Exagen Inc.

Greetings, and welcome to the Exogen Inc. fourth quarter earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Douglas with Investor Relations. Thank you, Mr. Douglas. You may begin.

Good afternoon, and thank you for joining us today. Earlier today, Exigen Inc. released financial results for the quarter and fiscal year ended December 31st, 2022. The release is currently available on the company's website at www.exigen.com. Shana Bali, President and Chief Executive Officer, and Kamala Dowie, Chief Financial Officer, will host this afternoon's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, statements regarding our business strategy and future financial and operating performance, including 2023 guidance, 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 the business, please see our filings with the Securities and Exchange Commission including our Form 10-K and subsequent filings. The information provided in this conference call speaks only to the live broadcast today, March 20th, 2023. 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 John Imbali, President and CEO of Exogen.

Thanks, Ryan, and thank you to everyone joining the call. Today, I will discuss our fourth quarter and full year 2022 results, recent changes we have implemented, and highlight our initial progress towards achieving profitability. I'll then hand it over to Kamal, our CFO, for details on our financial results. As always, we appreciate your continued support of Exogen. Revenue in the fourth quarter of 2022 was $12.8 million, with full-year revenue of $45.6 million. This past year, we delivered a record 135,000 advised CTD tests, of which 33,800 were delivered in the fourth quarter. From inception, we have now delivered approximately 750,000 advised CTD tests. Helping provide answers for so many patients is only possible because of the fantastic folks at Exogen, and I'd like to thank them for their continued dedication over the last several months and congratulate them on accomplishing these milestones. We've implemented numerous changes throughout the organization, and the team has remained flexible and committed to our mission of serving patients throughout their autoimmune journey. In conducting my initial review of Exogen, it is clear that the company has an exceptional product in advised CTD, which has seen strong penetration in an underserved market and has recently received improved Medicare pricing. The Advise platform as a whole is well known and highly regarded in the rheumatology field, shown by the consistent growth in demand. I believe there is still significant untapped potential in the Advise platform and have tailored our strategy to focus on growing ASP and volume while reducing costs. Ultimately, this should lead to improvements in our gross margin over time. We are working to optimize our business operations around our flagship product, and my primary focus moving forward is in steering the company to profitability. Organizationally, we have aligned on key goals, put the correct incentives in place to achieve those goals, and are focused on delivering superior products and services to our customers. Reimbursement for Advise CTD is the most sensitive lever in driving our revenue in the short to medium term. one of the key metrics in measuring the success of our reimbursement strategy will be the progression of ASP over time. Due to variability in quarterly ASP data, we will focus and provide regular insight on annual ASP rates. For 2022, our derived annual Avive CTD ASP was $285 compared to $306 in 2021. At year end, AdviseTGD ASP was roughly a quarter of our Medicare reimbursement rate, which we believe highlights the significant opportunity we have ahead of us. Our strategy for improving ASP encompasses optimizing our revenue cycle practices, efforts by our managed markets team to expand patient access, and contracting with commercial payers at rates that reflect the value provided to the healthcare system. On these fronts, beginning in Q4 and continuing into this year, We have actively worked to revamp our appeals process by evaluating the workflow steps involved in making improvements. For example, we have recently revised messaging conveyed in our appeal letters to better address denials, and we're evaluating ways to further improve processes through automation. We continue to review our processes and will make additional changes as needed, given this is a high priority for the organization. From a medical policy perspective, we adjusted the goals and incentive compensation of our managed markets team to elevate the importance of our medical policy progress over the next couple of years. And similarly to our appeals process, we are refining our messaging and being proactive in soliciting physician support with payers. As we look to make progress in securing medical policy for Advise CTD, and as contracts become available, we are committed to obtaining rates which are PAMA neutral and ideally accretive to our Medicare pricing in the long run. Regarding advised lupus, our Medicare LCD application remains in process consistent with prior disclosures. We plan to provide updates as feedback becomes available or information changes. Medicare continues to reimburse and pay as detailed last quarter. In December, We finalized the sizing and realignment exercise of our sales territories and implemented changes to the incentive compensation plan for our sales reps. I believe we've optimized our sales footprint while balancing our expenses with revenue potential. We now have a model which we believe allows us to continue to expand without incurring significant carrying costs per territory. The sales force realignment was part of a total reduction in force of 42 employees that took place in December. The 42 employees were split approximately a third in sales, a third in R&D, and a third spread throughout the general organization. This culminated in 40 sales territories across the U.S., down from 63 previously. Additionally, we have retained the majority of our inside sales force and are leveraging them in a more strategic manner. As we've conveyed previously, a key focus in our path to profitability is to reduce costs while driving Avive CTD growth. We have set clear goals for our lab and are focusing on reducing COGS and creating efficiencies for processes that are labor intensive. Additionally, we're exploring options in our facilities where we believe we can reduce fixed costs and overhead. We've implemented a process to routinely evaluate and ensure our products meet physicians' needs while contributing positively to the company from a financial perspective. As a result, we may discontinue non-core product offerings that do not contribute meaningful revenue or have a negative impact on our overall gross margin percentage. As we successfully transition physicians to alternative testing, we will provide updates. Regarding research and development, I felt that our initiatives had expanded beyond what we were capable of supporting, and we were taking on R&D projects that didn't have a clear return on investment. I implemented a screening process that filtered out three of our prior pipeline projects focused in fibromyalgia, interferon response, and thrombosis prediction. Our R&D team is now comprised of nine employees, reduced from 23 in late Q4, who are focused on lupus nephritis therapeutic monitoring, biomarker-derived disease activity for SLE, and prediction of response for rheumatoid arthritis therapy. These pipeline products meet our new screening criteria. They have the potential to solve a significant customer need within the field of rheumatology, and they have a competitive advantage rooted in proprietary technology. all have internally defined paths to reimbursement. As a quick note regarding our reporting, our total ordering physician base continues to grow and reached a record 2,419 healthcare providers in the fourth quarter of 2022. Moving forward, we plan to disclose ordering healthcare providers during the fourth quarter update only and will no longer report the number of adopters or stickiness. I've outlined the most important metrics I use to manage the business and don't believe the omission of these metrics will have a material impact on one's ability to evaluate Exogen on a go-forward basis. Finally, and before I hand the call over to Kamal, I would just like to reiterate that we're optimizing our business operations around advised CTD and that my primary focus moving forward will be to steer the company to profitability on our existing cash balance. We have already taken numerous steps to reduce our cash burn and should start to see the results of these actions soon. We believe we can achieve cash flow breakeven with gross margins around 60% and revenue of approximately $75 million with our current cash balance. I'm excited about our opportunity this year. We have a strong foundation based on a great product, a highly motivated team, and the opportunity to make a difference in the rheumatology community, especially with patients facing autoimmune disease. The path we've laid out internally is clear, and I look forward to providing future updates on our progress. With that, I'll now turn the call over to Kamal to provide an update on our financial progress in the fourth quarter and for full year 2022. Kamal?