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NantHealth Slows Cash Burn While Still Trying to Solve 'Reimbursement Conundrum'


CHICAGO – With its report Thursday that it lost $192.2 million in 2018 — 10 percent more than its $175.2 million net loss in 2017 — NantHealth continues to be a company in difficult financial waters.

Indeed, the Culver City, California-based molecular diagnostics and health IT arm of Patrick Soon-Shiong's NantWorks business empire remains on a Wall Street probation of sorts.

On Jan. 18, NantHealth received a delisting notice from the Nasdaq Stock Market because its stock price has been below $1 for at least 30 consecutive business days. The firm has until July 15 to get its closing stock price to at least $1 for 10 consecutive business days to avoid delisting. Despite a rally earlier this month, shares have closed below that threshold every day since March 22.

NantHealth did slow its cash burn in the 2018 fourth quarter, ending the year with $18.3 million in cash and equivalents. That means the company used up $4.5 million in liquidity in Q4 compared to $6 million in Q3. NantHealth spent more than $38.8 million in cash and equivalents in the first half of last year.

Company officials said Thursday during a conference call with analysts and reporters that they have not had to draw on the $100 million line of credit offered last year by sister company NantCapital, the investment vehicle of CEO Soon-Shiong. Chief Operating Officer Ron Louks said that there is enough cash on hand to get through the first half of 2019 and that the company would "reassess" its financial position in the third quarter to determine whether it needs to tap that financing.

The firm's Q4 revenues rose nearly 3 percent to $22.9 million from $22.3 million a year earlier. For the full year, NantHealth posted $89.5 million in revenues, up 3 percent from $86.7 million in 2017. The firm also trimmed its R&D and SG&A expenditures during the quarter and the full year.

"We made excellent progress in 2018. We anticipate an even better 2019," Louks said in a prepared statement he read during the conference call.

Meanwhile, Soon-Shiong continued to talk about the "reimbursement conundrum" that has kept NantHealth from reaching profitability.

Petrou said that reimbursement has "not grown or increased on the commercial side" for the company's flagship GPS Cancer whole-genome and transcriptome sequencing test or for Liquid GPS, a liquid biopsy test introduced in March 2018. Soon-Shiong refers to these two tests as the "omics core" of NantHealth.

While overall revenue from sequencing and molecular testing grew during Q4, the increase was due to both the timing of payment collections and a shift in product mix, according to CFO Bob Petrou.

"A significant portion of Liquid GPS revenue was from our subscription-based pricing model for services delivered to Nant-affiliated sponsors, clinical trials, which has continued to grow since the beginning of [this] year," he said.

NantHealth said that it recently expanded an existing employer reimbursement contract with the Northwest Firefighters Benefits Trust, which serves firefighters in six states, to include Liquid GPS coverage. The company also signed a new contract for both GPS Cancer and Liquid GPS with an undisclosed municipal fire and police employee trust.

Still, Soon-Shiong lamented the lack of reimbursement from both Medicare and commercial insurers. That likely will not change until the firm gains US Food and Drug Administration clearance for its molecular tests, which could potentially sway the Centers for Medicare and Medicaid Services to offer Medicare coverage for GPS Cancer and Liquid GPS.

"Until we get this reimbursement conundrum sorted out, [there is] always going to be this struggle," Soon-Shiong said.

NantHealth is trying a new tack with the FDA, seeking clearance on the fast-track Class II regulatory pathway, similar to the 510(k) pathway, predicated on Memorial Sloan Kettering Cancer Center's MSK-IMPACT next-generation sequencing assay.

The issue, according to Soon-Shiong, is that NantHealth sequences all 19,396 genes in the human exome, including all the oncogenes and tumor suppressors. MSK-IMPACT uses a panel of 468 genes.

"We still feel it's so important for us to record and test all 19,000 genes because that data is so valuable to the patient, but we will report on the 468 genes in that [panel] from which Sloan Kettering has received approval and obviously reimbursement," Soon-Shiong said. "We are hopeful that the reimbursement conundrum will at least be partly solved, even though the 468 genes which we will report on we still feel is inferior to having 19,000 genes known."

He said that the NantHealth "omics core" also differs from MSK-IMPACT because it offers information about tumor mutational burden. "The tumor mutational burden is so important as it relates to today's concept of immunotherapy," Soon-Shiong said.

NantHealth submitted a 468-gene panel protocol to the FDA on this fast-track pathway during Q1 in hopes of convincing Medicare to pay for at least a portion of the Cancer GPS test.

Soon-Shiong also noted that NantHealth is working out a new policy about giving out GPS tests without reimbursements. "We will have to have this internal discussion now in light of [the unpredictability] of the timing perspective of the approval status," he said.