Conference Transcript - XGN 2026-08-11

Kyle Mixon, Analyst — Canaccord Genuity

Hi, welcome to the Canaccord Genuity Growth Conference. I'm Kyle Mixon. I cover lifestyle solutions and diagnostics for Canaccord. I'm pleased to welcome you to a fireside chat with Exogen here with us today. Exogen is a pure play leading provider of autoimmune disease testing products and we'll learn more about that today with the current focus in lupus expanding. With the company, we have the CEO, John F. Valley, and CFO, Jeff Black. Thanks guys for joining us today.

John Aballi, CEO

Good morning.

Kyle Mixon, Analyst — Canaccord Genuity

So to start, maybe provide a brief overview of Exogen and kind of the market and industry that you kind of fit into in rheumatology.

John Aballi, CEO

Great. Well, good morning, everyone. So Exogen is a specialty diagnostic lab based in San Diego, California. We focus in the autoimmune, specifically the rheumatology space. We offer proprietary, unique, and comprehensive testing for patients with lupus, rheumatoid arthritis, scleroderma, other types of connective tissue disorders. And for us, we're heavily focused on the rheumatology call point. And we serve annually about 2,800 physicians right now, dispersed throughout many different subspecialties, but again, rooted more commonly in the rheumatology space. Overall, we believe we have about 3% to 4% of the autoimmune testing market. That's estimated on our end about $2.2 billion annually. And so we're trying to bring a level of clarity and precision that you commonly see in the oncology space into autoimmunity okay and then your um your tests are based on at least historically the cb caps technology slow down complement activation products so um why is that differentiated how does that improve performance any kind of data or publications that you kind of point to in terms of what clinicians yeah perfect timing actually we published a systematic review which pulled together the results of 14 different studies across about a decade or almost 12 years worth of research. That was just published in June. And in these disorders, you have the innate immune system really ramped up and attacking the individual's body. But what's occurring in, call it conventional autoantibody testing, is you're getting a snapshot point in time, What's the immune system doing right then? CB-CAPS, as you referenced, is an acronym for cell-bound complement activation products, and this leaves a scar, a covalently bound scar, on the surface of various cell types, which is highly specific and pathologic for certain diseases, lupus being one that we focus on more heavily. So what you do, what you get with R-testing is a true sense of has a pathological episode occurred? Is this patient's immune system more consistent with this disease rather than just a snapshot in time? The snapshot in time can be misled through various infections, viral loads, these types of things. So with CB caps, you actually get a disease-specific feel for it. And then additionally to this, last year we launched several new markers specific to rheumatoid arthritis that, again, enhanced the sensitivity and specificity of diagnosis there.

Kyle Mixon, Analyst — Canaccord Genuity

Right. And then maybe on speed. So in autoimmune disease, there's, you know, patients undergo this diagnostic odyssey. It takes several years to get diagnosed. And at the end of that, odyssey is probably not even accurate, to be honest. So how does a bi-CTD or flagship test sort of, like, address that? And then what do you do on the side with client services and so forth to help that?

John Aballi, CEO

Yeah, it's really interesting. Grail actually published a unique paper. And I think the reason I reference it is because in oncology, most folks generally accept that we need to reach a diagnosis sooner. And to give you a sense, the paper that Grail put out was around a half a million patients, so 500,000 patients across various different oncological conditions. So you have breast cancer, prostate cancer, lung cancer, these types of things. And median time from symptom onset to diagnosis in that study was about 3.8, 3.9 months. And in autoimmune conditions, you're an order of magnitude beyond that. So for lupus, for example, average time from symptom onset to diagnosis is six years. Rheumatoid arthritis is somewhere around two and a half to three years. Sjogren's syndrome, substantial number of patients have that. That's on five to seven years timeframes. So you're talking very different timeframes, and it all has to do with the ambiguity or the ambiguous nature of the symptomatic presentation from these patients. You have folks with fever. You have folks with bone pain, rash, alopecia, these types of things. And these symptoms don't give you a very specific idea of what the patient's dealing with. as they progress, aggregate, remain refractory to various therapies, then you start to get a feel for it. But having that level of precision earlier is what really matters. You can intervene much sooner and really make a difference, and that's what we strive to do. We've actually published a few papers where CB-CAPS specifically, our bias lupus algorithm, shows that we can diagnose lupus about 18 months sooner than conventional testing. Our algorithm will be positive in that context. That was a study with Northwestern prospective study, so very proud of that data there. On the seronegative side for RA, we closed the gap by about half, so we identify half the seronegative patients that conventional testing does not.

Kyle Mixon, Analyst — Canaccord Genuity

So those are the types of impacts we're trying to bring to this field and really excited about the potential to have that level of precision in clinicians hands excellent so let's take a step back John you you joined company almost four years ago I think it was the fall of 2022 you know at that point I guess prior to that point the company's revenue per test was roughly $300 or so which is like maybe a third of the Medicare like that you know what it what it could be the Medicare price point so it could be maybe it was the 200s like the point is like it was you weren't like really optimizing the revenue protest. I feel like that was a goal of yours to increase that and then also to kind of help come to get to profitability, whether it was EBITDA or, you know, net income or cash break even. So what have you, like, what did you set out at that point to, in order to accomplish those things? And then how is it, you know, kind of, how have you executed on that strategy so far?

John Aballi, CEO

Yeah, well, it feels like almost a decade ago, to be honest with you. It's been a ton of work. when so when I joined just to highlight a couple other things top line was declining so it's the first year at the organization that the top line had declined our cash burn was about 40 million dollars in 2022 and accelerating our Q4 burn was around 15 million so you had that level of acceleration our R&D pipeline was focused on a lot of projects that I didn't feel would ultimately yield clinical benefit or enough clinical benefit and had a, call it an obscure path to reimbursement, if you will. So we had to really pick apart and tune the entire company. The reimbursement side of it is critically important, especially diagnostics. I think a lot of organizations struggle with it, and Exogen was no different. We had four or five years prior to me coming on board where the ASP or average reimbursement had remained static. at $280, $85, something like that. And we know the playbook that has to be run. I've done this in other roles at different specialty lab organizations. You have to dive into all of the details and you have to really enhance the message that you're giving to insurers. You have to view them as a customer and you have to be very relentless with your appeals efforts. And so we put all of that in place. It's taken a couple of years. We've really looked to make this more efficient and effective, and so we've integrated some different tools which actually interpret the clinical history of the patient, make a custom appeal letter, reference specific medical policy for certain plans, and we've been highly effective. I think our trailing 12-month ASP in this last quarter was $446. It's led to a growing top line with a dramatic improvement in our cash burn approach. So this past quarter, cash burn was around $100,000. That's our adjusted EBITDA number. And so the transition of the company has been phenomenal over the last couple of years. All tons of credit to the team. As I said, when you rebuild different parts, it's not just processes. It's also bringing in people that know how to do this, that you trust, that you enjoy working with, that work well together as a team. And that's what we've done at this organization over the last four years.

Kyle Mixon, Analyst — Canaccord Genuity

Yeah. I don't mean to go too far back, but I think it's important to kind of put in context, have the second quarter kind of shaped out as well, which I want to talk about. So maybe in the second quarter, Trailing 12-month ASP was the 446, I think you just said. And that metric, it's a good way to, rather than like the quarterly periodic ASP, It's a good way to view how the metric is progressing. So that's basically increased. Maybe it's been gradual, but it's probably increased as a trend line in the past several or maybe it's like 7 to 14 quarters or so. So that's been good. But it's kind of a slowdown a little bit, like maybe mid-last year. Do you want to talk about what kind of happened in 25 that maybe kind of like affected the strategy a little bit in terms of the revenue protests?

John Aballi, CEO

Yeah. So we advise people, I mean, as operators of the business, we take a look at a trailing 12-month number. We think that that's the most representative of strategic impact on that metric. And a big part of that, and Jeff, you can add anything you feel is relevant here, but the big part of that is from an accounting standpoint, we recognize revenue on an accrual basis. So we have to take a look at what our past track record of reimbursement's been, project that into the future and recognize that number at a single point in time but if you're getting better or getting worse that number is going to change and it's always an estimate and therefore it's always wrong so from our standpoint taking a look at a trailing 12-month number pulls everything together what you have at a single point in time gets smoothed out over a 12-month period of time and any catch-up whether that's prior period revenue prior period liabilities that all gets incorporated into that trailing 12 month number. So that's how we manage the business. We take a look very specifically at that metric. And we think it's the most important for us. In 2025, we launched some new markers to enhance the comprehensive nature, but also the uniqueness of our platform specific to rheumatoid arthritis. And we saw an improvement in ASP. We had to do an estimate for what those markers were going to be reimbursed at. And that estimate had to be refined over the course of the year. So what we started off with, we didn't quite materialize by Q2, Q3. We had to pull some back on those markers, but then actually where we're performing now is pretty consistent with those original expectations. So again, we advise people to look at the trailing 12-month number for those reasons. It smooths it out over time and I think gives a real indication of the progress, but that is what happened in 25. Anything you'd add?

Jeff Black, CFO

Yeah, I would just say, Carl, we had talked about this before, but the whole concept of excess cash, meaning if we're collecting over the accrual rate, then that's going to hit revenue in any given quarter. And the revenue cycle management team is just getting better and better every quarter, right? So just to give you, put that in perspective, the last two quarters, we've collected about a million dollars in out-of-period cash. So call it just over 2 million. Perspective a year ago for the full year, it was about 1.5 million. So there's an appeals queue. We're getting better at managing the appeals queue. We're optimizing process. We're using technologies to do that and just getting better and better at it. So we're very encouraged by the trajectory there.

Kyle Mixon, Analyst — Canaccord Genuity

Yeah, I think there was one relatively large customer that, I guess, requested to change their like kind of agreement with you from a client bill direct bill agreement to be more like traditional like where does that kind of stand because that was a pretty high ASB customer back then I think what believe it was like maybe in the third quarter sure place so our preferred approach is we we sell directly into the rheumatology channel mostly this is community-based rheumatologists we've run a test for a rheumatologist to help them aid in their patient's diagnosis, and then we bill that patient's insurance.

John Aballi, CEO

And this is any of the national plans, United, Aetna, Cigna, that type of thing. It could be regional, Blue Cross plan, this type of thing, or we'll actually contract directly and sell the test wholesale to a hospital system. But you're referencing, Kyle, is the latter there, and that is what we term client bill arrangement. And basically, the hospital system runs the test for their physicians through our laboratory, but then they take on the billing component to this. We had a large hospital system in Long Island, actually, that made a determination that they, for financial reasons, that they no longer wanted to offer the test. We worked with them over time and I think tried to be very good partners there, but ultimately it was a business decision that they made to move on. The rheumatologists there, for clinical reasons, still want access to the test. We've been effective for a subset of them in finding an alternative route there, ordering it outside the system, but we do not have a client-build arrangement with that entity anymore. Our client-build business, though, is something that we're highly attuned to. I think some of the questions at the time were if this was going to precipitate additional movement in that client-build business, and we've seen none of that. In fact, very strong relationships with our client-build partners.

Kyle Mixon, Analyst — Canaccord Genuity

Perfect. Okay. Sounds good. And now, so we talked about like the revenue per test that's increased, you know, this year the guidance is like a mid-single digit kind of growth for that metric. The other component, the other variable is the volume itself. And back in like mid-2023, he sort of, you know, sort of, you know, enacted a strategy to maybe like remove some volume that wasn't, you know, higher ASP, things like that. So, and as a result, volume didn't exactly grow, you know, kind of a, the optics weren't fantastic. but like underneath the surface, the quality of the volume was really better. But anyway, now recently, recent quarters, it has been growing year over year sequentially. I think in the second quarter, it grew 11% year over year test volume. So, you know, maybe talk about what's been driving that and what the outlook sort of looks like going forward.

John Aballi, CEO

Yeah. So maybe just a little bit more detail on that transition. I referenced that we've been rebuilding the organization, and it's been a turnaround. And a turnaround in the public markets is not for the weak. what we did in the summer of 2023 was we changed all of our billing practices. We knew strategically we had to go after improved reimbursement and that there was quite a bit of potential there because if you take a look at what our Medicare rate is for our core platform, our flagship product, we're at about $1,300 from Medicare. And so to have a blended reimbursement at $280 is woefully unsatisfactory, but also quite a bit of opportunity. In order to do that, you have to change the relationship with your customer base. And what I mean by that is, you know, we require medical records on any patient that a test is submitted for. We require the clinician to actually sign the requisition. We do actually bill patients. Patients have a financial responsibility when our test is ordered. There's a few other things there, but we put all of those or packaged all of those changes together in the summer of 23 and actually saw a 20% decline in volume at the time. Some of this was certain customers that I guess for lack of a better term we had to fire. You know the business that we were getting from them was not going to allow us to continue to offer this test longer term so we had to make that transition and we've done so successfully so you build back from there. This past quarter we eclipsed our call it volume performance of what we had had prior to all of these changes and did so with a dramatically improved reimbursement. So this is the type of growth we set out to achieve, more profitable growth, and we've been successful in doing that and driven by a highly effective team. Our sales organizations really embrace these changes. Those aren't easy conversations when you've got to change clinicians' perspectives and the way that they're doing things. So we induced that friction in our process, if you will, in the summer of 23 and it's taken us a little bit of time to build back, but we have done so and seen pretty substantial volume growth the last three quarters.

Kyle Mixon, Analyst — Canaccord Genuity

Okay, the volume growth guidance for this year, this is the annual growth, I think it's like high single-digit growth. Is that correct?

John Aballi, CEO

We believe our business, longer term, a reasonable expectation is high single-digit volume growth with low single-digit ASP growth, blended, turns into, call it low-to-mid double-digit growth. and that's profitable growth. And so that's been our focus. That's what we've been working to achieve. And we'll see where it goes.

Kyle Mixon, Analyst — Canaccord Genuity

Perfect. And on the point of profitability, so in the second quarter recently, you were just there at EBITDA, break even basically $100,000 loss. Maybe talk about going forward for the year, why you want to be conservative with that metric, why we shouldn't assume a totally positive for the next few quarters. and just kind of the decision to, you know, invest for growth rather than just optimize or prioritize, I guess, profitability?

John Aballi, CEO

Yeah, our business has quarter-to-quarter intricacies that we think make sense to take a look more so at an annual basis. I just referenced how we evaluate our average reimbursement per test, and we take a look at, you know, our broader business similarly. The back half of the year, we tend to see seasonality with some of the volume of our testing, and that's for many factors, a number of working days probably being the primary one, but in the rheumatology specialty, their annual societal meeting falls in either late Q3 or early Q4. It's Q4 this year, so that takes most rheumatologists out of the clinic for about a week. So these factors tend to influence the volume in the back half of the year. So we see growth in the first couple of quarters and then maybe plateauing Q3, Q4 before you cycle into the following year. That's really the major underlying cause for the guide that we gave. But, yeah, anything else you would add?

Jeff Black, CFO

Yeah, I would just say Q2 proved the theory, right, meaning that we came out with a model that said 80 million in revenue at about a 63% margin. we would be sustainably positive, adjusted EBITDA, cash flow, breakeven, or positive. Q2, we were right there, you know, just under $20 million at a 61% margin. So, you know, as long as we're tracking to that $20 million plus a quarter, it's in striking distance.

Kyle Mixon, Analyst — Canaccord Genuity

Got it. And on the topic of spending, you know, your R&D spending is not massive each year, but you are kind of prioritizing the, or kind of refocusing, let's say, on the pipeline. And you have a goal to maybe launch, you know, products or new markers, you know, once a year, let's say. And you have the myocytosis, I think, test coming out early next year, I believe. So maybe you want to talk about what that, you know, what that opportunity is like and why that's an exciting opportunity for you.

John Aballi, CEO

Yeah, we've been very intentional with our spend across the organization, R&D being no different. We right now spend just under 10% of total revenues into R&D, and so that equates to about $6 million a year that we're spending on our core projects, and we're cycling them based on what we think are, you know, weighting low technical risk, high customer need, and high reimbursement chance of success. So from our standpoint, very excited with the R&D pipeline that we've rebuilt over the last couple of years. And the next product coming out of that pipeline is for Myositis, which is the number one asked for area of need within our existing customer base. So we're excited because the threshold or the learning curve for adopting new markers in this space should be relatively low, given that so many folks are asking for it. and it's our existing sales channel. We also believe that this offering should have applicability into the pulmonology space. We'll have to see how that goes, but it potentially expands our call point a little bit, and then also opens up other opportunities for some of our development efforts as well. So we remain on track with our current development efforts for myositis. We should be able to launch in the first part of 2027. We'll have established reimbursement. It should be very exciting for our organization to have its next new product, a standalone product that is in high demand.

Kyle Mixon, Analyst — Canaccord Genuity

What will be the steps to gain reimbursement for the myositis test?

John Aballi, CEO

So because we work in proteomics for the most part, we have a unique situation where there's established CPT codes specific to different methodologies. So this will be mostly ELISA-based methodologies. There'll be a few other proteomic-type approaches, but with that, there's established CPT codes with established reimbursement. And so that's what we'll launch with. As the product reaches second and third versions, we'll enhance the clinical utility of it with interpretations and algorithmic scores. Once that occurs, we'll go back through Medicare and go through the whole value-based reimbursement process. So for us, we think it's a very nice place to be that you have a step one. You can innovate. You can get products onto the market relatively quickly, call it within a 12-month period of time, but then subsequently have paths to enhanced reimbursement as you enhance the value you provide.

Kyle Mixon, Analyst — Canaccord Genuity

Awesome. Okay. And then the other investment would be like, I guess, like commercial force spending. So maybe talk about how large the sales team is right now and any like productivity metrics that you can share and how that's increased recently.

John Aballi, CEO

So we measure, as I think everyone does, revenue per territory, and very proud of how that's progressed over time. Our sales force right now, we have 45 sales territories within the U.S. This is up from 40 about a year, year and a half ago. And so we've expanded over the last 12 months, and that's gone very well. Some of those territories have almost doubled in the last 12 months. And so we found the right people, and we've identified the right areas to expand, and yet our revenue per territory has continued to increase. It's about a million and a half dollars per territory right now. So increasing the footprint that you have and increasing the revenue per territory, I think for us, we're very happy with that outcome. But that's exactly the intentional approach that we sought a few years ago as we pursue profitable growth. Because if you expand, dilute out the revenue per territory, it's a good way to raise your costs. But I think it defeats what we're trying to do and what our strategy has been the last several years.

Kyle Mixon, Analyst — Canaccord Genuity

With the last seconds, can you talk about your objectives as a company kind of exiting to 2026 and kind of entering in throughout, I guess, the full year 2027?

John Aballi, CEO

Yeah. Thanks for the opportunity again to be here. We really appreciate attending the conference. Our objectives are actually pretty simple. In the autoimmune space, there's not really too many specialty labs. I can't think of really any, actually, that are still around that are focused on bringing precision medicine to the space. You see quite a bit in oncology. So to have the space open to us, have a viable cells channel that's actually working, we believe launching new products and innovating in this space is exactly the opportunity we want to capture. So we're working very hard to be the preeminent autoimmune company in this space, and we'll see how it turns out. Perfect. Thanks, guys, for joining. Thanks for having us. Thanks, guys.