Navigating a Successful Turnaround

Exagen Inc. (XGN) is a medical technology company that has established itself as a leader in the design, development, and commercialization of innovative testing products aimed at improving the diagnosis, prognosis, and monitoring of complex rheumatic, autoimmune, and autoimmune-related diseases. With a strong focus on rheumatology and a commitment to exceptional customer service, Exagen is well-positioned to meet the evolving needs of rheumatologists, primary care physicians, and their patients.

Exagen's journey has been marked by a strategic operational turnaround that began in late 2022 under the leadership of CEO John Aballi. The company has since delivered impressive results, including a return to revenue growth, gross margin expansion, and a significant reduction in operating expenses and cash burn. Comparing Exagen's financial results for the first nine months of 2024 to the same period in 2022, the company has grown revenue by nearly 30%, expanded its AVISE CTD trailing twelve-month average selling price (ASP) by 45%, improved gross margins by over 1,300 basis points, reduced operating expenses by almost 20%, and improved adjusted EBITDA loss by over 70%.

At the same time, Exagen has nearly doubled its sales force productivity and brought a renewed focus to its Research and Development (R&D) investments, resulting in a nearly 50% reduction in related expenses and a prioritization of near-term pipeline opportunities. This strategic approach has positioned the company for a strong finish to 2024 and an exciting 2025.

Company History

Founded in 2002, Exagen Inc. has a rich history in the medical technology sector. Originally incorporated as Exagen Corporation in New Mexico, the company underwent a merger with Exagen Diagnostics, Inc. in 2003, adopting the latter's name. In January 2019, the company rebranded to its current name, Exagen Inc.

A significant milestone in Exagen's history was the commercial launch of its flagship testing product, AVISE CTD, in 2012. This innovative test has revolutionized the diagnosis of complex autoimmune conditions such as lupus, rheumatoid arthritis, and Sjögren's syndrome, offering earlier and more accurate results compared to traditional screening methods.

In 2010, Exagen made a strategic acquisition of the medical diagnostics division of Cypress Bioscience, Inc. This move expanded the company's intellectual property portfolio, particularly in relation to its proprietary CB-CAPs technology, which is a key component of the AVISE CTD test. However, the company has faced challenges in maintaining its intellectual property rights, including the permanent lapse of certain ex-U.S. rights licensed from the University of Pittsburgh in 2024.

Throughout its history, Exagen has relied on a combination of equity financings, debt financing arrangements, and revenue from product sales to fund its operations. Despite significant investments in product development and commercialization leading to consistent net losses, the company has continued to innovate and grow. As of December 31, 2024, Exagen reported an accumulated deficit of $294.3 million, reflecting the substantial resources allocated to establishing its position in the autoimmune testing market.

Landmark Milestone and Innovative Product Launches

In December 2024, Exagen reached a significant milestone, completing its 1,000,000th AVISE CTD test. This achievement underscores the value and adoption of AVISE CTD within the rheumatologic community, demonstrating the superiority of Exagen's laboratory testing in improving patient care.

Building on this success, the company recently announced the conditional approval by the New York State Department of Health (NYSDOH) and the upcoming commercial launch of its new Systemic Lupus Erythematosus (SLE) and Rheumatoid Arthritis (RA) biomarker assays, which will be incorporated into the AVISE CTD platform. These new biomarkers are expected to further enhance the clinical utility of AVISE CTD, providing clinicians with the information they need to more accurately diagnose patients and shorten their autoimmune diagnostic journeys.

Exagen's R&D efforts have been focused on developing these innovative testing products, leveraging its proprietary technologies, bioinformatics team, and specialized expertise. The company's pipeline includes additional testing products designed to have superior clinical utility for rheumatic conditions, positioning Exagen for continued growth and success.

Strengthening the Commercial Presence

Exagen's specialized sales force, organized into 40 territories across the United States, has played a crucial role in the company's success. The sales representatives, with their extensive experience in healthcare sales and rheumatology, serve as collaborative resources to rheumatologists, providing personalized customer support and enhancing the adoption of Exagen's testing products.

In preparation for the launch of the new SLE and RA biomarker assays, Exagen has undertaken extensive market research, refined its requisition and reporting processes, and engaged with hundreds of clinicians to ensure the new offerings are well-understood and presented in a way that enhances rheumatologic care. The company's marketing efforts, including a significant presence at the upcoming American College of Rheumatology (ACR) annual meeting, will be instrumental in driving awareness and adoption of these new capabilities.

Reimbursement and Clinical Validation

Achieving and maintaining broad coverage and reimbursement from third-party payors, including government and commercial payors, is a key focus for Exagen. The company has been actively engaged in efforts to secure positive coverage determinations and reimbursement levels for its current and future testing products, including through validation studies, medical director engagement, and individual claim-based appeal efforts.

Exagen has an extensive body of peer-reviewed literature supporting the clinical validity and utility of its AVISE CTD test, demonstrating the importance of this product in patient care. The company has also collaborated with academic and community clinicians to showcase the clinical utility of AVISE CTD versus standard diagnostic tests, highlighting its impact on physician diagnosis, patient management decisions, patient-reported outcomes, and health economics.

Financials

For the nine months ended September 30, 2024, Exagen reported revenue of $42 million, up 8% compared to the same period in 2023. This growth was primarily driven by the company's continued ASP expansion, which reached $404 per AVISE CTD test on a trailing twelve-month basis. Gross margin for the first nine months of 2024 was 58.7%, compared to 54.9% in the same period of 2023, reflecting the company's focus on improving operational efficiency and profitability.

Despite the impact of one-time adjustments in the third quarter, Exagen maintained its full-year 2024 revenue guidance of $55 million to $56 million, representing growth of approximately 5% over 2023 and more than 20% over 2022. The company also reiterated its expectation for an adjusted EBITDA loss of better than $12 million, which would represent an improvement of nearly 30% over 2023 and 70% over 2022.

For the full year 2024, Exagen reported revenue of $55.64 million, representing a 5.9% increase from 2023. This growth was primarily driven by improved average selling prices, including cash collected related to tests performed in prior periods, partially offset by decreased AVISE CTD test volumes due to the impact of the company's revenue cycle management initiatives and the reduction of sales territories. Gross margin for the year ended December 31, 2024 was 59.5%, up from 56.1% in the prior year, largely due to the improvements in average selling prices and decreases in certain expenses.

The company's selling, general, and administrative expenses decreased by 12.8% in 2024 compared to 2023, primarily due to reductions in stock-based compensation, asset disposal costs, and various other expenses. Research and development expenses increased by 10.5% in 2024, as the company invested in the validation of the new T-Cell Biomarkers and RA Sub-Profile Biomarkers.

In the most recent quarter (Q3 2024), Exagen reported revenue of $12.51 million and a net loss of $5 million. The company attributed a year-over-year revenue decline to $1.2 million in one-time adjustments. Excluding these one-time adjustments, revenue increased 2% year-over-year.

Looking ahead, Exagen expects to achieve cash flow positivity by the end of 2025. The company is forecasting a run rate revenue level of $70 million to $73 million by the end of 2025, with a gross margin of 60%+ and relatively flat operating expenses. The upcoming launch of new proprietary biomarkers by the end of 2024 is expected to accelerate gains in ASP, margin expansion, and increase demand while positioning the company for profitability.

Liquidity

As of December 31, 2024, Exagen reported $22.04 million in cash and cash equivalents, providing the necessary runway to achieve its strategic goals. The company's debt-to-equity ratio stood at 0.33, with $18.50 million outstanding under a $25 million term loan agreement with Innovatus Life Sciences Lending Fund I, LP. Exagen's current ratio and quick ratio were both 2.70, indicating a strong short-term liquidity position.

Business Overview

Exagen Inc. operates as a single reporting segment, with its primary revenue and assets derived from the sale of its AVISE-branded testing products. The company's flagship product, AVISE CTD, accounted for 91% and 88% of the company's revenue in 2024 and 2023, respectively, highlighting its significance as the primary driver of the company's business.

The AVISE CTD test enables clinicians to more effectively diagnose a wide variety of connective tissue diseases (CTDs) and other related diseases with overlapping symptoms, providing unique biomarkers that empower clinicians to confidently and quickly diagnose various CTDs. The company's laboratory, located in Vista, California, is certified under CLIA and accredited by the College of American Pathologists.

In January 2025, Exagen announced the conditional approval and commercial launch of new SLE and RA biomarker assays on the AVISE CTD platform. These new biomarkers, which include the T-Cell Biomarkers and RA Sub-Profile Biomarkers, are expected to further improve the clinical utility of AVISE CTD by providing clinicians with more comprehensive information to definitively diagnose patients and shorten their autoimmune diagnostic journeys.

Legal Matters

In October 2023, Exagen resolved an investigation with the U.S. Attorney's Office for the District of Massachusetts that was initiated by a qui tam lawsuit. The company made a $0.70 million payment to resolve the investigation, demonstrating its commitment to maintaining ethical business practices and resolving legal matters promptly.

Conclusion

Exagen Inc. (XGN) has demonstrated its ability to navigate challenges and execute a successful operational turnaround, positioning the company for continued growth and profitability. With the launch of innovative new testing products, a strengthened commercial presence, and a robust focus on reimbursement and clinical validation, Exagen is poised to capitalize on the significant opportunities in the autoimmune testing market. As the company continues to drive revenue growth, improve operational efficiency, and enhance its product portfolio, Exagen stands out as a leader in the field of rheumatology and autoimmune diagnostics.