility and, you know, demand from the marketplace given to the complementary technologies that will come and I think we've had very, you know, good active dialogue with that with MOLNEX as part of that. So, Robert.
Speaker 7: submit very shortly to them for consideration.
Speaker 2: creating a need for cash. We did see during the call a shelf get file. So just a little bit of a thought, is that just corporate housekeeping? Anything we should be thinking about? Kind of any comments in regards to those two things as they fit together? Sure, I'll take this one Andrew. I just want to highlight that we as a company have been extremely prudent.
Speaker 5: that we have been very focused on managing our cash. We ended the quarter at $286 million dollars. In Q1 when last year we used almost like $20 million dollars, this year we were positive on the operating cash flow generation. That basically shows the importance of cash for us as a management team.
Speaker 5: And this is going to stay the focus that as we assess and as we basically build a better understanding of the financial impact here, we will continue to make sure that we are doing the right things so that we don't have to raise cash. Yes, it's just part of standard housekeeping and as we made and prepared marks, there's no plan to do any raising. Thank you.
Speaker 8: Great, I'll stop there. Thanks, guys. And our next question is from the line of Brandon Quiard from Jefferies. Please proceed with your question.
Speaker 9: Hey, thanks. Good afternoon. I have a check on the 8 to 9 million delayed March orders that you expect to submit in 2Q. Isn't there a chunk of additional orders in April and May? Can we also get deferred? So how did you think about?
Speaker 9: Hey, thanks. Good afternoon. I have a check on the 8 to 9 million delayed March orders that you expect to submit in 2Q. Isn't there a chunk of additional orders in April and May that seem to be also getting deferred? So I was just thinking about re-trooping that but also...
Speaker 5: a portion of the community. We should not be able to recognize again two things as well. We have a friend now. It was very difficult to hear you Brendan, I'm sorry. If I were to rephrase, you're talking about the $8.9 million.
Speaker 5: of tests that we did not submit in Q1 that we plan to submit in Q2. So is there a question around the recognition for those tests? We cannot hear you, Brent. We cannot hear you, Brent.
Speaker 9: Yes, that is right. I am talking about the 8 to 9 million that you did not submit in March but you expect to recognize in 2Q. Isn't there another chunk in 2Q that would also get pushed out? How do you think about the magnitude of those two numbers?
Speaker 5: No, I think that's the part of the complexity, right, Brandon, that we're trying to get better handle on. So, for example, the adoption of the new test acquisition that we're seeing, the adoption has been about 50% and it has improved to 60%. There will still be a remaining 30 to 40% that will come in Q2.
Speaker 5: where we will have to go back and supplement the information so that that meets the requirement of the new billing article. And then to your point, until the time we have been able to collect that information on those set of forms, we will not be able to recognize the revenue. So you are right, there will be more like a lag now on some of those tests that we were able to recognize revenue very easily in the past.
Yeah, and Brandon, part of that is why also, you know, Abhishek factored that into the consumer guidance. I would break this into, you know, the time point of March 31st, the effective date, and I think, you know, the test from that pre-effective date was submitted. I think what you're hearing from us is that given the changes in the billing article requirement in different forms that a company that was most likely today to electricians current
if we have them complete on the new forms and in the right format, then those will be submitted. And I think we've communicated the training at the 50% mark, in May now training at the 60% mark, we continue that to increase. For those other tests, we will go back to the centres and request that information. So that's the lag group that you're talking about.
But we'll have a better feel on that adoption rate, which is why that's so critical. Okay, that's helpful. And then the 40 to 50 million of targeted cost savings. Can you bucket that for us between the three optics lines, R&D, SG&A, and sales and marketing?
net of additional remediation costs that you're having to spend, all the education efforts and hand-holding with customers? So I would say that instead of providing you the color breakdown, the cogs and the off-ex, I think this is kind of so recent that we are still – I'll probably just tell you that –
because we are still processing the tests that we are receiving. And as we basically build more understanding of the volumes and everything, we'll probably see, but at the same time, any actions that we were supposed to be taking from the headcount, we've already taken those actions.
focusing on the rightful strategies on the clinical trials and everything. So there are a lot of pieces there and I would say that we are looking across all functions if the failure size from the magnitude standpoint.
Okay, last one. You do have a buyback authorization out there. Is that currently being contemplated, given the sell-off in the stock? And number two, what are the prerequisites exactly to feeling comfortable enough to reestablish guidance? It helps understand what you need to take a clarity on.
before feeling comfortable putting that back out there. Thanks. Sure. So, on the shared buyback, we put a pause on the buyback after the billiard bill came. So, that's the first answer, Brendan. And once we get more understanding, then we will make a decision on that one. Yeah, I think also on the guidance, I'll make some comments. And I'll also let Abhishek talk about that.
they're ready and adopt the first or the second of the billing articles they have in this time point. I think also discussion with Moldex, they've done two revisions within eight weeks as well during this time. I think one of the other key variables is that out of our control centers, and so I think for example we've gone back to some of the centers and these large institutions.
They're fully supportive of what we do as a company and have gone back to the IT systems. That takes a couple of weeks and then we have the meeting with the IT systems. That takes a couple of weeks. So in other words with best practice you have senders wanting to work with us and as you're aware to schedule these IT sort of meetings sometimes in a normal scheme of things takes up to a year. So...
I do think there are these variables which I think will have more insight into and I think we communicated prepared remarks, we'll look at that at the next quarter. But I do think we'll have certainly more of these leaders indicators and sort of more understanding of some of these uncertain variables. I'll be checking if you all stand. If you guys are saying that, yeah.
And our next question is from the line of Mark Massaro with BTIG. Please proceed. Hey guys, thanks for taking the questions and sorry to hear the headaches from this new policy. You know, my first question, you know,
that you're also suspending your adjusted e-wit-dab positivity goal in the first half of 23.
And that's true, Mark. We never guided the adjusted EBITDA. That was basically our goal. The guidance was around the revenues and that's the reason we were more explicit in calling that one out. But of course, given all the impacts and everything, the adjusted EBITDA goal for the second quarter is not there anymore.
Yeah, one thing, Mark, I think it's an excellent question, because I think in our prepared remarks, we really wanted to focus on the, at least mention the operational execution and the plan that we had in 2022 and how we continued that into 2021. I mean, I think what we demonstrated once you included the impact in March of test, we had the adjusted EBITDA of 2.5 million, which happened during what we had sort of projected and why we had this operational focus.
We thought part of that commentary might have been lost if we didn't mention it up front. So I think it's a good reminder of what we've executed as an organization, particularly over the last six to nine months to get there and focusing on those three Cs which remain unabated and core focus for us. But yes, I think Arbeshik has answered where we are with that position in regards to the billing article. Okay, great. Medicare is not your only payer. So I'm curious if you've had conversations with any commercial health plans, whether or not they have any intent of following the new Medicare policy.
Yeah Mark, that's excellent. We talked about the three Cs and I think what we've demonstrated with firstly the first year with collections is that we can build an excellent plan and execute on it and I think that's where you're seeing these collections exceeding the revenues and adding to the cash each quarter. So we're really excited by what we've been able to do there. On the prepared remarks you've probably heard about coverage and I think this is an area where you're right, there's some different opportunities in other areas including where we've...
covered ISH or T guidelines, getting all the coverage for on the LMAP. And I think also as we look at some of the areas, both we have active areas of both on the kidney and the heart side that we're working on to share some news with in the next few months, which I think will be positive for the organization. So I do think this is the next stage of an area of significant opportunity for us. I do think there are multiple areas working with payers where we can talk about all the great, you know.
work that we've developed, the science supporting our products, and I think this is well underway. So we feel good about what we'll be able to share in the next few months on the commercial side of things. Again, it all starts with a plan mark, and I think, you know, we did this deliberately last year with the three C's. We're really executing the collections side. You're seeing that flow through, and I think now as we work with...
commercial coverage team we're starting to see some really exciting, you know, good discussions which we'll share more in the next few months. Okay. You guys have been committed to data development and one of the large studies you're working on is the SHOR study. It would seem that if you could publish perhaps an interim readout of that. I think the goal is to enroll I think 3,000 patients but I think if you were to put out an interim readout that might help satisfy, you know, perhaps CMS.
Can you give us a sense for one, whether or not you think that's true, and two, what are your plans to potentially show interim data, like when do you think we might be able to see that? And it's Robert. So we're actively working on that, as you know when you start one of these clinical trials, you start enrollment, but it takes time to get the full enrollment started and then.
you have to follow each of those patients for the assigned number amount of time. And in the middle of shore COVID happened and so enrollment took longer than we expected. That you know kind of explains where we are today however you know we do have this same goal that you've mentioned of and read out as soon as we can put one together.
We're actively in analysis of the data we have and working with our clinical operations group to ensure we've got the quality data that we're working with to produce a publication. Okay, thanks. Maybe last one for me. You know, I think this has been asked, but maybe I'll try again. So, you guys talked about the 50% in April , now 60% on the forms. I think what we're trying to extrapolate is, you know, does that suggest the sort of, you know...
an impact of up to 40% of volumes going forward. And I think related to that, I think another transplant player in the space talked about, I think, headwinds of somewhere around 10% to 15%. So I guess I'm trying to marry the 10% to 15% I heard yesterday to trying to interpret the 60% metric that you gave tonight.
Let me take a shot at it, Mark. The adoption rate that we're providing of the new TRS is 50% and it has gone up to 60% in May. So, for the remaining 30 to 40%, we will still go back to those transplant centers and we will require a request for that information.
So there's an additional administrative burden there, but that doesn't mean that you cannot recognize that revenue. So it's not lost. So I think I just want to make sure that that's pretty clear. The other piece that you're probably looking for, I don't know, what is that 10 to 15% but maybe the other piece that we discussed in the call was around this.
initial impact on the volumes, the early indicators that we have seen that I basically discussed earlier. So that's the only other piece that on the volumes, the early indicators, some of the 3 heads were put up here.
Yeah Mark, I think just to be consistent, I think the initial disruption volume trends I think were fairly consistent with what others have said actually. If I looked at the range, I think Arboshek shared it with the teams right and I think that's consistent with what we've heard from others. I think what you're sharing, what we're sharing is that we as a company, we take what we do seriously and I think at the same time what we're doing is...
the forms have to be updated and we know that systems have to be updated and we have a responsibility to do that, which is what we're doing. I think if certain centres who are on EMRs and we're dependent on them, we can't say let's submit all forms just because they've been sent over because we need to go back and say can you please clarify. I just want to make that important distinction Mark.
as a company that's important for us to follow that process and that's what has been requested. So the good thing about that is there's time to go back to those centres as part of what's allowed in this process but we just want to make clear that it doesn't mean it's lost volume it means that what you do is you want to make sure what you submit is what's been required and I don't know if others certainly have you know.
Please go ahead. Okay, great. Good afternoon everyone. Maybe a similar question along the same vein. The $8.9 million of revenue that was withheld from reimbursement here in Q1, is that basically an absolute worst-case scenario of what the impact of revenue volume could be from March 7th.
to the end of Q1. So basically these are the tests for our Ella Shore kidney Medicare and these are the all the tests every single test because we did not bill anything during that period. So yes, you're right.
only surveillance. No, it includes every single Medicare test.
Okay, understood. And then I just want to be clear. So on one hand, you're making these big cost cuts, you're laying off 12% of the workforce at Caretiac. But on the other hand, you're also saying you're going to challenge the Meridian directly. You're saying that the billing articles aren't consistent with the LCDs, you opened up with that, that the Meridian still needs to pay for these tests. So is that challenge to the Meridian?
in there. We will, of course, follow them as the, you know, we've worked with Woldex to make sure that we understand and what we need to follow. We do believe that these are changes and we'll work to address that as we've seen, you know, in the professional societies that have addressed them as well. Yeah, Alex, I think we're now prepared, Ross. We had numerous discussions and Moldex and planned that for discussions with them. We also reached out to CMS in the meta.
and plan to reach out in the region. So I think this is dialogue. Yeah. OK. And from the CAC meetings that were in November and also from the coverage policy that came out, it looked like it was pretty clear that Medicare wanted more utility data on the surveillance population. I think they even said that, and one of the KOLs said that during the CAC meetings. So beyond new forms, you had the KOR study, which did have a big surveillance aspect.
Once you expect to see more data from KOR get published in a peer review journal, and then other than forms, what other data could you show to generate while using cell-free DNA, while using gene expressions in one of these patients is ultimately better for patient care in both the four cause and the surveillance setting? Yeah, I like some of it, Robert, you know, at some old country bed. I just want to go back to what we shared before. I think ourselves and others have seen this, you know, team's sort of impact, but we're sharing is that...
with the remaining those percentages is what we're working with is getting that update and I think that's the key and I think what we've seen is getting the right forms is the focus and the faster we do that the better. So I do think that has been the focus of how do we ensure that as with others have had this team impact then what do we do with all the forms that are coming out and making sure they're compliant and what we see per the billing article request. So Robert I don't know if you want to add more in terms of you know payroll data plus also
So, as that nears completion this year, then we'll start working on those and analysis and publications. We don't have a timeline yet. Okay. Understood. And then just the last question. Just any status update of the DOJ investigation, the stating queries. And were any of these inquiries related to the reimbursement that mold the exultimally changed? And then...
I saw there's a lawsuit you filed against your liability insurance provider just what was that for? Yeah, there isn't any material update on the DOJ and the SEC side of the side. And I didn't cast the second part of your question if there was any.
Thanks for the update.
And our next question is from the line of Mason Carco from Stevens. Please go ahead. Hey guys, maybe one just on how you're thinking about the market overall sizing it up at this point, assuming this policy plays out as it's written, I guess. So.
How do you think about, you know, the overall testing opportunity for Alisher kidney? Thinking about the number of new kidney transplants each year as well as the number of patients living with the kidney who would be, you know, more likely surveilled.
I guess just how do you how are you thinking about the testing opportunity now?
as a company, but as, you know, particularly at ICHC, for example, and in other meetings, there's a real excitement about what some of these organ transplant, organ perfusion companies can do, plus also with some of the other latest approaches to expand the organ base, such as using NRP. And so as we look at this, and we've always had this as part of our, you know, longer term look at the transplant market, is that it has potential to double the number of transplants in space. Thank you.
good point because I do think transplant is a fairly unique space and I think it's one which still has that ability to grow. I think we talked a bit about the kidding side with living donors being the most impacted during that COVID period and hadn't reached its sort of previous peak point post-COVID. But I do think it's a, as you look at the space overall, there are multiple...
players entering to say how can we sort of increase the number of organs or increase the viability of the organs or how do we expand alternative types of organs for this space. So there remains the access, because at the end of the day Mason what you have is basically a lot of patients who don't have enough organs available and so that unmet need remains. And you have essentially a large number of patients.
patients who get an organ, but this organ doesn't last a lifetime. And so I think you see the importance, for example, of the new time, New York Times article by one of the unfortunately one of the patients who shared her experience with this where she did pristine management of her organ, but where she was dealt with some of the secondary issues of long time, you know, suppression with leniency. So, I do think...
It's a really good point of transplants can double, but also at the same time that we continue to play a role in this space because I think this space still has a lot of areas to grow, particularly if you think of the impact of human expression in other areas that we can address. So really nice points, Mason. In Zackshain Center campus, I've been teach up to seven students and permitted experience
Yeah, thanks for that. And maybe to expand there a little bit, in terms of the change in testing frequency, if surveillance patients, you know, if you can only use these non-invasive tests, when a surveillance biopsy would be used, or, you know,
for a four-cause biopsy. That's the only time these tests could potentially be reimbursed. I know we're still figuring that out, but do you feel like Alisher's TAM has shrunk? Do you still feel confident that it's a large opportunity based on this new billing policy?
I guess just any additional color there? Yeah, I think what we've seen along with others is this team sort of impact in the first four weeks that's the lead indicator that we both have and I think, you know, the goal now is of those, of the tests that we received is how do you make sure that they can be filled in the right forms. I think, you know, us and others have seen sort of a similar.
impact which is around the teams, right, the high teams is what was described. So I think for us, transplant at the end of the day is a set of patients who we think should be treated in a way that gives them every opportunity to have that organ for life. And I think in many ways they're a very unique group who actually have to face with lifelong expression, they're a group who...
know that the organs historically have failed. So for us it's important to support that patient group. At the end of the day that's our mission as an organization to do that and I think that's really important. So I think it's still early, it's a really good question, but I think one of the things is we've highlighted it's early, we have four weeks of data and now we have a week of May to talk about.
I think the good thing is more and more information will come through during this time as part of that process. But the goal is to operationally focus. We've demonstrated during the course of 2022 that we were able to operationally focus, which is why we sort of wanted to get up front the Q1 results and also how we were able to deliver on that.
And now we have a new plan, which is Alex and his team, how do they ensure that the centers are operationally updated, the key gating step obviously being systems. So we can't force them to update their EMRs, but there will be a subset of centers which will not have those EMRs up to date, right, and will take time. So I think that's really important for us to focus on as well. Got it. Thanks for that, Regen. And last one for me here. And I apologize if you guys have answered this, but in terms of the centers that have integrated their systems and are up and running, so to speak, have you seen...
a difference or a decrease in orders from those centers in general? Are they still using allister kidney at the same frequency as they previously were or has that changed at all? Are there any you know early indicators about how that's shaking out? Yeah I think everything's you know center by center I think what we've seen is similar to others about this you know teams impacts I think at a macro level that's probably the what we've observed what others have observed as well I don't know if there's any
additional commentary the team has for that, but I think that covers what we're seeing and others are seeing at the moment across the business. And our next question is from the line of Yi Chen with HC Wainwright. Please go ahead.
Hey, is this trade on behalf of each end? I'm sorry if I missed this during your prepare the marks, but could you provide color on the total number of centers you have anticipated? You can't every quarter and subsequently hope to see implementation of these new processes.
Yeah, what we shared is that the complete universe of heart, kidney and looking at not just centers but also practice or community practice as well. I think we shared there were more than 550 in that total universe and the team has focused on where 90% of the volume is and that they've had 80% of those centers now currently.
in your question and answer session, but are there any other readouts or publications that we need to keep an eye out for in this field? Yeah, I think a lot of, and I'll let Robert to add as well, I think a lot of the good questions came out in terms of...
When do we have some additional updates on areas which are being prepared based on more dex feedback for resumission? I think also some of the other analysts talked about on the kidney side and on the hard side some of the studies we're doing so they're going to be prepared. I think when we talked about catalyst flow, we were specifically talking about some of the new introductions.
And so there would be things such as when active discussion still in allostral lung, for example. I think another area was, you know, Uromat, which I think is a new modality, which provides, you know, a really interesting approach to the portfolio, just given there are no commercially available urine tests out there, and this comes from Cornell.
And so yeah, there are other areas that we would look at, specifically for Euromap for this year.
that we work on as soon as we can from the output from the KAOR study and an interim readout on the SURE study. Others are always in the works, but it's difficult to predict timing of publications that involve peer review, et cetera. So hard to comment on timing of those. As Reg mentioned, we still are pursuing all of our catalysts. They're all things that are of high impact to patient care.
and the investors listening to this call and if there are any different folks or patients, for example, as well. And I think we know that it's been a tough time. We also know that what we do is a very unique space and one where I think there's obviously been some changes. And I think for us, we had a specific plan in 2022, which I think we've...
continue to deliver on Q1. I think moving forward we have an updated plan which the team's committed to executing on now as well and addressing some of the new challenges that come through and you know again we thank you for your support and we thank you for your commitment to transplant patients. Thank you again. That does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.
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