Q2 2021 Exagen Inc Earnings Call

[music].

Greetings, ladies and gentlemen, and welcome to the Exigent incorporated second quarter 2021 earnings conference call.

At this time all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad.

Please note that this conference is being recorded I would now like to turn the conference over to your host Ryan Douglas Investor Relations for accident.

You may begin.

Good afternoon, and thank you for joining us today earlier today Exterran, Inc. Released financial results for the quarter ended June 32021 release is currently available on the company's website at Www Dot <unk> Dot com.

Ron Rocca, President and Chief Executive Officer, Kamala, <unk>, Chief Financial Officer, and Mark Hazeltine, Chief operating Officer will host this afternoon's call.

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 1095.

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 2021 guidance the impact of COVID-19 pandemic on our business, our current and future pre.

<unk> 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 for a list and description of the risks and uncertainties associated with our business. Please see our filings with the Securities and Exchange Commission.

Including our form 10-K for the year ended December 31, 2020 and subsequent filings.

The information provided in this conference call speaks only to the live broadcast today.

August 9.2021, estrogen 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 Ron Rocca, President and CEO of <unk>.

Thanks, Ryan and thank you to everyone joining the call today as always we appreciate your continued support of <unk> the.

In the second quarter 2021 was a record breaking quarter for <unk>.

We are incredibly proud of what we have achieved to enhance <unk> position as a leading provider of autoimmune testing solutions.

We achieved several records in the quarter, including delivery of 33328 test.

This represents 3 record demand quarters in a row, which we believe demonstrates the momentum that the advisor brand has experienced even in the face of the pandemic.

We also achieved record of 1934 total ordering health care providers and 703 adopters for our flagship advise CTD and advised lupus test.

This in turn equates to a record revenue quarter for <unk> with total revenues coming in at $12.8 million.

Once again, we saw a high retention rate of 99% among adopting health care providers from the prior quarter. We believe this high retention rate and the increase in the number of ordering health care providers speaks volumes to the value our customers recognize and using advice testing to accelerate the historically slow.

And frustrating process of clinically diagnosing autoimmune disorders.

We continued to increase our investment in our R&D pipeline through a multifaceted approach, including clinical studies collaborations with industry thought leaders and the expansion of our laboratory.

We are pleased with our July publication of an additional study demonstrating real world evidence in the Lupus Science and Medicine Journal. The study shows that advised lupus demonstrates statistically significant clinical utility and achieving a definitive systemic lupus erythematosus diagnosis and positively.

<unk> treatment decisions.

We believe this study adds additional validity to our dossier and expected to strengthen our position even further with payors.

We recently signed an exclusive licensing research collaboration agreement with Alleghany Research and autoimmune Institute, which allows us to focus on developing novel patented biomarkers for diagnosing prognosis and monitoring of autoimmune diseases, including lupus.

This strategic partnership gives us access to intellectual property key thought leaders in the autoimmune space and a world class Biobank, which we believe will benefit the clinical validation of both existing and future pipeline products. We couldnt be more excited about this partnership as it shows us to further develop our pipeline.

With some of the top minds in the autoimmune space.

I want to turn your attention to a few studies that we have in progress.

We have a prospective fibromyalgia study called the better study, which is progressing at multiple sites with key opinion leaders.

There are approximately 12 million people suffering from fibromyalgia, which presents clinically, which similar signs and symptoms as lupus, but requires very different treatments helping.

Helping these patients get diagnosed correctly can improve their quality of life, while living with this chronic disease.

With the better study, we are evaluating the effectiveness of combining CB caps with vibrational spectroscopy, and medical ohmic analysis to provide what could be the first rule in rule out diagnostic tests for fibromyalgia.

We intend to utilize the data from the better study to launch our commercial fibromyalgia test in late 2023.

We also have multiple thrombosis studies in progress, which we anticipate completing during the second half of next year as many of you know cardiovascular thrombotic events are a leading cause of death in lupus patients.

We are developing our thrombosis test to accurately identified lupus patients at greater risk for cardiovascular thrombotic events and provide physicians an opportunity to intervene before such events occur depending on the results of this study we plan on launching debt thrombosis tests in mid 2023.

In the second half of 2021, we began the conversion of approximately 8000 square feet of warehouse space into our existing clinical laboratory.

We are also converting approximately 6000 square feet of warehouse space into a dedicated research and development lab the.

The expansion of our clinical and R&D labs are expected to allow us to enhance our testing capacity improve our efficiencies developed molecular a multifamily capabilities and advance our pipeline products. We remain committed to the strategy of providing an integrated testing and therapeutic model. However, the opportunity in <unk>.

Roy with Symphony has diminished with the ongoing pandemic, we have mutually agreed to end our co promotion agreement with Janssen for Symphony effective August 31, 2021 as mentioned previously we continue to invest in prioritization of our testing franchise, including payer coverage pipeline products and furthering partnership.

Opportunities.

Our Q2 performance in terms of record revenue record advice CTD test delivered record ordering health care providers record adopters as well as our investment in our pipeline gives us confidence that we are set up for long term success are.

Our footprint with Rheumatologists hospital systems and payers across the country continue to expand in Q2.

As many of you know autoimmune disorders are notoriously difficult and time consuming to diagnose using traditional testing RCB cash technology offers the promise of faster more accurate diagnosis, enabling earlier intervention in treating these chronic and sometimes deadly disorders before turning the call over to call I'd like to take them.

Moment to welcome both Frank Stokes of Castle Biosciences, and Ana Hooker of exact sciences to our board of directors. We are thrilled to have these industry experts joined our board and contribute to our success I will now turn over the call to come on to discuss our financial results.

Thank you Ron and good afternoon, everyone total revenues in the second quarter of 2021 were $12.8 million an increase of 43% over the second quarter of 2020 total revenues were driven primarily by an increase in testing volumes from a buying DTD, including <unk>, Lucas, which grew 80% year over year to a record 33.

<unk> 28 have delivered in the second quarter of 2021.

As Ron mentioned, the number of ordering health care provider was also a record with 1934 in the quarter compared with 1442 in the second quarter of 2020.

<unk> CTD test revenue was $10.4 million in the quarter and other testing revenue was $2.1 million, resulting in record testing revenues in the quarter of $12.5 million.

Revenue for Symphony was 300000 in the quarter. Once again were pleased with performance of our core testing franchise in spite of the COVID-19 pandemic.

Cost of revenue were $5.5 million in Q2, resulting in total gross margin of 55 per cent compared to 63% in the second quarter of 2020.

The decrease in gross margin percentage was primarily due to the decrease in <unk> co promotion revenue recognized in Q2.2021 as compared to Q2.2020.

We're pleased with the growth in our testing gross margin in Q2 of 2021, it was 56% compared to 52% in Q2, 2020, and 54% in Q1 of 2021.

Operating expenses in the quarter were $18.5 million compared with $12.4 million in the second quarter of 2020. The increase was primarily due to employee related expenses, including stock based compensation associated with the overall increase in head count and an increase in cost of revenue due to the increase interest in volume and an increase in.

R&D expenses.

The net loss in the quarter was $6.4 million compared with $3.4 million in the second quarter of 2020.

Looking to our balance sheet cash on cash equivalents as of June 32021 were approximately $112.6 million.

We continue to make investments in R&D, including the development of molecular and multi homing capabilities laboratory expansion entering into new licensing agreements and our commercial organization to fuel future growth.

We're closely monitoring the delta variant and possible impact that it might have to rheumatologists ability to see patients and write a binary test.

For full year 2021, we reiterate the guidance we gave in our Q4.2020 earnings call and expect total revenue to be approximately 47 million to $49 million. This.

This includes testing revenue of 46 million to $48 million representing growth of approximately 27% over 2020 at the midpoint of the range.

As previously stated we mutually terminated the Janssen agreement for Symphony and will receive 600000 in consideration of which 400000 will be recognized in Q3 and 200000 in Q4.

In regards to operating expenses, we expect to increase our research and development expense by approximately 3 times, our previous year span due to our R&D initiatives that are on previously mentioned.

We will now open the call for questions.

Thank you at this time, we'll be conducting a question and answer session.

I'd like to ask a question. Please press star 1 on your telephone keypad and.

On a confirmation tone will indicate your line is in the question queue.

You May press Star 2 if you like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, 1 moment, please while we poll for questions.

Alright first question comes from Max Masucci with Cowen <unk> Company. Please proceed with your question.

Hi, Congrats on the great quarter, and nice to see the new ads on your board.

So just to start there's clearly been some COVID-19 resurgence as lately with the Delta Darin can you just give us a sense from the impact you've been seeing lately just in broad terms and then more specifically just remind us how your sales territories match up.

Geographically just with some of these regions of the U S that have been hit the hardest by by Delta variant lately.

Yeah sure. Thanks, Matt appreciate it.

There is no cure for lupus, so COVID-19 or not.

Those patients are still there and as soon as they are able to see a doctor they do and issues of doctors able seem they see them. So while some of these regions do tend.

Tend to go to shut down because of the variant. What you are seeing is that the patients do come back when given the opportunity now with that being said we are seeing an interesting phenomenon with the number of doctors that will help vacation and patients too.

Just recently I was on a flight and you see the people are just can't wait to travel. So we do think that.

We're going to keeping an eye on that as far as that's concerned.

<unk> vacations now the way we're lined up to your question is lined up to patient populations. So while we do have a lot of reps in New York La Chicago.

Does the patient populations, we fully realize also that those patients do come back and by the way. There is some of our stronger areas. We do work very well with NYU with northwestern as well as UCLA. So even in those regions, we have great relationships with Kols.

And our reps are really sharp in getting in there with the with their inside sales force capabilities, which is a capability that we've built in the face of Covid. These are inside sales reps that can call the offices, even if they're shutdown and have good meaningful discussions with the physicians.

And that seems to be taking off a lot and I think that's going to stick around post COVID-19 that these inside sales forces are going to augment what the decentralized sales forces do.

But all in all we're going to really excited with the performance and continue to operate to commercial excellence. Thanks for the question Max.

Yes, that's great to hear on the impact of the inside sales force.

Moving on.

Can you just give us a sense for how your conversations have trended with payors in recent months or lately, just comparing the pandemic disrupted periods of last year the level of interaction continued to pick up a bit.

And now that your body of clinical evidence continues to grow is that leading to more productive conversations are on coverage.

Yes.

Really good question. So the payers, obviously are concerned with the pandemic and the number of tests. So they do concentrate on debt and justifiably. So.

For that now the new study that was just released in July.

On a top tier journal further illustrates the clinical utility of CB caps and advisor LUPA percentage advise CTD. So that just augments already pretty terrific dossiers, we continue to build the science.

We don't see any relenting on the payer side. They are interested in talking to us in getting in there.

The Covid does put debt as a precedented upfront before they talk to any other companies, but the conversation has gone well. The dossier continues to be strong and we feel confident we'll continue to engage payers on a meaningful discussion of how to help. These patients remember this disparity issue had treatment that you see with Covid is seen also in lupus and these are.

Women of color. So we bring that up it's just a great opportunity to help narrow that gap of the disparity in treatment for lupus patients.

That's very helpful. Thanks, maybe sneak in 1 final on any areas you beat our estimates for advise CTD and other tests in your portfolio. So can you just maybe speak to some of the areas of strength or drivers of growth outside of.

Of ICT day.

Yes.

We have the prognostic, which rides along when you have lupus you also want to know which organs are being attacked and then we have the monitoring test, which is a solid test because disease progression is really important so as CTD goes the other products, especially those other 2 just follow along very nicely and we continue.

To work on enhancing every asset we have with our multi omics strategy. So <unk>.

<unk> is doing really well, it's really important to know that with COVID-19, what they used to do to treat patients is kind of hard to do now and that was called serial testing I treat you 1 marker at a time, which CTD. They get all 11 generic markers of those connected tissue diseases as well as CV cap. So there is a convenience factor.

The doctors are finding very beneficial with CTD as well as the fact is it's a just a terrific lupus test.

Great. Thanks for taking the questions.

Okay. Thanks Max.

Our next question comes from Brian Weinstein with William Blair. Please proceed with your question.

Hey, guys. Good afternoon, thanks for taking the question.

Hope you're doing well so I guess as we continue to see you guys penetrated additional.

Clinician offices can we talk a little bit about the type of office that you are maybe calling on now versus calling on before and the intensity of the sales call that is required to get that marginal doctor on board today versus maybe a year ago, 2 years ago and whatnot just trying to understand.

How these docs me may differ.

As you get new cohorts that come through.

<unk> times, and whether or not that can draw any conclusions about kind of future test performance.

Great question, Thanks, Brian and I hope everything is going well with you.

Obviously unique kols and we have on the Kols are pretty much every major institutions, especially now with the agreement we have with Alleghany 2 of the top rheumatologists in the country right there.

So that's important but your real business comes from the community Rheumatologists day, Theyre, the ones, who need the asset the most so the numbers we hit with 1934 ordering physicians in Q2.

Represents if you'd say 4500 rheumatologist out there represents a good chunk of them that are starting to see the wisdom of advise CTD and then you'll note that there are 703 adopters, which is an all time high as well that means a stickiness to it is important as well that they are sticking with the product we never it's rarely.

We hear any issue that says that this is not the superior way to advance the diagnostic of connective tissues. We just need to continue to execute commercially the way we have been we had back to back years in 19, and 20 of over 100000 orders where trajectory and that way again, so we really Brian at this point, it's a matter of.

<unk> excellent, giving a strong core message getting the right reach and frequency those physicians will say again, just I did in the previous conversations the inside sales forces is proving to really be helpful. In augmenting these areas, where it's hard to get to so the combination of the inside sales force a decentralized sales force and a strong product.

We feel we're doing everything we can to execute correctly and continue this trajectory that you've seen thus far.

And can you update us just on the numbers I don't know if youre willing to provide those what those numbers look like in terms of the inside sales force in the field.

Field sales force and where you are going to take those numbers I think come on you mentioned that it was 1 of the areas. Obviously of use of cash was the expansion on the commercial organization. So any details on that.

Yes, so we have 63 territories right now and we feel in the continental United States that does give us the reach and frequency necessary, it's nice to be well capitalized. The way. We are if we do need to add something that's not a real big issue for us to continue to add to continue that reach and frequency right. Now we think thats a solid number the inside sales force.

We're building that we have a couple of slots there and they went really well.

Probably continue to build that out.

Ryan that's proven to be a very cost effective way to augment the decentralized sales force and it's 1 that I don't think I would have.

Believes pre COVID-19, but it definitely has value in it.

<unk> year, they have to get our kids they need to ask questions that representatives and this is just a good way to do it I don't think I'd use the inside sales force to launch a product, but once the doctors writing and has basic questions and we can have somebody as a touch point to be able to initiate a discussion on let's say the new study that was just out in a top journal. This is a great.

Way to get to that position very quickly and be able to have a meaningful discussion.

Great and then last 1 from me surround Allegheny you talked about the couple of Kols that youre getting access to but you also mentioned some IP as well as the biobank can you talk specifically about what the IP is that you guys are now able to access and then when you talk about the biobank what products and specific on what products specifically is that being helped is that.

<unk> 2 to kind of validate where are you putting that too to its best use.

So Dr. Sue Manzi, it's just 1 of the best Lutalo just gently in the World really works out of Alleghany, Dr. Joe <unk> as well. So we took 4 additional assets from Allegheny.

This is when the fragrance land on the T cell and some other areas.

Copier gene and so forth. So we're looking at those we're pretty excited about what we see so far and the fact that we're working with alleghany if not in the worldwide definitely in our nation 1 of the top connective tissue centres of excellence out there so working with them on these assets is important but it's even more more than that.

Because as you get these great minds out there and they work with their scientists they get very creative on what equipment to use what markers to target.

Mix it with the with your.

With your RNA markers as well as the protein so as that becomes really really good discussions with some of the top leaders here. The biobank is critical so every company diagnostic company.

Cary Brian in the World of R&D, We're really day, we really developed.

Ours really hard researches really hard and that's why it's usually left to the universities. That's why I think this was 1 of the most brilliant strategic moves we can do and I really mean that sincerely because this gives us R and D day, essentially become our our factor while our internal scientists from the developers and when you combine those 2 together.

Upfront very early in these in these initiatives and be able to get collaboration with these thought leaders and bring things to market. It a lot quicker and some pretty creative things as I said debt biobank is extremely well characterized it's something really only a university can do nowadays with all debt signatures you need from patients and so forth.

The rights to use when a company does that it becomes very hard to do but a university here in an institution like alleghany, where they do get signatures from payers and as well as from patients that enables us to get well characterized samples and be able to use them, which is the other key part there. So we're really excited about this collaboration.

<unk>.

Great. Thank you guys for answering the questions.

Thank you.

Our next question comes from Mark Massaro with BTG. Please proceed with your question.

Hey, guys congrats on a great quarter.

Maybe just starting with the Symphony <unk>.

Announcements.

You've talked in the past about how there is of course competition from JAK inhibitors and of course this.

As Janssen drug so.

But just be curious I believe this is an injection based medicine, though I believe consumers can self inject.

Can you just walk through some of the maybe the competitive dynamics that might have existed with symphony and just kind of the overarching decision to terminate.

Yes, we were very excited about this agreement and remember this agreement took place before anybody ever heard of COVID-19. So the agreement was solid we still have a great relationship with them.

It is a self injected at home anti TNF.

And Janssen, just got a lot nervous as the pandemic hit and so forth, we evaluate our company based on the quality assets, we have and the Rois that returns and as Symphony as the agreement started pulling back as far as the ability to reach the levels. We wanted to it fit in the bag in that spot I'm going to Mark.

Hazeltine Who's right here in front of me he negotiated the deal and I'm going to turn it over to him to add some more color, yes sounds good mark when we look at the competitive landscape Youre, absolutely right JAK inhibitors have come on the market in a big way, we track some of the pharmaceutical marketing spend and you'll see these JAK inhibitors.

Commanding quite a bit of attention in the marketplace, they're convenient with regards to being a pill versus an injection or an IV solution. So it is indeed, a competitive marketplace with that said, it's still a large marketplace for our a about $30 billion on therapeutic spend here in the U S.

More importantly, though as Ron alluded to as Covid reared itself last year and the uncertainty with how IV products versus sub Q products will be impacted that's when we saw the fundamental economics of our deal with the Symphony co promotion change, we had a cap implemented and that in turn.

<unk> really affected the ROI and the ability to continue to.

Put put our full leverage behind the product so as the Delta variance started emerging this year and we saw a continued period of Covid being an issue we re strategy.

We prioritized symphony as it relates to the rest of our portfolio and mutually decided that it was time to break.

Yes that makes sense I guess related to that you do have a large sales force calling on a net.

Which market focused market I should say.

Are you having conversations with other Biopharma partners are potentially with other therapies, whether it's all oral or others.

Do you think you could leverage your commercial team in the future.

Yes, so mark we think our sales force is the right size. We know that there are companies out there that have 100, 110 representatives, calling on Rheumatologists quite frankly, I'm not sure what Theyre doing all day, we think our size is correct for what we have in the portfolio of products. So the sales force is right sized from what we're doing now.

And we are committed to integrated sales our mantra. If you will is we want to on the hilltop what that means is we want to bring all the assets to this bite sized market called Rheumatologists are connected tissue and be the only company. They really think about the surround sales. So if the product has met the criteria that we have for <unk>.

Roy for how we can leverage our current sales force and leverage our current infrastructure and it's a trusted partner that won't change any agreements then we'll take it under consideration. So we have turned down assets because it didn't meet our criteria.

But we're still committed to integrated sales, we think it's a positive thing to do if and when the appropriate product shows up and meets the criteria that we outlined for for inclusion into our sales bag.

Excellent and then 1 last question from me you guys did strengthened your balance sheet earlier this year.

Over $100 million of cash on the balance sheet.

Sure.

Other net losses are quite small so you are almost operating relatively close to breakeven I guess, how should we think about your.

M&A plans.

Over the next year or 2.

Seemingly we do see a decent amount of sort of tuck in acquisitions across the diagnostics space. So I'd love to hear any comments you have on just.

Multiple types of assets that might be out there and what youre thinking about may.

Maybe making a deal on the future.

Yes, I mean, obviously, we are doing really well, we're dominating a channel.

Price will find to Rheumatologists out there that hasn't heard of us Nonetheless, written their products multiple multiple times as you can tell by the 99% stickiness that we have I don't actively.

We have so much in our bag right now Mark I mean, our pipeline is.

Is robust.

If and when the proper M&A comes in we'll take a look at it but that's not the focus of focus right. Now is to continue to have commercial excellence on the assets, we have and develop the fiber product to be what we know it can be as the first rule in and develop the thrombosis product to help patients that may have a heart attack or stroke and continue to strengthen that.

The lupus nephritis asset we have and monitor those are just 3 of the assets that are really exciting quite frankly, when I look at other products that are there out there I think our pipeline matches up extremely well so while.

I hear the words and I read the same things you do on M&A and tuck ins and so forth. Our goal here is commercial excellence develop that pipeline and then if and when the appropriate situation comes up we will evaluate it at that time.

Terrific. Thanks, guys.

Our next question is from Kyle Mixon with Canaccord Genuity. Please proceed with your question.

Hi, guys. Thanks for taking the questions. Congrats on a great quarter here. So I wanted to start with the guidance come on.

At the midpoint it looks like it's assuming like 5% growth in the second half of the year. So I mean, if I just straight line the volume from Tokyo here to kind of get like $50 million in.

In revenue so could you just kind of discuss.

Youre, assuming like a significant level of conservatism and maybe I understand that they are answered on spreading and everything but just tell us what's kind of assumed I guess on that back half of the year Guide. Please. Thanks, yes. Thanks, Paul for the question.

On the portion of the revenue and the guidance Thats for testing that I'll focus on that as the $46 million to $48 million and that is 27% year over year for that testing.

Portion of the revenue now.

The Delta variant, causing some uncertainty it's hard to see what's happening in Q4 for us and Rob did mention that we did see a little bit more vacation time with physicians and patients over the summer. So we do feel like there could be 2 chances to see Q4, a little bit lower than what we might have previously.

<unk> talked before that Delta variant came up and Thats being driven from the uncertainty around Delta and also around potentially more vacation time around the holidays in Q4.

Okay.

Thanks, a lot.

And there is that seasonality like in the winter months I think we've talked about that in the past. So I think that all makes sense on.

And then on the therapeutics from obviously noticed that Astrazeneca. This drug was approved as a first in class treatment for SMA.

So either therapeutics and sub analyst day, so 2 questions about that.

Just first could you confirm if you have a relationship with Astrazeneca currently I know Prometheus did obviously for.

And then second.

The drug box type 1 interferons I know you've talked about working with interferon from the past do you see any like synergies between <unk>.

Combining your test with this drug.

Yeah, Great question so.

We have relationships with a lot of pharma and obviously, Dr. Deb Zack Phd Board certified Rheumatologist, She knows a lot of people there on their research area.

So my relationships when I worked with them in the past plus debt and so forth and we know that companies that are entering the lupus area or connective tissue area. We.

We know each other it's not that crowded over market. We're excited to see a second asset come in for lupus and this 1 seems to be a good 1 the interferon alpha markers.

As I've said publicly we want to get into multi omics and they know we know it and we are working on our multi omics strategy with interferon Alpha obviously being something we're taken under serious consideration.

Okay interesting just 1 last question for me actually about the multi omics strategy.

This assay is that youll be developing.

Do you think that these tests will meaningfully expand your market opportunity or will they allow you to be more nimble and effective within your current $5 billion Tam.

That's my question and also thank you for the timelines to it that was that was great. Thanks guys.

Good well thank you again good questions.

Our teams do not represent the pipelines so that it's with our existing assets.

As far as when we were taking a look at expanding because of multi omics. What it does it's 2 things 1 is obviously the reimbursement or the ISP for for those type of assets is higher than where proteins, but from a patient standpoint. It also allows you to get to.

Diagnosis earlier as RNA starts breaking away from DNA Youre watching it express youre getting further up the chain. So it could expand the market into earlier diagnosis.

And it could expand the market if in fact, we find out it's a way to do drug response, and find out which drug works better. So there are 2 ways it could expand within the existing rheumatology connective tissue area.

Alright, great. Thanks, a lot Ron congrats.

Congrats again.

Thank you.

Our next question is from Paul Knight with Keybanc capital markets. Please proceed with your question.

Hey, Ron when you mentioned, the R&D and lab capacity expansions, what does that represent as a percentage increase on the current capacity.

Yes.

We think the foreseeable future will be well taken care of with the 8000 square feet on R&D and can continue.

Continuing to buy better equipment that's.

That we got from Thermo Fisher, which can do multiplexing and moving that direction.

Equipments gotten a lot better than when I first started in this industry and that really helps you have a smaller footprint in the lab. Nonetheless, we're doing so well we did need to expand the way we are and now with doing multi omics. Obviously you have to separate those 2 the protein in the lab and the molecular.

On molecular lab, so they have to be in 2 different areas. So that's that initiative has started its taken off and will allow us to meet current as well as near term future capabilities as far as capacity is concerned.

Okay, Yes.

About 20% or can you quantify it.

Mark are you are the closest to it yes, Paul will give some additional color here, we expanded the clinical lab last year by about 2000 square feet for a total of 10000, the clinical lab expansion, we're doing this year.

We will get us another 8000 square feet.

2 the R&D side, we've been sharing clinical laboratory space with the R&D organization for a number of years. So we are now breaking out in independent R&D lab.

Of.

The sizing of about 6000 square feet.

With both of these expansions.

Like Ron indicated we're going to have the capacity necessary to run our trials from our studies and also continue with our clinical operations.

Okay. Thanks, and then Ron.

My view of the Alleghany agreement is that they have a bio repository, which probably gives him a 4 to 5 year head start on any R&D program correct.

Specifically when you look at these programs would it have they done companion diagnostic programs with therapeutic developers what have you seen from them that kind of gets you.

Excited about that.

On bio repository.

Paul you're absolutely right. It is a head start I can't quantify the exact amount of time, but when you're a company like us or any publicly traded company. That's in the diagnostic testing area and you've got to collect your own blood get your own signatures make sure they're well characterized it's daunting, but by tapping into a university like this that.

Does this every single day. It is a huge head start again I can't quantify how much faster we are into the into the discussions with them, but without a doubt its going to leapfrog us as far as being able to test some of the concepts we have as far as the companion diagnostics.

I have talked to Joey Hearn. He is interested in that and we do have a couple of initiatives, where we'll take a look at those capabilities. He has done some work in that in the past and we're going to get a deeper dive on that in their next meeting with them.

Okay. Thank you.

Thanks, Paul.

We've reached the end of the question and answer session. At this time I'd like to turn the call over to Ron Rocca for closing comments.

Great. Thank you very much we are really excited with the first half of the year on what we've been able to do we are excited about 2019.2020. It really shows the ability of when you. When you provide commercial excellence combined with terrific assets, where the company can do this marketplace. We feel we grew it. This channel is 1 were very.

Free proud of and we want to continue to leverage it for continuing resources. The 1 thing that should never be lost on any discussion is the patient and I've said it before I'll say it again, if we can help.

Helping autoimmune patients may not change the world, but it could mean the world for that 1 patient that has a cultural thing in this company keeping the patient first being discovery driven patient focused so I want to thank everybody today, because as the company continues to do well, we will continue to help more and more patients get the current.

Diagnosis for some things that are clinically very hard to diagnose without a test like ours. Thank you everyone for a terrific call really appreciate it looking forward to.

Doing this again for Q3.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.