Executive Summary / Key Takeaways

• Exagen Inc. is executing a significant operational turnaround, marked by record revenue and improved profitability, driven by its proprietary AVISE CTD diagnostic platform and recent biomarker enhancements.
• The company's differentiated technology, including novel T-cell, RA33, and anti-PAD4 biomarkers, significantly enhances diagnostic sensitivity and specificity for systemic lupus erythematosus (SLE) and rheumatoid arthritis (RA), establishing a strong competitive moat.
• Strategic financial maneuvers, including a new credit facility with Perceptive Advisors and a public offering, have bolstered liquidity and provided flexible capital for future growth initiatives.
• Despite facing challenges with the slower-than-anticipated ramp-up of new biomarker reimbursement and the loss of a large direct bill account, Exagen maintains its 2025 revenue guidance of $65 million to $70 million and targets adjusted EBITDA positivity by Q4 2025.
• Exagen's focused innovation and commercial execution in a large, underserved autoimmune diagnostics market position it for sustained volume and average selling price (ASP) expansion, crucial for long-term value creation.

A New Era for Autoimmune Diagnostics

Exagen Inc. (NASDAQ:XGN) is carving out a specialized niche in the expansive and evolving landscape of autoimmune diagnostics. The company, incorporated in 2002, is dedicated to designing, developing, and commercializing a portfolio of advanced testing products under its AVISE brand. These tests are critical for the differential diagnosis, prognosis, and monitoring of complex rheumatic and autoimmune-related diseases, such as systemic lupus erythematosus (SLE) and rheumatoid arthritis (RA). The core of Exagen's business revolves around providing precision medicine solutions that aim to improve patient outcomes by offering clarity in autoimmune disease decision-making.

The industry landscape for autoimmune diagnostics is characterized by a significant unmet need for more accurate and earlier detection methods. Traditional screening often lacks the necessary precision, leading to delayed diagnoses and suboptimal patient management. Exagen's overarching strategy is to address this gap through continuous innovation, focusing on proprietary biomarkers that offer superior clinical utility. This approach contrasts sharply with the broader, more generalized offerings from larger diagnostic players, positioning Exagen as a specialized innovator rather than a volume-driven market leader.

A pivotal transformation for Exagen began in late 2022 with the appointment of John Aballi as Chief Executive Officer. This leadership change initiated a strategic operational turnaround, shifting the company's focus towards profitable growth, gross margin expansion, and a disciplined reduction in operating expenses and cash burn. While this initially led to an expected, deliberate decline in test volume as the company prioritized profitable reimbursement, it laid the groundwork for the current trajectory of ASP expansion and a return to volume growth.

Technological Edge: Precision Biomarkers Redefining Autoimmune Care

Exagen's competitive advantage is deeply rooted in its proprietary technology and innovative biomarker portfolio. The company's flagship product, AVISE CTD, has been significantly enhanced with the launch of novel SLE (T-Cell Biomarkers) and RA (RA33 and anti-PAD4) biomarker assays. These additions are not merely incremental improvements; they represent a fundamental shift in diagnostic capabilities.

The new SLE T-cell biomarkers, for instance, have been shown to boost lupus diagnosis sensitivity, enabling the AVISE test to capture approximately 9 out of 10 lupus patients, including those previously classified as serologically negative. This is a substantial improvement over conventional methods. For rheumatoid arthritis, the combination of RA33 and anti-PAD4 antibody testing allows for serologic profiling to be positive in approximately 85% of RA patients, effectively capturing about half of the patient population historically diagnosed as seronegative RA. This is particularly impactful given that conventional RA biomarker profiling (rheumatoid factor and anti-CCP antibodies) is positive in only about 70% of clinically diagnosed RA patients.

Specific benefits of these new markers are notable:

• Anti-PAD4 antibodies demonstrate 35% sensitivity and 95% specificity for RA, and are found in 19% of anti-CCP negative RA patients. They also correlate with an increased risk for radiographic progression, indicating more aggressive disease that may respond favorably to treatment escalation.
• RA33 antibodies are associated with milder disease, often responding well to methotrexate. This level of precision in predicting disease course and treatment response is a significant advancement in rheumatology.

These biomarker innovations are developed with a keen eye on efficiency and return on investment. For example, the development of the PAD4 markers required less than $3 million in investment and is expected to achieve revenue payback in under 24 months.

Exagen's research and development pipeline extends beyond these recent launches. The company is actively developing:

• Lupus Nephritis (LN) Biomarkers: Leveraging intellectual property from Johns Hopkins University, Exagen is developing urine and blood-based tests for LN diagnosis, prognosis, and monitoring. A new customized array is being tested, with results expected in Q4 2025, initially for pharma collaborations.
• Kidney Damage Biomarkers: A proprietary four-protein blood-based panel has been developed to sensitively detect early kidney damage in LN and diabetic nephropathy, demonstrating superior performance compared to traditional markers like creatinine and eGFR. Provisional patents were filed in November 2024 and May 2025.
• Disease Activity Markers: Efforts are underway to identify biomarkers and develop AI-driven algorithms for guiding treatment decisions in both SLE and RA.

For investors, these technological differentiators are paramount. They form the bedrock of Exagen's competitive moat, enabling higher average selling prices (ASPs), improving patient outcomes, and significantly expanding the addressable market, particularly in RA, which is estimated to be approximately three times larger than the lupus diagnostics market alone. This robust R&D execution validates Exagen's ability to rapidly bring novel, impactful biomarkers to clinical practice.

Competitive Landscape and Strategic Positioning

Exagen operates in a competitive environment dominated by large, diversified diagnostic providers. Key direct competitors include Quest Diagnostics (DGX), LabCorp (LH), Thermo Fisher Scientific (TMO), and Myriad Genetics (MYGN).

• Against broad players like Quest Diagnostics and LabCorp: Exagen's proprietary AVISE tests offer significantly higher diagnostic accuracy and specificity for certain autoimmune conditions, particularly in detecting complement activation markers. While DGX and LH benefit from immense scale, broad accessibility, and diversified revenue streams, leading to stronger operational execution and profitability, Exagen's niche focus allows for deeper specialization and innovation. The implication is that Exagen must continually innovate to maintain its relevance and pricing power, as the scale of DGX and LH could otherwise erode Exagen's specialized positioning.
• Against Thermo Fisher Scientific: TMO is a global leader with vast R&D resources and a comprehensive product portfolio. While TMO likely outperforms Exagen in overall profitability and return on invested capital due to its economies of scale, Exagen's direct-to-rheumatologist strategy and patented biomarker technology provide greater precision in monitoring specific autoimmune diseases. Exagen's technological edge can drive growth in specialized markets, but TMO's superior financial health and operational execution necessitate strategic alliances for Exagen to bolster its competitiveness.
• Against Myriad Genetics: MYGN specializes in genetic testing, including for autoimmune-related conditions. Exagen's complement-based diagnostics, such as AVISE APS, offer faster and more targeted results in autoimmune monitoring compared to MYGN's genetic-focused tests. While MYGN has a stronger market position in genetic risk assessment, Exagen can exploit MYGN's weaknesses in non-genetic autoimmune diagnostics to gain market share in rheumatology.

Exagen's competitive advantages lie in its proprietary technology, which provides superior diagnostic accuracy and clinical utility, fostering customer loyalty and recurring revenue. Its research collaborations further enhance its innovation speed. However, Exagen's smaller scale presents vulnerabilities, potentially leading to higher operating costs and dependence on specialized suppliers, which could impact profitability and expose it to pricing pressures from larger rivals. The company's strategy to expand its sales force (currently 45 territories, with plans for further additions) aims to accelerate AVISE utilization and penetrate the market more deeply, leveraging its differentiated offerings.

Financial Performance and Liquidity: A Turnaround in Motion

Exagen's financial performance in recent periods reflects the impact of its strategic turnaround, demonstrating a clear shift towards profitable growth. For the three months ended September 30, 2025, Exagen reported record revenue of $17.244 million, a substantial 37.9% increase compared to the same period in 2024. Year-to-date through Q3 2025, revenue grew by 19% to $49.944 million, driven by an 8% increase in testing volume and a 9% rise in Average Selling Price (ASP).

The trailing 12-month ASP for AVISE CTD reached $441 as of Q3 2025, representing a 9% year-over-year increase. This follows a significant gain of $75 per test in 2024 over 2023, and $126 since 2022, underscoring the effectiveness of the company's revenue cycle management initiatives. Gross margin has also shown consistent improvement, reaching 58.4% in Q3 2025, up approximately 260 basis points from Q3 2024. Management anticipates further expansion into the mid-60% range over time, driven by continued ASP improvements and streamlined lab workflows.

Operating expenses for Q3 2025 were $13.175 million, an increase from the prior year, reflecting investments in R&D for new pipeline initiatives like PAD4 and strategic sales force expansion. Despite these investments, the company's adjusted EBITDA loss significantly narrowed to $1.9 million in Q3 2025, a notable improvement from $4 million in Q3 2024. This trend highlights Exagen's disciplined approach to capital allocation and expense control. Liquidity has been a key focus, with strategic financing moves strengthening the balance sheet. As of September 30, 2025, Exagen held $35.7 million in cash and cash equivalents.

In April 2025, the company secured a new senior secured delayed draw term loan facility of up to $75 million from Perceptive Credit Holdings IV, LP. An initial $25 million tranche was funded, with $19.7 million used to repay a prior term loan, effectively extending debt amortization by five years. This facility provides access to an additional $50 million in future tranches, subject to revenue milestones and strategic transactions, offering minimally dilutive growth capital.

A public offering in May 2025 generated approximately $18.6 million in net proceeds, further enhancing financial flexibility. These actions position Exagen with over $45 million in combined cash and accounts receivable as of Q3 2025, which management believes is sufficient to fund operations to positive free cash flow.

Outlook and Risks

Exagen's management has provided a full-year 2025 revenue guidance of $65 million to $70 million. The company targets achieving positive adjusted EBITDA in the fourth quarter of 2025 and on a sustainable basis throughout 2026, particularly at the high end of its revenue range. This outlook is predicated on continued ASP expansion, driven by the new biomarkers and ongoing revenue cycle management efforts, coupled with sustained volume growth. Management anticipates volume to grow in the mid-to-high single digits for 2026. The long-term ASP goal remains around $600, approximately half of the Medicare rate, which is expected to drive cash flow positivity at current volumes.

However, the path forward is not without its challenges. The new biomarker reimbursement, while accretive, has not ramped as quickly as initially hoped, temporarily slowing ASP acceleration. The company also experienced a headwind in Q3 2025 from the loss of a large, high-ASP direct bill account, which is transitioning to a standard commercial insurance payer mix. These factors may push the timing of sustained cash flow positivity to 2026.

Further risks include the inherent reliance on third-party payors for broad coverage and adequate reimbursement, with the potential for lower rates or recovery of past payments. The AVISE Lupus test's inclusion in the MolDX program and the impact of a January 2025 Executive Order create uncertainty regarding its Local Coverage Determination (LCD) by CMS. Supply chain dependence on a limited number of key suppliers for diagnostic materials also poses a risk, as an interruption could impact testing services. The broader inflationary environment and potential changes in U.S. trade policy could also affect operating costs and gross margins.

Conclusion

Exagen Inc. is undergoing a compelling transformation, evolving from a growth-focused entity with historical losses to a company firmly on the path to profitability, underpinned by its differentiated technology and disciplined execution. The strategic turnaround initiated in late 2022 has yielded tangible results, including record revenue, expanding gross margins, and a significantly improved adjusted EBITDA. The company's proprietary AVISE CTD platform, enhanced by novel T-cell, RA33, and anti-PAD4 biomarkers, provides a critical competitive edge in the autoimmune diagnostics market, offering superior sensitivity and specificity for complex diseases like SLE and RA.

While challenges persist, particularly in the rapid acceleration of new biomarker reimbursement and managing payer dynamics, Exagen's robust R&D pipeline and strategic financial positioning provide a strong foundation. The company's ability to consistently innovate and translate scientific advancements into clinically impactful and commercially viable products, as demonstrated by its efficient biomarker development, is a testament to its technological leadership. For discerning investors, Exagen represents an opportunity to participate in the growth of a specialized diagnostics company that is leveraging its unique scientific capabilities and operational rigor to redefine autoimmune care and unlock substantial long-term value.