Greetings, and welcome to Exagen Inc. Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ryan Douglas, Investor Relations. Thank you. You may begin.

Good morning, and thank you for joining us. Earlier today, Exagen Inc. released financial results for the quarter and year ended December 31, 2024. John Aballi, our President and Chief Executive Officer; and Jeff Black, our Chief Financial Officer, will host this morning's call. A recording of today's call and the press release announcing our results can be found on the company's website at www.exagen.com. As today's call includes forward-looking statements, we encourage you to review the statements contained in today's press release and the risks and uncertainties described in our SEC filings, which identify certain factors that may cause the 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 measures are included in today's press release. I'll now turn the call over to John.

Good morning, and thanks to everyone for being on the call today. I'll start off by recapping our results from 2024, give some insights from the launch of our new markers, and comment on our outlook for 2025. Jeff will provide additional detail on the financials later in the call. 2024 was a great year at Exagen. We made major strides in continuing to build the leadership team needed to elevate our organization to the next wave of growth. And we've made significant progress in executing our strategy towards profitability. From a top-line perspective, we delivered another year of record total revenue, growing to $55.6 million driven largely by continued improvement in reimbursement. With this progress, our adjusted EBITDA loss narrowed to approximately $10 million, showcasing our focus in prudently operating our business. Our trailing 12-month average selling price increased to $411 for AVISE CTD, a gain of $75 per test over 2023. As a result of our ASP gains and continued excellent operational management, gross margins expanded just over 300 basis points in 2024 compared to the year prior, coming in close to the 60% mark for the full year. Perhaps most importantly, we developed and commercialized new biomarkers for the first major enhancements to AVISE CTD since the product's inception. We also finished the year with an incredible achievement, testing our 1 millionth patient by AVISE CTD, and are extremely proud of the many milestones our organization reached in 2024. To dive deeper into the launch of our new biomarkers this past January, I'm very proud of the hard work and preparation exhibited by our operational and commercial teams. These efforts have resulted in a successful launch to the rheumatology community. The markers have been well received by our ordering physicians and we are encouraged by the early signs we're seeing with both test volume and reimbursement. We've already started to see an impact on patient care with the utilization of the new markers. And while we're working diligently to educate clinicians on the value we've demonstrated through our clinical studies, it doesn't truly start to resonate with folks until they have a positive firsthand experience themselves. To share an initial example of what we've heard already, in Florida, one of the rheumatologists who leverages AVISE testing in her practice received a new patient with a prior diagnosis of fibromyalgia, which is typically a diagnosis of exclusion. There were no serological abnormalities and the patient was being treated for pain management. The patient was not responding to therapy, and given that it was a new patient, the clinician decided to run our enhanced CTD panel in their own evaluation. The entire profile came back negative, except for two of our new RA markers, which were abnormally high. The patient's diagnosis has since been changed to rheumatoid arthritis and they've started first-line methotrexate therapy. This is a great example and case study of the impact we hope to have in the field. Obviously, the clinician is excited because this was a challenging patient who had been refractory to treatment, and the clinical presentation of the patient had similarities to RA but lacked biomarker confirmation. Now they have serological evidence to support a diagnosis and can proceed confidently with a treatment decision. Finally, this specific type of serological presentation tends to respond well to methotrexate, so this has a higher likelihood of turning out positive for the patient long term than the track they were on, because the diagnosis was reached sooner, hopefully avoiding severe joint erosion and pointing them to a specific therapy. Again, this is a great case study. We have several of these on the RA side, which have come in, so it's very exciting to see the initial results here. Overall, the feedback has been more heavily weighted towards the RA impact, but we are also hearing positive things on the lupus side with our new T cell markers. Physicians are still learning exactly what these markers mean, especially in the context of an otherwise negative AVISE profile. But luckily, our manuscript detailing the unique additional benefit of T cell analytes was accepted and published in a high-impact journal, Frontiers in Immunology, less than two weeks ago. We really believe that our publication marks a significant step towards establishing T cell biomarkers as a powerful tool for SLE diagnosis, as the publication details their superior and unique performance compared to conventional analytes. The study was a collaboration with four leading lupus KOLs, providing significant validation of our work within the rheumatology community. Their collaboration not only strengthens the scientific foundation of our findings but also reinforces the broader clinical relevance of our assays in lupus diagnosis and disease management. This will be an essential tool in our educational campaign over the coming quarters. At this point in the launch, it’s still too early to provide a precise indication as to the full financial impact the markers will have, but we are seeing approximately $90 per AVISE CTD test in incremental revenue, and it could grow from here as we continue to gather details on our appeal success rates. The $90 value is assumed for our Q1 guidance, and we'll have a more confident number as additional data come in by our Q1 call, where we plan to provide an extended outlook for 2025. In short, and just to reemphasize this milestone for our organization, as it is truly a marquee accomplishment from the efforts last year, the additions of our T cell and RA33 biomarkers to our AVISE profile are catalysts on several fronts. First, they were developed and intended to have a significant positive impact on patient care, and we are already seeing signs of that through clinical adoption and case studies. Second, they widened the gap on the clinical differentiation Exagen offers over our competition. We already have the lead in novel proprietary testing for best-in-class connective tissue diagnosis. Third, our RA biomarkers open up a population of patients and clinicians that to date we have not meaningfully addressed, which could represent a market opportunity that is anticipated to be larger than our existing lupus market. Fourth, these product launches validate our ability to focus, prioritize and execute on R&D pipeline initiatives that have a high impact and bring them to the clinic in a rapid manner. The additions of these biomarkers are the first of more to come, and I look forward to continuing to share the full impact these markers have on patients and our company along with additional progress from our pipeline in the future. With the momentum we have to start the year, we're very excited about what's ahead in '25. We continue to expect strong revenue growth driven by both ASP expansion and volume. And on that note, our performance relative to testing volume in 2024 did not meet our expectations and has been an area of heightened focus since the changes we implemented in 2023 to prioritize profitable volume. Again, some of this volume decline was expected and deliberate as we have prioritized profitable growth, but we have to do better this year, and we're off to a good start with the launch of these new markers. As our ASP increases, the profitability of our sales territories also increases, which opens the door for expansion. We are currently operating at 40 sales territories and anticipate adding a handful of new territories during 2025 in a measured fashion to continue to accelerate the utilization of AVISE in clinical practice. Taking a step back at the end of the year to reflect on our transformation these past 30 months, I'm incredibly proud of what this team has been able to accomplish. It is not common to reduce losses by over 70%, driven mostly by reductions to operating expenses while still growing our top line. Our 40% or more gains to ASP over the past two years are uncommon within this industry. And while we've demonstrated this type of performance, we've dramatically improved the company culture, reducing voluntary turnover by more than two-thirds from when I came to the organization. People are better aligned to our overall goals. They understand the critical aims we need to accomplish. And as we've made progress, it has fueled the motivation within the company for the next horizon. Specifically, I'm incredibly proud of our R&D and CLIA teams for their development of these new assays, achieving the regulatory approvals, and the commercial launch we undertook to start the year. As business partners, rest assured that you have a strong leadership team focused on creating long-term value, and we are starting to really generate momentum. We believe 2025 will be a significant year for our growth, and I fully anticipate finding more opportunistic and creative ways to serve our existing customers while expanding our customer base in the future. I'll now turn it over to Jeff for details on our financial results.

Thank you, John, and good morning, everybody. As John mentioned, 2024 was a great year for the organization on several fronts. The team did a great job of executing and exceeding our goals for the year. We've set records for several of our financial metrics and have a clear line of sight to expand on those in 2025. Diving into details, starting with revenue, our full year revenue reached a record $55.6 million, marking a 6% increase from 2023. This full year year-over-year increase in revenue was due primarily to expansion in ASP, consistent with our strategy of driving profitable revenue. As John mentioned, our trailing 12-month ASP for 2024 was $411, up $75 in 2024 and up $126 since 2022 when John initiated a strategy to focus on reimbursement. We've continued to prioritize improvements in our AVISE CTD average selling price through optimizing revenue cycle management with much success, but sometimes at the expense of volume growth, which was intentional. As a result, we saw an expected decline in volume due to attrition from doctors who were unable to support the necessary partnership, including additional documentation often required for acceptable reimbursement levels. We also, over the same two-year period, made the strategic decision to reduce our commercial footprint from over 60 sales territories at the end of 2022 to roughly 40 at the end of 2024, eliminating several unprofitable sales channels. This too resulted in an expected decline in volume. Moving forward, we continue to prioritize ASP expansion but expect to see a return to volume growth attributed to increased adoption from the enhanced utility provided by our AVISE CTD biomarkers and the addition of commercial territories with a focus on growing profitably. While we don't believe 6% revenue growth represents the long-term trajectory of the business, keep in mind that we continue to grow revenue and expand gross margins while simultaneously significantly lowering our overall expense structure, which is a great setup as we enter a period of expected volume growth, continued ASP improvements, and a shift to positive adjusted EBITDA and free cash flow. Moving to operating performance, gross margin was just under 60% in 2024 compared to 56% in 2023, and the growth in gross margin was mainly attributed to increases in ASP. Gross margin was about 62% for the fourth quarter compared to 59% for the fourth quarter of 2023. We expect gross margin will continue to expand in 2025 with the addition of our new markers, which are accretive to margins and by continuing to streamline workflows in the lab. Over time, we believe we can expand gross margins well into the mid-60% range. Turning to expenses, our operating expenses in 2024 were $46.7 million, down $5.5 million or 10.5% from 2023. Fourth quarter OpEx was $11.9 million, down from $13.3 million in the fourth quarter of '23. Breaking out our full year OpEx of the $46.7 million in 2024, about $41 million came from SG&A, which was a decrease of 13% from 2023. And looking at SG&A composition for 2024, excluding non-cash stock compensation, sales and marketing was roughly flat, while G&A was down over 17% as we prioritized our spend on growth initiatives. R&D accounted for $5.4 million of the $46.7 million in OpEx in 2024 and excluding stock-based compensation, R&D was up 12%, mainly due to the ramp-up for the launch of our new markers. Our team has done a great job of controlling expenses, and it's remarkable to see a decrease in operating expenses during a time when we added approximately 25 people to headcount and continued to face inflationary headwinds. We've been able to reduce overall OpEx while continuing to maintain focused investments in our commercial organization and our R&D pipeline to support sustained long-term revenue growth, and we will continue to manage this balance thoughtfully. With that said, we continue to see improvements on the bottom line with adjusted EBITDA loss coming in at $10.1 million for 2024, an improvement of 40% over 2023. As a reminder, our adjusted EBITDA excludes stock comp expense and is a non-cash expense. Please refer to our earnings release issued earlier today for a reconciliation of adjusted EBITDA to net loss. In 2025, as we continue to control expenses and expand ASP revenue, we anticipate being adjusted EBITDA positive in the fourth quarter of 2025, which will mark a key milestone in the organization's turnaround. Turning to cash flow and the balance sheet, we ended 2024 with cash, cash equivalents, and restricted cash of $22.2 million, representing a net neutral cash burn for the fourth quarter. Our accounts receivable balance at the end of 2024 was just under $8 million. In 2025, as in previous years, we will begin the year by holding most claims in line with our strategy to maximize our revenue cycle. This will lead to an increase in accounts receivable and subsequent higher cash use as seen in previous years, but will normalize over the back half of the year. We believe our balance sheet today gives us the runway we need to take our business to sustain free cash flow positivity for the full year 2026 and beyond, and remain committed to creating and preserving long-term value for our shareholders. In regard to 2025 guidance, we are providing total revenue guidance of at least $14.5 million for the first quarter. And as mentioned earlier, we're on track to deliver positive adjusted EBITDA in the fourth quarter. We plan to share our full year 2025 financial outlook with the release of our first quarter 2025 financial results.

Today's first question is coming from Kyle Mikson of Canaccord Genuity.

Hey, guys. Thanks for the questions. Congrats on the year. Could you, I know, John, you were talking about like you can't really quantify the impact from the new markers just yet. But is there any way to help us think about maybe the modeling for ASP going forward based on these new markers, how that could trend this year? And then I think importantly, like the gross margin impact too from those from this like $90 incremental revenue you're talking about too. If you could just tell all those factors, it would be great.

Hey, Kyle. Good morning. Appreciate the question. Thanks for the chance to expand. So as it relates to the trend for the new marker reimbursement, the $90 specifically, the reason we're unable to give clear guidance for full 2025 right now is because we've been efficient and effective in our appeals process over time, and it just takes a little bit of time for that to bear out. So the $90 right now is based on current cash collections plus some assumptions for efficacy in our appeals process or revenue cycle process. I think it's a pretty good approximation for right now. So where that could trend, I think similarly to what you're seeing with our broader businesses, we're effective and efficient in our ability to drive ASP gains. It could likely trend up; it's not going to reach the $200 mark; I think that's unreasonable. So it's not going to double, but it could creep up from there. We'll know more in our Q1 call; maybe a month and a half to two months from now, as more of the appeal efforts come in. But it's a more straightforward billing process. So I think it's a pretty reasonable approximation. As it relates to gross margin, your question was more broadly what's the base business trending over time. Is that right, Kyle?

Yeah. And I think the impact from the markers would be good to know as well, given that's an ASP lift. So that you would think that the margin is better work if the same, if not better, so it could help come to gross margin, yes.

Got it. So we believe now with the addition of these new markers, the mid-60s is not an unreasonable expectation for margins over time. We'll have to see. I don't anticipate guiding necessarily on margins, but that mid-60 level is within reach.

Awesome. And then Jeff, maybe one for you on the adjusted EBITDA profitability target for 4Q, that's great to see. Do you also have like an operating cash flow positive or breakeven target as well for 4Q? And maybe you could talk about that as well as the accounts receivable movement you expect throughout the year as well?

Kyle, great. Thanks for the question. Yes, I think as you think about on a full-year basis in our business, adjusted EBITDA is a good proxy for free cash flow, and we spent a full year basis. The nuance being that the quarter-to-quarter working capital impact of holding claims, particularly in the first quarter, will increase cash requirements early in any year. But over the course of the year on a blended basis, I think thinking about adjusted EBITDA and free cash flow as a proxy for one another is the right way to think about it.

Great. And last one for you John on actually the kind of want to ask your update on kind of your thoughts of or test data to biopharma companies. Like there's been a lot of news flow even in the past few weeks kind of regarding SLE drugs and so forth. Is there an opportunity there for you as a partner to pharma given your industry-leading position?

We believe there is. Our efforts on the biopharma side were really early when I joined the organization. I think we necessarily the business model was more capitalizing on inbound inquiries as opposed to having a selling process and activating partners that had some strategic impact and where we thought we could provide a unique service or solution. That has shifted since I've been on board. As I detailed in '24, we're pretty excited about some of the contract changes we've seen along with the magnitude of some of those contracts. The revenue from that comes in over a couple of years period. We should start to see more of that here in 2025 and very positive from our standpoint. There's some exciting development. We do think that there's a tailwind in terms of the market growth there; spending on the autoimmune side from a biopharma standpoint is projected to increase over time, so it's a healthy area for investment. We're looking to capitalize on it, and we do have unique proprietary offerings. We have a group of right now about four individuals that this is really the area they focus on. So more to come throughout the year. I think you'll start to see some of the efforts we're putting in place, and it'll be exciting to give you guys some updates. But it's definitely a positive area for us.

The next question is coming from Ross Osborn of Cantor Fitzgerald.

Hi, good morning, and congrats on the progress. Starting off, would you remind us on where the January launch of RA33 will get you in terms of sensitivity and if there are any incremental improvements we should be thinking about this year?

Yeah. Hey, Ross. Good morning. Thanks for the opportunity to talk clinically. So our January launch encompassed a set of two additional aspects to our test. The first being the launch of novel T cell biomarkers, which specifically improves the sensitivity for lupus diagnosis. We just actually published our manuscript in Frontiers in Immunology, an exciting publication with very strong KOL support. What that manuscript showed was for the lupus patients that were serologically negative, so their diagnosis was based solely on clinical aspects alone. The novel T cell markers, the three of which we launched, were positive in roughly 51% of those patients. A good way to think about this is we captured roughly half of the lupus patients that were not captured by conventional markers or our traditional AVISE testing. Ultimately, that boosts sensitivity in our mind closer to about capturing 9 out of 10 lupus patients through our entire AVISE test, which is an exciting development for us. On the rheumatoid arthritis side, what we launched were the first set of some novel biomarkers, improving the sensitivity for diagnosis, specifically within the traditionally seronegative population. From a rheumatoid arthritis standpoint, there are some fantastic biomarkers that exist; rheumatoid factor, ACMA antibodies, but about 30% of patients have no serological abnormalities. Their diagnosis is purely clinical, very similar to what I just described on the lupus side. In that context, this first set of markers captures about 15% to 16% of those patients, and we have a second set of markers coming later this year, hopefully by the end of the year, that will boost that overall to about 30% to 40%. In general, we believe that within the next 12 months or so, we should be able to capture almost half of the seronegative population, and that by far outpaces any other diagnostic that is commercially available. So we are very excited about both aspects.

Great. Glad to hear it. And then where does manufacturing stand in terms of capacity and how do you feel about your ability to meet demand this year?

That's a great question. We invested heavily from a capacity standpoint towards the end of the year in any capital equipment we needed. Our more complex technology is flow cytometry, and we did an entire upgrade of our suite of instruments in the back half of '24. That was about a $1.2 million investment. That's all been made. We have significant investment in robotics that we've made over the last six months and will continue to do so into 2025. Personnel-wise, we've staffed up for the increased volume that we expect and have started to see here in '25. So current capacity is adequate for the launch. We expect to scale with labor basically, and capital-wise, we feel like we're in pretty good shape at least for '25 and into '26. Our facilities have significantly more capacity than the current testing volume. What I mean by that is we operate mostly primarily on a day shift that starts about four in the morning and goes to about eight at night. That's the day shift for us, but we can also go into the evening, and so we could have a night shift if need be to preserve viability and to increase our capacity without requiring a change from a capital or facility standpoint. We have some buffer there.

Thanks for taking our questions and congrats again on the progress.

The next question is coming from Mark Massaro of BTIG.

Hey, guys. Thank you for taking the questions. John, the first one's for you. I thought the case study you provided in the prepared remarks was pretty interesting, in that the patient's diagnosis was changed from fibromyalgia to rheumatoid arthritis. With that case study, and it sounds like you had a few others come in that were similar, are you now thinking that potentially the AVISE product might have a larger total addressable market to rule in RA versus lupus, or how should we think about the market size for the core product?

Yeah. Good morning, Mark. It is a pretty interesting case study, because it came to us unsolicited, by the way. That clinician was super excited about their firsthand experience, and it's always nice to get that feedback. We've had it happen in a few other places. I was actually in the field last week talking to a group of physicians. It’s clear that they're enamored and interested in these new markers and see the applicability in their clinical practice. So it's exciting when you actually get to see it firsthand in that sense. As it relates to your question, what do we think the market opportunity is, and how has it shifted with the launch of these new markers? I do believe, and I think it's pretty rational to say here that as you enhance your value proposition on the RA side, the utility for clinicians in that context increases. That is our belief currently and I believe it's starting to pan out as we think. Rheumatoid arthritis prevalence is depending on your sources somewhere around eight times that of systemic lupus, so a dramatically different size market. We do believe that the differential broadens the utility of the differential diagnosis when we added these additional RA markers, and we will continue to do so throughout the year as we add additional waves to this. We are seeing it firsthand with case studies; we're seeing it in some of the ordering. That's a part of what's factoring into our sales expansion later this year as well. For each territory, the potential basically has shifted in our minds, and so it's a dramatically different market.

Okay. That's great. And then just to clarify, a $90 per test in incremental revenue is a big leap. And so I just want to clarify, you came in at $411 for ASPs at Q4 and year-end. Just making sure I'm hearing that you're feeling pretty good about getting the ASP per test to approximately $500 per test at Q1. And then just to clarify, do you think the $500 per test in Q1, if that's true, can serve as a potential launching point for the rest of the year?

Very important point, Mark. Thanks for the chance to expand. A couple of factors here. One, we launched the test partway into the quarter. If you assume an average $500 per test, I think you're going to overestimate for Q1 just given that we launched in January for the new markers. Additionally, I just want folks to have clarity here; the trailing 12-month number will go up by roughly a little less than a quarter of that $90, we would anticipate over the coming quarters, and that's just because it's a trailing 12-month number; it incorporates data from the last four quarters. You're diluting out that $90 if you've only been a quarter in, for example. So, just so that folks understand as we report future numbers, some context there. But basically, Mark, your math is pretty good if you can take those two factors into account. We believe that the incremental add is the real $90. One other point that Jeff just made is important to consider. We do have prior period collections in any given quarter. The fluctuation that $411 includes about $2.8 million in collections greater than 12 months from prior to '24, for example. That's just something we've said in the past, very difficult to forecast and can be lumpy. So just those three considerations.

Yeah. Mark, just to put a finer point on that so people understand, clearly the company, with John coming in and implementing this revenue cycle reimbursement strategy to expand ASP, has met with great success. But we continue to raise the bar on ourselves because as we enhance prior period collections, it increases our organic ASP and therefore our accrual rate. So some of that prior period collection now going forward is already baked into the average ASP. So there could be a bit of a tailwind on the average 12 months just because we're continuing to raise the bar on ourselves with the prior collections. Does that make sense?

Yes, it does. Thank you for clarifying that; it makes perfect sense. I have one last question. You mentioned that in 2024, there was a decline in volume due to physicians who couldn't support or provide the additional documentation needed for reimbursement. Do you think you could approach those doctors again and guide them through the documentation process? I'm curious if you believe that business could rebound. Additionally, can you estimate how much of the volume loss was attributed to that issue?

Yeah. Great question. Maybe some additional information that could be useful, Mark. If you take a look at the average number of unique ordering providers per quarter. In 2024, it was just under 2,500. So 2,500 unique ordering physicians ordered the AVISE CTD platform per quarter, on average, in 2024, excuse me, in '23. In '24, it's about 2,400. So we lost about 4.5% of our ordering base year-over-year. Keep in mind that the expense profile of that; we’ve gone from an SG&A standpoint, really reduced our overall SG&A by about $11 million to $12 million during that period as well. From our standpoint, we're operating more efficiently. We've cut back the sales team by a third since I joined. We're on the cusp of expanding. If you told me at the start that you'd lose roughly about 4.5% of the physician base but still be able to grow your top-line, I would take that. That was really the intention of what we were trying to do. I do think that that business is recoverable to your point. We need to optimize our processes so that requesting medical records becomes easier, and less frictional. It should be a smooth interaction in that sense. But I knew that if we continued on the path we were on, we absolutely were not going to get paid. There is a trade-off there that has to occur. Our value proposition continues to strengthen with these new markers, and going back to those doctors, they’ve already bought into these that advise at some point in their clinical practice. So this is really just smoothing out those interactions over time, that's where we've been heavily focused. We will continue to do that. But these new markers provide the perfect opportunity to go back.

The next question is coming from Dan Brennan of TD Cowen.

Thank you for the questions and congratulations on the quarter. Regarding pricing, can you remind us about your initial feedback from commercial payers? I recall you mentioned that less than 50% of commercial payers are either paying or are in contract. Could you provide some insight on how the new markers and the $90 lift are impacting your relationships with the different payer groups?

Yes. Good morning, Dan. Thanks for the question. From an individual payer perspective, we think about it oftentimes in terms of financial categories. So we lump the blues together, for example; we have some of the large national payers together, government, et cetera. We're seeing very consistent performance as we have with some of our other traditional testing. Obviously, with these new markers, we're facing a much lower rate of denial for experimental investigational reasons, for example. There’s not a lot of question as to the utility of these markers within this disease context. What we are typically getting denied for, if you will, or where patient responsibility seems to be outsized is around in-network status for the most part. That’s consistent with, again, some of our therapeutic monitoring testing that we offer and some of the financial modeling we did ahead of time. But relative to AVISE CTD, lower rate of overall denials from a coverage standpoint, just your more typical out-of-network type denials, which is not a problem for us. If you think about it, out-of-network really is applicable when you offer something that someone else can do as well. In both of these settings, we are a sole source provider. The basis for an effective appeal is that you can't get these markers anywhere else. We'll know over time how effective we are in shifting some of the responsibility back from the patient to the payer, basically, being treated as in-network status given the uniqueness of the markers, but that will take a little bit of time and that will hone our precision on the $90 we provided.

Okay. That sounds good. And then on the RA opportunity, just remind us when you've sized or think about the opportunity for the test now really to penetrate RA. Just what's how big is that opportunity? How do we think about just even framing that over the next kind of year or two?

Yes. So AVISE CTD is useful when you have a suspected connective tissue disease. That number is not in the literature anywhere that we can find. We triangulated our internal calculations, taking a look at incidence for each of these diseases along with the positivity rates we have on our AVISE test. What we've concluded, with more confidence now, is that the RA market is truly an opportunity for us with the unique offering that the annual rate of connective tissue disease evaluations is somewhere around 2.5 million. That would put us on the conservative side around 5% penetrated. You can get up to maybe about 10% penetrated if you want to create a range here with confidence intervals and whatnot. We think the value proposition has been enhanced. We always had markers for traditional rheumatoid arthritis evaluation, but now there's a unique reason and opportunity for us to help patients and clinicians in this area. So that's what we're going after; somewhere around 2.5 million tests a year is our current estimate.

And then maybe if I can just go on the volume side. You talked about really focusing on profitability and all the success you've had with the burn and pricing. But you also talked in the prepared remarks you were disappointed with kind of the volume. So for '25, how do we think about the guardrails, if you will, on your willingness or aggressiveness in going after new doctors, new patients in terms of also balancing against getting paid? I guess we'll get the update on the volume outlook at Q1. But I'm just wondering, should we expect kind of the number of ordering docs to go up? Like, just can you speak through the methodology at which, like, you're seeking to grow volumes?

Absolutely, Dan. My comments a second ago are really just rooted in the fact that I think it's important to be transparent and honest in performance and objective as much as you can be. We have high expectations for ourselves in every area. If you look at our performance over the last two years, that would be the one area that you could point to and say, I would like to see this improve, and that’s exactly our mindset internally. We’ve dramatically enhanced the quality of our team over the last year. We’ve changed our sales leadership, and I’m happy to have someone I’ve worked with at prior organizations join. We’ve had a shift in the leadership underneath that person and the various reps throughout our territories are of very high caliber now, after making some changes there in the last 12 to 18 months. So we have the right team in place. In terms of the trajectory from a volume growth standpoint, we expect it to improve. If you take a look at when we made billing changes in the back half of '23, we’ve been moderately up from where we were at the back half of '23 at run rate. I expect us to approach the high-single digits from a volume growth standpoint based on legacy growth rates. I do expect the volume of physicians to increase. We’re doing our first sales expansion since I’ve been here this year, we're at a handful of territories. So by all salient sales metrics, I would expect increases over the course of 2025 — the number of physicians, orders per physician, and overall volume.

And maybe just one for Jeff. Just on OpEx leverage, can you just remind us how implied in the guide you talked a little bit about gross margins, kind of how do we think about OpEx leverage for the year?

Sure. Yeah, Dan, appreciate the question. The way to think about this is that we will make some moderate incremental investments, particularly on commercial and continue to invest in the R&D pipeline. But think about the level of revenue growth; it will outpace the level of OpEx growth. So we really will start to see some scale throughout 2025. We’ll see that in the margin as well. I think in terms of expectation, you will really start to see that scale in the second half of the year because we've invested it ahead of the curve, particularly in laboratory operations to accommodate the expected increase in demand. So I think you’ll start to really see that leverage in the last half of the year.

The next question is coming from Andrew Brackmann of William Blair.

Hi, guys. Good morning. Thanks for taking the question. Maybe back to the example that you gave from Florida. It seems like this was sort of a moment for that particular physician. So I guess on average, do you have an estimate for how many tests of this new version might need to be ordered to get to that point where they see that benefit and it potentially drives more volume? And I guess related to that, any commercial strategies that you can deploy to maybe get them there a little bit faster?

Hey, Andrew. Thanks for the question. I think it's a fantastic one and one we're evaluating internally. Although we probably tested more people with these new biomarkers than had been done previously, in a given month, we're doing 10,000 of these tests plus. Now a month and a half to two months in, we've tested close to several thousand patients. Still a little early to recognize the overall positivity rate, which is I think what you're asking. It's a good suggestion for our next earnings call to give some of that color, so I'll plan to do so. But that’s fantastic question. It also has to do with how physicians are using the test and what's their pretest probability that the patient has RA. So it may be a little bit different on a physician-to-physician basis, but we’ll have that for you in the future. From the standpoint of how to accelerate this individual experience for the broader physician population, we’re turning it into a case study, and this is actually at the recommendation of the physician themselves. We’re using a de-identified example but with enough specifics to show that it is true and real. Then to provide this in a few different contexts would, I think, be very useful. It would also be nice to have some level of outcome data, which will take some time. But those are definitely things we’re looking at doing and partnering with clinicians as they use these novel markers. That’s a great suggestion.

Okay, I’ll be sure to ask it on the next quarter call as well. I guess maybe also here just on the pipeline, any catalysts that we should be sort of thinking about for 2025? And then can you just maybe just give us a refresher on where that stands today?

Yeah. The major catalyst obviously was launched here in January with these new suite of markers. I think that’s very key. We also expect to have sales expansion from a territory standpoint, maybe approaching the low-40s into the mid-40s. We're currently at 40 right now, so up to 10% growth in our territory volume. Those people take some time to get up to speed but we do anticipate them contributing here in '25. Our pharma business has been going strong over the last, call it, 12 months and we expect that to continue this year. We also have a second wave of RA markers that we anticipate launching by year-end, maybe early '26, which should further enhance that value proposition. I would think that those efforts are going to be the major catalysts that will be most apparent in the operations of our business. I'll leave it at that.

Okay, great. I'll leave it at too. Thanks, guys.

The next question is coming from Matthew Parisi of KeyBanc.

Hi. Yes. This is Matt Parisi on for Paul Knight. I was just wondering if you could provide a little bit more detail on the testing volume in general. If you maybe could give a number of that?

Yeah. Hey, Matthew. Good morning. And I'm assuming you're referring to 2024 testing volume?

Yes. As opposed to.

No. Not a problem. So total test volume for 2024 was 123,000 AVISE CTD units. That's down 11% relative to 2023. Keep in mind that the first half of 2023 was record volume for the organization in both quarters. Comparing it to the run-rate post-billing changes, you're up slightly to moderately since those billing changes. Does that answer your question?

Yes, perfectly. Thanks so much.

Thank you. At this point, I would like to turn the floor back over to Mr. Aballi for closing comments.

Great. Thanks all. As we wrap up discussion of our performance for 2024, our team remains highly motivated and committed to positioning our company for long-term success. We are on track to achieve key milestones that will create value, and with this momentum, we're well positioned for an exciting year ahead. We appreciate your continued partnership and look forward to providing future updates. Thanks.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log up the webcast at this time and enjoy the rest of your day.