Q2 2022 Exagen Inc Earnings Call

Q2, 2022 earnings call all lines have been placed on a listen only mode and the floor will be opened for questions and comments following the presentation.

If you would like to enter the queue for questions. Please press star one on your telephone keypad.

At this time it is my pleasure to turn the floor over to your whole Ryan Douglas Investor Relations.

Sir the floor is yours, good afternoon, and thank you for joining US today earlier today estrogen Inc. Released financial results for the quarter ended June 32022 release is currently available on the company's website at www dot oxygen dot com.

Ron Rocca, President and Chief Executive Officer, <unk>, <unk>, Chief Financial Officer, 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. They 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 2022 guidance the impact of COVID-19 pandemic on our business, our current and future product offerings and.

<unk> 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, 2021, and subsequent filings. The information provided in the conference call speaks only to the live broadcasting today August four 2022.

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 thanks to everyone joining the call today I will discuss our Q2 business highlights and give updates on payers our pipeline the newly published Capstone study and the initiation of our Tiger clinical experience study for radar platform. I'll, then hand, the call over to <unk> our CFO .

For details on our financial results as always we appreciate your continued support of estrogen.

In the second quarter of 2022, we achieved a record of 2273 total ordering health care providers and a record of 797 adopters for our flagship advise CTD and advised lupus test we.

We had a record of 34919 advise CTD tests delivered for the quarter and a record of 65822 advise CTD test delivered year to date. Once again, we saw a high retention rate of approximately 99% among adopting health care providers from the <unk>.

Prior quarter.

This marks the eighth quarter in a row with at least 99% stickiness and the eighth quarter in a row that we have set a record for adopters as well as the six quarter in a row setting a new record for ordering health care providers. We are pleased with all of these achievements, which demonstrate the value.

Our brands provide patients and physicians last quarter, we disclosed that effective April one 2022, CMS agreed to recognize appeal a code for a protein based test advised lupus meridian or Mac price. This PLE code at $185 per test the process for <unk>.

Obtaining and maintaining consistent reimbursement for new test can be uncertain lengthy and time consuming.

During the quarter ended June 32022, we submitted to <unk> 3749 claims for Medicare part B reimbursement under our PLE code for advised lupus as of August 1st 76 of these claims have been paid 335 claims have been denied.

And 2778 claims are subject to request from Meridian for additional information such as medical records. The balance of those claims remain pending with no response received a pricing determination is not synonymous with a coverage determination, having a price associated with the BLA code for any particular test.

It does not secure coverage or reimbursement for that Pls code from Medicare or any other third party provider.

In order to confirm coverage, we submitted a formal request to meridian for coverage of our advised lupus test under the new <unk> code. We have not yet received a response until this reimbursement issue is resolved we anticipate a significant interruption to our revenue from advised lupus with respect to Medicare claims.

<unk>.

The aggregate amount of reimbursement we are seeking for our unpaid advised lupus Medicare claims from Q2 is approximately $4 million all of the unpaid advised lupus Medicare claims are either under review being appealed or subject to request for additional information, which we are in the process of addressing due to.

The uncertainty of the outcome of these claims we cannot recognize revenue related to any open advised lupus Medicare claims until the uncertainty is definitively resolved and we can provide no assurance that such resolution will be achieved on a timely basis or at all to better understand our Medicare volumes in context for the period.

April one 2021 to March 31, 2020 to approximately 13% of our total orders for advise CTD test, including advised lupus where for Medicare beneficiaries for the same period revenue recognized for our revised CTD, including advised lupus for Medicare has averaged approximately.

Nearly 16% of our total revenue.

As we have done in the past we will also continue working with national commercial managed care plans to obtain and maintain coverage for advise of brands. We are proud of our capstone study, which is the largest comparative utility study in lupus diagnostics. This study was recently published in the journal of managed care and specialty pharmacy.

The findings of the Capstone study revealed that advised lupus test is more clinically effective both for patients who test positive and for those who test negative as compared to the current standard of care the.

The study Leverages multiple external data sources from hundreds of Rheumatologists and tens of thousands of patients comparing diagnosis treatment and the cost of care outcome for new patients tested with advised lupus and those tested with traditional <unk> approach, including specific auto antibodies. This study found that.

When using the advised lupus test as opposed to traditional <unk>.

Patients had six times greater odds of establishing an SLA diagnosis, two times lower laboratory costs and fewer follow up visits in the six months follow up period as well as three times greater odds of initiating <unk> treatment. This study exemplifies the advantage of advised lupus test.

For patients providers and payers delayed diagnosis leads to increase disease burden and diminishes the quality of life for the patient by receiving conclusive results providers are able to initiate treatment early reducing the need for more aggressive approach down the road that can lead to irreversible consequences for the patient.

We view this study as a major milestone in our dossier and are optimistic that the payers will find it compelling.

Turning to the update of our pipeline our radar platform continues to progress and I'm happy to announce that we have officially kicked off our clinical experience study.

The study is called Tiger, which stands for treatment stratification using gene expression profiling in rheumatoid arthritis. The goal of the Tiger study is to assess whether certain molecular biomarkers from synovia biopsies of inflamed joint tissues accurately predict the response to anti rheumatic.

Medications.

We believe that the Biomarkers will allow health care providers to pinpoint the correct treatment for their patients individually without having to wait for extensive periods of time, where empirical trial and error approach. The study will be important step into development of radar for real world utilization.

Turning to our SLE monitoring test, we are enhancing it with urine markers and are looking to launch esselte monitor to no. Later this year <unk> monitor two <unk> will include biomarker specific for lupus nephritis, as we know lupus nephritis impacts 40% of lupus population, which can cause severe kidney damage.

Up to and including transplant.

We look forward to providing updates on our pipeline as they become available.

As we continue to navigate the myriad of payer policies, we remain confident that our strong science will allow us to advance the utility of our current assets.

Core business of <unk> remains strong and we continued to set new volume records and advance our pipeline.

I'll now turn the call over to <unk>.

Thank you Ron and good afternoon, everyone. As mentioned earlier, we continue to see the number of ordering health care providers increase this quarter. We achieved another record of 2273 ordering health care providers compared with 1934 in the second quarter of 2021 and two.

175 in Q1 2022, we also saw the testing volumes for revised CTD, including a <unk> loop has set new records in the second quarter, the task or approximately 6% year over year, and 13% quarter over quarter to a record 34919 tests delivered compared.

With 33228 in the second quarter of 2021 and 30903 in Q1 2022.

Even with these record volumes total revenues in the second quarter of 2022 were $9 million compared to $12 8 million in the second quarter of 2021. This represents a decrease of 30% over the second quarter of 2021 of the $3 $8 million year over year decrease.

$3 2 million as from a buying CTV. During 2000 is from other testing and another 300000 as from the termination of the Janssen agreement. The decrease of $3 2 million of <unk> CTD revenue is attributable to a decrease in average reimbursement per of buying DTD task due to.

Due to a decrease in estimated collections as well as our revenue accrual process of writing down our balances for claims greater than 12 months, we identify changes in the expected collection patterns with certain payers related to performance obligations satisfied in 2021, and the first quarter of <unk>.

2022, which resulted in a change in the estimated transaction price. Furthermore, a decrease in revenue recognized from Medicare was also a contributing factor.

<unk> CTD test revenue was $7 2 million in the second quarter of 2022, compared with $10 4 million in the second quarter of 2021. Other testing revenue was $1 8 million in the second quarter of 2022, compared with $2 1 million in the second quarter of 2021, our revised CTD and other.

Testing revenue resulted in hosting revenues of $9 million in the second quarter of 2022, compared with $12 5 million in the second quarter of 2021.

Cost of revenue were $6 1 million in Q2, resulting in total gross margins of 32, 2% compared to 57, 3% in the second quarter of 2021. The decrease in gross margin percentage was primarily attributable to a decrease in revenue as described testing gross margin was 32, 2% and then.

Second quarter of 2022 compared to 56, 3% in the second quarter of 2021.

Operating expenses in the quarter were $21 7 million compared with $18 5 million in the second quarter of 2021.

The increase was primarily due to employee related expenses, including stock based compensation and recruitment expenses associated with the overall increase in head count and an increase in R&D expenses and an increase in cost of revenue due to the increase in testing volumes. The net loss in the quarter was $13 3 million compared with six.

$4 million in the second quarter of 2021.

Looking to our balance sheet cash and cash equivalents as of June 32022 were approximately $76 4 million. During this time of reduced reimbursement from Medicare We will remain focused on controlling our spend to areas that drive revenue through our sales force and the development of future products, such as advisory radar of ice <unk>.

Grow and the enhanced Avaya <unk> monitor 2.0 tax for the full year 2022, due to the uncertainty in Medicare reimbursement lower than anticipated volume and ASP.

Agenda revises its guidance and expect revenue to be in the range of 35 million to $40 million. We will now open the call for questions.

Thank you the floor is now open for questions if you'd like to ask a question. Please press <unk>.

One on your telephone keypad at this time, our first question comes from Brian Weinstein with William Blair. Please state your question.

Hey, guys. Good afternoon. This is Chris I'm not sure Bryan. Thank you for the questions.

Maybe just to start a little bit more clarity on the guidance and the pricing dynamics here can you just talk about what the.

The assumptions are underlying this this updated guidance in terms of where asps are going to come in as to whether or not there should be any impact too.

Test volume share rest of the year.

Yes, and thanks for the question in regards to Asps. We did note that there is uncertainty around Medicare. So there is an assumption in there that we're not putting in Medicare for the rest of 2022 as we stated there were some increased need for medical necessity with some <unk>.

Ours, which slows down the collection process and has an impact on the change of estimate for the rates.

Okay, and then from a.

A volume perspective, I mean understanding that prior to the asp's are going be coming out here, but in terms of CMS volume or just total volumes do you expect any impact to those as a result of that.

Of this reimbursement change.

Actually not doctors, usually will write the product is best for the patient, which is usually our advised brands. So I don't think the volume will be impacted they'll continue to right. This is a this is clearly a medicare reimbursement issue that we're dealing with and it should not impact volume at all in fact, our Capstone study has been heralded very well by many.

The physicians largest study ever done in lupus diagnostic and the results of that have been incredible. The fact that was published in a top managed care Journal also helps too so the Griffin and I don't think volume is going to be impacted at all in fact, we're going to do everything we tend to accelerate it.

Okay understood and maybe just last one for me.

In terms of adopters, it's been record adapters here, but the numbers trended kind of that mid 30% range for the last couple of years, realizing it's on a growing base, but how do you drive that higher I guess could you just talk a little bit up.

So, it's really drive a little bit more depth.

Yes, Sir.

Sure a couple of things one is good science leads to good decisions. In this capstone study was very very important I don't know if I can impressed that enough on you.

How big it was that showed that you need less labs visits five times less A&H testing I mean, it was just a lot of really good things in this large study.

That should enable us to drive it as well as the fact that the adopters continuing to grow and stick with the brand as we add new adopters. So I'm.

I'm feeling good about the the demand part of the equation.

Okay. Thanks for the questions.

Our next question comes from.

Ralph <unk> with Cantor Fitzgerald. Please state your question.

Hi, Congrats on a record set during the quarter. Thanks for taking my questions.

Yeah.

Maybe just one more on guidance outside.

The pricing headwinds are you seeing any headwinds associated with the broader operating environment couple of other companies have called out prolonged vacation that's by doctors around the fourth of July and Labor day. So just curious are you seeing that and then lastly on guidance do you include.

Any of that $4 million of outstanding.

Claims with Medicare and <unk>.

High end or a second quickly taken out.

So I'll do the first part here, which is of vacations are always an issue in the summer probably more so than normal because post COVID-19 a lot of doctors didn't take vacation.

We continue to monitor the situation. The fortunate thing here is that even though the doctor goes on vacations. These patients are still out there and they usually end up with a <unk> in the office and so forth, but we'll continue to monitor that as we go forward towards the $4 million, yes, Rafi in regards to the fore.

Medicare being.

Whether or not is included in the high end of the guidance range no.

That is not included in any of the guidance range.

Okay great.

And then just last one for me can we walk through the.

Cadence of the quarter in terms of testing volumes and how on July shaped up relative to June .

Okay.

It ended up being a record quarter.

With over 34000 in demand.

Fourth of July being put July that was always a bad week, but.

Cadence is there is still going on as normal the great thing about the adopters or if they stick.

Don't go away and the <unk>.

Fact that we've added more of those and so forth that gives us confidence at this theres no retreating there.

Our asset provides value is of course, we're going to talk a lot about Medicare reimbursement today, but we've got to remember there is over 600000 tests since launch that's 600000 people that got an answer that probably wouldn't have got as good an answer if they didn't use our test so July as far as the demand.

Kept going and the breakdown was other than July 4th week, because obviously that we could take out it was the month we expected.

Okay, great. Thanks for taking my questions.

Thank you.

That was our final question I will turn the call back over to Ron.

Great. Thank you we are a patient focused discovery driven company. We're proud of doing over 680000 tests are advised lupus and <unk> CTD test and we will continue to work on reimbursement not only the Medicare reimbursement, but also on the commercial side.

We've got great momentum there with roughly 100 million covered lives will continue to work on the commercial payers for this we know there's great demand for our product that is filling an unmet need and it's a true solution for these patients that have autoimmune disorders that are often mixed. So we will continue to drive that and on the Medicare front, we'll continue to work.

With Medicare Mac meridian to be able to resolve this issue as soon as possible I want to thank you for your time and attention and your continued support of <unk> as much appreciate it. Thank you and have a great day.

Thank you. This concludes today's conference call. We thank you for your participation you may disconnect. Your lines at this time and have a great day.

Okay.

Okay.

Yes.

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