Exagen Inc.

Good day, ladies and gentlemen, and welcome to the Exogen Q1 2023 Unix Core. At this time, all participants are in a 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 and then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ryan Douglas, of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us. Earlier today, Exogen Inc. released financial results for the quarter ended March 31st, 2023. The release is currently available on the company's website at www.exogen.com. Chana 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 guidance for the quarter ended June 30th, 2023, 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 uncertainty associated with our business, please see our filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2022, and subsequent filings. The information provided in this conference call speaks only to the live broadcast today, May 15, 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'll now turn the call over to John Abali, President and CEO of Exogen.

Thanks, Ryan, and thank you to everyone joining the call. Today I will discuss our first quarter results and give updates on our strategic initiatives, path to profitability, and research pipeline. 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. When I arrived at Exogen, we put together a plan to reduce expenses across the organization and grow the business to profitability. Now that I've been leading Exogen for seven months, it's great to see that the changes we've implemented are starting to have a meaningful impact on the business. and are reflected in our commercial results and reduced operating expenses. For the first quarter, I'm happy to report that total revenue was $11.2 million, driven by a record volume of 37,300 advised CTD tests. Volume increased 10% over the last quarter and 21% year-over-year. I'm excited about the momentum our commercial team has created as they have remained focused and highly motivated throughout the implementation of these changes. My strategy has been to orientate the company on a path to profitability, and the results in this quarter give us our first opportunity to convey the impact of our initiatives. For the first quarter, SG&A and R&D expenses decreased to $13 million, which is an improvement from an average of $15.5 million per quarter throughout 2022. The decrease was primarily due to the reduction in force that took place in December. The assumptions we made in planning the reduction have proven to be on target, and we now believe that we have the right people in place and are operating at the optimal size. Kamal will elaborate on the financial performance, but in short, I'm very pleased with how we've started the year. Increasing ASP through changes to our operations and revenue cycle management is a key component of our strategy. Trailing 12-month ASP through Q1 was $279, which we anticipate improving in 9 to 12 months as our efforts begin to materialize. Keeping in mind that first quarter ASP numbers include the effects from deductible resets and final Medicare pricing on the clinical laboratory fee schedule, we feel ASP trended in line with expectations for the first quarter. As we've consistently detailed, We aim to improve ASP through multiple initiatives, both in the short and long term. These initiatives include steps taken recently to improve our revenue cycle operations by increasing our required documentation at time of test order and revamping our appeals process. Additionally, we've been aggressive with appeals, filing more than we did for the entirety of 2022. As a reminder, the appeals process can take upwards of a year, depending on what level of appeal is reached, and we should see the results reflected in higher ASPs. Over the long term, we believe this approach will be an effective way to educate insurance companies regarding the value of advised CTD and expect these efforts to improve coverage with plans. As part of our initiative to improve revenue cycle management, we made a strategic decision to hold first quarter claims until the second quarter while we optimized our appeals process. This additional time enabled us to focus on process improvement without the pressure of triggering timely filing deadlines. As anticipated, this resulted in a temporary increase in our accounts receivable balance by $3.2 million and subsequently impacts the cash balance, the effects of which will diminish as the year progresses. We recently refinanced our term loan to better align with our strategic focus and to alleviate performance covenants that restricted our pursuit of profitability. In a tightening debt market, we had the opportunity to refinance from a position of strength to obtain terms we found advantageous. This benefits the company in multiple ways. The new loan provides flexibility in the performance covenants. It deleverages the organization and resets the interest-only period to three years, all of which allow us to focus on achieving profitability in the medium term. Additionally, our monthly payment is lower, and we were able to make a $10 million principal payment without penalty. There are a few other details Kamal will cover, but in general, we found this to be a very positive development which better aligns with our strategy. Moving to R&D, after a thorough review, I've decided to end our RADAR program, including associated clinical trials. While there remains a strong clinical need for a predictor of drug response in rheumatoid arthritis, and RADAR has many promising aspects to meet this clinical need, We believe the commercialization hurdles are significant and therefore prohibitory, given the current strategy of the organization. We continue to develop products for monitoring of disease activity in lupus, along with a predictor of drug response for lupus nephritis. Both efforts remain active, and we plan to give updates when we have meaningful outcomes for market development. We ended the first quarter with $1.1 million in R&D spent, which was light due to the timing of pipeline projects and trials, And for the full year, we anticipate our R&D spend to be around $6 million. Lastly, I really value in-person connections with our customers, and I'd like to share an opportunity I had to spend a day in the field with a top rheumatologist in Los Angeles who sees in excess of 20 patients per day. These types of opportunities are incredibly rewarding, as I was able to experience firsthand how our test is used in clinical practice and the positive impact it has on patient care. First and foremost, What was really insightful and motivating was seeing the clinicians serving patients. And it's very clear that clinicians in this subspecialty have a unique bond with the patients in their practice, given the types of challenges they face in their journey to achieve a correct diagnosis. The physician I shadowed really connected with her patients on a personal level, and this was the motivating part, to be welcomed into the clinician-patient interaction and observe firsthand how our test was being positioned and utilized as the definitive solution to answering a patient's prior ANA-positive finding. The office environment is fast-paced, and clinicians trust Exogen and the Advise brand to deliver superior quality and service in helping them solve the differential diagnosis of their referred patients. This was the first of several visits I hope to have in the coming year, and as I saw firsthand, in combination with the record Advise CTD volume we demonstrated this quarter, clinicians find the Advise platform extremely helpful in their everyday clinical practice as the brand they can trust. I'm extremely proud of the progress made by the Exogen team this past quarter. Our strategy has been highly targeted as we've gone through every aspect of the organization. And it's exciting to see the progress reflected in the quarterly results. We still have a significant amount of work ahead of us regarding the reimbursement of advice, which we're working on, and we'll continue to provide regular updates. But so far, what we have set out to accomplish is starting to take shape. I'll now turn the call over to Kamal.