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spk03: Additionally, we had five abstracts accepted for the annual American College of Rheumatology, or ACR, societal meeting being held in Washington, D.C. this month. Three of these abstracts detail the benefits and performance of our new markers. We plan to leverage the ACR meeting and the presentation of these abstracts as the ideal time and place to kick off our commercial launch and educational campaigns. We expect the assays to be available commercially by year end, and we will start marketing the enhancements later this week as our team attends ACR. While our laboratory and clinical teams have been working to ensure our assay is robust, validated, and approved, our commercial team has been preparing to educate the rheumatology community on the value these new markers can bring to their clinic. Our marketing team has spent considerable time in the field preparing for launch, including meeting with over 50 clinicians, one-on-one and in person, and we've conducted an advisory board to best position the enhanced advised tests. Additionally, we held roundtable discussions with over 70 clinicians, educating them on the new markers and getting their perspective on our revised requisition and how we plan to interpret and report the test results. With their input, we've created a completely new test report to improve the clinician experience and streamline workflow for their practices. We are highly confident that we've done the work required to ensure these new markers are understood and presented in a way which enhances rheumatologic care. It's an incredibly busy and fun time in our company. People within the organization are energized by how far we've come and know that we're on the cusp of launching the first meaningful changes to our product portfolio in the last several years. Our progress is reflected in our ACR presence, with all five abstracts being relevant to our commercial efforts, a significant and meaningful change from just a couple years back. Our ASP continues to climb, and will accelerate with the launch of these new assays. Our commercial team is working hard and the makeup of the team has evolved since I've come on board to one that I feel better personifies that of a true consultant to the clinician. I believe this will pay dividends for us with our new product launch later this year and look forward to closing the year out strong and the exciting 2025 we have ahead of us. With that, I'll turn it over to Jeff to detail our financial performance this past quarter.
spk07: Thank you, John, and good morning, everybody. I'll get into the results in just a minute, but wanted to start off by saying thank you to the X-Engine team for the warm welcome. I already know several of X-Engine's partners in the investor community, and I'm looking forward to bringing my experience and working with all of you as we continue to expand on the solid foundation John and team have built. The strategy John put into place two years ago has exceeded probably even his expectations in terms of how quickly the results have materialized. As we close in on bringing the business to profitability, I look forward to working with John on the next phase of growth and building Exogen for long-term success and shareholder value. Starting with revenue, as John mentioned, third quarter revenue was 12.5 million, down 7% compared to the third quarter of 2023. This decrease was primarily due to one-time adjustments recognized in the third quarter, which I will expand on shortly. Excluding these adjustments, revenue in the quarter was $13.7 million, up about 2% over 2023. And year-to-date, revenue was $42 million, up 8% over 2023. This increase in 2024 was driven primarily by our ASP expansion. Now some more color around the adjustments. Our $12.5 million in total revenue for the third quarter of 2024 increased included 1.2 million in one-time adjustments. Breaking this down, first we identified and self-corrected a CPT coding discrepancy related to our advised vasculitis test dating back to the product's inception in 2020. And this resulted in an approximate $300,000 reversal of revenue in the third quarter. In addition, one of the first things I undertook when I joined was a full review of our accrual rates and accounts receivable with my team. As a standard practice, we review our accounts receivable balances and assess accrual rates and establish reserves against known collection risk. During this review, we identified approximately 900,000 additional at-risk accounts receivable we judged to be outside our standard revenue recognition policy. As a result, we took a full reserve of this $900,000 in the third quarter with an associated adjustment to revenue. While these adjustments dampen the third quarter otherwise in line with expectations, the good news is we continue to expand our ASP. The matter is giving rise to these adjustments are not systemic, and we're confident in the accuracy of our reporting going forward. Moving on to our operating performance, our gross margin was 55.8% in the third quarter compared to 57.4% in 2023, Notably, the one-time adjustments had approximately 400 basis points impact on gross margin in the third quarter. Excluding these adjustments, our gross margin was 59.7% in the third quarter of 24. Year-to-date gross margin was 58.7% compared to 54.9% in 2023, and the increase in gross margin is primarily due to the increases we're seeing in ASP. As we look ahead, we're confident in our ability to drive gross margins into the mid-60s over time, especially with the expected addition of the new markers and continued cost and efficiency improvements across our operations. We are pleased to report our continued execution on expense management. Operating expenses excluding COGS in the third quarter were 11.6 million, down over a million, or 9% compared to 2023. Our 2024 year-to-date operating expenses were $34.9 million, down over $4 million, or 10% compared to 2023. These operating expenses in the first nine months were 83% of revenue compared to 101% in 2023. And this is a testament to our commitment to prudently manage costs and grow revenue with an eye toward profitability. At the same time, we've maintained focused investments in our commercial organization and our R&D pipeline to support sustained long-term revenue growth. And we'll continue to manage this balance thoughtfully. As a result of our ASP expansion and expense management, we've continued to narrow losses, and this remains a critical objective for us. Net loss for the third quarter was 5 million and 11.4 million for the first nine months of 2024, an improvement of nearly 40% over the same period in 2023. Our adjusted EBITDA loss inclusive of the 1.2 million one-time adjustments was 4 million for the third quarter of 2024 compared to 3.6 in 2023. And year-to-date, our adjusted EBITDA loss in 24 was 7.6 million compared to a $13.2 million loss in 23 and over 40% improvement. As a reminder, our adjusted EBITDA excludes stock comp expense since it's a non-cash expense for the organization. Please refer to our earnings release issued earlier today for a complete reconciliation of adjusted EBITDA to net loss. And that brings me to cash flow and the balance sheet. We ended the third quarter of 2024 with cash and cash equivalents of $22 million, representing a net cash burn for the quarter of $2.5 million. Our accounts receivable balance at the end of the third quarter was 9.4 million, down from 11.7 million at the end of the second quarter. We continue to enhance and optimize our billing practices to drive efficiency in our collections and appeals processes. We believe our balance sheet today gives us the runway we need to take our business to cash flow positivity. We remain responsible stewards of our assets and are committed to creating and preserving long-term value for shareholders. As we announced earlier today, looking to the remainder of the year, we now expect full-year 2024 revenue of $55 million to $56 million, primarily reflecting the impact of one-time adjustments in the third quarter, and we reiterate our adjusted EBITDA loss expectations of better than $12 million. Our current outlook would deliver revenue growth of about 5% over 2023 and more than 20% over 2022, and adjusted EBITDA improvement of nearly 30% over 2023, and 70% over 2022. And in closing, now that I've had a chance to dig in, it's exciting to see the potential the company has in such an underserved market. John has done an incredible job with the operational turnaround of Exogen, streamlining the company, leveraging our core assets and competencies. It's not common to see a company in our space executing in parallel on revenue growth, gross margin expansion, and OpEx management, yet that's exactly the playbook being executed here at Exogen. I couldn't be happier to be part of a company focused on profitable revenue growth, committed to a business with break-even cash flow in its sights, and well-positioned to take advantage of the opportunities in front of us. We'll now open the call up for questions.
spk00: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we'll wait for a moment while we poll for questions. The first question comes from the line of Mark Massaro from BTIG. Please go ahead.
spk04: Hey, guys. Thank you for taking the questions. And, Jeff, nice to work with you again. Maybe the first one will go to Jeff. Maybe just walk me through the one-timer just a little bit more just to make sure that I heard you say that the matter is not systematic. of all of your AR, of your reserves, just checking to gauge your confidence that you don't think this is likely to happen again, perhaps. And then I also wanted to ask what the impact was due to the storms in Q3.
spk07: Sure. Mark, great to reconnect with you again. Great to be on board. I'll take the adjustment question. I can let John comment on some of the seasonality impacts. So I think thinking about the 1.2 million in adjustments really breaks down, as I said, in two pieces. I think the more simplistic one is we did have an historical coding discrepancy on our advised vasculitis test that we self-reported or self-discovered. and adjusted for that resulted in about a $300,000 reversal of revenue. And that was just given the difference between the CPT coding reimbursement rate. So that's well behind us. It was a one-time thing reflected, you know, coding discrepancy since the inception of the test. The $900,000 is exactly what you said, Mark, in terms of just really taking a very deep dive into our AR balances. And identifying what we talk about really is more one-time risk related to the carrying value of certain AR balances. Really, it's a cumulative effect that justified a write-down in the third quarter. I think importantly, No material changes to payer rates, so we're not seeing this have an impact on ASP. This is really more about carrying value of AR that we adjusted for. In fact, as John said, we continue to see an expansion in our ASP. So to us, this was one time it was addressing some identified risk in the AR balance, but it really had no impact on our expected or overall payer rate.
spk04: Okay, great. And then one for you, John, it sounds like you are making good progress on the new biomarker launch. You talked about hoping to get an ASP increase. I know you talked about that in the prior quarter, but maybe can you just shed a little bit of light about how much of an impact you think might benefit the company in 2025?
spk03: Hey, Mark, certainly. Good morning, and thanks for the opportunity to expand here. Also, hit on the storm question you referenced a second ago as well. So first and foremost, we are excited and on track to launch our new marker enhancements by the end of the year. We've completed our analytical validations internally and submitted those to New York State. So really, everything that we can control, we've done. And now we're waiting for the regulatory approval under the new FDA rules. So very exciting time for us. And we expect that here again by year end, but this is our first time going through it post FDA rules. The impact to the business, we anticipate to be substantial. My approach here on this in terms of quantifying specifically ASP or volume impact is a little bit of a wait and see approach. We have a good model internally, but until cash hits the bank, I'm hesitant to throw out a number. I just want to have a higher degree of certainty from our standpoint. You know, I think the color I can provide is that these are established CPT codes, so it'll be part of our CPT code stack as opposed to a proprietary code. So we don't anticipate huge hurdles on the coverage standpoint. Pricings on the CLFS, there are established methodologies within our lab, both flow cytometry as well as ELISA-based assays. And so from that standpoint, we do anticipate the impact to be sizable. And now, given that we've already submitted to New York State, foresee ourselves being cash flow positive organization by the end of 2025. So huge impact for us organizationally. So happy to follow up with other questions there, Mark. But as it relates to the hurricane, at the end of the third quarter, We certainly saw an impact from hurricanes, which continued into the start of Q4. For our advised testing, I think it's important to recall that our sample type is blood, with no more than a five-day viability for most of our testing. And additionally, the advised test is often used at time of diagnosis or first clinic visit. So if you have that context or keeping that context in mind, when clinic visits are disrupted or delays in shipping occur, we're sensitive to that. Our business model certainly is. So first and foremost, our thoughts are with the people in Florida, especially those recovering. And our team members came out of the storm in relatively good shape, by the way, as well. But it's pretty challenging to anticipate the size and extent of an impact. These were very powerful storms, as I'm sure you're aware. So in our case, to give you a little bit of color here, we lost approximately 50% of our testing volume out of Florida for two and a half weeks at the end of Q3 and into Q4. We've stayed in steady contact obviously with our clinics and some of them saw extended periods without power, upwards of five, six days. Some of them certainly had damage to their clinics. It's really difficult for some of the people in this area, but as people continue to recover, we'll find ways to be helpful and we are seeing that recovery in our Florida business now. So, just to give you a feel.
spk04: Great. That's helpful. I will hop back in the queue.
spk00: Thanks, Mark. Thank you. The next question is from the line of Dan Brennan from TD Carbon. Please go ahead.
spk06: Great. Thank you. Thanks for taking the questions, Jeff. Nice to be working with you again as well. Maybe just one more on the 1.2 million. I know like the last, I think, five or six quarters you've had on average. call it a million and a half of positive development. This quarter, I don't think you reported any. So is the 1.2 million and the scrutiny now on the AR balances and you've cleaned that up, does that mean that no more prior period positive developments going forward? Just trying to reconcile both of those.
spk07: Yeah, Dan, it's a great question. And again, great to be working with you again. It's a great question. I think we can separate those two in terms of the 1.2 was a very specific set of adjustments that really had nothing to do with prior period collections. But you do raise a great point, and that is we are seeing, as expected, our prior period collections start to taper, right? That's all been very expected, right? When we started this, or again, I'll say when John started the process two years ago, there was a large population of untapped collection opportunities that were identified. Very focused efforts were put on those, and they definitely bore fruit. And we saw a bolus of those collections come in 2023. So we've had great success. And the nature of our business, there's always going to be opportunities to capture prior period collections. especially as we continue to just enhance our collections appeals process. But we also believe that we've captured most of the low-hanging fruit dating back to 2023 and pre-23. And as we develop more history with our payer population, we also become better at estimating expected payments and adjusting our rate accruals. So the differential between expected payments and actual payments will continue to narrow, and that will reduce the size of our prior period collections. But just to point out with all that said, even as the greater than 12-month collections or prior period collections have tapered, we're continuing to see expansion in our ASP. So we feel really good about that.
spk00: Okay.
spk06: And maybe, you know, I guess for John, with the five abstracts you have out, I know you have one summary session, some posters and whatnot. Maybe can you just pick out kind of what's most exciting? I know you talked in the prepared remarks in terms of not only an impact on price, but also I think, you know, notable impact you expect on volume given the improved utility. So maybe just walk us through a little bit about like, you know, what's in, what really stands out to you from the abstracts you've done all these meetings with doctors, maybe just walk through kind of what the initial feedback looks like. And if you can help us characterize like, you know, where you are today from a penetration basis and, you know, what this increased utility might mean in terms of penetration of volumes.
spk03: Absolutely. Good morning, Dan. Thanks for the question. So, most excited. You know, if you were to ask clinicians, based on some of the feedback, where are they most excited? You know, it was actually a surprising kind of response that I started to get over the last several weeks, couple of months. And what we're seeing in terms of interest is a lot of people curious about the seronegative RA markers that we're bringing to market. So we have two phases of this product enhancement. The first one launches by year end. The next one will be sometime here in 2025. Our abstract includes the clinical validation of both sets of markers. So by the time we've revamped our seronegative RA profile, it'll be best in class in terms of the ability to diagnose and identify patients with RA. So right now, if you were to use conventional testing at other labs, generally you'd find about 70% of RA patients. That other just shy of a third would be identified clinically. So there's no biomarker in their serum, in their blood, which denotes the diagnosis, but through a clinical evaluation of their joints and whatnot, they're diagnosed clinically. as having RA, and they start treatment. The trouble with those folks is, as they progress through their treatment regimen, either they become refractory, as roughly half of all patients do, then the clinician starts to question, did we get the diagnosis right, or are they truly refractory to this treatment? And it becomes a you know, you second guess yourself quite a lot. And clinicians have told us firsthand that this is a very difficult patient population to manage because of that dynamic. Also, prior authorizations for many of these drugs become more difficult as you don't have biomarker evidence to support the diagnosis. So working these patients through the clinic really is a tough challenge for a rheumatologist, which is why we went after this in the first place. That's Part of the market research we did when we first came here is we recognized this as a top clinical need. So these markers that we're going to launch here identify roughly half of all seronegative patients. And you'll see that in the abstract. So about 85%. You take that 70% up to 85%. That's a very meaningful progression, like I said. We're unaware of any seronegative offerings that are out there commercially right now that come close to what that profile is going to be able to do. And that additional 15% that we don't capture yet, we're looking at ways to continue to narrow that gap. But also, there's some level of misdiagnosis in there. So from our standpoint, if if you run our profile as part of the diagnostic workup of your patient and you still diagnose a patient that's shown negative RA, after some time you really, especially if they're refractory treatment, really going to have to question if the diagnosis is truly correct because we'll have the most extensive profile out there for it. So that's probably what I'm most excited about based on firsthand feedback in talking to our clinicians. It's an area of rheumatology that We have some penetration in, but very light. This RA is an order of magnitude higher in terms of prevalence and incidence than lupus. So it'll be interesting to see how this changes our organization, certainly utilization of the product, and we'll go from there. But early to tell right now, but certainly a lot of buzz around that.
spk06: Terrific. I mean, I can just sneak in maybe Another quick one or two. So I think your existing test maybe has, correct me if I'm wrong, is it 12 biomarkers on it and you're looking to add another six codes? So is this a very simplistic way? I mean, I don't know how the price per code works out. I know we'll get more color as you kind of get these pricing in place, but it sounds like 18 divided by 12 might be like a third higher. So I don't know if that's not a bad place to kind of start for us right now. And then B, I think you talked about being free cash flow positive by year end 25. So I think your prior guide was cash on the balance sheet was sufficient to get into 26. Like, how does that change now? I mean, do you think you're kind of going to be sufficient now to fund towards free cash flow positivity so you're not going to need to raise any more capital even in the out years? Thank you.
spk03: Yeah, great question. So on the coding front, we actually have the current advised CTD test has 23 markers. Ten of them are billed out using our PLA code. So that's how you get back to that 12 mark. number that you just referenced, because we have an index score associated with our lupus algorithm. And so those 10 biomarkers are not ordered individually. They're ordered as a package, built out as a package, and the index applies in that context. So this is adding five additional markers, three on the FLOS side, two on the ELISA side. Again, we'll see how reimbursement shakes out here over the first couple months of launch, but hopefully that gives you some color. It's the PLA code plus call it 17. Then on the cash flow positivity, you hit it right on the head. From our standpoint, we do have ample capital to get to a cash flow positive state, and that is what we are laser focused on. From a runway standpoint, we're transforming this organization. I believe that we're currently undervalued relative to where we're at in that transformation and the inflection we believe we're about to take with the launch of these new markers. We've been highly committed to shareholders and creating shareholder value. So at the current valuation and that coupled with our ability to consistently push out our runway, we're not in a hurry here to do any sort of financing. From our standpoint, want to see how the new product launch goes, want to see how our financial progress, operational progress goes over the next 12 months. We will need to do something about our debt maturity at some point in the next year or so, call it year, 15 months. But Jeff and I are strategizing now on that front and don't have anything to share specifically. But that's really how we're thinking about it. Terrific. Thank you.
spk00: Yep. Thank you. The next question comes from the line of Kyle Mixon from Canaccord, Genovese. Please go ahead.
spk05: Hey, guys. Thanks for the questions. And hey, Jeff, good to work with you again. So just on the fourth quarter kind of implied guide here, it looks like $15.5 million. It's like a $3 million increase from 3Q, maybe like $1.8 million if you head back that 1.2 from the long-term headwinds in 3Q. Um, you know, maybe I'm not doing the math right, but either way, there's like a nice step up there and that's, it's like interesting because you know, the fourth quarter is typically, you know, not the strongest quarter for oxygen given conferences and given some of the seasonal dynamics and stuff in, in, in, uh, you know, uh, lupus and rheumatology. So can you talk about what's driving that, you know, if the credential increase that Delta there, and if that there's any like read throughs into like early 25. Thanks.
spk03: Sure. So, uh, good morning, Carl. Thanks for the question. I think we'll be happy to work through the math with you. Certainly, I didn't quite follow all of it, but when I see kind of how this quarter shaped out, it was as expected and as I relayed on the prior earnings call. So, we saw a small quarter over quarter decline in volume, but still had performance above Q4 of 23 and Q1 levels, you know, where I had conveyed that we expected kind of the bottom in terms of volume. We had very nice growth in Q2 and then relatively flat here into Q3. We really just saw the impact of some high volume riders out of the office coupled with some weather related effects at the very end of the quarter. On the ASP side, we had less than prior period collections or collections greater than 12 months. This was actually the lowest quarter. Jeff referenced this as well, but the lowest quarter for this since I've been here, but we still improved our trailing 12-month ASP, which is the appropriate metric to be gauging in terms of how our strategy is working. What I didn't expect was to have the negative adjustment. We're transforming this business. There's going to be headwinds and tailwinds at times. We had a headwind event, but we're not facing robust headwinds impacting the viability of our strategy. So happy to work through the Q4. Matt, with you, our guide is on top line 55 to 56. We think that we have good visibility into that range here at year end. And then keeping the adjusted EBITDA performance at no worse than 12 million, which continues to be a dramatic improvement year over year.
spk05: Yeah. Thanks for that, John. Appreciate that. And it's not – yeah, just by the way, it's not as much of a step up as I was talking about, but it is like a little bit of a step up. But again, without those one-timers in the third quarter, it's kind of like sequentially flat, which I guess makes some sense. But yeah, we can kind of talk about fourth quarter offline. On the kind of like the path of profitability and everything – you know, that's great that it's a little bit kind of pulled forward and everything. I think like last quarter, you know, it could have been during Apollo, but we were talking about how some of the metrics that you want to describe as being kind of like the run rate revenue level for profitability, gross margin, those are now updated. So, you know, maybe like a lower revenue level, that's like 73 million by the end of next year, it sounds like. So is something like that possible? Do we think what kind of modeling second, you know, half of next year, fourth quarter of next year? I know it's far away, but like, you have visibility to break even and all that. So if you could just comment on that, I'd be great.
spk03: So your math there, we are very much in alignment, Kyle. So from a run rate perspective, we expect by the end of next year to be in a cash flow positive state. That's somewhere in the low to mid 70s top line with 60 plus percent gross margin and holding our operating expenses relatively flat. All right, awesome.
spk05: And then if I could ask a quick wrap-up. The marketers, a lot of talk about the marketers in the fourth quarter being launched here. Can you just walk through the marketing and the reimbursement factors that are going to kind of ensure a successful launch next year, throughout the full year, and kind of going forward, giving importance to the P&L and everything there? I just think that there's a lot of moving pieces, and it's the first launch of any product with the company in years, so it could be good to kind of walk through at this point.
spk03: Yeah, and this is where a lot of our excitement is, obviously almost all of our focus right now. So marketing-wise, our marketing efforts have been ongoing. We've done quite a bit of market research throughout the last couple of quarters, refining our requisition, the report templates, how we convey the results. This is not something to be overlooked, certainly. You can really mess this up or screw this up if You convey the wrong message, make too strong of claims, relay the results in a way in which clinicians are pigeonholed into certain decisions. So it's really kind of a little bit of a dance to figure out how to end up with a product that is relatively universally liked, and yet these are new markers, so you have to educate on the utility. So you have to be fairly prescriptive in your interpretation. So a lot's gone into that. As I said, we've met with multiple clinicians one-on-one. We've done larger gatherings, 70 plus on that front. So hundreds of clinicians now we've met with to get this feedback and across the entire US. Our team's really done a great job there. Additional marketing efforts that are ongoing. So this coming weekend, and really it starts here on Thursday, but is the annual societal meeting for rheumatology. This is when our original campaign starts. This is a venue where north of 10,000 clinicians in the rheumatology community, overseas, international, U.S.-based, but it is certainly the largest gathering for our specialty occurs, and we're doing a full marketing push here with individual meetings, collateral, education. This is really our marketing launch, if you will, although the test won't be available until we get New York State approval, but... Given that there's some flexibility and when that occurs, we thought that let's just anchor to an event here, a marquee event, and utilize this platform as a way to convey the value and educate on it. So we have the plenary talk where we've got actual KOLs who have done research with us on this front, speaking to the utility of these markers. A lot of really cool events planned, and it's going to be fun. I'll be there in Washington, D.C. as well. So that kicks this off. We've revised all of our marketing collateral, everything that gets brought to a clinician's office, left in a clinician's office, even patient material. Our website's having some modifications as well. So really, if you take a look at our organization, we're putting everything we can behind this, given that we haven't done it in half a decade, and it's incredibly important to our success. So very exciting from that standpoint. I also just want to mention, I think this is on the same vein as what you asked, Kyle, but we've been changing the makeup of our commercial team, our field-based sales team. And we've added a few folks to that team. And I'm just really excited about the caliber of folks we've brought into the organization and the approach that we're taking there in really pushing a more consultative approach one in which you're a trusted partner to the clinician and can really be an educator in that regard. So we'll see how all of this continues to transpire. Our training and everything has been revised and specific to this. But Q1 will be a big quarter for us to really see how this kicks off. Okay. That was great.
spk05: Look forward to these conversations. Thanks, John.
spk03: Thanks.
spk00: Thank you. The next question comes from the line of Ross Osborne from Cantor Fitzgerald. Please go ahead.
spk02: Hi. Good morning, guys. Thanks for taking our questions. Starting off, would you walk through your capacity expansion initiatives ahead of incremental demand next year?
spk03: Hey, Ross. Good morning. So capacity in the lab, the way we operate right now on a Tuesday through Saturday shift, and it's mostly a full day shift. So we've got kind of two day shifts there. We start early, five in the morning, and we go late to about nine o'clock at night. A lot of that has to do with the viability of our samples. So if you keep in mind that we ship from all over the U.S., it arrives daily, call it early morning. But then for flow cytometry, we're evaluating markers on live cells. So you want to act as quickly as possible viability is really key with that platform and so we typically conduct all that testing same day or done by 9 p.m. we have the capacity to have a night shift which in essence would virtually double the current capacity of the lab so you see us doing about a hundred and thirty thousand hundred thirty five thousand tests a year the last couple of years in essence with our current instrumentation and existing capital footprint, we would be able to virtually double. Now we haven't geared up for that. What we've been doing is we've added additional licensed personnel. So that's actually currently baked into the cost structure of the organization here in, well, I guess it'll end up being the fourth quarter financials, but it started in the third quarter. And that's just really in preparation because licensed folks are really difficult to find and you need to find good ones and what have you. train and provide career paths for non-licensed folks and get them into different aspects of the lab. But I think kind of a bottleneck there would be licensed personnel. I feel very comfortable with where we're at to kick off the year from a licensed personnel standpoint in the lab, the amount of instrumentation we have or need, and then the ability to add in an additional shift should we get to that point. I really hope we do. But should we get to that point? If you recall, we made about a million dollars in capital upgrades in Q3, started actually a little bit in Q2. This was to upgrade our flow cytometers so that we could handle the new T cell markers. But all that's been done, been completed and expensed.
spk02: Okay, sounds great. And then any update on the biopharma contract you announced last quarter? How should we think about that opportunity in 2025?
spk03: Great question. No material update to present, aside from the message I wanted to convey last time, so just to reinforce here again, is just that it's an area of the business I don't think we had taken advantage of historically, at least in the way that I was looking at it, to aid in marker development and to potentially supplement some of our R&D. This year in 2024, we signed material contracts, especially relative to our prior CRO work. north of a million dollars this year, and we'll see how that translates into future years. But we're establishing good relationships with these pharma partners. I just think it's an area we can grow over time. We haven't guided to it in 25. Obviously, at some point early next year, we'll be able to have our guidance for 25 and be happy to go into that a little bit more.
spk02: Okay, sounds great. Thanks for taking our questions.
spk00: Thank you. The next question comes from the line of Andrew Brackman from William Blair. Please go ahead.
spk01: Hi, guys. Good morning. Thanks for taking the questions. I'll just stick to one. John, you sort of talked about some of the specific feedback that you've gathered from physician groups ahead of launch here. Can you maybe just unpack that a little bit more? And related to that, you talked about a new test report and streamline in the workflow. Anything specific you can share there? Thanks.
spk03: Yeah, good morning, Andrew. Thanks for the question. So if you think about it, we already advise CTD today is already the most sensitive assay available for evaluation of folks with connective tissue disease, but specifically SLE, systemic lupus erythematosus. So we're enhancing that value proposition, but we already have the best product out there. So as I've understood it in talking to clinicians, you're making the best product out there better. That does have utility. These markers have IP through 2035, so it continues to reinforce that edge for us and provides, you know, furthers our competitive moat, if you will, in that regard. But people are used to it, having the best product out there. And so for those folks that are already using the Advise platform, I think they're more interested in the ability to use this more broadly, specifically with some of their rheumatoid arthritis patients. So that's what I was getting at. Now, launching the new T-cell markers will certainly open doors with other clinicians who don't currently use our platform. And we believe that there's room to be gained there as well. And in essence, some of the performance we're seeing on the SLE side is we're identifying 90% of patients or more. So it's really substantial and dramatic when normally this is a clinical diagnosis and you're able to have that level of biomarker sensitivity certainly AIDS, and you're capturing basically twice what conventional markers are able to capture. So we are still excited on the T cell side, but just if you take a look at it, we're initially launching within our existing customer base. And so a big part of that is, well, where else can this help me in my clinical practice? And that's certainly on the RA side. So that's what I meant by that. The report, we've taken this opportunity as well to just revise other aspects of the report, not just the new markers that we're providing. Clinicians are generally pretty happy with that. Advise lupus index, we've changed the visualization of this. We've added an interpretation which makes it a little more intuitive. You know, be the first to admit in the prior version, likely took a few times of running the test to really understand what the index told you, how it's used, what the various values truly mean. Now we try to do that a little more explicitly up front, more clearly. Those are some of the enhancements. We've organized the various markers by disease state to make it easier to read. All of that's been well-received when we do our voice of customer and get feedback from the team. Again, we've changed our requisition to make it easier for them. So everything we're doing is trying to study our customer. If I were to sum it up in kind of a high-level way, you know, theme. It's study your customer, find a way to make their life easier, and just be relentless in continuing to do that. And so this is a great opportunity for that, and we'll see kind of how it goes.
spk00: Andrew, do you have any further questions for the management? Just for me. Thanks, guys. Thanks, guys. Thank you.
spk03: Thanks, Andrew.
spk00: As there are no further questions, I now hand the conference over to John Aboli for his closing comments. John?
spk03: We believe 2025 will be a really exciting year for us. We anticipate making material progress in achieving cash flow positivity. We have our new product launches planned with a return to commercial expansion of our sales territories starting again. We've been developing our R&D pipeline, and it's really starting to take shape and yield results. And we have the processes and people in place to execute a highly efficient diagnostic business and are building momentum. I look forward to continuing to detail our progress as we close out a fantastic year at Exogen, and our teams are highly focused on ensuring we have a successful product launch to kick off 2025. I just want to thank the Exogen team and look forward to continuing to provide updates. Thanks so much.
spk00: Thank you. The conference of Exogen has now concluded. Thank you for your participation. You may now disconnect your line.
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