Exagen Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; filed March 20, 2023. The filing reports full-year results, with selected fourth-quarter operating updates. Exagen is a commercial-stage diagnostics company focused on autoimmune disease testing under its AVISE brand; AVISE CTD is its principal product.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $45.6 million | $48.3 million |
| Costs of revenue | $24.2 million | $20.6 million |
| Gross profit / margin | $21.3 million / 46.9% | $27.7 million / 57.4% |
| Operating expenses | $91.6 million | $72.4 million |
| Loss from operations | $(46.1) million | $(24.1) million |
| Net loss | $(47.4) million | $(26.9) million |
| Basic and diluted loss per share | $(2.77) | $(1.68) |
| Cash used in operating activities | $32.1 million | $20.3 million |
| Cash and cash equivalents, year-end | $62.4 million | $99.4 million |
At year-end, total assets were $86.2 million, current assets $72.6 million, current liabilities $9.6 million, and stockholders’ equity $42.5 million. Borrowings had a net carrying amount of $29.0 million, including the term loan and equipment notes. The term loan is secured by substantially all assets, including intellectual property; its interest rate is 8.0%, with 2.0% paid in kind through December 2024. Principal and accrued interest are scheduled for 24 monthly installments beginning December 2024. The company reported compliance with loan covenants at year-end.
Material changes versus FY2021
- Revenue declined 5.7%, despite AVISE CTD test deliveries rising to 135,210 from 128,246, an increase of about 5%. The 2022 total included no Janssen promotion revenue, compared with $1.2 million in 2021, and lower average selling price; higher test volume partly offset these factors.
- AVISE CTD represented 84% of revenue, up from 81%. Medicare represented 39% of revenue, compared with 19%; commercial revenue fell to $19.0 million from $27.5 million, while government revenue rose to $17.7 million from $9.2 million.
- Gross margin fell to 46.9% from 57.4%, reflecting higher labor, materials, shipping, and laboratory overhead costs alongside lower revenue.
- Operating expenses rose 26.6%. The company recorded a $5.5 million goodwill impairment after a sustained decline in market capitalization, fully impairing goodwill, and a $0.4 million impairment of research-and-development equipment.
- Cash used in operations increased to $32.1 million from $20.3 million. Cash and cash equivalents decreased by $37.1 million from year-end 2021.
- Ordering healthcare providers reached a fourth-quarter record of 2,419, up from 2,126 a year earlier. In October 2022, Exagen appointed a new CEO and began cost-saving measures and a strategic review.
Outlook, risks, contingencies and unusual items
- Management outlook: Exagen expects continued operating losses in the near term. It expects near-term SG&A and R&D expenses to decrease as a result of cost-saving initiatives begun in Q4 2022; costs of revenue may rise with volume, and interest expense is expected to be broadly consistent with 2022. Management believes cash, cash equivalents and anticipated revenue will fund anticipated requirements for at least 12 months from the filing date. No specific revenue or earnings guidance is provided.
- Reimbursement: Medicare’s finalized AVISE Lupus PLA-code rate is $840.65 per test for 2023–2025, but pricing does not establish coverage. Noridian deemed the company’s coverage application valid; a favorable coverage determination remains uncertain. Exagen reported increased denials under the PLA code and expects that to persist.
- Financial reporting controls: Exagen restated its Q2 and first-half 2022 Form 10-Q after erroneous and duplicate billings overstated revenue and receivables and understated other liabilities. Management identified a material weakness in revenue-recognition controls and concluded disclosure controls and internal control over financial reporting were ineffective at December 31, 2022. Remediation is underway but not complete.
- Government investigation: The company received a U.S. Department of Justice subpoena in February 2022 seeking documents related to an investigation of potential federal healthcare regulatory offenses. Exagen says it is cooperating; timing, outcome, and potential impact are uncertain. It separately states it is not party to material legal proceedings.
- Concentration and operating risks: AVISE CTD accounted for most revenue, and approximately 96% of diagnostic testing supplies were purchased from two suppliers. All testing is performed at one Vista, California laboratory. The company also depends on third-party payor coverage and collections and faces regulatory uncertainty around laboratory-developed tests.
- Capital and contractual obligations: The term loan includes a $2.0 million minimum liquidity covenant, revenue requirements, restrictions on additional debt and other actions, and a $1.0 million fee due with the final installment. A reagent supply agreement sets minimum purchases of $6.9 million for 2023, with 15% annual increases thereafter through 2025. Additional financing may be needed; the company’s ability to use its ATM offering is constrained by the “baby shelf” rule.
- Other items: Exagen terminated its GSK data collaboration effective January 1, 2023. Inflation increased laboratory, personnel, and other operating costs. The filing also discusses uncertainty around future LDT oversight and the risks of data privacy, billing compliance, and potential healthcare-law enforcement.
Important facts for investors to verify
- Review the Q2 2022 restatement, the underlying billing errors, and whether management’s revenue-control remediation is operating effectively.
- Track the DOJ subpoena investigation, any subsequent disclosures, and any related financial or operational consequences.
- Confirm AVISE Lupus coverage progress with Noridian and commercial payors, and assess the effect of denials and the finalized Medicare rate on realized reimbursement.
- Monitor cash burn, liquidity, covenant compliance, and the ability to meet debt installments beginning in December 2024 and supplier purchase commitments.
- Assess whether test volume growth and cost reductions can reverse the decline in gross margin and narrow losses, given the concentration in AVISE CTD and dependence on a small supplier base.