Exagen(XGN) - 2021 Q4 - Annual Report

Part I Item 1. Business. Exagen Inc. transforms care for autoimmune disease patients through timely diagnosis and optimized intervention using its AVISE® brand testing products and strategic partnerships - Exagen is dedicated to transforming care for patients with chronic autoimmune diseases by enabling timely differential diagnosis and optimizing therapeutic intervention using its AVISE® brand testing products[16][396] - The company markets 10 AVISE® testing products for differential diagnosis, prognosis, and monitoring of complex autoimmune diseases, including SLE and RA[16][33][396] - Exagen leverages its testing products to establish partnerships with pharmaceutical companies (e.g., GSK), academic research centers, and patient advocacy organizations to improve patient care and market insights[16][396] - The company's strategy includes continuing to develop innovative testing products, driving market penetration, integrating testing products and therapeutics, and maintaining meaningful margins through operational efficiencies and payor coverage[22] AVISE CTD Test Volume and Provider Growth (2020-2021) | Metric | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | Change (%) | | :----- | :---------------------- | :---------------------- | :--------- | | AVISE CTD Tests Delivered | 128,246 | 100,450 | 27.7% | | Ordering Healthcare Providers (Q4) | 2,126 | 1,690 | 25.8% | | Adopting Healthcare Providers (Q4) | 739 | 635 | 16.4% | Item 1A. Risk Factors. Exagen faces significant risks including COVID-19 impacts, persistent net losses, reliance on sole suppliers, regulatory compliance challenges, intellectual property issues, and stock price volatility - The COVID-19 pandemic has significantly impacted operations, causing initial test volume decreases (5% in 2020 vs. 2019) but a recovery and increase (28% in 2021 vs. 2020) in AVISE CTD test volumes, with future impacts remaining uncertain[189][401] Net Losses (2020-2021) | Metric | Year Ended Dec 31, 2021 (in millions) | Year Ended Dec 31, 2020 (in millions) | | :----- | :------------------------------------ | :------------------------------------ | | Net Loss | $(26.9) | $(16.7) | | Accumulated Deficit | $(208.1) | $(181.2) | - Future growth depends on the ability to successfully execute an integrated testing and therapeutics strategy, which involves establishing and maintaining partnerships with pharmaceutical companies for co-promotion, a strategy with limited historical success for the company[195][196] - The company relies on sole suppliers for critical reagents, equipment, and materials for its testing products, posing a risk of supply interruptions or quality issues[182][214] - Compliance with numerous and evolving federal and state regulations (CLIA, FDA, HIPAA, Anti-Kickback, Stark Law) is expensive and time-consuming, with potential for substantial penalties, fines, or operational curtailment for non-compliance[291][295][296] - The FDA may change its enforcement discretion policy regarding Laboratory Developed Tests (LDTs), potentially subjecting Exagen's AVISE® tests to extensive regulatory requirements, including premarket clearance or approval, which could delay commercialization and increase costs[299][300][301] - The company's ability to protect its proprietary technologies (CB-CAPs, MTXPGs) through patents, trade secrets, and confidentiality agreements is crucial for competitive position, but faces risks from challenges to validity, enforceability, and unauthorized disclosure[318][320] Item 1B. Unresolved Staff Comments. The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[373] Item 2. Properties. Exagen's headquarters and main lab are in Vista, California, with additional leased office spaces in Vista and Carlsbad, all deemed adequate - Exagen's corporate headquarters and main laboratory are in Vista, California, leasing approximately 27,000 sq ft[376] - Additional office spaces are leased in Vista (19,500 sq ft) and Carlsbad, California (28,000 sq ft), with all leases expiring in 2027 and options for five-year extensions[376][377] - Current facilities are considered adequate for present needs, and suitable additional spaces are expected to be available on commercially reasonable terms if needed[377] Item 3. Legal Proceedings. Exagen is not currently involved in material legal proceedings but may face ordinary course claims leading to costs and resource diversion - Exagen is not currently a party to any material legal proceedings[379] - The company may face legal proceedings or claims in the ordinary course of business, which could lead to defense/settlement costs, resource diversion, and other adverse impacts[379] Item 4. Mine Safety Disclosures. This item is not applicable to Exagen Inc. - This item is not applicable[381] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Exagen's common stock trades on Nasdaq (XGN), has 41 stockholders, has never paid dividends, and completed an IPO in 2019, with no recent issuer equity purchases - Exagen's common stock began trading on The Nasdaq Global Market (XGN) on September 19, 2019[384] - As of March 18, 2022, there were approximately 41 stockholders of record[385] - The company has never paid cash dividends and does not anticipate paying any in the foreseeable future, with dividend payments currently prohibited by the Amended Loan Agreement[386] IPO Proceeds and Use (2019-2021) | Metric | Amount (Millions) | | :----- | :---------------- | | Gross IPO Proceeds | $58.0 | | Net IPO Proceeds | $50.4 | | Offering Expenses | $7.5 | | Proceeds Used (as of Dec 31, 2021) | $39.5 | - No equity securities were purchased by the issuer during the reported period[392] Item 6. [Reserved]. This item is intentionally reserved and contains no information - This item is reserved[393] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section reviews Exagen's financial condition and operational results, detailing revenue growth, persistent net losses, increasing operating expenses, liquidity, and critical accounting policies - Exagen's business model integrates testing products and therapeutics to offer targeted solutions for rheumatologists and patients with autoimmune diseases[396] - The company has incurred net losses since inception, with an accumulated deficit of $208.1 million as of December 31, 2021, and expects continued losses due to increased operating expenses for business growth[400][432] Key Financial Highlights (2020-2021) | Metric | Year Ended Dec 31, 2021 (in thousands) | Year Ended Dec 31, 2020 (in thousands) | Change (in thousands) | | :----- | :------------------------------------- | :------------------------------------- | :-------------------- | | Revenue | $48,299 | $41,975 | $6,324 | | Net Loss | $(26,851) | $(16,687) | $(10,164) | | Cash & Cash Equivalents | $99,442 | $57,448 | $41,994 | - Revenue from AVISE CTD tests increased by approximately 28% in 2021 compared to 2020, reaching 128,246 tests delivered, while revenue from the Janssen Agreement decreased significantly due to its termination[424] - Operating expenses increased across all categories in 2021, with Costs of Revenue up 24.3%, Selling, General and Administrative expenses up 20.3%, and Research and Development expenses up 102.8%, driven by increased test volume, personnel, and clinical study activities[425][426][427] - The company raised approximately $64.7 million in net proceeds from a public offering in March 2021, contributing to a significant increase in cash and cash equivalents[433][445] Item 7A. Quantitative and Qualitative Disclosures About Market Risk. This item is not applicable to Exagen Inc., as the company does not have material market risks requiring disclosure - This item is not applicable[472] Item 8. Financial Statements and Supplementary Data. This section incorporates audited financial statements and supplementary data for 2021 and 2020, including the independent auditor's report, balance sheets, statements of operations, equity, cash flows, and notes - The financial statements and supplemental data are included in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K[474] - The financial statements were audited by BDO USA, LLP, an independent registered public accounting firm, who issued an unqualified opinion[500][510] Balance Sheet Summary (as of December 31, in thousands) | Metric | 2021 | 2020 | | :----- | :--- | :--- | | Total Assets | $123,445 | $78,375 | | Total Liabilities | $38,509 | $36,536 | | Total Stockholders' Equity | $84,936 | $41,839 | Statements of Operations Summary (Years Ended December 31, in thousands) | Metric | 2021 | 2020 | | :----- | :--- | :--- | | Revenue | $48,299 | $41,975 | | Total Operating Expenses | $72,366 | $57,160 | | Net Loss | $(26,851) | $(16,687) | | Net Loss Per Share (Basic & Diluted) | $(1.68) | $(1.32) | Cash Flows Summary (Years Ended December 31, in thousands) | Metric | 2021 | 2020 | | :----- | :--- | :--- | | Net cash used in operating activities | $(20,269) | $(14,084) | | Net cash used in investing activities | $(2,420) | $(455) | | Net cash provided by (used in) financing activities | $64,683 | $(97) | | Net change in cash, cash equivalents and restricted cash | $41,994 | $(14,636) | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Exagen Inc. reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - There have been no changes in or disagreements with accountants on accounting and financial disclosure[475] Item 9A. Controls and Procedures. Exagen's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes - As of December 31, 2021, Exagen's disclosure controls and procedures were effective at the reasonable assurance level[478] - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[481] - The company is exempt from the auditor attestation report on internal control over financial reporting due to its status as an 'emerging growth company' under the JOBS Act[482] - No material changes in internal control over financial reporting occurred during the three months ended December 31, 2021[482] Item 9B. Other Information. This item is not applicable to Exagen Inc. - This item is not applicable[485] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. This item is not applicable to Exagen Inc. - This item is not applicable[486] Part III Item 10. Directors, Executive Officers and Corporate Governance. Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[490] Item 11. Executive Compensation. Information on executive compensation is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[492] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information on security ownership and related stockholder matters is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[493] Item 13. Certain Relationships and Related Transactions, and Director Independence. Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2022 Proxy Statement - Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[494] Item 14. Principal Accountant Fees and Services. Exagen's independent public accounting firm is BDO USA, LLP, with fee information incorporated by reference from the 2022 Proxy Statement - Exagen's independent public accounting firm is BDO USA, LLP (PCAOB ID 243)[496] - Information for this item is incorporated by reference from the 2022 Annual Meeting of Stockholders Proxy Statement[496] Part IV Item 15. Exhibits and Financial Statement Schedules. This section lists financial statements and schedules included in the 10-K, with an exhibit index, and notes the omission of schedules where information is redundant or inapplicable - All financial statements of Exagen Inc., along with the independent registered public accounting firm's report, are included in this Annual Report[500] - All financial statement schedules have been omitted because the required information is either not applicable or already presented in the financial statements or notes[501] - A list of exhibits is provided in the Exhibit Index immediately preceding the signature page[502] Item 16. Form 10-K Summary. This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[504]