Exagen Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2023

There are 8 speakers on the call.

Operator

Greetings, and welcome to the ExoGen, Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. And as a reminder, this conference is being recorded.

Operator

And it is now my pleasure to introduce to you Ryan Douglas with Investor Relations. Thank you, Ryan. Please go ahead.

Speaker 1

Good afternoon and thank you for joining us. Earlier today, ExoGen Inc. Released financial results for the quarter ended September 30, 2023. The release is currently available on the company's website at www.exygen.com. John Abali, President and Chief Executive Officer and Kamal Adawi, Chief Financial Officer will host this afternoon's call.

Speaker 1

Before we get started, I'd like to remind everyone that management will be making statements during this call that include forward looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements. All forward looking statements, including without limitation, statements Regarding our business strategy, future financial and operating performance, including guidance for the quarter, potential profitability, Our current and future product offerings and reimbursement and coverage are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could For a list and all description of risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission, including our Form 10 ks for the year ended December 31, 2022 and any subsequent filings. In addition, Some of the information discussed today includes non GAAP financial measures such as adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United These non GAAP items should be used in addition to and not as a substitute for any GAAP results.

Speaker 1

We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non GAAP financial measures The most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website. The information provided in this conference call speaks only to the live broadcast today, November 13, 2023. Exigent disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections I will now turn the call over to John Abali, President

Speaker 2

Thanks, Ryan, and thanks to everyone joining. For today's call, I'll walk through our Q3 results, The significant progress we are seeing in improving our business and provide updates on our overall progress to achieve profitability. I'll then turn the call over to our CFO, Kamal, for further details on our financial performance. To start, I'm extremely pleased with the results we are seeing from initiatives implemented this year. Our strategy of focusing on higher margin products and implementing changes that will allow us to expand margins is yielding results.

Speaker 2

We are doing all of this while paying rigorous attention to controlling costs. For Q3, our performance has continued the trend of surpassing expectations, and we are well on pace to deliver record and growing Advise CTD trailing 12 month ASP, record full year revenue and marked improvement in cash burn relative to last year. The team at ExoGen has greatly improved the organization, while continuing to serve rheumatologists throughout the U. S. With the best testing available.

Speaker 2

Specifically highlighting a few key metrics, our trailing 12 month ASP has reached an all time high Advise CTD testing and increased from $2.79 at the start of the year to over $3.20 this past quarter, reflecting a $40 increase. This progress corresponds to 3rd quarter revenue of $13,400,000 with gross margins of 57%. The increases we have seen in ASP over the past few quarters are the result of a more effective billing operation and improved cash collections. We've worked extremely hard to improve in this area and the results are showing. Our gains and collections are from commercial payers, which is not easy to do and a direct reflection of our ability to execute.

Speaker 2

To give an example, historically, accounts over a year old had a very low probability of being collected on. But with the improvements to our billing processes, we've been able to see improved collections on these older cases. In the Q3, we were able to collect around $600,000 from tests that were completed and billed over a year ago. This momentum is just the start, and we expect to see continued growth in ASP throughout our 2024 performance. Our ability to demonstrate improvement in ASP, while significantly reducing costs, is validating our strategy.

Speaker 2

Our adjusted EBITDA for the 1st 3 quarters of 2022 reflected a negative $26,400,000 Here in 2023, we've cut that in half to $13,200,000 while delivering improved ASP revenue and volume for the same 9 month period. Improvements to ASP continue to be the most powerful tool we can utilize to achieve our goals, and we are delivering. I'd like to provide a few details on cash management for the organization as we have seen significant collections this past month. Our accounts receivable balance at the end of September was $17,000,000 but has improved to approximately $11,600,000 on October 31. Correspondingly, our cash balance at the end of September was approximately $28,000,000 and has increased to over $31,000,000 at the end of October.

Speaker 2

We anticipate finishing 2023 with more than $30,000,000 of cash on hand, effectively improving our cash balance from the end of Q2 as we've drawn down our AR exactly as we expected. When factoring our quarterly cash needs against our current cash balance, We estimate that we have sufficient cash on hand to execute on our current operating strategy into late 2025 or early 'twenty six. In the Q3, we continued our strategy of implementing changes to our processes, which are expected to improve ASP in the future. And while I'm confident our team has made every effort to prepare and educate clients about these changes throughout the summer, we did a modest decline in test volume in the 3rd quarter to 32,600 advised CTD tests. The decline was expected and was the driving factor in our guidance for Q3.

Speaker 2

We believe our decline in volume will be transient in the long run as we pursue more profitable business. It's important to recognize that not all testing volume aligns with our current strategy of improving ASP and some of this loss is reflective of that. Additionally, when we analyze the change in ordering patterns, We've observed that the majority of the decline is reflected in reduced test orders on a per physician basis and not tied to a significant contraction in the ordering physician base. Our team is diligently working to support customers through this transition and establish processes which best fit each customer's clinical workflow. We anticipate a return to prior volume In the back half of twenty twenty four as we work through these changes.

Speaker 2

For clarity, we believe our Q4 volume will be the low point Due to the inherent seasonality typically seen in our business this quarter and some lingering effect from our implemented changes, but building back from here as we head into the New Year. Our strategy remains rooted in approving Advise CTD ASP and the pursuit of more profitable business, which these changes have set us up to achieve. In regard to our R and D efforts, we recently achieved a significant milestone and are pleased to announce that we've entered into an exclusive license agreement with Johns Hopkins University to develop clinical tests leveraging novel biomarkers for lupus nephritis. This technology and invention is from the laboratory of doctors Michelle Petrie and Andrea Fava. The opportunity in lupus nephritis meets our When I speak to rheumatologists in the field, they have made it very clear Having access to biomarkers, which would aid in the management of SLE patients with kidney involvement, would provide significant utility to their practice.

Speaker 2

And given that approximately half of all SLE patients go on to develop some form of lupus nephritis, we believe this technology will be instrumental in enabling better patient outcomes. To hit on a few ancillary topics, with the recent announcement from the FDA, we are closely monitoring the proposed rules to regulate lab developed tests, such as Advise CTB. We believe that multiple details need to be addressed with greater clarity and are waiting for the dust to settle in this regard. But we're familiar with the 510 route and believe that with our current level of supporting data, If ICTD would be well positioned to comply or come into compliance with the FDA's requirements and time lines should they come to fruition. Also in October, we finalized our settlement with the Department of Justice for an investigation that was related to activities, which have since been discontinued, but occurred in 2014 2015.

Speaker 2

The agreed upon settlement was approximately $650,000 and we're pleased to put this issue behind us, so we can continue to focus on operating the business. Kamal will now highlight the financial performance in greater detail.

Speaker 3

Thank you, John, and good afternoon, everyone. For Q3 2023, total revenues were $13,400,000 compared with $14,100,000 in Q2 of 2023 $14,700,000 in the Q3 of 2022. As a reminder, for comparisons to prior year, revenue in Q3 of 2022 included $3,700,000 of Medicare revenue from Q2 2020 Testing volumes for Avaya CPD were 32,618. Other testing revenue was $1,400,000 Cost of revenue were $5,700,000 in Q3, resulting in a total gross margin of 57.4 percent compared to 58.7 percent in Q2 of 2023 and 59.2 percent in the Q3 of 2022. Operating expenses were $18,500,000 in the Q3 of 2023 compared with $22,500,000 in the Q3 of 2022, primarily driven by a decrease in employee related expenses due to the reduction in force in early December 2022.

Speaker 3

For the Q3 of 2023, our net loss was $5,400,000 compared to a net loss of $8,100,000 for the Q3 of 2022. As we focus on profitability, we look to provide a consistent financial metric to measure the company's performance and will now be providing adjusted EBITDA on a go forward basis. Our adjusted EBITDA excludes stock comp expense That's a large non cash expense for the organization. Adjusted EBITDA was negative $3,600,000 for Q3 2023 compared to negative $6,100,000 for Q3 2022 and negative $13,900,000 for the 9 months ended September 30, 2023 compared to negative $26,400,000 during the same period in 2022. We're seeing remarkable improvements in our adjusted EBITDA over the past few quarters, and I fully expect to see the trend continue in 2024.

Speaker 3

Please refer to our earnings release issued earlier today for a reconciliation of adjusted EBITDA to net loss. Cash and cash equivalents as of September 30, 2023 were $28,400,000 As we have previously communicated with our revenue cycle management Strategy, the claims held in Q1 and Q2 contributed to the AR balance increasing to $16,200,000 in the second quarter. The AAR balance at the end of Q3 was $17,000,000 with majority of the increase from Q2 to Q3 due to increases in our accrual rate driven by the success we have seen and increased collections. From late September and into Q4, we've seen our cash collections accelerate. To reiterate what John said, Our AR balance decreased approximately $11,600,000 on October 31, which in turn increased our Cash balance to $31,400,000 and I anticipate this trend to continue throughout the end of the year.

Speaker 3

We are seeing great results in our key metrics as we transform the business to a more profitable testing company. For full year 2023 revenue, we're providing guidance of at least $50,000,000 which will be a record annual revenue for the organization. We also believe that our adjusted EBITDA for 2023 will be around negative $20,000,000 and we expect adjusted EBITDA to improve in 2024. We will now open the call for questions.

Operator

Thank you. We will now be conducting a question and answer session. One moment while we poll for questions. And the first question comes from the line of Kyle Mixon with Canaccord Genuity.

Speaker 4

So on this volume decline that we're seeing sequentially happen, Just wanted to understand like why that's going on here. It sounds like docs are ordering less tests, but the clinician basis is the same, I guess, or is at least Relatively stable, not declining. Why are rheumatologists ordering less tests and how do you correct that? And then also why do you think this will last so far into 2024? It wasn't quite clear on that.

Speaker 4

Thanks.

Speaker 2

Great. Good afternoon, Kyle. Thanks for the question. So we've made it very clear that our Top priority as an organization is profitability. And everything that we're doing is in pursuit of more profitable business.

Speaker 2

So We've changed a lot of things at the company as a person working with us, including the individuals that customers interact with. We went through A change in our sales force team in December of last year, so even the folks that our individual clinicians interact with has adjusted the policies That they know us by and interact with us on have fluctuated along with the actual service we provide. We've gotten better in many of these respects. But it has been changed. And I fully recognize that change is not easy for all folks, especially customers, and it has an impact So, that's what we saw here in Q3.

Speaker 2

Again, fully expected. That's why we guided the way we did. These changes will improve our ASP significantly over time. Some of this is getting medical records on specific cases and using physician efficacy in pursuing appeals. And so having their partnership there is requires a little bit Time on their side, but it is in pursuit of more profitable business.

Speaker 2

And I will just say that our team prepared extremely well to educate customers. Our marketing team created very clear materials. We worked very hard to explain the why we're doing this and align on the message across the organization. So As customers talk to our internal customer service, billing or their actual field based rep, they got a very clear, concise, Aligned communication. We did launch the bulk of these changes in early Q3.

Speaker 2

And pretty quickly there, We recognize an impact to volume, but have since flattened out. We're building back this quarter. We expect to build back in Q1. From our standpoint, this is Q1 would be the low point excuse me, Q4 would be the low point building back in Q1. And so, we have a few major and minor holidays here in Q4, which impact this as well.

Speaker 2

Also corresponds to a lower number of lab days. We have our rheumatology national meeting this quarter. It's actually in San Diego, but it pulls a significant majority of And so all of those things kind of mixed together What's factoring into Q4 being the low point, building back in the first half of the year and returning to kind of those prior levels in the back half of the year. That's how we Envision it right now. And I personally went into the field.

Speaker 2

I was in the field in July, August this month and have two trips planned for early December To interact with our customers firsthand and to understand what are some of the challenges that people are facing with and being faced with and get that firsthand feedback from clinicians, specifically visiting some of our top customers. And the primary takeaway is Clinicians do understand the changes and why and that we're just working through as an organization in a partnership. We're trying to figure out a way to optimize their clinical workflow to accommodate some of the things we need to be more effective on our billing and our ASP side. Again, we're seeing those improvements on the ASP side. So It's absolutely the right way to go.

Speaker 2

It just takes an adjustment period. And so how long does that adjustment period is not set in stone, but we envision it to be reflected in Q4 numbers and building back in Q1 early part of the year. We've already started to see this in many territories building back from where we were at the start of the quarter. So especially when you look at some of the normalized weekly numbers. So at least as it stands for me, I feel very confident that our growth in 2024 It will be a combination of both volume and ASP improvement as we've expected.

Speaker 4

Okay. That was great, John. Thanks for all that. And then I want to ask the kind of the obvious question about the guidance was $10,000,000 to $10,500,000 for the quarter. You beat by $3,000,000 over $3,000,000 It's kind of a wild outperformance.

Speaker 4

It's like being very good to see. Did you was there any like one timers this quarter? I know that's kind of happened in the past. I think I heard something about maybe like $600,000 in Prior period collections possibly, but anything significant this quarter? And then also just given that, I mean, gives this gross margin number a good way to think about run rate level going forward, because I mean, it's great to see like mid to high 50s.

Speaker 4

Just curious about like kind of the longer term.

Speaker 2

Great. So combination of answers here Kyle to address all the points you brought up. Kamal hit some of the back half items. For me personally, the volume impact is a part of it. And as I mentioned, we expect that To be reflected in our Q4 numbers and then building back here in Q1.

Speaker 2

So that's part of that guide certainly. Our ASP, we've Articulated in the past, it's very difficult for us to forecast and certainly to project increases in ASP. We have shown Inability to drive consistent progress there over the course of this year, and we believe that will continue. But as we mentioned in the past, Our conservative approach

Speaker 5

to this is

Speaker 2

to expect that growth to be reflected kind of retroactively, right? So after we Half the quarter, we're able to dive into what some of the factors there and the magnitude of that change. So while we do expect growth in ASP, It's difficult to forecast the exact amount and that's reflected in the guide as well. Kamal can speak to a few of the other points.

Speaker 3

Thanks, John. Kyle, I'll address your questions in regards to one time and the impact on gross margin. Historically, we've not had a lot of success On collecting on tests that were older than 12 months and as John mentioned in the prepared remarks, we collected around $600,000 from tests That we have the AR written off because they were older than 12 months. Now I don't want to call that one time because this is the 2nd quarter in a row that we've had this Success with tests that have been written off. And that speaks volumes to the changes in billing and the strategies that we're executing on there, Whether it's appeal to medical records, the small increase in patient pay, we're seeing higher ASP on each test Also, so we've seen the ASP come up, we've seen improved collections and we've seen collections on things that were written off.

Speaker 3

Now the impact on gross margin, we should have seen, you can argue higher gross margins in the past because We had lower accrual rates that we've had to take up because the collections have been more successful this quarter. So we came in around 57%. If you back out that 600,000, yes, you're in the low 50%, low to mid-50s is where we have been year to date. So that is a good run rate They're a good way to think about our gross margin percent.

Speaker 4

Okay. Yes, that was like brilliant. Thank you so much for that. One last question for me. On the cash flow dynamics, great to see what happened kind of like after the quarter end, I guess, like really good to see that.

Speaker 4

It sounds like pretty Positive commentary for 2024 as well. And you're providing the EBITDA metrics now going forward too, so that's great. I was just wondering if you guys Talk about the working capital and kind of like general cash collection versus burden trends in 2024 like by the quarters. I just want to know if there's any like seasonality When there could be like significant burn 1 quarter and then like a material maybe like operating cash generation in the next quarter kind of a thing. Just curious anything you can share on that?

Speaker 3

Well, Kyle, I'll address the net working capital comments you had in there, Because obviously, the biggest change we've seen this year was the uptick in AR, and that's why we wanted to give more color on that We're providing the AR balance on tenthirty one, which was down $5,500,000 from where we ended on September 30 in just 1 month. So That is trending in the right direction. But in terms of net working capital and the seasonality, yes, AR is likely something That we will see uptick during the year and decrease towards the end of the year.

Speaker 4

Okay, perfect. Thanks, Kamal. Thank you, guys.

Operator

And the next question comes from the line of Mark Massaro with BTIG. Please proceed with your question.

Speaker 6

Hey, guys. Thank you for taking the questions. I wanted to start, John, I just wanted to clarify A point that you made in the prepared remarks that you expect Q4 volume to be the low point. I wanted to just clarify that you mean Q4 2023 And just help me understand this sort of bridge back to the back half of twenty twenty four to return to more historical prior Record volume levels.

Speaker 2

Absolutely. Afternoon, Mark. Thanks for the question. So to your first point around timing of the impact regarding volume. So what we saw This is a reset here.

Speaker 2

So what we saw after we implemented changes, mostly policy based changes to the way we approach billing. And again, this is To give you a flavor for this or a feel for this, this is our patient responsibility. This is the requirement of medical records, these types of things, so that we're more effective on the appeal side, etcetera. As we implemented those, we saw an immediate response reflected in orders per physician, not so much a contraction in the physician base, but just people are getting adjusted to the change. And as I mentioned, working to establish processes within their clinic that keeps them functioning efficiently, but also meets our requirements.

Speaker 2

And so We saw that fairly immediately. In the summer, we also had a mix of some vacations with clinicians as well. And so by the end of the summer, we were getting a feel for what that call run rate would be. And we saw it basically flatten out. And here in Q4, as I mentioned, so if you assume that the effect we would have related to volume from these changes has been recognized or reflected in the business.

Speaker 2

Then Q4 has Lower number of effective lab days, and that's really what's factoring into that and why we believe Q4 will be the low point for volume is that we've started to build back. And I've Spoke with individual clinicians, with our field based team, different territories, and that's the impression that we have across the organization certainly Because that we are building back. But when you take a look at having Thanksgiving, Christmas, you have Veterans Day where We've got a week, solid week of meetings here in San Diego with the American College of Rheumatology meeting occurring here. It pulls a Significant amount of rheumatologists out of practice and into their society's week long meeting. And so we see that reflected in volume as well.

Speaker 2

So on a normalized basis, we have seasonality in Q4. We've seen this in prior years as well. And so that's why we Call out Q4 as the low point volume wise. And then building back from here, given that Q1 is a historically strong quarter for us, we've got a Full slate of lab days and effective lab days at that. And we've already been working to build back and have that sentiment internally.

Speaker 2

So That's the function. And you're exactly right, I meant 2023. Thanks for the opportunity to clarify that. So This quarter that we're in right now being the low point and then building back from here.

Speaker 6

Perfect. Thank you for clarifying that. I know I believe it was on the last earnings call, you talked about the potential to move Advise CTD intake guidelines, I'd just be curious, I recognize that that may not be a near term initiative, but I Just curious if you had an update with respect to anything you're doing on the guideline front or How we should think about the opportunity going forward?

Speaker 2

So inclusion in guidelines would be a catalyst for us both from a payer side as well as adoption, right, continue to push on both fronts. And we recognize it as a very valuable aspect of product and a differentiating aspect of that. So it's part of our strategy. When I came on board last year about this time, I placed a heightened focus on it. And we've laid out some very clear objectives.

Speaker 2

The first being, get to know the people on the guidelines. I think once it starts there, then you get a great flow of feedback and then you can actually make informed decisions, hopefully based on facts to get included into guidelines. So we've done that and we've been working throughout this year to establish those relationships. This past quarter, actually September, We were included in a new update on the lupus encyclopedia. And This is a book, a publication.

Speaker 2

It's a very thick book actually, several 100 pages, which is meant for both clinicians and patients. It's written by a clinician, Don Thomas. Just give you a feel for him in one second, Doctor. Don Thomas. But we have 5 pages devoted to our testing and it's under the heading of specialized Testing within lupus and specifically, it cites in there that there's no other testing worth mentioning.

Speaker 2

And so From our perspective, having noted inclusion in that publication, if you will, or that book It was a very important milestone for our company for a couple of reasons. One, it specifically reviews the body of literature supporting advised lupus and CyzetBytes lupus is a very useful tool for both clinicians and patients. So now we have that external validation. We're not affiliated with The lupus encyclopedia by any means. And so that's a huge positive.

Speaker 2

The other thing is or secondarily, Doctor. Don Thomas sits on the guidelines, sits on a panel of 15 clinicians who form the guidelines for diagnostic use, Diagnostics within lupus. And so to have him put that in the public domain and to reference our company, our test, the algorithm, Multiple aspects about the organization and the test that we provide is huge for us. So we are still not in the guidelines, but I think we're Having meaningful progress, especially in 1 year's time to have that reflected in a publication, I think, is huge from our standpoint. And so We're seeing some progress just as we're seeing with ASP, just as we're seeing with cost control.

Speaker 2

You see it really across the board, Results being reflected in many of the things we're doing given our strategy.

Speaker 6

Okay, excellent. And then last one for me. I believe you signed Highmark Blue Cross Blue Shield earlier this year. Would just be curious how conversations might be going with health plans? Do you expect 2024 to be a year where you can make some headway on that initiative?

Speaker 6

And then is it fair to say that we're is there any update on the LCD for Aviva lupus to neridean? I would assume we're just in a waiting pattern, but Any commentary you have there would be helpful.

Speaker 2

Great. I'll start with MRIdian first and then work back into the commercial payer landscape. From Noridian, we continue to be in a holding pattern. And what that means is last year, September ish of last year, Exigent Submitted a request for coverage through Noridian, our local MAC, and we got acknowledgment that we have a completed request, But we wait in limbo for either a draft LCD to come out or a CAC meeting, at which point we'd be on the agenda ideally and then progress there to a draft LCD. So until that happens, we remain in a holding pattern And no further update there.

Speaker 2

We continue to be have coverage and reimbursement consistent with the clinical lab fee schedule, our expected reimbursement for our Medicare claims. And so no change on either of those fronts to report. As it pertains to commercial insurers, I've taken the position that or the approach that kind of referencing activity is not reflective typically of the progress the underlying progress that's made. And what I mean by that is, you can have very productive discussions, but unless cash Comes in the door. It's I don't know that speaking about it is that productive.

Speaker 2

And so what would the approach we've taken is To reference folks to our trailing 12 month ASP, which at the beginning of the year was $2.79 and then Q3 is $3.20 So we've seen a $40 increase in our trailing 12 month ASP and that's reflective of Multiple efforts that we've put in place, some of them on the managed care front and having discussions with individual plans, Highmark's certainly part of that Portfolio of efforts. But then we also have our appeals efforts, our prior collections. We've got Changes to our patient responsibility and really the confluence of activities is resulting in improved ASP. I've got no major contracts to report on. We have talked to many medical directors over the past quarter and gotten some positive feedback, but also some areas for improving.

Speaker 2

And so kind of getting on both sides, but ultimately trying to turn those conversations into cash in the door. And we've been effective at doing that over the 1st 9 months of this year. We expect the bulk of those efforts To be reflected in our ASP in Q4, Q1 into 2024.

Speaker 6

Excellent. Sorry, one last quick one for Kamal. It's great to see the cash balance go up in the month of October instead of down. I guess as we think about this AR dynamic that you laid out, Is there a chance that we can continue to see this type of trend advance into early next year? Or Do you think we'll see this benefit sort of be realized by the end of 2023?

Speaker 3

Thanks, Mark, for that question. In regards to AR, we ended 2022 with AR balance of 6.1 1,000,000. That's kind of how I've been viewing the baseline. Now keep in mind, our volume did increase year to date through Q3 versus through Q3 2022 by 6.2%. So when I'm thinking about AR internally for managing the business, I'm viewing it as baseline $6,100,000 because that's how we started the year, volumes up 6.2% and ASP is up a bit.

Speaker 3

So that puts me around $7,000,000 of where I feel comfortable with the AR getting back to if we make it through all the claims by end

Speaker 7

So Yes. We can do the math, I guess, offline just on the ASP math. I was just wondering, wherever we exit the year On an in like an in quarter ASP, how do we think about like the Q4 in quarter ASP as a jump off point For 2024 ASP, should we increase from there? It sounds like from the answer to Mark's question, John, it seems like or Kamal, it seems like there's some Clearly, price is the focus, but it sounds like there's even some more near term tailwinds for price. So depending upon where we land on 4Q price, Like should we expect that number to improve as we go through 2024?

Speaker 3

So one way to think about it, if you look at the seasonality of the business going from Q4 to Q1. Calculating just the quarter ASP, Q4 2021 to Q4 to Q1 2022 went from 304 to 281. And then you saw a similar decline from 22 Q4 to Q1 2023, 327 to 262. Now the decline from 2022 to 2023 was a little bit more because the PLA code went to the CFLF schedule And that also impacted what that rate was going into the year. But what's in common in all the other years, as you can see when you The Q1 versus Q4 ASP is the deductible reset.

Speaker 3

That's something that I do factor in for modeling purposes, what's that going to do to revenue for next year. So In regards to seasonality between the quarters, I should say. So yes, the deductible does caused it to come down slightly in Q1, but similar to what you've seen in every year, it builds up from that point.

Speaker 7

Got it. Okay. That's fair. Yes, we can work on thinking about the full year. From a patient pay basis, like How did that go in the quarter?

Speaker 7

I know that was a new initiative you guys put in place. Just wondering what kind of benefit or kind of impact you saw from that?

Speaker 3

In the quarter,

Speaker 2

virtually no impact from patient pain. I'll explain why So far, so we do everything we can to work with the patient's insurance before going back to them, Right. So what that means is we file a claim after we perform the test and then we'll work to appeal That patient's claim, if it was denied. And so that may take on the shorter end Around 90 days and on the more traditional end up to 9 months, if you will. And in that process, we're going back and forth, getting medical records.

Speaker 2

It may be different reasons for denial. So having a discussion around that and potentially getting on the phone with a Medical liaison or a director there and having a discussion clinician to clinician. Once that process has been exhausted, then we actually go to the patient. And so that's when that would start to reflect in our ASP. But yet the policy and you have to set the expectation with the patient upfront.

Speaker 2

So the policy has been put in place as of Early July, because we want people to be we want to be transparent. We want people to know that if we have Changed our prices, what they are. And so you see the impact to volume, if you will, from that change once you Telegraph that to the public and then actually get it reflected in ASP once you start billing patients, which Doesn't come for some time as I just explained. So it's a does that help?

Speaker 7

Yes. No, no, John. No, it doesn't. I understand it then. Okay.

Speaker 7

So that will be some

Speaker 2

tailwind coming out. Sorry.

Speaker 7

No, I got it. And then maybe just final one. I know you talked about being profitable. I think it's $75,000,000 in revenue, what's 60% gross margin? Presumably, the success you're having here with the program, if anything, would ideally hopefully get you to that point earlier?

Speaker 7

Or does anything really change in How do you think about the road to kind of cash flow breakeven given some of the success you've had so far?

Speaker 2

So nothing changes in the facts that if we keep our operating expense roughly where it is, At $75,000,000 in revenue and at 60% gross margin rate, we obtain a cash flow positive state. And so That's the picture that we believe we need to hit from a goal standpoint. You're right that we've been Working kind of ahead of schedule, if you will, to get there. And we have some great momentum with more things on the come, as we just discussed, Specifically, citing some of those patient rates and what have you. So our cash burn rate has come down year over year.

Speaker 2

We're taking a look at from an adjusted EBITDA standpoint. Year to date, 1st 9 months of 2022, dollars 26,400,000 And adjusted EBITDA, a net loss there. And then from 2023, we've cut that in half. As we sit here today, our cash Balance is around $30,000,000 a little bit above, and we expect to be there at the end of the year as well. That gives us quite a bit of time.

Speaker 2

We currently believe we're well positioned into late 2025, early 2026 to continue operating with our strategy, our plan and see what type of impact that has. And we'll see how close we get to our goal. And we believe we're well Yes. I'm happy with the pace that we're making. I wish we're going faster, a little bit faster, a little bit better always.

Speaker 2

But I am happy with the pace that we're taking now.

Speaker 7

Great. Perfect. Thank you.

Operator

And the next question comes from the line of Andrew Brackmann with William Blair. Please proceed with your question.

Speaker 5

Hi, guys. Good afternoon and thanks for taking the questions. Maybe to start on the Johns Hopkins agreement and Just sort of recognizing there's probably a little bit of work that still needs to be done there before launching a commercial product. But John, can you just talk to us about how investors We should be thinking about evaluating the success of that agreement. And not trying to pin you down on any sort of time frames or timelines, but anything to keep out in terms of key milestones here?

Speaker 5

Thanks.

Speaker 2

Yes. Hey, Andrew. Good afternoon. Thanks for joining the call. So we are very excited about this opportunity.

Speaker 2

Really, We're working to develop clinically meaningful technology that meets a high customer need. We've laid some of these criteria out in the past, but has clinical Clear clinical utility, proprietary nature to the technology, path to value based reimbursement and really this agreement satisfies all of those requirements and that's why we're so excited to partner with the team there. It's a very renowned group of folks which Discovered and created this invention, so very excited from that standpoint. To give you a little bit of background, lupus nephritis affects roughly 50% of the lupus patients. So we're broadening our coverage of the lupus patient journey.

Speaker 2

This technology really has gained a lot of Certainly at ACR, that's again the annual meeting, American College of Rheumatology last year. The first abstract came out there and was presented. So over the last year, we were able to secure an exclusive worldwide license to develop these markers into clinical tests. And we've already initiated A prospective trial, that was actually part of our R and D spend this year to recruit patients for development and that started. So we anticipate being able to move fairly quickly.

Speaker 2

Now I still don't expect significant revenue contribution within a 24 month period, which has been the time line I've kind of set as a threshold for Laying a lot of this stuff out, but that may change. But at least as it stands now, I think that's a conservative approach to this. There's 2 drugs on the market In this area to help treat this condition, one is from GSK, the other from Aurinia. And we're working to see how this tool can start to improve trials and research and this space as a first step. As I'm sure you know, being able to profile these patients, identify these patients It's very important and useful in the development process for many of these pharma companies.

Speaker 2

So that's a logical first step for us to derisk and accelerate The path here, it's a protein based technology, which aligns very much with our existing competency, also helps from a value based pricing standpoint, gives us Potential opportunity to crosswalk on a code when we get to that point, but again, kind of leads to some of the or lends to some of the excitement we have. And then maybe Kind of to wrap it up, we have to follow the science. So that's the number one thing here. As you said, there's still some work to be done. But ultimately, we envision this test as a measure of disease activity.

Speaker 2

So that'd be used to track patient response to therapy over time and would inform on an individual patient's treatment response. So likely a tool that's used to manage this patient throughout their journey and we can go from there. We'll be able to flush this out again as the science kind of dictates and share some of those meaningful Milestones, especially if they hit print or publication, but it's an area for that we believe aligns very closely with what we're doing and should be a very nice bolt on for us from a development standpoint.

Speaker 5

Okay. That's terrific. And then, you've done a lot to revamp sort of the appeals process here over the last year. Can you just level set us on where you think we are in recognizing the benefits from those changes and sort of what gives you the confidence that those are going to Continue to sort of bear fruit as we look to 2024? Thanks.

Speaker 2

Yes. We're really in the pregame warm up, Andrew, is the way we view it. And the reason I state that is The revamp of an appeals process takes time. We held claims for the 1st 6 months of the year. And in doing so, it let us put many of these changes in place.

Speaker 2

We implemented the customer facing policy changes here in July. But to actually see results in an ASP standpoint, It takes that 9 to 12 month period, and that's why we've worked hard to communicate around Q4 into 2024 being the timeline that we expect to see consistent improvement in ASP. Now it just so happens that some of these changes have been reflected earlier. And if we're looking at claims where historically we had more of a challenge getting reimbursed and we've been able to turn that tide, that's great. Our primary focus has been current claims where we haven't passed some of the timely filing restrictions and where we're able to make So meaningful progress on a per payer medical policy standpoint.

Speaker 2

So those haven't come yet. We're well in process. We've implemented the changes to Kind of attack that area, if you will. But we still have a lot more to see and to do because some of this is also As we get feedback from individual payers, we'll adjust our game plan. There's certain letters that are going to be more effective on an appeal basis, and We'll find out how to make our less effective ones more effective over time.

Speaker 2

So I think we're in early stages here. And again, we conveyed that Q4 into 2024 would be where we start to see progress. Great to see it earlier ahead of schedule. It doesn't mean that There's not more coming. And so I would expect our original communication to ring true here.

Speaker 5

Okay. Super helpful. Thanks, guys.

Speaker 2

Great.

Operator

There are no further questions at this time. And I would like to turn the floor back over To John Abali for any closing comments.

Speaker 2

Thanks again for joining the call. I'm extremely proud of the team and their efforts this past quarter. We're now very consistently demonstrating performance in key areas, and we transformed the organization into a more profitable entity. We've successfully implemented many changes to improve ASP and are seeing momentum there. We've reduced our cash burn and thereby significantly extended our runway well into 2025 or early 'twenty six.

Speaker 2

Plus, we're evolving our R and D pipeline, which We expect it to lead to growth in future years. So our strategy is clear. We're executing well. We have the rheumatology community in town right now for their annual meeting and it's just an energizing time for us with everything going on. And I'm excited to continue building a stronger Exigent going forward.

Speaker 2

So thanks again, and we very much appreciate you joining the call.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Exagen Q3 2023
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