Q1 2025 Exagen Inc Earnings Call
Speaker Change: Greetings and welcome to the Exagen Inc. 1st quarter, 2025 earnings conference call. At this time, all participants are to listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
As a reminder, this conference is being recorded and recorded.
Ryan Douglas: I would now like to show the conference over to your host, Mr. Ryan Douglas, Investor Relations for Exagen A.
Thank you.
Thank you. You may begin.
Ryan Douglas: Good morning, and thank you for joining us. Earlier today, Exagen Inc. released financial results for the quarter-ended March 31st, 2025.
Speaker Change: John Aballi, our President and Chief Executive Officer, and Jeff Black, our Chief Financial Officer, will host this morning's call. The recording of today's call and the press release announcing the quarterly results can be found on the company's website at www.Exagen.com.
Speaker Change: As today's call includes forward-looking statements, we encourage you to review the statements contained in today's press release and the risk and uncertainties described in our FCC filings, which identify certain factors that may cause a company's actual events.
Speaker Change: Performance and Results to differ materially from those contained in the forward-looking statements made on today's call.
Speaker Change: In addition, we will discuss non-GAAP financial measures on this call. Descriptions of these non-GAAP financial measures and reconciliation of gap to non-GAAP financial measures are included in today's press release.
El-Malfurne McColle over to John
John Aballi: Good morning, everyone, and thanks for joining the call today. It's exciting to be reporting our first quarterly results with the impact of our new markers, and we are seeing fantastic
John Aballi: We plan to touch on that, along with providing additional color around the debt refinance we announced last week.
John Aballi: We have a lot going on at the company. We're off to a great start and it's an exciting time.
John Aballi: I'll detail a few critical topics relevant to our success and then turn the call over to Jeff for further detail on our financial performance over the last few months.
John Aballi: To start, we've delivered our ninth consecutive quarter of increasing trailing 12-month ASP, and we're incredibly proud of the progress we've made over the last two-plus years.
John Aballi: Our revenue cycle operations continue to improve and Jeff will provide additional commentary, but we are methodically growing our per case reimbursement and have started to generate real momentum with our market access efforts.
Speaker Change: I tend to shy away from describing activity as I believe cash in the doors is what really matters but I think it's important to highlight that we have started to win administrative law judge or ALJ hearings as part of our strategic reimbursement efforts.
Speaker Change: to explain a bit more over the course of the last couple of years. We sought to elevate our appeals efforts to that of an external review by a neutral third party.
Speaker Change: This takes a lot of time and diligence and is a learning process for each product we offer as we fine tune the packet of information we submit based on feedback throughout the process.
Speaker Change: This past quarter, we successfully won our first ALJ hearing, which was a formal hearing of a Medicare Advantage denial that we initiated as part of our ongoing efforts.
Speaker Change: The case was originally denied due to a medical policy determination at a large national insurer. And we petitioned the court for review in order to have this patient's case treated similar to other Medicare claims as it's entitled to.
Speaker Change: We won the case and are highly encouraged by this effort as it starts to set a precedent for future appeals.
Speaker Change: We have several other hearings planned in the weeks ahead and a few are with the same judge, so we're highly encouraged by this progress and look forward to future wins.
These wins provide reimbursement for that individual case.
Speaker Change: But also factor into our longer-term strategy of gaining awareness at the medical director level and bringing payers to the table while building momentum and leverage.
Speaker Change: I would expect over time that continued wins at the AOJ level catalyze efforts to improve medical policy with a broad set of payers, and we will see how long it takes, but this is a very good sign.
Speaker Change: Additional momentum was gained in this quarter by securing positive medical policy with TriCare, under which all active duty service members retirees and their families receive civilian medical care.
Speaker Change: We recently concluded a two-year effort where we underwent medical policy review through their formal process and advise TTD was granted positive medical policy.
Speaker Change: We are finalizing the contract efforts to ensure streamlined billing transactions, but this should be a catalyst for increased ASP in the future.
Speaker Change: These updates will be few and far between. Again, I believe the most relevant metric is still the trailing 12-month ASP, but both of these efforts have strategic implications relevant to the approach we've outlined over the past two years and are important milestones on their own.
and lastly regarding ASP progress.
Speaker Change: We continue to expect the incremental boost of our trailing 12-month ASP from the launch of our new markers to be approximately $90 by the end of the year. And with the momentum and real results I just described, we remain highly optimistic to mean our goal of adjusted even a positivity by year end.
Speaker Change: Our growth this quarter was fueled by a combination of continued gains in ASP but also volume, which was very exciting to see and was in part the result of our new biomarker launch.
This past quarter volume grew 6% over our Q4 performance.
Speaker Change: Our sales team is highly energized by the rapid adoption and favorable response to the reinvigorated Vibe CTD.
Speaker Change: In Q1, we launched our new markers, but we also spent a considerable amount of time training the team on the enhanced value proposition.
Speaker Change: I believe these efforts, along with fantastic preparation by our marketing and customer service teams, have enabled a highly successful launch with significant energy and excitement.
that is likely to persist.
Speaker Change: Additionally, our new head of sales, JR, has been on board now for about nine months and his impact is starting to yield results.
Speaker Change: Our sales team is more focused on selling, and we've removed as many of the administrative efforts from the role as possible.
Speaker Change: Of note, we are hiring as well, and it started to source talent for two expansion territories.
Speaker Change: If you're good at sales, hardworking, great at solving complex problems, have a dose of humility and operate with integrity, we'd love to have you join our team and help us build something special as we work to serve the rheumatology community.
Speaker Change: As we've seen with the broader organization, the stability of our team and reduced personnel turnover yield results.
Speaker Change: Our sales organization used to have voluntary turnover rates north of 30% just a few years back.
Speaker Change: Today, we have trailing 12-month voluntary turnover within our sales organization of 7 percent and that includes one recent retirement.
Congrats again, Bonnie. You've earned it.
Speaker Change: The progress in building a mission driven culture that rewards performance is evident in the positive trend these numbers illustrate.
Speaker Change: I'm very proud of the team we have. It's energizing to see the volume growth associated with having the right team in place with stability.
Speaker Change: We expect volume to continue to grow and have a couple more expansion territories identified which we anticipate opening for recruitment in the next couple of months.
Speaker Change: More to come, but it's great to see new clinicians incorporating the advised C2D test into their clinical practice, an increased adoption within our existing physician base.
Speaker Change: We are very pleased with the volume trend we're seeing to start the year.
Speaker Change: As we continue to turn around on the operational performance of our organization, we recently improved our financial position with a new credit facility from Perceptive Advisors, an exceptional business partner and highly credible life sciences investor.
Speaker Change: As a reminder, we had a $20 million loan that was maturing in April of 26th.
Speaker Change: While we anticipate being free cashflow positive by this time, the amortization schedule was over a 10 month period and too aggressive for our anticipated ability to service the debt.
Speaker Change: When Jeff joined the organization last year, this was a primary priority for him and he did a fantastic job engaging with RAW that Credo 180 to help us navigate the market and find a great partner to achieve the flexibility we needed in refinancing our debt obligations.
Speaker Change: I should also mention that we are excited to have the optionality of the current facility to tap into additional minimally diluted capital should we desire as we continue to shape our organization to be the pre-imminent provider of proprietary testing in the autoimmune
Speaker Change: We are very grateful to Sam and his team at Perceptive for partnering with us and building something special here and now have the flexibility to pursue profitability and ultimately to be leveraged on our own timeline and capitalize on growth opportunities in a way which maximizes shareholder returns.
Our efforts to develop future innovations which will drive growth.
Speaker Change: Continue with our next set of Surround Negative Markers, expected to launch around the end of this year.
Speaker Change: We've been working to clinically validate the utility of these markers over the past several months. And their contribution to clinical practice should mirror that of our recently launched RA33 markers.
Speaker Change: We expect to gain approximately 8% in overall sensitivity for identifying patients with rheumatoid arthritis, who would otherwise be serologically benign.
Speaker Change: The sensitivity gain puts our overall ability to detect the rheumatoid arthritis patient population at approximately 85 percent, far above conventional markers alone.
Speaker Change: This strong clinical value proposition should continue to open up a market for us, which we believe is approximately three times larger than the market for
Speaker Change: Additionally, our efforts to develop diagnostics for detection and management of lupus nephritis patients continue to track well, and we have now designed and with a partner manufactured a custom array specific to the first version of our assay, which was developed in conjunction with the team at Johns Hopkins. [inaudible]
Speaker Change: This pair-down array will enable throughput at much higher volume with lower cogs while focusing on the key relevant biomarkers for this disease application.
Speaker Change: We are currently testing the newly customized array and plan to have results in Q3.
Speaker Change: We are also actively engaged in the Biopharma level to find partners interested in leveraging this technology.
More to come.
Speaker Change: Strategically, we have been advancing efforts to develop early markers of kidney disease while we pursue the applications in the loop as nephritis.
Speaker Change: The results from these efforts are very encouraging and our chief medical officer, Dr. Mike Nuremberg, recently presented the findings from three clinical validations at the annual Chronic Kidney Disease Drug Development Summit in Boston a couple months ago.
Speaker Change: This work includes the profiling of two separate NIH cohorts and a Lupus nephritis cohort where we've shown great discriminating power for our proprietary analytes and identifying early disease while performing the current standard of care.
Speaker Change: We look forward to continued validation of this technology and are actively pursuing bioformer partners through our business development efforts.
Thank you.
Speaker Change: In general, our R&D pipeline continues to advance impactful technology in multiple areas of significant clinical need.
Speaker Change: Additionally, we continue our efforts to develop signatures of disease activity in both SLE and rheumatoid arthritis.
Speaker Change: But maybe the most important point I want to make here is that we have now successfully demonstrated a capability to bring novel biomarkers to the clinic with the current exigen team and then sell in a reasonable time period with a prudent level of resources.
Speaker Change: R&T teams have had to refine and build this skill, and the past 12 months have demonstrated a proficiency for doing so.
Speaker Change: I'm very proud of the teams for their work in this area and we have exciting opportunities in our pipeline, which we expect will have significant impact on patients and clinicians down the line.
Speaker Change: I'll now turn the call over to Jeff to provide additional details on this quarter's financial performance, but suffice it to say, I'm very enthusiastic about the track record our company has had and the track our company is on.
Speaker Change: We have what is shaping up to be a phenomenal year ahead of us, and we continue to generate moments in our business.
Speaker Change: Thank you John and good morning everyone. 2025 is up to a strong and exciting start. We're eager to keep building on this momentum throughout the year. We've made great progress on our financial objectives over the past quarter.
Speaker Change: Notably, as John mentioned, the launch of our new biomarkers and early read on the expanded ASP puts our profitability goals well within reach.
and we remain fully focused on achieving them.
Speaker Change: and our new credit facility with perceptive advisors extends maturity of our prior term debt, ensuring runway to sustaining free casual positivity while also providing flexibility to further accelerate growth in his kids on a minimally diluted basis.
Speaker Change: Diving into the details of the first quarter, beginning with revenue, we achieved record revenue with $15.5 million, representing a nearly 8% increase compared to the first quarter of 24.
Speaker Change: This growth was driven primarily by continued expansion of our Advice CTD Trailing 12 month I was selling price, now at $419 per test thanks to the addition of our new markers
Speaker Change: We also saw a modest uptick in testing volume, both year by year and sequentially [inaudible]
Speaker Change: Volume expansion will continue to be a key focus for us throughout 2025.
Speaker Change: To give you further color on ASP, our early read on new bar market reimbursement of $90 per by CTE aligns with our initial expectations.
Speaker Change: and while it's too early to make a call on our longer-term expectations, we're encouraged by early traction.
Speaker Change: Given that these new biomarkers were reflected for only a partial quarter, the $90 per test translated to about a $15 increase in our trailing 12-month ASP.
Speaker Change: It will take the remainder of 25 before the full impact of these new markers is reflected in our Trailing 12-month ASP.
Speaker Change: and we continue to see opportunities to expand ASP through enhanced appeals and market access efforts.
slightly down from 59.6% in 2024.
Speaker Change: and we expect Ross Margin to improve steadily throughout 2025 as ASP expands.
Speaker Change: Notably, there were three transitory headwinds that had a short-term gross margin impact in the first quarter.
Speaker Change: First, as we noted in our fourth quarter call, we've invested ahead of the curve in lab operations to accommodate the new biomarker launch and our anticipated volume increases in 2025.
Speaker Change: Second, we launched the new markers in late January , so the impact was reflected for only a partial quarter.
and third. Third.
Speaker Change: For most of our existing client direct bill contracts, the new marker pricing had not yet been updated for the full quarter.
Speaker Change: In these cases, we absorbed the cost of running the new markers, but did not report or bill out the results and therefore didn't realize the margin impact of the expanded ASP.
Speaker Change: The good news here is that the majority of those contracts have now been amended to reflect the new pricing.
Speaker Change: In fact, if the full quarter of a via CTD volume reflected the benefit of the new biomarker ASP that you left, our gross margin in the first quarter would have been over 60 percent.
Speaker Change: We continue to expect to see a gross margin expansion in the second half of 2025 into the low 60% range and we still have a lightest site to gross margin in the mid-60s over time.
Speaker Change: Turning to expenses, our operating expenses totaled $12.5 million in the first quarter representing a $900,000 and roughly 7.5% increase over 2024. Our R&D expenses were up about $200,000 year-over-year driven primarily by increased activity in clinical studies and advancement of our pipeline.
Speaker Change: and SGNA expenses increased about $700,000 year-over-year largely due to personnel additions to our sales and marketing teams.
Speaker Change: We expect our operating expenses to increase moderately in absolute dollars in the near term, as we execute on additional R&D pipeline initiatives, expand our sales force, and invest in infrastructure to support our expected volume revenue growth.
Speaker Change: But it should decrease your every year as a percentage of revenue as we see operating expense leverage in 2025 and beyond.
Speaker Change: Importantly, we have the ability to modulate, spend as appropriate, and we're well positioned from a balance sheet perspective to make the investments needed to support our expected growth.
Speaker Change: Our net loss for the first quarter was 3.8 million dollars compared to 3.4 million in the same period last year. Adjusted EBITDA loss was 2.5 million dollars versus 2 million in the first quarter of 2024.
Speaker Change: Profitability remains a core focus for the company, and we expect to reach positive adjusted EBITDA by the fourth quarter of this year.
Speaker Change: As a reminder, our Justin Ibadav excludes.com expense since it's non-cash.
Speaker Change: and please refer to our earnings release issued earlier today for a reconciliation of
Speaker Change: Shifting to our balance sheet, we ended the first quarter of 2025 with cash and cash equivalence of just over $11 million and an accounts receivable balance of just under $15 million.
Speaker Change: As a reminder, our strategy includes holding claims to the beginning of the year, and we fully anticipate the temporary impact it has on both cash and AR.
Speaker Change: We've since begun releasing claims and we expect our air balance to normalize throughout the year.
Speaker Change: To elaborate further on this, as at the end of April , our combined cash and air balance has increased to about $28 million, including about a $3 million increase to cash from our recent debt financing with Perceptive.
John Aballi: On that note, as John mentioned, we're extremely pleased to bring perceptive into the Exagen family with our recently announced credit facility.
Perceptive is a widely recognized and respected life sciences investor.
John Aballi: The new facility extends debt amortization by five years, eliminating nearly $20 million in principal payments that were due in 2026 under our prior term loan.
John Aballi: This new facility also increases our potential borrowing capacity based on future milestones and strategic initiatives providing access to minimally diluted future growth capital.
Paul Knight, John Aballi, John Aballi, John Aballi,
Speaker Change: At close, we drew $25 million to repay our prior term debt, and we now have up to $50 million available for future tranches.
Speaker Change: Up to $20 million will be available in 2026, based upon achievement of revenue milestones, and another up to $30 million available for approved strategic transactions if such opportunities arise.
Speaker Change: Barring's maturity in April 2030 with interest-only payments running through maturity.
Speaker Change: This was a great result for us. We couldn't be happy with the outcome and we look forward to our new partnership with Perceptive as a lender and stakeholder.
Speaker Change: To put this all in the context, we're now well positioned from a balance sheet perspective with nearly 80 million in combined cash, accounts receivable, and available future credit capacity as of April 30th.
Speaker Change: Turning to guidance, we expect 2025, full year revenue of at least 65 million, and we are on track to deliver a positive adjusted EBDA in the fourth quarter of 25.
Speaker Change: In closing, 2025 is shaping up to be a pivotal year for Exagen. We're on track to deliver over 17% revenue growth. We remain focused on achieving one of the key milestones John set upon his arrival operating a profitable company.
Speaker Change: We're excited about the momentum we built and we're confident in our ability to meet and even exceed our own expectations once again, just as we did in 2023 and 2024.
We thank you for your continued partnership and support.
and we'll now open the call for questions.
Speaker Change: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press Stark 2 if you'd 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
Speaker Change: Our first question comes from the line of Kyle Mikson with Countercord Genuity. Please pursue
Kyle Mixon: Hey guys, thanks for the questions, congrats on the quarter and the agreement with Perseptive Two. So starting off on volume, I think you talked about...
Speaker Change: of a financial increase by 6% that's liking a modest growth of year. Good to see that growing though. Could you just talk about your expectations or volume for the full year, how that kind of trends, I guess, quarter by quarter, given the focus for you? And it seems like
Kyle Mixon: Per Dog, Per Physician, it's kind of stable, maybe like 12 or 13 tests per dog, like you just talk about if you're trying to expand that number as well.
Kyle Mixon: Hey, Kyle. Good morning. Happy single to my own. Thanks for the question.
Kyle Mixon: So, great question. So it relates to volume. We're very pleased with the progress we had here in Q1. I tried to provide a little bit of color and
Kyle Mixon: It's really exciting from our standpoint to have the stability and the sales team that we've had over the last 12 months and really
Kyle Mixon: JR and his team have done a fantastic job identifying the right opportunities for us. As we launched these new markers, we focused on our existing physician base, so maybe to answer your second question first, that test per physician, the key metric for us.
Kyle Mixon: and the numbers you referenced are right on. We are, that is an area we expect to see grow, and especially as we continue to penetrate into the rheumatoid arthritis market more, we do expect that number to go up. We've been working on getting physicians familiar and acclimated with the new markers. This is new information where the clinical utility has to be explained, detailed, and gone over time and again and again. And so we'll see how that pans out.
Kyle Mixon: out for the rest of the year, but that's certainly an area of focus for us. We also are still driving expansion. There's quite a few physicians.
Kyle Mixon: in the rheumatology space that do not utilize advice and there's a great opportunity for us. So, we right now believe we service about a third of the rheumatology community. There's a referral network within there as well that is opportunistic for us so we'll continue to drive on both fronts.
Kyle Mixon: We do expect this to grow this year. Q1 was a great start for us. It will have to see kind of how it continues on from here. January was a little light for us volume wise. It picked up towards the end of January . February was great and March was fantastic. That progress has continued.
Kyle Mixon: here in the Q2. So, again, we'll have to see, we've launched our expansion from a cell standpoint, and so a territory standpoint, and so that should also continue to drive volume throughout the year, but that's kind of how we see it.
Speaker Change: All right, that was great. And then just sticking on that volume theme, you know, you provided some...
Speaker Change: and I feel it's, for example, the last quarter of that, in my case studies, you're indicating that actually I can expand the reach, you know, two positions through different indications of autoimmune disease and things with these new markers, and I think that you reference to markers as being the driver for the volume kind of increased this, you know, in the first quarter. So could you actually just all operate on that and how that could progress going forward and help you drive flying growth as well?
Yeah, so...
Speaker Change: The drivers are, I think, multi-pronged in terms of their impact to overall volume growth. One of them being stability of the sales team. We've talked a bit over the quarters that we've really been working on at the right team in place. So we right sized the sales force when I joined the organization a little over two years ago. And then we've been working on finding the right person for our organization and that.
Transition is transpired over the last.
Speaker Change: I call it 12 to 18 months and then you get people settling into their roles really learning the product and getting a familiarity with the customer base.
Speaker Change: Learning, training, acclimating to actually being more strategic in your selling process. And that's really where I feel like we're at now with our current sales team. It also allows us to open up opportunities for expansion, as we said.
Speaker Change: As I've spoken with our sales team and also with clinicians, it brings an excitement to the selling process, right? So we've got new publications that came out here in Q1. You also have a new offering. There's a...
Speaker Change: A different selling approach with your physicians who have already bought in, you're still educating and bringing something new to that discussion and that makes it much more exciting. So I think that that energy is certainly being felt and likely to persist.
Speaker Change: and that's been a big driver as well. Not to mention that the clinical utility of the new markers expands us into the RA space more than we had previously. So those three things I think will be pretty strong contributing factors to continued volume growth.
Speaker Change: Perfect, and then finally for Jeff on the panels. First, I do questions. What could you?
Speaker Change: maybe parse out the prior period revenue to South Dakota, kind of know that. And second, you know, be just, leave it at a loss for the touch deeper than our model. Even if you, you know, keep up X stable going forward, it might be kind of tough to get to break even by 4Q. You know, you're truly in the path there and just kind of curious how the off X can pull into working. So, could you walk through maybe like, you cross margin going forward to the level of the SGNA and R&D investments for the rest of this year. Thanks.
Speaker Change: Sure, I'll break that up a bit. I think your first question was on...
Prior peer cash collections and as we continue to to save it
Speaker Change: On a quarterly basis, those prior period cash collections are going to fluctuate, and that will impact on...
Revenue in ASP.
Um...
Speaker Change: In the fourth quarter of 24, for example, we had about a million dollars in excess cash,
Speaker Change: in the first quarter, 25 was about half a million, right? So that will fluctuate, but, you know, we do still believe there's opportunity there. We're continue to go after it aggressively and we consistently get better at it. It will fluctuate quarter over quarter, but it was about a half a million in the first quarter. [inaudible]
on your question around…
Speaker Change: Profitability, EBITDA, Op-Ex, Margin, I think there are a few things that play in the first quarter that drove that EBITDA number and the first one is, as I talked about in the call, was really the gross margin, right? We did have some what we'll call transitory.
Speaker Change: Headwinds on the Gross Margin. We do expect to see a nice gross margin step up, at least, you know, particularly in the second half of the year.
Speaker Change: As we talked about, we did invest ahead of the curve a bit in labor and some additional expenses to accommodate the wrap-up of the new biomarkers as well as anticipated.
Speaker Change: Increasing Volume, so we did see those expenses hit in the first quarter, and that was against a revenue composition where we weren't seeing the full impact of the new biomarker ASP, as a result of the fact that we've...
Speaker Change: We only had a partial quarter, as well as some of the direct bill accounts hadn't been fully implemented with the new pricing.
Speaker Change: So there was a tail headwind there that we expect we'll start to clear in the second quarter
Speaker Change: and then just generally on OPX. We do expect to see OPX moderately increased. You saw that. A lot of the incremental expense in SGNA was really around the expansion of the commercial team and related really more to the variable comp associated with the the step up in revenue. So
We will continue to manage that.
Responsibly.
Speaker Change: We do expect we'll start to see operating scale. We did see some minor scale in terms of total off-backs as a percentage of revenue year over year. We saw it tick down and we continue to believe it will tick down. So, we do think we're well positioned by the fourth quarter to be in that, you know, free cash, oil, positive, but just a deba doth.
space. Thank you.
Speaker Change: Thank you. Our next question comes in line of Ross Osborn with Tanner Fitzgerald. Please proceed with your question.
Hey, good morning and grew up from the results.
Ross Osborne: So, starting off, I may have missed this, but do you have an update on what you expect to launch the second wave of R.M. Markers?
Ross Osborne: Hey Ross, good morning. So we've said approximately by year in, we think it's following a similar cycle to what we did with these last set of markers. So year in, beginning of the year is kind of right in that time frame. Obviously with the LDT.
Ross Osborne: Determination by the courts there. We're not exactly beholden to New York State approval at this time for launch, but in all likelihood we would still pursue that.
Ross Osborne: and Launch Post. So that's one aspect we can't control. It took about two months to achieve New York State approval for our last set of LDT assays. So, you know, that's...
Ross Osborne: We're on a similar cadence from a development cycle, so we'll see it towards the end of the year, perhaps into the beginning of 26, but that would be our current expectation.
Speaker Change: Okay, great. And then lastly, would you describe to color and how you're feeling about market awareness, just meaning physician awareness, of your new enhanced test, you know, how much ground work are you guys going to have to go out in terms of educating community, or do you feel like it's pretty well known, following publications where people are coming to you.
[inaudible]
Speaker Change: That's a great question. You know, and I think it varies regionally. We have higher concentration of sales presence as it...
Speaker Change: Relates to various patient populations, so in some of the Southeast, for example, we're more highly concentrated and then I'm sure you can imagine as you start to move west, there's areas or pockets.
Speaker Change: where some rep may be covering in certain circumstances, maybe even two states or something. In those instances, it takes a little bit more time to drive awareness, but you also have...
Speaker Change: Les Physicians, or they're more sparse. So, from our standpoint, I think the awareness is reasonable amongst our physician base that was bought into and using a vise prior to the new marker launch. We had educational campaigns that didn't require...
Speaker Change: Necessarily an in-person visit. So, you know, email blasts, facts blasts, ways to communicate outside of just the face-to-face. Although, I believe, you know, internally, our strategy is to get in front of folks and actually walk them through it. I think that's...
Speaker Change: a very powerful way to educate folks regarding changes to clinical practice, you know, be able to answer questions, be able to talk through various case studies and what have you.
Speaker Change: It really makes it a more productive or fruitful conversation. On that front, we're only two months in, we started doing a little bit of it prior to the holidays but this is a message that certainly has to be discussed multiple times. [inaudible]
and as different. [inaudible]
Speaker Change: Scenarios come up. There's positivity rates or the new markers end up being positive in conjunction with other markers. Physicians want to know what does that mean clinically. And so that takes some time and then the value proposition starts to set in as you have those firsthand experiences. So I think we're still pretty early. It's likely going to take...
Speaker Change: The majority of the year to fully educate folks, but it's just a deepening of the educational efforts.
Great. Thank you.
Thanks Ross.
Speaker Change: Thank you. Our next question comes in line of Mark Massaro with BTIG. Please proceed with your question.
Hey guys, congrats on a good quarter.
Mark Massaro: So in your prepared remarks, you mentioned that the facility that you have in place with the perceptive includes up to $30 million available for approved strategic transactions, if opportunities arise.
Mark Massaro: Can you maybe comment on what types of strategic transactions are?
Mark Massaro: You know, something that you would consider would this be content wise within perhaps autoimmune disease diagnostics or could it be?
Mark Massaro: broader than that. And then as far as the approval goes, I would assume that would include your board of directors, but can you also comment about the role that Perceptive has in determining whether or not it's approved or not?
Mark Massaro: Sure, good morning, Mark. Thanks for the question. I'll comment a little bit of our thinking around the strategy here, and I'll let Jeff comment on some of the administrative aspects of it. I guess maybe first and foremost...
Mark Massaro: in this vein is we did this because we wanted the flexibility. So, you know, should we want to draw down the additional capital, which by the way is
Speaker Change: is not anywhere near given, but it could happen, I guess. Then we now have a clear path to it that doesn't take a ton of effort and could provide a solution regardless of the macro environment. So that's...
Speaker Change: That's why we entered we had this aspect to the deal. We like the flexibility and are working to just have options.
What type of...
An opportunity are we going after?
Speaker Change: I think it's highly likely to be related to our existing business, and while we're not ready to fully divulge exactly the specifics of that comment, I think it's pretty reasonable to assume that it's in the autoimmune space and related to some aspect of biomarker development, to novel biomarker development in this space, and so that leaves a pretty wide open field. We don't see a ton of commercial ready assets.
for a plug-and-play on a clear.
Speaker Change: with a platform, but at the same time, we're always looking, always open to it, and we'll continue our diligence there. And I think we've...
Speaker Change: Now that we've gotten closer and are on the horizon of being a castle-positive organization, I think this is the perfect time for us to establish these processes.
so that we're ready an opportunistic win when we can be.
Speaker Change: Jeff, do you want to comment a little bit on the administrative approvals?
Jeff Black: Sure, yeah, Mark, good morning. And again, clearly, can't or won't speak for Sam and team at Perceptive, but...
based upon conversations.
Jeff Black: throughout the negotiations. I think the expectation would be that the level of diligence that they're going to need to do on any sort of consent required for a transaction will largely be based upon their alliance on diligence. We perform and...
Really, what we present to the board, right? And so-
Um, um, um,
Jeff Black: It's more likely than not that as long as we're comfortable, we've kicked the tires, done our diligence, the board is behind it.
Jeff Black: that perceptive would come along. And again, I can't speak for Sam and the team again.
Jeff Black: But what I will say is, historically, having worked with Prispti before, and in the process of conversations with them, they are very supportive and very interested in continuing to drive growth through transformative transactions, if they make sense.
Jeff Black: So, we don't think it's going to be an onerous process as long as management and border behind the transaction.
Speaker Change: That sounds great. Thank you for that explanation. And then you guys talked about kidney disease and your effort in advancing early markers there. Is this?
Speaker Change: You know, do you envision this being an area that you're committed to, or is this sort of like you're looking in the exploratory stage? I'm just trying to get a sense for your conviction in this market at this time.
Yeah, I'm glad you brought it up, so work.
Speaker Change: We're very encouraged by the work that we're doing in kidney disease. I think we've got some exciting science at the organization, we've got really two development efforts, one in Lupus nephritis, which takes us deeper into the autoimmune space and is a high clinical need.
Um.
within a subset of S.L.E. patients.
Speaker Change: But, basically, approximately half of all Lupus patients end up developing some form of kidney involvement or Lupus nephritis.
Speaker Change: Diagnosis now is by kidney biopsy and there are treatments out there, biologics out there, but you don't know after an extended period of time if the patient is responding. And during that period of time the kidneys can continue.
Speaker Change: to experience irreversible damage. So, we have programs in place that potentially could serve as a diagnostic capability in that context along with
Speaker Change: A measurement of disease activity or a measurement of therapeutic response. So very excited there. We've really worked hard to hedge our bets as we've done in many instances. And in the development efforts for Luba Separatos we got.
Speaker Change: Hey, there may be an opportunity for us to look at broad or biomarkers of kidney damage and that's exactly what we've done. Excited because...
Speaker Change: You know, this is a high clinical need and really there's a significant patient need here and so from our end the tools that exist in terms of standard of care are.
Speaker Change: Not very satisfactory, so the markers we're developing have broad applicability in multiple diseases.
Speaker Change: We have now validated in early diabetic kidney disease along with lupus nephritis. And again, that was the data that was...
Shared in...
Speaker Change: that biomarker summit in Boston by Dr. Mike Nuremberg, or Chief Medical Officer, but this is a huge patient need, so chronic kidney disease impacts on the order of 14 to 15 percent of the U.S. population, diabetes prevalence in the U.S. is somewhere around 11 to 12 percent. Either of those patient populations are substantial, obviously we need to take a look at the U.S. population, so excited about the potential of these markets.
Mark Massaro: The science is encouraging. We're getting it out in the public domain. There'll be a manuscript out later this year which details the findings as well, but very exciting for us. And I think maybe the other thing I'll just add, Mark is you see a lot of progress on the SGL T2 and GOP1.
Mark Massaro: Front where they're actively working on expanding labels or they already have in some instances labels for chronic kidney disease in the early stage and you know being able to identify these patients better than the current standard of care is an exciting opportunity for us.
Mark Massaro: That sounds great, and just one more for me, you know, congrats on winning the ALJ hearing with the large national insurer.
Mark Massaro: I wanted to get a sense for how many more hearings you have later this year and then just give us a flavor. I imagine that there are likely multiple.
Mark Massaro: National Health Plans, or Health Plans, regional that you might be meeting with so can you just give us a sense for how many, what you think the impact could be and what the cadence of that is throughout the year.
Yeah.
So, just so you understand how this...
Mark Massaro: and Progressives. We apply for these high-level reviews throughout the year as we learn in each of them. We've had, you know, on the order of around 15 so far, those that we have lost, we've learned from, and it's basically, you know, we have evidence that was not submitted early enough in the appeal cycle, called the first appeal or the second appeal that couldn't be included in the case by the time we got to the ALJ hearing.
Mark Massaro: and so in those instances we adjust our entire revenue cycle operations to start including that information earlier. Some of this can be documentation of Medicare coverage if you will or reimbursement more appropriately. And so as we adjust our appeals process that kind of resets.
Mark Massaro: Most of the clock, you know, there's no point in us going into an AOJ hearing, knowing that we have an inadequate...
Mark Massaro: I'm out of information at the time and so we've been learning over the last 24 months how best to do this relative to advice CTD and kind of culminated in having the perfect appeal package together and the right judge to review it.
Mark Massaro: More recently and obviously the win. We currently have several scheduled in the month of May and a few in the month of June , but that doesn't mean that's about as far out as they are scheduled right now. So we have quite a few requests. Still outstanding and we'll have to see as those get scheduled, but a couple of months is pretty reasonable to get all the way through the process at a very high level.
[inaudible]
Great, thanks so much.
Speaker Change: Thank you. Our next question comes from the line of Andrew Brackmann with William Blair. Please proceed with your question.
Paul Knight, Mark Massaro, John Aballi,
Andrew Brackman: Hi guys, good morning, thanks for taking the questions. Maybe to stick on the payers subject here for a second, you also noted that you had a positive medical policy with try-care on the quarter. Can you maybe just talk a little bit more about the learnings from that experience, how you can take those learnings from try-care and continue to broaden out those medical policy ones?
and others. Thanks for joining us. Have a great day.
Speaker Change: Yeah, thank you, Andrew. Good morning. I appreciate the question. You know, Tricare was a fantastic progress for us over the last couple of years. We went through their demonstration project, is what the term is for their process in determining medical policy.
Speaker Change: You know, first and foremost, validates the evidence behind the test and the demand for it. So I think that that's a nice affirmation that we do have the right evidence to drive medical policy more broadly, especially at a highly impactful
Patient Population, like the Active Military, so...
Speaker Change: That was very positive from our standpoint. I think something we take away. It also can be used in discussions strategically if we're taking a look at.
Speaker Change: Some of the veteran opportunities, or even other large national plans, I think it's a national policy that's been flipped in our favor and it's a public policy, so it's something that we can reference.
Speaker Change: I think that that's all very positive. We'll continue to enhance our evidence package and we'll continue to work through our appeals efforts to drive awareness at the plan level, regional plan level. That never stops.
Speaker Change: But I think maybe the biggest learning is just that our current evidence package is holding weight and driving positive policy change.
Speaker Change: Great. And then back to the next set of R.A. markers, it sounds like you have pretty good line of sight to launching those in the this year early next. I guess outside of the N.Y.S. approval here, what internally needs to be done to get those ready for launching? Thanks.
Paul Knight, Mark Massaro, John Aballi,
Speaker Change: Yeah, so in order to get an LDT ready for launch, obviously you have to get to a point where you're comfortable with the validation study, so that's both a clinical validation and maybe multiple, which proves that you're accurately...
Speaker Change: Determining Disease from Normal Folks. Are we accurately identifying the so negative population and can you hone in on the sensitivity and specificity of the markers there, determine the cutoffs, etc. We are past that point.
Speaker Change: and in no particular order, but the next step is analytical validation, and so can you reproducibly measure...
Speaker Change: The markers repeatedly in different contexts, different operators, multiple machines, etc. Most of that work has been done. We are wrapping up the reports for that effort. And then you have to get ready to run it at scale. And that's something that takes a little bit of time, training, you know, in these first two steps, we obviously don't distract the clear team. They're working on a daily basis.
Speaker Change: to handle the clinical volume, but as we start to ramp up, you know, training, a lot of the competency assessment and all of the regulatory requirements, quality management system requirements in the lab have to be implemented, you know, SOPs, that type of thing. So all of that work takes...
Speaker Change: A little bit of time, especially to do it at a high quality level, but we also have to work with our suppliers to get ready for the type of volume we anticipate. All of those contract negotiations have been completed from our standpoint. We're waiting now for a first large shipment of reagents.
Speaker Change: that should occur sometime probably over the summer. Manufacturing has to be ramped up at the supplier side and what have you. So those things still remain mostly just operational. Our LAS systems have to be updated as well, but all that stuff is underway and is controllable mostly on our side. So that's why you feel comfortable by year-end into the early 26th
Speaker Change: similar to how we did it with these last set of markers as a reasonable timeline.
That's a great color. Thanks, guys.
Speaker Change: Thank you. Our final question this morning comes from the line of Paul Knight with Keeping Capital Markets. Please proceed with your question.
Hi, thanks for the time. Congrats on the quarter.
Paul Knight: The first question for you is, how does this new line work this year? You'll take 20 million row over old line and then drop down 5 million of incremental cash? Is that what I heard?
Paul Knight: Paul, that's about right, it's a little less in terms of net proceeds and we've already done, so we drew the 25 million initial tranche.
Paul Knight: Retired existing debt, net proceeds were just north of 3 million, and then we have opportunity to base upon milestones in 26 to draw more down.
Paul Knight: Meaning 25 million possibly and then 30 million later on, right?
Paul Knight: Right, there are two potential 10 million tranches that are based upon revenue milestones between now and the end of 2026, and then there's another 30 that's set aside for potential business development M&A.
Okay, got it.
Speaker Change: and then John , the acceleration in revenue or test sales through March, what do you think it was that was really getting the momentum in March? Was it the ALJ hearing? What's your thoughts behind that?
Paul Knight, John Aballi, John Aballi,
Hey Paul, good morning. Thanks for the question.
The volume growth, I think, was…
Driven primarily by...
Speaker Change: The New Marker launch, I believe that brings an energy and excitement to the team. It also brings enhancement and the clinical utility to our customer base and along with the manuscript publication that came out just really.
Speaker Change: You know, there's the newest innovation in this space and biomarker innovation in the autoimmune spaces.
Speaker Change: in terms of frequency. I think it ends up getting a lot of attention, a lot of talk amongst rheumatologists, and we had a great presence in Q4, kind of forecasting the enhancements to clinical practice that should be expected with using these markers. So, I think that really drives...
A lot of it.
Speaker Change: and it also just so happens to coincide with when we started to really see the ramp. But you also, as I mentioned, had a stability in the team. We adjust our national sales meeting to be in January of this year, brought the team together, really worked hard on the training and practicing of
Speaker Change: of what the clinical value proposition is and roleplay and what have you of what types of questions we would expect and I think the teams have prepared well and it's showing so I think that's probably the primary driver.
John Aballi: And then John , what do you think you need in terms of number of successful cases?
Court Cases, where you start to, uh,
Change a practice of Picova Pairs.
Yeah, so...
John Aballi: It's going to be pay or specific, but it's on the order of a half dozen to a dozen.
John Aballi: So, you know, you don't have to have hundreds or thousands of these wins, obviously. You know, they're not that frequent in terms of when they're granted. And on top of it, you know, this is not a positive mark for the insurer that lost the hearing, right? They have an obligation.
John Aballi: to treat their Medicare beneficiaries, similar to a straight Medicare would, and so to lose an AOJ hearing, basically confirms that they did not do that, and so, you know, at the positive for us, it's that's a precedent, we actually include that determination in future appeals.
John Aballi: and so for these large plans this is a way that we can ensure patients are treated as they should be as they're obligated to be and so we'll continue to work through it but it's not hundreds, it's on the order of half a dozen to a dozen would be my expectation.
Okay. Thank you.
Speaker Change: Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Aballi for any final comments.
Mr. Aballi: Thanks so much. We're off to an extremely strong year, start to the year, and we expect that in many regards to be one of our strongest years in the company's history here in 2025.
Mr. Aballi: Operationally, our turnaround is really taken shape. Our strategy of focusing on our core product, improving reimbursement and rebuilding our pipeline for the future is progressing ahead of my original expectations.
Mr. Aballi: We've continued to make prudent decisions in personnel and we've focused, intensely focused on the character of the individual who joins our team. The effect has been to reshape the company in a very positive way where folks are holding each other accountable and driving progress towards shared goals.
Mr. Aballi: It's also created stability within the organization which is starting to compound in effect and is exciting to be a part of. I look forward to continuing to provide updates and as always I'm very grateful for your partnership as we build something special here. Thank you.
Speaker Change: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.