Exagen Inc. — Q2 2022 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2022. Exagen develops and sells AVISE-branded diagnostic tests for autoimmune diseases; AVISE CTD generated about 81% of Q2 revenue and 82% of first-half revenue.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $9.0 million | $12.8 million | $19.4 million | $23.4 million |
| Gross margin | 32.2% | 57.3% | 38.5% | 56.5% |
| Operating loss | $12.7 million | $5.7 million | $22.4 million | $11.3 million |
| Net loss | $13.3 million | $6.4 million | $23.6 million | $12.6 million |
| Net loss per share | $0.78 | $0.38 | $1.39 | $0.84 |
| Operating cash flow | — | $(19.7) million | $(8.8) million |
First-half investing cash outflow was $3.0 million, primarily for property and equipment; financing cash outflow was $0.3 million. Cash, cash equivalents and restricted cash declined $23.1 million to $76.5 million. The balance sheet reports cash and cash equivalents of $76.4 million. At June 30, current assets were $89.0 million and current liabilities $9.6 million. Borrowings, net of discounts and issuance costs, were $27.8 million, classified as non-current. Stockholders’ equity was $64.2 million and accumulated deficit was $231.7 million.
Changes versus the prior comparable periods
- Revenue fell 29.8% in Q2 and 17.1% in the first half, despite AVISE CTD test volume increasing about 5% and 6%, respectively. Management cited lower average reimbursement, negative adjustments to prior-period estimates, and uncertain claims constrained from revenue recognition.
- Q2 cost of revenue rose 11.5% and first-half cost of revenue rose 17.1%; lower revenue and higher costs reduced gross margin substantially.
- SG&A increased 15.5% in Q2 and 18.1% year to date. R&D increased 42.1% in Q2 and 45.5% year to date. Higher personnel, recruitment, collaboration and other operating costs contributed to the increases.
- First-half net loss widened by $11.0 million year over year. Operating cash use more than doubled; 2021 financing included $64.7 million of net proceeds from a public offering, while no comparable offering proceeds were received in 2022.
Outlook, commentary and key risks
- Medicare reimbursement uncertainty: Noridian priced the new AVISE Lupus PLA code at $1,085 per test, but pricing does not establish coverage. Of 3,749 Medicare Part B claims submitted during the quarter, 76 had been paid, 335 denied and 2,778 were subject to requests for additional information as of August 1, 2022. The company sought approximately $4.0 million for unpaid Q2 claims; it constrained revenue for those claims pending resolution and warned of a significant interruption to AVISE Lupus Medicare revenue.
- Liquidity outlook: Management expects existing resources and anticipated revenue to fund obligations for at least 12 months from the filing date, but expects continued losses and may require additional financing. There is no assurance financing will be available on acceptable terms.
- Operating outlook: The company expects near-term operating losses and higher costs to support growth, sales, reimbursement efforts, R&D and product development. It provided no specific numeric revenue or earnings guidance.
- Growth and coverage: Centene coverage became effective June 1, 2022, and MediNcrease coverage was scheduled to become effective July 1, 2022. Exagen said its tests would then exceed 99 million covered lives as an in-network benefit; coverage does not ensure actual reimbursement or payment.
- Concentration and commitments: AVISE CTD accounts for most revenue, and two suppliers provided approximately 97% of Q2 diagnostic testing supplies. A supplier agreement includes minimum purchases of $6.0 million in 2022 and $6.9 million in 2023, with annual increases thereafter through 2025. The company also ordered approximately $1.2 million of laboratory equipment.
- Debt and leases: Innovatus debt bears 8% interest, including 2% paid in kind until December 2024, and is secured by substantially all assets, including intellectual property. Revenue and liquidity covenants apply; the company reported compliance at June 30, 2022. Principal and accrued interest installments begin in December 2024, with an additional $1.0 million fee due at final repayment. Operating lease liabilities were $6.0 million.
- Other matters: The clinical laboratory expansion was completed in Q2; additional R&D space conversion was expected in the second half of 2022. Management reported no material legal proceedings, no material changes to previously disclosed risk factors beyond those described in the filing, and effective disclosure controls.
Important facts for investors to verify
- Progress and outcome of Noridian’s coverage request, claim reviews and appeals, including actual cash collections and any revenue adjustments.
- Whether reimbursement per test and gross margin stabilize or recover as test volumes grow.
- Cash burn, available financing options and compliance with Innovatus revenue and liquidity covenants.
- Ability to meet supplier minimum-purchase commitments and fund laboratory expansion and product development.
- Whether new in-network agreements translate into test utilization, coverage and collectible reimbursement.