Exagen Inc. — Q2 2021 Form 10-Q
Business context and reporting period. Exagen develops and commercializes AVISE-branded diagnostic tests for autoimmune diseases, primarily for rheumatologists. This unaudited filing covers the quarter and six months ended June 30, 2021, compared with the same periods in 2020. Nearly all revenue comes from testing products; AVISE CTD represented 81% of six-month revenue.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $12.8 million | $8.9 million | $23.4 million | $18.5 million |
| Gross profit / gross margin | $7.3 million / 57.3% | $5.6 million / 62.7% | $13.2 million / 56.5% | $10.6 million / 57.4% |
| Operating loss | $5.7 million | $3.4 million | $11.3 million | $8.6 million |
| Net loss | $6.4 million | $3.4 million | $12.6 million | $8.9 million |
| Net loss per share, basic and diluted | $0.38 | $0.27 | $0.84 | $0.71 |
Revenue and operating trends. Revenue rose 42.7% in Q2 and 26.0% for the six-month period. AVISE CTD test volume increased 80% in Q2 and 37% year to date versus 2020; Q2 tests delivered totaled 33,328, and six-month tests totaled 62,357. Higher testing revenue was partly offset by lower SIMPONI co-promotion revenue: $0.3 million in Q2 and $0.6 million year to date, versus $2.1 million in each 2020 comparison period.
Costs grew faster than revenue in Q2, and gross margin contracted to 57.3% from 62.7%. For the six-month period, gross margin was 56.5% versus 57.4%. Higher test-related materials, labor and shipping costs contributed. SG&A and R&D also increased, including employee-related costs, clinical study expenses and license fees. The 2020 comparisons included $0.7 million of COVID-19 relief grant income in Q2 and a $0.1 million tax benefit for the six-month period.
Cash, liquidity and capital
- At June 30, 2021, cash and cash equivalents were $112.6 million, versus $57.4 million at December 31, 2020; an additional $0.1 million was restricted cash. Current assets were $124.5 million and current liabilities were $8.3 million.
- Six-month operating cash use was $8.8 million, investing cash use was $0.9 million, and financing cash provided was $64.8 million. Financing principally reflected $64.7 million of net proceeds from the March 2021 public offering.
- Borrowings, net of discounts and issuance costs, were $27.1 million, reported as non-current. The loan bears 8.5% interest, including 2.0% paid in kind through December 2022; scheduled equal monthly repayments begin in December 2022. The loan is secured by substantially all assets, including intellectual property. The company reported covenant compliance at June 30, 2021.
- Common shares outstanding were 16.1 million at June 30, compared with 12.7 million at year-end 2020. In June, 804,951 shares were exchanged for pre-funded warrants exercisable at $0.001 per share; these warrants are equity-classified and do not expire.
Outlook, risks and notable items
- Management expects continuing losses and increased operating expenses as it grows testing volumes, sales and R&D. It expects costs of revenue, SG&A and R&D to increase in absolute dollars in 2021. The filing gives no specific revenue, earnings or margin guidance.
- Management believes available capital and anticipated revenue will fund obligations for at least 12 months from the filing date, while noting that additional funding may be needed and may not be available on acceptable terms.
- The company planned to begin converting warehouse space into additional clinical laboratory and R&D space in the second half of 2021, with completion expected in Q3 2022. The expansion is intended to increase capacity and support molecular and multiomic capabilities and product development.
- In August 2021, after quarter-end, Exagen and Janssen agreed to terminate the SIMPONI co-promotion agreement effective August 31, 2021. Exagen is entitled to $0.6 million in termination consideration and faces a nine-month post-termination restriction on promoting certain competing therapies without Janssen’s consent.
- Key risks include continued COVID-19 effects on testing volumes, healthcare-provider access and supply availability; reimbursement and collection uncertainty; reliance on AVISE CTD; and supplier concentration, with approximately 97% of diagnostic testing supplies purchased from two suppliers. A single payor category, Medicare, accounted for 19% of six-month 2021 revenue.
- The company reported no material legal proceedings, no material change to other previously disclosed risk factors, and effective disclosure controls as of June 30, 2021.
Important facts for investors to verify
- Whether AVISE CTD volume growth can continue and translate into improved gross margins as testing costs and operating expenses rise.
- How the Janssen termination affects future revenue, commercial strategy and the nine-month promotional restriction.
- Whether reimbursement, collections and payor coverage support revenue growth, given payor concentration and estimation uncertainty in recognized revenue.
- Whether the planned laboratory and R&D expansion stays on schedule and produces commercially viable new tests.
- Cash use, financing needs and compliance with the secured loan’s revenue and liquidity covenants; the company remains loss-making despite its strengthened cash position.