MDxHealth SA
NASDAQ:MDXH
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Greetings. Welcome to the MDxHealth Fourth Quarter and Full Year 2022 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.
Before we begin, I would like to remind everyone that we will make forward-looking statements during today's call, whether in prepared remarks or during the Q&A session. These forward-looking statements are subject to inherent risks and uncertainties. These risks and uncertainties are detailed in the Risk Factors section of our filings with the Securities and Exchange Commission, specifically in the company's annual report on Form 20-F.
I will now turn the conference over to your host, Michael McGarrity, Chief Executive Officer. You may begin.
Thanks, Schneider, and thank you all for joining us for our 2022 full year release of results for MDxHealth. With me today is Ron Kalfus, Chief Financial Officer.
As you are likely aware, prostate cancer is the most common form of cancer in men. When I joined MDxHealth in 2019, my vision was to continue to build a company that answered the most important questions facing the urologists and patients. And there are 3 that provide the path that patients will take through diagnosis and treatment. One, do I need a biopsy? Two, is my biopsy actually negative, or do any further confirmatory analysis of my results in order to avoid repeat biopsies. And three, a biopsy is positive, what do I do now? MDxHealth has become the only company that can answer all of these questions. Our menu of tests inform the patient and urologists through the confounding journey and improved treatment decisions along the way. 2022 was a transformative year for MDxHealth. We began the year with a single test generating substantially all of our reported revenue. Just 12 months later, MDxHealth now has a menu of 4 tests, all generating are poised to generate sustainable revenue growth and drive significant operating leverage throughout 2023. In addition, we began the year with a sales channel of 30 direct reps and finished the year with a channel of 54 direct reps as a result of the GPS acquisition. Milestone drivers of growth and value creation were reinforced with our acquisition of the Genomic Prostate Score, or GPS test from Exact Sciences, which we believe has allowed us to establish a best-in-class sales team and unmatched menu to offer urologists. The launch of our Resolve MDx urinary tract infection test, the first growth opportunity driven by the strength of our sales channel also played in an integral role in our transformation, contributing close to $5 million in revenue and demonstrates 2 key aspects of our operating model. First, it validates our strategy by demonstrating that we can successfully identify innovative, high-growth diagnostic products that complement our existing portfolio. Secondly, Resolve highlights the operating leverage of our business model by demonstrating how our process can seamlessly integrate a new diagnostic test into our existing sales and marketing channels. without incurring significant additional operating expenses.
Before I turn the call over to Ron to comment on our financial and operating results for the quarter and year. I'd like to first point to a few key highlights for 2022. Our Q4 revenue grew by 114% over Q4 2021 and 15% when excluding the acquisition of GPS. Acceleration of unit growth for confirmed MDx was an important contributing factor in our top line performance as continued execution by our sales team, helped drive unit demand. In full year 2022, billable test volume for Confirm increased by 11% over 2021, with Q3 growth of 14%, accelerating to 21% in Q4. With an estimated 30% of prostate biopsies resulting in a false negative, we believe that 96% negative predictive value of the confirmed test significantly reduces the need for repeat biopsies and will continue to become the standard as we drive adoption. Our full year 2022 total revenue grew 67% over last year or 25% when excluding GPS, which reflects our continued focus and efforts throughout the pandemic to drive growth. And I would like to point out that while we are all excited to put the pandemic behind us, the impact on our business was profound. Prostate cancer screening is down 50% for the last couple of years, leading to increased rates of prostate cancer.
In summary, our results reflect a clear focus on growth and execution as evidenced in the following. As communicated with the launch of Resolve we've validated the opportunity with our sales channel and customer base following many months of diligence and a clear set of criteria to substantiate the fit with our current menu call patterns and relationships. We also evaluated the product's opportunity to generate accretive contribution to our gross margin from day 1 and $1. After 12 months in the market, we can confidently state that this process has been validated and can be applied to source additional channel opportunities that do not require material investment. The acquisition of the GPS test represents a clear and compelling opportunity to expand our existing customer base and leverage the acquired customer base by cross-selling complementary prostate cancer diagnostics in our offer. We now are the only company that can provide a clear and clinically actionable precision diagnostic for risk stratification post positive or negative initial biopsy. We are confident that our ability to partner with our urology customers with an unmatched menu based on our reputation for excellence and laboratory services and allow improved efficiency through standardization. We continue to execute on our integration of the GPS test while a complex and all consuming process from both the sales and operating perspective, we have been focused in Q4 and into Q1 to transition all aspects of the business. In Q4, we completed the restructuring of our sales team with additional reps from Exact, being territory realignment, alignment of performance-based incentive compensation and cross-selling, cross-training of product offerings. We are confident that these efforts will provide for a high-performing sales team in 2023 and beyond. We have also been intensely focused on the customer experience, including transfer of physician portals, new pathology lab sample procurement and market access contract payer coverage, all of which are critical in the laboratory model to efficiently receive, process and report within the turnaround time expectations of our customers.
I will provide further view forward and outlook for 2023. But first, let me turn the call over to Ron for a review of our financial and operating results for 2022.
Thank you, Mike.
As Mike mentioned, we are pleased to report our first consolidated quarter of the MDxHealth business with our revenue growth in the fourth quarter and full year 2022. Revenues for the fourth quarter ended December 31, 2022, increased by 114% to $12.9 million versus $6 million for the same period last year. Excluding GPS, fourth quarter revenue increased 15% to $6.9 million versus Q4 2021. Total revenues for 2022 were $37.1 million, an increase of 67% as compared to total revenue of $22.2 million for 2021. Excluding GPS, total revenue for 2022 was $27.7 million, a solid increase of 25% versus 2021. 2022 revenues were comprised of $21.8 million for confirm million for GPS, $4.9 million for Resolve or UTI test, with the remaining revenues from Select and other.
Gross profit for 2022 was $19.2 million as compared to $10.6 million for 2021. Gross margins were 51.9% for 2022 and as compared to 47.5% for 2021, representing a gross margin improvement of 440 basis points, primarily related to our product mix and the addition of GPS to our product menu. Operating expenses for 2022 were $57.1 million, up 53% from $37.4 million for 2021, primarily related to additional field sales personnel associated with the GPS business as well as nonrecurring transaction-related expenses of $3.2 million. Excluding noncash expenses, such as depreciation, amortization and stock-based compensation as well as the nonrecurring transaction-related expenses of $3.2 million, our operating expenses for 2022 were $48.1 million, an increase of 45% over 2021.
Operating loss and net loss for 2022 were $37.9 million and $44 million, respectively, an increase of 41% and 52%, respectively, over 2021.
Net loss also included onetime financial expense of approximately $1.2 million related to replacing the company's debt facility. So in total, nonoperating nonrecurring expenses totaled $4.4 million. Cash and cash equivalents as of December 31, 2022, were $15.5 million. Our balance sheet was strengthened recently from the February 2023 equity raise of $43 million, which includes gross proceeds of $3 million from the underwriters over allotment option. Including net proceeds of $40.4 million from this offering, our pro forma cash balance was $55.9 million for year-end 2022. Total cash collections during 2022 amounted to $32.3 million, an increase of 50% compared to 2021, excluding collections from GPS, total cash collections in 2022 increased by 20% versus 2021.
This concludes my brief overview of the results. I will now turn the call back to Mike.
Thanks, Ron. Last 4 years, we have been focused on driving execution and operating discipline across the organization. We have restructured our sales team, our revenue cycle management processes and advance coverage with payers through our commitment to market access, as evidenced by the recent GPS coverage decision by UnitedHealthcare, the largest commercial health plan in the U.S. We have also seen positive developments with respect to treatment guidelines as the National Comprehensive Cancer Network, or NCCN, recently issued updated guidelines expanding the GPS indication to include high-risk patients localized prostate cancer. This expanded criteria to address high-risk patients further validates the clinical utility of GPS and in making prostate cancer treatment decisions, and it enables us to more fully serve our targeted patient population.
Finally, I'd like to provide a brief update on the state of our end markets. now that effects of the pandemic have begun to recede. At the end of 2021, we noted the headwinds of decreased patient flow and sales rep access to urologists office from the pandemic. Entering 2023, we are expecting a gradual but steady return to normalized testing dynamics and access to providers. As noted previously, screenings for prostate cancer were down approximately 15% during the pandemic. Not surprisingly, this had the unfortunate effect of increased rates of positive biopsy and diagnosis of prostate cancer. In fact, source estimates cite positive biopsy rates have increased from 50% to 65% over this 2-year period. with this pressure on both our SelectMDx post elevated PSA and confirm MDX post-negative biopsy. We believe this underscores the efforts of our sales team during the pandemic to deliver consistent volume trends. All of these factors provide visibility to and confidence in the following guidance for 2023. Continue to expect revenue of between $65 million and $70 million, which would represent revenue growth of between 75% and 89% over our 2022 revenue of $37.1 million. We expect our select test to be issued a final Medicare coverage decision by midyear and contribute to revenue growth and gross margin accretion, and in the second half of the year. We expect our gross margin to continue to accelerate as we experienced in the back half of 2022, and correspondingly reduce our operating use of cash.
Finally, I believe that our current and expanded offerings will drive our growth based on our earned reputation for laboratory service, accuracy, turnaround time and menu that will drive standardization to MDxHealth's offering for more urology customers. So as we look forward, MDxHealth is committed to driving sustainable growth which will serve as the foundation for value creation for all of our stakeholders, including patients, customers and shareholders.
Thank you for your interest in and support of MDxHealth. And now I'll turn the call back over to Shamali for questions.
[Operator Instructions] Our first question comes from the line of Francois Brisebois with Oppenheimer.
Just a couple here. I was wondering in terms of -- are you willing to share metrics or maybe some qualitative color around cross-selling since the acquisition here.
Frank, we will be providing revenue by product as we go forward by quarter in 2023. And I think as we begin to report that, we'll be able to comment specifically on the progress we're making there. One clear example that I referred to is our tissue-based combination of GPS and confirm where our sales reps are standing on the other side of that biopsy and we're really the only ones that can provide an answer to that initial biopsy either way, positive or negative. And we think that, as I noted, we believe that partnering with our urology customers with this expanded menu as real benefit. And we're in the process, as you know, of through the integration of putting together best-in-class support for the customers through portals, EMR and all of the integration aspects coming from Exact. So yes, we're confident it will drive cross-selling in the sales forces in position now beginning in Q1 to drive that.
Great. And then just a last one here. In terms of the United win, can you just maybe give a little color on the impact that I can have? And should we be expecting any more wins and their -- maybe their impact might take a little while on the top line? And then in order for you guys to get the United win, it seems like there was a competitive process, given how differentiated you are, can you just maybe discuss a little bit more about what made you differentiated for United to go with you guys?
Yes. I think the differentiation is on the low-risk patient population where GPS has the most data clinical utility of products that cover that area. So it clearly was singled out for that patient population. And then secondly, to the first part of your question, we feel one of the things we have with our business that we've really put in place is a patient-friendly and practice friendly approach to revenue cycle management and payer management within the practice. So we driving the impact of the -- of any new market access contracts we got is likely to more influence and provide impact to our revenue through average sale price increases, which we've seen as reported over the last 2 years with the work that we've done internally and operationally as well through our market access managed care team. So we're confident that, that will continue as we add additional payer coverage for our full menu, including picking up the payer coverage contracts with GPS.
Our next question comes from the line of Mark Massaro with BTIG.
Congrats on a strong 2022 and outlook for 2023. I guess my first one is maybe a big picture question for you, Mike. If prostate biopsy results are now turning positive about 65% of the time versus 50% pre-COVID, I think, you said, can you just give the generalist some practical ways as to how that becomes sort of a positive for the demand for your tests going forward?
Yes. Thanks, Mark. So we've -- I wanted to make sure I found a way to communicate the dynamic that we've seen. So pre-pandemic this is on average, right? There's always exceptions and practices that are dependent on mix. But in general, pre-pandemic, we saw rates of biopsy of above 50% positive negative on initial biopsy. What we saw through the pandemic and as cited is that the reduction in screen and the delays in screenings by 50% of PSA in patients putting off their PSA screenings, clearly led to an increase in positive biopsies upon coming back into the system. Now whether that settles back to a normalized rate of 50% is to be determined. But we think it kind of masks, I don't want to say an overperformance during the pandemic, but clearly, my comment was that our sales force was to keep our volumes steady during that with that pressure on for instance, if a rep had 100 -- a customer with 100 initial biopsies, and they were expecting 50 confirms to come out of that. So these are just general terms, to your point, of the high-level view. That that goes to 35, and that's a clear impact on the business. Now the positive is with the pickup of the GPS, we can now cover that patient population as that dynamic either stays in that range for a while and comes down. We believe, obviously, that patient flow will return, and it will just be over time, which we're okay with, right? Those headwinds will be turning to tailwinds of patient flow coming back through the system capacity-wise, it's a fixed capacity system so they can absorb that all through a couple of quarters. But have probably normalizing back towards pre-pandemic rates as we go forward.
Okay. That's helpful. And then second question is on select reimbursement. Just to make sure I understand, I think you guys are subject to the new umbrella foundational LCD process with MolDx. Is it right that you -- I think, you submitted your technical assessment to MolDx and they had an opportunity, I believe, to respond to it. Just curious if you can provide any color whatsoever about any conversations you might be having with MolDx that would support your confidence in this reimbursement going live for the second half of 2023?
Yes, Mark. So you noted with the new foundational process, it's very different. So it's -- I don't want to say it's interactive, but it's iterative, where we submit our technical assessment and then they have a period to either reject it or respond with questions. And that's been the couple of turns we've had with them without giving specifics here, we think the trend of the questions and clarifications is going in the right direction by guiding to midyear, what we're essentially doing is allowing for another turn, right? So we don't have to adjust it could come sooner in getting paid in Q2, but we're just allowing for that process to play out based on the fact that we were one of the first to go through it. And what we know is that it's becoming maybe a little bit more like the FDA from an interactive and a PMA or 510(k). So that gives us the based on our view of where it's headed, we like midyear.
Okay. Perfect. And then my last question for either of you guys. Nice to see the confirmed volumes accelerate increased from 14% in Q3 to 21% in Q4. I'm curious if you can maybe speak to some of the underlying drivers to the extent that you can parse it out, but I also wanted to ask, the select volumes, I think, were down 6% in Q4. When do you think we can return back to growth on Select? And what are some of the drivers that that are contributing to confirm growing faster than select on the volume side?
Yes. So I think a couple of things there, right? I don't want to say we we may have taken a little bit off the gas on Select just because probably, in some respects, based on the impact to the P&L, right? We absorb all that cost. So if we drive volumes up we continue to eat the COGS until we have coverage. We're confident that we have a base of customers and ability to drive adoption of Select. But candidly, the the priority over the first. We're about 120 days into this integration and the focus we want, as you would expect to be on GPS and confirm combination cross-selling, cross training. So we expect that -- but our reps clearly are able to represent the full menu and the process of bringing on 23 additional reps and cross-training previous MDx reps on the GPS test and vice versa has been our focus. And then I would also add that we're pretty encouraged, as you probably noted on the resolve that our team, the key to that was we're not just looking to throw products in our reps bag or it was very clear that we had to really, in a rigorous process, eliminate the fact that it would create a focused challenge from our primary prostate cancer menu. What we've confirmed as it reads exactly on, as I noted, our call point, call pattern relationships and customer base.
Our next question comes from Delano Vranken with KBC Securities.
Two from my side. The first one is to the commercial sales actually, if I understand, it's grown quite a bit from -- towards about 54 reps. How do you look into that for the next year? Do you anticipate to further grow that commercial force in the coming year?
Tom again, thanks for staying up late. Yes, one of the strengths that we have on our view forward is we feel our OpEx can be held pretty straight away here, right? Our sales team -- at this point, we have 70 people on the field, 54 direct reps. That is clearly the strongest channel in the urology in the space, focused in our area. So that is very, very rightsized for our business and still allows for additional channel opportunities. So we think particularly from an SG&A perspective, our OpEx can be held very, very steady as we go forward. We do not -- our goal is to become a $100 million business with a 65% gross margin and profitable. Those are in our view, and I think that we're very confident that this sales channel can take us there as currently constituted. And that any expansion on OpEx would be driven by scale, volume through our laboratory.
Okay. That's very clear. And with regards to the second question, I wanted to zoom in on the monitor that you have in the pipeline, could you perhaps provide some color on where you stand with that? And is there already any indication of what time lines might look like there?
Yes, Thomas, we're probably still being conservative there. I think that we're still in the biomarker to basically developing the assay from the right mix of biomarkers and bioinformatics. We expect -- we would expect to have visibility to moving from that stage into verification and validation and then beginning to follow up on the go-to-market process with regard to reimbursement coverage. So we think 2023 and '24 will not reflect any impact from monitor in our business from a P&L perspective. And we'll just update accordingly as we go forward.
And we have reached the end of the question-and-answer session. And also this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.