Exagen Q1 2024 Earnings Call Transcript

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May 13, 2024

Key Takeaways

  • ExGen reported Q1 2024 revenue of $14.4 million, up 28.4% year-over-year, driven by a 35% increase in trailing-12-month ASP to $3.77 per Advise CTD test, and delivered an improved adjusted EBITDA loss of $2 million versus $6.2 million in Q1 2023.
  • Advise CTD volume remained at just over 30,000 tests in Q1, with month-over-month growth that continued into Q2 as the company refines ordering efficiency and expands physician education.
  • ExGen plans to launch three new T-cell markers for systemic lupus erythematosus and additional rheumatoid arthritis markers in Q4 2024, enhancements that are clinically validated to boost diagnostic sensitivity, strengthen IP protection, and improve financial performance.
  • For full-year 2024, ExGen raised its revenue guidance to at least $55 million (from $54 million) and improved its adjusted EBITDA outlook to better than a $18 million loss, backed by a $27.3 million cash position expected to fund operations into 2026.
  • The company believes the FDA’s new rule on lab-developed tests will raise barriers to entry for competitors, and ExGen anticipates no major impediments due to its CLIA, CAP, New York State certifications, and existing FDA-approved assays.
AI Generated. May Contain Errors.
Earnings Conference Call
Exagen Q1 2024
00:00 / 00:00

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Operator

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

Ryan Douglas
Ryan Douglas
Director in Investor Relations at Exagen Inc

Good morning, and thank you for joining us. Earlier today, Exagen Inc. released financial results for the quarter ended March 31st, 2024. The release is currently available on the company's website at www.exagen.com. John Aballi, President and Chief Executive Officer, and Kamal Adawi, Chief Financial Officer, will host this morning'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 were 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.

Ryan Douglas
Ryan Douglas
Director in Investor Relations at Exagen Inc

All forward-looking statements, including without limitation, statements regarding our business strategy, future financial and operating performance, including guidance, potential profitability, our current and future product offerings, and reimbursement and coverage, are based upon current estimates and various assumptions. These statements involve material risk and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risk 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 31st, 2023, our Form 10-Q for the quarter ended March 31st, 2024, and any subsequent filings.

Ryan Douglas
Ryan Douglas
Director in Investor Relations at Exagen Inc

In addition, some of the information discussed today includes non-GAAP financial measures such as Adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles of the United States or GAAP. These non-GAAP items should be used in addition to and not substituted for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which have been posted to the Investor Relations page of the company's website. The information provided in this conference call speaks only to the live broadcast today.

Ryan Douglas
Ryan Douglas
Director in Investor Relations at Exagen Inc

Exagen disclaims any intention or obligation except as required by law to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. I will now turn the call over to John Aballi, President and CEO of Exagen.

John Aballi
John Aballi
President and CEO at Exagen Inc

Thanks, Ryan, and to everyone for joining the call. Here at Exagen, we've executed another fantastic quarter, and today I plan to discuss our results, provide updates on our path to profitability, and give further details on the enhancements we're making to AVISE CTD. I'll then hand it over to Kamal, our Chief Financial Officer, for details on our financial performance. We had a great start to 2024, and for Q1, I'm happy to report that total revenue was $14.4 million, driven by a strong increase in AVISE CTD ASP. Our trailing 12-month ASP is now $377 per test, which is up 35% or almost $100 from a year ago. ASP continues to be a key strategic focus, and I feel good about the momentum and trajectory we have built as we work towards profitability. Our Adjusted EBITDA for the first quarter was a negative $2 million.

John Aballi
John Aballi
President and CEO at Exagen Inc

This is also a significant improvement over the same period last year and a testament to the impact ASP improvements are having on our bottom line. The progress we've made on our ASP is substantial, and execution on our strategy has continued to dramatically reshape the operating profile of the company over the past year. Volume for AVISE CTD in the first quarter was just over 30,000 tests, which was essentially flat from the fourth quarter of 2023. However, we did see volume increase in each month of the first quarter, and that momentum continued into Q2. At this point, we have fully recognized the impact to volume we expected to see as a result of the changes we made in the middle of last year and are confidently seeing testing growth again.

John Aballi
John Aballi
President and CEO at Exagen Inc

Over the coming quarters, we anticipate our volume continuing to build as our team works to improve ordering efficiencies and educate physicians on the clinical value proposition of AVISE CTD. During the last earnings call, we briefly touched on improvements we're planning to make to our AVISE CTD offering, and I'd like to provide additional details as we believe these enhancements will be very positive for customers and our organization. We currently plan to add three T-cell markers for SLE and additional new markers for rheumatoid arthritis to the AVISE CTD offering in the fourth quarter of this year. These new markers have been clinically validated, and we're working through the operational logistics of adding them to our core product. The benefits of these new markers will be multifaceted.

John Aballi
John Aballi
President and CEO at Exagen Inc

First, we gain enhanced IP protection in offering some of the most sensitive markers to aid in the diagnosis of systemic lupus erythematosus. Second, our overall product improves in terms of clinical utility, which we expect to lead to increased adoption over time. And third, we anticipate these additional markers will be accretive to our financial performance, both in terms of top and bottom lines. In regard to the improved clinical utility that we expect for AVISE CTD, it helps to refresh that we've demonstrated in multiple published validation studies that the current sensitivity of AVISE CTD is 80%, with standard-of-care markers ranging from 14%-44%. We're in the process of publishing data that will show how the introduction of T-cells will significantly enhance the sensitivity of AVISE CTD. The improved sensitivity of these markers will help clinicians diagnose lupus patients sooner.

John Aballi
John Aballi
President and CEO at Exagen Inc

The patent protection on the T-cell markers continues through 2035, making their proprietary nature durable for the next decade-plus. Additionally, AVISE CTD currently includes traditional markers to aid in the diagnosis of rheumatoid arthritis, and our markers identify approximately 70% of RA patients. This leaves roughly 30% of RA patients who would be seronegative with no current diagnostic biomarker commercially available. We plan to add new RA markers in the fourth quarter of this year, which we believe will allow us to improve the sensitivity of our rheumatoid arthritis assays and correctly identify 80%-83% of total RA patients, or up to a third of the traditional seronegative population. We believe this level of diagnostic performance is unmatched in alternative commercially available options and will continue to demonstrate to our clinicians our commitment to providing them the best quality testing with first-in-class performance.

John Aballi
John Aballi
President and CEO at Exagen Inc

Altogether, these new markers substantially increase the utility of AVISE CTD, which we believe will lead to increased product adoption. Our commercial team is preparing for the launch of these products. Our sales organization is eager to educate clinicians on the gain in clinical value, and our laboratory is working through the operational requirements to offer these novel markers at scale from launch. We expect the impact to CTD demand will likely be slow at first, mirroring the pace of educational progress among our base of clinicians but increasing over time. We're very excited to bring these innovations to patients, signifying the next phase of growth at Exagen. I'd also like to briefly touch on the FDA's proposed rule that became final a few weeks ago.

John Aballi
John Aballi
President and CEO at Exagen Inc

We believe we are well situated to handle the additional regulatory requirements as our laboratory is CLIA, CAP, and New York State certified, and we perform several assays which are currently FDA approved. Broadly, we believe this regulation will create a barrier to entry for competitors in our market because it increases the resources required for commercialization of lab-developed tests. We'll continue to monitor the development of these rules and do not currently anticipate any major impediments to executing our plan. Lastly, I'd like to thank Brian Burke, Dr. Ebetuel Pallares, and Wendy Johnson for their years of service, numerous contributions, and guidance to Exagen as they transition off our board of directors. Since I joined the company in late 2022, they have been integral in making the necessary changes to focus on achieving profitability and have been extremely supportive throughout my time here. Additionally, I'd like to welcome Dr.

John Aballi
John Aballi
President and CEO at Exagen Inc

Scott Kahn to our board and look forward to leveraging his unique skill set and experience as we move to our next phase of growth. I'll now turn the call over to Kamal for details on our financial results.

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

Thank you, John, and good morning, everyone. As John mentioned, it was a strong start to the year with total revenues in the first quarter of 2024 of $14.4 million compared with $11.2 million in the first quarter of 2023, a 28.4% increase. Total revenues were driven by record ASPs for AVISE CTD tests. Other testing revenue was $1.5 million in the first quarter of 2024 compared with $1.4 million in the first quarter of 2023. Improvements to our revenue cycle continued to yield results as we collected approximately $700,000 from prior period collections from tests performed over a year ago. Cost of revenue were $5.8 million in Q1 2024, resulting in total gross margin of 59.6% compared to 47.2% in Q1 2023. The increase in gross margin was driven by increases in ASP.

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

Operating expenses, excluding COGS, for the first quarter of 2024 were $11.6 million compared with $13 million in Q1 2023. Year-over-year decreases were primarily due to a reduction in employee-related expenses as a result of decreases in headcount. The net loss in Q1 2024 was $3.4 million compared with $7.7 million in Q1 2023. Adjusted EBITDA was -$2 million for the first quarter of 2024 compared to -$6.2 million for the first quarter of 2023. As a reminder, our adjusted EBITDA excludes stock comp expense since it is a non-cash expense for the organization. Please refer to our earnings release issued earlier today for a reconciliation of adjusted EBITDA to net loss. Looking to our balance sheet, cash and cash equivalents as of March 31, 2024, were approximately $27.3 million, and our accounts receivable balance increased to $10.9 million.

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

As we communicated in March, we fully anticipated the increase in AR and decrease in cash as we hold claims in the first half of the year as part of our revenue cycle management initiatives. This remains consistent with the strategy we employed last year, and we anticipate this trend to continue in Q2 and begin to reverse in the second half of the year, similar to what we saw in 2023. I'm very happy with the start of the year as all key metrics continue to trend in the right direction. For full-year 2024 revenue, we're raising guidance from approximately $54 million to at least $55 million. We're also updating our Adjusted EBITDA guide and now believe it will be better than negative $18 million, an improvement from our prior guidance of better than negative $20 million.

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

We reiterate our belief that our existing cash and cash equivalents are sufficient to meet our anticipated cash requirements into 2026. We will now open the call for questions.

Operator

Thank you. We'll now be conducting a question-and-answer session. If you'd like to ask a question at this time, please press star one from your telephone keypad, and the confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Thank you. Thank you, and our first question today is from the line of Mark Massaro with BTIG. Please receive their questions.

Mark Massaro
Mark Massaro
Managing Director and Life Science and Diagnostic Tools Analyst at BTIG

Hey, guys. Thank you for the questions and congrats on the quarter. The first one, I think, is on the new product launch with the T-cell markers. I know you talked about it on the prior quarter call, but I'm sure you've had some time, perhaps, to think about how this might expand your market opportunity. I know, certainly, if you're able to diagnose earlier, perhaps could have increased clinical utility on some of the existing sets of customers that you're selling to. But can you just maybe expand a little more on the RA? Is this incremental to the size of the market and the patient type that you're going after? And can you, perhaps, help us think about how this can fit in and potentially expand your market opportunity?

John Aballi
John Aballi
President and CEO at Exagen Inc

Hey, Mark. Good morning. Thanks so much for the question and opportunity to expand. Appreciate you joining the call as well. So when I joined the organization, we took a methodical approach to reviewing every aspect of our business and to specifically evaluate the opportunity in the market against the technology and projects we had ongoing internally. We start with the customer need, and I truly believe that's important. It's a simple concept. It's out there in plain sight, but it can be hard to maintain this anchor point as you get into the thick of development. Certainly, I've had that experience. The science doesn't always work out as you draw it up, etc. But with both of these new marker efforts, we understand the customer need, and we're building on the back of a proven, well-adopted product in AVISE CTD.

John Aballi
John Aballi
President and CEO at Exagen Inc

We've said consistently our market there is for ANA-positive referrals into rheumatology. From a prevalence standpoint, that's roughly 41 million Americans in the U.S. Up to a third of RA patients present with a positive ANA test, so this very much is in the wheelhouse of diagnostic utility within connective tissue disease. And our strategy across the organization has really been, how do we make AVISE CTD better? Whether that's with new markers such as these, whether we're improving our service with our sales and customer-facing groups, or even with our ASP efforts. We've gone all in in improving this part of our business and studying how AVISE CTD is used clinically, and that's led us to want to strengthen that aspect, both in terms of what we can provide for diagnostic sensitivity of SLE and in rheumatoid arthritis.

John Aballi
John Aballi
President and CEO at Exagen Inc

For RA, you have established markers used in the diagnosis of RA, such as anti-CCP antibodies, various rheumatoid factors. These are part of AVISE CTD today. We also offer a fairly unique anti-carbamylated protein, or anti-CarP, as it's more commonly referred to, which helps improve the sensitivity in identifying suspected RA patients. But there's still approximately 30% of RA patients which are diagnosed without any serologic positivity, and this group of patients can be challenging clinically. This is exactly what these new markers aim to do. As we said on the call, we anticipate capturing around a third of what is today seronegative RA patient population, and that should be industry-setting performance, so very additive to AVISE CTD.

Mark Massaro
Mark Massaro
Managing Director and Life Science and Diagnostic Tools Analyst at BTIG

Got it. All right. Awesome. That's helpful. And then, obviously, you guys had a nice quarter. You exceeded my and Street expectations. Looks like a lot of this was driven by the ASP expansion. So for Kamal, I think I heard you say that you collected $700,000 from prior period collections. When I think about your raised guidance, are you expecting any other prior period collections for the rest of this year? And then even if you are not including it in guidance, how do you think about the potential opportunity to collect from prior periods? I know elsewhere in diagnostics land this quarter, I saw quite a few labs in my coverage that collected material amounts from prior periods. So how should we think about that opportunity set?

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

Hi, Mark. Thanks for the question. Yes, we collected $700,000 in Q1 of 2024. Keep in mind, we had collected about $5 million between Q2 2023 and Q4 2023, so we've seen that number come down in Q1. When we gave guidance last quarter, we made it clear that we don't factor in prior period collections into our guidance estimate, and we didn't do that again this time just because the visibility into collecting on prior period collections, it's very challenging to forecast that. And we did say over time, we expect that number to get closer to zero, so we weren't going to factor that into the guidance.

Mark Massaro
Mark Massaro
Managing Director and Life Science and Diagnostic Tools Analyst at BTIG

Yep, that makes sense. And then maybe one more for you, Kamal. Do you still think that you can achieve cash flow break-even at annual revenue of $75 million and 60% gross margins?

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

We had a great Q1 on gross margins, 59.6%. And over the last several years, you've probably heard me say over and over again that usually you see the lowest gross margin in the first quarter because of seasonality, because deductibles reset in Q1. However, our strategy with revenue cycle management of holding claims has offset that seasonality impact on the gross margins, and we didn't see that negative impact in Q1. So I was very pleased with that number of almost 60% on the gross margin. Now, I used to say we build off that Q1 number. We're going to have a little bit of lumpiness with gross margins just because of that prior period collection number, but I'm very excited with how well we did at 59.6%.

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

When we do get to profitability, we always put that $75 million revenue number and 60% gross margin figure as a goal. We've exceeded our internal expectations on the gross margin number, so as we get towards profitability, we're likely going to have a higher gross margin number, which means our revenue number is going to come down slightly.

Mark Massaro
Mark Massaro
Managing Director and Life Science and Diagnostic Tools Analyst at BTIG

Yep, that makes sense. All right. Thanks so much, guys.

Operator

The next questions are from the line of Kyle Mikson with Canaccord Genuity. Please proceed with your questions.

Kyle Mikson
Kyle Mikson
Senior Analyst in Diagnostics and Life Science Tools at Canaccord Genuity

Hey, guys. Thanks for the questions. Congrats. Really great quarter. Yeah, just on that note, Kamal, with the gross margin, if you take out the $700,000 prior period collections, it looks like the core gross margin was high 50s, maybe 58%. I mean, in the past, the core margin was 50%. I think last quarter, if you take out the prior period collections, maybe 50% was the margin. So maybe just talk about what an organic gross margin looks like when you take out some of these prior period revenues and just how to think about that going forward, what that means for the profitability kind of formula going forward.

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

Sure. Thanks for the question, Kyle. Yeah, so we still are exceeding what we had projected internally in terms of gross margins, even with the $700,000 taken out. So our ASPs have turned it up conservatively, even without prior period collections. It's up almost $100 year-over-year. So we've been making great strides. Obviously, our gross margin isn't all being driven by that prior period collections. The ASP is the biggest contributor to the gross margin, though, but not all from prior period.

Kyle Mikson
Kyle Mikson
Senior Analyst in Diagnostics and Life Science Tools at Canaccord Genuity

Yeah. Okay. Thanks, Kamal. And then, John, on the, I guess, monthly volume levels, you said increased month-over-month each month during Q1. Maybe on an annualized basis, maybe March was ahead of 30,000 or so. I mean, can you just talk about maybe with some quantitative commentary, how we should think about the exit rates in March for volume and maybe what you saw recently in April or May?

John Aballi
John Aballi
President and CEO at Exagen Inc

Hey, Kyle. Good morning. Thanks for joining the call. Appreciate the question. So we made changes just to give context why we're seeing some of these volume trends. We made changes to our process in 2023 in an effort to improve ASP for AVISE CTD, and this was with a long-run mentality or viewpoint. We're trying to operate a more profitable business, and it's clearly working. There's more to come, and so this was absolutely the right approach to take, and I'm very encouraged about our progress over the past 15 months. We did, with these changes, expect some temporary impact to volume, as you said, as we work with various accounts to adjust.

John Aballi
John Aballi
President and CEO at Exagen Inc

As we focus our sales team on making these changes smooth, in the past, and we're returning to this more traditionally now, our normal sales focus is in the pursuit of new business, and so that's occurring. We've moved more in that direction. I expected Q4 of 2023 to be the low point in terms of this temporary volume correction, and that's essentially exactly what we saw. It carried over a little bit to the first couple of weeks in January, but we had a strong end of January. February grew further. March was the height of the quarter. Our momentum has continued into Q2, and I'm very confident that we've returned to growth driven by a combination of ASP and volume improvements. We don't guide on volume, per se, but this is exactly what we expected.

John Aballi
John Aballi
President and CEO at Exagen Inc

To be honest, it's fun to be operating a more profitable business with a clear path to profitability and strong growth, and so we're very excited with the trajectory we're on.

Kyle Mikson
Kyle Mikson
Senior Analyst in Diagnostics and Life Science Tools at Canaccord Genuity

Okay. Great. And quick side note was, did ASP remain pretty healthy in each month, or did that decline sequentially?

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

With our ASP being on an accrual methodology, we look at that monthly, but we don't make the final adjustments until the end of the quarter, so we'll be ready to comment on that at the next earnings call. There's nothing that we saw that would make me concerned with the ASP number going in a different direction than what you've seen over the past four quarters.

Kyle Mikson
Kyle Mikson
Senior Analyst in Diagnostics and Life Science Tools at Canaccord Genuity

Okay. That's good. Final one, John. Just given this FDA final rule, I think you talked about that a little bit in your remarks. Just wondering, impact to your pipeline. I know that it was kind of de-emphasized in recent years a bit, but I feel like that remains an important part of the growth strategy long term. So maybe just talk a bit about how you're thinking about investing in the pipeline and kind of a future test and stuff, including some of these new markers.

John Aballi
John Aballi
President and CEO at Exagen Inc

Thanks, Kyle. Very relevant question. Really good question. Something that we're evaluating and working to get smarter on on a daily basis around here. To be clear, we're still studying the exact implications of the rule to best understand the potential strategic impacts it'll have on our approach. I think there's very real opportunity that this provides advantages for us, and I want to better understand those. But then also, I think maybe a little more to your question was around which gaps and what would it take to comply over the phase-out period specifically relevant to our development efforts. So as it pertains to our development efforts, or I guess not currently marketed would be the language used there, part of our pipeline. Like I said, we're still working through some clarifying points.

John Aballi
John Aballi
President and CEO at Exagen Inc

The FDA itself is hosting a webinar tomorrow to clarify some of the details around the final rule, so even information out of the FDA is still percolating. We continue to be confident that our approach to developing LDTs, and specifically our track record of meeting the requirements of New York State certification, will allow us to remain on track with our communicated timelines. There will be some upgrades required, we anticipate, to our quality management systems, it appears. Again, that's likely over the next year or two, but again, we're still working through all of these details over the coming months. We have the right resources to support our information gathering, and as we evaluate impacts to our strategic approach, we'll keep everyone apprised.

John Aballi
John Aballi
President and CEO at Exagen Inc

We do believe that in the long run, the way we're currently understanding the final rule, this is likely to be a competitive advantage for us as it raises the bar in some respect to new entrants and LDT development.

Kyle Mikson
Kyle Mikson
Senior Analyst in Diagnostics and Life Science Tools at Canaccord Genuity

Perfect. That's helpful. Thanks, John. Thanks, guys.

John Aballi
John Aballi
President and CEO at Exagen Inc

Thanks, Kyle.

Operator

The next question's from the line of Dan Brennan with TD Cowen. Please proceed with your questions.

Daniel Brennan
Daniel Brennan
Senior Analyst in Life Science and Diagnostic Tools at TD Cowen

Great. Thanks for the questions. Congrats on the quarter. Maybe the first one on price. I think I heard you guys just mention that there's no reason the recent four-quarter trend can't continue. So if we strip out the prior periods, it looks like price in Q3 went up $29 sequentially, Q4 up $40, and then this quarter up $40. So is the expectation that price will continue to climb from here? I know you're still withholding some claims, but did I hear you guys correctly on that?

John Aballi
John Aballi
President and CEO at Exagen Inc

Good morning. So we are still holding claims. We do this for various internal reasons, which we think optimize our ability to collect cash relative to those claims. We've had tremendous growth on the ASP side. I appreciate you throwing out there those numbers. From our perspective, we're working hard on the processes that we know will pay off long term. We know how to do this strategically. We know how to operate very sound revenue cycle practices, and that's a big part of what I brought to the organization in coming here. It takes some time to get these things in place. We're very content and happy with how that progress has materialized, but we expect it to continue. Whether it'll continue exactly in those proportions, ASP is an inherently difficult metric to forecast.

John Aballi
John Aballi
President and CEO at Exagen Inc

That's part of the reason why we do. We point folks to the trailing 12-month metric. That's part of the reason why we don't provide guidance specifically related to ASP. We can have material wins at any given time in the future. The lower hanging fruit tends to be consumed here in the early phases, and then it gets a little bit harder as time goes on, but we still are very optimistic internally that we have the right strategy in place to drive ASP higher over the long term. Again, looking at that trailing 12-month number is likely to give you a very good insight into the trend over time.

Daniel Brennan
Daniel Brennan
Senior Analyst in Life Science and Diagnostic Tools at TD Cowen

Great. Thanks for that. And then maybe one just on volume. So just to be clear, it sounds like you're basically indicating that the volume growth that you've seen, you expect volume to continue to climb sequentially from here. I mean, it might not be linearly, but is that the expectation? That's kind of what you're thinking about for 2024?

John Aballi
John Aballi
President and CEO at Exagen Inc

Yeah. That's a very fair assumption.

Daniel Brennan
Daniel Brennan
Senior Analyst in Life Science and Diagnostic Tools at TD Cowen

Got it. Okay. And then on the new markers, could there be any impact on price over time? Would you look to refile, and given you have greater utility, that you might look to get a better price? And I know you sounded pretty excited you'll start to market these kind of this year and then into next, but could you also just help us think through I know you gave some color around the new market opportunity that you have, but just in terms of magnitude, what kind of impact could these have as we look out in 2025 and 2026?

John Aballi
John Aballi
President and CEO at Exagen Inc

That's a great question. At the surface, yes, we're extremely excited. We fully expect these new markers to be accretive to our individual AVISE CTD pricing. Therefore, top line certainly gets impacted. They'll be margin accretive as well. So these are very positive from a financial performance standpoint, and again, this is me super excited, so trying to convey that from my standpoint. I think the impact that these markers will have clinically, they're the most sensitive markers. On the T-cell side, they're the most sensitive markers for detection of SLE. On the rheumatoid arthritis side, this sets the standard in the industry from our perspective. So to hit both of those milestones clinically, that's huge. And then to have it be a significant benefit for the organization, we expect.

John Aballi
John Aballi
President and CEO at Exagen Inc

I think this is a no-brainer internally and something that we've got laser focus internally in getting these markers out as soon as possible, sometime here in Q4. We're not ready to guide at any point right now on the financial impact, really, especially since we don't have a solidified launch date, and we're still working through the optimization in our lab, which could change some of the COGS profile, etc. But you're exactly right. 2025, 2026, this will be very substantial for the organization.

Daniel Brennan
Daniel Brennan
Senior Analyst in Life Science and Diagnostic Tools at TD Cowen

Great. Okay. Thanks, guys.

Operator

Our next questions are from the line of Andrew Brackman with William Blair. Please proceed with your questions.

Dustin Scaringe
Dustin Scaringe
Equity Research Associate at William Blair

Hi. Good morning. This is Dustin on for Andrew. Thanks for taking our questions. First question on the guide, just wondering what your spending priorities are for the year given Adjusted EBITDA came in better than expected, -$2 million, but the full-year guide is at -$8 million or better than -$18 million for the year. Thank you.

John Aballi
John Aballi
President and CEO at Exagen Inc

Hey, Dustin. Good morning. Thanks for joining. Appreciate that. If you take a look at R&D and Kamal can comment a little bit on OpEx and SG&A and stuff, but if you take a look at R&D in Q1, we still spent $1 million. That's consistent with what we said historically. Annual expenditures approaching kind of that $5 million-$6 million range. That's sufficient to bring the new markers to market, T-cell along with RA. Those costs have already been baked in. They're included in that number. And then we also have a few other projects in our pipeline around disease activity in SLE along with continuing to push along some of the technology that we licensed out of Johns Hopkins. So we're not rolling back the development that we need for future growth. Organizationally, we're still spending to keep our instrumentation in the lab very relevant, very up-to-date.

John Aballi
John Aballi
President and CEO at Exagen Inc

From a guidance standpoint, how that factors into the -18, we're extremely proud. Maybe one thing to start off with, we're extremely proud of the progress here in Q1 and our ability to deliver strong revenue growth and, I guess, ever contracting Adjusted EBITDA loss. But just over a year ago, we were averaging about -$10 million per quarter in Adjusted EBITDA. Last year, we cut that in half to a -$5 million per quarter on average. So from our perspective, the recent trends have to be kept in context, we believe, especially since we had approximately $5 million prior-period collections aiding our numbers last year. So while we have continued to outpace even our internal projections, our progress will bounce around a little bit, and we're not quite ready to establish a new run rate in terms of adjusted EBITDA.

John Aballi
John Aballi
President and CEO at Exagen Inc

But we do feel very confident that we will achieve our goals, and we're working to do so ahead of expectations is maybe how I'll mention that.

Kamal Adawi
Kamal Adawi
CFO at Exagen Inc

And Dustin, I'll just add. We've been very prudent with our expense control on our pathway to profitability. When looking at SG&A and R&D, I would just factor in small expense increases quarter-over-quarter, mainly due to inflationary increases.

Dustin Scaringe
Dustin Scaringe
Equity Research Associate at William Blair

Okay. Makes sense. Thanks for that. And then maybe wondering if you can talk a little bit about sales force productivity. You made some changes to the organization over the last year, so is there any color you can add on how we should be thinking about driving further productivity from here?

John Aballi
John Aballi
President and CEO at Exagen Inc

It's a great question. So just to give a sense of our current sales footprint across the U.S., when I joined the organization in late 2022, we had 63 territories. We did an evaluation to take a look at how we would break even across the various territories and at least cover the cost of the sales rep. We consolidated those 63 down to 40 in December of 2022, and we've been operating at that level since. We've really been working to coach and drive for performance within those individual territories. We had record volume in Q1 and Q2 of 2023, so we feel that 40 is the right number for us right now. We're still working through some of the adjustments that we made in July regarding our billing policy.

John Aballi
John Aballi
President and CEO at Exagen Inc

As I've mentioned, our team is heavily focused on ensuring that each individual account is serviced well and that these transitions are smooth. As we return more to, I guess, a hunting mindset, pursuit of new business mindset, more traditional approach from the sales standpoint, we've got the right footprint for some time here and certainly have the ability to grow with this existing footprint. As we move into higher levels of profitability within each territory, then we'll expand kind of empirically from there.

Dustin Scaringe
Dustin Scaringe
Equity Research Associate at William Blair

Okay. One last one for us. Just what assumptions are you guys making, either strategically or financially, for the increased education for the new markers you're planning on adding later this year? Thank you.

John Aballi
John Aballi
President and CEO at Exagen Inc

That's a good question as well. From our standpoint, we believe our current expense profile is sufficient to launch these new markers. There may be some additional conferences we attend. There may be some small advertisements that we do relevant to the rheumatology community. But from our standpoint, there's not a huge need to have an outsized expenditure related to the launch of these products. We're preparing a manuscript. We think the science is really where you need to start in the messaging. Our sales team knows our current product extremely well, so layering on additional clinical utility evidence is just part of the evolution of the knowledge of our product. So from our standpoint, I wouldn't expect SG&A to change much.

Dustin Scaringe
Dustin Scaringe
Equity Research Associate at William Blair

Okay. That's it from us. Thank you.

Operator

Thank you. At this time, we've reached the end of the question-and-answer session, and I'll turn the call over to John Aballi for closing remarks.

John Aballi
John Aballi
President and CEO at Exagen Inc

Thanks. We're off to an excellent start to the year. My confidence and optimism continue to build as our organization evolves and undergoes substantial improvements. We've set ourselves up for sustainable growth throughout the changes we made last year and with the updates planned for AVISE CTD this year. We'll continue to accelerate that growth. It's encouraging to see the devotion within the Exagen team, and I truthfully could not be more excited for our future. Thanks so much for joining the call today.

Operator

This will conclude today's conference. I may disconnect your lines at this time, and thank you for your participation.

Executives
    • John Aballi
      John Aballi
      President and CEO
    • Kamal Adawi
      Kamal Adawi
      CFO
    • Ryan Douglas
      Ryan Douglas
      Director in Investor Relations
Analysts
    • Daniel Brennan
      Senior Analyst in Life Science and Diagnostic Tools at TD Cowen
    • Dustin Scaringe
      Equity Research Associate at William Blair
    • Kyle Mikson
      Senior Analyst in Diagnostics and Life Science Tools at Canaccord Genuity
    • Mark Massaro
      Managing Director and Life Science and Diagnostic Tools Analyst at BTIG
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