Jan Groen - CEO Jean-Marc Roelandt - CFO.

Howard Halpern - Taglich Brothers, Inc..

Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's MDxHealth Half One 2018 Results Conference Call. [Operator Instructions] And now I would like to hand the conference over to your first speaker today, Jan Groen, Chief Executive Officer of MDxHealth. Please go ahead..

So, good afternoon everyone and welcome to our 2018 half year results call. I am Jan Groen, I am the Chief Executive Officer of MDxHealth and with me today is Jean-Marc Roelandt, our Chief Financial Officer. On Slide 2 please be reminded of our normal disclaimer.

On Slide 3, I would I would like to begin by recapping all the potential of urology diagnostic market which we believe is worth in excess of 3 billion annual U.S. dollars. MDxHealth is the clear leader in molecular diagnostic for uro-oncology.

It's currently the only company developing test right across the entire uro-oncology diagnostic spectrum, prostrate, bladder and kidney cancer. Now turning to the first half year highlights, that's on Slide 4.

We’ve made good operational progress during the first half of 2018 and we are pleased with the healthy double-digit growth of our overall clinical testing volumes and particular with the strong growth of SelectMDx during the period. We continue to deliver on our four strategic objectives for growth.

For ConfirmMDx, a primary driver of growth for the near-term we expect reimbursement for the product including expanded Medicare coverage. And overall cash collections were significantly up compared to the first half of 2017.

For SelectMDx a core driver of growth over the longer term, the product was included in the European Association Urology Clinical Guidelines and we published a number impactful studies outlining the clinical utility and cost effectiveness of the test. As you know, we are looking to move this product into an active monitoring and primary care setting.

We believe this will significantly impact our market share for SelectMDx across the U.S. and Europe. During the first half we also made good progress in the development of two new products which will see us double our product cancer product portfolio offering.

The recent license agreement with Royal Philips enables us to prepare for the launch of the InformMDx product, a tissue-based test to stratify patients according to their risk of disease progression.

In January we saw the completion of a second clinical validation study for MonitorMDx, a liquid biopsy test designed to guide the personalized treatment of castration resistant prostate cancer patients. We expect to finalize the development phase of both of these products in the course of 2019.

During the period we also broadened an existing license with LabCorp for the rights to patents owned and controlled by MDxHealth relating to the MGMT Biomarker for use in oncology, including testing for patients with brain cancer, such as Glioblastoma.

I am turning to Slide 5, so Marc will cover the financial in greater detail a little later in his presentation, but in terms of highlights we’re able to report product and service revenue of 16.6 million up 39% from 12 million in 2017 first half including 15.3 million for ConfirmMDx and SelectMDx.

The total revenue was $17.2 million compared to $24.3 million in 2017 which included the sale of patents to Exact Sciences for $12.3 million. Gross profit excluding royalties of 10 million improved by 42% year-over-year. Operating losses of $50 million in H1 2018 compared to an operating profit of $0.6 million in H1 2017.

It was affected by the sale of the patent to Exact Sciences. EBITDA of $13.5 million compared to $1.4 million in 2017. Cash and cash equivalents of nearly $41 million as of June 30, 2018 following a successful completion of [$45][ph] million fund-raise in March of this year.

Continuing to Slide 6, as mentioned previously we had seen some good progress during the first half of the 2018, and we are pleased with the healthy double-digit growth of overall clinical testing volumes for the period compared to 2017 of over 20,000 patients tested in the first half of 2018.

SelectMDx continued to grow strongly following its commercial rollout with nearly 180% volume increase in Europe. ConfirmMDx volumes were up 11% over last year, with this established test contributing the bulk of our overall revenues and volumes. Moving to Slide 7.

We've shown some analysis demonstrating MDxHealth favorable volume growth trajectory compared to our peer groups in the industry on the U.S. market. And we can see that just over two years after the initial launch, SelectMDx has exhibited strong rates of growth while ConfirmMDx has outperformed almost all the peers in the industry.

Moving to next slide. As previously outlined, MDxHealth has a clear growth strategy for the remainder of 2018 and beyond. The strategy is centered around the four key pillars for the business.

One, driving adoption of the Company's commercial testing - test for urologists and payors, expanding the clinical indication for SelectMDx, porting the MDx test onto an IVD platform, sampling the result [on our own platform], and leveraging our product offering through partnering with pharmaceutical companies.

The Company believes that this growth will be driven by continued focus on increasing payer adoption of ConfirmMDx, for which we had pay a [indiscernible] covering 58% of the testing performed in the first half of 2018, driven by obtaining additional positive medical policy decisions.

Submission for publication of expected in H2 of the 4M study, a clinical study comparing SelectMDx with MRI, done by an independent entity. The completion of our medical data package for SelectMDx for the near future inclusion of U.S.

guidelines and potential medical coverage executing on our strategy to focus on peer-reviewed publications, clinical and analytical validation data for Medicare reimbursement and guidelines inclusions, expanded market opportunity for SelectMDx and active monitoring of primary care settings expected to quadruple the market opportunity for SelectMDx in the mid-term to long-term for up to 2 million patients in the U.S.

and similar numbers for Europe.

Accelerating product awareness among urologists and patients through the newly developed digital marketing campaign, working with IVD partners to port part of our current product portfolio onto sampling to result [all][ph] platforms, continuing to leverage our biomarker portfolio and expand our capability towards the pharmaceutical industry.

Continued development of our new precision diagnostics blood based test, MonitorMDx for prostate cancer to guide the personalized treatment of castration resistant prostrate cancer patients, building on the encouraging results of the study published in the prostrate in the beginning of 2018.

The validation and launch of the InformMDx test for prostrate cancer, a tissue based test that can stratify patients according to the risk of disease progression. The company anticipate that InformMDx will provide actionable information to help transition guiding treatment decision at the time of the diagnosis. In the U.S.

alone over 140,000 patients per year could benefit from the InformMDx test. Continuing on Slide 9, just to recap briefly our product offering, ConfirmMDx or prostrate cancer, addressing the false negative biopsy concerns and helping physicians to make the right decision whether to put biopsy patient yes or not, or to take the patient for an MRI scan.

So from my initial negative biopsy independent published clinical studies have shown that ConfirmMDx is the most significant and independent predictor of patient outcome relative to other available clinical factors such as PSA and DRE results.

So today Confirm is the only tissue test identifying risk for high grade disease and the test has been validated over 5,000 patients and in the first half we tested over 11,000 patients and obtained eight additional contracts ending up to total number of 71 payor contracts for the Confirm test.

One Slide 10, one can see the total addressable market for ConfirmMDx, and we believe that there is a significant market up to $500 million for this products in the United States alone. At present ConfirmMDx market penetration is around 7%, which we believe is a significant increase in the future by expanding commercial payors contracts and U.S.

insurance providers. And I'll explain it in the next slide. So the next slide entitled ConfirmMDx reimbursement roadmap. In the U.S. market securing reimbursement from payors is driven by the publication of studies and guideline inclusions.

During the period we saw the publication of a number of supportive studies including a multicenter study demonstrating utility of ConfirmMDx in African-American population published in the journal Urology, a study demonstrating the combination use of the ConfirmMDx and SelectMDx may improve the detection of high-grade prostate cancer was presented at the AUA Annual Meeting in San Francisco in May 2018.

And in July we also received a positive final Local Coverage Decision, LCD providing nation-wide access to ConfirmMDx for all men covered by Medicare, as well as inclusion of the test in the European Clinical Guidelines in 2018. We also signed 9 new U.S. payor contracts bringing the total number of 71 as previous mentioned.

The next Slide gives an indication of the increase in coverage for the ConfirmMDx test. As you can see this slide includes inclusion in guideline such as EAU and NCCN which are indicators of clinical utility and cost effectiveness of the diagnostic tool and has a significant impact on the levels of coverage and update in positive medical decisions.

And the blue bar indicated on the slide is part of the new contracts for SelectMDx. And on Slide 13, SelectMDx liquid biopsy test is so called non-invasive test which help identify patient at increase risk for aggressive disease thereby aiding in the selection of men for prostrate biopsy or MRI.

SelectMDx is a PCR assay performed on post-DRE so called Digital Rectal Examination first-void urine specimens from patient that clinical risk factors for prostate cancer who may benefit from a biopsy procedure or ongoing in MRI screen.

And what this test does and tells us to do is, basically we measure the levels of RNA from two specific prostate cancer genes to aids patients selection for high-grade disease [indiscernible] those specific genes in correlation with support for us. Let me move to Slide 14, where we address the market opportunity for the SelectMDx test.

In terms of how to translate to market potential today in total we've seen north of 2.8 men in U.S. alone who would benefit from a Select test.

Though the Select is addressing a market of around 500,000 cases slightly north of that, basically of men with an elevated PSA level that biopsy procedure or the physician decides to do biopsy procedure and these men will truly benefit from a SelectMDx test.

But as you know we are also focusing on the expanding SelectMDx use towards active surveillance, that will add an additional 7000 men to the population, but also expanding it towards primary care settings and that all increase the total market opportunity another 2 million for the U.S. and comparable to the numbers for the European markets.

This expanse includes to a potential, the U.S. cyclone of US$1.3 billion as the market opportunity for the Select test.

The key to accessing this is through health economic studies and clinical validation studies that we have conducted and I will talk about on the next slide what the impact is for these type of health economic studies that’s on Slide 15 I believe, yes. So in slide its entitled SelectMDx country specific health economic studies.

So during the period we reported on publication of one U.S. and four EU cost effectiveness studies for SelectMDx. So basically modeling the impact of utilizing the test prior to prostrate biopsy on the healthcare outcomes and cost reductions and this was published in the Journal of Urology for the U.S.

and it was published in the Journal of Prostrate Cancer and Prostatic Disease for European countries.

So these compelling studies further validate the positive impact of SelectMDx to reduce healthcare cost by helping to guide to physician prior to prostrate biopsy or MRI demonstrating the health and economic value of utilizing the SelectMDx test in this type of treatment processes.

So we believe that this will in turn to support for our negotiation with U.S. healthcare insurance companies as well as Medicare. And this is significant for our SelectMDx product reinforcing our strategy to pursue the primary care market. We believe this expansion could quadruple the Select market opportunity in U.S.

and in Europe to more than 4 million subjects on an annual basis. On Slide 16, as you can see ConfirmMDx currently dominates our products in terms of volume and revenue and we believe that it will continue to do so for the short-term to medium term future.

However SelectMDx has performed strongly and with a lower cost point and potentially larger addressable market we believe that it will eventually become the main value driver in our portfolio.

And it also worth noting that we have further test in the pipeline such as InformMDx, as well as MonitorMDx that will contribute to the future revenue of the company. Now I’ll turn to Slide 17, InformMDx.

For the InformMDx test prostate cancer is a tissue-based test that can stratify patients according to their risk of disease progression as stated before. We anticipate that InformMDx will provide extra information to help physician guiding treatment decision at the time of the diagnosis. And I said before, the market opportunity in U.S.

alone is north of 140,000 patients that would benefit from the InformMDx test and similar numbers for the European market. So going with the development of the InformMDx that's on Slide 18, and so it’s get you an overview of the respective publications and today the test is already covered by 40 patents or four zero.

So with our extensive experience bringing molecular diagnostic assays to the market we have been - met out the clear commercial pathway for InformMDx. We've already met out the scientific validation of the test and a publication in the Journal of Urology early in this year demonstrated the value of this from a healthcare economic perspective.

So moving forward we will undertake further work to demonstrate the clinical utility and clinical validation to ramp up the commercial launch of this test in the near future.

On Slide 19 with the title of products success since launch, so we have made significant progress so far with around 25,000 tests completed for Select and north of 90,000 tests completed for Confirm since their launches. So this adds up a total number of revenue driven by the two tests of US$100 million.

We of course believe there's significant growth potential both our test enhanced focused on making sure that we have the sales strategy in place to deliver on this which I will give you a flavor on the next slide. So one of the campaign is that we have started to drive product awareness through the social media campaign.

As mentioned briefly early in the presentation we are actively looking to expand the market opportunity for Select and active monitoring of primary care setting, and we believe this could quadruple the market opportunity for Select in the mid-term to more than 4 million patients annually in U.S. and Europe combined.

Key to this expansion will be developing and executing upon a direct-to-consumer marketing strategy for SelectMDx in the U.S. since direct-to-consumer marketing is not allowed for the European market.

As part of the effort, we are already working to accelerate product awareness among urologists and patients through a newly developed digital marketing campaign on both sides of the ocean. So we'll now turn into the financial and I'll hand it over to Jean-Marc to give you a closer view on our financial results for the first half of 2018..

Thank you, Jan. I think you touched upon most of the financial highlights of the first half already. So I'll keep it brief and we'll start on Slide 22, where you can see that we are on-track to achieve our targets of hitting a higher level of products and services revenue growth than in 2017, which was 13%.

Products and services revenue for the first half year 2018 was $16.6 million, up 39% from 12 million in the first half of 2017. Moving on to Slide 23, test volume continues to grow and we exhibited healthy year-on-year growth, up 30% on overall test volumes.

As Jan mentioned earlier, ConfirmMDx continues to represent the bulk of our test volumes but SelectMDx exhibited very strong year-on-year growth of 67% during the period. On Slide 24, I can mention total revenue of $17.2 million, which compares to a normalized total revenue of $12.2 million during the first half of 2017.

A onetime $12.1 million revenue from the sale of patents to Exact Sciences last year takes the H1 2017 total revenue number up to $24.3 million. Of the $17.2 million total revenue for H1 2018, 97% or $16.6 million consisted of products and services revenue.

An 89% or $15.3 million came from the sales of ConfirmMDx and SelectMDx, 98% of which originated in the U.S, and was up 29% from H1 2017. Within that $15.3 million, ConfirmMDx revenue was $14.2 million, up 27% from the first-half 2017, and Select represented $1.1 million, up 46% from H1 2017.

On top of that, we received $0.6 million of revenue from milestone in royalties including the MGMT license deal with LabCorp. As we only recognize revenue to the extent that we will collect, it is key for us to secure as many payors as possible.

The continuous progress made in increasing reimbursement coverage for Confirm, resulted in 58% of the samples received in H1 to be covered by payor contracts. Ultimately this allowed us to recognize 52% of the amount billed for Confirm as revenue.

The overall book-to-bill ratio including Select, for which the coverage is still limited, was 51%, an improvement from 50 % a year earlier. Slide 25. We recorded gross profit of $10.5 million or 61% of total revenue during the period.

Looking at products and services only, gross profit, so excluding royalties was $10 million, up 42% from $7 million in the first half of 2017. And the gross profit margin on revenue from products and services rose slightly to 60% compared to 58% in H1 2017. Moving on to the balance sheet on Slide 26.

Our cash position is very healthy with cash of almost $41 million at the end of H1, following the Company's $44 million fund raised via an accelerated book build, which we undertook in March of 2018. The net proceeds were $42.4 million. And we were also pleased to see the U.S.

cash collections of $14.7 million, go up 35% compared to the first-half of 2017. The operational cash burn of $50 million in the first-half of this year was compounded by capital expenditure of $1.3 million and by unrealized foreign exchange translation losses of $1.7 million on the euro denominated assets.

I'll now hand back to Jan to take you through the outlook..

Great, thank you, Jean-Marc. So to summarize, we have made good operational progress program during the first half 2018, and we are pleased with the healthy double digit growth of overall clinical testing volumes, revenues, and cash collections.

Throughout the period, we continued to deliver on our status of strategic objectives for growth, for ConfirmMDx, the primary driver of growth in the near future. We expanded the reimbursement for the products including the coverage by Medicare, the recent LCD.

For SelectMDX, a core driver of growth over the long-term, we've made good progress as we look to move this product into active monitoring of primary care setting. We believe this will significantly expand our market share for SelectMDx across the U.S. and Europe.

In the second-half of this year, we anticipate submission for publications of the 4M prospective clinical study, which was completed in the first half 2018 by an independent entity. And as mentioned, we will continue to progress our two new products in prostate cancer in Inform and MonitorMDx.

We remain positive about the outlook for the current year and maintain our view that year-over-year growth for product and service revenue will be higher than 2017, and we'll continue to update the market as the year progresses. And we now open for Q&A, and I'll give the floor back to the moderator..

[Operator Instructions] And our first question comes from the line of [Stephanie Putz] [ph]. Please ask your question..

Question on ConfirmMDx, can you give us the reordering rate that you see today for this test and maybe also the customer acquisition costs that you see today? And then for SelectMDx, can you guide us on how you see the evolution of the reimbursements in Europe and on which countries you are focusing today and maybe on the IVD to SelectMDx, how is this evolving? Thank you..

So we have not reported on the repetitive sales for ConfirmMDx in any of our press releases so far. So I cannot comment on that. I think the growth of 11% speaks for itself, I have to say.

Regarding your question for SelectMDx for the European market is, we have five sales representative in the fields, focusing on Germany, France, Italy and the Benelux, as well as our partner in Spain, Ferrer Pharma, those will be the focus of the Company for the near-term future for the Select.

And yes, we have developed an IVD kit for SelectMDx which runs on an open PCR platform that is available, but the key driver of success for the SelectMDx based on the European market is number one, to create awareness among the urology community, and that's what you have seen in the quite significant growth in the first half 2018 of close to 180%.

Once the volume in the respective centers is high enough they could order the Select IVD kit to run in their laboratory.

But as today for the commercial standpoint, we are selling, we are paid for each and every test that we are offering to the respective hospitals with the exception of course of the marketing implementation and clinical studies that we've performed in the first half of 2018..

Thank you. And your next question comes from the line of [Lenny Van Steenhuyzen] [ph]. Please ask your question..

First question I had is that while Confirm's volumes are quite low in the second quarter of the year, on the other hand cash collection on the test was quite impressive and I was wondering if you could please elaborate a bit on the reasons behind this dynamic.

Second question I had is that the gap between total product revenues and the sum of Select and Confirm revenues is becoming wider and I was wondering if this might indicate that also AssureMDx is slowly contributing to revenue? Or perhaps if there would be another element in play? Thank you..

I'll start with the last one, Lenny. So, I assume you're referring to the difference between the 16.6 million products and services revenue and the 15.3 coming from Confirm and Select.

The difference is clinical service testing, MGMT service testing which as you know has now moved to LabCorp following the license deal that we closed in the first quarter, so that 1.3 million difference is almost entirely attributable to MGMT service testing in the first quarter.

Going forward that will be substituted by royalty income from that license agreement with LabCorp.

On the cash collections, obviously it's very difficult to relate volumes from the first half 2018 with cash collections, as you know the collection periods are fairly lengthy specially for Confirm where we have a lengthy appeal process upon an initial denial. So the cash collections really relates to volumes sold in prior years.

But what we obviously see is the result of our efforts to land more contracts with private payors, and although it's very difficult to discern a general trend on the impact of our CPT code and it is absolutely the case that upfront denial rates will come down which will lead to quicker and higher collections..

Thank you.

Perhaps last question from my end, now in the past few weeks you had seen several cost effectiveness studies on the SelectMDx, do you expect in the coming periods perhaps further acceleration of Select growth with that in mind?.

So, I think the health economic studies are key for future negotiations with European healthcare providers in terms of the reimbursement for the test, that's why we have completed four health economic studies in four EU member states; France, Spain, Germany and Italy and we already completed one for the Netherlands last year.

So they are key in combination with additional validation study we have to complete in the respective countries, all four countries to have our medical dossier complete in order to start the discussions with the healthcare providers for reimbursement of that product in the respective countries. So they are key element for reimbursement.

The package is not completed yet. But for sure it will contribute to the future growth of SelectMDx..

And your next question comes from the line of [Mike Vizik] [ph]. Please ask your question..

Just two from me. First on SelectMDx, you guys are submitting the Medicare package shortly. I'm just wondering what you expect in terms of increased uptake if Medicare decides to approve this for coverage? Would you see a certain amount of commercial insurers following that and would be quite a steep uplift in terms of uptake in the U.S.

and my - sorry, go ahead..

Yes, go ahead, go ahead..

Sorry, my line is breaking up a bit..

I can answer your first question regarding Medicare, so yes we have signal to the market that we are completing medical dossier for SelectMDx and filing this for Medicare coverage.

I have to refer them to the experience we have in the past with ConfirmMDx after we filed the package it took about six to nine months to receive coverage for the Confirm test a couple years ago.

But as also indicated in one of the slides presented today, it had a significant impact also towards other payors to obtain coverage once we receive Medicare coverage. So and - the targeted patient population or subject because there is still no patient yet, we expect to be about 30% of our business will be Medicare patient that.

And as we have seen today after received coverage for Confirm, Medicare pays for all their patients and on time so yes..

And just a second one from me, I remember towards the end of last year you had some samples from the VA Hospital that didn't come through in the fourth quarter and potentially spilled over into Q1.

Did that play into the higher growth rate for the first quarter comparatively to the second for ConfirmMDx or is that effect equal across the two quarters?.

There was indeed a spillover effect from one clinical study, it wasn't the VA, but it was a clinical study involving Medicare patients. And that spillover effect was limited to Q1. We mentioned in our quarterly update in Q1 that there were approximately 640 cases in Q1 all at the 2013 Medicare LIBOR rate.

That did not reoccur in Q2 as expected so that affects the comparison from Q2 to Q1..

[Operator Instructions] And your next question comes from the line of Howard Halpern [Taglich Brothers, Inc.]. Please ask your question..

Thanks for taking my questions. First the sales force in the U.S.

how was it structured and how is it evolving since you first implemented your sales force here?.

So your question on the sales force, yes we have initiated to increase our sales force as of the - in the third quarter 2017. What we've done so far as we've divided currently in 42 territories and as of today we have covered most of these territories. We’re a little bit low in our coverage for certain territories. The healthy U.S.

economy has put a lot of pressure on the sales organization so we see a lot of people jumping to another company but today we have around slightly below 40 reps in the field..

And what is your strategy to break into I guess the primary care area specifically in the U.S.?.

Yes, so number one is of course we need the current test is only validated for elevated piece level north of 3 nanograms per mL all the way up to 10 nanograms per mL. So those guide in the Q4 a biopsy procedure.

What we’re currently doing is number one completing several validation studies for SelectMDx in a lower PSA range and that would allow us to move the test forward into the primary care setting but it comes down to selling to a primary care physicians, you need to complete the difference sales mechanics or structure - in order to serve that market and we are currently weighing our options what will be the best way to serve that market..

And one final one question I have about the operating expenses. You see that staying pretty constant in the second half and also because you had mentioned in the press release about the amortization expenses were high.

What could we expect that to be in the second half?.

So we have been looking at a Q4 2017 run rate of over $12 million.

So our expectation for the full year 2018 was $50 million to $52 million of operating expenses on the back of that run rate which was the first two quarter where we had the expanded sales force on board adding to that the increased amortization on internally developed intangibles which started this year.

We will be looking at similar levels of expenses for the second half both in total, as well as on the amortization front. So the overall expectation of 50 million to 52 million still stands..

[Operator Instructions] There are no further questions at this time. Please continue..

Thank you all for participating in our conference call for the first half year results and we’ll keep you updated on the development within the company and the progress we are making for the second half of 2018. We will come out with our Q3 press release in the course of November 2018. Thank you so much for participation..

Thank you, all..

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers' please standby..