Good afternoon. Welcome to Exagen Inc. Fourth Quarter and Full Year 2019 Results Conference Call. As a reminder, today’s call is being recorded. We will begin today’s call with opening remarks and introductions, followed by a question-and-answer session. I would like to turn the call over to Mr. Mark Hazeltine, Senior Vice President of Finance & Corporate Development. Please go ahead, sir.

Good afternoon and thank you for joining us today. Earlier today, Exagen Inc. released financial results for the quarter and year ended December 31, 2019. The release is currently available on the company’s Web site at www.exagen.com. Ron Rocca, President and Chief Executive Officer; and Kamal Adawi, Chief Financial Officer will host this afternoon’s call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including, without limitation, statements regarding our business strategy and future financial and operating performance, the impact of the COVID-19 pandemic on our business, our current and future product offerings and reimbursement and coverage are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our filing with the Securities and Exchange Commission, including on Form 10-K to be filed. The information provided in this conference call speaks only to the live broadcast today, March 25, 2020. Exagen disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections or other forward-looking statements, whether because of new information, future events or otherwise. I will now turn the call over to Ron Rocca, President and CEO of Exagen.

Thanks, Mark, and good afternoon, everyone. I’m pleased to welcome you to the call to discuss our fourth quarter and full year 2019 results. With me today is Exagen’s CFO Kamal Adawi. We had an exceptional year at Exagen, highlighted by our successful IPO and we entered into 2020 well capitalized. We again delivered record number of tests and ordering healthcare providers. This is a continuation of our strategic initiative of marketing our innovative connective tissue disease testing products, alongside the biologic for rheumatic diseases. We strengthen our position within the underserved rheumatic disease market by laying the foundation for future and sustainable success of our company. Before turning to my formal remarks, I would like to briefly comment on the COVID-19 pandemic. Our thoughts are with our employees, partners and the communities around the world being impact by this crisis. We're closely monitoring developing situation and tracking disruption to our customers and suppliers, and we will adjust the strategy accordingly as the situation evolves. Our lab continues to be fully operational as of today. On the personnel front, we recently made two key additions to the management team. Dr. Debra Zack joined Exagen as the Chief Medical Officer. She has over 30 years experience being a board-certified rheumatologist previously leading clinical development at companies like Novartis and Amgen. Dr. Arthur Weinstein is stepping down from the Chief Medical Officer position to lead Exagen’s Scientific Advisory Board. I want to thank Dr. Weinstein for the contributions he made during his time as CMO. We are extremely excited that Dr. Anja Kammesheidt who has also been serving as our interim Chief Scientific Officer since December has expected a full-time CSO role. Both of these appointments bring in-depth experience and insight into the immune system disorders and solidifies the management team for…

Thank you, Ron. Turning first to the income statement for the fourth quarter and full year 2019. As Ron mentioned, total revenues were 10.2 million and 40.4 million, respectively. Year-over-year revenue growth for the fourth quarter was driven by incremental revenues related to our SIMPONI promotional efforts which added 0.6 million to our top line revenue. Year-over-year revenue growth for the full year was primarily the result of a 26% increase in AVISE CTD testing. We achieved incremental revenues related to our SIMPONI promotional efforts which were not present a year ago and which added about 4% to the top line in the full year. AVISE CTD test revenues were 8.2 million in the quarter and other testing revenue was 1.4 million. For the full year, AVISE CTD test revenues were 33.3 million and other test revenue was 5.6 million. Our gross margin was 55% in the fourth quarter of 2019 compared to 59% in the fourth quarter of 2018. The decrease in gross margin was driven by lower ASP. Our gross margins remained consistent at 53% in the full year of 2019 as higher testing volumes, automation in the lab and cost savings initiatives offset likely lower ASP. Operating expenses in the fourth quarter increased 34% year-over-year to 13.1 million due primarily to costs associated with the expansion of our sales force and incremental cost of being a public company not present in 2018. Operating expenses in the full year increased 33% to 49.7 million. Net loss for 2019 was 12 million from a net loss of 8 million in 2018. Net loss for the fourth quarter was 3.4 million compared with 1.3 million in the fourth quarter of 2018. As Ron mentioned earlier, we increased our expenditures to execute on our strategic Dx/Rx vision. These increased expenses are primarily related to our significant sales force expansion, which was an important step in our progress of reaching the majority of the 5,000 rheumatologists in the United States. Looking at our balance sheet. Cash and cash equivalents as of December 31, 2019 were approximately 72.1 million. We believe we are well capitalized to endure an economic downturn associated with the COVID-19 pandemic. Regarding 2020 guidance, we think it is prudent to hold off on providing top line guidance until we get more clarity on the effect of the COVID-19 pandemic on our business. We had a strong start to 2020, but over the last two weeks volume has dropped due to the COVID-19 pandemic. We continue to both analyze the impact and adjust our operating approach to best serve healthcare providers and their patients. I will now turn the call over to Ron.

We are experiencing unique times across the globe due to COVID-19 pandemic. Exagen is in a solid financial strategic position to weather the economic uncertainties. We are well capitalized, our healthcare providers’ retention rates are high and we are rapidly becoming a diagnostic provider of choice in rheumatology. We have a strong operational business model, strong balance sheet and new strategic opportunities. We believe these attributes position us to demonstrate resilience through the COVID-19 pandemic. We are focused on executing our strategic plan to Own the Rheumatology Hilltop, which will provide a platform for continued value creation. This concludes the prepared remarks. At this time, we would like to open up the call for questions.

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Doug Schenkel with Cowen and Company. Please proceed.

Hi. Good afternoon. Ron, I appreciate some of your comments at the end of your prepared remarks on recent trends. Obviously, when a company like you, for understandable reasons, as a recent IPO is announcing Q4 results with only a few days left in the first quarter, a quarter later, it’s going to prompt a lot more focus on what’s been going on recently versus what went on essentially three months ago. And that’s even more so in the midst of the pandemic. So it would be helpful to get a little more detail on how volume has trended over the last, I’d say, two to three weeks? How new practice additions have trended over that period? As well and to some extent – well, I guess let’s just pause there. How have volumes and new practice additions trended over the last three weeks?

Great. Thanks, Doug. The great thing is everything we’ve been building up to this point was for 2020; the dossier, ramping up the sales force, doing all the things necessary because 2020 is our year. That’s the year we go, as you saw in some of the press releases, now getting a network and the arrangement we have with Sonora Quest out of Arizona. So that was the whole purpose there. January, February and the first two weeks of March were right on target, if not better. It was a record January and a record February of volume going forward. We hit a record number of writers too as well. The last two weeks we did see a dip and it really has to do with patient flow. We understand that roughly about – from what we’re hearing from the sales force roughly, about 20% of the offices are now closed and even though that those offices are open that they’re restricting the amount of patients they see. They’re really triaging them. We’re also hearing that SLE patients do get into the front of the line, and you know there’s no cure for lupus, but those patients are still out there and do need to be monitored. We feel very fortunate with products that we have that can be used in this type of scenario. SIMPONI, for example, is an at-home anti-TNF. We have two capillary tests, one for hydroxychloroquine and one for methotrexate. They can be taken at home as well. So the volume drop that we saw last week and now we’re monitoring closely this week has happened. We’re monitoring next week as well to see how we finish out the quarter. But I don’t see the type of drops that I’m hearing from other places. And I think a lot of that has to do with the type of disorder we’re talking about and the fact that rheumatologists are the place where the SLE patients do end up. So the new practices continue to grow as we had added new representatives and the volume, we’re keeping an eye on. It is still too early. I think as Kamal said, we have to just keep an eye on it as far as any type of guidance. But we do feel that we’re in a good position with the type of products we have. These are not inconsequential products. These are essential products for people that have disorders that could lead to kidney transplant or even death.

Okay. Thanks for that. And then just I guess a few follow-ups just to confirm, your lab is fully exempt in California in spite of the shutdown order. And then from a sales and marketing investment perspective, how does what’s going on change things right now? And then I guess a third follow up would be, are you in a position where you can do virtual detailing given – I guess it would be a presumption that it’s going to be harder for your reps to physically get in front of doctors given restrictions out there?

Yes, good questions. So, first of all, exempts were allowed and all the lab workers do have a letter with all the rules that says that they’re – in case you’re stopped by the police or anybody that says that they’re allowed to work and they are exempt employees to work into the lab. So that’s a good thing. And again, that letter that they have with all the California rules in there does allow them to come to and from work. As far as where we are, we are well capitalized. That’s the great thing about where we are right now. So things have not slowed down in our pipeline or in some of the other aspects of BD that we’re looking at. In fact, we think we’re in a better opportunity there. As far as the sales force, you’re right. Offices are closing and this is – so I’m just going to read off what we sent to all the reps and it comes into four points. One is; first, adhere to any state and federal rules in your area. So the reps know that. Whatever that state is and what the rules are. Fulfill SIMPONI sample request through our remote sampling solution which is a terrific solution. Again, SIMPONI offering an at-home anti-TNF test. We asked them to make follow-up conference calls and webinars with those offices that they’ve already set up lunch and learns and so forth, so those are being set up. And we’re taking this opportunity to do a couple other things. One is, really ramp up some training at this point. We have our training department going forward and really ramping that up. And we’re having the representatives make at least four to five outreach calls to see if they need to drop off transportation kits or literature for the patients and so forth. It’s really early, Doug, but what I’m noticing in the conference calls with the sales force, it does appear that where they can they are having a very positive impact and the doctors are very appreciative of the fact that we have some products that actually are really solution-oriented in a time like this.

Super helpful, Ron. And then maybe if I can just ask one more not related to the pandemic if we can take our minds off that for a moment. What drove the strength in non-AVISE CTD Lupus testing in the quarter? I think you mentioned SLE and Monitor in your prepared remarks. I’m just wondering if something started to take hold in the fourth quarter where maybe your sales force was increasing proficient at cross-selling some of these tests with AVISE CTD Lupus in either existing or new practices?

Great question. And it’s because of the way we built the model of the sales force. So as you lead with your diagnostics of SLE, the prognostics follow along. So we don’t even put any incentive comp on prognostic. There’s zero comp for the reps, but more SLE that you’re selling as a representative, the more those patients want to know which organ’s being attacked, whether it’s the lung, the kidneys or the heart. The other piece here is our monitoring product. Our monitoring product obviously be an annuity. There is no cure for lupus. You do have to monitor disease progression. And with the addition of PC4d, you can possibly predict whether that patient may have a heart attack or stroke which is disproportionately high in SLE patients. So those other products grow with the diagnostic. The monitoring product be an annuity, it just builds on itself. As long as we’re out there, that monitoring product should just continue to grow because you’re constantly adding patients on top of it. Some of the other smaller products we have, HCQ, obviously it’s been in the news a lot. It’s just flying off the shelves. But it’s probably not the right way to do it at this point, because we really don’t know enough about HCQ impact on the coronavirus. But those other products are also doing well. Lastly, I’ll say is it’s just our Own the Hilltop strategy, Doug. We are recognized as the rheumatology testing company at this point. There’s a lot of trust in what we do. Every product we launch, launches quicker and faster and there’s a respect and understanding and a relationship between the rheumatologists in the U.S. and Exagen.

Great, all right. Thank you for all the color. Thanks, gentlemen, and stay safe.

Great. Thanks, Doug. You do.

Our next question is from Brian Weinstein with William Blair. Please proceed.

Hi, Brian.

Thanks for taking the questions. So let’s start with the comment on the 20% of offices being closed from what you’re hearing. Now that seems a little bit lower than I would have thought. Where are the majority of your call points? Are they in states where there are lockdowns going on right now? Can you give us some geographic idea about kind of where you see the majority of your orders coming from?

Sure. And the 20% is a snapshot. It was a snapshot in time from the time we had the call with the field. And it seems reasonable based on what we’re seeing coming in every day here in the lab. So we are in all the major cities. Rheumatologists by their very nature are usually in big cities and near big hospitals, so New York, California, Chicago, LA, big areas in Atlanta as well. But we also now with the expansion also went into some rural areas as well. And I think what you’re seeing there in these rural areas, and I’m thinking of some in particular, those physicians need a quick answer to this. As you’ll remember, when they have to do a workup on connective tissue, oftentimes it’s serial testing. I’m going to do an ANA. Bring him back a week later, do an anti-dsDNA. A week later, do an anti-Smith and then maybe a C3/C4. With our AVISE CTD, we truncate that time period especially now in this pandemic where they can do one test and cover all the really important connective tissue diseases. So I think in those rural areas we’re having a lot of positive impact for the convenience of speed of the testing. And in those bigger cities like New York or LA and Atlanta where they’ve shut down, I have to say that’s where we’re strongest with the KOLs. We do have relationships with all the major KOLs in the United States. So it’s really nice that when we get together with them, they’re so supportive of being to help us out. The last thing I’ll say to your question is, SLE by its very nature is not going to go away. So those patients are there regardless and they do need to seek help, they do need to have a rheumatologist evaluate them. So I don’t think they’re going to stay away. They need to see somebody. They know something’s wrong with them and they need some type of therapeutic intervention to live a normal life.

Okay. Thanks for that. On the dossier in the submission there, you noted that meetings are scheduled. Are those scheduled in the near term? Are those getting pushed back? Is there a risk that those don’t happen as a result of what’s going on here or are the payers and the people you need to work with, is the ability to work from home not impacting your expected timing for those meetings and decisions?

Right. So nothing’s got pushed back. A couple of things have happened. One is, they have gone into virtual meetings which we have no problem. And in fact it gives us an opportunity to bring more of our – like Deb Zack, our new Ph.D., M.D. rheumatologist to come in on those calls as well. So none of them were pushed back. They were turned into virtual calls. And interestingly enough, Brian, we have gotten some calls which I can’t name here from some payers that want to schedule meetings. Now that our dossier is out for consumption, it was very interesting to see some big payers actually call us to say, when do you want to schedule a meeting. And two of those took place just this week.

Okay. Kamal, I recognize where you guys were at the end of the quarter from a cash position, feeling good about where things are and ability to weather the storm here. But are you doing anything actively right now to better conserve cash? Are you slowing down any pipeline investment or investment elsewhere?

Thanks for your question, Brian. So, yes, as we mentioned we have 72.1 million cash on hand at the end of the quarter. Now there is going to be certain things that flex with volume. So in the lab, you’re going to have your reagent expense, your shipping expense and then we’re going to be able to flex labor down. There was also some other departments that we’re going to flex hours down to get a cost savings. We’re very focused on the gross margin as volumes decline during this COVID-19 pandemic. So that’s what we’re really looking at today.

So nothing in terms of operating expense reduction, no programs are being cut, nothing like that?

No, there is – we are going to continue to look to flux in other areas that would hit operating expenses as volumes decline.

Okay. And then on the ASP, it was – Ron, you mentioned pricing pressure and something about a supplier quality issue. I didn’t quite follow what is going on there and how that impacted pricing. What are your expectations for pricing as we think about 2020? I recognize it’s difficult on the volume side to predict what’s going on, but I would think you would have a pretty good idea on how to think about pricing with or without some of these payer meetings turning positive for you? So can you talk about what happened more specifically in the fourth quarter, because we were under the impression that pricing does go up later in the year, it didn’t happen kind of the way that we would have thought? And then how should we think about pricing as we try and do some modeling here on the revenue side, just would love any kind of guidepost that you can give us? Thanks.

Sure. So we anticipate a downward pressure on ASPs from PAMA, but what we did not see coming was supplier quality issue with one of our reagent which had an impact in Q4. Now that issue was resolved as of the first week of March. So we’ll have a small impact in Q1. Now, as Ron mentioned with the dossier and with the meetings continuing to take place, that doesn’t change our outlook. We’re continuing to get in network and coverage with the payers, and you saw over the past week multiple press releases come out mentioning the coverage that we’ve received.

Okay. This is it for me. I will follow back up with you later or tonight. Thanks.

Thanks, Brian.

Thank you, Brian.

Our next question is from Craig Bijou with Cantor Fitzgerald. Please proceed.

Hi, Craig.

Good afternoon, guys. Thanks for taking the questions. I wanted to start with the ordering physicians and the adopters, and obviously you guys saw nice step up in ordering physicians but adopters were relatively flat compared to Q3. So, one, I guess is there anything going on there, any dynamic that we should be aware of or is it possibly just an issue of new sales force ramping and bringing on new physicians?

Yes, good question, Craig. So the ordering physicians continue to increase because we essentially doubled the sales force. And when you do that, a lot happens. You go from 30 to 55. That’s just quite an expansion; 100% growth on expansion. So some of it is ordering physicians because we’re reaching into these areas we never were. So we’re excited about seeing record number of ordering physicians as we continue to grow, roughly 30% of all rheumatologists now. So the stickiness part is still adhering. We’re still seeing the doctors that write the drug. They love the diagnostic. They like it and they come back and write it again. Part of that is because we’ve got a great test. The other part is, is the consequences of using the old ones, they know what that is. It’s six years before you get correctly diagnosed according to some surveys. So the stickiness is solid, but ordering physicians is high. We looked at 2019 as the year that we go everybody sitting in the right place and structured, dossier done. And now what I’m really happy about is the fact that in 2020, this is our year. This is a year that everything is done, completed. There really is no feedback at all as far as a better test than what we have to help these patients. So, Craig, feeling really good about the ordering physicians and the stickiness and a little bit of disruption, as always, whenever you have 100% growth in your sales force, but that’s all now in the rearview mirror as we wanted it to be heading into 2020.

Got it, that’s helpful. And maybe, and I think you touched on it a little bit earlier in the call, but the opportunity for new co-promotes and obviously those take some discussion. I know you guys have relationships, but any impact that any of those discussions COVID-19 might have on those discussions?

Right. And obviously I can’t be specific on any of these, but we’ll let you know. Nothing slowed down. If anything, especially some of these companies we’re talking to, not that they’re at home, we actually have more time to get a hold of them and work things out. So we believe that the Dx/Rx strategy is the right strategy for healthcare and we continue to engage and be engaged by customers that see this as a valuable way to get into this very important area of rheumatology. At this point, rheumatology is nowhere near as crowded as all these other therapeutic areas. So when these companies have a product that makes sense to go to rheumatologists, they usually end up calling us, Craig, and we either decide whether to move forward or not. But to answer your question specifically, nothing’s slowed down in any of those discussions. If anything, some of them have picked up.

Got it, that’s helpful. And just last one from me and I think I heard you correctly, but correct me if I’m wrong. So you guys added 13 reps in Q1 and then I guess if that is true, how should we think about the hiring for the rest of the year?

Yes, we – so Kamal and I constantly look at reach and frequency across the country. That’s something that we like to see. We know that you have to hit a certain amount of frequency, certain amount of reach in order to keep the ball rolling, if you will. So the 13 we’re seeing is an obvious add as we looked at it, we said, yes, well this is how it has to happen. We fully realize that every time we add the representatives that we could get the same proportion at growth as we did with the original set of sales forces. So our expectation is with the 13, it would be enhanced growth, enhanced reach, enhanced frequency, more new doctors as well. Something else that’s happening in the rheumatology area is that there is a shortage of rheumatologists. So there are some areas that even though the physician does not call themselves a rheumatologist, they act like one. So we decided to go into those areas, usually a little bit more rural, and place representatives there to also go into areas like Wyoming and so forth, areas that don’t always get coverage but those patients need help too and those doctors need very convenient accurate test as well. So if that data shows that it’s appropriate, because of the way the doctor prescribes, we’ll add him to our list. To further answer your question is we’ll continue to monitor it and we’ll always be judicious and appropriate in adding any headcount.

Got it. Thanks for taking the questions, guys.

Thanks, Craig.

Thank you. That is all the time allotted to questions. I would like to turn the call back to Mr. Ron Rocca for any closing remarks.

Thank you. Guys, I know we’re in this surreal world here but the companies I think that are going to do the best here when everything gets back to normal are those that are well capitalized, have meaningful products with strong IP and great relationships and that’s Exagen. I think we’re well positioned to continue to our track and continue our growth forward and become an important product not only for the markets, but more importantly for those patients that need these tests to be appropriately treated. Thank you for your time and I look forward to further discussions. Take care and have a good day.

Ladies and gentlemen, this concludes today’s conference call.