Exagen Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2024

There are 8 speakers on the call.

Operator

Greetings. Welcome to the ExoGen, Inc. 2nd Quarter 20 24 Earnings Call. At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation.

Operator

Please note this conference is being recorded. At this time, I'll turn the conference over to Ryan Douglas with Investor Relations. Ryan, you may now begin.

Speaker 1

Good morning, and thank you for joining us. Earlier today, Exigent Inc. Released financial results for the quarter ended June 30, 2024. The release is currently available on the company's website at www.exogen.com. Chanaveli, President and Chief Executive Officer, will host this morning's call.

Speaker 1

Before we get started, I would 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 and future financial and operating performance, including guidance, 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 cause actual results to differ materially from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements.

Speaker 1

For a listen 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, 2023, our Form 10 Q for the quarter ended June 30, 2024 and any subsequent filings. In addition, some of the information discussed today include non GAAP financial measures such as adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non GAAP financial measures to 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 to the Investor Relations page of the company's website.

Speaker 1

The information provided in this conference call speaks only to the live broadcast today, August 5, 2024. ExoGen disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections or other forward looking statements, whether because of new information, future events or otherwise. I will now turn the call over to John Abali, President and CEO of ExoGen.

Speaker 2

Thanks, Ryan, and good morning to everyone joining the call. Today, I'll provide updates on the progress we've made over the last few months in continuing to reshape ExoGen for long term profitable growth, including details on our Q2 financial performance. The results of this quarter are really starting to demonstrate a track record of performance and progress towards our goals. Our results over the first half of the year and specifically the trajectory over the last 18 months has shown that we can grow and expand our business while simultaneously pursuing profitability. To that end, this quarter, we delivered a $1,600,000 adjusted EBITDA loss, 53% improvement year over year and the best quarterly financial performance in Exigent's history.

Speaker 2

And with the first half twenty twenty four adjusted EBITDA loss of only $3,600,000 we continue to make major strides on both top and bottom line performance. As I look back at where we were just before I joined Exigent, our progress is truly impressive. In 2022, we delivered $45,600,000 in revenue, but our adjusted EBITDA loss was $40,000,000 and accelerating. Our gross margins for that year were just under 47%. Sitting here today, we have reshaped ExoGen into an exciting business, which is on pace to achieve profitability.

Speaker 2

We've grown our quarterly revenue almost 30% from average 2022 levels. And this year, we now expect our full year adjusted EBITDA loss to be on par with what we used to lose every quarter, a 70% improvement. Our margins have expanded 13 points over this time and we are on the cusp of further margin expansion with enhanced IP protection on our core product, all while revamping our R and D pipeline and deleveraging our organization. I'm incredibly proud of the team for this transformation and astounded by the progress we've made such a short period. This past quarter, our team grew testing volume 8% sequentially, which was our best total quarterly volume since we made adjustments to our ordering process last summer.

Speaker 2

It is exciting to see the momentum in test volume growth as we expected. Our sales team is making great progress in serving the rheumatology community and they are energized by the successful quarter after working through significant change management with our customers over the past year. Additionally, we continue to increase our trailing 12 month selling price for Advise CTD and for the first time as a public company are seeing ASPs exceed the $400 mark. This is an exciting milestone and one which we are very proud of. We have made tremendous progress over the past 6 quarters, getting us closer to our near term goal of attaining at least 50% of our CMS price for Advise CTD.

Speaker 2

The combined efforts of increasing volume and growing ASP led to record quarterly revenue at just over $15,000,000 in Q2. I'm encouraged by the growth and trajectory I'm seeing in our core Advise business as we continue to execute well. Additionally, and as we've conveyed throughout the year, we've identified areas where we can enhance our existing products and services. In Q4, we expect to upgrade our Advise CTD offering through the addition of markers, which we believe will improve the sensitivity for SLE diagnosis and better capture patients with rheumatoid arthritis who would traditionally be diagnosed as seronegative RA. These are the top two options by prevalence under a connective tissue disease differential.

Speaker 2

And each of our product enhancements has a proprietary aspect, which we believe will provide significant competitive advantages. This past quarter, we made meaningful progress to advance development efforts, and I continue to expect that we will launch improvements to the Advise CTD platform by year end. Given our progress in improving the Advise business and the impact we expect from the launch of a revamped Advise CTD profile, we expect to be cash flow positive within a year of launching both sets of new markers. Our horizon for achieving profitability is coming into focus as we continue to execute on our strategy. As we near profitability, we've begun to see additional areas of opportunity for growth and expansion.

Speaker 2

In the Q2, we signed the 1st substantial biopharma contract since I've been here. This is an area of business where I believe we have untapped potential and have placed a heightened focus on better serving this segment of the immunology ecosystem. Our high quality testing, proprietary offerings and domain knowledge give us an advantage in this space. And we will continue to build our capabilities as more pharma companies realize the superior service and quality they can receive by working with us. Before I dive deeper into our financial performance for the Q2, I want to extend a sincere appreciation for the contributions Kamal has made to the ExoGen organization as he steps down.

Speaker 2

Over the past decade, he has held numerous roles at ExoGen and been a strong steward of the financials. Kamal has been a key supporter throughout my transition and for that I'm grateful. Subsequently, as we continue to execute our strategy and deliver meaningful profitable growth, I look forward to having Jeff Black join us on the executive team as our Chief Financial Officer. Jeff has been CFO of multiple public companies. His leadership and incredible track record of value creation will be advantageous as we progress to our next inflection point.

Speaker 2

Given our start to the year and our consistent resetting of internal expectations, now is the perfect time to have Jeff join our mission of providing clarity improving clinical outcomes for patients with autoimmune disease. Now to dive in, our Q2 performance highlights the strength of our business under our revised strategy and shows what an intense focus on the customer can accomplish. To provide a few highlights, total revenues in the Q2 of 2024 were a record $15,100,000 compared with $14,100,000 in the Q2 of 2023, a 6.6% increase. Total revenues were primarily driven by strong ASPs for Advise CTD and increased volumes over the Q1. Growth at ExoGen is now being driven through a combination of increased clinical adoption and improved reimbursement.

Speaker 2

Other testing revenue was $1,500,000 in the Q2 of 2024 compared with $1,600,000 in the same period last year. Our revenue cycle team continues to do a fantastic job as we again saw strong prior period collections with $1,300,000 of revenue in the 2nd quarter from tests performed over a year ago. Prior period collections are generally very difficult to forecast, but continue to outpace our internal projections. Cost of revenue were $6,000,000 this past quarter, resulting in a total gross margin of just over 60% compared to 58.7% in Q2 of 2023. The increase in gross margin was primarily driven by increases in ASP.

Speaker 2

Operating expenses excluding COGS for the Q2 of 2024 were $11,600,000 compared with $13,200,000 in Q2 of 2023. Year over year decreases were primarily due to a reduction in legal fees and stock based compensation as a result of lower headcount. The net loss in Q2 of 2024 was $3,000,000 compared with a $5,000,000 loss in the same period last year, representing a 40% improvement. Adjusted EBITDA loss was $1,600,000 for the Q2 of 2024 compared to a $3,400,000 loss for the Q2 of 2020 3. Adjusted EBITDA loss through the first half of the year was $3,600,000 compared to $9,600,000 through the 1st 2 quarters of 2023.

Speaker 2

As a reminder, our adjusted EBITDA excludes stock comp expense since it is a non cash expense for the organization. Please refer to our earnings release issued early today for a reconciliation of adjusted EBITDA to net loss. Looking at our balance sheet, cash and cash equivalents as of June 30, 2024 were approximately $24,500,000 and our accounts receivable balance was $11,700,000 Given our ability to drive profitable growth, we are increasing our full year guidance to at least $57,000,000 in revenue and now believe our adjusted EBITDA loss will be better than $12,000,000 which is a dramatic improvement from our expectations just 6 months ago. Again, the launch of the new enhancements to Advise CTD is expected to make us cash flow positive within the 1st year of launch. We will now open the call for questions.

Operator

Thank you. We'll now be conducting a question and answer Thank you. And our first question is from the line of Kyle Mixon with Canaccord Genuity. Please proceed with your questions.

Speaker 3

Hey, guys. Thanks for the questions. Congrats on the results. I guess, maybe, John, just on the ASP. So I think last quarter, maybe for the quarter itself, it was just above a $420,000,000 or so.

Speaker 3

Now it was maybe just above a $400,000,000 maybe $410,000,000 It's kind of stabilizing a bit at $400,000,000 I mean how long could it take to get to $500,000,000 or so like 50% of the list price or the Medicare price? And is that how critical is that? And could you take a step back and maybe try to reinvest to like drive volume growth rather than ASP? I mean, how are you thinking about that? Are you kind of closing on this target here?

Speaker 2

Good morning, Kyle. Thanks for the question. Very relevant. I think it's a good one. So the way we look at ASPs and our ambition there has not changed at all.

Speaker 2

Our goal has been over the last couple of years has been to achieve that 50% level in the relatively near term. For Advise CTD, that's somewhere around $525, just over that $500 mark. And so we pointed folks to the trailing 12 month number, really in anticipation of the quarter to quarter variability that we expected to see. We think we've had a great quarter and we continue to push the advised ASP up. And so from our perspective, the view really hasn't changed.

Speaker 2

So while you see that quarter to quarter transition, there's nothing meaningful really behind that in terms of negative trends or anything like that. So our goal still remains the same. We've never really guided to an exact time point as to when we believe we'll hit it. It's just inherently difficult to forecast. Some of these things that really drive momentum can be changes in payer behavior, but also things that we can do.

Speaker 2

But our appeals efforts remain strong. We're starting to get some of that feedback in now that we've completed 3 or 4 levels of appeals. And so we still remain just as optimistic as we were, maybe even more so, given the progress we've made over the last several months.

Speaker 3

I got it. That sounds good. Thanks for that. And then maybe kind of implied or like inherent in that question was just the kind of the investment commercial team, commercial expansion driving volume growth rather than ASP and collections and things like that. So SG and A has been pretty stable the past couple of quarters last year.

Speaker 3

The level the quarterly level is much higher. I mean maybe just refresh us on the plans to increase the sales force and kind of expand your reach and penetration in the rheumatologist market in the country?

Speaker 2

Yes, absolutely. The exciting thing for us is we had anticipated reshaping the organization. And from a strategic standpoint, at the heart of what we're doing is driving ASP improvement. If you recall, that had not really been done at all for the 4 years prior to me joining the organization. And now we've seen 40% increase from 2022 levels.

Speaker 2

So we're being successful in that regard. At the same time, that's required us to reset some of the ordering process with our clinicians and that had what we call the kind of a transient effect on our volume. And that sort of kicked off in this time last year. And from our perspective, Q2 now, we've seen that volume growth. And that was what we expected.

Speaker 2

That's been the plan all along. Timing is kind of right about what we expected as well. So couldn't have drawn it up any better as we see it. And where we sit now is this really growth due to 2 different levers. 1 continues to be on the volume side.

Speaker 2

1 continues to be on the ASP side. You asked me exactly specifically about growing the sales team. We continue to have a 40 territory footprint across the United States. We believe for now that is the right footprint. We've right sized the organization when I first started.

Speaker 2

And then with the volume impact last year, it's still the right size organization for us right now. We continue to monitor each territory for profitability and we'll split those territories or expand into areas that we're covering with an inside sales force over time, but nothing new to report there. I do think in terms of the operating expense in general, 10.5 for SG and A is likely a little low. We're going into a product launch here in the second half of the year, product enhancement in 2 fronts. So our marketing expenses are likely to increase.

Speaker 2

As we do that, we may also incentivize the sales team in different ways throughout that period, and we'll have to see how commissions break out. But overall operating expense kind of coming in under 2018 is probably not the best way to model it. Right in that 18 level is probably reasonable, especially when you factor in our R and D expenses are likely to increase as we move through validation of these different enhancements. So hopefully, I'll give you some color.

Speaker 3

Yes. That was interesting. Thanks for that. And then I guess just moving to the Q3, it's kind of interest that end of the year is interesting for ExoGen giving some of the industry dynamics and stuff like conference ACR in, I think, November. So how should we be thinking about the Q3, Q4 kind of cadence as you accelerate into 2025, I guess?

Speaker 3

And then maybe talk a little bit about how you feel about core growth, like excluding the primary collections heading into year end kind of a thing just given the momentum in the business recently?

Speaker 2

Sure. And so are you also are you asking more on the revenue side, adjusted EBITDA or the entire picture?

Speaker 3

The top line revenue.

Speaker 2

Okay. So in the second half of the year, we typically or historically have seen some seasonality impact. We're certainly seeing this with some of our top clinicians, extended vacations. You see it in the news. The airports are extremely busy when our team's flying, when I'm flying.

Speaker 2

So we do see some of that impact right now. We expect to continue into Q3. As you referenced, Q4 has the most holidays out of any quarter in the year. And for us, we have a Rheumatology Society meeting in the month of November, the week before Thanksgiving. So that pulls a good chunk of the rheumatology community out of clinical practice for at least a week and then it piggybacks on to a holiday week.

Speaker 2

So we do see either a flattening or even slight decline historically. We're working hard to change that trend and I think the team is highly motivated to do so especially in light of a few product enhancements, which were coming over Q4. So from our perspective, we'll have to see exactly how it shapes out. But if you look at the first half of the year and remove out of period revenue, that $2,000,000 in prior period collections, basically the guide that we've provided takes into account the sentiment I just conveyed. And that is that relatively flat due to seasonality impact as we continue to grow into 2025.

Speaker 3

Okay. All right. That was great. I'll leave it there. Thanks, John.

Speaker 3

And definitely, it was great working with Kamal and good to see Jeff on board now. Thanks.

Speaker 2

Great. Thanks so much, Kyle.

Operator

Our next question is from the line of Mark Massaro with BTIG. Please proceed with your questions.

Speaker 4

Hey, good morning. Thanks for taking the questions, John. Maybe the first one, this I think is obvious, but it looks like you beat in Q2 by $2,000,000 You raised the full year guide by $2,000,000 Just confirming that you're not changing how you expect trends in the back half of the year. Obviously, I heard your comments about seasonality, but you had a strong 8% quarter over quarter increase in volumes. I assume you're not expecting or embedding in your guidance any change to the volume trajectory in the back half of the year relative to the prior year.

Speaker 4

I guess I'm just trying to confirm that the raise for the full year was a function of the outperformance in Q2 and not changes to your underlying trends in the back half.

Speaker 2

Sure. Good morning, Mark. Thanks for the question. As you said, no, there's no changes in expectation for growth of the business. We've said that projections of ASP increases over time are inherently difficult just giving the magnitude and the dependencies on certain payer behavior.

Speaker 2

So that's always a challenging thing to forecast. That's one lever of our growth. From a volume standpoint, the 8% sequential growth quarter over quarter, that's fantastic. Just historically, Q3, Q4 has seen kind of a leveling. Q1, Q2 has been really where we build from a volume standpoint.

Speaker 2

But we'll see. Again, like I said, the sales team, this is not the message to them. This is just if you look at this from an analyst standpoint or evaluate the business, these have been historical trends that seem to sit within the rheumatology community and the way clinical practice is handled here. So no change in terms of our outlook, so very optimistic. Like the trajectory, like that both levers are leading to growth here and we'll see kind of how we perform in the back half of the year.

Speaker 4

Okay, great. You mentioned the biopharma ad, nice to see. I know that used to be a pretty significant piece to the ExoGen business strategy over the years going back to the IPO. Can you maybe just remind us how many of your 40 or so reps, I mean who's driving the pharma demand? I can't imagine it's all 40 of your reps.

Speaker 4

So is there a specialized team? I could probably use a refresher on that. And then how should we think about biopharma over the next couple of years? I mean, I don't expect huge wins in the near term per se, but just curious how you view this test and treat strategy and what types of deals you're looking to sign?

Speaker 2

Absolutely. This was a great development for us in Q2. And just to be clear, our business model is to serve the community based rheumatologists and their clinical practice. That's where Advise CTD holds the greatest clinical value is in the day to day management of patients with suspected underlying connective tissue disease. So our biopharma revenue and especially the contracts that we've signed more recently are not in that vein.

Speaker 2

And we don't dilute the message from our sales organization in this regard. So we have under our Chief Medical Officer, Doctor. Mike Nurnberg, we have established a small team, a small biopharma team and they've been actively working for the last 9 months or so in seeing what business is out there. And it seems to be some initial good feedback is really the message I want to convey. It's great to see the new contract come in.

Speaker 2

We do offer a differentiated service in this area. We're known for our high quality testing. We have proprietary markers for clinical trials, enrollment that is or further characterization of these patients. And so that combined with the quality of testing that we perform, we're starting to enhance or build a brand within the pharma community. And so we'll see how this business evolves.

Speaker 2

I'm sure you're aware in some of the other companies that you follow, biopharma revenue is incredibly lumpy and also difficult to forecast. So layering some of that stuff on, but we'll take it because it tends to be a higher margin business. And then also from our standpoint, we've adjusted the way that we've set up these contracts so that there is some level of minimum performance. So we do expect this to be a meaningful impact to the organization, hence, my reason for mentioning it. But, unsure exactly how big or large of a business this can become.

Speaker 2

It just seems to be a good first start. But it is a separate team.

Speaker 4

Got it. Got it. I will also reiterate my pleasure working with Kamal over the years and welcome Jeff to the organization. But I want to put my third question here on the T cell markers. So I know you've talked about being able to identify more patients with SLE who otherwise would have tested negative.

Speaker 4

So inherently, I think that provides a significant opportunity for you. But I'm just curious if you've had additional time perhaps to think about what that opportunity could mean in dollars because I think people are trying to figure out the incremental, I know some companies who launched next gens, there's not always a revenue inflection. Perhaps it's greater ease of use or there are other characteristics of a next gen launch. But over the next several years, how should we think about the incremental change in demand for ExoGen? And then as it relates to pricing, do you see any potential path to get a higher price from payers as a result of the next gen?

Speaker 2

That's a great question. So to explain to everyone, one of the things that makes Advise CTD unique and so valuable to clinicians is that we've taken the time to research and then subsequently demonstrate through our own trials what the most relevant markers are for aiding a diagnosis when a broad differential is being evaluated. So these product enhancements, they, as you mentioned, Mark, improve the sensitivity of 2 sub profiles within advised CTD. So specifically within the systemic lupus, erythematosus and the rheumatoid arthritis sub profiles. These enhancements will be available individually, but also as part of a revised CTD offering.

Speaker 2

We do expect an immediate clinical benefit to physicians, but also to reflect that benefit in ASP virtually from launch. So I'd like to see exactly how that reimbursement lands once we start getting claims adjudicated, but I said it will be margin accretive and meaningful. We've also now come out and said with this earnings call that within a year of launching both product enhancements that we expect to be a cash flow positive organization. And historically, we've said that we reached that level with 60% margins and around $75,000,000 in revenue. So from a run rate standpoint, our organization is starting to move in that direction.

Speaker 2

And at least our initial projections are that we're there towards the end of that 1st year of launch of both product enhancements. So that's how we're thinking about it internally. You never really have certainty until you start to get some of those claims adjudicated and see how it goes. But these are additional markers that we're adding into CTD so that you understand kind of operationally how this is being handled. Volume impact, it takes time to educate folks on the utility of these new markers, what value they bring clinically, how to use them, and especially we're doing it across 2 disease states.

Speaker 2

So that will take some time. As we're looking at it, about a year is what our current expectation is to get a full realization of the ASP impact, gain confidence there, but also to get that message out and have it resonate with clinicians such that we're driving volume. And that combination likely gets us above that 60% level, kind of in the low 60s is how we're looking at it from a margin standpoint and then having our top line kind of hit that mark of cash flow positivity.

Speaker 4

Okay, great. Congrats on the strong quarter.

Speaker 2

Thanks Mark.

Operator

Our next questions are from the line of Dan Brennan with TD Cowen. Please proceed with your questions.

Speaker 5

Great. Thanks for the questions. Maybe the first one just on the better than expected kind of EBITDA levels that you're seeing, dollars 3,600,000 loss in the first half. I think the guide now you raised by $6,000,000 right from $18,000,000 down to $12,000,000 So, really nice raise, arguably still looks conservative given the 1st half run rate. Could you just speak a little bit more to how we think about cost trends in the back half of the year?

Speaker 5

I know you discussed some new the new products and what that's going to entail, but I'm just kind of trying to put how like a $3,600,000 first half loss translates into a $12,000,000 full year loss.

Speaker 2

Great. Good morning, Dan. Thanks for the question. Certainly a good one, highly relevant. The way we look at it, we're being very prudent with managing expenses of the organization.

Speaker 2

But from an OpEx standpoint, that less than 12,000,000 dollars per quarter is not a run rate to model. So we do expect some of our cost to increase, especially when you're launching 2 new product enhancements. As you would expect, we're going to have a marketing campaign associated with these product enhancement launches. There will be some commission impact from a sales standpoint. There's also some increased R and D expense.

Speaker 2

The methodology for one of these product enhancements is flow cytometry. We have to have prospective samples in order to validate this asset. And so we're running those expenses are likely to increase in the back half of the year. So, those expenses are likely to increase in the back half of the year. So that's what we factored in, in terms of our guide on the adjusted EBITDA side.

Speaker 2

Also, as we've said, it's very difficult to forecast prior period or out of period collections. And so we had $2,000,000 in terms of the impact here in the first half. We're working hard to see what we can collect in the back half of the year, but we do expect this over time to continue to reduce as it gets factored into the accrual rate. So I think those two factors are important to keep in mind. The other thing maybe I'll just point you to is in our 10 ks, maybe you would have picked up on that we had 170 FTEs here at Exigent at the end of last year.

Speaker 2

That number is likely a little too low as we've gone through the year. It's not going to be dramatically above that, but there were a few key positions that we had to fill within the organization here have done so more recently. And so those are all factors that we're taking into account.

Speaker 5

Got it. Thank you for that. And then maybe just on the new markets and on the last call you discussed some of the performance enhancements in terms of the area under the curve and better sensitivity and kind of those factors. Could you just maybe speak to a little bit of like what you're hearing from the field as you get ready to launch these products like from a kind of volume basis? What kind of maybe penetration increases could entail just given the better performance?

Speaker 5

Could you kind of shake some of the doctors that haven't been using the test kind of into your user base because of that? Just any color there would be helpful.

Speaker 2

Certainly. So timing wise, we're going to certainly have a large educational campaign here in Q4 as we get close to launching these. And it just happens kind of perfect timing, if you will, that the Rheumatology Society meeting is also in Q4. So we'll get a lot of feedback here in the month of November as we work with folks, but we've done a lot of market research up to this point. And pretty universally, the feedback is very positive.

Speaker 2

Clinically, this is a challenging dilemma for folks. You've got suspected connective tissue disease differential with the patient. And the more accurate test that you can provide, the better. That's why they use Advise CTD now and we're making it only that much more improved. So from our standpoint, the feedback has been very positive.

Speaker 2

It certainly continues to address high clinical needs within the rheumatology community. We'll see exactly how it shapes out volume wise in 2025. But positive so far has been very key feedback so far has been very positive.

Speaker 5

Got it. And then maybe last one in terms of the claims that you've been holding. Just kind of remind us like are you fully kind of processing a lot of the claims given where pricing is today? Just how do we think about that as we look out to the back half of the year into 2025?

Speaker 2

Yes. So at the beginning of each year, we hold claims. It's a strategy that we have that we believe improves our revenue cycle opportunities. And so we do that. And then in late Q2, into Q3, we release those claims out to the various insurance organizations and then go from there.

Speaker 2

And so we've done that here in Q2. You see our AR increased by about $1,000,000 Our cash position is very strong. So it's played out or is playing out very similar to how it did last year. And we'll see kind of how the back half of the year goes in terms of this. But claims are being released and just business as usual in that regard.

Speaker 5

Great. Okay. Thank you very much, Sean.

Operator

Our next question is from the line of Ross Osborne with Cantor Fitzgerald. Please proceed with your question.

Speaker 6

Hey, good morning, everyone, and congrats on the results. Maybe starting off with just a bigger question from us. Given your success in turning Exigent around to growing in an efficient manner, how are you thinking about the longer term story at this point? Just in terms of your product portfolio with the business reaching cash flow breakeven in a year or so, are you thinking more about bringing a new test at this point? Or is there a runway for the revised CTD test long enough that it will be the focus for the next several years?

Speaker 6

Thank you.

Speaker 2

Hey, Ross. Good morning. I appreciate the question. It's a fun question to ponder, to be honest, especially given where I joined the organization a couple of years ago. It was something I thought about, but wasn't quite at the forefront of what I had to work on.

Speaker 2

And so it is coming more into view. I appreciate that perspective. From our stand point, the organization is transforming and we've shown material progress. That was it's exciting to see and it's exciting to be operating a business that is very close in this regard, right? And I think that that's certainly what I wanted to do and I'm really looking forward to it over the next couple of years.

Speaker 2

I think we'll be able to do some fun things as we move into more capital allocation type strategies. And so from our perspective, Advise CTD still has quite a bit of room to go. If we take a look at how we're thinking about this, 40,000,000 to 45,000,000 Americans are ANA positive and then subsequently referred into rheumatology for clinical evaluation of suspected autoimmune condition. We think that we're somewhere in mid single digits in terms of market penetration with Advise CTD. So we've got a lot of room on that front.

Speaker 2

I think these new product enhancements, we'll see how they work in terms of clinical adoption and what the impact is there. We also think that from an ASP perspective, we still have some room to go. And as I mentioned, kind of that 500 mark is a good cliff. So that's a decent growth from our perspective just on the base business. Additionally, one of the things we've done over the last 2 years is completely revamped our R and D efforts.

Speaker 2

And we do have exciting opportunities there. The rheumatology community, this is not the only area where they need proprietary information and diagnostics. And so disease activity scores, both in SLE along with rheumatoid arthritis are something that we're actively looking at. We've also looked at diagnostic and therapeutic response within a subset of SLE patients, those with lupus nephritis. And there's a few other efforts that seem to look promising from the research that we've done.

Speaker 2

So we'll continue to build out our own pipeline of opportunities. And 1st and foremost, that starts with customer need. And I think we've got a good handle on that. But then we'll also, as we become a cash flow positive and subsequently a profitable organization, look for what else is out there and see how we can enhance our business profile in that regard from an organic opportunity standpoint. So fun to be thinking about it.

Speaker 2

That was one of the reasons why I'm super excited for Jeff to join and be able to leverage some of his experience there. So, we'll see where it goes. All right. Sounds great. Congrats on the progress.

Speaker 2

Thank you. Thanks, Ross.

Operator

Our next question is from the line of Andrew Brackmann with William Blair. Please proceed with your question.

Speaker 2

Hi, guys. Good morning.

Speaker 3

Thanks for taking my questions.

Speaker 7

Maybe on the Avyze enhancements,

Speaker 5

can you maybe just be

Speaker 7

a bit more specific on training and education plans around these ads? Anything that we should sort of be on the lookout for, whether it's industry conferences, KOL events, peer to peer, anything like that and we'll back up the year? Thanks.

Speaker 2

Good morning, Andrew. So it's already started in terms of internal training. And the month of August will actually be a heavy month training wise for our organization. We're having regional meetings within our sales organization, pulling them into centralized locations and spending 2 days of really diving deep into the clinical value proposition and the clinical benefit that these markers are going to provide. The team has been preparing for this for a couple of months now, and I'll be attending portions of those.

Speaker 2

So very excited to see kind of where we sit internally from a training standpoint, call it end of August, beginning of September. So those are some internal efforts. Obviously, we're revamping all of our marketing material. Our Advise CTD report is changing as a result of this. We're taking that opportunity to enhance the way that we provide just even the advise the standard advise analytes, but then also these new ones.

Speaker 2

Interpretation on that report is changing and it will be very educational there. There's, we'll be happy to show and share some of that stuff as it becomes fully mature. But maybe in the next month, 1.5 months that will occur. As I mentioned, ACR is in the month of November. That's going to be a key date for us.

Speaker 2

It's mid November there. We'll have a strong educational campaign. We are already slated to have some presentations there on these topics. And so excited to get that information out there and really start the commercialization of these enhancements. So those are the main things that are occurring.

Speaker 2

And then we'll see we're also in the midst of publishing a couple of manuscripts, which highlight the studies that we've run, clinical validation, if you will, of these markers. So those will hit the public domain ideally sometime before the end of the year. Tough to control publication time lines, but ideally before the end of the year. So you'll see those things hit the public domain and then obviously we'll see the reaction from physicians probably here manifest in Q1.

Speaker 7

Perfect. That's actually a good segue to where I wanted to go next really just around sort of data generation. So it sounds like you've got some manuscripts coming around validation, but anything that we should be on the lookout in terms of clinical utility studies? Just how are you thinking about the importance of running those? Thank you.

Speaker 2

That's a great question. Clinical utility is a key part of reimbursement in this space and something that we're at the heart of our product enhancements and product launches. We have clinical trials set up with folks and we're in discussions with others taking a look at clinical utility. It'll be a little soon to demonstrate clinical utility exactly when we launch these markers, but it is something that we are actively working on, and more to come, maybe in 2025 as those trials continue to enroll and we start to see the results of some of it. So right now, I'm focused on analytical validation, clinical validation.

Speaker 2

Both of those results from initial readouts are very strong. It's the reason we're launching these. And then subsequently, we'll look to see how clinical behavior is enhanced with the launch of these markers here in 2025.

Speaker 7

Great. Thanks, guys.

Speaker 2

Thanks, Andrew.

Operator

Thank you. We've reached the end of the question and answer session. I'll now turn the call over to John Abali for closing remarks.

Speaker 2

Great. I want to end by extending a huge thanks to the team at Exigent for executing at a very high level and continuing to trust in the process and buy into the changes we've made at the organization. As we continue to evolve our business, our performance is showcasing the transformation. It's exciting to see. It continues to be exciting to convey.

Speaker 2

And I look forward to providing our next update in a few months. Thanks all.

Operator

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Earnings Conference Call
Exagen Q2 2024
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