Exagen Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited. Exagen develops and commercializes AVISE-branded diagnostic tests for autoimmune diseases, primarily for rheumatologists. AVISE CTD generated 81% of quarterly revenue.
Financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $10.587 million | $9.584 million |
| Gross profit / gross margin | $5.876 million / 55.5% | $5.039 million / 52.6% |
| Operating expenses | $16.154 million | $14.805 million |
| Operating loss | $5.567 million | $5.221 million |
| Net loss | $6.209 million | $5.563 million |
| Basic and diluted loss per share | $0.48 | $0.44 |
| Net cash used in operating activities | $4.312 million | $3.301 million |
- Revenue increased 10.5%, primarily with higher test volumes and $0.3 million of Janssen co-promotion revenue. AVISE CTD tests delivered rose 7%, to 29,029; ordering healthcare providers increased to 1,763 from 1,692.
- Gross margin improved, with costs of revenue up 3.7% against revenue growth of 10.5%. Management cited higher volume and lower royalty costs.
- SG&A increased 4.3% to $10.040 million. R&D rose $0.769 million to $1.403 million, mainly from employee and clinical study costs.
- Cash and cash equivalents were $118.050 million at quarter-end, versus $57.448 million at December 31, 2020. Current assets were $129.369 million and current liabilities $7.884 million.
- Borrowings, net of discounts and issuance costs, were $26.864 million, compared with $26.659 million at year-end. The loan bears 8.5% interest, is secured by substantially all assets including intellectual property, and repayment installments begin in December 2022. The company reported covenant compliance.
- Financing cash flow was $65.081 million, principally from the March public offering. Exagen sold 4.255 million shares at $16.25 per share, receiving approximately $64.7 million net; shares outstanding increased from 12.65 million at year-end to 16.93 million at quarter-end.
Outlook, risks and notable items
- Management expects continued operating losses and increased costs in 2021, including higher SG&A and R&D, and capital investment to expand laboratory and research facilities. It believes existing resources and anticipated revenue can fund obligations for at least 12 months from the filing date; this estimate is subject to risks and uncertainties. No specific revenue or earnings guidance was provided.
- COVID-19 had reduced test volumes and delayed clinical studies and supply procurement. AVISE CTD volume recovered to pre-pandemic levels in Q4 2020 and grew year over year in Q1 2021, but future effects remain uncertain.
- Key exposures include dependence on AVISE CTD, reimbursement and collection estimates, a limited number of payors, and reliance on two suppliers for approximately 98% of diagnostic testing supplies. A reagent supplier agreement includes minimum purchases of $4.1 million in 2021 and $6.0 million in 2022, with annual increases thereafter.
- Janssen co-promotion revenue was $0.3 million in Q1. The agreement provides a $0.3 million minimum fee for Q1 and Q2 2021, but no minimum for the second half; it expires December 31, 2021 unless extended. Management cautioned that meaningful revenue above the baseline may be difficult to achieve.
- After quarter-end, Exagen entered into an exclusive license agreement and a research collaboration agreement with AHN in May 2021. The filing describes an initial license fee of $0.4 million and a collaboration fee of $0.4 million for each year of the agreement’s initial term.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors other than updates concerning COVID-19 and product development, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether test-volume growth and reimbursement collections can sustain revenue growth and the reported gross-margin improvement.
- Cash burn, planned facility expansion spending, and the sufficiency of liquidity as operating losses continue.
- Debt covenant compliance, repayment terms, and the effects of the secured loan and future financing needs.
- Payor concentration, revenue-estimation adjustments, supplier availability and purchase commitments, and COVID-19-related operating disruptions.
- Janssen agreement performance, second-half fee terms, and whether the agreement will be extended.