Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Exagen Inc (XGN, Financial) reported a record quarterly revenue of $15.1 million, a 6.6% increase compared to the same period last year.
- The company achieved a 53% year-over-year improvement in adjusted EBITDA loss, marking the best quarterly financial performance in its history.
- Gross margins expanded to just over 60%, up from 58.7% in Q2 2023, primarily driven by increases in ASP.
- Exagen Inc (XGN) has made significant progress in increasing the average selling price (ASP) for AVISE CTD, with ASPs exceeding the $400 mark for the first time as a public company.
- The company signed its first substantial biopharma contracts, indicating untapped potential and a new revenue stream.
Negative Points
- Despite improvements, Exagen Inc (XGN) still reported a net loss of $3 million for Q2 2024.
- Operating expenses, excluding COGS, were $11.6 million, indicating high costs despite a reduction from the previous year.
- The company anticipates increased marketing and R&D expenses in the second half of the year, which could impact profitability.
- Seasonality impacts are expected to affect Q3 and Q4 volumes, potentially leading to a flattening or slight decline in revenue.
- The company faces challenges in forecasting ASP increases and prior period collections, adding uncertainty to future financial performance.
Q & A Highlights
Q: How long could it take to get the ASP (Average Selling Price) to $500, and how critical is that? Could you focus on driving volume growth rather than ASP?
A: (John Aballi, President, Chief Executive Officer, Director) Our goal remains to achieve the 50% level of ASP, around $525, in the near term. While quarter-to-quarter variability exists, our ambition hasn't changed. We continue to push the AVISE ASP up and remain optimistic about achieving our target. The focus on ASP improvement has been successful, with a 40% increase from 2022 levels. We also expect volume growth as we continue to reset our ordering process with clinicians.
Q: Can you refresh us on the plans to increase the sales force and expand your reach in the rheumatologist market?
A: (John Aballi, President, Chief Executive Officer, Director) We maintain a 40-territory footprint across the U.S., which we believe is the right size for now. We continue to monitor each territory for profitability and may expand as needed. Operating expenses are expected to increase due to upcoming product launches and marketing efforts, but we are focused on driving both volume and ASP growth.
Q: How should we think about the third and fourth quarter cadence as you accelerate into 2025?
A: (John Aballi, President, Chief Executive Officer, Director) Historically, Q3 and Q4 have shown some seasonality impact, with potential flattening or slight decline due to holidays and societal meetings. However, we are working hard to change this trend, especially with upcoming product enhancements. Our guidance takes into account these seasonal impacts, and we expect to continue growing into 2025.
Q: Can you elaborate on the biopharma contracts and how you view this segment's growth potential?
A: (John Aballi, President, Chief Executive Officer, Director) We have established a small biopharma team under our Chief Medical Officer. Our high-quality testing and proprietary markers offer a differentiated service for clinical trials and patient characterization. While biopharma revenue is lumpy and difficult to forecast, we expect it to be a meaningful impact to the organization. We are building our brand within the pharma community and see untapped potential in this segment.
Q: What is the expected impact of the new T-cell markers on revenue and pricing?
A: (John Aballi, President, Chief Executive Officer, Director) The new markers improve the sensitivity of SLE and RA sub-profiles within AVISE CTD. We expect an immediate clinical benefit and an increase in ASP from launch. We project to be a cash flow positive organization within a year of launching both product enhancements. The volume impact will take time as we educate clinicians, but we expect significant growth in both ASP and volume.
Q: Can you explain the better-than-expected EBITDA levels and cost trends for the back half of the year?
A: (John Aballi, President, Chief Executive Officer, Director) We expect operating expenses to increase due to marketing campaigns and R&D expenses related to product launches. Our guide on adjusted EBITDA takes these factors into account. Additionally, prior period collections are difficult to forecast and may reduce over time. We have also filled key positions within the organization, which will impact expenses.
Q: What feedback have you received from the field regarding the new markers, and what volume impact do you expect?
A: (John Aballi, President, Chief Executive Officer, Director) Feedback has been very positive, indicating a high clinical need for the new markers. We expect a strong educational campaign in Q4, including presentations at the rheumatology societal meeting in November. The volume impact will take time as we educate clinicians, but we anticipate significant growth in 2025.
Q: How are you handling claims processing and what should we expect in the back half of the year?
A: (John Aballi, President, Chief Executive Officer, Director) We hold claims at the beginning of each year to improve revenue cycle opportunities and release them in late Q2 into Q3. Our AR increased by about $1 million, and our cash position is strong. We expect business as usual in the back half of the year with claims being released.
Q: How are you thinking about the longer-term story for Exagen, especially with the business reaching cash flow breakeven?
A: (John Aballi, President, Chief Executive Officer, Director) AVISE CTD still has significant room for growth, with mid-single-digit market penetration. We are also revamping our R&D efforts and exploring new opportunities in disease activity scores and therapeutic response. As we become a cash flow positive and profitable organization, we will look for inorganic growth opportunities to enhance our business profile.
Q: Can you provide more details on the training and education plans for the AVISE enhancements?
A: (John Aballi, President, Chief Executive Officer, Director) Internal training has already started, with regional meetings planned for August. We are revamping our marketing materials and AVISE CTD report. We will have a strong educational campaign at the rheumatology societal meeting in November and are working on publishing manuscripts highlighting our clinical validation studies. We expect to see the impact of these efforts in Q1 2025.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
