Exagen Inc. — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed March 25, 2020. Exagen is a commercial-stage diagnostics company focused on autoimmune diseases, selling nine AVISE tests and beginning to co-promote SIMPONI in 2019. It completed its IPO in September 2019.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $40.4 million | $32.4 million | +24.5% |
| Gross profit / margin | $21.6 million / 53.4% | $17.1 million / 52.6% | Margin +0.8 percentage points |
| Operating loss / margin | $(9.3) million / (23.0)% | $(4.9) million / (15.0)% | Loss widened |
| Net loss | $(12.0) million | $(8.0) million | Loss widened |
| Operating cash flow | $(9.7) million | $(9.3) million | Use increased $0.4 million |
AVISE CTD accounted for 82% of revenue in both years. CTD tests delivered increased to 105,370 from 83,405; 2019 revenue also included $1.5 million from SIMPONI promotion. Revenue by payer included healthcare insurers $24.0 million, government $9.9 million, clients $4.4 million and Janssen $1.5 million. Medicare represented 25% of revenue; no individual commercial payer exceeded 12%.
At year-end, cash and cash equivalents were $72.1 million (plus $0.1 million restricted cash), working capital was $75.4 million, and total assets were $88.3 million. Debt had $25.0 million principal outstanding plus approximately $1.2 million of capitalized PIK interest; the balance-sheet carrying value, net of discounts and issuance costs, was $25.9 million. Capital lease obligations were $0.9 million. The company reported an accumulated deficit of $164.6 million.
The $50.4 million net IPO proceeds and $18.4 million net preferred-stock proceeds helped drive financing cash flow to $68.7 million and year-end cash growth. The reported net loss attributable to common stockholders was $30.3 million, versus $12.0 million GAAP net loss; the difference primarily reflects $4.6 million preferred-stock accretion and $13.6 million of deemed dividends, which are not operating expenses.
Material changes and outlook
- Revenue growth was driven mainly by higher AVISE CTD volume and provider adoption. Fourth-quarter ordering providers rose to 1,707 from 1,278.
- SG&A increased 45.9% to $28.7 million, largely reflecting higher employee costs as the salesforce grew to 50 representatives, plus public-company, audit and insurance costs. Operating losses widened despite higher revenue.
- Management expects continued operating losses and higher expenses as it expands sales, promotes SIMPONI, develops tests and supports reimbursement. It stated that available cash and anticipated revenue should fund operations for at least 12 months, subject to significant assumptions and risks; no numerical revenue or earnings guidance was provided.
- Management expected gross-margin improvement beginning in Q1 2020 after expiration of a 10% annual CB-CAPs royalty, alongside operating-efficiency initiatives; Medicare reimbursement reductions could offset some benefit.
- The Janssen co-promotion agreement was extended through December 31, 2021. Fees are based on incremental prescribed units above an approximately 29,000-unit quarterly baseline; Janssen may terminate for convenience on 30 days’ notice.
Risks, contingencies and unusual items
- COVID-19 was identified as a material uncertainty after year-end. By March 2020, the company reported reduced testing volumes and said the pandemic could materially affect 2020 results, cash flows and operations.
- Medicare PAMA adjustments reduced AVISE CTD reimbursement by 10.1% in 2019; management estimated a further 7.3% reduction in 2020. Coverage remains uncertain, and some private payers had noncoverage policies for AVISE Lupus.
- The Innovatus loan is secured by substantially all assets, including intellectual property; it bears 8.5% interest, including PIK interest through December 2022, and includes minimum-liquidity and revenue covenants. The company reported compliance at year-end and a $2.0 million minimum-liquidity requirement.
- Exagen relies on sole or concentrated suppliers for critical materials; two suppliers accounted for approximately 97% of inventory purchases in 2019. A potential Anti-CarP reagent quality issue was identified in November 2019.
- Its only testing laboratory is in Vista, California. Additional risks include reimbursement estimation and collections, LDT regulatory changes, data privacy, and a history of losses. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether test volume and payer coverage can continue to grow, particularly given AVISE CTD’s concentration in revenue and reimbursement exposure.
- The actual impact of COVID-19 on test demand, collections, laboratory operations and 2020 liquidity.
- Whether SIMPONI promotion generates fees above the contractual baseline sufficient to offset salesforce costs, and whether Janssen continues the agreement.
- Debt covenant performance, cash runway and financing needs if operating losses or reimbursement pressure exceed expectations.
- Whether the CB-CAPs royalty expiration produces the anticipated margin benefit and whether the Anti-CarP supply and quality issue is resolved.