Exagen Inc.

Greetings and welcome to the Exigen, Inc. First Quarter 2025 Earnings Conference Call. 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 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, Mr. Ryan Douglas, Investor Relations for Exigen, Inc. Thank you. You may begin.

Good morning, and thank you for joining us. Earlier today, Exygen, Inc. released financial results for the quarter ended March 31st, 2025. Shana Bali, our President and Chief Executive Officer, and Jeff Black, our Chief Financial Officer, will host this morning's call. The recording of today's call and the press release announcing the quarterly results can be found on the company's website at www.exygen.com. As today's call includes forward-looking statements, we encourage you to review the statements contained in today's press release and the risk and uncertainties described in our SEC filings, which identify certain factors that may cause a company's actual events, performance, and results to differ materially from those contained in the forward-looking statements made on today's call. In addition, we will discuss non-GAAP financial measures on this call. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. I will now turn the call over to John.

Good morning, everyone, and thanks for joining the call today. It's exciting to be reporting our first quarterly results with the impact of our new markers, and we are seeing fantastic results. We plan to touch on that along with providing additional color around the debt refinance we announced last week. We have a lot going on at the company. We're off to a great start and it's an exciting time. I'll detail a few critical topics relevant to our success and then turn the call over to Jeff for further detail on our financial performance over the last few months. To start, we delivered our ninth consecutive quarter of increasing trailing 12 month ASP and we're incredibly proud of the progress we've made over the last two plus years. Our revenue cycle operations continue to improve and Jeff will provide additional commentary. But we are methodically growing our per case reimbursement and have started to generate real momentum with our market access efforts. I tend to shy away from describing activity as I believe cash in the door is what really matters. But I think it's important to highlight that we have started to win administrative law judge or ALJ hearings as part of our strategic reimbursement efforts. To explain a bit more. Over the course of the last couple of years, we've sought to elevate our appeals efforts to that of an external review by a neutral third party. This takes a lot of time and diligence and is a learning process for each product we offer as we fine-tune the packet of information we submit based on feedback throughout the process. This past quarter, we successfully won our first ALJ hearing, which was a formal hearing of a Medicare Advantage denial that we initiated as part of our ongoing efforts. The case was originally denied due to a medical policy determination at a large national insurer and we petitioned the court for review in order to have this patient's case treated similar to other Medicare claims as it's entitled to. We've won the case and are highly encouraged by this effort as it starts to set a precedent for future appeals. We have several other hearings planned in the weeks ahead, and a few are with the same judge, so we're highly encouraged by this progress and look forward to future wins. These wins provide reimbursement for that individual case, but also factor into our longer-term strategy of gaining awareness at the medical director level and bringing payers to the table while building momentum and leverage. I would expect over time that continued wins at the AOJ level catalyze efforts to improve medical policy with a broad set of payers. And we will see how long it takes, but this is a very good sign. Additional momentum was gained this quarter by securing positive medical policy with TRICARE, under which all active duty service members, retirees, and their families receive civilian medical care. We recently concluded a two-year effort where we underwent medical policy review through their formal process and advised CTD was granted positive medical policy. We are finalizing the contract efforts to ensure streamlined billing transactions, but this should be a catalyst for increased ASP in the future. These updates will be few and far between as, again, I believe the most relevant metric is still the trailing 12-month ASP. But both of these efforts have strategic implications relevant to the approach we've outlined over the past two years and are important milestones on their own. And lastly, regarding ASP progress, we continue to expect the incremental boost of our trailing 12-month ASP from the launch of our new markers to be approximately $90 by the end of the year. And with the momentum and real results I just described, we remain highly optimistic to meet our goal of adjusted EBITDA positivity by year end. Our growth this quarter was fueled by a combination of continued gains in ASP, but also volume, which was very exciting to see and was in part the result of our new biomarker launch. This past quarter, volume grew 6% over our Q4 performance. Our sales team is highly energized by the rapid adoption and favorable response to the reinvigorated Vive CTD. In Q1, we launched our new markers, but we also spent a considerable amount of time training the team on the enhanced value proposition. I believe these efforts, along with fantastic preparation by our marketing and customer service teams, have enabled a highly successful launch with significant energy and excitement that is likely to persist. Additionally, our new head of sales, JR, has been on board now for about nine months, and his impact is starting to yield results. Our sales team is more focused on selling and we've removed as many of the administrative efforts from the role as possible. Of note, we are hiring as well and have started to source talent for two expansion territories. If you're good at sales, hardworking, great at solving complex problems, have a dose of humility, and operate with integrity, we'd love to have you join our team and help us build something special as we work to serve the rheumatology community. As we've seen with the broader organization, The stability of our team and reduced personnel turnover yield results. Our sales organization used to have voluntary turnover raised north of 30% just a few years back. Today, we have trailing 12-month voluntary turnover within our sales organization of 7%, and that includes one recent retirement. Congrats again, Bonnie. You've earned it. The progress in building a mission-driven culture that rewards performance is evident in the positive trend these numbers illustrate. I'm very proud of the team we have. It's energizing to see the volume growth associated with having the right team in place with stability. We expect volume to continue to grow and have a couple more expansion territories identified, which we anticipate opening for recruitment in the next couple of months. More to come, but it's great to see new clinicians incorporating the Advise CTD test into their clinical practice and increased adoption within our existing position base. We are very pleased with the volume trend we're seeing to start the year. As we continue to turn around the operational performance of our organization, we recently improved our financial position with a new credit facility from Perceptive Advisors, an exceptional business partner and highly credible life sciences investor. As a reminder, we had a $20 million loan that was maturing in April of 26. While we anticipate being free cash flow positive by this time, the amortization schedule was over a 10-month period and too aggressive for our anticipated ability to service the debt. When Jeff joined the organization last year, this was a primary priority for him, and he did a fantastic job engaging with Rob at Credo 180 to help us navigate the market and find a great partner to achieve the flexibility we needed in refinancing our debt obligations. I should also mention that we are excited to have the optionality of the current facility to tap into additional minimally dilutive capital should we desire, as we continue to shape our organization to be the preeminent provider of proprietary testing in the autoimmune space. We are very grateful to Sam and his team at Perceptive for partnering with us in building something special here, and now have the flexibility to pursue profitability and ultimately deleverage on our own timeline and capitalize on growth opportunities in a way which maximizes shareholder returns. Our efforts to develop future innovations, which will drive growth, continue with our next set of seronegative markers, expected to launch around the end of this year. We've been working to clinically validate the utility of these markers over the past several months, and their contribution to clinical practice should mirror that of our recently launched RA33 markers. We expect to gain approximately 8% in overall sensitivity for identifying patients with rheumatoid arthritis who would otherwise be serologically benign. The sensitivity gain puts our overall ability to detect the rheumatoid arthritis patient population at approximately 85%, far above conventional markers alone. This strong clinical value proposition should continue to open up a market for us, which we believe is approximately three times larger than the market for lupus diagnostics alone, and will be accretive to ASP. Additionally, our efforts to develop diagnostics for detection and management of lupus nephritis patients continue to track well. And we have now designed, and with a partner manufactured, a custom array specific to the first version of our assay, which was developed in conjunction with the team at Johns Hopkins. This paired down array will enable throughput at much higher volume with lower COGS while focusing on the key relevant biomarkers for this disease application. We are currently testing the newly customized array and plan to have results in Q3. We are also actively engaged in the biopharma level to find partners interested in leveraging this technology. More to come. Strategically, we have been advancing efforts to develop early markers of kidney disease while we pursued applications in lupus nephritis. The results from these efforts are very encouraging, and our chief medical officer, Dr. Mike Nirenberg, recently presented the findings from three clinical validations at the annual Chronic Kidney Disease Drug Development Summit in Boston a couple months ago. This work includes the profiling of two separate NIH cohorts and a lupus nephritis cohort, where we've shown great discriminating power for our proprietary analytes in identifying early disease while performing the current standard of care. We look forward to continued validation of this technology and are actively pursuing biopharma partners through our business development efforts. In general, our R&D pipeline continues to advance impactful technology in multiple areas of significant clinical need. Additionally, we continue our efforts to develop signatures of disease activity in both SLE and rheumatoid arthritis. But maybe the most important point I want to make here is that we have now successfully demonstrated a capability to bring novel biomarkers to the clinic with the current Exogen team, and done so in a reasonable time period with a prudent level of resources. Our internal teams have had to refine and build this skill, and the past 12 months have demonstrated a proficiency for doing so. I'm very proud of the teams for their work in this area and we have exciting opportunities in our pipeline, which we expect will have significant impact on patients and clinicians down the line. I'll now turn the call over to Jeff to provide additional details on this quarter's financial performance. But suffice it to say, I'm very enthusiastic about the track record our company has had and the track our company is on. We have what is shaping up to be a phenomenal year ahead of us and we continue to generate momentum in our business.

Thank you, John, and good morning, everyone. 2025 is off to a strong and exciting start. We're eager to keep building on this momentum throughout the year. We've made great progress on our financial objectives over the past quarter. Notably, as John mentioned, the launch of our new biomarkers and early read on expanded ASP puts our profitability goals well within reach, and we remain fully focused on achieving them. And our new credit facility with Perceptive Advisors extends maturity of our prior term debt, ensuring runway to sustaining free cash flow positivity while also providing flexibility to further accelerate growth initiatives on a minimally dilutive basis. Diving into the details of the first quarter, beginning with revenue, we achieved record revenue of $15.5 million, representing a nearly 8% increase compared to the first quarter of 24. This growth was driven primarily by continued expansion of our advised CTD trailing 12-month average selling price, now at $419 per test, thanks to the addition of our new markers. We also saw a modest uptick in testing volume, both year-over-year and sequentially. Volume expansion will continue to be a key focus for us throughout 2025. To give you further color on ASP, our early read on new biomarker reimbursement of $90 per revised CTE aligns with our initial expectations. And while it's too early to make a call on our longer-term expectations, we're encouraged by early traction. Given that these new biomarkers were reflected for only a partial quarter, the $90 per test translated to about a $15 increase in our trailing 12-month ASP. it will take the remainder of 25 before the full impact of these new markers is reflected in our trailing 12-month ASP. And we continue to see opportunities to expand ASP through enhanced appeals and market access efforts. Moving on to our operating performance, gross margin for the first quarter was 58.9 percent, slightly down from 59.6 percent in 2024. And we expect gross margin to improve steadily throughout 2025 as ASP expands. Notably, there were three transitory headwinds that had a short-term gross margin impact in the first quarter. First, as we noted in our fourth quarter call, we've invested ahead of the curve in lab operations to accommodate the new biomarker launch and our anticipated volume increases in 2025. Second, we launched the new markers in late January, so the impact was reflected for only a partial quarter. And third, for most of our existing client direct bill contracts, the new marker pricing had not yet been updated for the full quarter. In these cases, we absorbed the cost of running the new markers, but did not report or bill out the results, and therefore didn't realize the margin impact of the expended ASP. The good news here is that the majority of those contracts have now been amended to reflect the new pricing. In fact, if the full quarter of Avaya CTD volume reflected the benefit of the new biomarker ASP lift, our gross margin in the first quarter would have been over 60%. We continue to expect to see a gross margin expansion in the second half of 2025 into the low 60% range, and we still have a line of sight to gross margin in the mid 60s over time. Turning to expenses, our operating expenses totaled $12.5 million in the first quarter, representing a $900,000 and roughly 7.5% increase over 2024. Our R&D expenses were up about $200,000 year over year, driven primarily by increased activity in clinical studies and advancement of our pipeline. And SG&A expenses increased about $700,000 year over year, largely due to personnel additions to our sales and marketing teams. We expect our operating expenses to increase moderately in absolute dollars in the near term as we execute on additional R&D pipeline initiatives, expand our sales force, and invest in infrastructure to support our expected volume of revenue growth. But it should decrease year-over-year as a percentage of revenue as we see operating expense leverage in 2025 and beyond. Importantly, we have the ability to modulate spend as appropriate, and we're well positioned from a balance sheet perspective to make the investments needed to support our expected growth. Our net loss for the first quarter was $3.8 million compared to $3.4 million in the same period last year. Adjusted EBITDA loss was $2.5 million versus $2 million in the first quarter of 2024. Profitability remains a core focus for the company, and we expect to reach positive adjusted EBITDA by the fourth quarter of this year. As a reminder, our adjusted EBITDA excludes stock comp expense since it's non-cash. And please refer to our earnings release issued earlier today for a reconciliation of adjusted EBITDA to net loss. Shifting to our balance sheet, we ended the first quarter of 2025 with cash and cash equivalents of just over $11 million and an accounts receivable balance of just under $15 million. As a reminder, our strategy includes holding claims at the beginning of the year, and we fully anticipate the temporary impact this has on both cash and AR. We've since begun releasing claims, and we expect our AR balance to normalize throughout the year. To elaborate further on this, as of the end of April, our combined cash and AR balance has increased to about $28 million, including about a $3 million increase to cash from our recent debt financing with Perceptive. On that note, as John mentioned, we're extremely pleased to bring Perceptive into the XGen family with our recently announced credit facility. Perceptive is a widely recognized and respected life sciences investor. The new facility extends debt amortization by five years eliminating nearly $20 million in principal payments that were due in 2026 under our prior term loan. This new facility also increases our potential borrowing capacity based on future milestones and strategic initiatives, providing access to minimally diluted future growth capital. At close, we drew $25 million to repay our prior term debt, and we now have up to $50 million available for future tranches. Up to $20 million will be available in 2026 based upon achievement of revenue milestones, and another up to $30 million available for approved strategic transactions if such opportunities arise. Borrowings mature in April 2030 with interest-only payments running through maturity. This was a great result for us. We couldn't be happier with the outcome, and we look forward to our new partnership with Perceptive as a lender and stakeholder. To put this all into context, we're now well positioned from a balance sheet perspective with nearly $80 million in combined cash, accounts receivable, and available future credit capacity as of April 30th. Turning to guidance, we expect 2025 full-year revenue of at least $65 million, and we are on track to deliver positive adjusted EBITDA in the fourth quarter of 2025. In closing, 2025 is shaping up to be a pivotal year for Exogen. We're on track to deliver over 17% revenue growth. We remain focused on achieving one of the key milestones John set upon his arrival, operating a profitable company. We're excited about the momentum we've built, and we're confident in our ability to meet and even exceed our own expectations once again, just as we did in 2023 and 2024. We thank you for your continued partnership and support. And we'll now open the call for questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 key. Our first question comes from the line, of Kyle Mixon with Canaccord Genuity. Please proceed with your question.

Hey, guys. Thanks for the questions. Congrats on the quarter and the agreement with Perceptive II. So, starting off on volume, I think you talked about a sequential increase by 6%. That's like, you know, kind of a modest growth of year. Good to see that growing, though. Could you just talk about your expectations for volume for the full year, how that kind of trends, I guess, quarter by quarter, given it's a focus for you? And it seems like TESS per doc, per physician is kind of stable, maybe like 12 to 13 tests per doc. Like you just talk about if you're trying to expand that number as well.

Hey, Kyle. Good morning. Happy Cinco de Mayo. Thanks for the question. So, great question. So, as it relates to volume, we're very pleased with the progress we had here in Q1. I tried to provide a little bit of color, and it's really Exciting from our standpoint to have the stability in the sales team that we've had over the last 12 months and really J.R. and his team have done a fantastic job identifying the right opportunities for us. As we launched these new markers, we focused on our existing physician base. So maybe to answer your second question first, that test per physician, key metric for us, and the numbers you referenced are right on. That is an area we expect to see grow, and especially as we continue to penetrate into the rheumatoid arthritis market more, we do expect that number to go up. We've been working on getting physicians familiar and acclimated with the new markers. This is new information where the clinical utility has to be explained, detailed, and gone over time and again and again. And so we'll see how that pans out for the rest of the year, but that's certainly an area of focus for us. We also are still driving expansion. There's quite a few physicians in the rheumatology space that do not utilize Advise and is a great opportunity for us. So we right now believe we service about a third of the rheumatology community. There's a referral network within there as well that is opportunistic for us. So we'll continue to drive on both fronts. As it relates to volume overall, as you know, we don't guide specifically to volume on a quarter-by-quarter basis. We do expect this to grow this year. Q1 was a great start for us. We'll have to see kind of how it continues on from here. January was a little light for us volume-wise. It picked up towards the end of January. February was great, and March was fantastic. That progress has continued here into Q2. Again, we'll have to see. We've launched our expansion from a sales standpoint and so territory standpoint, and so that should also continue to drive volume throughout the year. But that's kind of how we see it.

All right, that was great. And then just sticking on that volume theme, you provided some anecdotes, for example, last quarter in the case studies. indicating that you could actually expand the reach to physicians through different indications of autoimmune disease and things with these new markers. And I think that you've referenced new markers as being the driver for the volume kind of increase in the first quarter. So could you actually just elaborate on that and how that could progress going forward and help you drive volume growth as well?

Yeah. So the drivers are, I think, multi-pronged in terms of their impact to overall volume growth. One of them being stability of the sales team. We've talked a bit over the quarters that we've really been working to get the right team in place. So we right-sized the sales force when I joined the organization a little over two years ago. And then we've been working on finding the right person for our organization. And that transition has transpired over the last, call it 12 to 18 months. And then you get people settling into their roles, really learning the product and getting a familiarity with the customer base. And that stability is really starts to pay dividends. You go from not just learning, training, acclimating to actually being more strategic in your selling process. And that's really where I feel like we're at now with our current sales team. It also allows us to open up opportunities for expansion. As we said, the new markers specifically. as I've spoken with our sales team and also with clinicians, it brings an excitement to the selling process, right? So we've got new publications that came out here in Q1. You also have a new offering. There's a different selling approach. With your physicians who have already bought in, you're still educating and bringing something new to that discussion. And that makes it much more exciting. So I think that that energy is certainly being felt and likely to persist And that's been a big driver as well. Not to mention that the clinical utility of the new markers expands us into the RA space more than we had previously. So those three things I think will be pretty strong contributing factors to continued volume growth. Perfect.

And then finally for Jeff on the financials. First, I have two questions. maybe parse out the prior period revenue. Just helpful to kind of know that. And second, you know, the adjusted EBITDA loss was a touch deeper than our model. Could you, you know, even if you, you know, keep OpEx stable going forward, it might be kind of tough to get to break even by 4Q. You know, you're totally on the path there. I'm just kind of curious how the OpEx components are working. So could you walk through maybe like your gross margin going forward as well as the SG&A and R&D investments for the rest of this year? Thanks.

Sure, I'll break that up a bit. I think your first question was on prior period cash collections. And as we continue to say that on a quarterly basis, those prior period cash collections are going to fluctuate and that will have an impact on revenue and ASP. In the fourth quarter of 24, for example, we had about a million dollars in excess cash greater than 12 months. in the first quarter, 25 was about half a million, right? So that will fluctuate, but we do still believe there's opportunity there. We're continuing to go after it aggressively, and we consistently get better at it. It will fluctuate quarter over quarter, but it was about a half a million in the first quarter. On your question around profitability, EBITDA, OpEx, margin, I think there are a few things at play in the first quarter that drove that EBITDA number. And the first one is, as I talked about in the call, was really the gross margin, right? We did have some what we'll call transitory headwinds on the gross margin. We do expect to see a nice gross margin step up, at least, you know, particularly in the second half of the year. As we talked about, we did invest ahead of the curve a bit in labor and some additional expenses to accommodate the wrap up of the new biomarkers as well as anticipated increase in volume. So we did see those expenses hit in the first quarter and that was against a revenue composition to where we weren't seeing the full impact of the new biomarker ASP as a result of the fact that we only had a partial quarter as well as some of the direct bill accounts hadn't been fully implemented with the new pricing. So there was a headwind there that we expect will start to clear in the second quarter. And then just generally on OpEx, we do expect to see OpEx moderately increase. You saw that. A lot of the incremental expense in SG&A was really around the expansion of the commercial team and related really more to the variable comp associated with the step up in revenue. So we will continue to manage that responsibly. We do expect we'll start to see operating scale. We did see some minor scale in terms of total OpEx as a percentage of revenue year over year. We saw it tick down and we continue to believe it will tick down. So we do think we're well positioned by the fourth quarter to be in that free cash flow, positive adjusted EBITDA space. Great, thanks for clearing that up. Thanks, guys.

Thank you. Our next question comes from the line of Ross Osborne with Cantor Fitzgerald. Please proceed with your question.

Hey, good morning, and congrats on the results. So starting off, and I may have missed this, but do you have an update on what you expect to launch the second wave of REM markers?

Hey, Ross. Good morning. So we've said approximately by year end, we think it's following a similar cycle to what we did with this last set of markers. So year end, beginning of the year is kind of right in that timeframe. Obviously, with the LDT determination by the courts there, we're not exactly beholden to New York State approval at this time for a launch, but in all likelihood, we would still pursue that and launch post. So that's one aspect we can't control. It took about two months to achieve New York State approval for our last set of LDT assays. So we're on a similar cadence from a development cycle. So we'll see it towards the end of the year, perhaps into the beginning of 26. But that would be our current expectation.

OK, great. And then lastly, would you just provide some color on how you're feeling about market awareness just meaning physician awareness of your new enhanced test, you know, how much groundwork are you guys going to have to go out in terms of the educated community, or do you feel like it's pretty well known following publications where people are coming to you?

That's a great question. You know, and I think it varies regionally. We have higher concentration of sales presence as it Relates to various patient populations. So in some of the southeast for example, we're more highly concentrated And then as I'm sure you can imagine as you start to move west there's areas or pockets Where some rep may be covering in certain circumstances, maybe even two states or something. So You know in those instances it takes a little bit more time to drive awareness, but you also have Less physicians or they're more sparse. So from our standpoint I think the awareness is reasonable amongst our physician base that was bought into and using Avize prior to the new marker launch. We had educational campaigns that didn't require necessarily an in-person visit, so email blasts, fax blasts, ways to communicate outside of just the face-to-face, although I believe internally our strategy is to get in front of folks and actually walk them through it. a very powerful way to educate folks regarding changes to clinical practice, you know, be able to answer questions, be able to talk through various case studies and what have you. It really makes it a more productive or fruitful conversation. So on that front, you know, we're only two months in. We started doing a little bit of it prior to the holidays, but this is a message that certainly has to be discussed multiple times. And as different Scenarios come up, you know, various positivity rates, or the new markers end up being positive in conjunction with other markers. Physicians want to know what does that mean clinically? And so that that takes some time. And then the value proposition starts to set in as, as you have those firsthand experiences. So, I think we're still pretty early. It's likely going to take the majority of the year to fully educate folks, but it's just a deepening of the educational efforts. Great. Thank you. Thanks, Ross.

Thank you. Our next question comes from Mark Massaro with BTIG. Please proceed with your question.

Hey, guys. Congrats on a good quarter. So, you know, in your prepared remarks, you mentioned that the facility that you have in place with Perceptive includes up to $30 million available for approved strategic transactions. if opportunities arise, can you maybe comment on what types of strategic transactions are something that you would consider? Would this be content-wise within perhaps autoimmune disease diagnostics, or could it be broader than that? As far as the approval goes, I would assume that would include your board of directors, but can you also comment about the role that Perceptive has in determining whether or not it's approved or not?

Sure. Good morning, Mark. Thanks for the question. I'll comment a little bit of our thinking around the strategy here, and I'll let Jeff comment on some of the administrative aspects of it. I guess maybe first and foremost, on in this in this vein is we we did this because we wanted the flexibility so you know should we want to draw down the additional capital which by the way is is not anywhere near given okay but it could happen I guess then we now have a clear path to it that doesn't take a ton of effort and could provide a solution regardless of the macro environment so that's That's why we ensured we had this aspect to the deal. We like the flexibility and are working to just have options. What type of an opportunity are we going after? I think it's highly likely to be related to our existing business. And while we're not ready to fully divulge exactly the specifics of that comment, I think it's pretty reasonable to assume that it's in the autoimmune space and related to some aspect of biomarker development, novel biomarker development in this space. And so that leaves a pretty wide open field. We don't see a ton of commercial-ready assets for plug-and-play on a CLIA platform, but at the same time, we're always looking, always open to it, and we'll continue our diligence there. And I think we've Now that we've gotten closer and are on the horizon of being a cash flow positive organization, I think this is the perfect time for us to establish these processes so that we're ready and opportunistic when we can be. Jeff, do you want to comment a little bit on the administrative approvals?

Sure, yeah. Mark, good morning. And again, clearly I can't or won't speak for Sam and Tina at Perceptive, but based upon conversations throughout the negotiations, I think the expectation would be that the level of diligence that they're going to need to do on any sort of consent required for a transaction will largely be based upon their reliance on diligence we perform and really what we present to the board, right? And so it's more likely than not that as long as we're comfortable, we've kicked the tires, done our diligence, the board is behind it, that Perceptive would come along. I mean, and again, I can't speak for Sam and the team again, but what I will say is historically, having worked with Perceptive before and in the process of conversations with them, they are very supportive and very interested in continuing to drive growth through transformative transactions, if they make sense. So we don't think it's going to be an onerous process as long as management and board are behind the transaction.

That sounds great. Thank you for that explanation. And then you guys talked about kidney disease and your effort in advancing early markers there. Do you envision this being an area that you're committed to, or is this sort of like you're looking in the exploratory stage, just trying to get a sense for your conviction in this market at this time?

Yeah. Glad you brought it up. We're very encouraged by the work that we're doing in kidney disease. I think we've got some exciting science at the organization. We've got really two development efforts, one in lupus nephritis, which takes us deeper into the autoimmune space and is a high clinical need within a subset of SLE patients. But basically, you know, approximately half of all lupus patients end up developing some form of kidney involvement or lupus nephritis diagnosis now is by kidney biopsy, and there are treatments out there, biologics out there, but you don't know after an extended period of time if the patient's responding. And during that period of time, the kidneys can continue to experience irreversible damage. So, we have programs in place that potentially could serve as a diagnostic capability in that context, along with a measurement of disease activity or a measurement of therapeutic response. So, Very excited there. We've really worked hard to hedge our bets as we've done in many instances. And in the development efforts for lupus nephritis, we thought, hey, there may be an opportunity for us to look at broader biomarkers of kidney damage. And that's exactly what we've done. Excited because you know, this is a high clinical need and really there's a significant patient need here. And so from our end, the tools that exist in terms of standard of care are not very satisfactory. So the markers we're developing have broad applicability in multiple diseases. We have now validated in early diabetic kidney disease along with lupus nephritis. And again, that was the data that was shared in that Biomarker Summit in Boston by Dr. Mike Nirenberg, our chief medical officer. But this is a huge patient need. So chronic kidney disease impacts on the order of 14% to 15% of the US population. Diabetes prevalence in the US is somewhere around 11% to 12%. Either of those patient populations are substantial, obviously, when you take a look at the US population. So excited about the potential of these markets, how we approach them and commercialize them. is too far out in the future for us to comment at this point in time. We're really just focusing on the science. The science is encouraging. We're getting it out in the public domain. There'll be a manuscript out later this year which details the findings as well, but very exciting for us. And I think maybe the other thing I'll just add, Mark, is you see a lot of progress on the SGLT2 and GLP-1 fronts where they're actively working on expanding labels, or they already have in some instances. labels for chronic kidney disease in the early stage and being able to identify these patients better than the current standard of care is an exciting opportunity for us.

That sounds great. And just one more for me. Congrats on winning the ALJ hearing with the large national insurer. I wanted to get a sense for how many more hearings you have later this year and then Just give us a flavor. I imagine that there are likely multiple national health plans or health plans regional that you might be meeting with. So can you just give us a sense for how many what you think the impact could be and what the cadence of that is throughout the year?

Yeah. So just so you understand how this progresses, you know, we apply for these high level reviews throughout the year as we learn in each of them, you know, so we've had, you know, on the order of around 15 so far, those that we have lost, we've learned from and it's basically, you know, we have evidence that was not submitted early enough in the appeal cycle called the 1st appeal or the 2nd appeal that couldn't be included in the case by the time we got to the hearing. And so, in those instances, we adjust our entire revenue cycle operations to start including that information earlier. Some of this can be documentation of Medicare coverage, if you will, or reimbursement more appropriately. And so, as we adjust our appeals process, that kind of resets most of the clock. There's no point in us going into an AOJ hearing knowing that we have an inadequate amount of information at the time. And so we've been learning over the last 24 months how best to do this relative to advise CTD and kind of culminated in having the perfect appeal package together and the right judge to review it more recently and obviously the win. We currently have several scheduled in the month of May and a few in the month of June, but that doesn't mean that's about as far out as they are scheduled right now. So we have quite a few requests still outstanding, and we'll have to see as those get scheduled. But a couple a month is pretty reasonable to get all the way through the process at a very high level.

Great. Thanks so much.

Thank you. Our next question comes from the line of Andrew Brackman with William Blair. Please proceed with your question.

Hi, guys. Good morning. Thanks for taking the questions. Maybe to stick on the payer's subject here for a second, you also noted that you had a positive medical policy with TriCare in the quarter. Can you maybe just talk a little bit more about the learnings from that experience, how you can take those learnings from TriCare and continue to broaden out those medical policy ones? Thanks.

Yeah, thanks, Andrew. Good morning. Appreciate the question. You know, TRICARE was a fantastic progress for us over the last couple of years. We went through their demonstration project is what the term is for their process in determining medical policy. And we had to submit, you know, our clinical dossier along with the supporting evidence for our test. They took a, you know, call it about a year, year and a half to review all of that information and came out with a positive determination. which first and foremost validates the evidence behind the test and the demand for it. So I think that that's a nice affirmation that we do have the right evidence to drive medical policy more broadly, especially at a highly impactful patient population like the active military. So that was very positive from our standpoint. I think something we take away. It also can be used in discussions You know, strategically, if we're taking a look at some of the veteran opportunities or even other large national plans, I think it's a national policy that's been flipped in our favor, and it's a public policy. So it's something that we can reference. I think that that's all very positive. We'll continue to enhance our evidence package, and we'll continue to work through our appeals efforts to drive awareness at the plan level, regional plan level. That never stops. But I think maybe the biggest learning is just that our current evidence package is holding weight and driving positive policy change.

Great. And then back to the next set of RA markers. It sounds like you have a pretty good line of sight to launching those end of this year, early next. I guess outside of the NYS approval here, what internally needs to be done to get those ready for launch?

Thanks. Yeah. In order to get an LDT ready for launch, obviously you have to get to a point where you're comfortable with the validation studies. So that's both a clinical validation and maybe multiple, which proves that, you know, you're accurately determining disease from normal folks, right? Are we accurately identifying the seronegative population and can you hone in on the sensitivity and specificity of the markers there, determine the cutoffs, et cetera? We are past that point. The next step, and in no particular order, but the next step is analytical validation. And so, can you reproducibly measure the markers repeatedly in different contexts, different operators, multiple machines, et cetera? Most of that work has been done. We are wrapping up the reports for that effort. And then you have to get ready to run it at scale. And that's something that takes a little bit of time, training, you know, In these first two steps, we obviously don't distract the CLIA team. They're working on a daily basis to handle the clinical volume. But as we start to ramp up training, a lot of the competency assessments and all of the regulatory requirements, quality management system requirements in the lab have to be implemented, SOPs, that type of thing. So all of that work takes a little bit of time, especially to do it at a high quality level. But we also have to work with our suppliers to get ready for the type of volume we anticipate. All those contract negotiations have been completed from our standpoint. We're waiting now for our first large shipment of reagents. That should occur sometime probably over the summer. You know, manufacturing has to be ramped up at the supplier side and what have you. So those things still remain, mostly just operational. Our LAS systems have to be updated as well, but all that stuff's underway. and is controllable mostly on our side. So that's how we feel comfortable by year end into the early 26. Similar to how we did it with these last set of markers is a reasonable timeline.

That's great, Tyler. Thanks, guys.

Thanks, Andrew.

Thank you. Our final question this morning comes from the line of Paul Knight with KeyBain Capital Markets. Please proceed with your question.

Hi. Thanks for the time. Congrats on the quarter. Jeff, the first question for you is, how does this new line work this year? You'll take $20 million, roll over old line, and then drop down $5 million of incremental cash. Is that what I heard?

Yeah, Paul, that's about right. It's a little less in terms of net proceeds, and we've already done. So we drew the $25 million initial tranche, retired existing debt, Net proceeds were just north of 3 million. And then we have opportunity based upon milestones in, you know, in 26 to draw more down.

Meaning 25 million possibly and then 30 million later on, right?

Right. There are two potential 10 million tranches that are based upon revenue milestones between now and the end of 2026. And then there's another 30 that's set aside for potential business development M&A. Okay.

Got it. And then, John, the acceleration in revenue or test sales through March, what do you think it was that was really getting the momentum in March? Was it the ALJ hearing? What's your thoughts behind that?

Hey, Paul. Good morning. Thanks for the question. The volume growth, I think, was driven primarily by the new marker launch. I believe that brings an energy and excitement to the team. It also brings, you know, enhancement in the clinical utility to our customer base, and along with the manuscript publication that came out, just really, you know, there's the newest innovation in this space, and biomarker innovation in the autoimmune space is few and far between in terms of frequency. I think it ends up getting a lot of attention, a lot of talk amongst rheumatologists, and we had a great presence in Q4, kind of forecasting the enhancements to clinical practice that should be expected with using these markers. So I think that really drives a lot of it. And it also just so happens to coincide with when we started to really see the ramp. But you also, as I mentioned, had a stability in the team. We adjusted our national sales meeting to be in January of this year, brought the team together, really worked hard on the training and practicing of what the clinical value proposition is and role play and what have you of of what types of questions we would expect. And I think the teams are prepared well and it's showing. So I think that's probably the primary driver.

And then, John, what do you think you need in terms of number of successful cases, court cases, where you start to change practice of payers?

Yeah. It's going to be payer specific, but it's on the order of a half dozen to a dozen. So you don't have to have hundreds or thousands of these wins, obviously. They're not that frequent in terms of when they're granted. And on top of it, this is not a positive mark for the insurer that lost the hearing. They have an obligation. to treat their Medicare beneficiaries similar to straight Medicare would. And so to lose an AOJ hearing basically confirms that they did not do that. And so that's a positive for us. It sets a precedent. We actually include that determination in future appeals. And so for these large plans, this is a way that we can ensure patients are treated as they should be, as they're obligated to be. And so we'll continue to work through it, but it's not hundreds. It's on the order of half a dozen to a dozen would be my expectation. Okay. Thank you.

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Bali for any final comments.

Thanks so much. You know, we're off to an extremely strong year, start to the year, and we expect that in many regards to be one of our strongest years in the company's history here in 2025. Operationally, our turnaround has really taken shape. Our strategy of focusing on our core product, improving reimbursement and rebuilding our pipeline for the future is progressing ahead of my original expectations. We've continued to make prudent decisions and personnel, and we've focused, intensely focused on the character of the individual who joins our team. The effect has been to reshape the company in a very positive way where folks are holding each other accountable and driving progress towards shared goals. It's also created stability within the organization, which is starting to compound in effect and is exciting to be a part of. I look forward to continuing to provide updates, and as always, I'm very grateful for your partnership as we build something special here. Thank you.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.