Exagen(XGN) - 2020 Q2 - Quarterly Report

Part I. Financial Information Item 1. Condensed Financial Statements (unaudited) The company reported decreased H1 2020 revenues and increased net loss due to COVID-19, maintaining significant cash Condensed Balance Sheets | Balance Sheet Highlights (in thousands) | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $63,700 | $72,084 | | Accounts receivable, net | $7,263 | $5,715 | | Total current assets | $73,463 | $81,250 | | Total assets | $80,513 | $88,310 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $5,755 | $5,895 | | Borrowings-non-current portion, net | $26,249 | $25,854 | | Total liabilities | $32,672 | $32,651 | | Total stockholders' equity | $47,841 | $55,659 | | Total liabilities and stockholders' equity | $80,513 | $88,310 | Condensed Statements of Operations | Statement of Operations (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $8,948 | $10,474 | $18,532 | $19,734 | | Costs of revenue | $3,338 | $4,992 | $7,883 | $9,434 | | Selling, general and administrative expenses | $8,276 | $7,302 | $17,902 | $13,481 | | Loss from operations | ($3,417) | ($2,410) | ($8,638) | ($4,284) | | Net loss | ($3,363) | ($2,785) | ($8,926) | ($5,489) | | Net loss per share, basic and diluted | ($0.27) | ($78.87) | ($0.71) | ($155.33) | Condensed Statements of Cash Flows | Cash Flows (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($8,057) | ($4,118) | | Net cash used in investing activities | ($237) | ($75) | | Net cash (used in) provided by financing activities | ($90) | $7,266 | | Net change in cash, cash equivalents and restricted cash | ($8,384) | $3,073 | Notes to Unaudited Condensed Financial Statements - As of June 30, 2020, the company had cash and cash equivalents of $63.7 million and an accumulated deficit of $173.5 million. Management believes existing capital resources are sufficient to fund operations for at least the next twelve months[20] - The AVISE® CTD test remains the primary revenue driver, accounting for 72% of total revenue for the first six months of 2020, down from 83% in the same period of 2019[28] - The company has significant payer concentration, with Janssen, Medicare, Blue Shield, and United Healthcare each representing over 10% of revenue or accounts receivable in various periods[27] - The COVID-19 pandemic significantly impacted operations, causing AVISE® CTD test volumes to decrease by approximately 31% in Q2 2020 compared to Q2 2019. The company received a $0.7 million grant from the CARES Act Provider Relief Fund, recognized as other income[92][96] - The company's 2017 Term Loan requires it to meet a specified revenue level. The company believes it is reasonably possible it may fail to meet this covenant in Q3 2020 due to the impact of the COVID-19 pandemic[68] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's negative impact on H1 2020 revenue and net loss, noting liquidity and potential loan covenant breach Overview - The company's strategy is to integrate its portfolio of AVISE® testing products with the marketing of therapeutics to rheumatologists, exemplified by its co-promotion agreement with Janssen for SIMPONI®[101] - The lead product, AVISE® CTD, accounted for 72% of revenue for the six months ended June 30, 2020. The SIMPONI® co-promotion contributed approximately $2.1 million in revenue during the same period[102] COVID-19 Impact - The COVID-19 pandemic led to a significant reduction in patient flow and test volumes. AVISE® CTD test volumes decreased by 12% from March 15-31 and by 31% during Q2 2020, compared to the same periods in the prior year[112] - Test volumes showed signs of recovery, with a 2% YoY increase from July 1-24, 2020, and sequential monthly increases of 45% in May and 52% in June from the April 2020 low[112] - In response to the pandemic, the company terminated temporary employees and 17 full-time employees, halted travel, and increased the use of virtual sales tools[113] Results of Operations | Financial Performance (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $8,948 | $10,474 | ($1,526) | -14.6% | | Costs of Revenue | $3,338 | $4,992 | ($1,654) | -33.1% | | SG&A Expenses | $8,276 | $7,302 | $974 | 13.3% | | Loss from Operations | ($3,417) | ($2,410) | ($1,007) | 41.8% | | Net Loss | ($3,363) | ($2,785) | ($578) | 20.7% | | Financial Performance (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $18,532 | $19,734 | ($1,202) | -6.1% | | Costs of Revenue | $7,883 | $9,434 | ($1,551) | -16.4% | | SG&A Expenses | $17,902 | $13,481 | $4,421 | 32.8% | | Loss from Operations | ($8,638) | ($4,284) | ($4,354) | 101.6% | | Net Loss | ($8,926) | ($5,489) | ($3,437) | 62.6% | - The decrease in Q2 and H1 2020 revenue was driven by lower diagnostic test volumes due to COVID-19, partially offset by increased revenue from the SIMPONI® co-promotion, which grew to $2.1 million in H1 2020 from $0.4 million in H1 2019[134][142][143] Liquidity and Capital Resources - As of June 30, 2020, the company had $63.7 million in cash and cash equivalents and an accumulated deficit of $173.5 million[151][152] - The company's Amended Loan Agreement with Innovatus has covenants requiring minimum liquidity of $2.0 million and achievement of certain minimum revenue amounts[154] - Management believes it is reasonably possible that the company may fail to meet its financial performance covenant in Q3 2020 due to the adverse impact of the COVID-19 pandemic on testing volumes[154] - Based on the current business plan, management believes existing cash and cash equivalents will be sufficient to meet cash requirements for at least the next 12 months[159] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the reporting period - The company has indicated that this disclosure is not applicable[175] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2020, with no material internal control changes - Based on an evaluation as of the end of the period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[178] - There were no changes in internal control over financial reporting during the three months ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, internal controls[180] Part II. Other Information Legal Proceedings The company is not currently a party to any material legal proceedings - The company reports that it is not currently a party to any material legal proceedings but may be involved in ordinary course of business proceedings from time to time[182] Risk Factors Key risks include COVID-19's impact on test volumes, potential loan covenant breaches, and challenges in promoting therapeutics - The COVID-19 pandemic poses a significant risk, having already caused AVISE® CTD test volumes to decrease by 31% in Q2 2020 YoY. The ongoing pandemic could disrupt facilities, supply chains, and commercial activities[184] - The company's term loan contains restrictive covenants, and it is considered 'reasonably possible' that the company may fail to meet the financial performance covenant in Q3 2020 due to COVID-19, which could trigger an event of default[188] - Future growth is dependent on the successful promotion of therapeutics like SIMPONI®. The agreement with Janssen was amended due to COVID-19, and Janssen can terminate the agreement with 30 days' notice, posing a risk to the company's strategic investment[190] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity sales occurred; $10.5 million of $50.4 million IPO proceeds used for selling and marketing - The company's September 2019 IPO generated net proceeds of approximately $50.4 million[197] - As of June 30, 2020, approximately $10.5 million of the IPO proceeds have been used, primarily for selling and marketing activities[198] Defaults Upon Senior Securities This section is not applicable - Not applicable[200] Mine Safety Disclosures This section is not applicable - Not applicable[201] Other Information No other information was reported for this item - None[202] Exhibits Exhibits include Janssen co-promotion agreement amendments and CEO/CFO certifications required by Sarbanes-Oxley Act - Key exhibits filed include Amendment 2 to the Co-Promotion Agreement with Janssen Biotech, Inc., dated June 18, 2020, and officer certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906[204]