Log in
E-mail
Password
Show password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
New member
Sign up for FREE
New customer
Discover our services
Settings
Settings
Dynamic quotes 
OFFON
  1. Homepage
  2. Equities
  3. United States
  4. Nasdaq
  5. Exagen Inc.
  6. News
  7. Summary
    XGN   US30068X1037

EXAGEN INC.

(XGN)
  Report
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisions 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

EXAGEN INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/10/2021 | 05:21pm EST
You should read the following discussion of our financial condition and results
of operations in conjunction with the unaudited condensed financial statements
and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q
and with our audited financial statements and notes thereto for the year ended
December 31, 2020 included in our Annual Report on Form 10-K for the year ended
December 31, 2020, as amended.
Forward Looking Statements
The following discussion and other parts of this quarterly report contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, or the Exchange Act. All statements other than
statements of historical facts contained in this quarterly report, including
statements regarding our future results of operations and financial position,
business strategy, the impact of the COVID-19 pandemic, current and future
product offerings, reimbursement and coverage, our ability to implement an
integrated testing and therapeutics strategy, the expected benefits from our
partnerships or promotion arrangements with third-parties, research and
development costs, timing and likelihood of success and plans and objectives of
management for future operations, are forward-looking statements. These
statements are often identified by the use of words such as "may," "will,"
"expect," "believe," "anticipate," "intend," "could," "should," "estimate," or
"continue," and similar expressions or variations. The forward-looking
statements in this quarterly report are only predictions. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends that we believe may affect our
financial condition, operating results, business strategy, and short-term and
long-term business operations and objectives. These forward-looking statements
speak only as of the date of this quarterly report and are subject to a number
of risks, uncertainties and assumptions, including those described in Part II,
Item 1A, "Risk Factors." The events and circumstances reflected in our
forward-looking statements may not be achieved or occur and actual results could
differ materially from those projected in the forward-looking statements. Except
as required by applicable law, we do not plan to publicly update or revise any
forward-looking statements contained herein, whether as a result of any new
information, future events, changed circumstances or otherwise.

Overview

We are dedicated to transforming the care continuum for patients suffering from
debilitating and chronic autoimmune diseases by enabling timely differential
diagnosis and optimizing therapeutic intervention. We have developed and are
commercializing a portfolio of innovative testing products under our AVISE®
brand, several of which are based on our proprietary CB-CAPs technology. Our
goal is to enable healthcare providers to improve care for patients through the
differential diagnosis, prognosis and monitoring of complex autoimmune and
autoimmune-related diseases, including systemic lupus erythematosus, or SLE, and
rheumatoid arthritis, or RA. Our strategy includes leveraging our portfolio of
testing products to market therapeutics through our sales channel, targeting the
approximately 5,000 rheumatologists across the United States. Our business model
of integrating testing products and therapeutics positions us to offer targeted
solutions to rheumatologists and, ultimately, better serve patients.
We currently market 10 testing products under our AVISE® brand that allow for
the differential diagnosis, prognosis and monitoring of complex autoimmune and
autoimmune-related diseases. Our lead testing product, AVISE® CTD, enables
differential diagnosis for patients presenting with symptoms indicative of a
wide variety of CTDs and other related diseases with overlapping symptoms. We
commercially launched AVISE® CTD in 2012 and revenue from this product comprised
81% and 71% of our revenue for the nine months ended September 30, 2021 and
2020, respectively. There is an unmet need for rheumatologists to add clarity in
their CTD clinical evaluation, and we believe there is a significant opportunity
for our tests that enable the differential diagnosis of these diseases,
particularly for potentially life-threatening diseases such as SLE.
We are leveraging our portfolio of testing products to establish partnerships
with leading pharmaceutical companies, academic research centers and patient
advocacy organizations. We also have agreements with GlaxoSmithKline plc., or
GSK, Covance Inc. and Parexel, among others, that leverage our testing products
and/or the information generated from such tests. We provide GSK, a leader in
lupus therapeutics, our test result data to provide market insight into and help
increase awareness of the benefits of early and accurate diagnosis of SLE and
lupus nephritis, and monitoring disease activity. We partner with academic
research centers and patient advocacy organizations,
                                       21
--------------------------------------------------------------------------------

such as Brigham and Women's Hospital, Hospital for Special Surgery, Duke
University and Emory University as well as the Lupus Foundation of America, to
help improve the quality of life for people affected by autoimmune diseases
through programs of research, education, support and advocacy. We plan to pursue
additional strategic partnerships that are synergistic with our evolving
portfolio of testing products.
We perform all of our AVISE® tests in our approximately 10,000 square foot
clinical laboratory, which is certified under the Clinical Laboratory
Improvement Amendments of 1988, or CLIA, by the Centers for Medicare and
Medicaid Services, or CMS, and accredited by the College of American
Pathologists, or CAP, and located in Vista, California. Our laboratory is
certified for performance of high-complexity testing by CMS in accordance with
CLIA and is licensed by all states requiring out-of-state licensure. Our
clinical laboratory reports all AVISE® testing product results within five
business days. In the second half of 2021, we began the conversion of
approximately 8,000 square feet of warehouse space into additional clinical
laboratory space and approximately 6,000 square feet of warehouse space into
additional research and development facility space, and expect to complete such
conversions by the first quarter of 2022 and the second quarter of 2022,
respectively. The expansion of our clinical laboratory and research and
development facility are expected to allow us to enhance our testing capacity
and improve efficiencies as well as allow us to develop molecular and multiomic
capabilities and advance our product pipeline, including support of development
of tests for fibromyalgia, RA, thrombosis and lupus nephritis.
We market our AVISE® testing products using our specialized sales force. As of
September 30, 2021, we have a sales force of 62 representatives covering a total
of 63 territories. Unlike many diagnostic sales forces that are trained only to
understand the comparative benefits of their tests, the specialized backgrounds
of our sales force coupled with our comprehensive training enables our sales
representatives to interpret results from our de-identified patient test reports
and provide unique insights in a highly tailored discussion with
rheumatologists. Our integrated testing and therapeutics strategy results in a
unique opportunity to promote and sell targeted therapies in patient focused
sales calls with rheumatologists, including those with whom we have a
longstanding relationship and history using our portfolio of testing products.
Reimbursement for our testing services comes from several sources, including
commercial third-party payors, such as insurance companies and health
maintenance organizations, government payors, such as Medicare, and patients.
Reimbursement rates vary by product and payor. We continue to focus on expanding
coverage among existing contracted rheumatologists and to achieve coverage with
commercial payors, laboratory benefit managers and evidence review
organizations.
Since inception we have devoted substantially all of our efforts developing and
marketing products for the diagnosis, prognosis and monitoring of autoimmune
diseases. Although our revenue has increased sequentially year over year, we
have never been profitable and, as of September 30, 2021 we had an accumulated
deficit of $201.1 million. We incurred net losses of $19.8 million and $13.2
million for the nine months ended September 30, 2021 and 2020, respectively. We
expect to continue to incur operating losses in the near term as our operating
expenses will increase to support the growth of our business, as well as
additional costs associated with being a public company. We have funded our
operations primarily through equity and debt financings and revenue from sales
of our products. We completed our initial public offering, or IPO, in September
2019, raising net proceeds from the offering of approximately $50.4 million, net
of underwriting discounts, commissions and other offering expenses, for
aggregate expenses of approximately $7.5 million. In March 2021, we completed a
public offering of 4,255,000 shares of our common stock at a public offering
price of $16.25 per share. Net proceeds from the offering were approximately
$64.7 million, net of underwriting discounts and commissions and offering costs
of $4.4 million. As of September 30, 2021, we had $106.8 million of cash and
cash equivalents.
Recent Developments
In October 2021, we entered into an agreement with Inland Empire Health Plan, or
IEHP, to offer AVISE® CTD and AVISE® Lupus tests on an in-network basis to
approximately over one million IEHP members.
Impact of COVID-19
The current COVID-19 worldwide pandemic has presented substantial public health
challenges and is affecting our employees, patients, physicians and other
healthcare providers, communities and business operations, as well as the U.S.
and global economies and financial markets. International and U.S. governmental
authorities in impacted regions have taken actions in an effort to slow the
spread of COVID-19, including issuing varying forms of "stay-at-home" orders,
restricting business functions outside of one's home, restricting gatherings,
restricting travel, and
                                       22
--------------------------------------------------------------------------------

mandating social distancing and face coverings. While many jurisdictions have
fully reopened or have begun a phased re-opening, the potential to return to
prior restrictions remains if there are future increases (or, in some
jurisdictions, continued increases) in new cases of COVID-19 or any of its viral
variants, including the Delta variant. Even in areas that have fully reopened
and where the number of COVID-19 cases has declined, many individuals remain
cautious about resuming activities such as preventative-care medical visits. As
a result of COVID-19 related limitations and reordering of priorities across the
U.S. healthcare system, a reduction in patient flow occurred and our test
volumes began to decrease in the second half of March 2020 and we experienced an
AVISE® CTD volume decrease of approximately 5% in the year ended December 31,
2020 as compared to 2019. In the fourth quarter 2020, our volume of AVISE® CTD
tests delivered substantially recovered to pre-COVID-19 levels. For the three
months ended September 30, 2021 as compared to the same period in 2020, we
experienced an AVISE® CTD test volume increase of approximately 21%. For the
nine months ended September 30, 2021 as compared to the same period in 2020, we
experienced an AVISE® CTD test volume increase of approximately 31%. However,
the continued spread of COVID-19 and patient hesitancy in seeking preventative
medical care, each of which are dependent on circumstances that are highly
uncertain, may adversely affect testing volumes in future periods.
In addition, we believe there are several other important factors that have
impacted, and that we expect will impact our operating performance and results
of operations, including shutdowns of our facilities and operations as well as
those of our suppliers and courier services, disruptions to the supply chain of
material needed for our tests, our sales and commercialization activities and
our ability to receive specimens and perform or deliver the results from our
tests, delays in reimbursement and coverage decisions from Medicare and
third-party payors and in interactions with regulatory authorities, as well as
our inability to achieve volume-based pricing discounts with our key suppliers
and absorb fixed laboratory expenses. For example, we have experienced delays in
patient enrollment for ongoing and planned clinical studies involving our tests,
which may delay or prevent launch of future test products. We have also
experienced delays in procurement of our testing supplies due in part to
suppliers rationing testing supplies and prioritizing COVID-19 testing beginning
in the first quarter of 2021, which may continue into the future, and our
partners may also experience a disruption in their ability to readily obtain
supply. Our sales force has been, and for an extended period of time may
continue to be limited, in their in-person interactions with healthcare
providers, and therefore, also limited in their ability to engage in various
types of healthcare provider education activities. Healthcare providers and
patients have canceled or delayed scheduling, and for an extended period of time
may continue to cancel or delay scheduling, standard wellness visits and other
non-emergency appointments and procedures, contributing to a decline in orders
of our testing products. The portion of our workforce which has been working
remotely in an effort to reduce the spread of COVID-19, may be infected from the
virus or otherwise distracted. We may also face increased competition for
laboratory and scientific employees due to the increased demand in the industry
for such personnel. We may inaccurately estimate the duration or severity of the
COVID-19 pandemic, which could cause us to misalign our staffing, spending,
activities and precautionary measures with market current or future market
conditions.
In response to the COVID-19 pandemic, we initially curtailed non-essential
travel and have equipped most of our employees with the ability to work remotely
with the exception of our clinical laboratory employees, and implemented
measures to protect the health of our employees and to support the functionality
of our clinical laboratory, such as providing personal protective equipment
(including face masks or shields) and maintaining social distancing. In
addition, in the second quarter of 2020, our sales force recommenced certain
field-based interactions and scaled marketing spend, although access to
healthcare providers remains limited and the use of virtual sales tools has
increased. From March 2020 through December 31, 2020, as a result of the
COVID-19 pandemic, we terminated our temporary employees and 18 full-time
employees, which included three employees at the vice president level. The full
extent of which the COVID-19 pandemic will directly or indirectly continue to
impact our business, results of operations and financial condition and will
depend on future developments that are highly uncertain, including as a result
of new information that may emerge concerning COVID-19 and the actions taken to
contain it or treat COVID-19, including the success of ongoing vaccination
efforts, the emergence and prevalence of variant strains of COVID-19, the
institution or reinstitution of shutdowns, "stay-at-home-orders" and other
public health measures, as well as the related economic impact of these matters
on local, regional and international markets.

Factors Affecting Our Performance
In addition to the impact of COVID-19, we believe there are several important
factors that have impacted, and that we expect will impact, our operating
performance and results of operations, including:
                                       23
--------------------------------------------------------------------------------


?Continued Adoption of Our Testing Products.  Since the launch of AVISE® CTD in
2012 and through September 30, 2021, we have delivered over 581,000 of these
tests. Through the third quarter of 2021, 94,099 AVISE® CTD tests were
delivered, representing approximately 31% growth over the same period in 2020.
The number of ordering healthcare providers in the third quarter of 2021 was a
record 1,969, representing an approximate 18% increase over the same period in
2020, and we had a record 714 adopting healthcare providers (defined as those
who previously prescribed at least 11 diagnostic tests in the corresponding
period) compared to 600 in the same period in 2020. A high percentage of
adopting healthcare providers continue to order tests in subsequent quarters, as
approximately 99% of adopting healthcare providers from the second quarter of
2021 ordered at least one diagnostic test in the third quarter of 2021. Revenue
growth for our testing products will depend on our ability to continue to expand
our base of ordering healthcare providers and increase our penetration with
existing healthcare providers.
?Reimbursement for Our Testing Products.  Our revenue depends on achieving broad
coverage and reimbursement for our tests from third-party payors, including both
commercial and government payors such as Medicare. Payment from third-party
payors differs depending on whether we have entered into a contract with the
payors as a "participating provider" or do not have a contract and are
considered a "non-participating provider." Payors will often reimburse
non-participating providers, if at all, at a lower amount than participating
providers. We have received a substantial portion of our revenue from a limited
number of third-party commercial payors, most of which have not contracted with
us to be a participating provider. Historically, we have experienced situations
where commercial payors proactively reduced the amounts they were willing to
reimburse for our tests, and in other situations, commercial payors have
determined that the amounts they previously paid were too high and have sought
to recover those perceived excess payments by deducting such amounts from
payments otherwise being made. When we contract to serve as a participating
provider, reimbursements are made pursuant to a negotiated fee schedule and are
limited to only covered indications. If we are not able to obtain or maintain
coverage and adequate reimbursement from third-party payors, we may not be able
to effectively increase our testing volume and revenue as expected.
Additionally, retrospective reimbursement adjustments can negatively impact our
revenue and cause our financial results to fluctuate.
?Success of Synergistic Partnerships.  In August 2021, we mutually agreed to
terminate the Janssen Agreement regarding our promotion efforts with SIMPONI®
effective August 31, 2021. Our SIMPONI® promotion efforts contributed
approximately $1.0 million and $3.4 million in revenue for the nine months ended
September 30, 2021 and 2020, respectively. We will continue to rely on our
existing testing products to drive revenue growth and intend to leverage our
integrated testing and therapeutics strategy to establish partnerships with a
focus on the development and commercialization of therapeutics that are
synergistic with our testing products.
?Development of Additional Testing Products.  We rely on sales of our AVISE® CTD
test to generate the significant majority of our revenue. We expect to continue
to invest in research and development in order to develop additional testing
products and expect these costs to increase. Our success in developing new
testing products will be important in our efforts to grow our business by
expanding the potential market for our testing products and diversifying our
sources of revenue.
?Maintain Meaningful Margin.  We believe we are well positioned to maintain
meaningful margin through a continued focus on increasing operating leverage
through the implementation of certain internal initiatives, such as conducting
additional validation and reimbursement oriented clinical studies to facilitate
payor coverage of our testing products, capitalizing on our growing reagent
purchasing to negotiate improved volume-based pricing and automation in our
clinical laboratory to reduce material and labor costs.
?Timing of Our Research and Development Expenses.  Our spending on experiments
and clinical studies may vary substantially from quarter to quarter. We also
expend funds to secure clinical samples that can be used in discovery, product
development, clinical validation, utility and outcome studies. The timing of
these research and development activities is difficult to predict. If a
substantial number of clinical samples are obtained in a given quarter or if a
high-cost experiment is conducted in one quarter versus the next, the timing of
these expenses will affect our financial results. We conduct clinical studies to
validate our new testing products, as well as ongoing clinical and outcome
studies to further expand the published evidence to support our commercialized
AVISE® testing products. Spending on research and development for both
experiments and studies may vary significantly by quarter depending on the
timing of these various expenses.
                                       24
--------------------------------------------------------------------------------

?How We Recognize Revenue.  We record revenue on an accrual basis based on our
estimate of the amount that will be ultimately realized for each test upon
delivery based on a historical analysis of amounts collected by test and by
payor. Changes to such estimates may increase or decrease revenue recognized in
future periods.
While each of these areas present significant opportunities for us, they also
pose significant risks and challenges that we must address. We discuss many of
these risks, uncertainties and other factors in the section entitled "Risk
Factors."
Janssen Promotion Agreement
In December 2018, we entered into the Janssen Agreement, under which we are
responsible for the costs associated with our sales force in promoting SIMPONI®
in the United States. In August 2021, the Company and Janssen mutually agreed to
terminate the Janssen Agreement effective on August 31, 2021. Pursuant to the
Janssen Agreement, Janssen was responsible for all other costs associated with
our promotion of SIMPONI® under the Janssen Agreement. In exchange for our sales
and co-promotional services, we were entitled to a quarterly tiered promotion
fee based on the incremental increase in total prescribed units of SIMPONI® for
that quarter over a predetermined baseline. For the quarter ended September 30,
2020, the tiered promotion fee ranged from $750 to $1,250 per prescription over
a predetermined baseline. Due in part to COVID-19, in June 2020 we amended the
Janssen Agreement, to adjust the predetermined average baseline for the third
and fourth quarters of 2020. In December 2020, we further amended the Janssen
Agreement, to adjust the average baseline for total prescribed units of SIMPONI®
for the quarters ending December 31, 2020 and March 31, 2021, subject to further
adjustment under certain circumstances. In June 2021, the Janssen Agreement was
again amended to proportionally increase the baseline for prescribed units for
the quarter ending June 30, 2021 to reflect the addition of certain geographies
to the sales territories covered by the Janssen Agreement. For the first and
second quarters of 2021, we were entitled to an amended quarterly tiered
promotion fee ranging from $500 to $1,000 per prescription based on the
incremental increase in total prescribed units of SIMPONI® for that quarter over
the predetermined baseline, and we were entitled to receive a minimum promotion
fee of $0.3 million and the fee was be capped at 10% above the adjusted
predetermined baseline. Upon the termination of the Janssen Agreement on August
31, 2021, we became entitled to receive an aggregate of $0.6 million in
consideration. Pursuant to the terms of the termination, we are restricted from
promoting any other biologic or Janus kinase inhibitor used for treatment of
indications covered by the Janssen Agreement without first obtaining Janssen's
written consent until May 31, 2022.
We recognized approximately $1.0 million and $3.4 million in revenue for the
nine months ended September 30, 2021 and 2020, respectively, for our promotional
efforts under the Janssen Agreement.
Seasonality
Based on our experience to date, we expect some seasonal variations in our
financial results due to a variety of factors, such as the year-end holiday
period and other major holidays, vacation patterns of both patients and
healthcare providers, including medical conferences, climate and weather
conditions in our markets, seasonal conditions that may affect medical practices
and provider activity, including for example influenza outbreaks that may reduce
the percentage of patients that can be seen, and other factors relating to the
timing of patient benefit changes, as well as patient deductibles and
co-insurance limits.

Financial Overview
Revenue
To date, we have derived nearly all of our revenue from the sale of our testing
products, most of which is attributable to our AVISE® CTD test. We primarily
market our testing products to rheumatologists in the United States. The
rheumatologists who order our testing products and to whom results are reported
are generally not responsible for payment for these products. The parties that
pay for these services, or payors, consist of healthcare insurers, government
payors (primarily Medicare and Medicaid), client payors (e.g. hospitals, other
laboratories, etc.), and patient self-pay. Our service is completed upon the
delivery of test results to the prescribing rheumatologists which triggers
billing for the service.
                                       25
--------------------------------------------------------------------------------

We recognize revenue in accordance with the provisions of ASC Topic 606, Revenue
from Contracts with Customers. We record revenue on an accrual basis based on
our estimate of the amount that will be ultimately realized for each test upon
delivery based on a historical analysis of amounts collected by test and by
payor. These assessments require significant judgment by management.
Our ability to increase our revenue will depend on our ability to further
penetrate the market for our current and future testing products, and increase
our reimbursement and collection rates for tests delivered.
As discussed above, our volume of AVISE® CTD tests delivered substantially
recovered to pre-COVID-19 levels in the fourth quarter 2020. However, the
continued spread of COVID-19, including any of its viral variants, may adversely
affect testing volumes in future periods, and the extent of any such adverse
effects is highly uncertain.
Operating Expenses
Costs of Revenue
Costs of revenue represents the expenses associated with obtaining and testing
patient specimens. The components of our costs of revenue include materials
costs, direct labor, equipment and infrastructure expenses associated with
testing specimens, shipping charges to transport specimens, blood specimen
collections fees, royalties, depreciation and allocated overhead, including rent
and utilities.
Each payor, whether a commercial third-party, government, or individual,
reimburses us at different amounts. These differences can be significant. As a
result, our costs of revenue as a percentage of revenue may vary significantly
from period to period due to the composition of payors for each period's
billings.
Assuming future testing volumes are not negatively impacted by the continued
spread of COVID-19, we expect that our costs of revenue will increase in
absolute dollars as the number of tests we perform increases. However, we expect
that the cost per test will decrease over time due to volume discounts on
materials and shipping costs and other volume efficiencies we may gain as the
number of tests we perform increases. As discussed above, the continued spread
of COVID-19 may adversely affect testing volumes which may result in an increase
in cost per test due to our inability to realize volume efficiencies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist of personnel costs,
including stock-based compensation expense, direct marketing expenses,
accounting and legal expenses, consulting costs, and allocated overhead
including rent, information technology, depreciation and utilities.
We expect that our selling, general and administrative expenses will increase in
absolute dollars in 2021 as compared to 2020, as we continue to evaluate the
reach and frequency of our sales and sales support functions, expected additions
to headcount and increases for personnel costs, including stock-based
compensation.
Research and Development Expenses
Research and development expenses include costs incurred to develop our
technology, testing products and product candidates, collect clinical specimens
and conduct clinical studies to develop and support our testing products and
product candidates. These costs consist of personnel costs, including
stock-based compensation expense, materials, laboratory supplies, consulting
costs, costs associated with setting up and conducting clinical studies and
allocated overhead including rent and utilities. We expense all research and
development costs in the periods in which they are incurred.
We expect that our research and development expenses will increase in absolute
dollars in 2021 as compared to 2020, as we continue to invest in research and
development activities related to our existing testing products and product
candidates, including the expansion of our clinical research and development
facility, expected additions to headcount and increases for personnel costs,
including stock-based compensation.
Interest Expense
                                       26
--------------------------------------------------------------------------------

Interest expense consists of cash and non-cash interest expense associated with
our financing arrangements, including the borrowings under our amended loan and
security agreement with Innovatus Life Sciences Lending Fund I, LP, or
Innovatus.
We expect interest expense to remain consistent in 2021 as compared to 2020, and
remain consistent thereafter until 2023.
Other Income, Net
Other income, net, consists primarily of interest income earned on our cash and
cash equivalents and amount received under the CARES Act Provider Relief Fund in
the second quarter of 2020.
Income Tax Benefit
Income taxes include federal and state income taxes in the United States.

Results of Operations
Comparison of the Three Months Ended September 30, 2021 and 2020:
                                                                  Three Months Ended September 30,
                                                                      2021                2020             Change
                                                                              (unaudited, in thousands)
Revenue                                                           $   12,251          $  10,775          $  1,476
Operating expenses:
Costs of revenue                                                       5,487              4,341             1,146
Selling, general and administrative expenses                          11,528              9,202             2,326
Research and development expenses                                      1,740              1,018               722

Total operating expenses                                              18,755             14,561             4,194
Loss from operations                                                  (6,504)            (3,786)           (2,718)
Interest expense                                                        (678)              (647)              (31)

Other income, net                                                          3                125              (122)

Net loss                                                          $   (7,179)         $  (4,308)         $ (2,871)


Revenue
Revenue increased $1.5 million, or 13.7%, for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020,
primarily due to an increase in the number of diagnostic tests delivered
resulting in part from volume reductions experienced in late March 2020 as a
result of the COVID-19 pandemic. The number of AVISE® CTD tests delivered, which
accounted for 81% and 68% of revenue in the three months ended September 30,
2021 and 2020, respectively, increased to 31,742 tests delivered in the three
months ended September 30, 2021 compared to 26,201 tests delivered in the same
2020 period. The adoption of the AVISE® CTD test by healthcare providers for the
three months ended September 30, 2021 increased to 1,969 ordering healthcare
providers as compared to 1,665 ordering healthcare providers in the same 2020
period. The increase in revenue was partially offset by a decrease in revenue
resulting from the Janssen Agreement during the three months ended September 30,
2021 to approximately $0.4 million compared to approximately $1.3 million during
the three months ended September 30, 2020.
Costs of Revenue
Costs of revenue increased $1.1 million, or 26.4%, for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020. This
increase was primarily due to increased direct costs such as materials and
supplies, labor and shipping and handling associated with the increase in test
volume in 2021 compared to 2020.
Selling, General and Administrative Expenses
                                       27
--------------------------------------------------------------------------------

Selling, general and administrative expenses increased $2.3 million, or 25.3%,
for the three months ended September 30, 2021 compared to the three months ended
September 30, 2020. This increase was primarily due to an increase of $1.9
million of employee related expenses, including stock-based compensation and
recruitment expenses, and increases related to marketing expenses of $0.3
million, audit and professional services of $0.1 million and insurance expenses
of $0.1 million.

Research and Development Expenses
Research and development expenses increased $0.7 million for the three months
ended September 30, 2021 compared to the three months ended September 30, 2020.
This increase was primarily due to increases related to employee related
expenses, including stock-based compensation, of $0.3 million, clinical trial
expenses of $0.2 million and collaboration expenses of $0.1 million.
Interest Expense
Interest expense remained substantially consistent for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020.
Other Income, Net
Other income, net, decreased $0.1 million for the three months ended
September 30, 2021 compared to the three months ended September 30, 2020. The
decrease was primarily due to lower money market interest rates in 2021 compared
to 2020.
Comparison of the Nine Months Ended September 30, 2021 and 2020:
                                                                  Nine Months Ended September 30,
                                                                      2021                2020             Change
                                                                              (unaudited, in thousands)
Revenue                                                           $   35,610          $  29,307          $  6,303
Operating expenses:
Costs of revenue                                                      15,649             12,224             3,425
Selling, general and administrative expenses                          32,739             27,104             5,635
Research and development expenses                                      5,035              2,403             2,632

Total operating expenses                                              53,423             41,731            11,692
Loss from operations                                                 (17,813)           (12,424)           (5,389)
Interest expense                                                      (1,986)            (1,913)              (73)

Other income, net                                                          1                985              (984)
Loss before income taxes                                             (19,798)           (13,352)           (6,446)
Income tax benefit                                                         -                118              (118)
Net loss                                                          $  (19,798)         $ (13,234)         $ (6,564)


Revenue
Revenue increased $6.3 million, or 21.5%, for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020,
primarily due to an increase in the number of diagnostic tests delivered
resulting in part from volume reductions experienced in late March 2020 as a
result of the COVID-19 pandemic. The number of AVISE® CTD tests delivered, which
accounted for 81% and 71% of revenue in the nine months ended September 30, 2021
and 2020, respectively, increased to 94,099 tests delivered in the nine months
ended September 30, 2021 compared to 71,849 tests delivered in the same 2020
period. The adoption of the AVISE® CTD test by healthcare providers for the nine
months ended September 30, 2021 increased to 2,595 ordering healthcare providers
as compared to 2,273 ordering healthcare providers in the same 2020 period. The
increase in revenue was partially offset by a decrease in revenue resulting from
the Janssen Agreement during the nine months ended September 30, 2021 to
approximately $1.0 million compared to approximately $3.4 million during the
nine months ended September 30, 2020.
                                       28
--------------------------------------------------------------------------------

Costs of Revenue
Costs of revenue increased $3.4 million, or 28.0%, for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020. This
increase was primarily due to increased direct costs such as materials and
supplies, labor and shipping and handling associated with the increase in test
volume in 2021 compared to 2020, partially offset by decreased royalty costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $5.6 million, or 20.8%,
for the nine months ended September 30, 2021 compared to the nine months ended
September 30, 2020. This increase was primarily due to an increase of $4.4
million of employee related expenses, including stock-based compensation and
recruitment expenses, and increases related to insurance expenses of $0.4
million, marketing expenses of $0.3 million and audit and professional services
of $0.2 million. The first quarter of 2020 included one-time restructuring
charges of approximately $0.2 million.

Research and Development Expenses
Research and development expenses increased $2.6 million for the nine months
ended September 30, 2021 compared to the nine months ended September 30, 2020.
This increase was primarily due to increases related to clinical trial expenses
of $0.9 million, employee related expenses, including stock-based compensation
and recruitment expenses, of $0.9 million, license fees of $0.4 million,
laboratory supplies expense of $0.2 million and collaboration expenses of $0.2
million.
Interest Expense
Interest expense remained substantially consistent for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020.
Other Income, Net
Other income, net, decreased $1.0 million for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020. The
decrease was primarily driven by the $0.7 million we received under the CARES
Act Provider Relief Fund due to lost revenues attributable to COVID-19 in the
second quarter of 2020 and lower money market interest rates in 2021 compared to
2020.
Income Tax Benefit
Income tax benefit decreased $0.1 million for the nine months ended
September 30, 2021 compared to the nine months ended September 30, 2020 due to a
change in tax law under the CARES Act enacted in 2020 that resulted in an income
tax benefit during the nine months ended September 30, 2020.
Liquidity and Capital Resources
We have incurred net losses since our inception. For the nine months ended
September 30, 2021 and 2020, we incurred a net loss of $19.8 million and
$13.2 million, respectively, and we expect to incur additional losses and
increased operating expenses in future periods. As of September 30, 2021, we had
an accumulated deficit of $201.1 million. To date, we have generated only
limited revenue, and we may never achieve revenue sufficient to offset our
expenses.
Through the date of our IPO in September 2019, our operations were financed
primarily from sales of our common stock and redeemable convertible preferred
stock and borrowings under various debt financings. In September 2019, we
completed our IPO and received net proceeds of approximately $50.4 million, net
of underwriting discounts, commissions and other offering expenses, for
aggregate expenses of approximately $7.5 million. On November 10, 2020, we filed
a registration statement on Form S-3, or the Shelf Registration Statement,
covering the offering, from time to time, of up to $150.0 million of common
stock, preferred stock, debt securities, warrants and units, which Shelf
Registration Statement became effective on November 19, 2020. In March 2021, we
completed a public offering of 4,255,000 shares of our common stock at a public
offering price of $16.25 per share,
                                       29
--------------------------------------------------------------------------------

which shares were sold under the Shelf Registration Statement. Net proceeds from
the offering were approximately $64.7 million, net of underwriting discounts and
commissions and other offering expenses of $4.4 million. As of September 30,
2021, we had $106.8 million of cash and cash equivalents. Cash in excess of
immediate requirements is invested in accordance with our investment policy,
primarily with a view to liquidity and capital preservation. Currently, our
funds are held in cash and money market funds.
In September 2017, we entered into the loan and security agreement with
Innovatus under which we immediately drew down $20.0 million. In December 2018,
we borrowed an additional $5.0 million under the loan agreement. In each of
November 2019 and November 2021, we amended the loan and security agreement with
Innovatus, which we collectively refer to as the Amended Loan Agreement.
Pursuant to the Amended Loan Agreement, the loan term is for nine years with a
final maturity date of November 2026. The Amended Loan Agreement accrues
interest at an annual rate of 8.0%, of which 2.0% will be payable in-kind. Paid
in-kind interest is added to the principal balance each period. After December
1, 2024, the entire 8.0% will be paid in cash at the end of each period. On or
after November 1, 2022, we may, at our option, prepay the term loan borrowings
by paying the lender a prepayment premium. The prepayment premium was 3% as of
November 2021 and decreases by 1% on each of November 1, 2022, November 1, 2023
and November 1, 2024.
Our obligations under the Amended Loan Agreement are secured by a security
interest in substantially all of our assets, including our intellectual
property. The Amended Loan Agreement contains customary conditions to borrowing,
events of default, and covenants, including covenants requiring us to maintain
certain levels of minimum liquidity of $2.0 million, performance covenants to
achieve certain minimum amounts of revenue, and covenants limiting our ability
to dispose of assets, undergo a change in control, merge with or acquire other
entities, incur debt, incur liens, pay dividends or other distributions to
holders of our capital stock, repurchase stock and make investments, in each
case subject to certain exceptions. The consequences of failing to achieve the
performance covenant will be cured if, within sixty days of failing to achieve
the performance covenant, we issue additional equity securities or subordinated
debt with net proceeds sufficient to fund any cash flow deficiency generated
from operations, as defined in the Amended Loan Agreement. At September 30,
2021, we were in compliance with all covenants of the Amended Loan Agreement. In
addition, upon the occurrence of an event of default, Innovatus, among other
things, can declare all indebtedness due and payable immediately, which would
adversely impact our liquidity and reduce the availability of our cash flows to
fund working capital needs, capital expenditures and other general corporate
purposes.
In connection with the execution of the loan and security agreement with
Innovatus in November 2017, we issued the lender a seven-year warrant to
purchase 15,384,615 shares of our Series F redeemable convertible preferred
stock at an exercise price of $0.078 per share, and in December 2018, in
connection with the additional $5.0 million borrowed under the loan and security
agreement, we issued to the lender a seven-year warrant to purchase 3,846,154
shares of our Series F redeemable convertible preferred stock at an exercise
price of $0.078 per share. In connection with the completion of our IPO in
September 2019, the warrants were automatically converted into warrants
exercisable for an aggregate of 104,722 shares of common stock at an exercise
price of $14.32 per share.
In April 2020, we received $0.7 million of funding under the CARES Act Provider
Relief Fund, subject to our agreement to comply with the Department of Health &
Human Services', or HHS, standard terms and conditions. The CARES Act Provider
Relief Fund is a federal fund allocated for general distributions to Medicare
facilities and providers impacted by the COVID-19 pandemic and is intended to
support healthcare-related expenses or lost revenue attributable to COVID-19.
Funding Requirements
Our primary uses of cash are to fund our operations as we continue to grow our
business. We expect to continue to incur operating losses in the near term as
our operating expenses will be increased to support the growth of our business.
We expect that our costs of revenue, selling, general and administrative
expenses, and research and development expenses will continue to increase as we
increase our test volume, expand our marketing efforts and increase our internal
sales force to drive increased adoption of and reimbursement for our AVISE®
testing products, prepare to commercialize new testing products, continue our
research and development efforts and further develop our product pipeline. We
believe we have sufficient laboratory capacity to support increased test volume.
We expect to make significant investments for laboratory equipment and capital
expenditures in the near term related to our laboratory facilities and expansion
of research capabilities, including an investment to convert approximately 8,000
square feet of warehouse space into additional clinical laboratory space and
approximately 6,000 square feet of warehouse space into additional research and
development facility space. We began such conversion in the second
                                       30
--------------------------------------------------------------------------------

half of 2021 and expect to complete the conversion for the clinical laboratory
space by the first quarter of 2022 and expect to complete the conversion for the
additional research and development facility by the second quarter of 2022. The
expansion of our clinical laboratory and research development facility are
expected to allow us to enhance our testing capacity and improve efficiencies as
well as allow us to develop molecular and multiomic capabilities and advance our
product pipeline, including support of development of tests for fibromyalgia,
RA, thrombosis and lupus nephritis. Cash used to fund operating expenses is
impacted by the timing of when we pay expenses, as reflected in the change in
our outstanding accounts payable and accrued expenses.
We expect that our near- and longer-term liquidity requirements will continue to
consist of working capital and general corporate expenses associated with the
growth of our business, including payments we may be required to make upon the
achievement of previously negotiated milestones associated with intellectual
property we have licensed, payments related to non-cancelable purchase
obligations with one supplier for reagents, payments related to our principal
and interest under our long term borrowing arrangements, payments for operating
leases related to our office and laboratory space in Vista, California and
Carlsbad, California and payments for capital leases related to our laboratory
equipment. Based on our current business plan, we believe that our existing cash
and cash equivalents and our anticipated future revenue, will be sufficient to
meet our anticipated cash requirements for at least the next 12 months from the
date of this filing.
Our estimate of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement and involves
risks and uncertainties, and actual results could vary as a result of a number
of factors, including:
•the impact of the COVID-19 pandemic on our business, including challenges
resulting from social distancing and stay-at home orders through a reduction in
testing volumes;
•our ability to maintain and grow sales of our AVISE® testing products, as well
as the costs associated with conducting clinical studies to demonstrate the
utility of our products and support reimbursement efforts;
•our ability to achieve sufficient market acceptance, coverage and adequate
reimbursement from third-party payors and adequate market share and revenue for
our testing products;
•fluctuations in working capital;
•the costs of developing our product pipeline, including the costs associated
with conducting our ongoing and future validation, utility and outcome studies
as well as the success of our development efforts;
•the additional costs we may incur as a result of operating as a public company;
•the extent to which we establish additional partnerships or in-license, acquire
or invest in complementary businesses or products as well as the success of our
existing partnerships and/or in-licenses; and
•the costs associated with our promotion of other therapeutics, including the
expansion of our sales capabilities, and the extent and timing of generating
revenue from each such promotion.
Until such time, if ever, as we can generate revenue to support our costs
structure, we expect to finance our operations through equity offerings, debt
financings or other capital sources, including potentially collaborations,
licenses and other similar arrangements. Debt financing, if available, may
involve agreements that include covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, the ownership
interest of our stockholders may be diluted, and the terms of these securities
may include liquidation or other preferences that adversely affect the rights of
our common stockholders. If additional funding is required or desired, there can
be no assurance that additional funds will be available to us on acceptable
terms on a timely basis, if at all, or that we will generate sufficient cash
from operations to adequately fund our operating needs or achieve or sustain
profitability. If we are unable to raise additional capital or generate
sufficient cash from operations to adequately fund our operations, we will need
to delay, reduce or eliminate some or all of our research and development
programs, product portfolio expansion plans or commercialization efforts. Doing
so will likely have an unfavorable effect on our ability to execute on our
business plan and could have a negative impact on our relationships with parties
such as our commercial and strategic relationships. If we cannot expand our
operations or otherwise capitalize on our business opportunities because we lack
sufficient capital, our business, financial condition, and results of operations
could be adversely affected.
Cash Flows
                                       31
--------------------------------------------------------------------------------

The following table summarizes our cash flows for the periods indicated:

Nine Months Ended September 30,

                                                                                2021                2020
(in thousands)                                                              

(unaudited)

Net cash provided by (used in):
Operating activities                                                        $  (14,222)         $ (10,185)
Investing activities                                                            (1,356)              (450)
Financing activities                                                            64,896                (15)
Net change in cash, cash equivalents and restricted cash                    

$ 49,318 $ (10,650)



Cash Flows from Operating Activities
Net cash used in operating activities for the nine months ended September 30,
2021 was $14.2 million and primarily resulted from (i) our net loss of $19.8
million adjusted for non-cash charges of $4.8 million related to stock-based
compensation, depreciation, amortization and non-cash interest and (ii) changes
in our net operating assets of $0.7 million primarily related to net decreases
in prepaid expenses and other current assets, partially offset by net decreases
in accounts payables.
Net cash used in operating activities for the nine months ended September 30,
2020 was $10.2 million and primarily resulted from (i) our net loss of
$13.2 million adjusted for non-cash charges of $2.8 million related to
stock-based compensation, non-cash interest, depreciation, amortization and
deferred income taxes and (ii) changes in our net operating assets of
$0.3 million primarily related to net increases in accounts receivables,
partially offset by net decreases in prepaid expenses and other current assets
and net increases in accounts payables and accrued liabilities.
Cash Flows from Investing Activities
Net cash used in investing activities for the nine months ended September 30,
2021 and 2020 was $1.4 million and $0.5 million, respectively, and was primarily
due to net purchases of property and equipment.
Cash Flows from Financing Activities
Net cash provided in financing activities for the nine months ended
September 30, 2021 was $64.9 million primarily resulting from the net proceeds
received from our public offering in March 2021 of $64.7 million and proceeds
from ESPP purchases, partially offset by principal payments on capital lease
obligations.
Net cash used in financing activities for the nine months ended September 30,
2020 was $15,000 and primarily resulted from principal payments on capital lease
obligations, as well as proceeds from our unsecured loan pursuant to the U.S.
Small Business Administration Paycheck Protection Program of the CARES Act,
which we subsequently repaid in May 2020, partially offset by proceeds from
Employee Stock Purchase Plan purchases.
Critical Accounting Policies and Significant Management Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed financial statements, which have been
prepared in accordance with United States generally accepted accounting
principles, or U.S. GAAP. The year-end condensed balance sheet data was derived
from audited financial statements, but does not include all disclosures required
by U.S. GAAP. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the reported revenue generated and
expenses incurred during the reporting periods. Our estimates are based on our
historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions, and any such differences
may be material.
For a description of our critical accounting policies, please see the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Critical Accounting Policies and Significant Management
                                       32

--------------------------------------------------------------------------------


Estimates" contained in our Annual Report on Form 10-K for the year ended
December 31, 2020, as amended. There have been no significant changes in our
critical accounting policies and estimates during the three months ended
September 30, 2021 as compared to the critical accounting policies and estimates
disclosed in the Management's Discussion and Analysis of Financial Condition and
Operations included in our Annual Report on Form 10-K for the year ended
December 31, 2020, as amended, other than as set forth in Note 2 to the
unaudited condensed financial statements included in this Quarterly Report on
Form 10-Q.
Recent Accounting Pronouncements
Please see Note 2 to the unaudited condensed financial statements included in
this Quarterly Report on Form 10-Q for a summary of changes in significant
accounting policies.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have any
off-balance sheet arrangements, as defined under the rules and regulations of
the Securities and Exchange Commission, or the SEC.
JOBS Act Accounting Election
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, contains
provisions that, among other things, reduce certain reporting requirements for
an "emerging growth company." The JOBS Act permits an "emerging growth company"
such as us to take advantage of an extended transition period to comply with new
or revised accounting standards applicable to public companies. We have elected
to use this extended transition period under the JOBS Act until the earlier of
the date we (i) are no longer an emerging growth company or (ii) affirmatively
and irrevocably opt out of the extended transition period provided in the JOBS
Act. As a result, our audited financial statements may not be comparable to
companies that comply with new or revised accounting pronouncements as of public
company effective dates.
We will remain an emerging growth company until the last day of our fiscal year
following the fifth anniversary of the date of the first sale of our common
equity securities pursuant to an effective registration statement under the
Securities Act of 1933, as amended, or the Securities Act, which such fifth
anniversary will occur in 2024. However, if certain events occur prior to the
end of such five-year period, including if we become a "large accelerated filer"
as defined in Rule 12b-2 under the Exchange Act, our annual gross revenues
exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt
in any three-year period, we may cease to be an emerging growth company prior to
the end of such five-year period.

© Edgar Online, source Glimpses

All news about EXAGEN INC.
01/10EXAGEN INC. : Regulation FD Disclosure (form 8-K)
AQ
01/10Exagen, Queen Mary University to Collaborate on Molecular Signatures for Rheumatoid Art..
MT
01/09Exagen Inc. and Queen Mary University of London Announce Exclusive License and Collabor..
AQ
01/09Exagen Inc. and Queen Mary University of London Announce Exclusive License and Collabor..
CI
2021Exagen Inc. to Participate in the Piper Sandler 33rdáAnnual Virtual Healthcare Conferen..
GL
2021Exagen Inc. to Participate in the Piper Sandler 33rdáAnnual Virtual Healthcare Conferen..
GL
2021KeyBanc Adjusts Price Target on Exagen to $30 from $33, Keeps Overweight Rating
MT
2021EXAGEN INC. Management's Discussion and Analysis of Financial Condition and Results ..
AQ
2021Exagen Inc. Reports Third Quarter 2021 Results - Form 8-K
PU
2021Earnings Flash (XGN) EXAGEN Reports Q3 Revenue $12.3M, vs. Street Est of $12.1M
MT
More news
Analyst Recommendations on EXAGEN INC.
More recommendations