Executive Summary / Key Takeaways

• Transformative Turnaround Underway: Exagen (NASDAQ:XGN) is executing a strategic pivot towards profitable growth, marked by significant improvements in average selling price (ASP), gross margins, and operating efficiency, culminating in an anticipated positive adjusted EBITDA by Q4 2025.
• Proprietary Biomarkers Drive Differentiation: The recent launch of novel T-cell and RA33 biomarkers for the AVISE CTD platform significantly enhances diagnostic accuracy for lupus and rheumatoid arthritis, widening Exagen's competitive moat and opening up a substantially larger market opportunity in seronegative RA.
• Strengthened Financial Foundation: A new $75 million credit facility and a recent $18.6 million public offering provide crucial financial flexibility, extending debt maturity and enabling continued strategic investments in R&D and sales force expansion without immediate capital constraints.
• Volume Growth Reacceleration: After a deliberate focus on profitable volume in 2024, the company is poised for a return to volume growth in 2025, driven by the enhanced utility of its new biomarkers and targeted sales force expansion into high-potential territories.
• Robust Pipeline for Future Growth: Exagen's R&D pipeline, including upcoming PAD4 biomarkers for RA and promising lupus nephritis/kidney damage diagnostics, demonstrates a proven capability to bring impactful, novel biomarkers to market, securing long-term growth avenues.

The Autoimmune Frontier: Exagen's Strategic Resurgence

Exagen Inc. is a medical technology company dedicated to transforming the diagnosis, prognosis, and monitoring of complex rheumatic and autoimmune diseases, including systemic lupus erythematosus (SLE) and rheumatoid arthritis (RA). Operating as a single, focused segment, the company's core business revolves around its proprietary AVISE brand of testing products. This specialized focus positions Exagen as a niche innovator within the broader diagnostics industry, differentiating it from larger, more diversified players like Quest Diagnostics and LabCorp .

The autoimmune landscape is ripe for innovation, with significant increases in autoimmune incidence in recent years. Historically, the rheumatology field has seen limited biomarker innovation over the past five decades. This backdrop underscores the critical need for advanced diagnostic tools and highlights the strategic importance of Exagen's commitment to bringing novel science to clinical practice. The company's overarching strategy, initiated with the appointment of CEO John Aballi in October 2022, has been an operational turnaround centered on achieving profitable growth through enhanced reimbursement, disciplined expense management, and a revitalized product pipeline.

Technological Edge: The AVISE Platform's Differentiated Power

At the heart of Exagen's competitive advantage lies its proprietary AVISE platform, particularly its cell-bound complement activation technology (CB-CAPs). This core technology enables the precise measurement of biomarkers, offering tangible benefits over conventional diagnostic methods. The flagship AVISE CTD test, launched in 2012, provides differential diagnosis for a wide array of connective tissue diseases.

The company significantly bolstered this technological moat with the commercial launch of new SLE (T-cell) and RA (RA33) biomarker assays in January 2025. These enhancements are the first major additions to AVISE CTD since its inception and are proving to be meaningful catalysts. For SLE, the new T-cell biomarkers have shown remarkable utility; a recently published manuscript in Frontiers in Immunology demonstrated that these markers were positive in approximately 51% of serologically negative lupus patients. This significantly boosts Exagen's overall ability to detect lupus patients to roughly 90%, effectively capturing twice what conventional markers achieve and reinforcing the company's lead in lupus diagnosis. This intellectual property is protected through 2035, providing a long-term competitive barrier.

On the rheumatoid arthritis front, the RA33 markers are designed to address the challenging seronegative RA population, where conventional tests miss about 30% of patients. The initial set of RA33 markers captures 15-16% of these seronegative patients. A second wave of RA biomarkers, including the anti-PAD4 biomarkers, is expected to launch by late 2025 or early 2026. This next set is projected to further increase overall RA detection sensitivity to approximately 85% (up from 70% with conventional markers), identifying roughly half of all seronegative patients. This level of diagnostic capability significantly outperforms any other commercially available offerings, making AVISE CTD the most extensive profile for RA diagnosis. This technological superiority translates directly into a stronger competitive moat, enabling potentially higher ASPs and improved market positioning.

Exagen's R&D pipeline extends beyond these immediate launches, demonstrating a disciplined approach to innovation. The company is actively developing Lupus Nephritis (LN) biomarkers, leveraging intellectual property licensed from Johns Hopkins University. These urine and blood-based tests aim to aid in the diagnosis, prognosis, and ongoing management of LN patients. A new customized array for this assay is currently being tested, with results expected in Q3 2025, promising higher throughput and lower costs of goods sold (COGS). Furthermore, Exagen has developed a four-protein blood-based panel for kidney damage biomarkers, for which a provisional patent was filed in November 2024. This panel has shown to sensitively detect kidney damage in early LN and diabetic nephropathy, significantly outperforming standard markers like creatinine and eGFR. These pipeline initiatives, alongside efforts to develop disease activity signatures for SLE and RA, underscore Exagen's commitment to long-term growth and its ability to bring novel, impactful biomarkers to the clinic efficiently.

Financial Momentum and Operational Discipline

Exagen's strategic turnaround is clearly reflected in its recent financial performance. The company delivered record revenue of $17.2 million in Q2 2025, representing a robust 14% year-over-year growth and marking the highest quarterly revenue in company history. This builds on a strong Q1 2025, which saw $15.5 million in revenue, an 8% increase over Q1 2024. For the six months ended June 30, 2025, total revenue reached $32.7 million, up from $29.479 million in the prior year period. This growth is primarily attributable to the expansion of its Average Selling Price (ASP) and a notable return to test volume growth.

The trailing 12-month AVISE CTD ASP reached $428 in Q2 2025, a $27 year-over-year increase. This follows a significant $75 gain in 2024, bringing the full-year 2024 ASP to $411, and a total increase of $126 since 2022. The new biomarkers launched in January 2025 are expected to contribute an incremental $90 per AVISE CTD test to the trailing 12-month ASP by the end of 2025. While Q2 2025 saw some conservative accrual adjustments for these new markers to align with real-time cash collections, management anticipates further ASP expansion in the second half of the year as patient deductibles are met and the full revenue cycle matures.

Test volume for AVISE CTD increased by approximately 7% year-over-year in Q2 2025 and a substantial 14% sequentially from Q1 2025. This reacceleration is driven by the enhanced clinical utility of the new biomarkers and increased physician adoption, marking a strong recovery after a deliberate 11% volume decline in 2024, which was a result of prioritizing profitable growth and streamlining sales channels.

Gross margins are expanding, reaching 60.4% in Q2 2025, up from 60.1% in Q2 2024. Despite a slight dip to 59.7% for the six months ended June 30, 2025 (due to upfront lab investments and temporary pricing lags for new markers in client contracts), the full-year 2024 gross margin was nearly 60%, a 300 basis point improvement over 2023. Management expects gross margins to reach the low 60% range in the second half of 2025 and potentially the mid-60s long-term, driven by ASP improvements and operational efficiencies.

Operating expenses demonstrate disciplined management. While Q2 2025 operating expenses increased to $13.0 million due to one-time items and strategic investments in R&D and commercial expansion, full-year 2024 operating expenses decreased by 10.5% to $46.7 million despite increased headcount and inflationary pressures. Management projects operating expenses to remain relatively stable in absolute dollars for the remainder of 2025, declining as a percentage of revenue due to operating leverage. This focus on efficiency has significantly narrowed losses, with adjusted EBITDA loss improving to $1.7 million in Q2 2025 and $10.1 million for full-year 2024, a 40% improvement over 2023.

Strengthening the Balance Sheet and Outlook

Exagen's liquidity has been significantly bolstered. As of June 30, 2025, the company held $30.0 million in cash and cash equivalents.

A key move was the April 2025 refinancing of its debt with Perceptive Advisors, securing a new senior secured delayed draw term loan facility of up to $75.0 million. An initial $25.0 million tranche was funded, with $19.7 million used to repay the prior debt, extending maturity to April 2030. This facility provides access to an additional $50.0 million in minimally dilutive capital, contingent on revenue milestones and strategic transactions.

This was complemented by a public offering in May 2025, which raised approximately $18.6 million in net proceeds. The company's operating cash burn was just under $3.0 million in Q2 2025, positioning it to be at or near free cash flow positive in the second half of 2025.

Management believes existing capital resources are sufficient for at least the next twelve months and aims for a cash flow positive state by the end of 2026, supported by a projected low to mid-$70 million top line and over 60% gross margins.

For the full year 2025, Exagen provides revenue guidance of between $65 million and $70 million. At the high end of this range, the company expects to achieve positive adjusted EBITDA in Q4 2025, with sustainability into 2026. This outlook is supported by continued ASP expansion from new biomarkers, a return to volume growth (expected to approach high-single digits), and strategic sales force expansion from 40 to 44-45 territories. Recent leadership additions, including Dr. Michael Mahler as Chief Scientific Officer and Chas McKhann to the Board, further strengthen the company's scientific and strategic capabilities.

Competitive Positioning and Risks

Exagen operates in a competitive landscape dominated by large, diversified diagnostic labs like Quest Diagnostics (DGX) and LabCorp (LH), which benefit from immense scale, broad testing portfolios, and established relationships. Abbott Laboratories (ABT) and Thermo Fisher Scientific (TMO) also compete with advanced diagnostic tools and global reach. Exagen's competitive strategy is to carve out a niche through superior, proprietary technology and specialized expertise in autoimmune diagnostics. Its AVISE platform, with its unique biomarkers and high diagnostic sensitivity (e.g., 90% for SLE, 85% for RA), positions it as a "sole source provider" for certain critical markers, giving it leverage in reimbursement discussions and appeal processes. This focus on innovation allows Exagen to lead in specific technological differentiators and potentially achieve faster innovation cycles in its niche compared to larger, more bureaucratic competitors.

However, Exagen's smaller operational scale presents a vulnerability, potentially leading to higher costs per test and lower overall efficiency compared to its larger rivals. Its dependence on a concentrated supplier base (87% from two suppliers in Q2 2025) also poses a risk of supply chain interruptions. Reimbursement uncertainty remains a challenge, with consistent denials from commercial payers due to unfavorable medical policies, despite recent wins in Administrative Law Judge (ALJ) hearings and positive medical policy from TRICARE. The timing and impact of regulatory approvals for new tests, such as the pending LCD application for AVISE Lupus, also introduce uncertainty. Furthermore, the company faces broader industry risks from an inflationary environment impacting costs and potential shifts in U.S. trade policy affecting material sourcing. Seasonal variations in testing volume due to holidays and patient deductibles can also impact quarterly results.

Conclusion

Exagen is undergoing a compelling transformation, evolving from a company grappling with profitability to one demonstrating clear operational discipline and a strategic path to sustainable growth. The core investment thesis hinges on the company's ability to leverage its differentiated, proprietary AVISE platform and a robust pipeline of novel biomarkers to capture a larger share of the underserved autoimmune diagnostics market, particularly in rheumatoid arthritis. The recent launch of enhanced AVISE CTD markers, coupled with a disciplined approach to ASP expansion and cost management, has already yielded record revenues and significant improvements in gross margin and adjusted EBITDA.

With a strengthened balance sheet, a reaccelerating volume trajectory, and a clear roadmap for future product launches, Exagen is well-positioned to achieve its stated goal of positive adjusted EBITDA by Q4 2025. While competitive pressures from larger players and ongoing reimbursement challenges persist, Exagen's technological leadership and focused strategy provide a strong foundation. Investors should monitor the continued adoption of new biomarkers, the success of sales force expansion, and progress in securing broader reimbursement coverage, as these factors will be critical in validating Exagen's long-term value creation.