Q3 2023 Exagen Inc Earnings Call
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Greetings and welcome to the oxygen Inc. Third quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad and answer them.
Minder. This conference is being recorded and it is now my pleasure to introduce to you Ryan Douglas with Investor Relations. Thank you Ryan. Please go ahead.
Good afternoon, and thank you for joining US earlier today extra Jenne, Inc. Released financial results for the quarter ended September 32023 release is currently available on the company's website at www dot accident Dot com.
John <unk>, President and Chief Executive Officer, and Kamala Dowie, Chief Financial 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 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 for the quarter potential profitability, our current and future product offerings and reimbursement and coverage are based.
Upon current estimates and various assumptions.
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 all description of 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, 2022, and any subsequent filings. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted EBITDA, they've 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 and assessing our revenue and operating performance.
Conciliations 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 on the Investor Relations page of the company's website.
The information provided in this conference call speaks only as of the live broadcast today November 13th 2023, 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.
I'll turn the call over to John <unk>, President and CEO of oxygen.
Thanks, Ryan and thanks to everyone joining for today's call I'll walk through our third quarter results. The significant progress we are seeing an improving our business and provide updates on our overall progress to achieve profitability.
I will then turn the call over to our CFO come off for further details on our financial performance.
To start I am extremely pleased with the results we're seeing from initiatives implemented this year.
Our strategy of focusing on higher margin products and implementing changes that will allow us to expand margins is yielding results.
We are doing all of this while paying rigorous attention to controlling costs.
For Q3, our performance has continued the trend of surpassing expectations and we are well on pace to deliver record and growing advise CTD trailing 12 month ASP.
<unk> full year revenue and marked improvement in cash burn relative to last year.
The team at <unk> has greatly improved the organization, while continuing to serve rheumatologists throughout the U S with the best testing available.
Specifically, highlighting a few key metrics.
Our trailing 12 month ASP has reached an all time high for advise CTD testing and increased from $279 at the start of the year to over $320. This past quarter, reflecting a $40 increase.
This progress corresponds to third quarter revenue of $13 4 million with gross margins of 57%.
The increases we've seen in ASP over the past few quarters are the result of a more effective billing operation and improved cash collections.
We've worked extremely hard to improve in this area and the results are showing.
Our gains in collections from commercial payers, which is not easy to do.
And a direct reflection of our ability to execute.
To give an example, historically accounts over a year old had a very low probability of being collected on.
But with the improvements to our billing processes, we've been able to see improved collections on these older cases.
In the third quarter, we were able to collect around $600000 from tests that were completed and build over a year ago.
This momentum is just the start and we expect to see continued growth in asps throughout our 2020 for performance.
Our ability to demonstrate improvement in asps, while significantly reducing costs is validating our strategy.
Our adjusted EBITDA for the first three quarters of 2022 reflected a negative $26 4 million.
Here in 'twenty, three we've cut that in half to $13 2 million, while delivering improved asps revenue and volume for the same nine month period.
Improvements to Asps continue to be the most powerful tool we can utilize to achieve our goals and we are delivering.
I'd like to provide a few details on cash management for the organization as we have seen significant collections. This past month.
Our accounts receivable balance at the end of September was $17 million, but it has improved to approximately $11 6 million on October 31.
Correspondingly our cash balance at the end of September was approximately $28 million and has increased to over $31 million at the end of October.
We anticipate finishing 2023 with more than $30 million of cash on hand, effectively improving our cash balance from the end of Q2 as we've drawn down our AR exactly.
Exactly as we expected.
When factoring our quarterly cash needs against our current cash balance we estimate that we have sufficient cash on hand to execute on our current operating strategy into late 2025 or early 'twenty six.
In the third quarter, we continued our strategy of implementing changes to our processes, which are expected to improve asps in the future.
And while I'm confident our team has made every effort to prepare and educate clients about these changes throughout the summer we did experience a modest decline in test volume in the third quarter to 32600 advise CTD test.
The decline was expected and was the driving factor in our guidance for Q3.
We believe our decline in volume will be transient in the long run as we pursue more profitable business.
It is important to recognize that not all testing volume aligns with our current strategy of improving asps.
And some of this loss is reflective of that.
Additionally, when we analyze the change in ordering patterns. We've observed that the majority of the decline is reflected in reduced test orders on a per physician basis and not tied to a significant contraction in the ordering physician base.
Our team is diligently working to support customers through this transition and established processes, which best fit each customer's clinical workflow.
We anticipate a return to prior volume levels in the back half of 2024 as we work through these changes.
For clarity, we believe our Q4 volume will be the low point.
Due to the inherent seasonality typically seen in our business this quarter.
And some lingering effect from our implemented changes, but building back from here as we head into the new year.
Our strategy remains rooted in improving advise CTD ASP and.
In the pursuit of more profitable business, which these changes have set us up to achieve.
In regard to our R&D efforts, we recently achieved a significant milestone and are pleased to announce that we've entered into exclusive license agreement with Johns Hopkins University.
To develop clinical tests leveraging novel Biomarkers for lupus nephritis.
This technology and invention is from the laboratory of Dr. Michelle Peachtree and Andrea <unk>.
The opportunity in lupus nephritis meets our requirements for developing testing solutions to better serve our customers.
When I speak to Rheumatologists in the field they have made it very clear.
Having access to Biomarkers, which would aid in the management of SLE patients with kidney involvement would provide significant utility to their practice.
And given that approximately half of all <unk> SLE patients go on to develop some form of lupus nephritis. We believe this technology will be instrumental in enabling better patient outcomes.
To hit on a few ancillary topics with the recent announcement from the FDA. We are closely monitoring the proposed rules to regulate lab developed tests such as advise CTD.
We believe that multiple details need to be addressed with greater clarity and are waiting for the dust to settle in this regard.
But we're familiar with a five 10-K, Ralph and believe that with our current level of supporting data advise CTD would be well positioned to comply or come into compliance with the fda's requirements and timelines should they come to fruition.
Okay.
Also in October we finalized our settlement with the department of Justice for an investigation that was related to activities, which have since been discontinued but occurred in 2014 and 2015.
The agreed upon settlement was approximately $650000 and we're pleased to put this issue behind us. So we can continue to focus on operating the business.
I will now highlight the financial performance in greater detail.
Thank you John and good afternoon, everyone.
For Q3, 2023 total revenues were $13 4 million compared with $14 1 million in Q2 of 2023 and $14 7 million in the third quarter of 2022 as a reminder for comparisons to prior year revenue in Q3 of 22 included $3 7 million of Medicare.
Revenue from Q2 2022.
Testing volumes for <unk> were $32 618, other testing revenue was $1 4 million in the third quarter of 2023, compared with $1 6 million in the second quarter of 2023, and $1 9 million in the third quarter of 2022.
Cost of revenue were $5 $7 million in Q3, resulting in a total gross margin of 57, 4% compared to 58, 7% in Q2 of 2023 and 59, 2% in the third quarter of 2022.
Operating.
Expenses were $18 5 million in the third quarter of 2023, compared with $22 5 million in the third quarter of 2022, primarily driven by a decrease in employee related expenses due to the reduction in force in early December 2022.
For the third quarter of 2023, our net loss was $5 4 million compared to a net loss of $8 1 million for the third quarter of 2022.
As we focus on profitability, we look to provide a consistent financial metric to measure the company's performance and will now be providing adjusted EBITDA on a go forward basis, our adjusted EBITDA excludes stock comp expense.
The large noncash expense for the organization adjusted EBITDA was negative $3 6 million for Q3 2023 compared to negative $6 1 million for Q3, 2022 and negative $13 9 million for the nine months ended September 32023, compared to negative $26 four.
During the same period in 2022.
We're seeing remarkable improvements in our adjusted EBITDA over the past few quarters and I fully expect to see the trend continue in 2024.
Please refer to our earnings release issued earlier today for a reconciliation of adjusted EBITDA to net loss.
Cash and cash equivalents as of September 32023 were $28 4 million.
As we have previously communicated with our revenue cycle management strategy. The claims held in Q1 and Q2 contributed to the AR balance increasing to $16 2 million in the second quarter.
Our balance at the end of Q3 was $17 million with the majority of the increase from Q2 to Q3 due to increases in our accrual rate driven by the success we have seen.
It increased collections.
From late September and into Q4, we've seen our cash collections accelerate to reiterate what John said, our AR balance decreased approximately $11 6 million on October 31.
Which in turn increased our cash balance to $31 4 million.
And I anticipate this trend to continue throughout the end of the year.
We're seeing greater results in our key metrics as we transform the business to a more profitable testing company for full year 2023 revenue, we're providing guidance of at least $50 million, which will be a record annual revenue for the organization.
We also believe better adjusted EBITDA for 2023 will be around negative $20 million and we expect adjusted EBITDA to improve in 2024.
We will now open the call for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you'd like to remove your question from the queue. So participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Yes.
One moment, while we poll for questions.
And the first question comes from the line of Kyle <unk> with Canaccord Genuity. Please proceed with your question.
Hey, guys. Thanks for taking my questions.
So on this volume decline that we're seeing sequentially happen.
I just.
I wanted to understand like why that's why what's going on here. It sounds like docs are ordering less tests for the clinician basis.
Or is it relatively.
Relatively stable not declining wire rheumatologists ordering less test and how do you correct that and then also why do you think this will last so far into 224, it wasn't quite clear on that.
Thanks.
Great. Good afternoon, Kyle Thanks for the question.
No.
We've made it very clear that our top priority as an organization is profitability.
And everything that we're doing is in pursuit of more profitable business. So we've changed a lot of things at the company as it pertains to working with us, including the individuals that customers interact with we went through.
A change in our sales force team in December of last year. So even the folks that are individual clinicians interact with has adjusted the policies.
They know us by.
And interact with us on have fluctuated along with the actual service we provide we have gotten better in many of these respects.
But it has been changed and I fully recognize that change is not easy for all folks, especially customers and it has an impact on testing demand. So.
That's what we saw here in Q3 again fully expected and that's why we guided the way we did.
These changes will improve our asps significantly overtime. Some of this is getting medical records on on specific cases and using.
Physician advocacy and pursuing appeals and so having their partnership there is requires a little bit more time on their side, but it is in pursuit of more profitable business and I will just say that our team prepared extremely well to educate customers. Our marketing team created very clear materials. We've worked very hard to explain the why we're doing this in.
Align on the message across the organization, so as customers talk to our internal customer service billing.
Or the actual field based reps, they've got a very clear concise aligned commute.
Communication.
We did launch the bulk of these changes in early Q3.
And pretty quickly there, we recognized an impact to volume, but if since flattened out.
We're building back this quarter, we expect to build back in Q1 from our standpoint.
This is Q1 would be the low point.
Excuse me Q4 would be the low point building back in Q1, and so we <unk>.
A few major and minor holidays here in Q4, which impact this as well.
Also corresponds to a lower number of lab days, we have our.
Rheumatology National meeting this quarter, it's actually in San Diego, but it pulled a significant majority of the clinicians out of their practices for the full week.
And so.
All of those things kind of mixed together.
Or what's factoring into Q4 being the low point building back in the first half of the year and returning to <unk>.
And of those prior levels in the back half of the year, that's how we invest.
Envision it right now and I personally went into the field that was in the field in July August this month and have two trips planned for early December to interact with our customers firsthand.
To understand what are some of the challenges that people are facing with and being faced with and get that firsthand feedback from clinicians specifically visiting some of our top customers and the primary takeaway is.
Clinicians do understand the changes and why and that we're just working through as an organization in a partnership.
We're trying to figure out a way to optimize their clinical workflow to accommodate some of the things we need to be more effective on on our billing in our Asps side again, we're seeing those improvements on the ASP side. So it's absolutely the right way to go and it just takes an adjustment period and so how long does that adjustment period as is not set in stone, but we <unk>.
<unk> to be reflected in Q4 numbers and building back in Q1 early part of the year.
We've already started to see this in many territories building back from where we were at the start of the quarter. So, especially when you look at some of the normalized weekly numbers. So at least as it stands for me I feel very confident that our growth in 24 will be a combination of both volume and ASP improvement as we've expected.
Okay that was great John Thanks for all that.
And then I wanted to ask the kind of the obvious question about the guidance was 10% to $10 5 million for the quarter, you beat by $3 million over $3 million.
While our performance was again very good to see did you was there any like one timers. This quarter I know that's kind of happened in the past I think I heard something about maybe like 600000 in prior periods collections, possibly but anything significant this quarter and then also just given the given that I mean, because this gross margin number a good way to think about the run rate level going forward, because I mean, it's great to see.
Mid to high Fifty's, just curious about like kind of.
The longer term.
Great. So combination of answers here Kyle address all the points you brought up.
<unk> hit some of the back half items.
For me personally.
The volume impact is a part of it and as I mentioned, we expect that to.
To be reflected in our Q4 numbers and then building back here in Q1. So that's part of that guide certainly our asps.
We've articulated in the past, it's very difficult for us to forecast and certainly to project increases in ASP.
We have shown an ability to drive consistent progress there over the course of this year and we believe that will continue but as we mentioned in the past.
Our conservative approach to this is to expect.
Expect that growth to be reflected kind of retroactively. So after we have the quarter, we're able to dive into what some of the factors there and the magnitude of that change. So while we do expect growth in asps, it's difficult to forecast the exact amount and thats reflected in the guide as well come all can speak to a few of the other points.
Thanks, John.
<unk> your questions in regards to a one time and the impact on gross margin historically, we've not had a lot of success on collecting on catheter were older than 12 months and as John mentioned in the prepared remarks, we collected around 600000 from task that we have the Ah <unk>.
And often there are older than 12 months now I don't want to call that one time the existence of the second quarter in a row that we have this success with tap that had been written off and that speaks volumes to the changes in building and the strategies that we're executing on there whether its appeal to medical records.
The small increase in patient pay were seeing higher asps.
On each task also so we've seen the ASB come up we've seen improved collections and we've seen collections on things that were written off.
Now the impact on gross margin.
We should have seen you can argue higher gross margins in the past because.
We had lower accrual rate that we've had to take up the collections have been.
More successful this quarter.
So we came in around.
<unk> 57 per side, if you back out that 600000, yes, you're in the low 50%.
Low to mid $50 as were we.
<unk>.
<unk> have been year to date, so that that is a good run rate Eric good way to think about our gross margin percent.
Okay. Yeah that was brilliant. Thank you so much for that one last question for me on the cash flow dynamics, great to see what happened.
After the quarter end I guess.
Good to see that it sounds like pretty positive commentary for 234 as well.
And you provide the EBITDA metric now going forward too so that's great.
I was just wondering if you guys talk about the working capital and kind of like General cash collection for spring trends in 224 look by the quarters I just wanted to know if there's any like seasonality.
When there could be like significant burn one quarter, and then like a material maybe.
Operating cash generation in the next quarter kind of a thing just curious if there's anything you can comment.
Sure on that.
Well Carl just the networking capital comments you had in there.
Obviously, the biggest change we've seen this year was the uptick in AR and Thats why we wanted to give more color on that with providing the AR balance on $10 31, which was down $5 5 million from where we ended on September 30 in just one month, so that is trending in the right direction, but in <unk>.
<unk>.
<unk> net working capital and the seasonality, yes likely.
Likely something that we will see uptick during the year and decrease towards the end of the year.
Okay perfect. Thanks Kumar Thank you guys.
Okay.
And the next question comes from the line of Mark Massaro with BTG. Please proceed with your question.
Hey, guys. Thank you for taking the questions.
I wanted to start.
John I just wanted to clarify.
That you made in the prepared remarks that that you expect.
Q4 volume to be the low point I wanted to just clarify that you mean Q4 2023, and just help me understand this sort of bridge back to the back half of 2024 to return to <unk>.
<unk> historical prior record volume levels.
Absolutely afternoon, Mark Thanks for the question.
So to your first point around timing.
The impact regarding volume so what we saw this as a reset year. So what we saw after we implemented changes mostly policy based changes to the way we approach billing and again. This is to give you a flavor for this or a feel for this this is our patient responsibility. This is the requirement of medical rep.
<unk> these types of things so that we're more effective on the appeal side et cetera, as we as we implemented those we saw an immediate.
Response reflected in orders per physician not so much a contraction in the physician base, but just people are getting adjusted to the change and as I mentioned working to establish processes within their clinic that keeps them functioning efficiently, but also meets our requirements and so.
We saw that fairly immediately in the summer. We also had a mix of.
Some vacations with clinicians as well and so by the end of the somewhere where we're getting a feel for what that run rate would be and we saw basically flatten out.
And here in Q4 as I mentioned, so if you assume that the effect.
Would have anticipated related to volume from these changes has been recognized are reflected in the business.
And then Q4 has.
Lower number of effective lab days, and that's really what's factoring into that and why we believe Q4 will be the low point for volume is that we've started to build back in <unk>.
Spoke with individual clinicians with our field based team different territories and Thats the impression that we have across the organization certainly.
Because that we are building back, but when you take a look at having Thanksgiving Christmas.
You have veterans day, where we've got a weak sauce.
Solid week of.
Meetings here in San Diego with the American College of Rheumatology meeting occurring here pose significant.
Amount of Rheumatologists out of practice.
Into their societies weeklong meeting and so we see that reflected in volume as well so that on a normalized basis, we have seasonality in Q4, we've seen this in prior years as well and so that's why we call out Q4 as the low point volume Wise and then building back from here given that Q1 is a historically.
<unk> quarter for Us we've got a full slate of lab days and effective lab days at that.
And we've already been been working to build back and have that sentiment internally. So that's the function and youre exactly right I meant 2023, thanks for the opportunity to clarify that.
No.
This quarter that we're in right now being the low point and then building back from here.
Perfect. Thank you for clarifying that I know I believe it was on our last earnings call you talked about the potential to move up.
<unk> CTD into guidelines.
Just be curious.
I recognize that that may not be a near term initiative, but I was just curious if you had an update with.
With respect to <unk>.
Anything youre doing on the guideline fronts or.
How we should think about the opportunity going forward.
So inclusion in guidelines would be a catalyst for us both from a payer side as well as adoption continue to push on both fronts and we recognize it as a very valuable aspect of the product and differentiating aspect of that so it's part of our strategy. When I came on board last year about.
This time placed a heightened focus on it and we've we've laid out some very clear objectives first b.
Get to know the people on the guidelines I think once it starts. There then you get a great flow of <unk>.
<unk> back and then you can actually make informed decisions hopefully based on facts.
To get included into guidelines, so we've done that and we've been working throughout this year to establish those relationships.
This past quarter actually September we were included in.
In a new update on the Lucas Lucas Encyclopedia and this is a this is a book of publication at the very thick book actually several hundred pages, which is that for both clinicians and patients. It's written by a clinician Don Thomas just gives you a feel for him and one second Dr. Don Thomas but.
We have five pages devoted to our testing and its under the heading of specialized.
Testing within lupus and.
Specifically it tighten there that there is there is no other testing worth mentioning and so.
From our perspective, having.
Noted.
Inclusion in that in that publication. If you will of that book was a very important milestone for our company for a couple of reasons one it specifically reviews the body of literature supporting advised lupus and sites advised lupus is a very useful tool for both clinicians and patients. So now we have that external validation.
No we're not affiliated with the lupus encyclopedia by any means and so.
That's a huge positive the other thing is our secondarily Dr. Don Thomas sits on the guidelines six out of the panel of 15, clinicians who formed the guidelines for.
Diagnostic use.
Diagnostics within lupus and so to have him put that in the public domain.
To reference our company our tests the algorithm.
Multiple aspects about the organization and the tests that we provide is huge for us. So we are still not in the guidelines, but I think we are having meaningful progress, especially in one year's time to have that reflected in a in a publication I think is huge from our standpoint and so.
We're seeing some some progress just as we're seeing with Asps just as we're seeing with cost control you see it really across the board.
Results being reflected in many of the things we're doing given our strategy.
Okay excellent and then last one for me.
I believe you signed a highmark Blue Cross Blue Shield earlier. This year would just be curious how conversations might be going with health plans.
Do you expect 2024 to be a year, where you can make some headway on that initiative.
Then is it fair to say that word.
Is there any update on the LCD for advised lupus kidney already and I would assume we're just in a waiting pattern, but any commentary you have there would be helpful.
Great I'll start with Meridian first and then work back into the commercial payer landscape.
From the Radian, we continue to be in a holding pattern.
And what that means as last year.
Timber ish of last year.
Thanks, Jim.
Submitted a request for coverage through meridian, our local Mac and we got acknowledgment that we have completed a request, but we wait in limbo for either a draft LCD to come out or a CAC meeting at which point, we would be on the agenda ideally and.
And then progressed there to a draft LCD so until that happens we remain in a holding pattern.
<unk>.
And no further update there we continue to be have coverage and reimbursement consistent with the clinical lab fee schedule are expected reimbursement for our Medicare claims and so no change on either of those fronts to report as it pertains to commercial.
<unk>.
I've I've taken the position that or the approach that.
Kind of referencing activity.
It is not.
Reflective.
Typically of the progress the underlying progress that's made and what I mean by that is you can have very productive discussions, but unless cash comes in the door.
It's.
I don't know that speaking about it is that productive and so what would the approach we've taken is.
To reference folks to our trailing 12 month, asps, which at the beginning of the year with $279 and in Q3 is $320. So we've seen a $40 increase in our trailing 12 month ASP and that's reflective of multiple.
Efforts that we've put in place some of them on the managed care front and having discussions with individual plans high marks.
Certainly part of that portfolio of efforts, but then we also have our appeals efforts are prior collections, we've got changes to our patient responsibility and really the confluence of.
Of activities is resulting in improved asps.
I've got no major contracts to report on we have talked to many medical directors over the past quarter and gotten some positive feedback, but also some areas for improving and so kind of getting on both sides, but ultimately trying to turn those conversations into cash in the door.
And we've been effective at doing that over the first nine months of this year, we expect the bulk of those efforts to be reflected in our ASP in Q4 Q1 into 2024.
Excellent sorry, one last quick one for <unk>.
Great to see the cash balance go up in the month of October instead of down I guess as we think about this.
Thats a dynamic that you laid out.
Is there a chance that we can continue to see this type of trend advance into early next year or do you do you think we will see this benefit will be realized by the end of 2023.
Thanks, Mark for that question in regards to.
We ended 2022 with a balance of $6 1 million.
<unk>, probably been viewing the baseline now keep in mind, our volume did increase year to date.
Through Q3 versus Q3, 'twenty two by six 2%, so when I'm thinking about AAR internally for managing the business I am viewing it as baseline $6 1 million figure. That's how we started the year volumes up six 2% in asp's up of that so that puts me around $7 million of where I feel comfort.
With the AAR getting back to if we make it through all of the claims by end of year, which as we just indicated we are brought down by $5 5 million in October So, we're making great progress collecting more than we anticipated and should see that air number get back down.
To those normal levels by the end of the year.
Awesome that's it for me thank you.
And the next question comes from the line of Dan Brennan with TD Cowen. Please proceed with your question.
Great. Thanks, Congrats on the quarter.
So just a question maybe on the fourth quarter math.
So we calculate what the ASP in the quarter around 400, roughly you're going to get to your numbers extra 600000 a.
Prior periods that would imply.
At a minimum guide for <unk> for the full year, you said $50 million that would imply roughly around 28000 tests and <unk> was that.
Is that is that reasonable sort of things like pricing at least stable with 28000 would be like get you to the bottom end of that range.
So I think thats, a little aggressive on the ASP side.
And.
Underperforming on the volume side.
We didn't break out our guidance, specifically by volume or Asps, but to give you some qualitative feedback there.
We believe we'll have higher volume.
That likely but.
ASP at 400 would be a bit of a jump from where we're at at the $3 20.
Oh, sorry, I was talking about in quarter ISP, not trailing 12 month basis, sorry about that.
Gotcha, so in quarter Asps still jumping up to 400 in Q4. It may happen don't know yet, but I still think that's aggressive.
Got it.
So.
Yes, we can do the math I guess offline just on the ASP you, Matt I was just wondering wherever we exit the year.
On an I can even quarter ISP.
How do we think about like the fourth quarter in quarter Asps as a jump off point.
For 2020 for ESP should we increase from there it sounds like from the answer to Mark's question, John It seems like or come off seems like Theres. Some clearly price is the focus but it sounds like there's even some more near term tailwind for price so depend.
Depending upon where we land on <unk> price like should we expect that number to improve as we go through 'twenty four.
So one way to think about if you look at the seasonality of the business gone from Q4 to Q1.
Calculating just the quarter Asps.
Q4 dollars 21 to Q4 to Q1 2021 from 304 to $2 81, and then you saw a similar decline from 'twenty to Q4 to Q1, 'twenty three $3 27 to $2 62 now the decline from 'twenty two to 'twenty three was a little bit more because the PLD code went to the <unk>.
Fallout schedule and that.
Also impacted what that rate was going into the year, but what is common in all the other years as you can see when you calculate the Q1.
Versus Q4, ASP is the deductible reset.
That's something that.
I do factor and for modeling purposes.
What's that going to do to.
Revenue for next year or so in regards to seasonality between the quarters I should say so yes.
The deductible does.
Cause it to come down slightly in Q1, but similar to what you've seen in every year it builds up from that point.
Got it okay. That's fine we can work on thinking about the full year.
From a patient pay basis like how did that go in the quarter I know that was a new initiatives you guys put in place just wondering what kind of benefit or kind of impact you saw from that.
In the quarter.
Virtually no impact from patient pay and I'll explain why so far.
So we do everything we can to work with the patient's insurance before going back to them right.
So what that means is we file claim after <unk>.
Performed the test and then we'll work to appeal that that patients claim.
If it was denied and so that may take on the shorter end around 90 days and on the more traditional land up to nine months, if you will.
And.
In that process, we're going back and forth getting medical records.
It may be different reasons for denial, so having a discussion around that and potentially getting on the phone with a medical liaison or a director there and having a discussion clinician to clinician once that process has been exhausted then we actually go to the patient and so that's when that would start to reflect in our asps.
But yet the policy and you have to set the expectation with the patient upfront. So the policy has been put in place as of early July because we want people to be we want to be transparent we want people to know that if we have changed our prices what they are and so you see the impact to volume if you will from that change.
Once you <unk>.
<unk> to the pub, and then actually get it reflected in Asps once you start billing patients which.
It doesn't come for some time as I just explained so does.
Does that help.
Yeah, No no John.
Understand that then okay.
So that will be and then maybe <unk>.
Coming up sorry.
Sorry.
No I got it.
And then maybe just final one.
Yes.
I know you've talked about being profitable I think its $75 million in revenue what 60% gross margin.
Presumably the success, you're having here with with the with the program if anything would ideally hopefully get you to that point earlier or does anything really change and kind of how you think about the road to kind of cash flow breakeven given some of the success you've had so far.
So nothing changes in in the fact that if we keep our operating expense roughly where it is at $75 million in revenue and that 60% gross margin rate.
We obtain a cash flow positive state and so that's the picture that we believe we need to hit from a golf standpoint, Youre right that we've been working kind of ahead of schedule. If you will.
Get there and we have some great momentum with more things on the come as we just discussed.
And specifically, citing some of those patient rates and what have you. So our cash burn rate has come down year over year.
Okay.
We're taking a look at from an adjusted EBITDA standpoint.
Year to date first nine months of 2020.
$226 4 million and adjusted EBITDA net loss there.
And then from 2023, we've cut that in half.
As we sit here today, our cash balance is around $30 million, a little bit above and we expect to be there at the end of the year as well that gives us quite a bit of time.
We currently believe we are well positioned into late 2025 early 2026 to continue operating with our strategy our plan and see what type of impact that has.
And we will see how close we get to two or.
Our goal.
We believe we believe we are well on track and delivering ahead of schedule here. So nothing changes in the overall picture the pace is.
Yes.
I'm happy with the pace that we're making I wish we're going faster a little bit faster, a little bit better always but I am happy with the pace.
We're taking now.
Great perfect. Thank you.
And the next question comes from the line of Andrew Brachman with William Blair. Please proceed with your question.
Hey, guys. Good afternoon, thanks for taking the question.
I'll just start on the Johns Hopkins agreement and just sort of recognizing there's probably a little bit of work that still needs to be done there before launching.
Commercial product, but John can you just talk to us about how investors should be thinking about evaluating the success of that agreement and not trying to pin you down on any sort of time frames, our timelines, but anything to keep out in terms of key milestones here. Thanks.
Yeah, Hey, Andrew Good afternoon, and thanks for joining the call. So we are very excited about this opportunity.
Really.
We're working to develop clinically meaningful technology that meet the high customer need we've laid in some of these criteria out in the past, but has clinical clear clinical utility proprietary nature to the technology path to value based reimbursement and really this agreement satisfies all of those requirements and that's why.
We're so excited to partner.
With the team there very.
A very renown group of folks, which discovered and created this invention. So.
Very excited from that standpoint to give you a little bit of background lupus nephritis effects, roughly 50% of the lupus patients. So we're broadening our coverage of <unk> lupus patient journey. This.
This technology really has gained a lot of attention and certainly at ACR. That's again the annual meeting American College of Rheumatology last year. The first abstract came out there and was presented.
So over the over the last year, we were able to secure an exclusive worldwide license to develop these markers in the clinical tests and we've already initiated a prospective trial that was actually part of our R&D spend this year to recruit patients for development in and that startup. So we anticipate being able to move fairly quickly now I still don't expect.
Significant revenue contribution within a 24 month period, which has been the timeline.
<unk> as a threshold for <unk>.
Playing a lot of a lot of this stuff out but that may change, but at least as it stands now.
Our conservative approach to this there's two drugs on the market in this area to help treat this condition one is from GSK the other from Iranian.
And we're working to see how this tool can start to improve trials and research in this space as a first step as I'm sure you know being able to profile of these patients identify these patients.
Is very important and useful and in the development process for many of these pharma company. So that's a logical first step for us to de risk and accelerate the path here, it's a protein based technology, which aligns very much with our existing competency also helps from a value based pricing standpoint gives us.
A potential opportunity to crosswalk.
On a code when we get to that point, but.
Again kind of leads to some of the lens to some of the excitement we have and then maybe kind of to wrap it up.
Have we have to follow the science. So thats. The number one thing here as you said there is still some work to be done, but ultimately we envision. This test is a measure of disease activity. So that would be used to track patient response to therapy over time and would inform on an individual patient's treatment response so.
Likely a tool that's used to manage this patient throughout their journey.
And we can go from there we'll be able to flesh. This out again is the science kind of dictates and share some of those meaningful milestones, especially as they hit print or publication, but.
It's an area that we believe aligns very closely with what we're doing and should be a very nice bolt on for us.
From a development standpoint.
Okay, that's terrific and then.
You've done a lot to revamp sort of the appeals process year over last year can you just level set us on where you think we are recognizing the benefits from those changes and sort of what gives you the confidence that those are going to continue to sort of bear fruit as we look to 2024.
Yeah, we're really in the pregame warmup.
Andrew is the way we view, we view it and the reason that I state that is.
The revamp of an appeals process takes time, we held claims for the first six months of the year and in doing so it let us put many of these changes in place we implemented the customer facing policy changes here in July but.
To actually.
<unk> results in an ASP.
Standpoint, it takes that nine to 12 month period, and that's why we've we've worked hard to communicate around Q4 into 2024 being the timeline that we expect to see.
Consistent improvement in Asps now it just so happens that some of these changes have been reflected earlier and if we're looking at claims where historically we had.
More of a challenge getting reimbursed and we've been able to turn that tide. That's great. Our primary focus has been current claims where we havent passed some of the timely filing.
Restrictions and where we're able to make some meaningful progress on a per payer medical policy standpoint, so those haven't come yet.
We're well in process, we have implemented the changes to kind of attack that area. If you will but.
But we still have.
A lot more to see and to do because some of this is also a significant learning process as we get feedback from individual payers, we will adjust our game plan.
Certain lenders that are going to be more effective on an appeal basis, and we'll find out how to make are less effective ones more effective overtime. So I think we're in early stages here and again.
We conveyed that Q4 into 2024 would be where we start to see progress great to see it earlier ahead of schedule doesn't mean that.
There is not more coming and so I would expect.
Our original communication to ring true here.
Okay Super helpful. Thanks, guys.
Great.
There are no further questions at this time I would like to turn the floor back over to John <unk> for any closing comments.
Thanks again for joining the call I'm extremely proud of the team and their efforts this past quarter.
Now very consistently demonstrating performance.
In key areas and we transform the organization into a more profitable entity.
We successfully implemented many changes to improve ASP and are seeing momentum there, we've reduced our cash burn and thereby significantly extended our runway well into 2025 early 'twenty six.
We're evolving our R&D pipeline, which we expected to lead to growth in future years. So our strategy is clear.
We're executing well.
We have the rheumatology community in town right now for their annual meeting and it's just an energizing time for us with everything going on and I'm excited to continue building a stronger <unk> going forward. So thanks again, and we very much appreciate you joining the call.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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