Exagen Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Exagen develops and commercializes AVISE-branded diagnostic tests for autoimmune diseases; AVISE CTD generated 84% of quarterly revenue. Financial statements are unaudited.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $10.4 million | $10.6 million |
| Gross margin | 44.0% | 55.5% |
| Operating expenses | $20.1 million | $16.2 million |
| Operating loss | $9.7 million | $5.6 million |
| Net loss | $10.3 million | $6.2 million |
| Basic and diluted loss per share | $0.60 | $0.48 |
| Cash used in operating activities | $8.6 million | $4.3 million |
| Cash used in investing activities | $1.1 million | $0.2 million |
At March 31, 2022, cash and cash equivalents were $89.8 million, current assets were $103.6 million, and current liabilities were $11.9 million. Long-term borrowings, net of discounts and issuance costs, were $27.7 million. The company also reported operating lease liabilities of $6.2 million and finance lease liabilities of $1.3 million. Accumulated deficit was $218.4 million.
Material changes and operating trends
- Revenue declined 1.8% year over year. AVISE CTD tests delivered increased to 30,903 from 29,029, while average reimbursement per AVISE CTD test declined. The end of the Janssen co-promotion agreement also reduced revenue by $0.3 million versus Q1 2021.
- Costs of revenue rose 23.5% to $5.8 million, driven by higher materials, labor, shipping and overhead costs, contributing to gross-margin compression.
- Selling, general and administrative expense increased 21.0% to $12.2 million; research and development expense increased to $2.1 million from $1.4 million. Higher employee-related costs contributed to both increases.
- AVISE CTD ordering providers increased to 2,175 from 1,763. The company reported 6% growth in AVISE CTD test volume and approximately 99% repeat ordering among providers who adopted in Q4 2021.
- Cash and cash equivalents decreased from $99.4 million at year-end 2021. Q1 2021 financing cash flow included approximately $65.0 million of net proceeds from a public offering; Q1 2022 had no comparable offering proceeds.
Outlook, risks and other items
- Management expects continued losses and higher operating expenses in 2022, including increased sales, administrative and R&D spending and investment in laboratory and research-facility expansion. It believes existing resources and anticipated revenue will fund operations for at least 12 months from the filing date; this is subject to business and financing risks.
- In March 2022, Exagen agreed with Centene that, effective June 1, 2022, AVISE tests would become an in-network covered benefit for over 22.7 million members; the company said its tests would then exceed 90 million covered lives as an in-network benefit.
- A new CMS PLA code for AVISE Lupus became effective April 1, 2022. Noridian priced it at $1,085; CMS pricing was expected in Q3 2022. AVISE CTD includes AVISE Lupus.
- Key risks include reimbursement and collection uncertainty, dependence on AVISE CTD and a limited number of payors, COVID-19-related effects on test volumes and supply chains, and reliance on two suppliers for approximately 95% of diagnostic testing supplies. A supplier agreement includes minimum purchases of $6.0 million in 2022 and $6.9 million in 2023.
- The Innovatus loan bears 8.0% interest, including 2.0% paid in kind through December 2024; principal and accrued interest are scheduled for repayment in 24 monthly installments beginning December 2024, with a $1.0 million final payment fee. The company reported covenant compliance at quarter-end. The loan is secured by substantially all assets, including intellectual property.
- Exagen adopted lease-accounting standard ASC 842 on January 1, 2022, recording operating lease assets and liabilities; adoption had no impact on accumulated deficit. Management reported effective disclosure controls, no material control changes, no material legal proceedings and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the Centene coverage arrangement takes effect as planned and translates into test volume, reimbursement and cash collections.
- Whether CMS publishes pricing for the AVISE Lupus PLA code as expected and how that pricing affects realized reimbursement.
- Whether test growth and payor reimbursement improve sufficiently to reverse gross-margin decline and rising operating losses.
- Whether cash burn, facility-expansion spending and supplier purchase commitments remain consistent with management’s stated 12-month liquidity expectation.
- Whether the company continues to meet Innovatus loan covenants, including the revenue covenant commencing with the quarter ending December 31, 2022.