EXAGEN INC

Previous wording

The following discussion and other parts of this quarterly report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, current and future product offerings, reimbursement and coverage, the expected benefits from our partnership or promotion arrangements with third parties, research and development costs, timing and likelihood of success and plans and objectives of management for future operations, are forward-looking statements. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, and short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item IA, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Current wording

The following discussion and other parts of this quarterly report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, estimates regarding profitability and the time that may elapse before we may become profitable, business strategy, current and future product offerings, reimbursement and coverage, the expected benefits from our partnership or promotion arrangements with third parties, research and development costs, timing and likelihood of success and plans and objectives of management for future operations, are forward-looking statements. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, and short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in Part I, Item IA, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Previous wording

Since inception we have devoted substantially all of our efforts to developing and marketing products for the diagnosis, prognosis and monitoring of autoimmune diseases. We commercially launched our lead testing product, AVISE® CTD, in 2012. Our proprietary AVISE® Lupus test is included as part of the AVISE® CTD panel and employs a patent-protected method for diagnosing patients with SLE based on levels of CB-CAPs (e.g. EC4d and BC4d), ANA, and ds-DNA. The AVISE® Lupus test also employs patent-protected algorithms used to generate risk scores to diagnose patients with SLE based on the levels of the biomarkers. These proprietary, patent-protected methods vastly improve the diagnostic sensitivity of our test compared to the current standard of care. AVISE® CTD enables differential diagnosis for patients presenting with symptoms indicative of a wide variety of CTDs and other related diseases with overlapping symptoms. Revenue from this product comprised 90% and 87% of our revenue for the three months ended March 31, 2024 and 2023, respectively. For the three months ended March 31, 2024 and 2023, we incurred net losses of $3.4 million and $7.7 million, respectively, and we expect to continue to incur operating losses in the near term. Our operations have been funded primarily through equity financings, debt financings and revenue from product sales. We have never been profitable and, as of March 31, 2024, we had $27.3 million of cash and cash equivalents and an accumulated deficit of $282.6 million.

Current wording

Since inception we have devoted substantially all of our efforts to developing and marketing products for the diagnosis, prognosis and monitoring of autoimmune diseases. We commercially launched our lead testing product, AVISE® CTD, in 2012. Our proprietary AVISE® Lupus test is included as part of the AVISE® CTD panel and employs a patent-protected method for diagnosing patients with SLE based on levels of CB-CAPs (e.g. EC4d and BC4d), ANA, and ds-DNA. The AVISE® Lupus test also employs patent-protected algorithms used to generate risk scores to diagnose patients with SLE based on the levels of the biomarkers. These proprietary, patent-protected methods vastly improve the diagnostic sensitivity of our test compared to the current standard of care. AVISE® CTD enables differential diagnosis for patients presenting with symptoms indicative of a wide variety of CTDs and other related diseases with overlapping symptoms. Revenue from this product comprised 90% and 88% of our revenue for the six months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, we incurred net losses of $6.3 million and $12.7 million, respectively, and we expect to continue to incur operating losses in the near term. Our operations have been funded primarily through equity financings, debt financings and revenue from product sales. We have never been profitable and, as of June 30, 2024, we had $24.5 million of cash and cash equivalents and an accumulated deficit of $285.5 million.

Previous wording

Reimbursement for our testing services comes from several sources, including commercial payors (such as insurance companies and health maintenance organizations), government payors (such as Medicare and Medicaid), and patients. Reimbursement rates vary by product and payor.

Current wording

Reimbursement for our testing services comes from several sources, including commercial payors (such as insurance companies and health maintenance organizations), government payors (such as Medicare and

Previous wording

Our collaborative efforts with the Allegheny Health Network Research Institute (AHN) have resulted in further development of three innovative biomarkers (TC4d, TIgG, and TIgM), for which we obtained an exclusive, worldwide license from AHN in May 2021. These biomarkers have been clinically validated, exhibit a high degree of specificity for lupus and are more sensitive for lupus compared to conventional biomarkers. TC4d is patent protected through 2035, representing a proprietary expansion of CB-CAPs, involving a biochemical process wherein complement activation products are measured on T-cells. We currently plan to incorporate these three biomarkers into our AVISE® Lupus test toward the end of 2024. Once incorporated, we believe these biomarkers will significantly enhance the diagnostic sensitivity for lupus of our AVISE® Lupus and AVISE® CTD tests beyond their current 80% sensitivity.

Current wording

Our collaborative efforts with the Allegheny Health Network Research Institute (AHN) have resulted in further development of three innovative biomarkers, TC4d, TIgG, and TIgM (the T-Cell Biomarkers), for which we obtained an exclusive, worldwide license from AHN in May 2021. These biomarkers have been clinically validated, exhibit a high degree of specificity for lupus and are more sensitive for lupus compared to conventional biomarkers. TC4d is patent protected through 2035, representing a proprietary expansion of CB-CAPs, involving a biochemical process wherein complement activation products are measured on T-cells. We currently plan to incorporate these three biomarkers into our AVISE® CTD test toward the end of 2024. Once incorporated, we believe these biomarkers will significantly enhance the diagnostic sensitivity for lupus of our AVISE® CTD tests beyond its current 80% sensitivity.

Previous wording

Approximately 70% of rheumatoid arthritis (RA) patients show serological evidence of RA, identified by key biomarkers: anti-CCP and Rheumatoid Factor. The remaining 30% of patients, despite lacking these serological markers, are clinically diagnosed with RA; this subgroup is referred to as “seronegative RA.” These patients often face delays in diagnosis due to the absence of serological evidence. In cases of early inflammatory arthritis, differential diagnosis is broad, including conditions like reactive arthritis, crystal arthropathy, spondyloarthropathy, and other systemic rheumatic diseases such as SLE and Sjogren’s syndrome, alongside seronegative RA. We have identified three unique biomarkers specific to seronegative RA that help bridge this diagnostic gap, now enabling AVISE® CTD to correctly identify approximately a third of the traditional seronegative RA subgroup. We currently plan to incorporate these new biomarkers into our AVISE® CTD test toward the end of 2024, allowing for more timely and targeted treatment plans for these patients.

Current wording

Approximately 70% of rheumatoid arthritis (RA) patients show serological evidence of RA, identified by key biomarkers: anti-CCP and Rheumatoid Factor. The remaining 30% of patients, despite lacking these serological markers, are clinically diagnosed with RA; this subgroup is referred to as “seronegative RA.” These patients often face delays in diagnosis due to the absence of serological evidence. In cases of early inflammatory arthritis, differential diagnosis is broad, including conditions like reactive arthritis, crystal arthropathy, spondyloarthropathy, and other systemic rheumatic diseases such as SLE and Sjogren’s syndrome, alongside seronegative RA. We have identified three unique biomarkers specific to seronegative RA (the RA Sub-Profile Biomarkers) that help bridge this diagnostic gap and would enable AVISE® CTD to correctly identify approximately a third of the traditional seronegative RA subgroup. We currently plan to incorporate these new biomarkers into our AVISE® CTD test toward the end of 2024, allowing for more timely and targeted treatment plans for these patients.

Previous wording

We believe that the addition of the biomarkers discussed above will further differentiate our core test offerings in the market and be accretive to our financial performance. We expect progressive incremental improvements in demand for AVISE® CTD over time, as we educate physicians about the benefits these new markers provide.

Current wording

We believe that the addition of the biomarkers discussed above will further differentiate our core test offerings in the market and be accretive to our financial performance. Additionally, we anticipate progressive incremental improvements in demand for AVISE® CTD over time, as we educate physicians about the benefits these new markers provide. Given the financial impact we expect from the planned launch of these new biomarkers, we estimate that we will achieve positive cash flows within a year of launching both the T-Cell Biomarkers and the RA Sub-Profile Biomarkers. This estimate assumes, among other things, that we are able to incrementally increase the average selling price per test. This estimate may ultimately be incorrect.

Previous wording

▪Reimbursement for Our Testing Products. Our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payors, including both commercial payors and government payors. Payment from third-party payors differs depending on whether we are considered a "participating provider" (have entered into a contract with the payors as a participating provider) or a "non-participating provider" (do not have a contract and are considered a "non-participating provider"). Payors will often reimburse non-participating providers at a lower amount than participating providers, if at all. We have received a substantial portion of our revenue from a limited number of commercial payors, most of which have not contracted with us to be a participating provider. Historically, we have experienced situations where commercial payors proactively reduced the amounts they were willing to reimburse for our tests, and in other situations, commercial payors have determined that the amounts they previously paid were too high and have sought to recover those perceived excess payments by deducting such amounts from payments otherwise being made. When we contract to serve as a participating provider, reimbursements are made pursuant to a negotiated fee schedule and are limited to only covered indications. If we are not able to obtain or maintain coverage and adequate reimbursement from third-party payors, we may not be able to effectively increase our testing volume and revenue as expected. Additionally, changes in our estimated reimbursements for tests performed in prior periods can positively or negatively impact our revenue in the current period and cause our financial results to fluctuate. In addition, in connection with our revenue cycle management initiatives, we plan to hold claims in the first half of the year which we believe will likely result in increases in our accounts receivable and an accelerated decrease in our cash in the first half of the year which we would expect to return to typical levels by the end of the fiscal year ending December 31, 2024.

Current wording

▪Reimbursement for Our Testing Products. Our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payors, including both commercial payors and government payors. Payment from third-party payors differs depending on whether we are considered a "participating provider" (have entered into a contract with the payors as a participating provider) or a "non-participating provider" (do not have a contract and are considered a "non-participating provider"). Payors will often reimburse non-participating providers at a lower amount than participating providers, if at all. We have received a substantial portion of our revenue from a limited number of commercial payors, most of which have not contracted with us to be a participating provider. Historically, we have experienced situations where commercial payors proactively reduced the amounts they were willing to reimburse for our tests, and in other situations, commercial payors have determined that the amounts they previously paid were too high and have sought to recover those perceived excess payments by deducting such amounts from payments otherwise being made. When we contract to serve as a participating provider, reimbursements are made pursuant to a negotiated fee schedule and are limited to only covered indications. If we are not able to obtain or maintain coverage and adequate reimbursement from third-party payors, we may not be able to effectively increase our testing volume and revenue as expected. Additionally, changes in our estimated reimbursements for tests performed in prior periods can positively or negatively impact our revenue in the current period and cause our financial results to fluctuate. In addition, in connection with our revenue cycle management initiatives, we've held claims in the first half of the year which has resulted in increases in our accounts receivable and an accelerated decrease in our cash in the first half of the year. We expect this trend to reverse in the second half of the year, as cash is collected on billed tests.

Previous wording

▪Continued Growth of Our Testing Products. Since the launch of AVISE® CTD in 2012 and through March 31, 2024, we have delivered approximately 917,000 of these tests. During the three months ended March 31, 2024, 30,263 AVISE® CTD tests were delivered, representing a decline of approximately 19% over the same period in 2023. Revenue growth for our testing products will depend, in part, on our ability to continue to expand our base of ordering healthcare providers and increase our penetration with existing healthcare providers.

Current wording

▪Continued Growth of Our Testing Products. Since the launch of AVISE® CTD in 2012 and through June 30, 2024, we have delivered approximately 950,000 of these tests. During the three months ended June 30, 2024, the number of AVISE® CTD tests delivered declined by approximately 13% over the same period in 2023. Revenue growth for our testing products will depend, in part, on our ability to continue to expand our base of ordering healthcare providers and increase our penetration with existing healthcare providers, in addition to our ability to successfully and timely launch the T-Cell Biomarkers and RA Sub-Profile Biomarkers we plan to add to our AVISE® CTD test.

Previous wording

We recognize revenue in accordance with the provisions of ASC Topic 606, Revenue from Contracts with Customers. We record revenue on an accrual basis, using an estimate of the amount we will ultimately receive, as determined based on a historical analysis of amounts collected by test and by payor, among other factors. These assessments require significant judgment by management.

Current wording

We recognize revenue in accordance with the provisions of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers. We record revenue on an accrual basis, using an estimate of the amount we will ultimately receive, as determined based on a historical analysis of amounts collected by test and by payor, among other factors. These assessments require significant judgment by management.

Previous wording

To date, we have derived nearly all of our revenue from the sale of our testing products, most of which is attributable to our AVISE® CTD test. We primarily market our testing products to rheumatologists in the United States. The rheumatologists who order our testing products, and to whom results are reported, are generally not responsible for payment for these products. The parties that pay for these services (payors) consist of commercial payors (insurance companies, health maintenance organizations, etc.), government payors (primarily Medicare and Medicaid), client payors (hospitals, other laboratories, etc.), and patient self-pay. Our service is completed upon the delivery of test results to the prescribing rheumatologists which triggers billing for the service.

Current wording

To date, we have derived nearly all of our revenue from the sale of our testing products, most of which is attributable to our AVISE® CTD test. We primarily market our testing products to rheumatologists and their physician assistants in the United States. The healthcare professionals who order our testing products, and to whom results are reported, are generally not responsible for payment for these products. The parties that pay for these services (payors) consist of commercial payors (insurance companies, health maintenance organizations, etc.), government payors (primarily Medicare and Medicaid), client payors (hospitals, other laboratories, etc.), and patient self-pay. Our service is completed upon the delivery of test results to the prescribing rheumatologists which triggers billing for the service.

Previous wording

In an effort to improve transparency regarding Medicare support of AVISE® Lupus, we submitted a formal request to Noridian for coverage of our AVISE® Lupus test under the new PLA Code. On September 27, 2022, we received notice that Noridian has deemed our application for a Local Coverage Determination (LCD) to be valid. Ultimately receiving a favorable LCD is uncertain and may be time-consuming, resource intensive and require multiple quarterly or annual periods to complete and is subject to risks and uncertainties described in the section entitled"Risk Factors" in this Quarterly Report on Form 10-Q. In the meantime, we have continued to submit Medicare claims for AVISE® Lupus, appeal denials and respond to requests for additional information. On January 31, 2024, CMS released a coverage article under which all multi-analyte proteomic testing will be considered within the scope of molecular diagnostic services (MolDX) and reviewed through their technology assessment process. The article requires all laboratories furnishing multi-analyte proteomics testing in MolDX jurisdictions to register with the DEX® Diagnostics Exchange Registry and obtain a Z-Code® identifier. To determine if the submitted tests are compliant with relevant policy requirements, these tests will undergo technical assessment by Palmetto GBA as part of the MolDX program. The article listed several such tests, including the AVISE® Lupus test.

Current wording

We submitted a formal request to Noridian for coverage of our AVISE® Lupus test under the new PLA Code, and on September 27, 2022, we received notice that Noridian has deemed our application for a Local Coverage Determination (LCD) to be valid. Ultimately receiving a favorable LCD is uncertain and may be time-consuming, resource intensive and require multiple quarterly or annual periods to complete and is subject to risks and uncertainties described in the section entitled"Risk Factors" in this Quarterly Report on Form 10-Q. In the meantime, we have continued to submit Medicare claims for AVISE® Lupus, appeal denials and respond to requests for additional information. On January 31, 2024, CMS released a coverage article under which all multi-analyte proteomic testing will be considered within the scope of molecular diagnostic services (MolDX) and reviewed through their technology assessment process. The article listed several such tests, including the AVISE® Lupus test, and requires all laboratories furnishing multi-analyte proteomics testing in MolDX jurisdictions to register with the

Previous wording

We face challenges relating to commercial payor claim processing and revenue. Now that we are billing under our PLA code, we are experiencing denials due to unfavorable medical policy with certain plans, and we expect this situation to persist.

Current wording

We face consistent challenges relating to commercial payor claim processing and revenue. While collectability has improved with certain plans year-over-year, we continue to experience denials due to unfavorable medical policy with certain plans, and we expect this situation to persist.

Previous wording

During the year ended December 31, 2023, we implemented several revenue cycle management initiatives, including among others, withholding the submission of commercial payor claims for reimbursement until subsequent quarters, increasing appeals efforts and implementing increases to our patient payment rates. Additionally, in November 2023, we increased the list price billed for our tests. These ongoing revenue cycle management initiatives aim to optimize our appeals process and the potential for cash collections. We experienced moderate declines in test volume in the second half of 2023 and into January 2024, as rheumatologists and patients adjust to these changes.

Current wording

During the year ended December 31, 2023, we implemented several revenue cycle management initiatives, including among others, withholding the submission of commercial payor claims for reimbursement until subsequent quarters, increasing appeals efforts, adjusting the documentation required of physicians when ordering our tests and implementing increases to our patient payment rates. Additionally, in November 2023, we increased the list price billed for our tests. These ongoing revenue cycle management initiatives aim to optimize our appeals process and the potential for cash collections. We experienced moderate declines in test volume in the second half of 2023 and into January 2024, as rheumatologists and patients adjusted to these changes. The number of AVISE® CTD tests delivered during the three months ended June 30, 2024 grew by approximately 8% as compared to the number of AVISE® CTD tests delivered during the three months ended March 31, 2024. We consider reporting of absolute test volumes to be a competitive disadvantage. As a result, beginning in the quarter ended June 30, 2024, we will be providing the percentage change in test volume on a quarterly basis and the annual test volume on an annual basis in our Annual Report on Form 10-K.

Previous wording

We expect that our costs of revenue will remain relatively consistent year-over-year in the near-term.

Current wording

We expect that our costs of revenue will remain relatively consistent in the near-term.

Previous wording

We expect that our selling, general and administrative expenses will increase year-over-year in the near-term as a result of expected additions to headcount and associated increases for personnel costs, including stock-based compensation.

Current wording

We expect that our selling, general and administrative expenses will remain relatively consistent in the near-term.

Previous wording

We expect that our research and development expenses will remain relatively consistent year-over-year in the near-term.

Current wording

We expect that our research and development expenses will remain relatively consistent in the near-term.

Previous wording

Revenue increased $3.2 million, or 28.4%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to improved ASP and cash collections from tests performed in prior periods, partially offset by decreased AVISE® CTD year-over-year volume. The number of AVISE® CTD tests delivered, which accounted for 90% of revenue and 87% of revenue in the three months ended March 31, 2024 and 2023, respectively, decreased to 30,263 tests delivered in the three months ended March 31, 2024, compared to 37,312 tests delivered in the same 2023 period.

Current wording

Revenue increased $0.9 million, or 6.6%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to improved ASP, and cash collections from tests performed in prior periods above accrued of $3.1 million, partially offset by decreased AVISE® CTD year-over-year volume in the amount of $1.7 million. The number of AVISE® CTD tests delivered, which accounted for 90% of revenue and 88% of revenue in the three months ended June 30, 2024 and 2023, respectively, declined by approximately 13% in the three months ended June 30, 2024 as compared to the same period in 2023.

Previous wording

Costs of revenue decreased $0.1 million, or 1.8%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease was primarily due to decreases of $0.4 million in materials and supplies; partially offset by an increase of $0.2 million in shipping and handling costs resulting from increased cost-per-shipment, offset in-part by reduced shipping volume; and an increase of $0.1 million in facilities and allocated overhead expenses. Gross margin as a percentage of revenue increased to 59.6% for the three months ended March 31, 2024, compared to 47.2% for the three months ended March 31, 2023, primarily due to the changes to revenue and costs of revenue described above.

Current wording

Costs of revenue increased $0.2 million, or 2.9%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This increase was primarily due to an increase of $0.4 million in direct labor; an increase of $0.2 million in shipping and handling costs resulting from increased cost-per-shipment, partially offset by reduced shipping volume; and an increase of $0.1 million in royalty expenses. These increases were partially offset by a decrease of $0.4 million in materials and supplies expenses, and a decrease of $0.1 million in facilities and allocated overhead expenses. Gross margin as a percentage of revenue increased to 60.1% for the three months ended June 30, 2024, compared to 58.7% for the three months ended June 30, 2023, primarily due to the changes to revenue and costs of revenue described above.

Previous wording

Selling, general and administrative expenses decreased $1.3 million, or 11.3%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease was primarily due to decreases of $0.7 million in employee-related expenses (including salaries, benefits and stock-based compensation) resulting from reduced headcount, $0.3 million in commissions, $0.1 million in insurance expenses, $0.1 million in legal expenses and $0.1 million in professional services.

Current wording

Selling, general and administrative expenses decreased $1.5 million, or 12.5%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. This decrease was primarily due to decreases of $0.7 million in legal settlement costs, $0.5 million in employee-related expenses (including salaries, benefits and stock-based compensation) resulting from reduced headcount, $0.2 million in facilities and allocated overhead expenses, $0.1 million in audit and tax services, partially offset by an increase of $0.1 million in commissions.

Previous wording

Interest income decreased by $0.5 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, primarily due to lower balances of cash and cash equivalents.

Current wording

Interest income decreased by $0.3 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023, primarily due to lower cash and cash equivalents balances of interest-earning accounts.

Previous wording

Research and development expenses decreased $0.1 million, or 6.0%, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease was primarily due to decreases of $0.2 million in clinical trial expenses and $0.1 million in facilities and allocated overhead expenses, partially offset by an increase of $0.2 million in employee-related expenses (including salaries, benefits and stock-based compensation).

Current wording

Research and development expenses decreased $0.2 million, or 6.3%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. This decrease was primarily due to decreases of $0.2 million in clinical trial expenses and $0.1 million in facilities and allocated overhead expenses, partially offset by an increase of $0.1 million in employee-related expenses (including salaries, benefits and stock-based compensation).

Previous wording

Interest expense decreased by $0.1 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. This decrease was due to interest savings related to the term loan agreement entered into in September 2017 (the 2017 Term Loan), by and between the Company and Innovatus Life Sciences Lending Fund I, LP (Innovatus), as amended (the Amended Loan Agreement).

Current wording

Interest expense decreased by $0.1 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. This decrease was due to interest savings related to the term loan agreement entered into in September 2017 (the 2017 Term Loan), by and between the Company and Innovatus Life Sciences Lending Fund I, LP, as amended.

Previous wording

We have incurred net losses since our inception. For the three months ended March 31, 2024 and 2023, we incurred a net loss of $3.4 million and $7.7 million, respectively, and we expect to incur additional losses in future periods. To date, we have generated only limited revenue, and we may never achieve revenue sufficient to offset our expenses. As of March 31, 2024, we had an accumulated deficit of $282.6 million and cash and cash equivalents of $27.3 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our funds are held in cash and money market funds.

Current wording

We have incurred net losses since our inception. For the six months ended June 30, 2024 and 2023, we incurred a net loss of $6.3 million and $12.7 million, respectively, and we expect to incur additional losses in future periods. To date, we have generated only limited revenue, and, despite any estimates we may make regarding our ability to become profitable, we may never achieve revenue sufficient to offset our expenses. As of June 30, 2024, we had an accumulated deficit of $285.5 million and cash and cash equivalents of $24.5 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our funds are held in cash and money market funds.

Previous wording

On November 17, 2023, we filed a registration statement on Form S-3 covering the offering, from time to time, of up to $150.0 million of common stock, preferred stock, debt securities, warrants and units, all of which remain available for sale at March 31, 2024.

Current wording

On November 17, 2023, we filed a registration statement on Form S-3 covering the offering, from time to time, of up to $150.0 million of common stock, preferred stock, debt securities, warrants and units, all of which remained unsold at June 30, 2024.

Previous wording

The following table summarizes our cash flows for the periods indicated:

Current wording

The following table summarizes our cash flows for the periods indicated (in thousands):

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 was $9.0 million, primarily resulting from (i) our net loss of $3.4 million adjusted for non-cash charges of $1.4 million primarily related to stock-based compensation, depreciation, amortization, non-cash lease expense and non-cash interest and (ii) changes in our net operating assets of $7.0 million primarily related to net increases in accounts receivable and net decreases in accounts payable and accrued and other current liabilities, partially offset by net decreases in prepaid expenses and other current assets. The increase in accounts receivable was primarily due to delays in claim submission as part of our revenue cycle management initiatives.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024 was $11.5 million, primarily resulting from (i) our net loss of $6.3 million adjusted for non-cash charges of $2.8 million primarily related to stock-based compensation, depreciation, amortization and non-cash lease expense and (ii) changes in our net operating assets of $7.9 million primarily related to net increases in accounts receivable and net decreases in accounts payable, operating lease liabilities and accrued and other current liabilities, partially offset by net decreases in prepaid expenses. The increase in accounts receivable was primarily due to delays in claim submission as part of our revenue cycle management initiatives.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2023 was $9.7 million, primarily resulting from (i) our net loss of $7.7 million adjusted for non-cash charges of $2.0 million primarily related to stock-based compensation, depreciation, amortization, non-cash lease expense and non-cash interest and (ii) changes in our net operating assets of $4.1 million primarily related to net increases in accounts receivable and accrued and other current liabilities, partially offset by net decreases in accounts payable and operating lease liabilities. The increase in accounts receivable was primarily due to our revenue cycle management initiatives.

Current wording

Net cash used in operating activities for the six months ended June 30, 2023 was $19.9 million, primarily resulting from (i) our net loss of $12.7 million adjusted for non-cash charges of $3.9 million primarily related to stock-based compensation, depreciation, amortization, non-cash lease expense and non-cash interest and (ii) changes in our net operating assets of $11.1 million primarily related to net increases in accounts receivable and accrued and other current liabilities, partially offset by net decreases in accounts payable, prepaid expenses, other current assets and operating lease liabilities. The increase in accounts receivable was primarily due to delays in claim submission as part of our revenue cycle management initiatives and delayed claim processing by Medicare due to a request for medical records on submitted claims.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2024 and 2023 was $0.1 million and $0.4 million, respectively, due to net purchases of property and equipment.

Current wording

Net cash used in investing activities for the six months ended June 30, 2024 and 2023 was $0.2 million and $0.7 million, respectively, due to purchases of property and equipment.

Previous wording

Net cash used in financing activities for the three months ended March 31, 2024 was $0.1 million, primarily resulting from payments on finance lease and notes payable obligations, partially offset by proceeds from purchases under the Company's 2019 Employee Stock Purchase Plan.

Current wording

Net cash used in financing activities for the six months ended June 30, 2024 was $0.3 million, primarily resulting from payments on finance lease and notes payable obligations, partially offset by proceeds from purchases under the Company's 2019 Employee Stock Purchase Plan.

Previous wording

Net cash used in financing activities for the three months ended March 31, 2023 was less than $0.1 million.

Current wording

Net cash used in financing activities for the six months ended June 30, 2023 was $10.3 million, primarily resulting from the Term Loan Prepayment of $10.0 million.

Previous wording

For a description of our critical accounting estimates, please see the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" contained in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (SEC) on March 18, 2024. There have been no significant changes in our critical accounting policies and estimates during the three months ended March 31, 2024 as compared to the critical accounting policies and estimates disclosed in the Management’s Discussion and Analysis of Financial Condition and Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on March 18, 2024.

Current wording

For a description of our critical accounting estimates, please see the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" contained in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (SEC) on March 18, 2024. There have been no significant changes in our critical accounting policies and estimates during the six months ended June 30, 2024 as compared to the critical accounting policies and estimates disclosed in the Management’s Discussion and Analysis of Financial Condition and Operations included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 18, 2024.

Previous wording

We will remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended, which will occur in 2024. However, if certain events occur prior to the end of this five-year period, including if we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to this anniversary.

Current wording

We will remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended, which will occur in on December 31, 2024. However, if certain events occur prior to the end of this five-year period, including if we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, our annual gross revenues exceed $1.235 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to this anniversary.