Exagen(XGN) - 2025 Q2 - Quarterly Report

Part I. Financial Information This section provides the company's unaudited condensed financial statements and related management discussion and analysis Item 1. Unaudited Condensed Financial Statements This section presents Exagen Inc.'s unaudited condensed financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed explanatory notes Unaudited Condensed Balance Sheets Presents Exagen Inc.'s financial position, detailing assets, liabilities, and stockholders' equity at specific reporting dates Unaudited Condensed Balance Sheets (in thousands) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $30,033 | $22,036 | | Accounts receivable, net | $14,272 | $7,835 | | Total current assets | $50,986 | $36,455 | | Total assets | $58,760 | $44,689 | | Total current liabilities | $10,295 | $13,506 | | Total liabilities | $37,726 | $35,149 | | Total stockholders' equity | $21,034 | $9,540 | - Total assets increased by $14.1 million (31.5%) from December 31, 2024, to June 30, 2025, primarily driven by an increase in cash and cash equivalents and accounts receivable[9] - Total stockholders' equity more than doubled, increasing by $11.5 million (120.9%) from December 31, 2024, to June 30, 2025, largely due to a public offering[9] Unaudited Condensed Statements of Operations Details Exagen Inc.'s revenues, expenses, and net loss over specific reporting periods Unaudited Condensed Statements of Operations (in thousands) | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $17,202 | $15,064 | $32,700 | $29,479 | | Cost of revenue | $6,807 | $6,008 | $13,182 | $11,825 | | Gross margin | $10,395 | $9,056 | $19,518 | $17,654 | | Total operating expenses | $13,025 | $11,643 | $25,513 | $23,244 | | Loss from operations | $(2,630) | $(2,587) | $(5,995) | $(5,590) | | Net loss | $(4,439) | $(2,966) | $(8,191) | $(6,326) | | Net loss per share | $(0.21) | $(0.16) | $(0.41) | $(0.35) | - Revenue increased by 14.2% for the three months ended June 30, 2025, and by 10.9% for the six months ended June 30, 2025, compared to the respective prior-year periods[11] - Net loss widened to $4.4 million for the three months and $8.2 million for the six months ended June 30, 2025, from $3.0 million and $6.3 million in the prior-year periods, respectively, partly due to increased interest expense, loss on debt extinguishment, and change in fair value of warrant liability[11] Unaudited Condensed Statements of Stockholders' Equity Outlines changes in Exagen Inc.'s equity accounts, including common stock, additional paid-in capital, and accumulated deficit Unaudited Condensed Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | December 31, 2024 | March 31, 2025 | June 30, 2025 | | :-------------------- | :---------------- | :------------- | :------------ | | Total Stockholders' Equity | $9,540 | $6,403 | $21,034 | | Common Stock Shares Outstanding | 17,640,328 | 17,950,033 | 21,998,739 | | Additional Paid-In Capital | $303,853 | $304,468 | $323,534 | | Accumulated Deficit | $(294,331) | $(298,083) | $(302,522) | - Total stockholders' equity significantly increased from $9.5 million at December 31, 2024, to $21.0 million at June 30, 2025, primarily driven by a public offering that generated $18.6 million in net proceeds[14][26] - The company issued 3,852,500 shares of common stock from a public offering and 107,969 shares from warrant exercises during the six months ended June 30, 2025[14] Unaudited Condensed Statements of Cash Flows Summarizes Exagen Inc.'s cash inflows and outflows from operating, investing, and financing activities Unaudited Condensed Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(13,556) | $(11,466) | | Net cash used in investing activities | $(316) | $(222) | | Net cash provided by (used in) financing activities | $21,869 | $(326) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $7,997 | $(12,014) | | Cash, cash equivalents and restricted cash, end of period | $30,233 | $24,679 | - Net cash used in operating activities increased to $13.6 million for the six months ended June 30, 2025, from $11.5 million in the prior-year period, primarily due to a higher net loss and changes in working capital[20][174][175] - Financing activities provided $21.9 million in cash for the six months ended June 30, 2025, a significant increase from a net use of $0.3 million in the prior-year period, driven by proceeds from debt and warrant issuance ($23.7 million) and common stock issuance ($18.8 million)[20][178][179] Notes to Unaudited Condensed Financial Statements Provides detailed explanations and additional information supporting the unaudited condensed financial statements Note 1. Organization Describes Exagen Inc.'s business, operational focus, and financial viability considerations - Exagen Inc. is a medical technology company focused on diagnostic testing products under the AVISE® brand for rheumatic, autoimmune, and autoimmune-related diseases[23] - The company has incurred recurring losses and negative cash flows from operations since inception, with an accumulated deficit of $302.5 million as of June 30, 2025[24] - Management believes existing capital resources are sufficient for at least twelve months, supported by a new $75.0 million Perceptive Term Loan Facility (initial $25.0 million funded) and $18.6 million net proceeds from a public stock offering in May 2025[24][25][26] Note 2. Summary of Significant Accounting Policies Outlines the key accounting principles and methods used in preparing the financial statements, including revenue recognition and fair value measurements - The financial statements are prepared in accordance with GAAP for interim financial statements, requiring management estimates and assumptions, particularly for revenue recognition and fair value of warrant liability[28][29][30][31] Significant Payors and Customers (Revenue % of Total) | Customer | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Customer A | 23% | 23% | 23% | 25% | | Customer B | 16% | 25% | 17% | 21% | | Customer C | <10% | 11% | 10% | <10% | | Customer D | 10% | <10% | <10% | <10% | - Approximately 91% of the Company's revenue for the three and six months ended June 30, 2025, was derived from the AVISE® CTD test[34] Revenue Disaggregation by Payor (in thousands) | Payor Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Commercial | $8,811 | $8,672 | $17,571 | $15,535 | | Government | $3,926 | $3,457 | $7,633 | $7,643 | | Client direct bill | $4,371 | $2,910 | $7,367 | $6,194 | | Other | $94 | $25 | $129 | $107 | | Total revenue | $17,202 | $15,064 | $32,700 | $29,479 | - The company recognized a net revenue increase of $0.1 million and $1.0 million for the three and six months ended June 30, 2025, respectively, from changes in estimated variable consideration related to prior periods[44] - The allowance for credit losses was $0.5 million as of June 30, 2025, compared to zero as of June 30, 2024[48] - Total potentially dilutive securities not included in diluted EPS calculation due to anti-dilution were 2,878,858 shares as of June 30, 2025[55] Note 3. Other Financial Information Presents details on prepaid expenses, property and equipment, and accrued liabilities Prepaid Expenses and Other Current Assets (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Diagnostic testing supplies | $3,744 | $5,725 | | Prepaid maintenance and insurance contracts | $1,707 | $829 | | Loan commitment fees | $1,132 | — | | Total | $6,681 | $6,584 | Property and Equipment, net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total property and equipment | $10,945 | $11,295 | | Less: accumulated depreciation and amortization | $(6,363) | $(6,012) | | Property and equipment, net | $4,582 | $5,283 | - Depreciation and amortization expense was approximately $0.5 million for the three months and $0.9 million for the six months ended June 30, 2025[60] Accrued and Other Current Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Accrued payroll and related expenses | $3,455 | $5,046 | | Other accrued liabilities | $1,487 | $2,071 | | Total | $4,942 | $7,117 | Note 4. Borrowings Details the company's debt arrangements, including the new Perceptive Term Loan Facility and related terms - On April 25, 2025, the Company entered into a $75.0 million senior secured delayed draw term loan facility with Perceptive, with an initial $25.0 million tranche funded, of which $19.7 million was used to repay the 2017 Term Loan[62][25] - The Perceptive Term Loan Facility matures on April 25, 2030, accrues interest at Term SOFR (or 4.75%) plus 7.0%, and includes an interest-only period through maturity[63][64] - In connection with the Perceptive Term Loan, the Company issued a warrant certificate to purchase up to 1,150,000 shares of common stock, with 400,000 shares vesting upon issuance[25][66] - The Company recognized $0.8 million in interest expense for the three months ended June 30, 2025, related to the Perceptive Term Loan, with an effective interest rate of 16.2%[68] - A $0.3 million loss on extinguishment of debt was recognized for the six months ended June 30, 2025, due to the early repayment of the 2017 Term Loan[70] Future Minimum Payments on Outstanding Borrowings (in thousands) | Year | Amount | | :--- | :----- | | 2025 (remaining) | $1,888 | | 2026 | $3,700 | | 2027 | $3,450 | | 2028 | $3,117 | | 2029 | $2,978 | | 2030 | $25,930 | | Total | $41,063 | Note 5. Commitments and Contingencies Outlines the company's contractual obligations, including licensing agreements, supply commitments, and legal matters - The Company has licensing agreements requiring ongoing royalty payments of less than 1% on net sales of products incorporating licensed technology[74] - A supply agreement with a key supplier includes a minimum annual purchase commitment of $10.4 million for diagnostic testing consumables for the year ending December 31, 2025[75] - A qui tam case related to a DOJ settlement was dismissed with prejudice on July 15, 2025, following an appeal by the relator[78] Note 6. Fair Value Measurements Explains the methodologies and assumptions used to determine the fair value of financial instruments, including debt and warrant liabilities - The Perceptive Term Loan Facility had a carrying value of $21.4 million and a fair value of $22.0 million as of June 30, 2025, determined using Level 2 inputs (discounted cash flow approach)[79] - The warrant liability, recorded at $3.963 million as of June 30, 2025, is classified as a Level 3 fair value measurement, utilizing a probability-weighted Black-Scholes-Merton model with significant unobservable inputs[83][85] Warrant Liability Fair Value Assumptions | Assumption | April 25, 2025 (Issuance Date) | June 30, 2025 | | :-------------------------- | :----------------------------- | :------------ | | Fair value of underlying common stock | $6.21 | $6.98 | | Exercise price | $4.96 - $6.99 | $4.96 - $7.85 | | Risk-free interest rate | 4.3% | 4.2% - 4.3% | | Expected volatility | 88.8% | 88.1% - 88.3% | | Expected term (in years) | 10.0 | 9.8 - 10.0 | | Expected dividend yield | 0% | 0% | Note 7. Stockholders' Equity Details changes in the company's equity structure, including public offerings and outstanding warrants - The Company has a shelf registration statement (Form S-3) effective November 29, 2023, with $129.8 million remaining available for sale as of June 30, 2025[86] - A public offering closed on May 9, 2025, resulting in the issuance of 3,852,500 shares of common stock at $5.25 per share, generating net proceeds of approximately $18.6 million[88] Outstanding Warrants as of June 30, 2025 | Shares | Weighted-Average Exercise Price | Issuance date | Expiration date | | :----- | :------------------------------ | :------------ | :-------------- | | 124,848 | $1.84 | Jan 19, 2016 | Jan 19, 2026 | | 34,416 | $1.84 | Mar 31, 2016 | Mar 31, 2026 | | 131 | $1.84 | Apr 1, 2016 | Apr 1, 2026 | | 20,944 | $14.32 | Dec 7, 2018 | Dec 7, 2025 | | 804,951 | $0.001 | Jun 22, 2021 | None | | 400,000 | $5.27 | Apr 25, 2025 | Apr 25, 2035 | | 1,385,290 | | | | Note 8. Stock Option Plan Provides information on the company's incentive award plan, including available shares, unrecognized compensation costs, and stock-based compensation expense - As of June 30, 2025, 2,533,057 shares remained available for future awards under the 2019 Incentive Award Plan[91] - Total unrecognized compensation cost related to RSUs was $4.1 million, expected to be recognized over a weighted-average vesting period of 2.8 years[92] - Total unrecognized compensation cost related to stock options was $0.6 million, expected to be recognized over a weighted-average vesting period of 2.7 years[93] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenue | $60 | $39 | $115 | $56 | | Selling, general and administrative | $324 | $465 | $670 | $944 | | Research and development | $59 | $56 | $75 | $113 | | Total | $443 | $560 | $860 | $1,113 | Note 9. Segment Reporting Confirms the company operates as a single segment focused on diagnostic testing products for rheumatic and autoimmune diseases - The Company operates as a single segment focused on diagnostic testing products for rheumatic, autoimmune, and autoimmune-related diseases, primarily the AVISE® CTD test[96] Segment Revenue and Net Loss (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $17,202 | $15,064 | $32,700 | $29,479 | | Gross margin | $10,395 | $9,056 | $19,518 | $17,654 | | Total segment operating expenses | $13,025 | $11,643 | $25,513 | $23,244 | | Segment net loss | $(4,439) | $(2,966) | $(8,191) | $(6,326) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, key business developments, and factors influencing performance for the reported periods Overview Provides a high-level introduction to Exagen Inc.'s business, strategic focus, and flagship product - Exagen Inc. is a medical technology company focused on innovative AVISE® brand testing products for differential diagnosis, prognosis, and monitoring of complex rheumatic, autoimmune, and autoimmune-related diseases[102] - Under new leadership since late 2022, the company is executing an operational turnaround, achieving revenue growth, gross margin expansion, and reduced operating expenses and cash burn[103][104] - The flagship product, AVISE® CTD, launched in 2012, comprised 91% of revenue for the six months ended June 30, 2025, and is supported by extensive peer-reviewed literature[103][107] Recent Developments Highlights significant recent corporate events, including public offerings and new debt facilities - The 2025 Public Offering, closed on May 9, 2025, generated approximately $18.6 million in net proceeds from the sale of 3,852,500 common shares at $5.25 per share[110] - The Perceptive Term Loan Facility, entered on April 25, 2025, provides up to $75.0 million, with an initial $25.0 million tranche funded, maturing on April 25, 2030, and includes interest-only payments until maturity[111] - The Credit Agreement is secured by a first-priority lien on substantially all company assets and includes financial covenants, such as maintaining a minimum unrestricted cash balance of $3.0 million and achieving specified net revenue levels[113][114] Research and Development Discusses the company's ongoing investment in developing and enhancing diagnostic testing products - The company continues to invest in R&D to enhance existing and develop new testing products, either independently or through collaborations[115] Factors Affecting Our Performance Identifies key internal and external elements influencing the company's financial and operational outcomes - Key performance drivers include the commercial launch of AVISE® CTD enhancements, with new SLE and RA biomarker assays expected to improve clinical utility, ASP, gross margin, and demand[116][119] - Upcoming biomarker launches include PAD4 (expected end of 2025 for RA sensitivity), Lupus Nephritis (LN) biomarkers (results Q3 2025, initially for Pharma collaborations), SLE Disease Activity, RA Disease Activity, and Kidney Damage Biomarkers (provisional patent filed Nov 2024, initially for Pharma collaborations)[117] - Reimbursement for testing products is critical, with challenges from commercial payors regarding coverage and rates, and ongoing efforts to secure favorable Local Coverage Determinations (LCDs) for AVISE® Lupus[119][128][130] - AVISE® CTD test volume increased by approximately 7% for the three months ended June 30, 2025, compared to the same period in 2024, and the trailing-twelve-month ASP increased by approximately 7%[119][131] - The company expects some seasonal variations in financial results due to holidays, vacation patterns, and patient benefit changes[122] - The current inflationary environment has impacted costs for laboratory testing services, personnel, and other operating expenses[123][124] Financial Overview Summarizes the company's revenue recognition policies, cost of revenue components, and expense expectations - Revenue recognition follows ASC Topic 606, with estimates based on historical collection analysis by test and payor, requiring significant management judgment[125] - Cost of revenue includes materials, direct labor, equipment, infrastructure, shipping, blood specimen collection fees, royalties, depreciation, and allocated overhead, with variations influenced by payor mix[132] - Selling, general and administrative expenses are expected to increase moderately in absolute dollars in the near-term due to sales force expansion and infrastructure investment, but decrease as a percentage of revenue[134][144] - Research and development expenses are expected to increase moderately in absolute dollars in the near-term for pipeline initiatives, but decrease year-over-year as a percentage of revenue[135][146] - Interest expense is projected to increase by approximately $1.7 million annually, including $0.9 million in non-cash interest, due to the Perceptive Term Loan Facility[136] Results of Operations Compares the company's financial performance for the three and six months ended June 30, 2025, against the prior-year periods Three Months Ended June 30, 2025 vs. 2024 (in thousands) | Metric | 2025 | 2024 | Change | | :-------------------------------- | :----- | :----- | :----- | | Revenue | $17,202 | $15,064 | $2,138 | | Cost of revenue | $6,807 | $6,008 | $799 | | Gross margin | $10,395 | $9,056 | $1,339 | | Selling, general and administrative expenses | $11,542 | $10,464 | $1,078 | | Research and development expenses | $1,483 | $1,179 | $304 | | Loss from operations | $(2,630) | $(2,587) | $(43) | | Net loss | $(4,439) | $(2,966) | $(1,473) | - Revenue increased by 14.2% for the three months ended June 30, 2025, driven by ASP expansion from new biomarkers and a 7% increase in AVISE® CTD test volume[141] - Gross margin percentage slightly increased to 60.4% for the three months ended June 30, 2025, from 60.1% in the prior year, due to ASP expansion and improved overhead absorption[142] Six Months Ended June 30, 2025 vs. 2024 (in thousands) | Metric | 2025 | 2024 | Change | | :-------------------------------- | :----- | :----- | :----- | | Revenue | $32,700 | $29,479 | $3,221 | | Cost of revenue | $13,182 | $11,825 | $1,357 | | Gross margin | $19,518 | $17,654 | $1,864 | | Selling, general and administrative expenses | $22,746 | $21,006 | $1,740 | | Research and development expenses | $2,767 | $2,238 | $529 | | Loss from operations | $(5,995) | $(5,590) | $(405) | | Net loss | $(8,191) | $(6,326) | $(1,865) | - Revenue increased by 10.9% for the six months ended June 30, 2025, primarily due to ASP expansion from new biomarkers and a 5% increase in AVISE® CTD test volume[152] - Gross margin percentage slightly decreased to 59.7% for the six months ended June 30, 2025, from 59.9% in the prior year, attributed to investments in lab operations for new biomarker launch and temporary headwinds from contract amendments[153] Liquidity and Capital Resources Assesses the company's ability to meet its short-term and long-term financial obligations and fund operations - The company has incurred net losses since inception, with a net loss of $8.2 million for the six months ended June 30, 2025, and an accumulated deficit of $302.5 million[162] - As of June 30, 2025, cash and cash equivalents were $30.0 million, with an additional $50.0 million available under the Perceptive Term Loan Facility, subject to revenue levels and other conditions[162] - Primary capital sources include product sales, common stock sales (e.g., $18.6 million net proceeds from May 2025 public offering), and term loan facilities[163][166] - The company expects near- and longer-term liquidity requirements for working capital, general corporate expenses, milestone payments, purchase obligations, and debt/lease payments[169][170] - Management believes existing cash and anticipated revenue will be sufficient for at least the next 12 months, but future funding may be required through equity offerings, debt financings, or collaborations[170][172] Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------- | :----------------------------- | :----------------------------- | | Operating activities | $(13,556) | $(11,466) | | Investing activities | $(316) | $(222) | | Financing activities | $21,869 | $(326) | | Net change | $7,997 | $(12,014) | Item 3. Quantitative and Qualitative Disclosures About Market Risk States that the company has no applicable quantitative and qualitative disclosures regarding market risk - The company has no applicable quantitative and qualitative disclosures about market risk[184] Item 4. Controls and Procedures Details the evaluation of the company's disclosure controls and procedures, confirming their effectiveness and noting no material changes in internal control - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective at a reasonable level of assurance as of June 30, 2025[187] - There have been no material changes in internal control over financial reporting during the three months ended June 30, 2025[188] - The company acknowledges the inherent limitations of any cost-effective control system, which can only provide reasonable, not absolute, assurance[186][189] Part II. Other Information This section provides additional non-financial information, including legal proceedings, risk factors, and exhibit listings Item 1. Legal Proceedings Addresses potential legal claims and highlights the dismissal of a specific qui tam case related to a prior DOJ settlement - The company may be subject to legal proceedings in the ordinary course of business, which can impact operations regardless of outcome[191] - A previously disclosed qui tam case, related to a $0.7 million settlement with the Department of Justice in October 2023, was dismissed with prejudice by the presiding judge on July 15, 2025[192] Item 1A. Risk Factors Confirms no material changes to the risk factors previously disclosed in the 2024 Annual Report and Q1 2025 Quarterly Report - No material changes to the risk factors previously disclosed in the 2024 Annual Report and the Q1 2025 10-Q[194] Item 5. Other Information Reports no adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by directors or officers - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the six months ended June 30, 2025[197] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including corporate documents, agreements, and certifications - The exhibits include corporate governance documents (Amended and Restated Certificate of Incorporation, Bylaws), various warrant forms, the Credit Agreement and Guaranty with Perceptive Credit Holdings IV, LP, and the Underwriting Agreement for the May 2025 public offering[199] - Certifications from the Principal Executive Officer and Principal Financial Officer (pursuant to Rule 13a-14(a)/15d-14(a) and U.S.C. Section 1350) are furnished with the report[199] Signatures Contains the duly authorized signatures of Exagen Inc.'s President, CEO, and CFO, affirming the report filing - The report is signed by John Aballi, President and Chief Executive Officer, and Jeffrey G. Black, Chief Financial Officer, on July 29, 2025[205]