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Edited Transcript of ECX.DE earnings conference call or presentation 19-Nov-19 2:30pm GMT

Nine Months 2019 Epigenomics AG Earnings Call

Berlin Dec 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Epigenomics AG earnings conference call or presentation Tuesday, November 19, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frederic Hilke

Epigenomics AG - IR Officer

* Gregory Hamilton

Epigenomics AG - CEO & Member of the Executive Board

* Jorge A. Garces

Epigenomics AG - President, Chief Scientific Officer & Member of the Executive Board

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Conference Call Participants

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* Dennis Berzhanin

Pareto Securities, Research Division - Analyst

* Randy Baron

Pinnacle Associates Ltd - Lead Portfolio Manager

* Ulrich Huwald

Warburg Research GmbH - Senior Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen. Welcome to the Epigenomics AG Conference Call regarding the 9-month Results of 2019. (Operator Instructions)

Let me now turn the floor over to Mr. Frederic Hilke.

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Frederic Hilke, Epigenomics AG - IR Officer [2]

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Thank you very much, Hannah. Hello, and welcome to the conference call for the financial results of the first 9 months of 2019. My name is Frederic Hilke, I'm the Investor Relations Manager for Epigenomics.

With me on the phone is the CEO of Epigenomics AG, Greg Hamilton. Before I hand over the presentation to Greg, let me point out some of the usual legal information. The following presentation will contain expressly or implicitly certain forward-looking statements concerning Epigenomics AG and its business. Such statements involve certain known and unknown risks, uncertainties and other factors, which could cause the actual results, financial condition, performance or achievements of Epigenomics AG to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Please find some of these factors described in the safe harbor statement.

And now I would like to hand you over to CEO, Greg Hamilton, who will continue with the presentation

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Gregory Hamilton, Epigenomics AG - CEO & Member of the Executive Board [3]

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Thanks, Frederick. Good afternoon, everyone, and thank you for joining our Q3 2019 earnings call. The operational highlights include a successful capital increase that closed in early November and the announcement of the microsimulation model summary results to be presented at the 12th European Public Health Conference.

On November 7, we announced the completion of a successful capital increase of approximately EUR 8.3 million by issuance of approximately 7.5 million shares. Approximately 3.7 million shares were issued via subscription rights and the remaining was executed via a private placement to multiple investors, including institutional investors from U.S. and Germany. It was a challenging capital raise due to stock price volatility at the time of the raise. I'd personally like to thank our investors who stepped up and made the transaction a success. They, like myself, believe this company is worth much more than the current market capitalization.

This capital raise will be enough to get us through the next major milestones for the company, including publication of the microsimulation model, which we expect before year-end, opening of the National Coverage Decision and a positive Medicare reimbursement decision. This Thursday, Dr. Elvira D'Andrea, one of the authors of the microsimulation model from the Harvard Medical School, will present data at the 12th European Public Health Conference.

As we have discussed previously, the data from the microsimulation model is positive for Septin9. In addition, we announced last week that Dr. D'Andrea and Dr. Najafzadeh, also from Harvard Medical School, will participate in the conference call with investors in the afternoon after the presentation. We look forward to the presentation in the conference call to follow. We are also excited for the full publication, which we believe will occur before year-end.

CMS has not opened the NCD today. In our discussions with the agency, we have learned that we are not the only company in this situation. There is a backlog of accepted and unopened NCU requests at this time. CMS has acknowledged this issue and has stated that it is one of the administration's priorities to address this backlog as quickly as possible. We will update the market as soon as the NCD is open.

In the first 9 months of 2019, product revenue increased by 28% year-on-year to EUR 818,000. Total revenue decreased from EUR 1.3 million to EUR 847,000 compared to the same period in the prior year due to lower licensing revenue. Our adjusted EBITDA was negative EUR 9.7 million compared to negative EUR 8 million. And the net result was negative EUR 10 million compared to negative EUR 8.7 million for the same period the prior year, mainly due to increased R&D expenditure for the post-approval in HCC studies and increased sales and marketing expense, but these expenses were lower than anticipated.

The cash consumption in the first 9 months was EUR 10.9 million versus EUR 6.9 million due to higher R&D expenditures and the changes in working capital. Epigenomics ended Q3 with EUR 6.3 million in cash and marketable securities. Our cash consumption is within our guidance. And now with the successful capital raise, we will have enough to fund 2020 activities.

While the capital raise was successful, it will only provide enough cash to execute on our most important goal: Medicare reimbursement. We have closed enrollment of patients into our U.S. cross-sectional study for liver cancer. We are in the process of compiling the full dataset. However, at this point, we will not initiate an FDA trial. As we just discussed, the capital raise we just completed was enough to fund the company through 2020 and accomplish our goal of Medicare reimbursement. However, it was not enough to fund an FDA trial for liver cancer. We continue to believe in the opportunity for our liver cancer test, but we can't justify utilizing our cash at this time on a product that is 3 to 4 years out. Once the company is capitalized sufficiently to move forward on this important work, we will provide an updated time line.

As disclosed in the prospectus, our 2019 financial outlook is a revenue range of EUR 1 million to EUR 1.5 million and adjusted EBITDA of negative EUR 12.5 million to negative EUR 14 million, and cash utilization capitalization of negative EUR 13.5 million to negative EUR 15 million. Medicare coverage is the number one goal of Epigenomics. We believe the publication of microsimulation model data is a significant milestone towards this goal.

We look forward to the presentation, subsequent conference call with the authors this Thursday and the publication of the manuscript by year-end. Thank you for joining our Q3 2019 call.

I will now open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Dennis Berzhanin of Pareto.

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Dennis Berzhanin, Pareto Securities, Research Division - Analyst [2]

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This is Dennis Berzhanin from Pareto Securities. I had a question related to product development -- product revenue development in Q3, and seems that the revenues came in a bit short and this was due -- of course to the delayed publication of the microsimulation model. Now my question is, we know that the results will be announced in just 2 days, do you expect the revenues to come in stronger after that, even if the reimbursement isn't granted, just yet? That's my first question.

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Gregory Hamilton, Epigenomics AG - CEO & Member of the Executive Board [3]

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Thanks, Dennis. Yes, as we've always said, we do not expect significant revenue ramp until we achieve reimbursement. So between now and then, the product is offered for sale. We do have people buying it. But it's very challenging for us to really predict any significant momentum in test volume growth until we get reimbursement.

So what you're seeing is difference between Q2 and Q3. It's just timing of orders from the lab, but we still believe we're going to hit the numbers that we talked about, EUR 1 million to EUR 1.5 million revenue this year. And then next year, we will give guidance in our expected time frame and depending on how far along we are in the reimbursement process will give us more visibility into what we think that revenue number for 2020 will be.

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Dennis Berzhanin, Pareto Securities, Research Division - Analyst [4]

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Perfect. That's very insightful. And then my second question is related to the MISCAN study. This was one of the topics on the last conference call. And this is the results that came in were -- you mentioned that could have implication for the United States Preventative Services Task Force guidelines. Do you have any visibility or any expectation on when the updated guidelines will be published?

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Gregory Hamilton, Epigenomics AG - CEO & Member of the Executive Board [5]

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Thanks, Dennis. No one knows for sure when the next USPSTF guidelines will be published. Based upon historical trends most -- everyone is expecting those guidelines published in late 2020, early 2021. But again, we don't know. That's just an estimate on the time frames it has taken them in the past to go from their approved research plan on the guidelines to the final publication of their guidelines.

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Operator [6]

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(Operator Instructions) The next question is from Ulrich Huwald of Warburg Research.

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Ulrich Huwald, Warburg Research GmbH - Senior Analyst [7]

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Yes. First of all, it's great that you will set up conference call, so that we can ask questions following the presentations on this data. One technical question. Should we expect a press release ahead of this? And when -- early in European time? Or what's your planning there in this regard? And second question and can you provide us any update on the legislative pathway you also might choose for -- to get reimbursement?

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Gregory Hamilton, Epigenomics AG - CEO & Member of the Executive Board [8]

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All right. Thank you very much for the question. In regards to the presentation this Thursday, we will not issue a press release. It will be a conference call with the authors. As part of the publication embargo, we are not allowed to present any data that is not Imprint at the conference. So the only thing imprint at the conference is the abstract. So we will just be doing a call with the authors on that day.

And then in regards to the legislation, we are continuing to move forward on that. However, as many people are aware, the issues in Washington, D.C. right now, with the impeachment process is basically taking all of the spotlight in D.C. So you're not seeing very much move in regards to legislation at this time. So Washington is pretty much in a standstill. So with that said, we do believe that our path -- our nearest and closest path to reimbursement is the NCD process, because we know CMS has accepted the NCD. They're going to do a review, and we also know that the microsimulation model data that's about to be published is the -- exactly the type of data that CMS is looking for, for a positive coverage decision. So we do feel very good about that path. We are still continuing to work on the legislative path, but again, since that's more out of our control, it is much tougher for us to give you guys a time line or likelihood of success with that.

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Ulrich Huwald, Warburg Research GmbH - Senior Analyst [9]

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Yes. Great. Just point of discussions, so we have some clarity, you have more insights than we. And clearly, the focus is now on the microsimulation model without looking ahead of the discussion on Thursday. Yes. Great.

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Operator [10]

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The next question is from Randy Baron of Pinnacle.

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Randy Baron, Pinnacle Associates Ltd - Lead Portfolio Manager [11]

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Just two questions. I think you said the publication you suspect may come by year-end. What gives you that confidence?

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Gregory Hamilton, Epigenomics AG - CEO & Member of the Executive Board [12]

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We -- I mean, Randy, all I can say on that one right now is that we feel very, very good about publication coming out by that point in time. So...

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Randy Baron, Pinnacle Associates Ltd - Lead Portfolio Manager [13]

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And just a -- and then the follow-up on the previous question. You can't press release obviously, until it's out, but will you do some sort of summary press release of what the content of that article is once it is published?

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Gregory Hamilton, Epigenomics AG - CEO & Member of the Executive Board [14]

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Again, we cannot print anything or there is an already imprint at the conference. That doesn't mean, if there is a -- for example, analyst at the conference and they publish a note or something that's out of our control -- that's not part of Epigenomics. So -- but our goal in this call on Thursday is to be able to communicate to investors the positives outcome that we saw in the data. Now that said, that abstract is already available in online. And so I think that should give people a very good indication as to what to expect.

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Jorge A. Garces, Epigenomics AG - President, Chief Scientific Officer & Member of the Executive Board [15]

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Randy, this is Jorge. I think just to clarify, I think you asked, once it gets published, do we intend to do a press release? And the answer is, yes. So once it's published, we think it's going to happen in early December. We will -- we have a press release ready to roll out, summarizing all the findings in the publication.

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Randy Baron, Pinnacle Associates Ltd - Lead Portfolio Manager [16]

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Great. And then on the opening of the NCD by CMS, you've obviously investigated kind of where we are in the process. You mentioned that there's others in the same situation. Can you quantify, where Epigenomics is in the queue? Or how long, even if it's anecdotal, how many other companies are in the same situation?

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Gregory Hamilton, Epigenomics AG - CEO & Member of the Executive Board [17]

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Randy, those are two very good questions that we have asked as well. Regretfully, CMS does not give us that level of transparency. All we know is that, we're not the only ones in that boat. So it is a process that we wish had more transparency, but doesn't. So what we -- we're putting as much pressure on as possible, and we do believe that we will get movement because we have been in the queue for quite a while. But at this point, I can't give any more visibility on the process.

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Operator [18]

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(Operator Instructions) There are no further questions in the queue.

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Gregory Hamilton, Epigenomics AG - CEO & Member of the Executive Board [19]

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Thank you, everyone, for joining our Q3 2019 earnings call. We look forward to providing you more information in our next quarterly update. Bye.