Yet Another Value Podcast - Randy Baron discusses Renalytix $RNLX

Episode Date: October 14, 2021

Randy Baron, one of the most popular YAVP guests, returns to discuss his investment thesis on Renalytix (RNLX). Randy sees similarities between RNLX and EXAS, which was a controversial stock that has rocketed over the last few years as the company's diagnostic product gained momentum. While not without risk, Randy thinks RNLX could be even bigger if successful as they are attacking the much larger Chronic Kidney Disease (CKD) market, and he discusses all of the signs he sees that the company is about to inflect.Randy's first appearance on Amyris (AMRS): https://www.youtube.com/watch?v=zCKxUHfCoQQ&t=1sChapters0:00 Intro1:20 RNLX overview8:55 Where does RNLX fall into CKD?14:00 Why now is the time for RNLX in CKD20:40 How RNLX can operate even without MICT24:30 More on RNLX and Medicare25:30 When will RNLX get FDA approval?33:40 What if RNLX doesn't get FDA approval?37:30 RNLX's CEO and founder, James McCullough43:40 Why is RNLX so under the radar?46:40 Comping RNLX to Theranos50:00 Randy's closing thoughts

all right hello and welcome to yet another value podcast i'm your host andrew walker and with me today i'm happy to have my friend randy barren this is uh randy's second appearance he's a portfolio manager at pinnacle associates and perhaps most importantly he is the most popular youtube uh his first podcast was the most popular yet another value podcast appearance so super excited to have him back on for a second trip randy how's it going good andrew thank you for having me back as always this is a fun conversation doing kind of what you and I love, which is talking stocks. Well, hey, you know we could do this all day because we were talking for about 20 minutes before this. But let me start this podcast the way I do every podcast. First, a quick disclaimer.

Remind everyone, nothing on this podcast is investing advice. We're going to talk a super interesting potential growth story here, but it is pre-revenue, pre-FBA approval. That could change in the near future. But, you know, all of that carries absolutely heightened risk. So everybody should remember nothing in best advice. Second, a pitch for you, my guess, people can go live. listen to the first podcast for the full pitch, but you are the most popular guest. I think you're a super sharp investor. Love swapping thoughts, love talking to you. So I'm just really excited for this podcast. So all that out the way, I'm just going to flip it over to you. The stock we're talking about today is Renalytics. The ticker is R&LX, and I'll toss it to you. Why are we so

interested in Renalytics? Well, there's a couple of things. And even before we get there, I think the official name is Rinalytics AI, PLC. And the PLC will come back to in a minute because originally this was a UK-listed company. So the things that we're buying on the NASDAQ on R&LX are actually ADRs with each American depository receipt representing two underlying shares. So just to frame kind of the opportunity today, 37.8 million ADRs at $21. Today we're recording middle of the week in October, $800 million market cap and about $80 million of cash on the balance sheet, just to frame the opportunity. And like you said, pre-revenue or the minimis revenue, but at that moment where we're about to scale up. You mentioned our successful podcast, Amherst, which was a lot of fun to do, and certainly.

at some future venture, we could come back and talk about Ginko and Zimurgin and all the blowups that we talked about on your podcast before it happened. You know, if I could just jump in, Zimmergen, you know, that blew up, stock down 70 percent, CO fired, lots of crazy stuff going on there. Ginko, there was a short report. The stock's been very volatile. I don't know if I agree with the short report, but there are real red flags there. And every time I read this, you and I would text and I say, Randy mentioned all these red flags when he was talking about Amaris. So I've just always been really impressed with how you kind of, I give that to frame the opportunity, which is, for me, Amaris remains the generational play, right? It's, it is one of the largest

positions in my book. It is something that, like I've said on the podcast, this is you put your kids into. However, the short-term play that is an equal size in my book to Amaris is Rinalytics because I think this is a stock that's the next exact sciences. EXAS is a 16 billion dollar market Cap Company that does Coligard will get into kind of why that's a comparable. But there's a lot of people that kind of missed it. A lot of people that made money, EXAS. This is the next thing that while today worth $800 million at the end of our podcast, when I lay out some numbers for you, I'm going to make a thesis that it's worth at least

$3 to $5 billion in 12 to 18 months. I mean, a pretty truncated timeframe. There's a bunch of catalyst coming to $20 stock today. if that were to play out, $3 billion plus, you're talking, you know, a 4X from here. So I'm here to tell your audience that we're on the cusp of a revolution. And, you know, while the revolution will not be televised to use an old song from the 70s, apparently it's going to be podcasts. We're going to make people aware of it.

And the revolution is essentially that if as a society, we are going to be able to afford social health care, we need to impact chronic health care. And the largest chronic health care weight on the system today is what is known as CKD or chronic kidney disease. Just to frame kind of the opportunity, there's 850 million people in the world with kidney disease, less than 5% of that's in the U.S. About 37 million people in the U.S. have chronic kidney disease of various stages. 100,000 Americans a year get added onto hemodialysis or dialysis as is more commonly known. And the lifespan once you're on dialysis is pretty short, under five years.

The kind of best known companies in the space, Presenius and DeVita, these are an aggregate, 30 billion a market cap. They're dealing with end-of-life stuff. They don't phrase it that way, but my argument is that if you're on dialysis, you're not in the dawn of your years, right? And then there's this huge Grand Canyon that on the other side of the Grand Canyon is where we're talking about renaletics today. It's the only disruptive diagnostic company in the space. And the reason that I say diagnostic kind of matters is if you're going to treat chronic healthcare issues, we need to kind of take some of almost that cancer model, precision medicine, and essentially catch things early. So the shocking thing on kidney disease is you can have 80% loss

of kidney function before you realize that you have kidney disease. And essentially, you go to the ER, you have back pain, and you collapse, and they say, oh, you've got stage three kidney disease. We're going to put you on dialysis before you go to stage four, and here we go. that's such an issue is that for the right reasons, and this goes back to the Jill Scott Heron song I mentioned, in 72, President Nixon signed a bill that allowed essentially the socialization of dialysis. We weren't going to discriminate. Anyone that needed it could get it. But if you kind of take a snapshot of the Woodstock era, like look at pictures of Woodstock. Everyone was, you know, as fit as you, Andrew, like they were skinny, they weren't, right? And then I think

McDonald's french fries were an inch at that point fast forward 50 some odd years the supersized meat culture is here such that by 2030 a third of Americans are predicted to be clinically obese that is 100 pounds overweight right so between obesity and diabetes the use of dialysis has skyrocketed and the argument that we're talking about today is dialysis should not be a frontline tool why this matters, and then I'll kind of shut up and let you ask a question, is that 20% of Medicare's budget goes towards dialysis treatment. If people say, well, how is that possible? Well, think about it.

Dialysis is essentially, you hook up to a machine, you flush your kidneys out in three or four hours. You may do it two or three times a week. If you're doing a week's worth of kidney function cleaning, you can't drive. So Medicare pays for you to be driven to the center, pays for your treatment, pays for, by the way, at DeVita, for Xenius, like at their centers, um, paste you'd be driven home.

And because you don't really catch kidney disease until it's later in life, um, it tends to be the more expensive part. The other kind of surprising framework to put here, and this is what Renolytics is targeting is this is a primary care position front line offense. In other words, there's 210,000 primary care positions in America, um,

less than 15. I mean, call it 30,000, 35,000 actually are actively using albumin and creatin to say you have kidney problems. We're going to catch it early. I'm not saying the nephrologist who are specialists. I'm saying the normal PCP primary care physician is failing at catching this. And the example you and I anecdot that can use is when you go get your physical and you get your blood work done, typically I would imagine if a doctor to see something on the kidney side, they would say, oh, it's a little elevated. Let's track it. The problem with kidney is that this is a silent, lurking thing that needs to be addressed. You know, it's scary. Just as we're talking about it, I'm feeling pain in my side. I'm like,

oh, no, do I have kidney problems? It brings out the hypochondriac in you. But that was a great overview. You know, again, I did work on, I read the last couple transcripts, did some work on it, but it's a tough story to get into. So I just want to back up a second, make sure I'm thinking about this correctly. Chronic kidney disease generally associated with diabetes, smoking, obesity, lots of common health problems. When you get it, I mean, it is bad stuff. What renalytics does is, right now, and this is a common problem with all of Medicare, they will pay for, they will pay to treat your disease, but they kind of don't pay for the preventative and the diagnostic stuff and stuff. And what renalytics is going to do is they've actually got their own labs. If my doctor

noticed something with my kidney, I mean, I think the end game for renalytics is probably, they're hoping every person in the world when they go to their primary physician, they're going to take the blood sample, give it to them. Renolytics analyze the blood sample and says, hey, there's some early signs of kidney disease. You might have, I could be making these numbers up. You know, at stage three, you might get dialysis. Renalics might say, you have stage one. Your kidneys are starting to feel. But if we can, we can intervene early. And by doing that, we can stop the kidneys from shutting down. I believe they actually say, if you intervene early, you can keep your kidneys working. We'll stop it, we'll avoid dialysis, you're going to have a much longer, much healthier, much happier

life. And there's no one else doing that. Am I kind of thinking about that correctly? I mean, you're preaching the revolution. You got it. You're here with us. So the example I can give you just from a personal level is there was a guy at my firm Pinnacle, John Prom, who died on a dialysis machine, basically. It is no way, it is no way to go out. He was a wonderful person. And my wife, who's an acupuncturist, her whole profession, is dealing exactly what you're talking about, which is let's do preventative. Let's kind of use diagnostics and prognostics to prevent down the system. And obviously, you know, from a hospital perspective coming out of a year of COVID,

when elective surgeries fell off a cliff, right, if that's like the revenue for hospitals, or at least that's like the great, you know, if the largest two cost centers for a hospital, they're cancer center and the dialysis center. So if there's a way to save costs, I mean, this has a real claim. One of the interesting things is how attracted hospital networks are to this. And we will talk about the actual test that they do in a minute, renalytics. But like Mount Sinai, for example, about 60% of their patients are on some sort of risk plan. And what that, in layman's terms, is like con ed, right?

That's big in the city. They'll go to the utility. They'll say, listen, we will offer all of your employees health care in the Mount Sinai system. Okay. the problem with that is it gets you a lot of people in the door, but the hospital then bears the risk of if that patient has dialysis. As one example, by the way, it could be cancer, could be other things too, but just for the purposes of this conversation, we're talking just dialysis, if you can catch it early enough and you can intervene, and there's a whole

new, you know, so you can do diet, you can do modification, you can do help, you can do what's known as SGLT2 inhibitors, which are a newer class of drugs that flush out sugars in the kidney. The point is to what you were saying, if you catch it early, I can save roughly $11 to $15,000 per patient in a network like that. That's just the kind of present value of future expense would be that ain't nothing when you start adding, you know, tens of thousands of people. And so what we're talking about here today is precision medicine at the primary care physician level, however, supported entirely by the system level. The hospitals are the ones

who are pushing for this because when it comes to client relationships and whatnot, there are a couple options out there. But the private ones, cricket, for example, they come in, they keep the savings at the business side. The hospital is saying, well, we have a whole department that deals with this type of stuff. Why can't we capture those savings? So renalytics, it's really simple. They have a test. It's called Kidney Intellex. It's a blood draw, so a liquid biopsy test that takes a couple of markers that get treated at their labs, which currently are in Utah, New York. Yep. And the actual blood work that's done simultaneously in the cloud, this is the AI part. The electronic health record is kind of pulled from the cloud, and they're looking for

certain things. They're looking for age, gender, race, medicine. What are you taking? All that impacts kind of this score that then gets reported back to the primary care physicians desk with as simple as a green, yellow, and red light saying, hey, we need to intervene more actively because we think statistically there's a real chance that this person's going to need hemodialysis down the road. And it's really unique because, you know, if me and my neighbor, if we have the same I don't know what markers are looking for, but if we have the same markers, but my neighbor is 20 years older, has diabetes and is 200 pounds overweight, it might give me a green and it might give this guy a super red, right? So I do want to, so I read some of the transcripts at

everything. And I thought something really interesting. The CEO and his background, he kept saying, look, I came from cancer and I never thought we'd be able to do this for kidneys. Five years ago, this wouldn't have been possible. This is the perfect timing for it for a whole bunch of reasons. He talks about how, you know, the early diagnostics with kidney failure, with kidneys can look very similar to, you know, identifying cancer early. So I just wanted to give you a chance to dive into the CEO's background, the analogies to what happens in cancer, all of that. Well, and also why five years earlier, this wouldn't have been possible. Exactly. And five years from now, there would have been a ton of competitors that it would have been too late. Like, so,

So the headline for this section is we are in the golden age of diagnostics. It's the perfect timing, exactly. Right. And it's unfortunate, and I'll come back to your CEO questions in a second, but it's unfortunate that like Theranos has sucked all the oxygen of liquid biopsy in the room because there's a lot of companies out there that are using a blood draw to determine very specific things. And we could go down that path.

But the idea is, to what you were saying, the earlier you can be precise, you can be ahead of the curve. That is the cancer model. If we catch it at stage one, let's not let it metastasize and go throughout the body. For 50 years, in kidney, there had effectively just been a PSA test. It hadn't evolved. There was just no evolution. This is the first innovative technology that's come to kidney in decades, which I think is pretty, is pretty. compelling. Let's talk a little bit about why five years earlier this wouldn't have

impossible and why five years later it wouldn't have. So there has been a seismic shift in the regulatory landscape of late, starting in 2014 and on, that has been effectively done to, A, improve reimbursement, and we'll come back to that in a second, but B, about just doing the right thing and incentivizing how do we target disease at the front end. So I'm going to, this is not a complicated story because it's just a huge tan that we're going to attack, but the acronyms get kind of tricky. So here we go. It started with PAMA, which is the Protecting Access to Medicine Act of Medicare Act of 2014, the Valid Act, 21st Century Cures, MCIT, which we'll come back to because that's what hit the stock specifically. The point of all of these was, how do we improve patient health?

I mean, that's the goal. The goal is how do we have prolonged life, prolonged quality of life? MCIT is the most recent one. For the Medicare coverage of innovative technologies, this was actually an Obama-era plan that under President Trump was signed on the last day or next to last day of his administration, and it was supposed to go into effect in May of this year. And what MCIT was supposed to do, headline, it was just scuttled. So we'll come back to that in a second. What it was supposed to do was to truncate the gap in which it took payer, it took companies to get paid. So in other words, if you're a life science company, you would go through FDA approval. It would take you 18 months or two years, normal, to get your FDA approval. And then as a founder, you would have to make a decision, which is how do I fund the business? And the biggest payer in America is CMS, the Center for Medicare and Medicaid Services. and you'd go to CMS and say,

I want a national coverage determination NCD, okay? I want national coverage, which means you will cover it at a certain price point anywhere in the country. Fine. What MCIT was supposed to do was to say, if you get FDA approval of a breakthrough device, which Rinolytics would be, you will get immediate NCD for four years.

Unlimited. And then by the way, in year four, we'll review it. We'll start kind of what would have been the historic NCD process. but we'll see if it's working. It was like politicians being practical. It was like one of these kind of like amazing moments and we felt like, all right, the future. Too good to be true. Literally too good to be true. It turns out too good to be true because for whatever reason the Biden administration didn't want to give the Trump administration credit. They had initially delayed the May 15th launch to December 15th. And then last month, and anyone who looks up Arnold X will

see the chart. They scuttled it. Well, they said they're doing a 30-day review. But for our purposes, say they scuttled it. The argument I would give you is that Rinalytics in that wake fell from a billion $1.3 billion market cap to about $800 million, a little under that. And is it worth, was MCIT for these guys, and Rinalytics was the tip of the spear, they were the first ones that were going to benefit from MCIT? Was that really worth giving up a third of the market value? I mean, to me, it's a vast overreaction.

MCIT had come in. So Renolytics is a three-year-old company. And originally they were going to always do plan A was something called Local Coverage Determination. So LCD versus NCD. Yep. So all this basically, and as MCIT kept getting pushed back and back further, it was, they continued their local coverage process.

So there's seven or eight different Medicare centers, administrative centers around America. And effectively, you get a local coverage termination. that geography says, all right, in this lab, for example, Tampa has one. We will put any test that we approve, we'll go through. So that's like a de facto national coverage, because I could mail something, blood from California, from New York. I could do it from anywhere. And one of the things that I love about this story today is, I think, given the reaction to MCIT

and how it flushed out a lot of weak hands in the stock, especially for quote unquote, long shareholders who said, we're going to be supportive, we're going to be here. It was clear, like, in a very Wall Street moment, like, MCIT doesn't happen, run for the gates, right? But, like, it doesn't actually change the fundamental story. Maybe it delays it three to four months, because in my head, I have local cover termination coming the middle of next year versus, like, December when MCIT would have come. So that is a gap. But certainly when I look at the long-term prospects, and you and I are both long-term holders

or everything that we own, it doesn't change the parabolic trajectory of what this is trying to accomplish. It just mass. Can I just clarify on something? So MICT would have given them national coverage. That's great. But what you're saying is with local coverage, you know, if they get local coverage of the Utah facility, they could actually still serve nationally, right? I can go get my blood work. I think they have another processing facility in New York. But if I'm in Florida, I can still get my blood work done. They'll ship it to Utah. They'll tell my doctor, my doctor will give me the results. They'll still get paid for Florida patients, Alabama patients, every patient. They'll run it through Utah. So they actually, actually can still cover nationally. They're just only going to be able to process it in the plants that are covered by LCD. You just put on a subtlety to it that, you know, the market in its rush, say, oh, they're not getting paid. I mean, literally kicked the baby out with the bathwater. Is national coverage, does that tend to be at higher rates than local coverage? No. And so it would be the same exact rate. So this company, this company, and this is the other

kind of headline, has done in three years with $70 million, what took exact science. is 10 or 11 years and $400 million to do, which is to say it has a CPT code, which is what you put into the system, say I'm doing this test. Yep. It has a reimbursement rate set by Medicare. By the way, they went in asking for a lower amount, and Medicare came with a higher amount of $950 a test. And no, that's the baseline.

I mean, there's no, yeah, certainly when some of the hospital systems come in, there'll be some discounting over time, but maybe it goes down to what, 910, 920. I don't know where it settles, but the price is set. So you have a code, you have a price. What are we waiting for today, right? We're waiting for FDA approval, which was expected at the end of August. I have a lot of experience with the FDA for good or for ill. And in the COVID year- I'm with you there.

Yeah, I mean, and it's, again, politicians get involved. You can never discount something to say, you know, it's never going to happen. You and I have a shared friend who's been a podcast guest who's in this stock, and he did it totally right, which is when the stock was at 30, he said, I missed it. You know, I'm going to, it's too expensive, it ran up, and then I'm going to maybe nibble in case MCIT goes through. When the stock went down to 18, he backed up the truck, right?

And that is kind of the prudent reason why active management has a future. But in the case of renalytics, you know, it's one of these moments where everyone reacted to the wrong thing. Because in addition to the fact. that they're going to get local coverage determination over time, what people have totally missed is that the government gave what's called the General Services ID IQ contract, stands for indefinite delivery, indefinite quantity contract for 10 years. And it covers everything other than Medicare. So we're talking the VA. We're talking the Bureau of Indian Affairs. We're talking the

Army. Just think the government. And one of the kind of interesting announcements up late is they hired a head of sales for the VA who's going to bring in 40 salespeople to rush the field. And the VA has roughly 400,000 veterans that have kidney disease. So you can start to see where that goes, I'm not that you're ever going to get full penetration, but if you're doing 400,000 patients at 950 a test, I just did it here. You know, it's roughly $380 million. By the way, the label today is for one test per year, going back to what you and I said at the outset, if we're really using this as a prognostic tool, I imagine that by 2023, that label will have evolved to be able to do two, three times a year as needed. But time will tell on that. I think the dialysis

companies in quite some time. So the VA opportunity sounds great, but my memory on the dialysis company, tell me if I'm wrong, but the vast, vast majority of dialysis spending and everything is coming for Medicare. So you really do need Medicare here at some point, don't you? Or am I misunderstanding that? You absolutely do. Medicare pays for 60% plus of local primary care physicians that are doing kind of kidney care. And by the way, FDA, while not critical to the success of the story, is still a binary event

that will allow, you know, sales, it will allow acceptance. it will allow eventually Medicare will allow international growth, which we're not really going to talk about today. But again, only 5% of chronic kidney diseases in the U.S. Like clearly Asia has a big issue with kidney EU as well. You said FDA wasn't critical, though it is in your term binary, which is interesting. Again, you know, as I was reading this, I was like, oh, gosh, darn it. Randy talking into another podcast where I can spend two weeks on this thing and not be fully up to speed. But, you know, I kind of thought FDA clearance would be critical. So if the, let's just talk FDA. Obviously, it's coming soon. I think you think will get approved. Why, why do you think

it's likely to get approved? And then I want to dive back into that comment, you just said, if they don't get approved, it sounds like you think they're still a future here. So what would happen if they didn't? But I think you just hit on the key point that people miss, which is, especially when you're a generalist, right? And you hear FDA approval. You think immediately about a drug, right? You just default to that and you think, oh, it's like a pedoufa date and the drug worked or it didn't work. And it's very binary, right? And this is why biotech, when you invest in a kind of diversified portfolio, should probably, a name should be 20 or 30 basis points, right? You wouldn't put an early state for Jenneron, right, with Ilya as like a 10% position

because, again, it's like if you deal with juries or the government, you never know how that plays out. And there's been a lot, people, long time listeners know, you know, we've talked about some of them on the podcast. I've got lots of experience. There's been a lot of drugs that the stats look great and the government turns it down for reasons that I think are crazy. I remember the what was it, the enzyme drug. Am I thinking about that right for MS, where they turned it down because they couldn't do a placebo and people were saying, yeah, you can't do a placebo. You can't do a placebo for people jumping out of an airplane without a parachute because if you do that, they die, right? And so, yeah, things can get pretty darn crazy. Anyway, sorry to. And so when, all right,

So FDA was expected by the end of August. Obviously, we know COVID has delayed everything. Yep. As far as I'm aware, it continues. Things go well. And by the way, let's talk for one second. Why do concepts not make it through the FDA? Usually the main, the North Star is safety, right?

If there's a safety concern to your point about jumping out of an airplane, the FDA will shut it down. Right? Like, that is the role of the FDA to protect all of us. I mentioned exact sciences at the outset. There's another reason things don't go through, which is I owned a little company called Epigenomics. It's German list. It still trades.

They had a liquid biopsy test to determine if you were going to need a colonoscopy. So for like someone like you and me as we're nearing that age where you need to get it every five years, if you could monitor it every year, it just seems conceptually smarter because the issue is adherence. No one likes colonoscopies, not that that's a surprise. So exact sciences, their whole product is something called Colagard. It's defecating in a box. It's super gross.

But, you know, it lets you monitor. Okay. I remember the short reports on exact sciences, which was who's going to poop into a box and ship it off to a doctor or a lab or something? Well, and it turns out a lot of people do. By the way, doctors don't love Colagard. I talk to a lot of kind of GIs, but if it gets colon screening more adhered to, in other words, colonoscopy, if it pushes you that way, even if it's a false positive,

It's a good thing. The interesting thing on colon cancer is that the two populations that are most impacted are inner city blacks and true rural farmers. So it's like the Trump Republican and the black congressional caucus. It was a weird kind of thing. And by the way, that may still come. But the point is they were going for national coverage, epigenomics. They failed because exact sciences had billions of dollars of cash and a lobbying unit to go out

and say, you are going to impact our business. we are going to shut you down. And they did. Kudos. Like, I always talk about Thucydides, the Mealian dialogue, right? The strong do what they can, the weak do what they must. Like, cool. In this case, with renaletics, why am I so hopeful that FDA coverage comes?

It's, A, there's no safety concern, right? We're doing diagnostics to help a patient population. So not only is there no safety concern, I'm not putting your wrist, I'm actually helping the arc of your life. So that's like points one and two. And then at the same point with FDA, there's no one lobbying against them to say, oh, well, we don't want screening. Even the DeVitas and the Fresenius of the world, DeVita has a partnership with renaletics because they see the writing on the wall. Hospitals are already outsourcing dialysis to off-site centers. There's a whole group of public companies that you can invest in that are trying to create maybe five or six rooms at a time where there's one nurse that you go to your local center instead of going to the hospital.

how do you take the stress out of the hospital system, especially in COVID, where we're still needing those kind of wards for other things, and yet we don't want to lose people because we're not treating cancer, not treating kidney disease. And so in this case, my sense is this is a delay because of COVID delaying everything. I don't get the sense that there's any kind of material concern, in which case I would expect, as the company has said, that by the end of this year, if not sooner, we're going to get word from the FDA.

So what I'm positing to your listeners is that we have a pretty big catalyst coming in the next two months. I mean, it's not a forever period. And I think much as the stock was hit when MCID didn't go through, it went from 30 to 20 in rough numbers, we're probably going to re-rate in some material way just because the algorithms that people say, oh, FDA approval, that means something. So great, even if it's a 30% re-rating, you're 26, 27. In my head, in my head, that's definitely what I was thinking, right?

FDA approval risks behind you, you've got the safety, not safety here, but you've got the efficacy concerns out the way because the FDA's approved it. So, yeah, that's what I was thinking. If the FDA didn't approve it, I think you said there were still a path here. What would happen if the FDA didn't approve it? And that's the point. So we mentioned the veterans association, like the VA has already started to pay, right? care is already going to pay. They're already approved for this general government service contract.

That is not FDA dependent. They're going to get paid on this. This is not saying, oh, asterisks, if you get FDA therefore. Yep. No, FDA is important. Like I said, it's going to allow sales. It's going to allow international expansion. It's going to allow recognition for sure. And by the way, once they have it, I'll then also change the narrative to say, oh, it's an important moat that other people need to get because we should talk about what the mode in the business is until they get it. I'm not going to say that. But the concept is this is not a binary event that depends. So MCIT gets canceled in September, roughly three weeks ago. The same week they announced Mount Sinai, this is public, Mount Sinai, it gets totally buried under the MCIT

kind of down draft, but Mount Sinai is coming out and is committing to testing 300 patients per week using kidney intellects their test, renalytics test. Why does that matter? Well, first off, Mount Sinai is a major hospital system that, by the way, owns 15% of renaletics. Never sold a share. We should stress that. And Mount Sinai sees the need for kidney care. So Barbara Murphy, who has since passed with the doctors,

a paragon in the nephrology community. Co-founder. Yeah, exactly. It's involved, super early. But a seminal person in the space, recognizing that we as a nation need to get better. I mean, this is an epidemic that needs to be addressed, and it can be addressed pretty simply.

And so if you say, 300 tests at least per week at 52 weeks here at 950 tests. You get to just under $15 million just from Mount Sinai alone. So FDA is one potential short-term catalyst. The others are all the other hospital systems that are in the same exact boat that are looking to manage their costs and are looking from a top-down perspective and say, how can we help our patients and also our balance sheet? And so you're going to get the University of Utah at some point in the next couple of months.

you're going to get Wake Forest. I imagine Johns Hopkins at some point, these major hospital centers. But in the case of Mount Sinai, they have 250,000 chronic kidney disease patients just in their network. And they're doing 300 tests. So if you say, all right, you know, what is that? Under 5,000 tests a year out of 250,000, it seems to me like there's a lot of ramp for growth. And that's 15 million just on the baseline.

Rini, can I back up for a second? This is probably just because I'm a generalist. I'm used to FDA in terms of drugs. and everything, but you said earlier, hey, they've got VA paying and VA is not dependent on FDA. Sounds like they're going to get Mount Sinai paying and Mount Sinai is not dependent on FDA. But, you know, I could imagine a scenario where FDA, if the FDA rejects it, you know, all of a sudden the Mount Sinai board is calling the Mount Sinai in and saying, hey, why are we paying $15 million for this diagnostic test that the FDA is rejected? Are there precedence for

diagnostic tests or anything kind of similar where the FDA doesn't approve it for some reason and they're still doing tens of millions of sales to government agencies like the VA or to Mount Sinai and all this. I mean, these guys are the tip of the spear. So let's be very clear that they're setting a new framework and pathway. But I want to disagree with part of the thesis that you just laid out there, which is why are we paying this much per test when, you know, well, the answer is you're paying $9.50 a test because it's going to save you $11,000 to $15,000 per patient.

that's a pretty good trade-off in the short run. And so maybe this is you and me as financial guys saying this is the CFO that's pushing it. But, you know, the net savings to the hospital is really clear. And by the way, if you use renalytics test, that net savings stays with the hospital. It's not going to some outsource person. So I guess what you're saying is the hospitals are already comfortable that this test has good efficacy, right? That it can catch these things early. So even if the FDA rejected it, the hospitals, the doctors,

are going to go to the, you know, the Mount Sinai and I, CFO in this case and say, hey, we need this test, right? Like, A, it's improving our patient lives, which is the most important thing. And B, we're saving the system tons and tons of money. Forget the FDA. They have no idea what they're doing. Don't quote me on that in case I'm ever in front of the FDA or something. I'm talking hypothetically. But forget that. Like, we need this. We've proven out the efficacy. Is that kind of I would also add to that, yes, but also add that the politicians are aware that this was a political decision made on MCIT being canceled. There's a need for it. Under President Trump, the health and human services, HHS head, his father had died of kidney cancer. So President Trump

made an executive order focusing on kidney care. Like this is COVID. COVID has a direct link to decrease kidney function. We don't know what the long haulers are, but we don't know the testing yet of what that is. Like this is a major thunder cloud looming on the horizon that there is a solution to that I think everyone is really aware of. And just on the politicians' point, I'm hearing a lot of scuttlebut that it's not going to be branded MCIT, but the concept of reimbursement is probably going to be included in a legislative act if and when our Congress can get their act together. Because paying for better health is the entire purpose of Medicare. And while you and I are certainly in the weeds are saying, okay, is it 90% probable, the FDA, all these other

things. My larger thesis is, I want to invest in growth companies that are on the right side of history, right? We talk about amorous, saving the world, clean chemistry. We talk about renalytics, saving human lives and making them better. I want to be able to sleep at night, right? Like, when people pitch me things like, you know, private prisons, like, no, I'll pass because I need to look at my investors and say, this is what I would want my kids to own. And if it's something like a renalytics, which is going to make people not hooked up to a machine and maybe have a longer healthier life, why wouldn't I support it? This is why you're the people's favorite guest. When you're pitching me, I'm over here like, I need to buy some renalytics. This is,

this is really interesting. Hey, we can go in a lot of different places, but I do want to back back a little bit up. And we talked about how this is the right time for the company. One thing we haven't really talked about yet is the CEO, his background. You know, I think for any, this is a startup, right? I think for any startup, the CEO, the founder is the most important person. So let's just take a second to talk about his background and how it relate. His background, why he's the right person for this, all that. Well, and you know that for me, management is my North Star. I will not invest in a company.

I've seen too many mediocre managements destroy a good business. I've seen too much nefariousness in the world. I don't need to get into bed with people that I don't trust. And James McCullough, who is a CEO of Renalytics, is just one of the best humans. He's a great manager of people, too. But he just, he sees this opportunity that he could bring his background in cancer. So he and a guy named Tom McLean, who is, I think president of renalytics, had been at a company called Exxonexome Diagnostics, which was a cancer company, but liquid biopsy, got sold.

And they said, how is this huge chronic condition kidney not being addressed? And so started this company and did blood draws and the whole thing. What's really interesting, the narrative of this, of this story that we should probably take a, take a sidebar on is how they kind of came to market. Because a traditional company, remember, I said only three years old, they've raised over $100 million. Traditionally, the route would have been venture, right? It would have been some, like there's no way that someone in my seat running a global book of small cap investing would have been able to invest at an early stage company like that. By the way, those who invested in the IPO of Renalytics, of which I did not, there's been a couple spinoffs, Veracchi is another public company in the UK.

They've made about 10x on their money already, okay? So like, and like I'm saying to you, I think there's more to come. But what these guys did, which was so interesting, was they opted to list on the London AIM market, which is essentially like the NASDAQ, the growth market of the UK, smaller. and like you and I love Jeremy Raper and like hearing his ideas like Jeremy finds these ideas and like he'll find like some Nordic thing that trades 3,000 shares, which is cool, but you can't buy it at an institutional level. My favorite current one is he found a Polish trash company that has ties to the mob, which it's just so Jeremy, Polish trash company, super microcap and these random ties to the mob. Allegedly, I think it might be allegedly. I think we'd only say allegedly.

Like, this is not stock advice, allegedly. No mob visits, please, during this whole thing. But your point is, I'm saying there's a whole trend and no one has talked about this. Barron's is sniffing around on it, but no one is reported actively. There is a whole host of U.S.-based companies and managers that are opting to list in the U.K. And why is that? A, it's the same cultural mores and language and, yeah, it's IFRS versus SCAP, but the concept is like it's the same numbers you and i can sit over a table and actually get into it sometimes with

someone like the japanese companies you can't right you can't get access to them you can't speak the same language you can't trust the financials even if you hire people that speak japanese and it's just it's just a different system of openness right like what churchill kind of called the commonwealth like they tend to follow american like especially in the post war era american kind of norms um the interesting thing on london aim as well is the quarter of the quarter of filing requirements are not existent, meaning you report twice a year. Yep. So just to put it in context, think if you're making up a number here, $10 million revenue per

year company, right? And you can save two 10-Q cycles. That works out to roughly $500,000 to a million a year. You're saving an audit, lawyers, and legal. Again, $10 million revenue, if you can save a million dollars, that ain't nothing. That flows the epit down, right? And so they don't like it. when I talk to UK people, I say, well, it's like the minor leagues because, of course,

they watch cricket, which no one understands, not baseball. Please, my friends in the UK don't come at me for that. But the idea of like, it's AAA baseball, right? You have the same exact filing cost to start, but the ongoing costs are a little different. So what this company did three years ago, listed on the A market, did a secondary raise subsequently. So it did, you know, round numbers called 30 million of UK raise. Last July, in the depths of COVID, did an 84,

million raise to come onto NASDAQ. So they cross-listed. Why that matters, it was led by JP Morgan, by the way, and Stiefel. Why that matters is that part of the scheme of the UK regime is that you cannot, you can't basically sell the company for three years because initial UK retail investors have a lot of inheritance tax benefits. Essentially, there's no capital gains. So like there's a whole nuance, which we could get into. But that expired last month. So what I'm positing to you is this is an ADR that I do not think will be ADR forever. I imagine they will do at some point a sole U.S. list. Why does that matter? Passive funds cannot own ADRs, generally speaking. So there's 40% of the market today that can't touch the

stock. As soon as that lifts. And I don't know when that is. Maybe it's 22. I don't know. But the point is, whenever that lives, you're going to have a whole flood of passive coming in because, you know, this is like following the IBB and it becomes a big healthcare name. I mean, they're headlining. Read analytics is headlining one of the rooms in J.P. Morgan in January, which is like the big annual. Yeah. I mean, this is something that you and I love finding things early. I was their first U.S. investor. So I've been in it for a long time and in the mud and all this stuff.

And I've seen these guys perform. They have hit every milestone they can control. And they've hit every milestone ahead of time, which is. which is pretty remarkable. This is a little bit softer question, but one of the things I was surprised in looking at Rinalytics, and I think part of it is probably the UK and the ADR and stuff, but there are some analyst coverage, but I'd never heard of it before you ping me, which I love, but, you know, Value Investors Club didn't see anything on it. I don't think I saw a lot on seeking

out, but like, it's surprising for such a potentially sexy growth story, FDA, you know, there's lots of comps to exact sciences, which I think it's. It's a 15, 20X over the past five or six years. Some of the board members here, I believe, have history with the exact sciences. Like, I'm just surprised nobody's been talking about it. Why do you think the company's so far under the radar? We're getting into a deeper thing. When you and I spoke about Amherst, I talked about how kind of the wrong analysts were on the wrong thing.

And so Tycho at JP Morgan is the guy that covered Zymergyn, and he's covering Renolytic. So I would argue that it's not really getting the right attention that it needs. That is in the process. of changing. And so I'm looking at a report that Guggenheim put out last week, the title of, and I agree with this, renalytics, this is initiation, $28 price target. This is the fourth of October this came out. Here's the title, but this is the point. Chronic kidney disease is too big to ignore initiation and coverage. And that is the entire thesis. We are trying to create something that is a revolution, right? And it needs to happen and you need to spur the primary care

physician. So by the way, the other part at Mount Sinai that's amazing on this story is renalytics has no sales force at Mount Sinai. So all these top-down hospital systems are just going to do it internally and push it through. Renolytics will support it via education, you know, via access, via what's needed. And that's part of the moat, by the way. It's not just a test. It's a holistic kind of approach to prognostic behavior. But I do think that, you know, much like kidney, kidney disease runs silent and runs deep. And these kind of socks, I think this management team has been really humble about what the potential is.

They've been really soft spoken about where they think the potential can go because there's no poison pill here, right? So someone could come in and bid something and take it 30% premium. And early in my career, like the first 10 years, we used to have a bell, like an old chip bell in the office and you'd have a takeout. You'd ring the bell. You were so, like I remember all the Arlachs when they got rolled up. You'd ring the bell.

And then it dawned on me that I was missing out on the growth. That's why I love Amherst. There's no one's going to take it from John Doar. In the case of Rinalytics, someone is going to buy this in the next three to five years. I just don't know if it's Roche, if it's DeVita, because you can make an argument that like DeVita and Fresenius, they're melting ice cube in front of them. And it would be better to buy this in to take it over. But Roche, the same thing.

Like how do you kind of get in with networks and build over time? So the only thing I don't know is does this get sold at three at five or at $10 billion, right? Exact sciences today, $60.5 billion, no net income. The tam of kidney versus the tam of colon cancer is at least 3x. And some people say as much as 5x. You paint a picture. Hey, I want to ask two more questions and then give it to you for kind of closing thoughts because I know both of us have travel to do later today. you mentioned it earlier, but when I was reading this, in the back of my mind, there was a little

tickle just, hey, this company does their, they own their own, they do their own blood work at their own facilities, all this type of stuff. You know, there was just a little tickle. That's what Theranos did. That's what Theranos claims. So I just wanted to address that risk for a second, because I'm sure people are going to point to that as a red flag. Absolutely. Although I do not equate this with Theranos, because Theranos was trying to be all things to all people. Yes. Theranos was trying to take a pin, click of blood, and Elizabeth was basically saying, we can diagnose your whole medical kind of future.

In this case, this is a very specific vertical. This is a very specific application with very specific partners behind them. And I would also argue Theranos never got the level of traction that even Rinalytics now has. I mean, think about how hard it is to get a hospital system like Mount Sinai to commit to 300 patients per week. week. Like, I know, like, from our perspective, that seems like, oh, whatever, like, but these are huge bureaucracies and huge egos to move through. And these guys all see the potential. It's really remarkable. And especially when you talk with people, the other anecdote, I would say, like, you know, you and I have known, everyone knows someone that's had

some kidney issue at some point. It's not one of the taboo cancers, right? There's not, like, there's certain, like, ovarian cancer. There's certain things that, like, people don't, like, talking about in shared company. When you kind of talk about dialysis, it's a terrible way to go. So if we can prevent an increasingly obese and morbid society going that way, why wouldn't me? And that's as simple as that. Yeah, I just want to read, I think the difference here, you know, everybody should do their own research. Nothing here is investment. I think the difference here is there knows they had a partnership with Walgreens, but that was very unproven. They were running they were running tests, but it wasn't on their equipment, right? They were paying up to

runs has on other people's equipment to get the Walgreens partner with them. In this case, these guys have got a hospital system who they're only partnering with it if they think they can save a lot of costs and they're running on their equipment. So I think that's the big difference here. I just wanted, I knew people were going to ask, so I just wanted to trust that. And this is not, I want to be clear, this is not fair enough because we're not trying to do everything and we're not making a claim to do everything. We're saying we're working with hospitals to save patient lives and cut costs. And there's no 90-year-old former defense secretaries on the board with no history in health care. Like, this is a real team. By the way, that's important

because you mentioned their most recent board appointment is a current board member at exact sciences, Dan. So like there's a lot more parallels to exact, which by the way, has 70% gross margins and renalytics will have 80% gross margins. So it's even more attractive than exact than there are to theranos. I just want to be clear. I'm going to go more the XAS path than thereinos. It turns out diagnosting through blood instead of poop has a little bit higher growth margins who would have imagined you know i we actually hit most of my talking points again this is it's biology so it's a lot more complicated it's a classic randy story where you could spend two weeks doing this and you still wouldn't even be close to an expert but it's super interesting

story i just want to make sure i i think we hit everything that i kind of wanted to talk to there's just there's just one more there's you hit end game go ahead go ahead there's just one more thing i want to put out there um you and i've been this game a long time And so we know that people on Wall Street do not always follow their mandate, which is to say, I'm a long-only investor, right? I don't do shorts. I don't do derivatives. I don't do leverage. I'm a pure vanilla stock picker, right?

There were a lot of, quote-unquote, long-only or long holders for renaletics that when MCIT rolled over ran for the door. This is a stock that trades, you know, maybe 100, 150,000 shares a day. there was one holder that dumped out, I think, 700,000 shares when that happened. And I have not seen any 13Fs yet. I don't know how the register has shifted, but that's another catalyst because I think a lot of, especially in the healthcare verticals, like with Amherst, I talked to Farallon. Well, Farallon talks to Renalytics. They weren't in it, but like they're aware of it, right?

And everyone says, we missed the boat because the thing had run from 15 to 30 in a year. but I would argue we looped back almost at 15 but the strides that we made from January of this year when that run started to October when we're recording this right we have the general services contract we're closer to FDA we have more hospitals announced Mount Sinai's putting money in I mean it's really really easy and really quick to say we're almost at that hockey stick inflection where we're going to go and the last thing I'd say on this is while I love James McCullough because he's so moral and he's going to do the right thing and he's looking out for patient population, I love a pissed off James McCullough even more because all these

people who at the IPO last July said, oh, we're going to be in your book forever, a lot of them ran for the door. And I think he had a real awakening on who was going to hold fast and who wasn't. And therefore, just to finish the train of thought, my supposition is that when when local covered termination comes at some point next year and he can push revenue through those local centers and wherever it's approved, I think he's going to push through exponentially more revenue than the market expects because he wants to show people this is a real business. So I love good managements. I love good managers with a chip on their shoulder even more. And I love pissed off managers that are looking to prove people wrong the most. And, you know, management of

this company. I mentioned Mount Sinai owns 15%. Management in total, the board owns about 10%. These are guys that are looking to create a $10 billion enterprise. And I'm just feel fortunate that I found it as early as I did. And I'm glad I can share it with your viewers today. That's a great ending. Randy, one of my favorite guests. Thank you so much for coming on. I'm looking forward to having you on for the next one. I know it might not be a while because unfortunately, situations like amorous and Rinalytics take a lot of work. So I need you to get cracking to find the next one so I can have you back on here. I appreciate that, Andrew, as always, it's a pleasure. And I love also interacting with all. You know, you have so many kind of movement.

on your show. My wife laments that every Saturday I walk the dog and leave the house and listen to, you know, next gen and all these other kind of really fascinating deep dives that you do. Thanks, as always, for having the dialogue. I think you're a real, you know, roving ambassador of goodwill for the industry. And I want to commend everything you do. Hey, I really appreciate that, Randy. Well, thanks so much. And we're going to chat soon.