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spk02: Good afternoon, and thank you for joining us today. Earlier today, Exogen, Inc. released financial results for the quarter ended June 30th, 2022. The release is currently available on the company's website at www.exogen.com. Ron Rocha, President and Chief Executive Officer, Kamala Dowie, Chief Financial Officer, and Mark Hazeltine, Chief Operating Officer, will host this afternoon's call. Before we get started, I'd like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, statements regarding our business strategy, In future financial and operating performance, including 2022 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 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, 2021 and subsequent filings. The information provided in the conference call speaks only to the live broadcast today, August 4th, 2022. Exygen 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'll now turn the call over to Ron Rocca, President and CEO of Exygen.
spk01: Thanks, Ryan, and thanks to everyone joining the call. Today, I will discuss our Q2 business highlights and give updates on payers, our pipeline, the newly published capstone study, and the initiation of our TIGER Clinical Experience Study for Radar Platform. I'll then hand the call over to Kamal, our CFO, for details on our financial results. As always, we appreciate your continued support of Exogen. In the second quarter of 2022, we achieved a record of 2,273 total ordering healthcare providers and a record of 797 adopters for our flagship AdviseCTD and AdviseLupus test. We had a record of 34,919 AdviseCTD tests delivered for the quarter and a record of 65,822 AdviseCTD tests delivered year to date. Once again, we saw a high retention rate of approximately 99% among adopting healthcare providers from the prior quarter. This marks the eighth quarter in a row with at least 99% stickiness and the eighth quarter in a row that we have set a record for adopters, as well as the sixth quarter in a row setting a new record for ordering healthcare providers. We are pleased with all these achievements, which demonstrate the value our brands provide patients and physicians. Last quarter, we disclosed that effective April 1st, 2022, CMS agreed to recognize a PLA code for our protein-based test, Advise Lupus. Naridian, our MAC, priced this PLA code at $1,085 per test. The process for obtaining and maintaining consistent reimbursement for new tests can be uncertain, lengthy, and time-consuming. During the quarter ended June 30th, 2022, we submitted to Naridian 3,749 claims for Medicare Part B reimbursement under our PLA code for advised lupus. As of August 1st, 76 of these claims have been paid, 335 claims have been denied, and 2,778 claims are subject to requests from Naridian for additional information, such as medical records. The balance of those claims remain pending with no response received. A pricing determination is not synonymous with a coverage determination. Having a price associated with a PLA code for any particular test does not secure coverage or reimbursement for that PLA code from Medicare or any other third-party provider. In order to confirm coverage, we submitted a formal request to Naridian for coverage of our advised lupus test under the new PLA code. we have not yet received a response. Until this reimbursement issue is resolved, we anticipate a significant interruption to our revenue from advised lupus with respect to Medicare claims. The aggregate amount of reimbursement we are seeking for our unpaid advised lupus Medicare claims from Q2 is approximately $4 million. All of the unpaid advised lupus Medicare claims are either under review, being appealed, or subject to request for additional information which we are in the process of addressing. Due to the uncertainty of the outcome of these claims, we cannot recognize revenue related to any open advised lupus Medicare claims until the uncertainty is definitively resolved and we can provide no assurance that such resolution will be achieved on a timely basis or at all. To better understand our Medicare volume in context, for the period April 1, 2021 to March 31, 2022, Approximately 13% of our total orders for Advise CTD tests, including Advise Lupus, were for Medicare beneficiaries. For the same period, revenue recognized for Advise CTD, including Advise Lupus for Medicare, has averaged approximately 16% of our total revenue. As we have done in the past, we will also continue working with national commercial managed care plans to obtain and maintain coverage for Advise brands. We are proud of our capstone study, which is the largest comparative utility study in lupus diagnostics. This study was recently published in the Journal of Managed Care and Specialty Pharmacy. The findings of the capstone study revealed that advised lupus test is more clinically effective, both for patients who test positive and for those who test negative, as compared to the current standard of care. The study leverages multiple external data sources from hundreds of rheumatologists and tens of thousands of patients, comparing diagnosis, treatment, and the cost of care outcome for new patients tested with advised lupus and those tested with traditional ANA approach, including specific autoantibodies. The study found that when using the advised lupus test as opposed to traditional ANA, patients had six times greater odds of establishing an SLE diagnosis. two times lower laboratory costs, and fewer follow-up visits in the six-month follow-up period, as well as three times greater odds of initiating SLE treatment. The study exemplifies the advantage of advised lupus tests for patients, providers, and payers. Delayed diagnosis leads to increased disease burden and diminishes the quality of life for the patient. By receiving conclusive results, providers are able to initiate treatment early, reducing the need for more aggressive approach down the road that can lead to irreversible consequences for the patient. We view this study as a major milestone in our dossier and are optimistic that the payers will find it compelling. Turning to the update of our pipeline, our radar platform continues to progress and I'm happy to announce that we have officially kicked off our clinical experience study. The study is called TIGER, which stands for treatment stratification using gene expression profiling in rheumatoid arthritis. The goal of the TIGER study is to assess whether certain molecular biomarkers from synovial biopsies of inflamed joint tissues accurately predict the response to anti-rheumatic medications. We believe that the biomarkers will allow healthcare providers to pinpoint the correct treatment for their patients individually without having to wait for extensive periods of time via empirical trial and error approach. The study will be an important step in the development of radar for real-world utilization. Turning to our SLE monitoring test, we are enhancing it with urine markers and are looking to launch SLE Monitor 2.0 later this year. SLE Monitor 2.0 will include biomarkers specific for lupus nephritis. As we know, lupus nephritis impacts 40% of lupus population, which can cause severe kidney damage, up to and including transplant. We look forward to providing updates on our pipeline as they become available. As we continue to navigate the myriad of payer policies, we remain confident that our strong science will allow us to advance the utility of our current assets. The core business of Exogen remains strong, and we continue to set new volume records and advance our pipeline. I will now turn the call over to Kamal.
spk00: Thank you, Ron, and good afternoon, everyone. As mentioned earlier, we continue to see the number of ordering healthcare providers increase. This quarter, we achieved another record of 2,273 ordering healthcare providers compared with 1,934 in the second quarter of 2021, and 2,175 in Q1 2022. We also saw the testing volumes for Avise CTD, including Avise Lupus, set new records. In the second quarter, the tests grew approximately 6% year-over-year and 13% quarter-over-quarter to record 34,919 tests delivered compared with 33,328 in the second quarter of 2021 and 30,903 in Q1 2022. Even with these record volumes, total revenues in the second quarter of 2022 were $9 million, compared to $12.8 million in the second quarter of 2021. This represents a decrease of 30% over the second quarter of 2021. Of the $3.8 million year-over-year decrease, $3.2 million is from Avai CTD, $300,000 is from other testing, and another $300,000 is from the termination of the Janssen Agreement. The decrease of $3.2 million of advised CTD revenue is attributable to a decrease in average reimbursement per advised CTD test due to a decrease in estimated collections as well as our revenue accrual process of writing down AR balances for claims greater than 12 months. We identified changes in the expected collection patterns with certain payers related to performance obligations satisfied in 2021 and the first quarter of 2022, which resulted in a change in the estimated transaction price. Furthermore, a decrease in revenue recognized for Medicare was also a contributing factor. Avai CTD test revenue was $7.2 million in the second quarter of 2022, compared with $10.4 million in the second quarter of 2021. Other testing revenue was $1.8 million in the second quarter of 2022, compared with $2.1 million in the second quarter of 2021. Our revised CTD and other testing revenue resulted in testing revenues of $9 million in the second quarter of 2022, compared with $12.5 million in the second quarter of 2021. Costs of revenue were $6.1 million in Q2, resulting in total gross margins of 32.2% compared to 57.3% in the second quarter of 2021. The decrease in gross margin percentage was primarily attributable to decrease in revenue as described. Testing gross margin was 32.2% in the second quarter of 2022 compared to 56.3% in the second quarter of 2021. Operating expenses in the quarter were $21.7 million, compared with $18.5 million in the second quarter of 2021. The increase was primarily due to employer-related expenses, including stock-based compensation and recruitment expenses associated with the overall increase in headcount, an increase in R&D expenses, and an increase in cost of revenue due to the increase in testing volumes. The net loss in the quarter was 13.3 million compared with 6.4 million in the second quarter of 2021. Looking to our balance sheet, cash and cash equivalents as of June 30th, 2022 were approximately 76.4 million. During this time of reduced reimbursements from Medicare, we will remain focused on controlling our spend to areas that drive revenue through our sales force and the development of future products, such as Avize Radar, Avize Fibro, and the enhanced Avize SLE Monitor 2.0 test. For the full year 2022, due to the uncertainty in Medicare reimbursement, lower than anticipated volume in ASP, Exogen revises its guidance and expects revenue to be in the range of $35 million to $40 million. We will now open the call for questions.
spk04: Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. Our first question comes from Brian Weinstein with William Blair. Please state your question.
spk03: Hey, guys. Good afternoon. This is Griffin up for Brian. Thank you for the questions. Maybe just to start, get a little bit more clarity on the guidance and the pricing dynamics here. Can you just talk about what the assumptions are underlying this updated guidance in terms of where ASPs are going to come in and whether or not there should be any impact to test volumes here the rest of the year?
spk00: Yeah, Griffin, thanks for the question. In regards to ASPs, we did note that there is uncertainty around Medicare, so there is an assumption in there that we're not putting in Medicare for the rest of 2022. As we stated, there were some increased need for medical necessity with some payers, which slows down the collection process and has an impact on the change of estimate for the rates.
spk03: Okay, and then from a a volume perspective. I mean, understanding that prior to the ASPs are going to be coming down here, but, you know, in terms of CMS volume or just total volumes, do you expect any impact to those as a result of this reimbursement change?
spk01: Actually not. Doctors usually will write the product that's best for the patient, which is usually our advised brand. So I don't think the volume will be impacted. They'll continue to write it. This is a This is clearly a Medicare reimbursement issue that we're dealing with, and it should not impact volume at all. In fact, our capstone study has been heralded very well by many of the physicians, the largest study ever done in lupus diagnostic, and the results of it have been incredible. The fact it was published in a top managed care journal also helps, too. So, New Griffin, I don't think volume is going to be impacted at all. In fact, we're going to do everything we can to accelerate it.
spk03: Okay, understood. And maybe just the last one for me, you know, in terms of adopters, it's been record adopters here, but the numbers trended kind of that mid-30% range for the last couple of years, realizing it's on a growing base. But how do you drive that higher, I guess? You know, could you just talk a little bit about plans to really drive a little bit more depth and breadth there?
spk01: Sure. A couple things. One is good science leads to good decisions. And this capstone study was very, very important. I don't know if I can impress that enough on you. how big it was that showed that you need less lab visits, five times less ANA testing. I mean, it was just a lot of really good things in this large study. That should enable us to drive it, as well as the fact that the adopters continuing to grow and stick with the brand as we add new adopters. So I'm feeling good about the demand part of the equation.
spk03: Okay. Thanks for the questions.
spk04: Our next question comes from . Please state your question.
spk05: Hi. Congrats on the records during the quarter. Thanks for taking our questions. Maybe just one more on guidance. You know, outside of the pricing headwinds, are you seeing any headwinds associated with the broader operating environment? A couple other companies have called out prolonged vacation by doctors around the 4th of July and Labor Day, so just curious if you're seeing that. And then lastly on guidance, do you include any of the 4 million of outstanding claims with Medicare in the high end, or is that completely taken out?
spk01: I'll do the first part here, which is, yeah, vacations are always an issue in the summer, probably more so than normal because post-COVID, a lot of doctors didn't take vacation. We continue to monitor the situation. The fortunate thing here is that even though the doctor goes on vacation, these patients are still out there, and they usually end up with a PA in the office and so forth. But we'll continue to monitor that as we go forward. As far as the 4 million?
spk00: Yeah, Ross, in regards to the $4 million of Medicare being whether or not it's included in the high end of the guidance range, no. That is not included in any of the guidance range.
spk05: OK, great. And then just last one for me. Could we walk through the cadence of the quarter in terms of testing volumes and how July shaped up relative to June?
spk01: OK. It ended up being a record quarter with over 34,000 in demand. Fourth of July being Fourth of July, that was always a bad week, but the cadence is still going on as normal. The great thing about the adopters are they stick. I mean, they don't go away. And the fact that we've added more of those and so forth gives us confidence that there's no retreating there. Our asset provides value. Of course, we're going to talk a lot about Medicare reimbursement today, but we've got to remember there's over 600,000 tests since launch. That's 600,000 people that got an answer that probably wouldn't have got as good an answer if they didn't use our test. So July, as far as the demand, It kept going, and the breakdown was, you know, other than July 4th week, because obviously that we could take out, it was the month we expected.
spk05: Okay, great. Thanks for taking my questions.
spk01: Thank you.
spk04: That was our final question. I'll turn the call back over to Ron.
spk01: Great. Thank you. We are a patient-focused, discovery-driven company. We're proud of doing over 680,000 tests of revised lupus and revised CTD tests. And we'll continue to work on reimbursement, not only the Medicare reimbursement, but also on the commercial side. We've gotten great momentum there with roughly 100 million covered lives. We'll continue to work on the commercial payers for this. We know there's great demand for our product, that it's filling an unmet need, and it's a true solution for these patients that have autoimmune disorders that are often mixed. So we'll continue to drive that, and on the Medicare front, we'll continue to work with Medicare or MAC and Meridian to be able to resolve this issue as soon as possible. I want to thank you for your time and attention, and your continued support of XGEN is much appreciated. Thank you, and have a great day.
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