Renalytix PLC

LSE:RENX

Earnings Call Transcript 2022-Q3

[Operator]

Good morning and welcome to the Renalytix conference call to review third quarter fiscal year 2022 financial results. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session toward the end of the call. As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Peter DeNardo of Capcomm Partners for a few introductory comments.

[Peter DeNardo, Capcomm Partners]

Thank you Tanya. Thank you all for participating in today’s call. Joining me today from Renalytix are James McCullough, Chief Executive Officer, Tom McLain, President, and Jim Sterling, Chief Financial Officer.

Before we begin, I’d like to remind you that management may 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 KidneyIntelX, the potential for KidneyIntelX to receive regulatory approval from the FDA, the commercial prospects for KidneyIntelX if approved, including whether KidneyIntelX will be successfully adopted by a physician and distributed and marketed, our expectations regarding reimbursement decisions and the ability of KidneyIntelX to curtail cost 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 for hiring, product development, strategic partnerships and collaborations, reimbursement decisions, clinical studies and regulatory submissions, our business strategies and future growth including plans, expectations and opportunities for financing our operations, and revenue projections and guidance.

These statements involve material risks and uncertainties 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 20-F that was filed on October 21 with the Securities and Exchange Commission. All forward-looking statements made on this call are based on management’s current estimates and various assumptions. Renalytix 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, June 30, 2022.

With that, I’ll turn the call over to James McCullough. James?

[James McCullough, Chief Executive Officer]

Thank you Peter. Good morning and good afternoon.

This has been an active quarter for Renalytix. Our lead program, KidneyIntelX continues to secure major reimbursement coverages, generate key utility data from our real world deployments, and build on core commercialization fundamentals. As of the end of June, KidneyIntelX has now generated 3,253 kidney risk scores at Mount Sinai Health System across 53 departments and 191 ordering physicians. Importantly, this quarter we have now made the leap to automated eligible patient identification, an important element for scaling KidneyIntelX risk assessment across a complex integrated health system.

At Wake Forest Baptist Health, KidneyIntelX has now generated 310 risk scores as of June 26 across 56 ordering physicians. We are now scheduled to expand the KidneyIntelX program to select Wake Forest patients with insurance coverage beginning as early as July.

Also as of the close of this quarter, we are in process of securing approvals to set up testing at 80--I’m sorry, at 59 of the total 171 centers in the Veterans Administration health system. While the VA medical system implementation has not been easy or straightforward, we have clarified our implementation process over the past six months since we began and expect KidneyIntelX live testing to occur in eight centers in calendar 2022. This is a significant advancement toward our goal of reaching 20 health system implementations by calendar year end.

We are also pleased to have established several new major insurance coverage contracts for KidneyIntelX this quarter, validating our strategy to secure payment early and across broad regional populations. Of note, the first coverage contract secured is with the largest private payor in Illinois, serving 8.1 million lives. In Illinois, 13% of the state’s population, or approximately 1.3 million people are living with diabetes. Chicago will now become a commercial implementation focus for us.

Also of note is the coverage contract secured for KidneyIntelX for the largest independent provider network in the tri-state region of North Carolina, South Carolina, and Virginia with over 100,000 healthcare providers in network. This coverage is particularly important for our commercial rollout with Wake Forest Baptist Health and Atrium Health in the southeastern United States, beginning this summer.

Securing payment for KidneyIntelX remains the number one value driver for our business. When insurance reaches a majority of patients in a region, true broad adoption becomes possible because doctors and patients no longer need to worry about receiving a bill for testing. We are now reaching critical coverage tipping points in multiple key regional markets where we have integrated health system partnerships. Please note our ability to press release these coverage wins is limited because it is against the policy of most insurance providers.

We have also expanded our Medicare contracting now to 33 states--excuse me, Medicaid contracting. Medicaid remains a key program for KidneyIntelX given the population size served. Government and patient advocates are now fully focused on solving health equity issues and access to medical care in underserved communities. Given the population size of underserved diabetes and kidney disease patients in the Medicaid program, we believe Renalytix is well positioned and committed towards making a difference in the quality of life in this population.

We are also pleased this quarter that important new utility data from several years’ worth of KidneyIntelX set-up, implementation and real-world clinical use has now been released. Two studies on over 2,000 KidneyIntelX tested patients were presented in June at the American Diabetes Association annual meeting. Real world data is now validating position change in behavior and action for primary care physicians who have used the power of electronic health record-integrated KidneyIntelX in their clinics. Most importantly, utility data showed that primary care physicians were seven times more likely to prescribe guideline-directed new therapies to their high risk patients when KidneyIntelX risk assessment was introduced into practice. The direct takeaway is that KidneyIntelX is working and making a difference in clinical practice. Tom McLain, our President will discuss the importance of this utility data and it’s implication for expanding insurance coverage in the next statement.

Our significant progress with reimbursement utility data has not gone unnoticed. We are now in advanced discussions with larger potential strategic partners in the pharmaceutical and diagnostic distribution categories who understand that KidneyIntelX is opening a unique market access point to millions of patients and doctors struggling to understand their disease. We expect, should these partnership agreements be fully executed, that they would have a measurable impact on KidneyIntelX usage and would allow us to provide forecast revenue at the appropriate time for fiscal 2023 and fiscal 2024.

In these unusual economic times, we will continue to reassess our business and take definitive steps to conserve cash as appropriate. These steps may include narrowing our commercial focus to revenue-productive regional market opportunities, operating cost reductions, and/or relying more on less expensive third party providers for non-core services. Key potential catalysts for the second half of calendar 2022, that is the next six months, remain as previously noted, including a major expansion of insurance coverage with Medicare as a priority, strategic partnering activity, additional health system partnership announcements, and FDA de novo marketing authorization.

I will now turn it over to Tom McLain, our President, to discuss data reimbursement and commercial progress. Tom?

[Tom McLain, President]

Thank you James.

The last 12 months have been focused on addressing all the factors that will drive long term adoption and insurance coverage for KidneyIntelX testing in the U.S. market. The quality of published evidence drives use and payment for innovative diagnostic tests like ours and recently published and presented data represent important and lasting milestones.

This required evidence broadly fits under four categories: first, analytical validation; second, clinical validation; third, clinical adoption; and fourth, clinical utility. In November 2021, our analytical validation evidence demonstrating KidneyIntelX is highly robust and reproducible was published in Clinical Proteomics. Our clinical validation evidence has also expanded and now totals three peer-reviewed publications across multiple major international medical centers. That includes results from a 1,146 patient cohort from University of Pennsylvania and Mount Sinai published in Diabetologia in June 2021, and data from 1,325 patients enrolled in the international CANVAS trial that was published in the American Journal of Nephrology in January 2022.

We’ve also delivered significant progress against the third category, scaled real world clinical adoption through our programs at Mount Sinai, a payor collaboration in Albany, New York, and in the Wake Forest Health System and Atrium Health System in North Carolina. The number of patients risk assessed with KidneyIntelX is now approaching 4,000.

Finally on the fourth evidence category, clinical utility, a budget impact economic analysis was published in the Journal of Healthcare and Economics in July 2021. This publication demonstrated that KidneyIntelX risk informed prescription of appropriate therapies alone in 100,000 patients could generate savings in excess of $1 billion over five years. The publication established the clear benefit in identifying at-risk patients early and then supporting their access to new FDA-approved drug therapies shown to slow or stop progression of kidney and associated cardiovascular disease.

Importantly, real world clinical utility data drawn from the adoption of KidneyIntelX testing within the Mount Sinai Health System in New York City was presented at the American Diabetes Association 82nd Scientific Sessions earlier this month. The data is from the first 1,100 patients tested with KidneyIntelX and it provides two important observations: first, KidneyIntelX was ordered at a high rate by primary care physicians versus being driven by specialists; second, the data demonstrated that the KidneyIntelX risk score drives care management, specifically primary care physicians were seven times more likely to prescribe kidney disease-directed therapeutics for KidneyIntelX high risk patients versus low risk patients. Further, these primary care physicians were three times more likely to employ specialist consultations and/or referrals for high risk patients. The data presented at ADA is now being prepared for publication later this year.

The most concrete benefit of this growing body of evidence can be measured in insurance coverage determinations being secured for KidneyIntelX. As James mentioned, a recent coverage determination by the largest private insurer in Illinois with 8.1 million covered lives is an indicator of what we can expect in fiscal year 2023 in terms of broader coverage opportunities.

Separately, we launched our Veterans Health System program at the beginning of this calendar year through a combination of account executives and medical science liaisons. That team has made significant inroads over the last six months. The VHA website states it is the largest integrated disease network in the United States. The VHA is made up of 171 centers, each consisting of a hospital and a network of community outpatient centers and specialty clinics.

Initiating recurring testing within each center requires the same kind of effort we deploy in establishing health system partnerships. Over the last six months, we have developed a process that satisfies what we have identified as five key operational approval steps for required testing to begin in a VHA center. Of the 171 VHA centers across the U.S., we have met with 139 of them over the last six months. We are in the process with securing the approvals, the operational factors necessary to set up testing at 59 of these centers. We’ve completed all five phases needed to initiate testing at two centers and have completed efforts, leaving one or two remaining phases at an additional seven centers. Based on this progress, we expect to implement recurring testing at at least eight VHA centers in this calendar year. We would also expect to be able to execute center-specific agreements with up to four of those centers before the end of the year.

We have also initiated a program with the VHA to develop and launch a cloud-based interface with their EHR systems to facilitate test ordering and reporting to streamline the testing process on a nationwide basis. We expect that capability to be operational within the next 12 months.

I’d now like to turn the discussion over to Jim Sterling, who will review our financial performance. James?

[Jim Sterling, Chief Financial Officer]

Good morning. Today, we issued our quarterly SEC filing under U.S. GAAP that includes three and nine-month financial results for the periods ending March 31, 2022. All figures I will discuss are in U.S. dollars, which is our reporting currency.

For our fiscal third quarter, we recorded revenue of $812,000, all from KidneyIntelX testing. This is an increase from $670,000 in KidneyIntelX testing revenue in the prior quarter. In the prior year period, we reported $600,000 of services revenue and $100,000 of testing revenue. We recorded $685,000 of costs attributable to revenue in the third quarter of 2022.

We also indicated in our release that for the full year of fiscal 2022, which ends today, we anticipate revenue to be $2.9 million, of which $2.7 million is testing revenue, up from $1.5 million total revenue in fiscal ’21, of which just $400,000 was testing revenue.

Operating expenses for the third quarter of 2022 were $14.7 million as compared to $8.5 million for the third quarter of 2021. The increase was primarily driven by higher headcount, higher R&D expense related to studies at Mount Sinai, Wake Forest and University of Utah, as well as increased total compensation and benefits and consulting and professional fees to support growth.

During the nine months ended March 31, our operating expenses totaled $40.9 million compared to $22.7 million for the same period of 2021.

Net loss for the third quarter of fiscal 2022 was $14.7 million or $0.20 per share compared to a net loss of $8.8 million or $0.12 per share for the third quarter of 2021.

We ended the quarter with cash of $32.4 million as of March 31, 2022, though this cash balance does not include most of the proceeds from our convertible note and equity issuance which was completed in early April and provided over $25 million in net new capital. We’re pleased to have completed that financing which bolstered our cash position and provides runway to pursue the large market opportunities available to us. The terms of the note are favorable, including conversion at $8.70 per ADS with a hard floor of $7.25. I want to reiterate that the lowest price at which the note can convert is $7.25 per ADS. In addition, at each quarterly amortization payment, we have the flexibility to elect to pay in cash or with ADS.

We continue to actively look for opportunities to strengthen our cash position through strategic partnering, including certain discussions underway and other means. As a matter of corporate housekeeping, we plan to file a shelf registration along with an at-the-market or ATM vehicle. For clarify, we have no immediate plans to utilize either the shelf or the ATM. We believe our present cash position enables us to execute our strategy and grow VA and commercial health center test sales as the reimbursement landscape continues to rapidly come into place.

Operator, could we now please open up the call for questions?

[Operator]

[Operator instructions]

Our first question will come from Dan Arias with Stifel. Your line is open.

[Dan Arias, Stifel]

Morning guys, thanks for the questions. James, I wanted to start on Mount Sinai, if I could. Can you just update us on where you are with the ramp for that institution? By our math, on 3,000 tests or so, which I think is what you mentioned in aggregate, you’re tracking a bit below your 300 per week target, so can you just catch us up on where you are, whether or not that remains a target for the near term, and then just some of the things that you think are going to be important when we think about volumes for the back half of this calendar year and, ultimately, next fiscal year?

[James McCullough, Chief Executive Officer]

Thanks Dan. It always takes longer than you think it does, right? The Mount Sinai ramp has hit a couple of key points. One is the automated pre-pending or electronic suggested orders to primary care physicians. That was a key river to jump over to start to automate that process, and we worked through a lot of technical issues associated with it because it was the first time we’d done it. I’m pleased that we’re now on the other side of that river and we’re starting to see volume ramp up again.

The most important thing that we’re looking for right now is what is physician response and are we generating the utility data which is so critical for us to take to other health systems, insurance companies, Medicare, other physicians, and the answer is yes, we are. I think the data that we publish--well, we didn’t publish it, but the data that was published at the American Diabetes Association presented at the American Diabetes Association meeting is concrete and it shows that in the integrated healthcare system, KidneyIntelX is doing what we thought it would do, which is providing an education portal, highlighting risk factors in diabetes and kidney disease, and starting to change behavior at the primary care level. This is concrete utility data that we’re generating which leads to the growth.

We’re still sticking by the targets that we put out, and I expect the next six months is actually going to run a lot smoother. We’ve been operating in Mount Sinai now for about a year, a little bit over a year. There’s been so much that we’ve learned in this process. These are complex integrations and it’s now starting to pay significant dividends, so we’re adding more and more practice sites, the message with population health is now coordinated, the electronic health system integration is now running smoothly, and we’ve taken a lot of these learnings obviously to the next set of integrated disease networks, including we’re now starting to see the same thing happen at Wake Forest and at Atrium Health, and then of course into the VA.

I’m pleased with how the traction is occurring and I’m pleased most importantly because what really counts at the end of the day is the utility data, are you showing that you’re making a difference, are you changing behavior at the primary care level, are we increasing guidelines-driven care, where before there was none or it was lacking. Clearly the evidence is showing that we are.

[Dan Arias, Stifel]

Okay, thanks for that. Then just maybe on the reimbursement side, it sounds like you are seeing some success in signing up some of these plans, and obviously there’s plenty of focus on where you’ll be reimbursement-wise as it relates to the revenue forecast. Can you--I know we’re not at 2023 yet, but can you give us a view on if things go well, where you think you might be in terms of percentage of coverage in 2023, maybe without the LCD scenario coming into the picture?

[James McCullough, Chief Executive Officer]

Yes, and this is--again, this has always been the key driver in my head. We said from the very beginning of starting the company, we’ve got three things to worry about: reimbursement, reimbursement, and reimbursement. Now of course, that’s a compound function because you have to generate utility data in order to get reimbursement, validation data, etc., so it’s a compound function; but at the end of the day, the ultimate expression we believe of success from a business standpoint is how much coverage are you achieving. The biggest barrier that you face when you’re introducing a new prognostic standard or a diagnostic standard is physicians and patients are worried they’re going to get billed, and if we test a patient we have to bill, otherwise we can’t give away free testing - the legal framework is very clear around that, so the worst thing that can happen is a patient gets a bill for $950 and then they immediately go back to their physician and say, Doctor, what is this thing? So having comprehensive coverage or majority coverage is very important, especially in the regions that we’re rolling out, so directly to answer your question, it looks as though we are moving to a position of majority coverage in each of the major regions that we’re rolling out in, and unfortunately we can’t name a lot of the insurance companies because that’s against the policy when they issue a coverage determination. But the win we had in Chicago with the largest private insurance payor is a major win, and that precipitates other wins that we see. The same is true in North Carolina.

We’ve got majority coverage developing now in the key regions that we have integrations - New York, North Carolina, South Carolina, now moving into Chicago. We do expect to have Medicare coverage, Medicare payment in this calendar year, and then I think we’re off to the races. Once you get to that tipping point where you have majority coverage against your indicated use population, it does change the game because now physicians and patients have confidence that they’re not going to be stuck with a testing bill, and we are moving into that position, so I’m actually very pleased that in a very short period of time - you know, we’ve only been operating a couple of years here, that we’ve been able to achieve the reimbursement milestones and positive coverage determination from major players this quickly. Usually it doesn’t happen this quickly, it takes a lot longer.

Clearly the emphasis on reimbursement and putting that in place was important, and of course diagnostics is a fundamentals game, right? Once you get all the fundamentals lined up, including reimbursement, then the revenue comes.

[Dan Arias, Stifel]

Yes, okay. Thank you. I’ll hop off and let someone jump in here.

[Operator]

Thank you. Our next question will come from Randy Baron of Pinnacle. Randy, your line is open.

[Randy Baron, Pinnacle]

Good morning. Can you hear me?

[James McCullough, Chief Executive Officer]

Yes, we can.

[Randy Baron, Pinnacle]

All right, so I have two questions. The first is, I guess, for Tom, an administrative one. I just want to go through those VA numbers you talked about again. You met with roughly 130 of the 170 VA centers, and you said you’ll have eight up and running fully by the end of this year. I just wasn’t sure if you meant this calendar year or next fiscal year, and then just along those lines, I’m really curious to get your sense of what determines success at the VA; in other words, how many tests would you expect at each of these eight in the first, call it full year, and then what’s the delay to get to the 100-plus from the eight? Then I’ll come back with my other question, thank you.

[Tom McLain, President]

Sure Randy. That was for eight VHA centers in the calendar year, so that would be by the end of December 2022. What we will see is that each VA center is like a health system rollout so that you build adoption in an expanded number of clinicians over time. The important metric for us in any of these implementations is to see that we demonstrate recurring testing with the same clinicians, and it’s not an experiment but it’s a test that they integrate into their practices, and each VA center is of different size and scope so we’ll see the volume targets based on the centers themselves. Overall, we manage our sales effort to make sure that account execs in the field are able to generate volume that actually contributes above the cost of having them in the field.

In terms of what’s required to get centers on board and to be able to move forward, it’s working within the VA center similar to a health system, that you have support from primary care, internal medicine, from nephrology, from endocrinology, in the case of the VA laboratory support for sending the sample to Renalytix is also critical, and then there are specific contracting steps that are required to offer laboratory services within a VA center, and that’s where the account execs and the medical science liaisons have been spending their focus.

[Randy Baron, Pinnacle]

How many reps do you have today, and what determines success - if they convert 1,000 tests, 10,000 tests? I want to get some framework that you guys are determining the success of one of your sales reps.

[Tom McLain, President]

What we’re focused on now is turning on centers to testing. Once we put everything in place, then it becomes the traditional sales effort focused on generating volume, so right now we’re holding them accountable for all--completing all of the steps at the center level that are necessary to get those agreements in place.

Right now, we have 12 account execs in the field. They are the resource that are covering those 139 centers where we have--we’ve had introductions and meetings over the last six months.

[Randy Baron, Pinnacle]

Okay, and then I guess that shifts to my second question with your 12 reps. There was a couple of things from today’s call that stood out. James, one of them was kind of the shift of focus to geographies like Chicago, where you can ramp revenue. I’d love to hear much more detail on that. And then OJ, related to what Tom was just saying, you seemed pretty cavalier about the $300 million shelf, but obviously the market today is viewing your cash burn in conjunction with that very differently. I don’t see you guys needing that cash for the next 12 to 18 months, so I wonder if it’s related to one of the Farmer deals you’re talking about. If you can just break down your cash burn expectations for, call it the next 12 months, and related to that, do you plan on paying to convert in cash or shares? Thanks.

[James McCullough, Chief Executive Officer]

So in terms of the coverage, you need to develop coverage in the territories that you’re rolling. This history of diagnostics is you have weak coverage or quasi-coverage and you move in and start building fixed overhead in a sales marketing medical science liaison customer support capacity, and you really haven’t developed concrete majority insurance coverage against the population that you’re rolling that fixed overhead out against, and of course it’s the trap, right - we’ve got to generate revenue, so we send a sales force in and we start a bottoms-up push approach.

We decided from the beginning, we were not going to pursue that strategy. We were going to develop coverage first before we started to develop significant fixed overhead, so that was the case with the general services administration, so we had a coverage decision in across the VA medical system. Now, it’s complex and it takes time to get in to turn on all the VAs, but we did have insurance coverage and that justified ramping fixed overhead to go after that addressable market, and the VA, as we’ve said, has somewhere on the order of a million diabetic kidney disease patients and we now have a 10-year government contract, so it justified moving in.

Again, Chicago and Illinois now become a focus because we’ve secured one of the big payors in insurance in Chicago, and that was a major win for us across a substantial population base, so that now starts to justify us taking a look at the Chicago market to start developing, and we’re having lots of discussions with different medical systems, we’re having discussions with KOLs in the Chicago area, we’re looking at the health equity angle, which is something that affects all major cities, but that was a significant and in fact an accelerated win for us to be able to walk into that market with that coverage.

Again in the southeast, we now have integrations going on with two of the major systems - Atrium and Wake Forest, and we are now building coverage into that region, and again the same is true with New York, so I think the strategy is becoming very clear. You have an anchor healthcare system and you start to build coverage around the population that that health system serves, and to me that’s a prudent way to look at the rollout strategy. We don’t have to go too far in terms of expanding the fixed overhead, and to your second question around cash burn, we’re going to modulate that based on how quickly these things roll or don’t roll, so we have quite a bit of flexibility in terms of dialing up or dialing down the cash burn based on how quickly the coverages come in, how quickly the adoption rates move in.

The good news is that we’ve got a lot of learnings that we are now applying, and I don’t think the insurance coverage landscape is a linear function. As you get more and more coverage, that begets more and more coverage, so you have this acceleration effect, and I kind of feel like we’re at that tipping point in several major regions, and so that starts to de-risk the commercial program moving into the second half of this year.

In terms of the shelf registration - OJ, you may want to comment on this - this is housekeeping stuff. It’s a good time for us to do it, get it out of the way, that provides us with flexibility in the future. Yes, we do want that flexibility, especially with some of the strategic partnership movements that we have, which obviously we would expect the market would view as good news, there are two ways to get to revenue profile growth in fiscal ’23 and fiscal ’24, one of which is the organic growth that we’re pursuing system by system, region by region, coverage by coverage, and obviously the other is being able to partner with much larger concerns that have large national sales forces, existing distribution, and an incentive to make sure that patients are being adequately identified and risk assessed at the primary care level.

Right now, we’re setting up for what we think will be a lot of movement on the strategic front in fiscal ’23 and fiscal ’24. The shelf registration and the ATM are two standard vehicles that are part of the general housekeeping that we’re putting in place in anticipation of that over the next couple of years.

OJ, I don’t know if you want to add to that?

[Jim Sterling, Chief Financial Officer]

Yes, I’ll add $300 million is a fairly traditional number for a shelf registration of that nature. Certainly no expectation or plan to do a raise of anything like that, and indeed we’re restricted by the authorization provided to us through the shareholders at our general meetings, so that is--should be viewed as a housekeeping number, allow us some flexibility in the months and years ahead to do raises as we achieve significant milestones, as the company grows, as new significant partnership opportunities avail themselves and when it makes sense to raise capital, allow us the flexibility to do so at the time, but no immediate plans for anything like that.

James addressed the cash burn. Certainly we feel we’ve got at least 12 months and comfortably more than that, and we do, as James said, have flexibility to adjust as needed. There’s revenue assumptions in there, and so we’ll adjust our spend depending on how actual revenue starts to fall in.

You also asked about cash versus shares on amortization. That will be decided on, on a case-by-case basis each quarter, so depending on our view of cash needs, also where our shares are at the time, so it’s nice to have the flexibility there to do that each quarter.

[Randy Baron, Pinnacle]

Okay, but in a market that cares a lot about cash burn, if you’re saying 12 months at $15 million, that infers that the cash burn of this past quarter is going to be continued for the next four quarters, or should we not think about it that way? I just need us to be real clear on this point, thanks guys.

[Jim Sterling, Chief Financial Officer]

No, we expect to continue to bring cash burn down, frankly.

[Randy Baron, Pinnacle]

Right, so give me a range of magnitude so I can at least pencil this out? Does it go down to $5 million, does it stay--? I mean, this is a market--you guys get this, that cares about cash burn more than anything. This plus a shelf is very concerning. I just need to put it to bed and I’ll get back in queue. Thanks so much.

[Jim Sterling, Chief Financial Officer]

Yes, understood, except we haven’t been giving guidance, forward-looking guidance yet, and we’re not, so I can’t go into any further detail into what the targets are, where we expect to be other than to say it’s top of mind, and we are making sure that we preserve cash as much as possible. But specific guidance, we’re not giving at this time.

[James McCullough, Chief Executive Officer]

Randy, just a little bit of comfort on that, we’re not naïve to the cash position or where the capital markets are. At the moment from the capital market equation, I’m planning for the worst and hoping for the best. Bear markets last a lot longer than we want. Capital markets can shut off. Some of the things we can’t give direct visibility on, but there are a number of things in the hopper at the moment that change that burn equation which are outside of just organic growth and revenue. I mean, the strategic partnering, and I don’t want to set myself up for failure here, but KidneyIntelX opens up a very important market access point for a lot of people. Drugs need to be prescribed at the primary care level, medical devices need to be issued at the primary care level against diabetes. Diagnostic companies need to get there as well, so I do anticipate that there will be a significant marginal contribution towards that cash burn from strategic partnering.

Now I could be wrong, but these are things we’ve been working on for a long time, and so the cash burn position can change relatively quickly and so can our ability to project revenue. We’ve been very conservative about providing forward guidance, but I would like to be in a position to provide forward guidance this year not just for fiscal ’23, but for fiscal ’24, and we’ll do it at the appropriate time. That changes the entire outlook of the company in terms of cash burn, but I’m also not afraid--you know, if we get six months down the road here and things are not developing the way that we want them to, we start to slim things down and we make sure that we have adequate runway because the rule in this market--the number one rule is don’t run out of cash.

[Randy Baron, Pinnacle]

Yes, and I would just echo and say, you guys have been so conservative on guidance that when you finally give a range - you know, bear-bull case, I think it’s going to be received very well. Anyway, thank you for taking my questions. I’ll go back in queue.

[James McCullough, Chief Executive Officer]

Yes, we have been conservative about guidance because we want to anchor a guidance number when we have very specific direct visibility on that revenue piece, whether it comes from the step-up in organic growth which may be a function of continuing to expand insurance coverage, or whether it’s a strategic partnership in place which opens up a whole new distribution channel. But in today’s market, if you’re going to give guidance, you better hit it and you better base it in validated contracts - that’s really what we’re trying to set up for this year.

If things don’t happen as quickly as we want, which often is the case, well, then we’re going to be very aggressive at how we look at the fixed overhead base in the company, and we’ll see where the market is next year, but the ATM and the EF3 are part of the standard housekeeping that we’re putting in place.

[Randy Baron, Pinnacle]

Thank you.

[Operator]

Our next question comes from Mark Massaro of BTIG. Your line is open.

[Mark Massaro, BTIG]

Hey guys, thank you for the questions. I guess congrats on the health plan win in Illinois. Maybe James or Tom, can you just give us a sense for maybe how many health plans you’re meeting with, whether any of these are larger in nature or are some of these little ones? It looks like you added four commercial health plans for the quarter, so just give me a sense for what your funnel looks like on the commercial health plan side.

[James McCullough, Chief Executive Officer]

Sure, I’ll give a quick answer to that, Mark, and then Tom, you should jump in.

We are meeting with many health plans. It goes into more than a dozen, and that’s exclusive of the VA where we provided very specific numbers. The decisions we’re making right now are really around where do you want to turn on a health plan. To me in this market, back to Randy’s point about cash flow going forward because there is an investment when we turn on a health plan, to me we’re really looking at what I’ll call accretive implementations, meaning let’s start in a region where we already have a health plan, where we already have reimbursement, and let’s add onto other health plans in that region.

As an example, Wake Forest and Atrium are a very good example because that’s building on the regional specific strategy, and that lowers our risk. If we just turn on a health plan, say in Oregon, all of a sudden now we’ve got to look at making sure we have coverage, we’ve got to make sure that we have KOLs, we have support staff there, so it makes a lot of sense for us to focus in New York, North Carolina, Chicago, areas where we already have a footprint and, of course most importantly, where we already have coverage.

We are speaking to many health plans and of course the other overlapping considerations around the Veterans Administration, and so in a lot of the Veterans Administration systems that we are working with, they also happen to be contiguous with some of the integrated disease networks that we’re deploying KidneyIntelX in, so there’s a leveraged effect there and you can hire into a concentrated regional area.

I think what’s emerging, which is important, is let’s pick a couple of key regions that have plenty of population, let’s make sure we saturate the reimbursement, let’s make sure that we do it right in those regions and prove out that we can start to scale the model, which is starting to happen now, then we can think about jumping into additional regions and we can modify how aggressive we go, which affects spend, cash burn, etc. based on where the market conditions are. If the market continues like this, we may want to stick with a lot of the regions that we’re developing out now and we may want to be cautious about moving into too many regions and spreading ourselves too thin. That’s where I get back into the, you know, we can moderate the cash burn as we go along based on all the variables that we as a management team, and other management teams are facing.

But the pipeline is relatively full. Everybody is looking for ways to control cost in diabetes, kidney disease and cardiovascular disease. There’s nobody out there that is not trying to figure out how do we control these costs, so we’re usually able to get into a health system and have a pretty open and engaging discussion about the benefits of KidneyIntelX, and now that we’re publishing utility data based on our experience with major health systems like Mount Sinai, these discussions are becoming a lot easier because we can now point to the evidence that if you deploy KidneyIntelX on an integrated basis, you engage your primary care physician base and you start to increase guidelines-driven care, which at the end of the day is the ultimate game.

Tom, I don’t know if you want to add to that?

[Tom McLain, President]

James, I think you covered it very well. I think this also goes back to what Randy Baron was asking - even before markets became constrained, we began to take a very strong regional focus looking at where we have health systems is a leverage to bring in payors which brings in realized revenue dollars, and that we would concentrate our investment in medical science liaisons, in account execs, field people on those opportunities. Again, James covered why we have a focus in the New York City and New York State region, in North Carolina, South Carolina, in the Gulf Coast with Mississippi and Louisiana, and in Chicago, and it’s a very disciplined, scalable model where we leverage costs and maximize the return on investment for being in those areas.

Health systems drive payors, payors drive health systems, and that’s a strength of the commercial model at Renalytix.

[Mark Massaro, BTIG]

That’s great. Then just my second question, I know that activating your Medicare price is a very important strategic initiative at Renalytix. James, you talked about how you expect to have Medicare payment this calendar year - I have to assume that’s calendar year 2022, so by the end of December. Can you just give us any update as far as whether or not you’ve had some contact with any of the local Medicare contractors, or how we should think this might play out through the balance of the next six months?

[James McCullough, Chief Executive Officer]

Yes. Tom, you want to take that one?

[Tom McLain, President]

Sure. We have concentrated our laboratories in three regions where the regional contractors consider testing of services like KidneyIntelX on a claim-by-claim basis, so yes, the timing for all of that has been driving towards understanding what that pattern of payment is going to be in each of those regions and then being able to make decisions about where we process our Medicare samples going forward, because traditional Medicare is such an important part of the patient population.

At the same time, we are gaining experience for being on the clinical lab fee schedule with payment by Medicare Advantage programs, and so to date our experience on that is very strong, strong in terms of positively strong.

[Mark Massaro, BTIG]

Okay, that’s it for me. Thank you.

[Operator]

Ladies and gentlemen, if you do have a question, please press star then one.

Our next question comes from Yi Chen of HC Wainwright. Your line is open.

[Yi Chen, HC Wainwright]

Thank you for taking my questions. Could you give us an update on the de novo application, whether you have received recent feedback from FDA and whether you expect FDA clearance to have any meaningful impact on testing volume adoption going forward? Thank you.

[James McCullough, Chief Executive Officer]

Yes, the FDA process is moving forward. I hope that we are coming to a conclusion there. Whatever I say on timing will inevitably be wrong, as I’ve said in the past, but that process is moving forward. The impact--what’s interesting is we continue to make significant strides on coverage, insurance coverage which I still as the number one risk factor to the business. That’s very important - we’re demonstrating and validating that, and we can continue to make major gains in coverage regardless of FDA. I do believe, however, that FDA is important. I do believe that FDA will continue to facilitate coverage. I do believe it will facilitate adoption, which is why we are continuing down the path with FDA and setting up what is going to be a sequence of FDA approval processes through multiple product versions.

It’s important that we do get through FDA and cornerstone a regulatory pathway because KidneyIntelX is not just a test, it is a platform. We’re already working on subsequent versions, improving performance, expanding indicated use, looking at repeat testing. All of these things are coming together and once we do establish a pathway with FDA, we can then turn around and use that pathway as a predicate for subsequent versions of KidneyIntelX to expand the product profile, so hopefully we’re coming to a conclusion there soon.

[Yi Chen, HC Wainwright]

Okay, thank you.

[Operator]

Our last question comes from Jens Lindqvist of Investec. Your line is open.

[Jens Lindqvist, Investec]

Yes, hi everyone. Just a couple of filler questions, please. First of all on the FDA process, just so I can understand what’s going on, even notwithstanding COVID has [indiscernible] a long process, first of all I assume the de novo request is still active and hasn’t been temporarily withdrawn or anything like that. Is this delay due to additional information requests by the FDA or has there been a major setback along the way, so is there a deficiency in the original filing or does the agency have an issue with risk mitigation or controls? Just to make sure we can understand what’s actually been going on here.

Secondly on the cash burn figure, you mentioned, I think in October, that you would have a 40-odd strong sales team targeting the VA by the end of 2022. Am I right that this intended sales team expansion was somewhat premature, should we say, given the operational hurdles that you just described, and where are we on this recruitment and will we still be scaling towards that number? Thank you.

[James McCullough, Chief Executive Officer]

That’s a very good question, Jens, thank you. This highlights our flexibility, right? We got a coverage determination from the VA. As I’ve said from the beginning, we’re going to build fixed overhead where we have payment identified. VA is taking longer - no surprise, it’s working with a very complex government agency, so we have gone slow on the hiring in that sales force. We have what we think is an adequate force deployed to be able to turn on a number of VA systems. As we start to see more and more success, more and more traction, then we will consider adding more overhead if we believe it will justify or result in near term growth. That’s very important, especially in this market.

If we don’t think it’s going to really produce near term growth and marginal contribution, which obviously means the sales people pay for themselves very quickly, then we may take a breath and go slow. We’ll have to see how that pans out. The same is true in other regions that we’re working. We’re not just going to go out willy-nilly go fixed overhead to try to gun for the growth because we typically don’t get rewarded for that in this structure, and as so many questions have been focused on what is your cash burn and what’s the runway, etc., we’re very conscious about all of that.

In terms of FDA, it’s been a long process and it’s been complicated by obviously COVID. I know people don’t want to hear about COVID, but the reality is the agency was severely stressed and this has resulted in a substantial delay, not just with Renalytix but across the board. We’re now coming out of that delay. The agency is starting to function a little bit like it was pre-pandemic, so we’re having a back and forth with the agency and things are ramping back up.

I want to make another quick statement here. This is a de novo marketing authorization for a new type of product. This is a complex application. This is not a 510-K with a predicate. We’re not pointing to another type of diagnostic. We are creating in effect, and these may not be the exact right words, but we are creating in effect our own category, and that’s going to take time to do. We think we have the best advice and the finest FDA internal and external team working on it. We’ve already given some of the names of folks who are involved in this team. Nobody’s reading their own headlines. There is a very significant internal process around this and biostatistics and other folks that are chiming in, in a very sober way on how the FDA process is working.

We’re very much in the game here and this process is active and is moving forward, so we haven’t withdrawn an application, FDA has not said no, you can’t, and we’re way deep into the data and where we’re headed, so people should take confidence from that. If we finish this properly, we will have created a very strong category that will be very difficult from a competitive standpoint, because everybody is going to have to go through the same thing that we’ve done, and it really will set a future baseline, as I said, for subsequent product versions that we can now refer back to.

We’ve learned a tremendous amount. That internal knowledge is important. It’s informing future product development and validation so that we can have a smoother process going forward, but when I look back on it, COVID has certainly had a massive impact on timelines, and those are just the facts. But I do expect at the moment--there are never any guarantees. Until FDA has given you authorization, you don’t have it, and in terms of timeline, I’m not calling any timelines anymore because every time I look at leaning into a timeline, I’m inevitably wrong. But I’m pleased with where the process is at the moment.

I hope that answers your question enough.

[Jens Lindqvist, Investec]

Yes, it’s fine. Understood. Thank you James.

[James McCullough, Chief Executive Officer]

I also want to be careful about commenting too much on the FDA process. I think that’s inappropriate.

[Jens Lindqvist, Investec]

Got you.

[Operator]

Again ladies and gentlemen, if you’d like to ask a question, please press star then one on your touchtone telephone. Again, please press star then one for any additional questions. One moment.

I’m showing no further questions at this time. This concludes today’s conference call. Thank you for participating. You may now disconnect.