Exagen Inc. (XGN) Q2 2021 Earnings Report, Transcript and Summary

Greetings, ladies and gentlemen, and welcome to the Exagen Incorporated Second Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to your host, Ryan Douglas, Investor Relations for Exagen. Thank you. You may begin.

Good afternoon, and thank you for joining us today. Earlier today, Exagen Inc. released financial results for the quarter ended June 30, 2021. The release is currently available on the company's website at www.exagen.com. Ron Rocca, President and Chief Executive Officer; Kamal Adawi, Chief Financial Officer; and Mark Hazeltine, Chief Operating Officer, will host this afternoon's call. Before we get started, I'd like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of federal security 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, including 2021 guidance, the impact of 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 filings with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2020, and subsequent filings. The information provided in this conference call speaks only to the live broadcast today, August 9, 2021. 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, Ryan, and thank you to everyone joining the call today. As always, we appreciate your continued support of Exagen. The second quarter 2021 was a record-breaking quarter for Exagen. We are incredibly proud of what we have achieved to enhance Exagen's position as a leading provider of autoimmune testing solutions. We achieved several records in the quarter, including delivery of 33,328 tests. This represents 3 record demand quarters in a row, which we believe demonstrates the momentum that the AVISE brand has experienced even in the face of the pandemic. We also achieved records of 1,934 total ordering health care providers and 703 adopters for our flagship AVISE CTD and AVISE Lupus tests. This, in turn, equates to a record revenue quarter for Exagen with total revenues coming in at $12.8 million. Once again, we saw a high retention rate of 99% among adopting health care providers from the prior quarter. We believe this high retention rate and the increase in the number of ordering health care providers speaks volumes to the value our customers recognize in using AVISE testing to accelerate the historically slow and frustrating process of clinically diagnosing autoimmune disorders. We continue to increase our investment in our R&D pipeline through a multifaceted approach including clinical studies, collaboration with industry thought leaders and the expansion of our laboratory. We are pleased with our July publication of an additional study demonstrating real-world evidence in the Lupus Science & Medicine Journal. The study shows that AVISE Lupus demonstrates statistically significant clinical utility in achieving a definitive systemic lupus erythematosus diagnosis and positively impacts treatment decisions. We believe this study adds additional validity to our dossier and expect it to strengthen our position even further with payers. We recently signed an exclusive licensing research collaboration agreement with Allegheny Research and Autoimmunity Institute, which allows us to focus on developing novelly patented biomarkers for diagnosing, prognosing and monitoring of autoimmune diseases, including lupus. This strategic partnership gives us access to intellectual property, key thought leaders in the autoimmune space and a world-class biobank, which we believe will benefit the clinical validation of both existing and future pipeline products. We couldn't be more excited about this partnership, as they chose us to further develop our pipeline with some of the top minds in the autoimmune space. I want to turn your attention to a few studies that we have in progress. We have a prospective fibromyalgia study called the [BETTER] study, which is progressing at multiple sites with key opinion leaders. There are approximately 12 million people suffering from fibromyalgia, which presents clinically with similar signs and symptoms as lupus but requires very different treatments. Helping these patients get diagnosed correctly can improve their quality of life while living with this chronic disease. With the [BETTER] study, we are evaluating the effectiveness of combining CB-CAPs with vibrational spectroscopy and metabolomic analysis to provide what could be the first rule in, rule out diagnostic test for fibromyalgia. We intend to utilize the data from the [BETTER] study to launch our commercial fibromyalgia test in late 2023. We also have multiple thrombosis studies in progress, which we anticipate completing during the second half of next year. As many of you know, cardiovascular thrombotic events are a leading cause of death in lupus patients. We are developing our thrombosis test to accurately identify lupus patients at greater risk for cardiovascular thrombotic events and provide physicians an opportunity to intervene before such events occur. Depending on the results of this study, we plan on launching the thrombosis test in mid-2023. In the second half of 2021, we began the conversion of approximately 8,000 square feet of warehouse space into our existing clinical laboratory. We are also converting approximately 6,000 square feet of warehouse space into a dedicated research and development lab. The expansion of our clinical and R&D labs are expected to allow us to enhance our testing capacity, improve our efficiencies, develop molecular and multiomic capabilities and in advance our pipeline products. We remain committed to the strategy of providing an integrated testing and therapeutic model. However, the opportunity and ROI with SIMPONI has diminished with the ongoing pandemic. We have mutually agreed to end our co-promotion agreement with Janssen for SIMPONI effective August 31, 2021. As mentioned previously, we continue to invest in prioritization of our testing franchise, including payer coverage, pipeline products and furthering partnership opportunities. Our Q2 performance in terms of record revenue, record AVISE CTD tests delivered, record ordering health care providers, record adopters as well as our investment in our pipeline gives us confidence that we are set up for long-term success. Our footprint with rheumatologists, hospital systems and payers across the country continued to expand in Q2. As many of you know, autoimmune disorders are notoriously difficult and time consuming to diagnose using traditional testing. Our CB-CAPs technology offers the promise of faster, more accurate diagnosis enabling earlier intervention in treating these chronic and sometimes deadly disorders. Before turning the call over to Kamal, I'd like to take a moment to welcome both Frank Stokes of Castle Biosciences and Ana Hooker of Exact Sciences to our Board of Directors. We are thrilled to have these industry experts join our Board and contribute to our success. I will now turn over the call to Kamal to discuss our financial results.

Thank you, Ron, and good afternoon, everyone. Total revenues in the second quarter of 2021 were $12.8 million, an increase of 43% over the second quarter of 2020. Total revenues were driven primarily by an increase in testing volumes for AVISE CTD, including AVISE Lupus, which grew 80% year-over-year to a record 33,328 tests delivered in the second quarter of 2021. As Ron mentioned, the number of ordering health care providers was also a record with 1,934 in the quarter compared with 1,442 in the second quarter of 2020. AVISE CTD test revenue was $10.4 million in the quarter, and other testing revenue was $2.1 million, resulting in record testing revenues in the quarter of $12.5 million. Revenue for SIMPONI was $300,000 in the quarter. Once again, we are pleased with the performance of our core testing franchise in spite of the COVID-19 pandemic. Cost of revenue were $5.5 million in Q2, resulting in total gross margin of 57% compared to 63% in the second quarter of 2020. The decrease in gross margin percentage was primarily due to the decrease in SIMPONI co-promotion revenue recognized in Q2 2021 as compared to Q2 2020. We are pleased with the growth in our testing gross margin. In Q2 of 2021, it was 56% compared to 52% in Q2 2020 and 54% in Q1 of 2021. Operating expenses in the quarter were $18.5 million compared with $12.4 million in the second quarter of 2020. The increase was primarily due to employee-related expenses, including stock-based compensation associated with the overall increase in headcount, an increase in cost of revenue due to the increase in testing volumes and an increase in R&D expenses. The net loss in the quarter was $6.4 million compared with $3.4 million in the second quarter of 2020. Looking to our balance sheet. Cash and cash equivalents as of June 30, 2021, were approximately $112.6 million. We continue to make investments in R&D, including the development of molecular and multiomic capabilities, laboratory expansion, entering into new licensing agreements and our commercial organization to fuel future growth. We're closely monitoring the Delta variant and possible impact that it might have to rheumatologists' ability to see patients and write AVISE tests. For full year 2021, we reiterate the guidance we gave in our Q4 2020 earnings call and expect total revenue to be approximately $47 million to $49 million. This includes testing revenue of $46 million to $48 million, representing growth of approximately 27% over 2020 at the midpoint of the range. As previously stated, we mutually terminated the Janssen agreement for SIMPONI and will receive $600,000 in consideration, of which $400,000 will be recognized in Q3 and $200,000 in Q4. In regards to our operating expenses, we expect to increase our research and development expense by approximately 3x our previous year spend due to our R&D initiatives that Ron previously mentioned. We will now open the call for questions.

[Operator Instructions] Our first question comes from Max Masucci with Cowen and Company.

Congrats on the great quarter and nice to see the new adds to your Board. So just to start, there's clearly been some COVID resurgences lately with the Delta variant. Can you just give us a sense for the impact you've been seeing lately, just in broad terms? And then more specifically, just remind us how your sales territories match up geographically, just with some of these regions of the U.S. that have been hit the hardest by Delta variant lately?

Yes. Sure. Thanks, Max. Do appreciate it. You know there's no cure for lupus. So COVID or not, those patients are still there. And as soon as they're able to see a doctor, they do, and soon as the doctor is able to see them, they see them. So while some of these regions do tend to go through a shut down because of the variants, what you are seeing is that the patients do come back when given the opportunity. Now with that being said, we are seeing an interesting phenomenon with the number of doctors that were on vacation and patients too. Just recently, I was on a flight, and you see the people just can't wait to travel. So we do think that we're going to keep an eye on that as far as that's concerned -- the physician vacations. Now the way we're lined up, to your question, is lined up to patient populations. So while we do have a lot of reps in New York, L.A., Chicago, because of patient populations, we fully realize also that those patients do come back. And by the way, they are some of our stronger areas. We do work very well with NYU, with Northwestern as well as UCLA. So even in those regions, we have great relationships with KOLs and the reps are really sharp in getting in there with their inside sales force capabilities, which is a capability that we've built in the face of COVID. These are inside sales reps that can call the offices even if they're shut down, and have good meaningful discussions with the physicians. And that seems to be taking off a lot. And I think that's going to even stick around post-COVID that these inside sales forces are going to augment what the decentralized sales forces do. But all in all, we're going to, we're really excited with the performance and continue to operate to commercial excellence. Thanks for the question, Max.

Yes. That's great to hear on the impact of the inside sales force. Moving on. Can you just give us a sense for how your conversations have trended with payers in recent months or lately just comparing to the pandemic disrupted periods of last year? Has the level of interaction continued to pick up a bit? And now that your body of clinical evidence continues to grow, is that leading to more productive conversations around coverage?

Yes, another really good question. So the payers obviously are concerned with the pandemic and the number of tests, so they do concentrate on that and justifiably so for that. Now the new study that was just released in July in a top-tier journal further illustrates the clinical utility of CB-CAPs in AVISE Lupus and in AVISE CTD. So that just augments already pretty terrific dossiers as we continue to build the science. We don't see any relenting -- on the payer side, they're interested in talking to us and getting in there. But the COVID does put that as a precedent up-front before they talk to any other companies, but the conversation is going well. The dossier continues to be strong, and we feel confident we'll continue to engage payers in a meaningful discussion of how to help these patients. Remember, this disparity issue in treatment that you see with COVID is seen also in lupus, and these are women of color. So we bring that up that it's a great opportunity to help narrow that gap of the disparity in treatment for lupus patients.

That's very helpful. Maybe one final one. You beat our estimates for AVISE CTD and other tests in your portfolio. So can you just maybe speak to some of the areas of strength or drivers of growth outside of AVISE CTD?

Yes. Well, we have the prognostic which rides along. When you have lupus, you also want to know which organs are being attacked. And then we have the monitoring test, which is a solid test because disease progression is really important. So as CTD goes, the other products, especially those other 2, do follow along very nicely. And we continue to work on enhancing every asset we have with our multiomic strategy. So CTD is doing really well. It's really important to know that with COVID, what they used to do to treat patients is kind of hard to do now, and that was called serial testing. I treat you 1 marker at a time. With CTD, they get all 11 generic markers of those connected tissue diseases as well as CB-CAP. So there's a convenient factor that the doctors are finding very beneficial with CTD as well as the fact it's just a terrific lupus test.

Our next question comes from Brian Weinstein with William Blair.

So I guess as we continue to see you guys penetrate additional clinician offices, can you talk a little bit about the type of office that you're maybe calling on now versus calling on before and the intensity of the sales call that is required to get that marginal doctor on board today versus maybe a year ago, 2 years ago and whatnot? Just trying to understand how these docs may differ as you get new cohorts that come through at various times and whether or not that can drive any conclusions about kind of future test performance.

Right. Great question. Thanks, Brian, and I hope everything is going well with you. Obviously, you need KOLs, and we have them. I mean the KOLs are at pretty much every major institution, especially now with the agreement we have with Allegheny, 2 of the top rheumatologists in the country right there. So that's important. But your real business comes from the community rheumatologists. They're the ones who need the asset the most. So the numbers we hit with 1,934 ordering physicians in Q2 represents -- if you'd say, 4,500 rheumatologists out there, represents a good chunk of them that are starting to see the wisdom of AVISE CTD. And then you note that there's 703 adopters, which is an all-time high as well. That means the stickiness to it is important as well -- that they're sticking with the product. We never -- it's rarely that we hear any issue that says that this is not the superior way to advance the diagnostic of connective tissues. We just need to continue to execute commercially the way we have been. We had back-to-back years in '19 and '20 of over 100,000 orders. We're trajecting in that way again. So we really, Brian, at this point, it's a matter of commercial excellence, giving a strong core message, getting the right reach and frequency to those physicians. I will say again, just as I did in the previous conversations, the inside sales force is proving to really be helpful in augmenting these areas where it's hard to get to. So the combination of the inside sales force, a decentralized sales force and a strong product, we feel we're doing everything we can to execute correctly and continue this trajectory that you've seen thus far.

And can you update us just on the number, I don't know if you're willing to provide those, but what those numbers look like in terms of the inside sales force and the field sales force and where you are going to take those numbers? I think Kamal, you mentioned that it was one of the areas, obviously, of use of cash, was the expansion of the commercial organization. So any details on that?

Yes. So we have 63 territories right now. We feel in the Continental United States, that does give us the reach and frequency necessary. It's nice to be well capitalized the way we are. If we do need to add some, that's not a real big issue for us to continue to add to continue that reach and frequency. Right now, we think that's a solid number. The inside sales force, we're building that. We have a couple of slots there, and they went really well. We'll probably continue to build that out -- Brian, that's proven to be a very cost-effective way to augment the decentralized sales force. And it's one that I don't think I would have believed pre-COVID, but it definitely has value in a pandemic year. They have to get our kits. They need to ask questions to the representatives, and this is just a good way to do it. I don't think I'd use the inside sales force to launch a product. But once a doctor is writing and has basic questions, and we can have somebody as a touch point to be able to initiate a discussion on, let's say, the new study that was just out in a top journal, this is a great way to get to that physician very quickly and be able to have a meaningful discussion.

Great. And the last one for me is Ron, Allegheny. You talked about the couple of KOLs that you're getting access to. But you also mentioned some IP as well as the biobank. Can you talk specifically about what the IP is that you guys are now able to access? And then when you talk about the biobank, what products in specific -- what product specifically is that being helped -- is that helping to kind of validate? Where are you putting that to its best use?

Right. So Dr. Sue Manzi, just one of the best lupologists in the world really, works out of Allegheny, Dr. Joe Ahearn as well. So we took 4 additional assets from Allegheny. This is when the fragments land on the T-cell and some other areas, copier gene and so forth. So we're looking at those. We're pretty excited about what we see so far. And the fact that we're working with Allegheny, if not in the worldwide, definitely in the nation, one of the top connective tissue centers of excellence out there. So working with them on these assets is important. But it's even more than that because as you get these great minds out there and they work with our scientists, they get very creative on what equipment to use, what markers to target, how to mix it with your RNA markers as well to protein. So that becomes really, really good discussions with some of the top leaders here. The biobank is critical. So every company -- diagnostic company you carry, Brian, in the world of R&D, we're really D. We really develop. R is really hard. Research is really hard, and that's why it's usually left to the universities. That's why I think this was one of the most brilliant strategic moves we can do. And I really mean that sincerely, because this gives us R&D. They essentially become our R factor while our internal scientists are the developers. And when you combine those 2 together, you are upfront very early in these initiatives and be able to get collaboration with these thought leaders and bring things to market at a lot quicker and some pretty creative things as I said. That biobank is extremely well characterized. It's something really only a university can do nowadays with all the signatures you need from patients and so forth, and the rights to use. When a company does that, it becomes very hard to do. But a university and an institution like Allegheny where they do get signatures from payers and as well as from patients, that enables us to get well-characterized samples and be able to use them, which is the other key part there. So we're really excited about this collaboration, Brian.

Our next question comes from Mark Massaro with BTIG.

Congrats on a great quarter. Maybe just starting with the SIMPONI announcement. You've talked in the past about how there is, of course, competition from JAK inhibitors. And of course, this is Janssen's drug. So would just be curious, I believe this is an injection-based medicine though I believe consumers can self-inject. Can you just walk through some of the, maybe the competitive dynamics that might have existed with SIMPONI and just kind of the overarching decision to terminate?

Yes. We were very excited about this agreement. And remember, this agreement took place before anybody ever heard of COVID-19. So the agreement was solid. We still have a great relationship with them. It is a self-injected at-home, anti-TNF. And Janssen just got a lot nervous as the pandemic hit and so forth. We evaluate our company based on the quality assets we have and the ROIs and returns. And as SIMPONI, as the agreement started pulling back as far as the ability to reach the levels we wanted to, it fit in the bag in that spot. I'm going to -- Mark Hazeltine, who's right here in front of me. He negotiated the deal. And I'm going to turn it over to him to add some more color.

Yes. Sounds good, Mark. When we look at the competitive landscape, you're absolutely right. JAK inhibitors have come on the market in a big way. We track some of the pharmaceutical marketing spend, and you'll see these JAK inhibitors as commanding quite a bit of attention in the marketplace. They're convenient with regards to being a pill versus an injection or an IV solution. So it is indeed a competitive marketplace. With that said, it's still a large marketplace for RA, about $30 billion in therapeutic spend here in the U.S. More importantly, though, as Ron alluded to, as COVID reared itself last year, and the uncertainty with how IV products versus subcu products will be impacted. That's when we saw the fundamental economics of our deal with the SIMPONI co-promotion change. We have the cap implemented and that, in turn, really affected the ROI and the ability to continue to put our full leverage behind the product. So as the Delta variant started emerging this year, and we saw a continued period of COVID being an issue, we reprioritized SIMPONI as it relates to the rest of our portfolio and mutually decided that it was time to break.

Yes. That makes sense. I guess related to that, you do have a large sales force calling on a niche market -- focused market, I should say. Are you having conversations with other biopharma partners or potentially with other therapies, whether it's all oral or others that you think you could leverage your commercial team in the future?

Yes. So Mark, we think our sales force is the right size. We know that there are companies out there that have 100, 110 representatives calling rheumatologists. Quite frankly, I'm not sure what they're doing all day. We think our size is correct for what we have in the portfolio of products. So the sales force is rightsized from what we're doing now. And we are committed to integrated sales. Our mantra, if you will, is we want to own the hilltop. What that means is we want to bring all the assets to this bite-sized market called rheumatologists or connective tissue and be the only company they really think about -- it's surround sound. So if product has met the criteria that we have for ROI, for how we can leverage our current sales force and leverage our current infrastructure, and it's a trusted partner that won't change any agreements, then we'll take it under consideration. So we have turned down assets because it didn't meet our criteria, but we're still committed to integrated sales. We think it's a positive thing to do if and when the appropriate product shows up and meets the criteria that we outlined for inclusion into our sales bag.

Excellent. And then one last question for me. You guys did strengthen your balance sheet earlier this year. Over $100 million of cash in the balance sheet. Your net losses are quite small. So you're almost operating relatively close to breakeven. I guess, how should we think about your M&A plans over the next year or 2? Seemingly, we do see a decent amount of sort of tuck-in acquisitions across the diagnostics space. So I'd love to hear any comments you have on just multiples, types of assets that might be out there and what you're thinking about maybe making a deal in the future.

Yes. I mean, obviously, we're doing really well. We're dominating the channel. You would be hard pressed to find a rheumatologist out there that hasn't heard of us, nonetheless, written our products multiple, multiple times, as you can tell by the 99% stickiness that we have. I don't actively -- I look -- we have so much in our bag right now, Mark. I mean our pipeline is robust. If and when the proper M&A comes in, we'll take a look at it. But that's not the focus. The focus right now is to continue to have commercial excellence on the assets we have and develop the fiber product to be what we know it can be as the first rule in, and develop the thrombosis product to help patients that may have a heart attack or stroke and continue to strengthen the lupus nephritis asset we have and monitor. Those are just 3 of the assets that are really exciting. Quite frankly, when I look at other products that are out there, I think our pipeline matches up extremely well. So while I hear the words and I read the same things you do on M&A and tuck-ins and so forth, our goal here is commercial excellence, develop that pipeline. And then if and when the appropriate situation comes up, we'll evaluate it at that time.

Our next question is from Kyle Mikson with Canaccord Genuity.

Congrats on this great quarter here. So I wanted to start with the guidance, Kamal. At the midpoint, it looks like it's assuming like 5% growth in the second half of the year. So I mean if I just straight line the volume from 2Q, I can kind of get like $50 million in revenues. So can you just kind of discuss, if you're assuming like a significant level of conservatism and maybe -- I understand the variants are spreading and everything, but just tell us what's kind of assumed, I guess, in the back half of the year guide, please?

Yes. Thanks, Kyle, for the question. The portion of the revenue and the guidance that's for testing that I'll focus on, that's the $46 million to $48 million, and that is 27% year-over-year for that testing portion of the revenue. Now with the Delta variant causing some uncertainty, it's hard to see what's happening in Q4 for us. And Ron did mention that we did see a little bit more vacation time with physicians and patients over the summer. So we do feel like there could be 2 chances to see Q4 as a little bit lower than what we might have previously thought before the Delta variant came up. And that's being driven from the uncertainty around Delta and also around potentially more vacation times around the holidays in Q4.

Okay. That was helpful Kamal. And there's that seasonality like in the winter months, I think we've talked about in the past. So I think that all makes sense. And then on the therapeutic front, obviously, you noticed about AstraZeneca's drug, Saphnelo, was approved. That's a first-in-class treatment for SLE. It's the first SLE therapeutic since Benlysta. So I have 2 questions about that. Just first, can you confirm if you have a relationship with AstraZeneca currently? I know Prometheus did obviously for, in the court? And then second, the drug blocks type I interferons. I know you've talked about working with interferons in the past. Do you see any synergies between combining your test with this drug?

Yes. Great question. So we have relationships with a lot of pharma and obviously, Dr. Deb Zack, PhD, Board-certified rheumatologist, she knows a lot of people there and their research area. So my relationships when I worked with them in the past, plus Deb's and so forth, and we know that companies that are entering the lupus area or connective tissue area, we know each other. It's not that crowded of a market. We're excited to see a second asset come in for lupus, and this one seems to be a good one. The interferon alpha markers, as I've said publicly, we want to get into multiomics and they know it, we know it, and we are working on our multiomic strategy with interferon alpha obviously being something we're taking under serious consideration.

Okay. Interesting. Just one last question for me. Actually about the multiomics strategy, these assays that you'll be developing, do you think that these tests will meaningfully expand your market opportunity? Or will they allow you to be like more nimble and effective within your current $5 billion TAM? And that's my question. And also thank you for the timelines today. That was great.

Good. Well, thank you. Again, good questions. Our TAMs do not represent the pipeline. So it's with our existing assets. As far as when we are taking a look at expanding because of multiomics, what it does is 2 things. One is obviously the reimbursement or the ASP for those type of assets is higher than with proteins. But from a patient standpoint, it also allows you to get to a diagnosis earlier. As RNA starts breaking away from DNA, you're watching it express, you're getting further up the chain. So it could expand the market into earlier diagnosis, and it could expand the market if, in fact, we find out it's a way to do drug response and find out which drug works better. So there are 2 ways it could expand within the existing rheumatology connective tissue area.

Our next question is from Paul Knight with KeyBanc Capital Markets.

Hey, Ron, when you mention the R&D and lab capacity expansions, what does that represent as a percentage increase upon current capacity?

Yes. Where we think the foreseeable future will be well taken care of with the 8,000 square feet in R&D and continuing to buy better equipment that we got from Thermo Fisher, which can do multiplexing and move in that direction. That's -- the equipment has gotten a lot better than when I first started in this industry, and that really helps you have a smaller footprint in the lab. Nonetheless, we're doing so well, we did need to expand the way we are. And now with doing multiomics, obviously, you have to separate those 2, the protein and the molecular labs. So they have to be in 2 different areas. So that initiative has started. It's taken off and will allow us to meet current as well as near-term future capabilities as far as capacity is concerned.

Okay. Yes, like 20%? Or can you quantify it?

Mark, you're the closest to it.

Yes, Paul, I'll give some additional color here. We expanded the clinical lab last year by about 2,000 square feet for a total of 10,000. The clinical lab expansion we're doing this year will get us another 8,000 square feet. To the R&D side, we've been sharing clinical laboratory space with the R&D organization for a number of years. So we are now breaking out an independent R&D lab, sizing of about 6,000 square feet. So with both of these expansions, like Ron indicated, we're going to have the capacity necessary to run our trials, run our studies and also continue with our clinical operations.

Okay. And then, Ron, I might view the Allegheny agreement is that they have a biorepository, which probably gives them a 4- to 5-year head start on any R&D program, correct? And specifically, when you look at these programs, would it -- have they done companion diagnostic programs with therapeutic developers? What have you seen from them that kind of gets you excited about that biorepository?

Paul, you are absolutely right. It is a head start. I can't quantify the exact amount of time. But when you're a company like us or any publicly-traded company that's in the diagnostic testing area, and you've got to collect your own blood, get your own signatures, make sure they're well characterized, it's daunting. But by tapping into a university like this that does this every single day, it is a huge head start. Again, I can't quantify how much faster. We're into the discussions with them. But without a doubt, it's going to leapfrog us as far as being able to test some of the concepts we have. As far as the companion diagnostics, I have talked to Joe Ahearn. He's interested in that, and we do have a couple of initiatives where we'll take a look at those capabilities. He has done some work in that in the past, and we're going to get a deeper dive in that in our next meeting with him.

We've reached the end of the question-and-answer session. At this time, I'd like to turn the call over to Ron Rocca for closing comments.

Great. Thank you very much. We are really excited with the first half of the year and what we've been able to do. We're excited about 2019/2020. It really shows the ability of when you provide commercial excellence combined with terrific assets, what a company can do. This marketplace, we feel we grew it. This channel is one we're very proud of, and we want to continue to leverage it for continuing resources. The one thing that should never be lost in any discussion is the patient. And I've said it before, I'll say it again, if we can help -- helping autoimmune patients may not change the world, but it could mean the world to that 1 patient. That is a cultural thing in this company, keeping the patient first, being discovery-driven and patient focused. So I want to thank everybody today because as the company continues to do well, we'll continue to help more and more patients get the correct diagnosis for some things that are clinically very hard to diagnose without a test like ours. Thank you, everyone, for a terrific call. Really appreciate it. Looking forward to doing this again for Q3.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.