Exagen Inc. Q2 FY2025 earnings call

• Record Q2 revenue of $17.2 million, 14% YOY growth. - AVISE CTD test volume grew substantially, with revenue per territory up over 50% since John joined. - Biomarker launch in January performing well, new T cell and RA markers driving commercial conversations. - Added Dr. Michael Mahler as CSO and Chas McKhann to Board. - R&D pipeline progress: lupus nephritis urine and blood efforts advancing, kidney damage biomarkers in development, serum negative offering expansion with anti-PAD4 biomarkers. - Ended Q2 with over $30 million in cash and equivalents, approaching neutral operating cash flow.

Q2 revenue came in at $17.2 million, representing 14% year-over-year growth and the highest quarterly revenue in company history. AVISE CTD test volume growth was substantial. The average revenue per territory reached just over $430,000 for the quarter, an increase from around $285,000 a couple of years ago. The AVISE CTD segment contributed significantly to the overall revenue growth, with volume growth driven by the existing commercial team and clinical recognition of the company's science.

• Full year revenue guidance between $65 million and $70 million. - At the high end of the revenue range, expect positive adjusted EBITDA in Q4 2025 and sustainably in 2026.

Q: Congrats on the quarter. You grew volume by 7% and grew volume for the second straight quarter. I'm just wondering how sustainable you think this volume growth is? And then on the volume growth this quarter, I heard you say, it wasn't from the sales force expansion. But is it more just an execution of the team with the existing base? Or are the markers a big contributor with new customers to this volume growth? Just wondering kind of what's contributing to it.

A: Yes, William. Thanks a lot for the question. So we think the growth in sales, which was phenomenal this past quarter is really attributed to the strong team that we've established and the caliber of individuals that we now have in place. We've talked in the past, but about 1/4 to almost 1/3 of the team is new in the last 12 months, and they're getting up to speed, getting familiar with the product, our processes and the rheumatology community. And so as they gain that comfort level and that confidence, their clinical conversations can gain greater depth. And then ultimately, we become a more consultative resource for clinicians. So we think the stability of the team, our voluntary turnover is way down compared to where it was a few years ago. We're in the single digits now, and that includes one retirement. So fantastic team as far as that goes, just caliber of individuals and then the training and time in the seat, if you will. The new markers certainly serve as a catalyst. So that has absolutely proven to be a valuable contribution to our progress here in the first half. It gives our team something new to talk to clinicians about plus the value proposition that we've conveyed is panning out in first-hand examples, and I've highlighted a few on this call and I have on prior calls as well. So I think those two factors are very key. You referenced sustainability. We think this is very sustainable. We have a large market, and we're around just under 10% penetrated from our own internal calculations. So we have a ways to go. We're expanding our sales force. You're exactly right. Q2, we don't believe those results are attributed to some of the new territories, primarily because those were established towards the end of Q2, and it takes us somewhere 6 to 9 months for a new rep to get up going and contributing. So we expect to see the results of that expansion transpire later in the year. We'll have more additional markers on the seronegative front. So the effect that we're seeing here at the start of the year, we believe, should continue. The headwind there would be some traditional seasonality in the back half of the year, but our team is motivated and we'll kind of see how it plays out. But long term, we believe this is absolutely sustainable.

Q: Congrats on the great quarter. Just to put a finer point on the volume question and that theme. The second quarter, that's typically a pretty strong quarter seasonally for you guys. Maybe just like talk about what kind of a step down you would expect in the third quarter? And then again, like maybe fourth quarter trends as well. And I think the key is you have the same physician base, that's probably growing nicely like sequentially. I guess, if you're further penetrating this market, but the ordering, the test per physician is probably declining quarter-to-quarter. So just can you talk about that a bit?

A: Yes. Kyle, thanks for the question. So we don't guide volume on a quarter-by-quarter basis. But the way we think about it is, we had a fantastic Q2. And that was -- you're right, Q2 tends to be our best quarter of the year. But this outperformed what we've seen in terms of historical performance. So this was a fantastic quarter. The team deserves a lot of credit. They really have prepared. And like I said, I think we've got high-caliber folks that gave some confidence in standing in their seat and are really adding value to clinicians and that's reflected in the performance there. So we expect that to continue to improve through the back half of the year plus we have begun our sales expansion. So the traditional seasonality that we would expect, we're anticipating with the sales expansion to have some tailwinds there to counter that. So exactly how we see Q3, Q4. Like I said, we don't guide on a quarterly basis, but the aim here would be to continue to grow.

Q: Congrats on a strong quarter. So starting off and following up on your previous response, with an improved and improving product supported by the right team now at the company, what market access initiatives are in place to accelerate adoption to drive your 10% penetration higher? Is it simply a function of getting more feet on the ground? Or do you have larger marketing campaigns in place anything to drive better awareness?

A: Ross, so you're talking specifically relative to volume growth. Correct?

A: Okay. So as it relates to volume growth, our marketing campaigns continue to improve. We have digital campaigns bringing awareness. We're bringing novel new markers to clinical practice. And this is in a field where the conventional serological evaluation leverages technology and biomarkers, which were from the late 1800s to the mid-1900s, right? So 50 years of innovation, call it in the early 1900s. And so to bring that type of change to folks is takes time, right? And you have to have trust and be valued from a consultant standpoint. And so, that is really our primary focus, but we've launched significant marketing campaigns. We're doing clinical research to routinely validate the utility of these markers. And I think those publications help. They serve as some form of marketing. So that's where our marketing efforts are. The -- we've invested quite a bit in training on the team. I think you have to be able to handle the clinical questions that you're going to get from clinicians around sensitivity, specificity, patient populations, what's the appropriate patient and when is the appropriate time for leveraging these biomarkers? Do they change over time? All these questions come up. And having our team adequately prepared and informed is essential. And I think our sales team, along with our marketing and clinical affairs teams have done a fantastic job in doing that. We've also been looking at how to partner more with KOLs, specifically in this space, and you'll probably see that or we can point you to that with the PAD4 launch coming up. We've already had KOLs comment on the utility of some of these markers and how they'll impact clinical practice. So that's primarily our approach.