Exagen Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparative period is FY2019. The 10-K was filed March 16, 2021. Exagen develops and sells AVISE autoimmune-disease diagnostic tests and also co-promotes SIMPONI for Janssen. Its primary test, AVISE CTD, accounted for 70% of FY2020 revenue.
Key financial results
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Revenue | $42.0 million | $40.4 million | +3.9% |
| Costs of revenue | $16.6 million | $18.8 million | -12.0% |
| Gross profit / margin | $25.4 million / 60.6% | $21.6 million / 53.4% | Margin +7.2 percentage points |
| Operating expenses | $57.2 million | $49.7 million | +15.0% |
| Operating loss | $(15.2) million | $(9.3) million | Loss widened |
| Net loss | $(16.7) million | $(12.0) million | Loss widened |
| Operating cash flow | $(14.1) million | $(9.7) million | Cash use increased |
Revenue included $5.1 million of Janssen co-promotion revenue, up from $1.5 million. Healthcare-insurer revenue was $22.5 million, government-payor revenue $8.4 million, client revenue $5.1 million, and other revenue $0.8 million. Medicare represented 20% of revenue. The filing reports no separate Q4 revenue or profit figure in the supplied text.
Cash and cash equivalents were $57.4 million at year-end, down from $72.1 million. Working capital was $61.7 million; total assets were $78.4 million and total liabilities $36.5 million. Long-term borrowings, net of discounts and issuance costs, were $26.7 million. The loan had $25.0 million of principal outstanding plus approximately $1.8 million of capitalized interest; its stated interest rate was 8.5%, with 2.0% paid in kind through December 2022. Repayment in 24 monthly installments was scheduled to begin December 2022. The debt is secured by substantially all assets, including intellectual property. The company reported compliance with loan covenants at year-end, after agreeing with the lender on a revised management plan when revenue fell below a covenant target.
Material changes and operating performance
- AVISE CTD tests delivered fell 4.7%, to 100,450 from 105,370; management attributed the decline partly to COVID-19. Fourth-quarter test volume increased about 5% year over year. Ordering providers reached 2,500 for the year, up about 5%; adopting providers reached a record 635 in Q4.
- Revenue grew despite lower CTD volume, mainly because Janssen co-promotion revenue increased. Average reimbursement per AVISE CTD test also declined due to payor mix and PAMA reimbursement changes.
- Gross margin improved following expiration in January 2020 of a 10% annual royalty on CB-CAPs technology, as well as lower testing costs. The company expects no further PAMA-related reduction in AVISE CTD Medicare reimbursement in 2021 versus 2020.
- SG&A rose 29% to $37.0 million, driven mainly by employee-related costs, insurance, legal and professional fees. R&D rose 64% to $3.6 million, primarily from employee and clinical-study costs.
- Cash used in investing activities was $0.5 million, mainly for property and equipment. Financing cash use was $0.1 million; the company repaid a $2.9 million PPP loan in May 2020. It recognized $0.7 million in CARES Act Provider Relief Fund income for lost revenue.
Outlook, risks and unusual items
Management said existing cash and anticipated revenue were expected to fund operations for at least 12 months from the filing date, while noting this estimate depends on uncertain assumptions. It expected operating losses to continue, with SG&A and R&D expenses increasing in 2021. No specific revenue or earnings guidance was provided.
- The Janssen agreement expires December 31, 2021 unless extended. The amended terms provide minimum quarterly fees of $0.3 million for Q1 and Q2 2021, subject to a 10% cap above the baseline; there is no minimum fee for the second half of 2021. Management did not anticipate meaningful co-promotion revenue beyond the minimum in the first half and said revenue thereafter could be limited. Janssen may terminate on 30 days’ notice.
- COVID-19 reduced testing volumes, delayed clinical-study enrollment and disrupted supply procurement and in-person sales activity. The company cut temporary staff and 18 full-time positions during 2020; it recorded restructuring charges, including approximately $0.3 million of termination benefits.
- Supplier concentration is material: about 97% of diagnostic testing supplies in 2020 and 2019 came from two suppliers. A 2020 reagent supply agreement commits the company to minimum purchases of $4.1 million in 2021 and $6.0 million in 2022, with 15% annual increases thereafter through 2025.
- Other key risks include dependence on AVISE CTD, uncertain payor coverage and collection estimates, a single Vista laboratory, evolving FDA oversight of laboratory-developed tests, competition, and potential future financing needs. The company has a history of losses and an accumulated deficit of $181.3 million.
- Management reported effective disclosure controls at December 31, 2020. The auditor issued an unqualified opinion on the financial statements; it did not attest to internal control effectiveness, consistent with the company’s emerging-growth-company exemption. No material legal proceedings were reported.
Investor verification priorities
- Track AVISE CTD volumes, reimbursement per test, payor mix and collection estimates, including subsequent effects of COVID-19 and reimbursement policy changes.
- Review 2021 SIMPONI promotion results, baseline calculations, termination or extension status, and the impact of reduced or absent minimum fees.
- Monitor operating cash burn, cash runway, covenant compliance, debt repayment terms and the lender’s security interest.
- Assess whether supplier commitments, supply concentration and laboratory capacity support expected testing demand and margins.
- Verify progress on commercial coverage, clinical evidence and any changes to regulatory requirements for laboratory-developed tests.