Exagen Inc.

provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, statements regarding our business strategy and future financial and operating performance, including 2021 guidance, the impact of COVID-19 pandemic on our business, 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 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, 2020, and subsequent filings. The information provided in this conference call speaks only to the live broadcast today, November 10th, 2021. Exogen disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise. I will now turn the call over to Ron Rocca, President and CEO of Exogen.

Thanks, Ryan, and thank you to everyone joining the call today. As always, we appreciate your continued support of Exogen. In the third quarter of 2021, we achieved a record of 1,969 total ordering healthcare providers and a record of 714 adopters for our flagship Advise CTD and Advise Lupus tests. Our revenue for Q3 was $12.3 million, which included 31,742 advised CTD tests delivered. As our sector has experienced, sequential testing volume was impacted by decline in patient volume due to the Delta variant, patient referrals from primary care specialists, and summer seasonality. As a reminder, most patients are referred to specialists like rheumatologists from primary care physicians. Once again, we saw a very high retention rate of 99% among adopting healthcare providers from the prior quarter. We believe this high retention rate and continued increase in the number of ordering healthcare providers speaks volumes to the value our customers recognize in using advised testing to accelerate the historically slow and frustrating process of clinically diagnosing autoimmune disorders. We remain highly engaged and focused on payers to further expand our coverage and in-network status. We recently signed an agreement with Inland Empire Health Plan, or IEHP, to make advised diagnostic testing available as an in-network benefit to their 1.4 million members. IEHP is the largest not-for-profit Medicare Medicaid plan in the country, and their membership reflects a population that is at higher risk of lupus and autoimmune diseases. This win was not only significant for Exogen, but also meaningful for the new patients that now have in-network access to advise testing. Advise tests are now available to approximately 68.9 million in-network lives across the U.S. As our increasing number of ordering healthcare providers illustrates, our tests provide a much-needed service in rheumatology. We expect our in-network coverage to continue to grow, increasing our footprint and benefiting average selling price. I'm also happy to announce that we have entered into a pilot agreement to supply Advise MTX to a partnership between CVS and Aetna. The goal of the pilot is to leverage the use of Advise MTX as a critical personalized medicine tool for rheumatologists to optimize methotrexate therapy for the treatment of rheumatoid arthritis, or RA. Despite the advent of multiple new biologic therapies for RA over the past few decades, methotrexate remains a cornerstone therapy. Patients differ in regards to how they metabolize methotrexate, making the appropriate dose selection difficult. And AdviseMTX helps keep the patients in the necessary therapeutic range. While we own the exclusive rights to the intellectual property powering AdviseMTX, this quarter we also improved our future financial position by buying out the remaining royalty. I'd like to now switch over to our research and development initiatives. Over the past decade, we have successfully developed and commercialized 10 tests in rheumatology as part of our Own the Hilltop strategy. According to our market research, there remain significant unmet needs in rheumatology for advanced novel clinical tests. Through the use of proceeds raised in Q1 2021, we are focused on investments in R&D, including multiomics, to develop and deliver our pipeline products and dramatically expand our total addressable market across multiple indications. We are very proud of our world-class research and development team that had eight abstracts accepted by the American College of Rheumatology's premier annual conference, which concluded yesterday. We believe these are quality abstracts that will further inform our customers on the utility of our test. I'd like to highlight one of the key abstracts, as we believe its future contributions to the organization will be very meaningful. The abstract title, the incremental clinical utility of a multi-analyte assay panel with cell-bound complement activation product versus traditional ANA testing strategy for the diagnosis and treatment of SLE further demonstrates the clinical utility by leveraging an electronic healthcare record database consisting of approximately 22,000 advice-tested patients and 22,000 patients tested with traditional antinuclear antibody testing. In the study described in the abstract, advised lupus was shown to be significantly more clinically actionable than the traditional anti-nuclear antibody testing approach. In this paper, patients testing advised lupus positive were approximately five times more likely to be diagnosed with lupus and two times more likely to start on a lupus medication than patients testing positive with the traditional ANA testing approach. The cohort for this study was more than 100 times larger than our prior clinical utility studies and should further strengthen our position with payers as it continues to reinforce the efficacy of our testing portfolio. Our scientific team has also been hard at work on several initiatives. In regards to the launch of our fibromyalgia and thrombosis test, the better study, which we announced last quarter, is estimated to be fully enrolled by early 2022. We look forward to sharing more details with you in the future. We can tell you that the patient population for fibromyalgia has been historically underserved due to the lack of reliable diagnostic tests and consists of approximately 12 million patients, representing a massive opportunity to improve patient outcome and deliver cost-benefit savings to the healthcare system. We are also working to enhance our SLE monitoring tests with additional lupus nephritis markers to address the approximately 50% of SLE patients that progressed to developing potentially deadly lupus nephritis. Recently, GSK with Volumimab and Arrhenia with Valoxosporin received FDA approval for lupus nephritis indication. We feel enhancing our SLE monitoring test will assist the physician in regards to when to move the patient and how to monitor the patient on these expensive therapies. Our clinical lab expansion continues on schedule. and is expected to be completed by Q1 2022. And our R&D lab expansion is expected to be completed by Q2 2022. It's important to note that our clinical lab will include molecular and multi-omics capabilities, which will further increase our R&D efforts in molecular and multi-omics. We continue to grow our scientific team with exceptional talent, including the recent hire of Mingcha Li, PhD, who previously worked at ArcherDX. Dr. Lee is our Chief Technology Officer and has extensive history in developing molecular diagnostic tests. We are pleased to have Dr. Lee join us as he leads the development of our RA pipeline initiative. I will now turn over the call to our CFO, Kamal, to discuss our financial results.

Thank you, Ron, and good afternoon, everyone. Total revenues in the third quarter of 2021 were $12.3 million, an increase of 14% over the third quarter of 2020. Total revenues were driven primarily by testing volumes for VICE CTD, including Avizalupis, which grew approximately 21% year-over-year to 31,742 tests delivered in the third quarter of 2021. As Ron mentioned, the number of ordering healthcare providers was a record, with 1,969 in the quarter compared with 1,665 in the third quarter of 2020. Avai CTD test revenue was $9.9 million in the third quarter of 2021 compared with $7.4 million in the third quarter of 2020. Other testing revenue was $2 million in the third quarter of 2021 compared with $2.1 million in the third quarter of 2020. Other testing volume generally correlates with Avai CTD volumes. However, year over year, other testing products did not have the same positive ASP impact that we saw with Avai CTD. As Ron stated, we're working on adding lupus nephritis markers to the Avize SLE monitor test, which we believe will increase the reorder rate for monitor patients and increase the ASP of the annuity product. Our Avize CTD and other testing revenue resulted in testing revenues of $11.9 million in the third quarter of 2021, compared with $9.5 million in the third quarter of 2020. In accordance with mutual termination of the Symphony Agreement, Revenue related to Symphony was $0.4 million in the third quarter of 2021. Costs of revenue were $5.5 million in Q3, resulting in total gross margin of 55% compared to 60% in the third quarter of 2020. The decrease in gross margin percentage was primarily due to the decrease in the Symphony co-promotion revenue recognized in Q3 2021 as compared to Q3 2020. Operating expenses in the quarter were $18.8 million compared to $14.6 million in the third quarter of 2020. The increase was primarily due to the employee-related expenses, including stock-based compensation associated with the overall increase in headcount, an increase in the cost of revenue due to the increase in testing volumes, and an increase in R&D expenses. The net loss in the quarter was $7.2 million compared with $4.3 million in the third quarter of 2020. Looking at our balance sheet, cash and cash equivalents as of September 30, 2021 were approximately $106.8 million. We continue to make investments into the company to fuel growth. We recently announced a refinancing of our debt with Innovatus Capital Partners. The amended agreement refinances our existing $27.2 million of debt to a loan at 8% interest of which 2% is paid in kind and extends the term for five years. This lowers our interest rate and extends out the interest-only payments. As previously stated, we mutually terminated the Janssen Agreement for Symphony and have a remaining $0.2 million in revenue to be recognized in Q4. For full year 2021, we reiterate our revenue guidance of approximately $47 million to $49 million and now anticipate coming in at the lower half of the range. We will now open the call for questions.