MDxHealth SA(MDXH) - 2021 Q4 - Annual Report

Introduction Company Overview MDxHealth SA, a Belgian limited liability company, was founded on January 10, 2003, listed on Euronext Brussels in June 2006, and operates with wholly-owned subsidiaries in Delaware, USA, and the Netherlands, with its primary business and executive team based in Irvine, California - MDxHealth SA was incorporated in Belgium on January 10, 2003, and listed on Euronext Brussels in June 2006[13] - The company has two wholly-owned subsidiaries: MDxHealth, Inc. (Delaware, USA) and MDxHealth B.V. (Netherlands)[13] - The company's headquarters are in Herstal, Belgium, with its main administrative offices, most business operations, and employees concentrated in Irvine, California, USA[14] Special Note Regarding Forward-Looking Statements Forward-Looking Statements Disclaimer This annual report contains numerous forward-looking statements regarding the company's future strategy, operations, financial condition, revenue, costs, prospects, and market growth, which are based on current expectations and assumptions, subject to various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements in this report cover the company's strategy, future operations, financial condition, revenue, costs, prospects, management objectives, and anticipated market growth[19] - These statements are subject to specific risks and uncertainties that could cause actual results to differ materially from historical experience and current expectations, with detailed risks provided in "Item 3.D. Risk Factors"[19] - Plans for commercialized products and services and their market acceptance[21] - The market opportunity size for ConfirmMDx and SelectMDx tests and future tests[21] - The ability to obtain and maintain adequate coverage or reimbursement for products[21] - Existing regulatory and legislative developments[21] - The timing, progress, and results of research and development programs[21] - The ability to attract and retain qualified employees and key personnel[21] - The scope of intellectual property protection[21] - The impact of the COVID-19 pandemic on business, financial condition, and operating results[21] PART I Item 1. Identity of Directors, Senior Management and Advisers This section is not applicable Item 2. Offer Statistics and Expected Timetable This section is not applicable Item 3. Key Information A. [Reserved] This section is not applicable B. Capitalization and Indebtedness This section is not applicable C. Reasons for the Offer and Use of Proceeds This section is not applicable D. Risk Factors The company's business faces multiple significant risks, including the impact of the COVID-19 pandemic, sustained losses, funding needs, market acceptance, reliance on a single test, reimbursement uncertainties, intellectual property protection, operational challenges, stringent industry regulations, and risks related to ADS and ordinary share ownership - The COVID-19 pandemic led to a significant decline in ConfirmMDx and SelectMDx test sales in 2020, adversely affecting 2021 sales, with potential continued impact on volumes in 2022[32] - The company has incurred continuous losses since its inception, expects to continue incurring losses in the future, and may never achieve profitability[32] - The company may require substantial additional capital to sustain operations, address business needs, or seize new opportunities, which may not be available on acceptable terms or at all[32] - The company's commercial success will depend on the market acceptance and adoption of current and future tests[32] - The company's financial performance primarily relies on the sales of one test, requiring sufficient revenue from this test and other future solutions to grow the business[32] - The company faces uncertainty regarding third-party payer reimbursement for its tests[32] - The billing and collection process for tests is complex and time-consuming, and any delays in claim transmission and collection could adversely affect revenue[32] - The company faces intense competition in the molecular diagnostics industry, including from competitors with greater financial resources, sales and laboratory resources, and stronger market penetration[48][49] - Intellectual property protection is crucial to the company's competitive position, and patent expirations, patent litigation, and failure to maintain strategic collaborations could weaken its competitive advantage[65][68][72] Risks Related to Our Business and Industry The company's business and industry face multiple risks, including the ongoing negative impact of the COVID-19 pandemic on test volumes and operations, continuous losses with uncertain future profitability, and significant reliance on the single ConfirmMDx test, alongside uncertainties in third-party payer coverage and reimbursement and complex billing and collection processes - The COVID-19 pandemic led to a 18% and 39% decrease in billed ConfirmMDx and SelectMDx tests in 2020, respectively, and remained 16% and 37% lower in 2021 compared to 2019[34] - As of December 31, 2021, the company had accumulated losses of $244.3 million, a net loss of $29 million in 2021, and cash outflows from operating activities of $22.5 million, with continued losses expected in the future[38] 2021 and 2020 ConfirmMDx Proportion of Total Revenue | Year | ConfirmMDx Proportion of Total Revenue | | :--- | :--- | | 2021 | 91% | | 2020 | 94% | - The company faces uncertainty regarding coverage and reimbursement for ConfirmMDx and SelectMDx tests from third-party payers, including Medicare and commercial payers, with SelectMDx Medicare reimbursement still awaiting a final decision[59][61][62] Risks Related to Our Intellectual Property The company relies on US and foreign patents, trademarks, and confidentiality agreements to protect its intellectual property, but patents may not be granted or could be circumvented, and infringement litigation may arise; recent US Supreme Court rulings have narrowed the scope of diagnostic method patents, potentially diminishing the value of the company's patents, and reliance on third-party collaborations and license agreements for key intellectual property means their termination or non-renewal could adversely affect the business - As of December 31, 2021, the company owned or exclusively licensed over 22 patent families related to molecular technologies and cancer-specific biomarkers, totaling 116 granted or pending patent applications[65] - Two US patents used for the ConfirmMDx test are set to expire in November 2022 and 2024, respectively, while one patent used for the SelectMDx test expires in 2036[65] - Recent US court decisions, such as Univ. of Utah Research Found. v. Ambry Genetics Corp., have narrowed the scope of diagnostic method patents, potentially negatively impacting the validity of the company's existing or pending patents[67] - The company relies on licensing agreements with academic institutions to integrate licensed technologies into ConfirmMDx tests and pipeline products, making the continuity and terms of these agreements critical to the company[72] Risks Related to Our Operations The company's operations face multiple risks, including complex billing and collection processes that could impact revenue, inherent product liability claims, and challenges in attracting and retaining key talent; additionally, laboratory facilities could be shut down due to disasters or regulatory sanctions, reliance on a few third-party suppliers poses supply chain disruption risks, information technology system failures and data security breaches could harm reputation and lead to liability, and new test development is speculative and uncertain - Billing and collection for molecular diagnostic testing services are complex, time-consuming, and expensive, and non-compliance with intricate billing requirements could severely impede collection efforts and potentially lead to recoupment of payments already received[75] - Product or professional liability claims may arise if tests fail to perform as designed or results are misinterpreted, potentially leading to financial implications and reputational damage[77] - The company's success depends on attracting and retaining key executives and scientific collaborators, and losing these individuals could adversely affect operations and strategy implementation[79] - Labor shortages, employee turnover, and increased labor costs could negatively impact the company's operational efficiency and costs[81] - Laboratory facilities could be shut down due to natural or man-made disasters or regulatory sanctions, with all tests performed in laboratories in Irvine, California, Plano, Texas, and Nijmegen, Netherlands[86] - The company relies on a limited number of third-party suppliers for components and services required for its testing solutions, some of which are single-source, and supply chain disruptions could lead to service delays and impaired profitability[90] - Information technology, telecommunications, or other system failures could severely disrupt operations, and data security breaches could harm reputation and lead to legal liability[92] - The company invests significantly in new test development, but new products may not be successful, and clinical validation studies may be delayed or yield unfavorable results[94] - Obtaining human samples and timely recruitment of clinical trial patients are crucial for R&D, and a lack of these resources could delay product development and commercialization[97][98] Risks Related to Regulation of Our Business The company's business is strictly regulated, and non-compliance with government payer rules could lead to exclusion from Medicare/Medicaid programs; federal and state healthcare laws and regulations (such as CLIA, HIPAA, anti-kickback laws, Stark Law) are complex and constantly changing, with violations potentially resulting in significant fines, criminal penalties, and business disruption; the FDA's uncertain regulatory stance on Laboratory Developed Tests (LDTs) may require the company's tests to obtain market approval, increasing costs and delays, and changes in tax laws and limitations on tax assets (such as NOLs) could also adversely affect financial performance - Non-compliance with Medicare, Medicaid, and other government payer regulations could result in the company's exclusion from programs, recoupment of payments, civil monetary penalties, and criminal sanctions[99] - The company's business is subject to various federal and state healthcare laws and regulations, including CLIA, FDA regulations, HIPAA, the Anti-Kickback Statute, the Stark Law, and the False Claims Act[100] - The Eliminating Kickbacks in Recovery Act (EKRA) is an all-payer anti-kickback statute whose broad language could impact laboratory services, and it lacks clear regulatory interpretation[102] - The FDA's regulatory policy on Laboratory Developed Tests (LDTs) is uncertain, and future requirements for premarket approval or clearance of the company's tests could lead to substantial costs and delays[108][114] - The sample collection kits provided by the company are currently considered Class I medical devices, but the FDA may reclassify them as non-exempt or Class II devices, requiring premarket review[116] - Unexpected changes in tax laws and regulations, adjustments to tax reserves, additional tax exposure risks, or the loss of tax assets (such as net operating loss carryforwards) could significantly and adversely affect the company's operating results[117] - As of December 31, 2021, the company had consolidated net tax loss carryforwards of $305 million, with federal NOLs generated on or before December 31, 2017, having a 20-year carryforward period and potentially expiring unused; federal NOLs generated after 2017 can be carried forward indefinitely but are limited to 80% of taxable income[117] Risks Related to Ownership of the ADSs and Ordinary Shares The trading price of the company's ADSs and ordinary shares may fluctuate due to various factors, including financial performance, competition, market sentiment, and macroeconomic conditions; major shareholders may exert control over company decisions, and a lack of analyst coverage or negative reports could impact share price; the company does not intend to pay dividends, so investor returns will depend on share price appreciation; as a Belgian company, ADS holders' rights differ from those of US company shareholders and may face dilution risk; furthermore, the company's status as an "emerging growth company" and "foreign private issuer" may result in reduced disclosure and governance requirements, potentially making ADSs less attractive to investors, and losing these statuses in the future could increase costs; US federal income tax rules may classify the company as a "passive foreign investment company" (PFIC), leading to adverse tax consequences for US holders, and dual listing and regulatory compliance also incur significant costs and administrative burdens - The market price of ADSs and ordinary shares may fluctuate significantly due to factors such as financial condition, new data releases, competition, merger and acquisition announcements, analyst reports, exchange rate fluctuations, changes in key personnel, reimbursement policy changes, financing activities, the COVID-19 pandemic, and macroeconomic conditions[121] - As of March 31, 2022, major shareholders including MVM Partners LLP, Bleichroeder LP, Valiance Asset Management, and Biovest NV collectively held approximately 58% of the company's ordinary shares, giving them significant control over company decisions[124] - The company has never declared or paid any cash dividends and intends to retain all available funds and future earnings for business development, thus ADS holders' investment returns will depend on share price appreciation[126] - As a Belgian company, the rights of ADS holders under Belgian company law and the company's articles of association differ from those of shareholders in US companies[128] - Future issuance of a large number of ordinary shares or ADSs could result in dilution of existing ADS holders' equity and adversely affect the ADS price[131] - The company's status as an "emerging growth company" and "foreign private issuer" provides exemptions from reduced disclosure and governance requirements, which may make ADSs less attractive to certain investors, and losing these statuses in the future could increase compliance costs[138][140] - If the company is classified as a "passive foreign investment company" (PFIC), US holders may face adverse US federal income tax consequences, including unfavorable capital gains tax rates, interest charges, and additional reporting requirements[145] - The company's dual listing on Nasdaq and Euronext Brussels results in significant legal, accounting, and compliance costs and requires substantial management time to address new compliance initiatives[152] - ADS holders may be unable to exercise their voting rights, and the transfer of ADSs and withdrawal of underlying ordinary shares may be restricted[166] - The deposit agreement may contain a jury trial waiver provision, which could lead to unfavorable litigation outcomes for plaintiffs[168] - Acquisition provisions in Belgian national law may make it difficult for the company to be acquired, thereby depriving shareholders of the opportunity to sell their shares at a premium[172] Item 4. Information on the Company - MDxHealth is a commercial-stage precision diagnostics company dedicated to providing non-invasive, clinically actionable, and cost-effective urology solutions to improve patient care[179] - The company's core products, SelectMDx and ConfirmMDx, are prostate cancer genetic testing solutions designed to enhance early detection of clinically significant prostate cancer and reduce unnecessary invasive procedures[179][182] Key Financial Data (2019-2021) | Metric | 2021 (Million USD) | 2020 (Million USD) | 2019 (Million USD) | | :--- | :--- | :--- | :--- | | Revenue | 22.2 | 18.5 | 11.8 | | Net Loss | (29.0) | (28.7) | (43.1) | | Cash Flow from Operating Activities | (22.5) | (20.2) | (22.3) | | Cash and Cash Equivalents at Period End | 58.5 | 15.9 | 22.0 | - In 2021, the US market contributed 97% of the company's total revenue, compared to 95% in 2020 and 89% in 2019, indicating its primary commercial focus in the United States[185] A. History and Development of the Company MDxHealth SA was founded in Belgium on January 10, 2003, listed on Euronext Brussels in June 2006, and rebranded as MDxHealth SA in 2010; the company has wholly-owned subsidiaries in the US and Netherlands, with its headquarters in Belgium, and from 2019 to 2021, capital expenditures and R&D costs were continuously invested, primarily in laboratory equipment, IT, and product development - MDxHealth SA was founded in Belgium on January 10, 2003, listed on Euronext Brussels in June 2006, and rebranded as MDxHealth SA in 2010[175] Capital Expenditures and R&D Costs (2019-2021) | Metric | 2021 (Million USD) | 2020 (Million USD) | 2019 (Million USD) | | :--- | :--- | :--- | :--- | | Capital Expenditures | 1.2 | 0.54 | 0.073 | | R&D Costs | 6.7 | 4.5 | 9.0 | - R&D costs primarily include personnel costs, reagents and consumables, clinical studies, external services, patent fees, laboratory equipment depreciation, facility occupancy, and information technology costs, with absolute amounts expected to increase in the future but decrease as a percentage of revenue in the long term[177] B. Business Overview MDxHealth is a commercial-stage precision diagnostics company focused on providing non-invasive, clinically actionable, and cost-effective urology solutions to improve patient care; the company's core products, SelectMDx and ConfirmMDx, are used for early detection and management of prostate cancer, with new pipeline products actively under development; the primary market is the United States, where product adoption and reimbursement are driven by a direct sales team and strategic collaborations, but the business faces intense market competition and a strict regulatory environment Overview MDxHealth is a commercial-stage company focused on precision diagnostics in urology, utilizing genetic testing solutions like SelectMDx and ConfirmMDx to help physicians accurately identify prostate cancer and reduce invasive procedures; since their commercial launch in 2012 and 2016, over 200,000 tests have been performed and included in NCCN guidelines, with the company's main market in the US, committed to sustained growth through commercial execution and operational discipline - MDxHealth provides non-invasive, clinically actionable, and cost-effective urology solutions, with its prostate cancer genetic testing solutions, SelectMDx and ConfirmMDx, designed to improve patient care[179] - Since their commercial launch in 2012 and 2016, ConfirmMDx and SelectMDx have completed over 200,000 tests in the US and are included in the NCCN guidelines for prostate cancer early detection[182] - The company's primary commercial focus is in the US, with over 95% of tests and revenue originating from the US, and its executive team and over 90% of employees located in Irvine, California, USA[183] Our Product Portfolio MDxHealth's product portfolio primarily addresses unmet clinical needs in prostate cancer diagnosis and treatment; SelectMDx is a non-invasive urine test used to help physicians decide whether to perform an initial prostate biopsy, boasting a 95% negative predictive value (NPV); ConfirmMDx is an epigenetic test used to detect occult prostate cancer after a negative biopsy, with a 96% NPV for clinically significant prostate cancer; both tests are included in NCCN and EAU guidelines and supported by extensive clinical validation studies; the company is also developing a non-invasive urine test for urinary tract infections (UTI) - Prostate cancer is the most common cancer among men in the US and the second leading cause of cancer death, with approximately 25 million PSA tests performed annually, of which over 15% show elevated PSA levels[187] - SelectMDx is a non-invasive urine test used to assess whether a patient needs an initial prostate biopsy, with a 95% negative predictive value (NPV) and a predictive accuracy (AUC) of 0.85 for high-grade prostate cancer[188][197][200] - ConfirmMDx is an epigenetic test used to detect occult prostate cancer after a negative prostate biopsy, with a 96% NPV for clinically significant prostate cancer[188][206][216] - Both SelectMDx and ConfirmMDx are included in the NCCN guidelines for early prostate cancer detection (since 2020 and 2016, respectively) and the European Association of Urology (EAU) guidelines (since 2018)[198][213] - The company is developing a non-invasive urine test to identify and quantify infectious bacteria in urinary tract infections (UTI) and their antibiotic sensitivities, with the estimated US UTI testing market approximately 2 million men annually, valued at $1 billion[219] Pipeline MDxHealth is developing AS-MDx and Monitor-MDx, two pipeline products for prostate cancer diagnosis and treatment; AS-MDx aims to risk-stratify patients with localized prostate cancer to decide between immediate intervention or active surveillance, while Monitor-MDx serves as a non-invasive alternative for monitoring patients under active surveillance to assess disease progression; these products aim to provide a comprehensive prostate cancer testing solution from early detection to treatment management - The company is developing AS-MDx and Monitor-MDx to expand its test menu across the prostate cancer diagnostic and treatment pathway[220] - AS-MDx aims to improve risk stratification for localized prostate cancer patients to help decide between active surveillance or immediate intervention, with an estimated US market of approximately 134,000 men annually, valued at $134 million[220][223] - Monitor-MDx is being developed as a non-invasive test to monitor patients under active surveillance for cancer progression, with an estimated US market of approximately 1.5 million men annually, valued at $1.5 billion[220][224] Our Competitive Strengths MDxHealth's competitive strengths include a targeted prostate cancer diagnostic and treatment test menu, strong commercial focus and market presence, commercial channel advantages leveraging existing customer relationships, compelling reimbursement strategies, robust and reliable technology, an experienced leadership team, and continuous education for physicians and patients; the company is committed to achieving sustained growth by expanding its test menu and reimbursement coverage - Provides a targeted prostate cancer diagnostic and treatment test menu, with SelectMDx and ConfirmMDx offering clear clinical pathways for urologists[189] - Possesses a strong direct sales team and commercial presence in the US, focusing on high-volume community urology centers and building long-term relationships with key physicians and practice groups[190] - ConfirmMDx test has secured Medicare MolDX LCD coverage and is included in NCCN and EAU guidelines; SelectMDx is also expected to achieve similar payer coverage[191] - Owns a proprietary intellectual property portfolio and maintains high-quality laboratory operations, including CAP-accredited, CLIA-certified, and NYSDOH-approved molecular laboratories[191] - The management team has extensive experience in medical device, diagnostics, and biotechnology sectors, with a proven track record of execution and value creation[191] - Enhances physician and patient awareness of tests through clinical studies, peer-reviewed publications, collaborations with opinion leaders, and patient education activities[191] - Plans to expand its test menu by developing new products like AS-MDx and Monitor-MDx to cover the entire prostate cancer diagnostic and treatment pathway[191] - Committed to expanding reimbursement coverage for SelectMDx and ConfirmMDx tests, leveraging Medicare LCDs and existing commercial payer contracts as a foundation to secure more major payer contracts[191] Market Opportunity Prostate cancer is the most common cancer among men in the US and the second leading cause of cancer death, with approximately 3 million men annually having elevated PSA levels and 300,000 men receiving negative biopsy results; the company's products, SelectMDx and ConfirmMDx, aim to address the insufficient sensitivity and specificity of existing diagnostic tests, with an estimated US addressable market of approximately $1.5 billion for SelectMDx and $500 million for ConfirmMDx - Prostate cancer is the most common cancer among men in the US and the second leading cause of cancer death, with over 260,000 men projected to be diagnosed with prostate cancer in 2022[192] - Approximately 25 million PSA tests are performed annually, with over 15% showing elevated PSA levels, leading to about 3 million undiagnosed men at risk for prostate cancer[193] Estimated US Addressable Market for SelectMDx and ConfirmMDx | Test | Annual Target Male Population | Average Revenue Per Test | Addressable Market (Billion USD) | | :--- | :--- | :--- | :--- | | SelectMDx | 3 million (elevated PSA) | $500 | 1.5 | | ConfirmMDx | 300,000 (negative biopsy) | $1,600 | 0.5 | Commercial Products MDxHealth's commercial products, SelectMDx and ConfirmMDx, play crucial roles in the prostate cancer diagnostic pathway; SelectMDx is a non-invasive urine test for assessing the necessity of an initial biopsy, featuring a high negative predictive value; ConfirmMDx is an epigenetic test for detecting occult cancer after a negative biopsy, offering high negative predictive value and predictive accuracy; both tests are endorsed by NCCN and EAU guidelines and supported by extensive clinical studies demonstrating their analytical, clinical validity, clinical utility, and positive health economic benefits; the company is also developing a non-invasive urine test for urinary tract infections - SelectMDx is a non-invasive urine test that measures the expression of two mRNA biomarkers, HOXC6 and DLX1, combined with clinical risk factors, to help physicians determine if a patient needs a biopsy[197] - SelectMDx demonstrated a 95% negative predictive value (NPV) and an accuracy (AUC) of 0.85 in clinical validation studies, outperforming other common biomarker tests and risk calculators[200] - ConfirmMDx is an epigenetic test that detects biomarkers (such as GSTP1, APC, and RASSF1 gene methylation) in negative biopsy tissue to help urologists identify occult prostate cancer, with a 96% NPV for clinically significant prostate cancer[206][209][216] - Clinical utility studies for ConfirmMDx show its application can significantly reduce unnecessary repeat biopsy rates (from an expected 43% to 4.4%) and lead to substantial healthcare cost savings[216][217] Laboratory Operations MDxHealth operates laboratory facilities in Irvine, California, Plano, Texas, and Nijmegen, Netherlands, for processing SelectMDx and ConfirmMDx tests and conducting R&D; the Irvine laboratory is a CAP-accredited, CLIA-certified, and NYSDOH-approved molecular laboratory with sufficient processing capacity and expansion space - The company operates laboratory facilities in Irvine, California (32,379 square feet), Nijmegen, Netherlands (7,836 square feet), and Plano, Texas (837 square feet)[228] - The Irvine laboratory is a CAP-accredited, CLIA-certified, and NYSDOH-approved molecular laboratory with sufficient processing capacity and incremental expansion space[228] Sales and Marketing MDxHealth's sales and marketing strategy focuses on promoting ConfirmMDx and SelectMDx tests through their clinical and economic benefits, supported by peer-reviewed literature; the sales team, comprising molecular diagnostics specialists, reimbursement account managers, clinical liaisons, and customer service personnel, primarily aims to increase market awareness and adoption by educating urologists and their clinical staff, building relationships with key opinion leaders, supporting clinical research, and participating in industry trade shows and advertising campaigns - The sales approach focuses on the clinical and economic benefits of ConfirmMDx and SelectMDx tests, supported by peer-reviewed literature[229] - The sales team includes molecular diagnostics specialists, reimbursement account managers, clinical liaisons, and customer service personnel, primarily selling through direct sales representatives, strategic account managers, and regional sales managers[230] - Collaborates with large community group practices and academic urologists to educate them on the clinical and economic benefits of ConfirmMDx and SelectMDx[231] - Cultivates and strengthens relationships with key opinion leaders in the urology field[231] - Supports ongoing collaborations with leading universities and research institutions that have generated clinical validation data for ConfirmMDx and SelectMDx[231] - Encourages continuous exploration and research into expanded indications for tests[231] Reimbursement MDxHealth's commercial success depends on coverage and adequate reimbursement for its tests from government and private payers; ConfirmMDx has received a positive local coverage determination (LCD) from the Medicare MolDX program, but Medicare coverage and reimbursement for SelectMDx are still awaiting a final decision; the company actively collaborates with commercial payers to secure coverage and reimbursement policies and contracts, and appeals denied claims; in the absence of payer policies or contracts, the company seeks third-party reimbursement on a case-by-case basis - The ConfirmMDx test received a positive local coverage determination (LCD) from the Medicare MolDX program in 2014, providing coverage and reimbursement for Medicare patients across the US[234] - The SelectMDx test currently lacks Medicare coverage and reimbursement, but the MolDX program issued a preliminary draft LCD supporting its clinical utility in May 2021, which, if finalized, would support nationwide Medicare coverage for SelectMDx[235] - The company actively collaborates with commercial payers to secure coverage and reimbursement policies and contracts for ConfirmMDx and SelectMDx, leveraging Medicare LCDs and existing commercial contracts as a foundation[236] Materials Needed for Our Laboratory Services MDxHealth's ConfirmMDx and SelectMDx testing services rely on various custom components and third-party services, many of which come from a limited number of suppliers, with some being single-source; the company primarily procures equipment and materials through purchase orders, and contracts typically do not include long-term supply commitments from vendors; supply chain disruptions could lead to service delays and hinder commercialization activities - Most items and services required for ConfirmMDx and SelectMDx testing services come from multiple suppliers, but certain consumables and reagents are sourced from a limited number of suppliers, some of which are single-source[239] - The company primarily procures equipment and materials through purchase orders and typically does not have contracts with suppliers and manufacturers that commit to supply[239] Competition The molecular diagnostics industry is highly competitive, characterized by rapid technological changes and increasing market consolidation; MDxHealth faces competition from rivals with greater resources and market penetration, such as OPKO Health (4Kscore), ExosomeDx (ExoDx), and Beckman Coulter (phi score), whose products may offer advantages in price, FDA approval status, or sample collection convenience; additionally, diagnostic imaging technologies like multiparametric MRI (mpMRI) also pose competition, as physicians may prefer visual analysis or have financial incentives to use such procedures - The molecular diagnostics sector is highly competitive, with rapid technological changes and increasing market consolidation, where large clinical laboratory service providers benefit from cost efficiencies and higher service levels[241] - SelectMDx faces direct competition from OPKO Health's 4Kscore test, ExosomeDx's ExoDx (Intelliscore), and Beckman Coulter's Prostate Health Index (phi score)[243] - ConfirmMDx also faces competition from 4Kscore and ExoDx, which may have price advantages, and Hologic's PCA-3 test, which has FDA approval, could be considered a competitive advantage[244] - Competitors often possess greater financial, sales, logistics, and laboratory resources, as well as stronger market penetration and marketing budgets[245] - Multiparametric MRI (mpMRI), as a clinical diagnostic imaging procedure, also competes with ConfirmMDx and SelectMDx, as some physicians may prefer visual analysis or have financial incentives to use mpMRI[245] Intellectual Property MDxHealth's intellectual property protection is crucial for its business operations, and the company safeguards its technology through patents, copyrights, trademarks, confidentiality agreements, and trade secrets; as of December 31, 2021, the company owned or exclusively licensed over 22 patent families, comprising 116 granted or pending patent applications; key patents for ConfirmMDx and SelectMDx tests are set to expire in 2022, 2024, and 2036, respectively; the company believes that even with patent expirations, its unpatented proprietary technology and clinical performance data still constitute a competitive barrier - The company protects its intellectual property through US and foreign patents, patent applications, copyrights, trademarks, confidentiality agreements, material transfer agreements, licenses, and consulting agreements[247] - As of December 31, 2021, the company owned or exclusively licensed over 22 patent families related to molecular technologies and cancer-specific biomarkers, totaling 116 granted or pending patent applications[249] - Two US patents used for the ConfirmMDx test are set to expire in November 2022 and 2024, respectively, while one patent used for the SelectMDx test expires in 2036[249] Collaboration and License Agreements MDxHealth has entered into collaborative research and clinical study agreements with universities, medical centers, and external researchers to validate its technologies and products; the company has also secured intellectual property used in the ConfirmMDx test through exclusive license agreements with institutions like Johns Hopkins University; additionally, the company has established marketing and sales collaborations with commercial entities such as LabCorp, Inform Diagnostics, and Poplar Healthcare to expand product reach and market awareness - The company has entered into collaborative research and clinical study agreements with universities, medical centers, and external researchers to validate its technologies and products, with these agreements typically lasting one to three years[253] - The company has an amended and restated exclusive license agreement with Johns Hopkins University, granting it intellectual property rights used in the ConfirmMDx test, subject to mid-single-digit net sales royalties[255] - The company has established marketing and sales collaborations with commercial entities such as LabCorp, Inform Diagnostics, and Poplar Healthcare to expand the geographic reach and market awareness of ConfirmMDx and SelectMDx tests[256] Government Regulations MDxHealth's operations are strictly regulated by US federal, state, and international healthcare laws and regulations, including CLIA, HIPAA, anti-fraud and abuse laws, anti-kickback laws, the Stark Law, and patient privacy laws; non-compliance with these regulations could lead to severe sanctions such as fines, exclusion from healthcare programs, or criminal prosecution; the FDA's regulatory stance on Laboratory Developed Tests (LDTs) is uncertain, and future requirements may necessitate market approval for the company's tests; additionally, the company must comply with the Sunshine Act, international anti-corruption laws (such as FCPA), and regulations concerning occupational safety and health and specimen transportation - The company's business is regulated by CMS under CLIA, as well as state laws and regulations (including California and New York), and must comply with federal, state, and international laws regarding anti-fraud and abuse, anti-kickback, and patient privacy[257] - HIPAA and its amendments, HITECH, impose comprehensive federal standards for the privacy and security of health information, which the company, as a covered entity, must comply with, and violations can result in civil and criminal penalties[261] - The FDA's regulatory authority over Laboratory Developed Tests (LDTs) is contentious, and future requirements may mandate premarket review or approval for the company's tests, increasing costs and delays[263][265] - The federal False Claims Act imposes severe penalties for submitting false claims or retaining overpayments to government programs[271] - The federal Anti-Kickback Statute and Stark Law prohibit offering or accepting remuneration to induce referrals or services reimbursable by federal healthcare programs, with violations potentially leading to civil and criminal penalties[276][278] - The Eliminating Kickbacks in Recovery Act (EKRA) is an all-payer anti-kickback statute whose broad language could impact laboratory services[282] - The Sunshine Act requires reporting payments or transfers of value to healthcare providers and teaching hospitals to CMS[283] - When marketing tests internationally, the company must comply with foreign regulatory requirements in each country regarding clinical trials, product marketing approvals, and test execution, including the EU's CE mark and the In Vitro Diagnostic Medical Device Regulation (IVDR)[287] - The company must also comply with Occupational Safety and Health Administration (OSHA) laboratory safety requirements and Department of Transportation, US Postal Service, and Centers for Disease Control and Prevention regulations regarding the transportation of clinical laboratory specimens[288] C. Organizational Structure MDxHealth SA is a Belgian limited liability company whose organizational structure includes two wholly-owned direct subsidiaries: MDxHealth Inc. (Delaware, USA) and MDxHealth B.V. (Netherlands), with the latter owning two wholly-owned subsidiaries, MDxHealth Servicelab BV and MDxHealth Research BV - MDxHealth SA is a limited liability company in Belgium[289] MDxHealth SA Organizational Structure (as of December 31, 2021) | Subsidiary Name | Jurisdiction of Incorporation | MDxHealth SA Ownership Percentage | | :--- | :--- | :--- | | MDxHealth Inc | Delaware | 100% (Directly Held) | | MDxHealth BV | Netherlands | 100% (Directly Held) | | MDxHealth Servicelab BV | Netherlands | 100% (Held via MDxHealth BV) | | MDxHealth Research BV | Netherlands | 100% (Held via MDxHealth BV) | D. Property, Plant and Equipment MDxHealth maintains laboratory and office facilities in Irvine, California, Plano, Texas, and Nijmegen, Netherlands; the Irvine facility, spanning 32,379 square feet, is leased until 2026 and holds CLIA and CAP certifications; the Nijmegen facility, covering 7,836 square feet, is leased until 2027; the company believes its current facilities are sufficient for near-term needs and can acquire additional space on commercially reasonable terms in the future - The company's US headquarters and laboratory facility in Irvine, California, span 32,379 square feet, are leased until 2026, and hold CLIA and CAP certifications[291] - The company maintains a 7,836 square foot laboratory and office facility in Nijmegen, Netherlands, leased until 2027[292] - The company also operates a small CLIA-certified laboratory facility in Plano, Texas[291] Item 4a. Unresolved Staff Comments This section is not applicable Item 5. Operating and Financial Review and Prospects This section provides a detailed review of MDxHealth's operating and financial condition, including the company's continuous losses since inception, primary capital sources, revenue composition, cost structure, operating expenses, liquidity and capital resources, R&D investments, market trends, and critical accounting estimates; the company's main revenue derives from ConfirmMDx and SelectMDx testing services, and it faces challenges such as the COVID-19 pandemic, reimbursement uncertainties, and market competition - The company has incurred continuous losses since its inception in 2003, with accumulated losses of $244.3 million as of December 31, 2021, a net loss of $29 million in 2021, and cash outflows from operating activities of $22.5 million[298] - The company's primary capital sources include public offerings of ordinary shares and American Depositary Receipts, private placements, debt financing agreements, and product sales revenue, having raised approximately $340 million in equity financing since inception[298] Key Financial Data (2019-2021) | Metric | 2021 (Million USD) | 2020 (Million USD) | 2019 (Million USD) | | :--- | :--- | :--- | :--- | | Revenue | 22.2 | 18.5 | 11.8 | | Net Loss | (29.0) | (28.7) | (43.1) | | Cash Flow from Operating Activities | (22.5) | (20.2) | (22.3) | | Cash and Cash Equivalents at Period End | 58.5 | 15.9 | 22.0 | Overview MDxHealth is a commercial-stage precision diagnostics company focused on providing urology solutions; the company has incurred continuous losses since its inception, with accumulated losses of $244.3 million as of year-end 2021, a net loss of $29 million, and cash outflows from operating activities of $22.5 million; the company primarily obtains funding through equity issuance, debt financing, and product sales, and while it anticipates continued losses and significant cash outflows over the next 12 months, management believes existing cash and expected cash flows are sufficient to support operations - The company has incurred continuous losses since its inception in 2003, with accumulated losses of $244.3 million as of December 31, 2021, a net loss of $29 million in 2021, and cash outflows from operating activities of $22.5 million[298] - The company's primary capital sources include equity issuance, debt financing, and product sales revenue, having raised approximately $340 million in equity financing since inception[298] - Management expects the company to continue incurring losses and significant cash outflows for at least the next 12 months but believes, based on current business plans, that existing cash and expected cash flows are sufficient to support ongoing operations[299] Financial Operations Overview MDxHealth's revenue primarily stems from laboratory services for ConfirmMDx and SelectMDx tests, with revenue recognized upon transfer of service control (typically test result delivery); Medicare provides fixed-price reimbursement for ConfirmMDx, while other commercial insurers estimate revenue based on historical collection data; costs include materials, labor, shipping, and overhead; gross margin is influenced by average selling price and order volume; R&D expenses, sales and marketing expenses, and general and administrative expenses are expensed as incurred, with R&D and G&A expenses expected to increase in absolute terms but decrease as a percentage of revenue long-term; other operating income/expenses include government grants and fair value adjustments for contingent consideration, while finance income/expenses primarily comprise interest and foreign exchange gains/losses - Most of the company's revenue is derived from laboratory services for ConfirmMDx and SelectMDx tests, with revenue recognized when control of the service is transferred, typically upon delivery of test results[300] - Medicare reimbursement for ConfirmMDx is determined by a fixed price, while other commercial insurers estimate revenue based on historical collection data, or recognize revenue on a cash basis if data is insufficient[301][302] - Cost of sales includes materials, labor, shipping, collection kits, and allocated overhead, irrespective of revenue recognition timing[304] - Gross margin is influenced by average selling price and order volume and is expected to increase in the future with revenue growth and higher average selling prices[305] - Research and development expenses include personnel, reagents, clinical studies, external services, patent fees, and more, with absolute amounts expected to increase but decrease as a percentage of revenue in the long term[306][307] - Sales and marketing expenses include costs for the sales organization, medical affairs, customer service, and marketing, with absolute amounts expected to increase but decrease as a percentage of revenue in the long term[308][309] - General and administrative expenses include costs for executives, accounting, legal, IT, and human resources, with absolute amounts expected to increase, particularly due to IPO-related costs[310][311] - Other operating income/expenses include government grants, fair value adjustments for loan facilities, and revaluation of contingent consideration[313] - Finance income/expenses primarily include interest income on deposits, interest expense on Kreos Capital long-term debt, and foreign exchange gains/losses[314][315] A. Operating results MDxHealth's operating results show a 20% year-over-year revenue increase to $22.2 million in 2021, driven by higher test volumes and average selling prices, with ConfirmMDx still accounting for 91% of total revenue; gross margin improved from 43.6% in 2020 to 47.5% in 2021; R&D expenses increased by 47% due to pipeline investments, sales and marketing expenses by 6%, and general and administrative expenses by 1% due to IPO-related professional fees; 2020 revenue grew by 57%, primarily offsetting the negative impact of 2019 accounting estimate adjustments, though COVID-19 led to decreased test volumes; 2020 R&D expenses decreased by 50% due to intangible asset impairment losses, sales and marketing expenses by 6% due to pandemic travel restrictions, and general and administrative expenses by 8% due to professional fees and patent fee reclassification Operating Results Comparison (2021 vs 2020) | Metric (Thousand USD) | 2021 | 2020 | Change Amount | Change Rate (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 22,239 | 18,460 | 3,779 | 20 | | Cost of Sales | (11,675) | (10,416) | 1,259 | 12 | | Gross Profit | 10,564 | 8,044 | 2,520 | 31 | | R&D Expenses | (6,673) | (4,543) | (2,130) | 47 | | Sales and Marketing Expenses | (17,744) | (16,752) | (992) | 6 | | General and Administrative Expenses | (14,149) | (13,990) | (159) | 1 | | Other Operating Income, Net | 1,161 | 118 | 1,043 | 884 | | Operating Loss | (26,841) | (27,123) | 282 | (1) | | Finance Income | 11 | 4 | 7 | 175 | | Finance Expenses | (2,172) | (1,543) | (629) | 41 | | Loss Before Tax | (29,002) | (28,662) | (340) | 1 | | Loss for the Year | (29,002) | (28,662) | (340) | 1 | | Basic and Diluted Loss Per Share | (0.24) | (0.34) | 0.1 | (29) | - 2021 revenue increased by 20%, primarily due to higher test volumes and average selling prices; ConfirmMDx accounted for 91% of total revenue[318][319] - 2021 gross margin improved from 43.6% in 2020 to 47.5%, mainly driven by higher average selling prices[320] Operating Results Comparison (2020 vs 2019) | Metric (Thousand USD) | 2020 | 2019 | Change Amount | Change Rate (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | 18,460 | 11,785 | 6,675 | 57 | | Cost of Sales | (10,416) | (11,755) | 1,339 | (11) | | Gross Profit | 8,044 | 30 | 8,014 | >1000 | | R&D Expenses | (4,543) | (8,997) | 4,454 | (50) | | Sales and Marketing Expenses | (16,752) | (17,809) | 1,057 | (6) | | General and Administrative Expenses | (13,990) | (15,196) | 1,206 | (8) | | Other Operating Income (Expenses), Net | 118 | (1,197) | 1,315 | (110) | | Operating Loss | (27,123) | (43,169) | 16,046 | (37) | | Finance Income | 4 | 10 | (6) | (60) | | Finance Expenses | (1,543) | (516) | (1,027) | 199 | | Loss Before Tax | (28,662) | (43,675) | 15,013 | (34) | | Loss for the Year | (28,662) | (43,100) | 14,438 | (33) | | Basic and Diluted Loss Per Share | (0.34) | (0.69) | 0.35 | (51) | - 2020 revenue increased by 57%, primarily due to the offset of a $10.1 million negative impact from 2019 accounting estimate adjustments, but the COVID-19 pandemic led to a 18% and 39% decrease in ConfirmMDx and SelectMDx test volumes, respectively[328] - 2020 R&D expenses decreased by 50%, mainly due to a $5.1 million intangible asset impairment loss in 2019 and the reclassification of patent fees from G&A to R&D[332][333] B. Liquidity and Capital Resources MDxHealth has incurred continuous losses since its inception, primarily funding operations through equity issuance and debt financing; as of December 31, 2021, the company held $58.5 million in cash and cash equivalents, along with a €9 million (approximately $10.2 million) Kreos Capital senior secured loan and a $2.3 million PPP loan; the company anticipates existing cash and expected cash flows will meet funding needs for the next 12 months, but may require additional financing to support business expansion and new product development; cash outflows from operating activities increased to $22.5 million in 2021, mainly due to negative changes in working capital - As of December 31, 2021, the company held $58.5 million in cash and cash equivalents and had accumulated losses of $244.3 million[339] - The company primarily obtains funding through equity issuance (approximately $350 million) and long-term debt financing[339] - In September 2019, the company entered into a €9 million (approximately $10.2 million) senior secured loan agreement with Kreos Capital, which has been amended multiple times to extend the interest-only period until July 2022, with the loan maturing in October 2023[342] - In April 2020, the company secured a $2.3 million loan through the PPP program at an annual interest rate of 1.0%, with a five-year repayment term and deferred payments for the first 18 months[343] - The company expects existing cash and anticipated cash flows to meet funding needs for at least the next 12 months but may require additional equity or debt financing to support business expansion and new product development[344] - Cash outflows from operating activities increased to $22.5 million in 2021, up from $20.2 million in 2020, primarily due to negative changes in working capital[345][349] - Cash inflows from financing activities totaled $66.5 million in 2021, mainly from a €25 million ($30.4 million) private equity financing and a $45 million US ADS initial public offering[351] C. Research and development, patents and licenses MDxHealth continuously invested in research and development from 2019 to 2021, with R&D expenses of $9 million, $4.5 million, and $6.7 million, respectively; R&D activities primarily focus on product development and technology validation, with further discussion available in "Item 4.B Business Overview" and "Item 5.A. Operating results" R&D Expenses (2019-2021) | Year | R&D Expenses (Million USD) | | :--- | :--- | | 2021 | 6.7 | | 2020 | 4.5 | | 2019 | 9.0 | D. Trend information MDxHealth's business trends are continuously affected by the COVID-19 pandemic, leading to decreased test volumes, though laboratory operations and R&D activities remain uninterrupted; the company's revenue growth depends on attracting new physicians and increasing penetration among existing ones; third-party payer reimbursement for genetic testing, particularly Medicare coverage for SelectMDx, remains uncertain; the company plans to expand its test menu by developing new prostate cancer management tests to address unmet clinical needs, which will increase R&D investment - The COVID-19 pandemic continues to impact company operations, leading to a 18% and 39% decrease in ConfirmMDx and SelectMDx test volumes in 2020, respectively, and remaining 16% and 37% lower in 2021 compared to 2019[360] - The company's revenue growth depends on attracting new physicians, increasing penetration among existing physician clients, and increasing the number of tests ordered by physicians on an ongoing basis[361] - Medicare coverage and reimbursement for SelectMDx remain uncertain, despite the MolDX program having issued a preliminary draft LCD[364] - The company plans to expand its test menu by developing new prostate cancer management tests (such as AS-MDx and Monitor-MDx) to address unmet clinical needs, which is expected to increase R&D expenses[367] E. Critical Accounting Estimates MDxHealth's critical accounting estimates include revenue recognition (based on historical collection data and probability of future collection), deferred income taxes (based on availability of future taxable profits), asset impairment testing (based on cash flows and weighted average cost of capital), share-based payments (fair value estimated using the Black-Scholes model), and going concern assumption and financial liabilities (fair value of contingent consideration and derivative financial liabilities); these estimates involve significant management judgment and assumptions, which may differ from actual results - Revenue Recognition: Under IFRS 15, revenue is recognized to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur in the future, primarily relying on historical collection data to estimate future collections[647][648] - Deferred Income Taxes: Estimates are made for unused tax credits and tax losses based on the availability of future taxable profits; as of December 31, 2021, the company had not recognized deferred tax assets[649] - Asset Impairment Testing: Intangible and tangible assets are regularly assessed for impairment indicators, and recoverable amounts are estimated based on the higher of fair value less costs to dispose and value in use[650] - Share-Based Payments: The fair value of share-based payments is estimated using the Black-Scholes option valuation model, considering dividend yield, expected volatility, risk-free interest rate, and expected term[651] - Going Concern: Management is required to make significant judgments regarding the company's ability to continue operations with sufficient liquidity for the next 12 months[652] - Financial Liabilities: Contingent consideration and derivative financial liabilities are measured at fair value, with valuations based on risk-adjusted future cash flows and probability estimates for different scenarios[653] Item 6. Directors, Senior Management and Employees This section details MDxHealth's board members, senior management, and their compensation structures, including fixed remuneration, bonuses, and equity incentives; the board comprises independent and non-independent directors and has an Audit Committee and a Nomination and Remuneration Committee; the company also discloses total employee count, human capital objectives, and equity holdings of directors and executives - As of December 31, 2021, the company's board of directors consisted of 9 members, with 5 identified as independent directors[370][373] - The company's executive management team includes CEO Michael K. McGarrity, Chief Commercial Officer John Bellano, Chief Financial Officer Ron Kalfus, and Executive Vice President of Corporate Development and General Counsel Joseph Sollee[384][385] - The company's compensation policy is based on performance and a sense of ownership, aiming to incentivize directors and executives through performance rewards to enhance shareholder value[390] - As of December 31, 2021, the company had a total of 191 employees, with 187 full-time, 177 in the US, and 14 in Europe[448] A. Directors and Senior Management MDxHealth's board of directors consists of 9 members, with 5 independent non-executive directors serving terms until 2023 or 2024; the executive team includes CEO Michael K. McGarrity, Chief Commercial Officer John Bellano, Chief Financial Officer Ron Kalfus, and Executive Vice President of Corporate Development and General Counsel Joseph Sollee; there are no family relationships among directors and executives Board of Directors (as of December 31, 2021) | Name | Age | Position | Term | | :--- | :--- | :--- | :--- | | Koen Hoffman | 53 | Independent Non-Executive Director (Chairman of the Board) | Until 2024 | | Michael K. McGarrity | 59 | Executive Director (Chief Executive Officer) | Until 2023 | | Rudi Mariën | 76 | Non-Executive Director | Until 2024 | | Jan Pensaert | 50 | Non-Executive Director | Until 2024 | | Lieve Verplancke | 62 | Independent Non-Executive Director | Until 2024 | | Hilde Windels | 56 | Independent Non-Executive Director | Until 2023 | | Regine Slagmulder | 55 | Independent Non-Executive Director | Until 2023 | | Eric Bednarski | 50 | Non-Executive Director | Until 2023 | | Donnie (Don) M. Hardison | 71 | Independent Non-Executive Director | Until 2023 | Executive Management Team (as of December 31, 2021) | Name | Age | Position | | :--- | :--- | :