CALDERWOOD & HARKNESS LLP Attorneys at Law
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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
MEMORANDUM
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I. Executive Summary
This memorandum is prepared at the direction of the Board of Directors of Genome Dx Therapeutics Inc. ("GDT" or the "Company") following its meeting on April 9, 2024, at which the Board requested that Calderwood & Harkness LLP ("Calderwood & Harkness" or "the Firm") reassess the Local Coverage Determination ("LCD") filing strategy for the Company's OncoPrecise GXP-47 diagnostic test ("GXP-47") in light of the CLARITY-LUNG clinical validation trial interim analysis results released on March 29, 2024. The Board's request was prompted by the significant implications of those interim results for the strength of the clinical evidence package that would accompany any LCD request and associated MolDx technical assessment dossier submission.
This memorandum supplements, and should be read in conjunction with, the Clinical Evidence Gap Analysis Memorandum delivered by Calderwood & Harkness on April 15, 2024 (the "Gap Analysis Memorandum"), which provided a detailed evaluation of the evidentiary deficiencies identified in the CLARITY-LUNG interim analysis and assessed options for supplemental evidence strategies. The present memorandum builds upon the Gap Analysis Memorandum's findings to deliver a revised strategic recommendation regarding the timing and sequencing of Medicare coverage filings.
Our core recommendation is that GDT should defer both (a) the LCD request filing with Cascade Fiscal Intermediaries, LLC ("CFI"), the Medicare Administrative Contractor ("MAC") for Jurisdiction E (California), and (b) the MolDx technical assessment dossier submission to Ridgeline Administrative Services, LLC ("RAS"), the MolDx program administrator, until final CLARITY-LUNG trial data is available. Based on current projections, the final data readout is expected in the second quarter of 2025. The original target LCD filing date was August 2024. Accordingly, this recommendation contemplates a delay of approximately twelve months, with the revised target filing window in late Q3 or Q4 of 2025.
This recommendation is driven by our assessment that the significant risk of CFI and RAS issuing a non-coverage determination based on the current clinical evidence package substantially outweighs the commercial benefits of adhering to the original filing timeline. A non-coverage LCD would create lasting adverse precedent within the Medicare coverage landscape, complicate future coverage efforts across all Medicare jurisdictions, and have far-reaching negative effects on commercial payer negotiations, physician adoption, and investor confidence.
In reaching this recommendation, we have analyzed three alternative timeline scenarios in detail:
• Scenario 1 — Immediate Filing (Original August 2024 Timeline): Filing the LCD request and MolDx dossier on the original timeline using interim CLARITY-LUNG data. We assess this scenario as HIGH RISK and do not recommend it.
• Scenario 2 — Deferred Filing Pending Final CLARITY-LUNG Data (Q3/Q4 2025): Deferring all filings until final trial data is available and the dossier can be completed with a mature evidentiary package. We assess this scenario as MODERATE RISK (with the primary risks being financial and covenant-related rather than regulatory) and recommend this approach.
• Scenario 3 — Partial Filing / Informal MolDx Pre-Assessment: Engaging informally with RAS to explore a pre-assessment or preliminary technical review without triggering a formal LCD process. We assess this scenario as LOW-TO-MODERATE RISK and recommend it as a complement to Scenario 2, not as a standalone strategy.
The balance of this memorandum sets forth the factual background, our detailed analysis, the risk assessment for each scenario, the impact on related workstreams, and our proposed next steps.
II. Background
A. OncoPrecise GXP-47 Test Overview
OncoPrecise GXP-47 is a proprietary 47-gene RNA expression panel designed to guide oncologist decision-making regarding the selection of first-line systemic therapy in patients with advanced non-small-cell lung cancer ("NSCLC"). The test is performed on formalin-fixed, paraffin-embedded ("FFPE") tumor tissue specimens obtained from biopsy or surgical resection of NSCLC lesions.
The GXP-47 assay utilizes a proprietary algorithm to analyze the expression levels of 47 genes associated with immune checkpoint inhibitor ("ICI") responsiveness and generates a composite Therapy Response Index ("TRI") score ranging from 0 to 100. The TRI score stratifies patients into three clinically actionable categories:
• High Likelihood of Response (TRI ≥ 70): Patients in this category are predicted to derive meaningful clinical benefit from first-line ICI therapy, including pembrolizumab, nivolumab, or atezolizumab.
• Intermediate (TRI 40–69): Patients in this category present an ambiguous predictive profile, and the TRI score should be considered alongside other clinical and pathological factors in therapeutic decision-making.
• Low Likelihood of Response (TRI < 40): Patients in this category are predicted to have a low probability of meaningful response to ICI therapy, and the treating oncologist should consider alternative first-line approaches, including platinum-based chemotherapy regimens.
The intended clinical use of GXP-47 is to guide oncologist decision-making on whether to initiate first-line ICI therapy versus platinum-based chemotherapy in patients with Stage IIIB or Stage IV NSCLC. The clinical rationale is that a substantial proportion of advanced NSCLC patients do not respond to ICI therapy, and that unnecessary ICI treatment exposes non-responding patients to immune-related adverse events and delays initiation of potentially effective chemotherapy. Conversely, patients who are likely to respond to ICI therapy benefit from early initiation of immunotherapy. By identifying the patients most and least likely to respond, GXP-47 aims to enable more precise treatment selection and improve overall patient outcomes.
GXP-47 is a laboratory-developed test ("LDT") performed exclusively at GDT's CLIA-certified, CAP-accredited reference laboratory located in San Diego, California. The laboratory holds CLIA Certificate Number 05D2187432, CAP Accreditation Number 9074821, and National Provider Identifier ("NPI") 1902847365. The laboratory has been in continuous CLIA-certified operation since 2017 and has maintained unqualified CAP accreditation since 2018.
Analytical validation of the GXP-47 assay was completed on December 14, 2022, and the analytical validation study was published in the Journal of Molecular Oncology Diagnostics, Volume 18, Issue 4, at pages 412 through 429, in December 2022. The analytical validation demonstrated acceptable precision, reproducibility, limit of detection, and interference testing results across the 47-gene panel and the composite TRI algorithm.
B. Original Reimbursement Strategy and Timeline
Calderwood & Harkness was engaged by GDT effective February 14, 2024, pursuant to an engagement letter of the same date, to develop and execute a comprehensive Medicare coverage, coding, and reimbursement strategy for OncoPrecise GXP-47. The scope of the engagement encompasses LCD strategy, MolDx dossier preparation, CPT/PLA coding strategy, reimbursement rate analysis, and strategic planning for a potential national coverage determination ("NCD") pathway. The engagement is governed by the terms of the February 14, 2024 engagement letter and is conducted under the direction of GDT's General Counsel, Theresa Nakamura.
The original strategy timeline developed by Calderwood & Harkness in consultation with GDT's market access team was as follows:
1. PLA Code Application (June 28, 2024 submission deadline): Submit a Proprietary Laboratory Analyses ("PLA") code application to the American Medical Association ("AMA") CPT Editorial Panel, targeting review at the September 2024 Editorial Panel meeting. The PLA code would provide a unique identifier for GXP-47 on the Medicare Clinical Laboratory Fee Schedule and facilitate accurate claims submission and reimbursement tracking.
2. LCD Request and MolDx Dossier Submission (August 2024): Following PLA code assignment (or with the application pending), file a formal LCD request with CFI for Jurisdiction E, accompanied by a comprehensive MolDx technical assessment dossier submitted to RAS. The August 2024 target was selected to allow submission of the PLA code application before the LCD filing, and to provide sufficient time for dossier preparation following delivery of the final clinical validation data.
3. National Coverage Determination (Estimated 18–24 Months Post-LCD): Upon successful issuance of a favorable LCD by CFI, pursue an NCD through the Centers for Medicare & Medicaid Services ("CMS") to secure national Medicare coverage. The estimated NCD timeline of 18 to 24 months from LCD issuance was based on historical processing times for comparable molecular diagnostic tests.
In furtherance of this strategy, Calderwood & Harkness delivered a Coding Strategy Memorandum on March 11, 2024, which recommended that GDT pursue a PLA code rather than relying on existing CPT codes (such as CPT 81455 or CPT 81479) to capture the proprietary nature of the TRI algorithm and to support a premium reimbursement rate commensurate with the test's clinical value. The memorandum analyzed the advantages and disadvantages of PLA coding versus existing CPT codes and concluded that a PLA code would provide superior reimbursement positioning, clearer claims adjudication, and stronger branding in the payer marketplace.
A draft PLA code application was delivered to GDT on March 22, 2024, with the following proposed descriptor:
"OncoPrecise GXP-47 (Genome Dx Therapeutics Inc.), genomic profiling, non-small-cell lung cancer, 47-gene RNA expression panel, formalin-fixed paraffin-embedded tissue, algorithm-derived Therapy Response Index (TRI) score"
The target Medicare reimbursement rate for GXP-47 is $3,850 per test, based on a crosswalk analysis to comparable multi-gene next-generation sequencing ("NGS")-based oncology panels currently listed on the Medicare Clinical Laboratory Fee Schedule. The crosswalk analysis is discussed further in Section VI.B of this memorandum.
C. CLARITY-LUNG Trial Status
The CLARITY-LUNG trial (ClinicalTrials.gov Identifier: NCT05891247) is a prospective, multi-site, blinded clinical validation study designed to evaluate the clinical validity and clinical utility of OncoPrecise GXP-47 in guiding first-line ICI treatment selection in patients with newly diagnosed Stage IIIB or Stage IV NSCLC. The trial represents the pivotal clinical evidence study for GXP-47 and is the centerpiece of the evidentiary package supporting Medicare coverage.
The trial is being conducted across 14 clinical sites in the United States, including major academic medical centers and community oncology practices. The enrollment target is 1,200 patients with newly diagnosed Stage IIIB or Stage IV NSCLC who are eligible for first-line systemic therapy. Patients are enrolled upon histological or cytological confirmation of NSCLC diagnosis and staging, and FFPE tumor tissue specimens are submitted to GDT's reference laboratory for GXP-47 testing. Treating oncologists are blinded to the GXP-47 TRI score results and make treatment decisions based on standard-of-care clinical criteria. TRI scores are unblinded at the time of the primary endpoint analysis.
The primary endpoints of the CLARITY-LUNG trial are:
• Positive Predictive Value ("PPV"): The proportion of patients classified as "High Likelihood of Response" (TRI ≥ 70) who achieve 12-month progression-free survival ("PFS") on ICI therapy. The pre-specified performance benchmark for PPV is ≥ 0.75.
• Negative Predictive Value ("NPV"): The proportion of patients classified as "Low Likelihood of Response" (TRI < 40) who do not achieve 12-month PFS on ICI therapy. The pre-specified performance benchmark for NPV is ≥ 0.80.
The trial's principal investigator is Dr. Priya Sundaram, Vice President of Clinical Development at GDT. The Data Safety Monitoring Board ("DSMB") is chaired by Dr. Evelyn Matsuda, MD, PhD, of the Carrington Cancer Institute in Houston, Texas. The DSMB is an independent body responsible for monitoring patient safety, evaluating interim data, and making recommendations regarding trial continuation, modification, or termination.
The total trial budget is $28,500,000. As of the most recent reporting period, expenditures through the interim analysis totaled approximately $19,100,000, representing approximately 67.0% of the total budget. Remaining budgeted expenditures of approximately $9,400,000 cover continued enrollment, site management, data collection, biostatistical analysis, and final reporting.
As of April 2024, enrollment stands at approximately 847 patients, representing 70.6% of the target enrollment of 1,200 patients. Enrollment has proceeded generally in line with projections, although the pace has slowed modestly at certain sites due to site-specific operational factors.
D. CLARITY-LUNG Interim Analysis Results (March 29, 2024)
The CLARITY-LUNG trial protocol included a pre-specified interim analysis to be conducted when enrollment reached 50% of the target population (i.e., n = 600 patients). This interim analysis threshold was reached in accordance with the protocol, and the interim analysis was performed and results released on March 29, 2024.
The interim analysis results were as follows:
Neither the PPV nor the NPV met the pre-specified performance benchmarks at the interim analysis. The PPV shortfall of 0.07 and the NPV shortfall of 0.09 are both clinically and statistically meaningful, and neither result falls within the range that would be expected to achieve the pre-specified thresholds through normal statistical maturation of the remaining enrolled population.
Following the interim analysis, the DSMB convened on April 5, 2024, to review the interim results and make a recommendation regarding trial continuation. The DSMB recommended that enrollment continue to the full target of 1,200 patients, noting that the trial remains adequately powered to detect clinically meaningful performance at the final analysis. However, the DSMB's formal meeting minutes characterized the interim results as "inconclusive and below pre-specified performance benchmarks." The DSMB did not recommend any modifications to the trial protocol, endpoints, or enrollment targets.
The original projection for the final data readout was Q4 2024. However, following the interim analysis and in light of the remaining enrollment required and the 12-month PFS endpoint maturation period, the revised projection for final data readout is Q2 2025. This revised projection assumes continued enrollment at the current pace, no material protocol amendments, and no significant site closures or disruptions.
III. Analysis of Current Clinical Evidence Package
A. Evidence Required for LCD/MolDx Coverage
The MolDx program, administered by RAS under the direction of Dr. Catherine Embry, MolDx Technical Assessment Director, serves as the primary technical assessment framework through which Medicare evaluates the analytical validity, clinical validity, and clinical utility of molecular diagnostic tests. CFI, as the MAC for Jurisdiction E, relies on the MolDx technical assessment produced by RAS as a central component of its LCD determination process. Dr. William Hargrove serves as the Medical Director for CFI, and Sandra Phu serves as the LCD Analyst assigned to molecular diagnostics submissions within Jurisdiction E.
The MolDx program requires submission of a comprehensive technical assessment dossier that addresses the following core evidentiary domains:
1. Analytical Validity: Demonstration that the test reliably and accurately measures the analytes it is designed to measure, including precision, reproducibility, analytical sensitivity, analytical specificity, and interfering substances.
2. Clinical Validity: Demonstration that the test result (in this case, the TRI score) is reliably associated with the clinical outcome of interest (in this case, response to ICI therapy as measured by 12-month PFS).
3. Clinical Utility: Demonstration that the use of the test result in clinical decision-making leads to improved patient outcomes relative to the standard of care without the test. This may include direct evidence of outcome improvement, decision-impact studies, or well-reasoned clinical modeling.
Within the MolDx evidence hierarchy, prospective clinical validation studies carry the greatest evidentiary weight. Prospective studies with blinded designs, pre-specified endpoints, and adequate statistical power are considered the gold standard for demonstrating clinical validity and, when appropriately designed, clinical utility. Retrospective studies, sub-group analyses, and indirect evidence are considered supplementary and are generally insufficient to support a favorable coverage determination in the absence of robust prospective data.
For molecular diagnostic tests in oncology, MolDx has historically required demonstration that the test's clinical performance meets or exceeds pre-specified endpoints in a prospective validation study before issuing a favorable technical assessment. This evidentiary standard has been applied consistently across a range of oncology diagnostic tests, including multi-gene expression panels, genomic classifiers, and pharmacogenomic assays. Tests that have been submitted to MolDx with inconclusive or negative prospective validation data have, as a general matter, received unfavorable technical assessments and subsequent non-coverage LCDs.
The MolDx technical assessment dossier that Calderwood & Harkness has been preparing for GXP-47 (Draft MolDx Technical Assessment Dossier, Version 1.0, targeted for delivery on April 30, 2024) encompasses the following sections:
(1) Test description and intended clinical use;
(2) Analytical validation data (based on the December 2022 published validation study);
(3) Clinical validation data (drawing from the CLARITY-LUNG interim analysis results and prior retrospective studies);
(4) Clinical utility evidence (including decision-impact modeling and clinical scenario analyses);
(5) Health economic analysis, prepared by Larkfield Health Economics, LLC, under the direction of Dr. Nathan Ostroff, Principal Consultant; and
(6) Bibliography of 43 peer-reviewed publications supporting the scientific rationale, analytical methodology, and clinical context for GXP-47.
As discussed below, the clinical validation section of the dossier (Section 3) presents the most significant evidentiary challenge given the CLARITY-LUNG interim results.
B. Insufficiency of Interim Data for Coverage Purposes
The CLARITY-LUNG interim analysis results are materially insufficient to support a favorable MolDx technical assessment and LCD determination for several independent but reinforcing reasons.
First, the observed performance metrics fall materially below the pre-specified benchmarks. The PPV of 0.68 falls 0.07 below the pre-specified target of ≥ 0.75, and the NPV of 0.71 falls 0.09 below the pre-specified target of ≥ 0.80. These shortfalls are not marginal. In the context of a molecular diagnostic test designed to guide treatment selection in advanced cancer, a PPV shortfall of 0.07 means that the test is over-predicting ICI responsiveness in a clinically meaningful proportion of patients classified as "High Likelihood of Response." This goes directly to the core clinical question the test is designed to answer: whether a patient classified as likely to respond to ICI therapy will in fact experience progression-free survival on that therapy. Similarly, the NPV shortfall of 0.09 raises concerns about the test's ability to reliably identify patients who will not benefit from ICI therapy. A false negative rate implied by an NPV of 0.71 means that approximately 29% of patients classified as "Low Likelihood of Response" may in fact derive benefit from ICI therapy, potentially leading those patients to be directed toward platinum-based chemotherapy when immunotherapy might have been the superior treatment option. This has direct implications for patient safety and treatment outcomes.
Second, the DSMB's formal characterization of the interim results as "inconclusive and below pre-specified performance benchmarks" would be visible to MAC reviewers and would significantly undermine GDT's clinical validity argument. The DSMB's meeting minutes are part of the clinical trial record and would appropriately be disclosed in the MolDx dossier. MolDx reviewers, including Dr. Embry and her technical assessment team, would be expected to give substantial weight to the DSMB's independent characterization of the data. An attempt to present the interim data as supportive of clinical validity while the trial's own independent safety board has characterized it as "inconclusive" would present a credibility problem that could damage GDT's relationship with RAS and CFI beyond the immediate GXP-47 filing.
Third, interim data from an ongoing trial, by definition, represents an incomplete dataset. MolDx assessments have historically afforded less weight to interim analyses than to final study results, recognizing that performance metrics may change — in either direction — as additional data matures. The fact that the CLARITY-LUNG trial is continuing to full enrollment, and that final data is expected in Q2 2025, means that submitting interim data now would invite the question of why GDT did not wait for the complete dataset. MolDx and CFI reviewers would reasonably conclude that the final data may differ from the interim results, and would be disinclined to issue a coverage determination based on what is, in effect, a preliminary analysis from a study that has not yet reached its primary endpoints.
Fourth, the prior retrospective studies supporting GXP-47, while useful as supplementary evidence, are insufficient to close the evidence gaps created by the inconclusive interim results. These retrospective studies were conducted on smaller sample sizes (ranging from 87 to 214 patients), utilized non-blinded designs, and in some cases included patient populations with different staging or histological characteristics than the CLARITY-LUNG trial population. While these studies provide supportive data regarding the biological rationale and preliminary clinical signals for the TRI score, they cannot substitute for the prospective, blinded, pre-specified clinical validation that the CLARITY-LUNG trial is designed to provide.
C. Supplemental Evidence Options Considered
The Gap Analysis Memorandum delivered on April 15, 2024, evaluated several supplemental evidence strategies in detail. We summarize those findings here for completeness, as they are relevant to the overall coverage strategy assessment.
Sub-group analysis of interim data. One approach considered was conducting sub-group analyses of the CLARITY-LUNG interim data, segmented by histological subtype (adenocarcinoma versus squamous cell carcinoma), PD-L1 expression level (TPS ≥ 50% versus TPS 1–49% versus TPS < 1%), and other potentially relevant biomarkers. Preliminary exploratory analyses suggest that GXP-47 may demonstrate stronger performance in certain sub-populations, particularly in adenocarcinoma patients with intermediate PD-L1 expression. However, presenting sub-group analyses as the primary basis for a coverage claim introduces significant data-dredging concerns. MolDx reviewers are sophisticated biostatisticians who would recognize post-hoc sub-group analyses for what they are, and the use of such analyses to circumvent the failure to meet pre-specified overall endpoints would likely be viewed unfavorably. Moreover, even if sub-group performance is stronger, it does not cure the failure of the overall test to meet its pre-specified benchmarks.
Additional retrospective validation using external datasets. GDT has access to certain external tumor tissue repositories and clinical outcomes databases that could be used to conduct additional retrospective validation studies. While such studies could supplement the evidentiary record, they would not replace the need for positive prospective validation data and would require substantial time and resources to design, execute, and publish — likely extending into the same timeframe as the CLARITY-LUNG final data readout.
Real-world evidence from GDT's existing GXP-12 platform. GDT's currently marketed OncoPrecise GXP-12 test has generated a substantial body of real-world clinical utilization data. However, GXP-12 is a different test from GXP-47 — it utilizes a 12-gene panel, produces a different score type, and is indicated for a different cancer type (breast cancer rather than NSCLC). The relevance of GXP-12 real-world evidence to the GXP-47 coverage case is limited, and attempting to bridge across different gene panels and cancer types would not withstand MolDx scrutiny.
Conclusion. No currently available supplemental evidence strategy can adequately compensate for the inconclusive CLARITY-LUNG interim results. The prospective clinical validation study is the linchpin of the coverage case, and the coverage strategy must be aligned with the availability of mature data from that study.
IV. Risks of Premature LCD Filing
A. Risk of Non-Coverage Determination
Based on our analysis of the current evidence package, our experience with the MolDx program and the CFI LCD process, and our review of analogous coverage determinations for molecular diagnostic tests in oncology, we assess that the most probable outcome of an LCD request and MolDx dossier submission based on the current evidence package would be a non-coverage determination by CFI.
A non-coverage LCD would formally establish that OncoPrecise GXP-47 does not meet Medicare's "reasonable and necessary" standard under Section 1862(a)(1)(A) of the Social Security Act, 42 U.S.C. § 1395y(a)(1)(A). Under this standard, Medicare covers only those items and services that are "reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member." A non-coverage LCD represents a formal determination by the MAC that the test in question has not been demonstrated to meet this standard, based on the available evidence.
A published non-coverage LCD would be effective across Jurisdiction E, which includes the entire state of California — the state in which GDT's reference laboratory is located and from which all GXP-47 testing is performed. This means that Medicare claims for GXP-47 submitted by GDT's San Diego laboratory would be denied as non-covered services for all Medicare beneficiaries whose claims are processed through CFI. California represents one of the largest Medicare populations in the United States and is a critical market for GDT's commercial launch strategy.
Historical precedent reinforces this assessment. In our experience advising molecular diagnostics companies on MolDx and LCD strategy, we have observed several instructive cases in which companies filed LCD requests and MolDx dossiers based on inconclusive or incomplete clinical validation data, and subsequently received non-coverage determinations. In each case, the filing company faced significant challenges in reversing the non-coverage determination, even after subsequently generating positive clinical data. The pattern is consistent: once a MAC has formally concluded that a test does not meet the reasonable and necessary standard, the burden of persuasion shifts significantly, and the institutional inertia favors maintaining the non-coverage position absent compelling new evidence. The reconsideration process, discussed in Section IV.C below, is designed to address changed circumstances but operates on its own extended timeline.
B. Adverse Precedent Effects
The consequences of a non-coverage LCD extend well beyond Jurisdiction E. A non-coverage LCD creates negative precedent that other MACs may consider when evaluating GXP-47 in their respective jurisdictions. While MACs are technically independent and are not bound by coverage determinations issued by other MACs, in practice, MACs frequently consider the reasoning and conclusions of peer MACs, particularly when the same test has been evaluated and found deficient.
More significantly, under the MolDx program, RAS's technical assessment applies across all MolDx-participating MACs. The MolDx program currently encompasses multiple MAC jurisdictions, and a negative RAS technical assessment would effectively constitute an unfavorable evaluation that is available to — and routinely consulted by — all participating MACs. In practical terms, this means that a negative RAS assessment could foreclose Medicare coverage nationwide, not merely in Jurisdiction E. Even MACs that do not participate in the MolDx program may take notice of a negative RAS assessment and a non-coverage LCD issued by CFI when conducting their own independent evaluations.
Furthermore, a non-coverage determination becomes part of the public record. Medicare LCDs are published on the CMS Medicare Coverage Database and are accessible to any interested party. Commercial payers, including national insurers and regional health plans, frequently track Medicare coverage decisions as a benchmark for their own medical policy development and coverage determinations. A non-coverage LCD for GXP-47 would be visible to commercial payer medical directors and could be cited as a basis for denying commercial coverage. This is particularly concerning given that GDT's revenue projections assume a mixed-payer model in which Medicare and commercial payers each contribute substantially to total reimbursement.
The adverse precedent would also impact GDT's ability to pursue an NCD through CMS. While an NCD is an independent process that does not formally depend on the existence of a favorable LCD, CMS would have full visibility into the prior non-coverage LCD and the underlying evidentiary record. A prior non-coverage determination by a MAC — particularly one based on a MolDx technical assessment — would create a headwind in any subsequent NCD request, as CMS would need to address why a test that failed to achieve coverage at the local level should receive national coverage.
C. Reconsideration Process Challenges
If CFI were to issue a non-coverage LCD for GXP-47, GDT's recourse would be to pursue a formal reconsideration of the LCD. The reconsideration process is governed by 42 C.F.R. § 426 and involves a structured sequence of steps, including the submission of a reconsideration request, publication of the request for public comment, stakeholder input, and a formal re-evaluation by the MAC's medical director and LCD analyst team.
The reconsideration timeline is uncertain and, based on historical experience, can extend 12 to 18 months or longer from the date of the reconsideration request. During this period, the non-coverage LCD remains in effect, and Medicare claims for GXP-47 would continue to be denied. GDT would bear the burden of demonstrating that new evidence — specifically, the final CLARITY-LUNG data — materially changes the coverage calculus such that the test now meets the reasonable and necessary standard. This is effectively the same burden GDT would face in a de novo LCD filing, with the additional complication that the prior non-coverage determination has already established a negative baseline.
The net effect of a premature filing followed by a non-coverage determination and subsequent reconsideration would be a significantly longer overall timeline to achieve coverage than the timeline associated with simply deferring the initial filing until final data is available. Under the premature filing scenario, the sequence would be approximately: August 2024 filing → LCD processing (6–9 months) → non-coverage LCD issued (approximately Q1–Q2 2025) → CLARITY-LUNG final data available (Q2 2025) → reconsideration request filed (Q3 2025) → reconsideration processing (12–18 months) → potential revised LCD (Q3 2026–Q1 2027). Under the recommended deferral scenario, the sequence would be: CLARITY-LUNG final data available (Q2 2025) → dossier finalization (2–3 months) → LCD filing (Q3/Q4 2025) → LCD processing (6–9 months) → potential favorable LCD (Q1–Q3 2026). The deferral scenario thus offers a pathway to coverage that is potentially 6 to 12 months faster than the premature filing and reconsideration pathway, and it avoids the creation of adverse precedent during the intervening period.
D. Reputational and Market Perception Risk
Beyond the formal regulatory consequences, a non-coverage LCD would carry significant reputational and market perception risks for GDT.
Once published, a non-coverage LCD is publicly accessible through the CMS Medicare Coverage Database and would be visible to the oncology community, including the ordering physicians on whom GDT depends for test utilization. Oncologists and their institutional administrators frequently consult Medicare coverage status when making decisions about whether to order a given diagnostic test. A non-coverage LCD signals to the clinical community that the test has been evaluated by Medicare and found to lack sufficient evidence of clinical validity and utility. This perception could undermine physician confidence in GXP-47 and reduce test ordering volume, even in the commercial (non-Medicare) setting where coverage may be available.
Competing molecular diagnostic companies would also have visibility into the non-coverage LCD and could use it in their own marketing and competitive positioning, directly or indirectly suggesting that GXP-47 has failed to meet the standard for Medicare coverage while their own tests have achieved favorable coverage status.
Finally, a non-coverage LCD would send a negative signal to GDT's investors. Pinnacle Health Ventures, L.P. ("PHV"), which holds approximately 41.3% of GDT's fully diluted equity and maintains observer rights over all material commercialization and reimbursement decisions pursuant to the terms of its equity investment, would be expected to view a non-coverage determination as a significant adverse development. The implications for GDT's valuation, future fundraising capacity, and investor relations could be substantial, particularly if the non-coverage determination is perceived as resulting from a premature filing decision that could have been avoided.
V. Alternative Timeline Scenarios
A. Scenario 1: Immediate Filing (Original August 2024 Timeline) — Not Recommended
Under this scenario, GDT would proceed with the original timeline and file the LCD request with CFI and submit the MolDx technical assessment dossier to RAS in August 2024. The filing would be based on the CLARITY-LUNG interim analysis data (PPV 0.68, NPV 0.71), supplemented by the prior retrospective validation studies, the published analytical validation study, and the health economic analysis prepared by Larkfield Health Economics.
The PLA code application would be submitted to the AMA CPT Editorial Panel by the June 28, 2024 deadline, targeting review at the September 2024 Editorial Panel meeting.
Advantages:
• Maintains the original strategic timeline and preserves commercial launch momentum.
• Allows the PLA code application to proceed on the June 28, 2024 submission schedule.
• Demonstrates proactive engagement with CFI and RAS, which may have relational benefits for future interactions.
• Satisfies the Pacific Coast National Bank milestone covenant deadline of December 31, 2024, to the extent the covenant requires that a filing have been made (as distinct from a favorable determination having been obtained).
Disadvantages:
• High probability of a non-coverage determination by CFI based on the insufficiency of the clinical evidence package, as detailed in Section III.
• Creates lasting adverse precedent within the MolDx program and across Medicare jurisdictions, as detailed in Section IV.B.
• Would require subsequent reconsideration with final CLARITY-LUNG data, extending the overall timeline to achieve coverage beyond what deferral would require.
• Non-coverage LCD would be publicly visible and could undermine physician confidence, commercial payer negotiations, and investor relations.
• Net effect likely delays actual coverage by 18 to 24 months or more beyond what the deferral scenario would require.
Risk Assessment: HIGH RISK — Not Recommended.
Calderwood & Harkness strongly advises against proceeding with an August 2024 filing based on the current evidentiary record. The expected adverse consequences substantially outweigh the benefits of maintaining the original timeline.
B. Scenario 2: Deferred Filing Pending Final CLARITY-LUNG Data (Q3/Q4 2025) — Recommended
Under this scenario, GDT would defer the LCD request filing with CFI and the MolDx technical assessment dossier submission to RAS until final CLARITY-LUNG trial data is available. Based on current projections, the final data readout is expected in Q2 2025. Following the data readout, Calderwood & Harkness estimates that approximately two to three months would be required for comprehensive data analysis, manuscript preparation for peer-reviewed publication, and finalization of the MolDx dossier. Accordingly, the projected filing window under this scenario is Q3 or Q4 2025.
The PLA code application submission would also be deferred from the June 28, 2024 AMA CPT Editorial Panel deadline to a subsequent Editorial Panel meeting. PLA code applications are reviewed on a quarterly basis, and the specific submission window would be determined based on the AMA's published meeting schedule, likely targeting the first quarterly meeting following the CLARITY-LUNG data readout, which could be as early as Q3 2025.
Advantages:
• Presents the strongest possible evidentiary package to CFI and RAS, incorporating final (rather than interim) clinical validation data from the pivotal CLARITY-LUNG trial.
• Avoids the creation of adverse precedent from a non-coverage determination.
• Maximizes the likelihood of a favorable coverage determination on the first filing, avoiding the need for a reconsideration process.
• Allows time for peer-reviewed publication of the final CLARITY-LUNG results, which would strengthen the dossier and the broader scientific record supporting GXP-47.
• Preserves GDT's credibility and reputation with CFI, RAS, the oncology community, and the payer marketplace.
Disadvantages:
• Delays the commercial launch of GXP-47 by approximately 12 or more months relative to the original timeline.
• Impacts revenue projections and financial models, as discussed in Section VI.E.
• May create complications with the Pacific Coast National Bank ("PCNB") milestone covenant under Section 7.14 of the Revolving Credit Agreement (Reference No. PCNB-GDT-RF-2023-0922), which requires GDT to obtain a final Medicare coverage determination for at least one proprietary LDT by December 31, 2024. Under the deferral scenario, a final LCD for GXP-47 would not be obtained by that date.
• Extends the timeline for subsequent NCD pursuit.
Risk Assessment: MODERATE RISK (primarily financial and covenant-related, not regulatory) — Recommended.
Calderwood & Harkness recommends Scenario 2 as the primary strategy. The risks associated with this scenario are principally financial and relate to the delayed revenue timeline and the PCNB covenant, rather than to regulatory outcomes. We note that Calderwood & Harkness will separately analyze the PCNB milestone covenant implications in a dedicated memorandum, including an assessment of whether the existing LCD for OncoPrecise GXP-12 (LCD L38472, effective August 15, 2021, issued by CFI) may satisfy the covenant language. The covenant requires a "final Medicare coverage determination for at least one proprietary laboratory-developed test," and it is our preliminary view that GXP-12's existing LCD may arguably satisfy this language, although the analysis requires careful review of the covenant definitions and the parties' intent. That analysis will be provided under separate cover.
C. Scenario 3: Partial Filing — MolDx Pre-Assessment Without Formal LCD Request
Under this scenario, GDT would engage informally with RAS, specifically with Dr. Catherine Embry and her technical assessment team, to explore whether a pre-assessment or preliminary technical review could be conducted using the current evidence package. Critically, this engagement would not involve the filing of a formal LCD request with CFI and would not trigger the formal LCD determination process or result in a published coverage determination.
The purpose of the informal pre-assessment would be to obtain constructive feedback from RAS regarding the strength of the current evidence package, identify specific evidentiary gaps or requirements that GDT should address in the final dossier, and establish a productive working relationship with the MolDx team in advance of the formal submission. Following the informal engagement with RAS and the availability of final CLARITY-LUNG data, GDT would file the formal LCD request with CFI and submit the complete MolDx dossier to RAS under the timeline described in Scenario 2.
Advantages:
• Maintains active engagement with the MolDx program and demonstrates GDT's commitment to pursuing Medicare coverage.
• Provides an opportunity to receive informal guidance on evidentiary expectations, which could inform the design and content of the final dossier.
• Does not create adverse precedent if the pre-assessment feedback is negative, because no formal LCD request has been filed and no published coverage determination is issued.
• May identify additional evidence requirements beyond CLARITY-LUNG that GDT can begin addressing during the waiting period.
Disadvantages:
• RAS may decline to conduct an informal pre-assessment. The MolDx program does not have a formalized pre-assessment process, and the willingness to engage informally varies by MolDx staff and by the nature of the test. There is no guarantee that Dr. Embry or her team will agree to review GDT's materials outside the formal submission process.
• Any feedback received in an informal pre-assessment would be non-binding and would not prejudge the formal technical assessment outcome. GDT should not rely on positive informal feedback as an assurance of a favorable formal assessment.
• If the informal pre-assessment reveals significant additional evidence requirements beyond the CLARITY-LUNG data, this could extend the timeline beyond the Q3/Q4 2025 window projected under Scenario 2.
• There is a modest risk that informal engagement, if not carefully managed, could create a negative impression with RAS if the evidence package is perceived as premature or insufficiently developed.
Risk Assessment: LOW-TO-MODERATE RISK — Viable Alternative as a Complement to Scenario 2.
Calderwood & Harkness recommends Scenario 3 as a complement to Scenario 2, not as a substitute. If GDT wishes to maintain forward momentum during the waiting period and to position itself for the strongest possible formal filing, an informal MolDx pre-assessment engagement can provide valuable intelligence and relationship-building benefits. Calderwood & Harkness is prepared to advise on the process, draft the outreach communication to Dr. Embry, and prepare a tailored evidence summary for pre-assessment purposes if GDT elects to pursue this approach.
VI. Impact on Related Workstreams
A. PLA Code Application
As noted above, the June 28, 2024 submission deadline for the AMA CPT Editorial Panel September 2024 meeting will not be met under the recommended Scenario 2 timeline. The deferral of the LCD filing necessarily affects the PLA code submission timeline, as the practical value of obtaining a PLA code before a coverage determination is limited — the PLA code facilitates claims submission and reimbursement tracking, but absent a favorable coverage determination, there are no covered claims to submit.
The draft PLA code application delivered by Calderwood & Harkness on March 22, 2024, remains substantially complete. The proposed descriptor, test methodology description, and supporting documentation are in final or near-final form and require only updating to reflect the final CLARITY-LUNG data and any changes to the test description that may occur in the interim. Calderwood & Harkness recommends holding the draft application in readiness so that it can be submitted promptly once the CLARITY-LUNG final data supports proceeding with the coverage strategy.
PLA code applications are reviewed by the AMA CPT Editorial Panel on a quarterly basis. The specific submission windows and meeting dates following June 28, 2024, will be determined based on the AMA's published schedule, which is typically released in advance for the upcoming calendar year. Calderwood & Harkness will monitor the AMA schedule and advise GDT on the appropriate submission window once the CLARITY-LUNG data timeline is more certain.
It bears noting that a PLA code can be obtained independently of the LCD/MolDx process — the AMA CPT Editorial Panel does not require a favorable Medicare coverage determination as a prerequisite for PLA code assignment. However, the practical commercial value of having a PLA code without a corresponding coverage determination is limited, and aligning the PLA code application with the LCD filing maximizes the efficiency of GDT's reimbursement strategy.
B. Reimbursement Rate Strategy
The crosswalk and gapfill pricing analysis currently underway by Calderwood & Harkness, with preliminary results expected in mid-May 2024, remains relevant to the overall reimbursement strategy and should be completed regardless of the LCD filing deferral. The pricing analysis will inform the target reimbursement rate for GXP-47, which will be a component of the LCD request and the health economic analysis within the MolDx dossier.
GDT's target Medicare reimbursement rate for GXP-47 is $3,850 per test. This target is based on a crosswalk analysis to the following comparator tests and rates currently listed on the Medicare Clinical Laboratory Fee Schedule:
The $3,850 target rate positions GXP-47 within the range defined by these comparators, above the weighted average of $3,622.33, reflecting the proprietary nature of the TRI algorithm, the breadth of the 47-gene panel, and the specific clinical utility in guiding ICI treatment selection. The crosswalk justification will need to articulate the clinical and technical basis for positioning GXP-47 at a premium to certain comparators while remaining below the highest-priced comparator (TumorMap Pro at $4,206).
Calderwood & Harkness recommends that the rate positioning and crosswalk justifications be refreshed closer to the actual filing date, as comparator rates may change in interim Medicare Clinical Laboratory Fee Schedule updates. The annual fee schedule update cycle, as well as any midyear corrections or adjustments, could alter the comparator landscape, and the crosswalk analysis should reflect the most current data available at the time of filing.
C. MolDx Technical Assessment Dossier
The draft MolDx Technical Assessment Dossier (Version 1.0) will be delivered on April 30, 2024, as originally planned. Calderwood & Harkness believes it is important to preserve this work product and provide GDT with a comprehensive document that can serve as the foundation for the final dossier once updated with the CLARITY-LUNG final data.
The Version 1.0 dossier will be clearly marked as a draft and will include annotations flagging the specific sections that require updating with final CLARITY-LUNG data. These sections include, at a minimum:
• Section 3 (Clinical Validation Data): Will need to be revised to present the final CLARITY-LUNG results in lieu of (or in addition to) the interim analysis data. If the final results meet or exceed the pre-specified benchmarks, this section will be substantially strengthened. If the final results remain below thresholds, the section will need to address the shortfall and may need to incorporate additional supporting evidence.
• Section 4 (Clinical Utility Evidence): The clinical utility argument will need to be updated to reflect the final clinical performance data, as the strength of the clinical utility case is directly dependent on the magnitude of the clinical validity demonstrated.
• Section 5 (Health Economic Analysis): The cost-effectiveness modeling prepared by Larkfield Health Economics (Dr. Nathan Ostroff) may require recalibration of certain assumptions, including the test's sensitivity and specificity parameters, which feed into the cost-effectiveness calculations.
Calderwood & Harkness recommends that Larkfield Health Economics be advised of the revised timeline and instructed to preserve its HEOR work product for incorporation into the final dossier. Certain cost-effectiveness assumptions, particularly those tied to clinical performance parameters, may need to be updated based on the final CLARITY-LUNG performance data, and Larkfield should be prepared to perform those updates on an expedited basis once the final data is available.
D. NCD Pathway
The NCD feasibility assessment, which is currently in preparation and is expected to be delivered on May 10, 2024, will proceed as planned. The NCD assessment is a strategic planning document that evaluates the feasibility, timing, and requirements of pursuing national Medicare coverage through CMS, and its analysis is not dependent on the LCD filing timeline.
The estimated NCD timeline of 18 to 24 months from LCD issuance remains the working assumption. Under the recommended deferral scenario (Scenario 2), an LCD filing would occur in Q3/Q4 2025, with a favorable LCD potentially issued in Q1–Q3 2026. An NCD pursuit would therefore not commence before approximately Q1 or Q2 2027 at the earliest, with a potential NCD issuance in the 2028–2029 timeframe.
Calderwood & Harkness notes that the Coverage with Evidence Development ("CED") framework may become more relevant depending on the final CLARITY-LUNG results. Under the CED framework, CMS may issue national coverage that is conditioned on the covered test being furnished in the context of an approved clinical study or data collection protocol designed to generate additional evidence of clinical utility. If the final CLARITY-LUNG results show improved performance relative to the interim analysis but still demonstrate borderline metrics relative to the pre-specified thresholds, a CED pathway may provide a mechanism to achieve national coverage while additional evidence is developed. This possibility will be addressed in the NCD feasibility assessment.
E. Revenue Projections and Financial Models
The deferral of the LCD filing and commercial launch has significant financial implications for GDT. The revenue projections prepared jointly by Verdant Life Sciences Capital, LLC (Christine Lau, Managing Director) and GDT's finance team (Raymond Ota, Chief Financial Officer) were based on the original timeline and assumed the following:
• Year 1 test volume: 8,500 tests
• Medicare payer mix: 62%
• Medicare reimbursement rate: $3,850 per test
• Year 1 projected Medicare revenue: 8,500 × 0.62 × $3,850 = $20,290,500
• Year 1 total projected revenue (all payers): $34,502,500
These projections assumed commercial launch following a favorable LCD, with test ordering commencing in the period following the LCD effective date. Under the recommended deferral scenario, these revenue projections will need to be revised to reflect the delayed commercial launch timeline. The Year 1 revenue period would shift from the originally projected calendar year 2025 to approximately calendar year 2026 or later, depending on the timing of LCD issuance.
The financial significance of this delay is underscored by GDT's current financial position. GDT's annual operating burn rate is approximately $34,000,000, reflecting the costs of maintaining its reference laboratory operations, ongoing CLARITY-LUNG trial expenditures, research and development, and general and administrative expenses. GDT's fiscal year 2023 revenue was approximately $6,200,000, generated exclusively from OncoPrecise GXP-12 testing. This results in a significant annual cash shortfall that is currently being funded through the Company's existing capital resources and the PCNB revolving credit facility. The 12-month delay in GXP-47 commercial launch revenue means that GDT will continue to operate at a substantial cash deficit for an additional year beyond the original plan, which has implications for the Company's capitalization, working capital management, and relationship with its lenders and equity investors.
VII. Recommendations and Proposed Next Steps
A. Primary Recommendation
Based on the analysis set forth in this memorandum and in the Gap Analysis Memorandum of April 15, 2024, Calderwood & Harkness recommends the following:
1. Defer the LCD request filing with CFI and the MolDx technical assessment dossier submission to RAS until final CLARITY-LUNG trial data is available, currently projected for Q2 2025.
2. Target a revised LCD filing window of Q3/Q4 2025, allowing approximately two to three months after the CLARITY-LUNG final data readout for data analysis, peer-reviewed manuscript preparation, and dossier finalization.
3. Defer the PLA code application submission from the June 28, 2024 AMA CPT Editorial Panel deadline to a future Editorial Panel meeting aligned with the revised coverage timeline, likely targeting Q3 2025.
This recommendation reflects our judgment that the risks of premature filing — principally the high probability of a non-coverage determination and the creation of lasting adverse precedent — substantially outweigh the benefits of maintaining the original timeline. The recommended deferral positions GDT for the strongest possible first filing, maximizes the probability of a favorable coverage outcome, and avoids the extended reconsideration process that would follow a non-coverage determination.
B. Interim Actions
Calderwood & Harkness recommends that the following interim actions be taken during the deferral period to preserve work product, advance related workstreams, and position GDT for rapid reactivation of the coverage strategy once the CLARITY-LUNG final data is available:
1. Complete and deliver the draft MolDx Technical Assessment Dossier (Version 1.0) by April 30, 2024, as a preserved work product that can be updated with final clinical data when available.
2. Complete the reimbursement rate crosswalk/gapfill analysis (preliminary results expected mid-May 2024), to preserve the analytical work product and inform future rate positioning decisions.
3. Complete the NCD Feasibility Assessment (expected delivery May 10, 2024), to provide GDT with a comprehensive assessment of the NCD pathway and timeline that can be updated as the coverage strategy evolves.
4. Explore Scenario 3 (informal MolDx pre-assessment with RAS) as a complement to the recommended deferral strategy. Calderwood & Harkness will advise on the process for initiating informal engagement with Dr. Catherine Embry and prepare an outreach strategy and tailored evidence summary if GDT elects to pursue this approach.
5. Coordinate with Whitford & Sable LLP (Harrison Whitford, Lead Partner; Danielle Reeves, Associate) on corporate governance and board communication aspects of the revised strategy. Whitford & Sable serves as GDT's primary outside corporate counsel and should be apprised of the revised timeline and its implications for board obligations, investor communications, and corporate governance matters.
6. Analyze the PCNB Revolving Facility milestone covenant implications. Calderwood & Harkness will prepare a separate memorandum addressing whether the existing LCD for OncoPrecise GXP-12 (LCD L38472, effective August 15, 2021, issued by CFI) satisfies the milestone covenant language in Section 7.14 of the Revolving Credit Agreement (Reference No. PCNB-GDT-RF-2023-0922), and identifying options for addressing a potential covenant breach if the GXP-12 LCD is determined not to satisfy the covenant. Key covenant parameters include: (a) covenant testing date of December 31, 2024; (b) 90-day cure period extending to March 31, 2025; (c) $9,200,000 currently outstanding under the facility; and (d) facility maturity of September 22, 2026.
7. Advise Larkfield Health Economics, LLC (Dr. Nathan Ostroff) and Carraway Regulatory Advisors (Janet Carraway, Principal) of the revised timeline and instruct them to preserve their respective work products for incorporation into the final dossier and regulatory filings when the coverage strategy is reactivated.
C. Board Communication
Calderwood & Harkness is prepared to present this analysis and recommendation to the GDT Board of Directors at its next scheduled meeting or at a special meeting convened for this purpose. Given the strategic significance of the revised coverage timeline and its implications for the Company's financial position, commercial launch plans, and lender and investor relationships, we recommend that the Board be fully apprised of the following matters:
• The revised Medicare coverage strategy and the rationale for the recommended deferral;
• The PCNB milestone covenant implications and the potential need for covenant relief, waiver, or renegotiation;
• The impact on Verdant Life Sciences Capital's financial models and revenue projections; and
• The alternative timeline scenarios and their respective risk profiles.