Exagen Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023; filed March 18, 2024. Exagen is a commercial-stage diagnostics company selling AVISE tests for autoimmune diseases, primarily to rheumatologists. AVISE CTD generated 88% of 2023 revenue.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Revenue | $52.5 million | $45.6 million | +15.3% |
| Gross profit / gross margin | $29.5 million / 56.1% | $21.3 million / 46.9% | Margin +9.2 percentage points |
| Operating loss | $22.8 million | $46.1 million | Improved $23.2 million |
| Net loss | $23.7 million | $47.4 million | Improved $23.7 million |
| Operating cash flow | $(14.5) million | $(32.1) million | Cash use decreased |
| Cash and cash equivalents at year-end | $36.5 million | $62.4 million | Down $25.9 million |
Cash used in investing activities was $0.8 million and cash used in financing activities was $10.6 million, including a $10.0 million term-loan principal repayment. Year-end current assets were $47.8 million and current liabilities were $11.9 million. Total assets were $56.9 million and total liabilities were $34.3 million.
At December 31, 2023, reported borrowings were $19.5 million net of discounts and issuance costs, including $19.2 million classified as non-current. The Innovatus term loan is secured by substantially all company assets, including intellectual property. Exagen reported covenant compliance at year-end. Accumulated deficit was $279.2 million.
Changes versus FY2022
- Revenue rose 15.3%, supported by improved commercial-payor average selling prices, higher AVISE CTD volume and collections on prior-period tests; lower Medicare average selling prices partly offset growth.
- AVISE CTD deliveries increased to 137,650 from 135,210, about 2%. Ordering healthcare providers in Q4 decreased to 2,383 from 2,419.
- Gross margin improved as costs of revenue declined 4.6%, mainly from lower materials and shipping costs.
- SG&A declined 8.8% and R&D declined 50.7%, primarily reflecting lower headcount and other reduced spending. The 2022 period included a $5.5 million goodwill impairment, with no goodwill impairment in 2023.
- Cash used in operations decreased, though the company remained loss-making and used $25.9 million of cash overall.
Outlook, risks and unusual items
- Management expects continued losses in the near term. Based on its current plan, it believes cash, cash equivalents and anticipated revenue will fund requirements for at least 12 months from the filing date; this estimate depends on assumptions about sales, reimbursement, collections and spending.
- Management expects near-term costs of revenue and SG&A to remain relatively consistent, with R&D increasing due to ongoing clinical studies. No revenue or earnings guidance was provided.
- Reimbursement remains a key risk. Medicare represented 34% of revenue and Medicare Advantage 17% in 2023. Medicare pricing for AVISE Lupus is not itself a coverage determination; the filing describes ongoing claims denials and an uncertain coverage process. A January 2024 CMS coverage article requires relevant multi-analyte proteomic tests, including AVISE Lupus, to undergo MolDX technical assessment.
- Revenue estimates involve significant judgment: 2023 revenue included a $3.4 million increase from revised estimates for prior-period services, compared with a $2.4 million decrease in 2022. Management also said revenue-cycle initiatives, including holding some claims for later submission, could increase receivables and accelerate cash use in the first half of 2024.
- In October 2023, Exagen paid $0.7 million plus interest to settle covered conduct in a government investigation concerning historical physician specimen-processing arrangements. Related non-covered claims remain disputed; motions were pending and Exagen said it would defend the claims.
- A 2022 revenue-control material weakness related to erroneous and duplicate billings required a restatement of the June 2022 interim filing. Management said remediation was completed and controls were effective as of December 31, 2023; the external auditor did not attest to internal-control effectiveness.
- The company relies on one California laboratory and concentrated suppliers; approximately 96% of diagnostic testing supplies were purchased from two suppliers in each of 2023 and 2022. It also faces proposed FDA oversight changes for laboratory-developed tests, competition, and dependence on third-party reimbursement.
- Exagen discontinued development of its AVISE RADR platform and associated clinical trials in April 2023. Its University of Pittsburgh CB-CAPs license agreements terminated effective March 22, 2024, after the reporting date.
Investor verification priorities
- Confirm the sustainability and cash-collection quality of revenue growth, including the $3.4 million prior-period estimate adjustment and the effects of delayed claims submission.
- Track Medicare and commercial coverage, denial and appeal outcomes, and any impact of MolDX review on AVISE Lupus reimbursement.
- Assess cash runway against operating cash burn, debt service, the Innovatus covenants and the $8.0 million and $9.2 million minimum reagent purchase commitments for 2024 and 2025.
- Review progress on maintaining AVISE CTD volume and ordering-provider growth while reducing dependence on that product and securing reimbursement for other tests.
- Monitor the pending qui tam litigation, the status of internal-control remediation, and the impact of the LDT regulatory process and post-March 2024 license changes.