exdx-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-39049

EXAGEN INC.

(Exact name of registrant as specified in its charter)

Delaware

20-0434866

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

1261 Liberty Way

Vista,

California

92081

(Address of Principal Executive Offices)

(Zip Code)


(760)			560-1501
(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

XGN

The Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Total shares of common stock outstanding as of the close of business on May 6, 2022 was 16,256,051.

TABLE OF CONTENTS


		Page
Part I.	Financial Information
Item 1.	Unaudited Condensed Financial Statements	1
	Unaudited Condensed Balance Sheets as of March 31, 2022 and December 31, 2021	1
	Unaudited Condensed Statements of Operations for the Three Months ended March 31, 2022 and 2021	2
	Unaudited Condensed Statements of Stockholders' Equity for the Three Months ended March 31, 2022 and 2021	3
	Unaudited Condensed Statements of Cash Flows for the Three Months ended March 31, 2022 and 2021	4
	Notes to Unaudited Condensed Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31

Part II.	Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
	Signatures	34

Part I. Financial Information

Item 1. Unaudited Condensed Financial Statements

Exagen Inc.

Unaudited Condensed Balance Sheets

(in thousands, except share and per share data)


	March 31, 2022		December 31, 2021

Assets
Current assets:
Cash and cash equivalents	$	89,751	$	99,442
Accounts receivable, net	10,911		9,654
Prepaid expenses and other current assets	2,974		3,638
Total current assets	103,636		112,734
Property and equipment, net	6,568		4,772
Operating lease right-of-use assets	5,633		—
Goodwill	5,506		5,506
Other assets	701		433
Total assets	$	122,044	$	123,445
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	4,214	$	2,492
Operating lease liabilities	949		—
Accrued and other current liabilities	6,721		6,826

Total current liabilities	11,884		9,318
Borrowings-non-current portion, net of discounts and debt issuance costs	27,651		27,478

Non-current operating lease liabilities	5,284		—
Deferred tax liabilities	306		306
Other non-current liabilities	763		1,407
Total liabilities	45,888		38,509
Commitments and contingencies (Note 6)

Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued or outstanding at March 31, 2022 and December 31, 2021	—		—
Common stock, $0.001 par value; 200,000,000 shares authorized at March 31, 2022 and December 31, 2021; 16,231,198 and 16,164,994 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	16		16
Additional paid-in capital	294,552		293,060
Accumulated deficit	(218,412)		(208,140)
Total stockholders' equity	76,156		84,936
Total liabilities and stockholders' equity	$	122,044	$	123,445

The accompanying notes are an integral part of these condensed financial statements

Exagen Inc.

Unaudited Condensed Statements of Operations

(in thousands, except share and per share data)


	Three Months Ended March 31,
	2022		2021

Revenue	$	10,394	$	10,587
Operating expenses:
Costs of revenue	5,817		4,711
Selling, general and administrative expenses	12,152		10,040
Research and development expenses	2,104		1,403


Total operating expenses	20,073		16,154
Loss from operations	(9,679)		(5,567)
Interest expense	(598)		(645)

Other income, net	5		3


Net loss	$	(10,272)	$	(6,209)



Net loss per share, basic and diluted	$	(0.60)	$	(0.48)
Weighted-average number of shares used to compute net loss per share, basic and diluted	16,992,391		12,943,237

The accompanying notes are an integral part of these condensed financial statements

Exagen Inc.

Unaudited Condensed Statements of Stockholders' Equity

(in thousands, except share data)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balances at December 31, 2021	16,164,994	$	16	$	293,060	$	(208,140)	$	84,936
Issuance of stock from vested restricted stock units and payment of employees' taxes	30,523	—		(115)		—		(115)
Issuance of stock under Employee Stock Purchase Plan	35,681	—		231		—		231
Stock-based compensation	—	—		1,376		—		1,376
Net loss	—	—		—		(10,272)		(10,272)
Balances at March 31, 2022	16,231,198	$	16	$	294,552	$	(218,412)	$	76,156


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balances at December 31, 2020	12,652,308	$	13	$	223,115	$	(181,289)	$	41,839
Issuance of stock in public offering, net of issuance costs of $4,435	4,255,000	4		64,705		—		64,709
Exercise of stock options	3,381	—		44		—		44
Issuance of stock under Employee Stock Purchase Plan	14,991	—		175		—		175
Stock-based compensation	—	—		912		—		912
Net loss	—	—		—		(6,209)		(6,209)
Balances at March 31, 2021	16,925,680	$	17	$	288,951	$	(187,498)	$	101,470

The accompanying notes are an integral part of these condensed financial statements

Exagen Inc.

Unaudited Condensed Statements of Cash Flows

(in thousands)


	Three Months Ended March 31,
		2022		2021

Cash flows from operating activities:
Net loss		$	(10,272)	$	(6,209)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		283		187
Amortization of debt discount and debt issuance costs		38		73
Non-cash interest expense		135		132



Non-cash lease expense		219		—
Stock-based compensation		1,376		912
Changes in assets and liabilities:
Accounts receivable, net		(1,257)		689
Prepaid expenses and other current assets		664		1,061
Other assets		(273)		(48)
Operating lease liabilities		(155)		—
Accounts payable		579		(792)
Accrued and other current liabilities		89		(317)

Net cash used in operating activities		(8,574)		(4,312)
Cash flows from investing activities:
Purchases of property and equipment		(1,087)		(167)




Net cash used in investing activities		(1,087)		(167)
Cash flows from financing activities:
Proceeds from exercise of stock options		—		44
Payment of taxes withheld on vested restricted stock units		(115)		—
Proceeds from common stock issued under Employee Stock Purchase Plan		231		175

Principal payment on finance lease obligations		(146)		(96)



Proceeds from the issuance of common stock in public offering, gross		—		69,144
Payment of issuance costs related to public offering		—		(4,186)





Net cash (used in) provided by financing activities		(30)		65,081
Net change in cash, cash equivalents and restricted cash		(9,691)		60,602
Cash, cash equivalents and restricted cash, beginning of period		99,542		57,548
Cash, cash equivalents and restricted cash, end of period		$	89,851	$	118,150
Supplemental disclosure of cash flow information:
Cash paid for interest		$	424	$	439
Supplemental disclosure of non-cash items:

Equipment purchased under finance lease obligations		$	—	$	384

Costs incurred, but not paid, in connection with capital expenditures		$	1,672	$	44


Issuance costs included in accounts payable and accrued liabilities		$	—	$	221
Deferred offering costs reclassified to equity		$	—	$	28

The accompanying notes are an integral part of these condensed financial statements

Exagen Inc.

Notes to Unaudited Interim Condensed Financial Statements

Note 1. Organization

Description of Business

Exagen Inc. (the Company) is dedicated to transforming the care continuum for patients suffering from debilitating and chronic autoimmune diseases by enabling timely differential diagnosis and optimizing therapeutic intervention.

Liquidity

The Company has incurred recurring losses and negative cash flows from operating activities since inception. The Company anticipates that it will continue to incur net losses into the foreseeable future. At March 31, 2022, the Company had cash and cash equivalents of $89.8 million and had an accumulated deficit of $218.4 million. Since inception, the Company has financed its operations primarily through a combination of equity financings of common stock and private placements of preferred securities, debt financing arrangements, and revenue from sales of the Company's products. Based on the Company's current business plan, management believes that its existing capital resources will be sufficient to fund the Company's obligations for at least twelve months following the issuance of these condensed financial statements.

To execute its business plans, the Company may need additional funding to support its continuing operations and pursue its growth strategy. Until such time as the Company can achieve significant cash flows from operations, if ever, it expects to finance its operations through the sale of its stock, debt financings or other strategic transactions. Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. The terms of any financing may adversely affect the holdings or the rights of the Company's stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its programs, product portfolio expansion plans or commercialization efforts, which could have a material adverse effect on the Company's business, operating results and financial condition and the Company's ability to achieve its intended business objectives.

Impact of COVID-19 Pandemic

Since 2020, due to the worldwide COVID-19 pandemic, the Company began to experience a reduction in patient test volumes, delays in patient enrollment in ongoing and planned clinical studies, and delays in the procurement of its testing supplies. The full extent to which the COVID-19 pandemic will directly or indirectly continue to impact the Company's business, results of operations and financial condition, 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 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.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying interim condensed balance sheet as of March 31, 2022, the condensed statements of operations and the condensed statements of stockholders' equity for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021 and the related footnote disclosures are unaudited and have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (SEC), and with accounting principles generally accepted in the United States (GAAP) applicable to interim financial statements. In management's opinion, the unaudited interim condensed financial statements have been prepared on the same basis as the audited financial statements and include all normal adjustments,

necessary for the fair presentation of the Company's financial position as of March 31, 2022 and its results of operations for the three month periods presented. The results for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the full fiscal year or any other interim period. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2021, included in its Annual Report on Form 10-K filed with the SEC on March 22, 2022.

The preparation of the accompanying condensed financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the condensed financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates.

Significant estimates and assumptions made in the accompanying condensed financial statements include, but are not limited to revenue recognition, estimated incremental borrowing rate for the determination of the Company's operating lease right-of-use (ROU) assets, the fair value of financial instruments measured at fair value, the recoverability of its long-lived assets (including goodwill) and net deferred tax assets (and related valuation allowance). The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

Concentration of Credit Risk and Other Risk and Uncertainties

Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, and accounts receivable. Substantially all the Company's cash and cash equivalents are held at one financial institution that management believes is of high credit quality. Such deposits may, at times, exceed federally insured limits.

Significant payors and customers are those which represent more than 10% of the Company's total revenue or accounts receivable balance at each respective balance sheet date. For each significant payor and customer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:


	Revenue
	Three Months Ended March 31,
	2022		2021
Medicare	20	%	18	%
Medicare Advantage	15	%	12	%
Blue Shield	13	%	12	%


	Accounts Receivable
	March 31, 2022		December 31, 2021

United Healthcare	20	%	18	%
Blue Shield	19	%	19	%

For the three months ended March 31, 2022 and 2021, approximately 84% and 81%, respectively, of the Company's revenue was related to the AVISE® CTD test.

The Company is dependent on key suppliers for certain laboratory materials. For the three months ended March 31, 2022 and 2021, approximately 95% and 98%, respectively, of the Company's diagnostic testing supplies were purchased from two suppliers. An interruption in the supply of these materials would impact the Company's ability to perform testing services.

Disaggregation of Revenue

The following table includes the Company's revenues as disaggregated by payor and customer category (in thousands):


	Three Months Ended March 31,
	2022		2021
Revenue:
Healthcare insurers	$	6,423	$	6,027
Government	2,120		2,009
Client(1)	1,591		1,965
Other(2)	260		286
Janssen (SIMPONI®)	—		300
Total revenue	$	10,394	$	10,587

(1)Includes hospitals, other laboratories, etc.

(2)Includes patient self-pay.

Fair Value Measurements

The carrying value of the Company's cash and cash equivalents approximate fair value due to the short-term nature of these items. The estimated fair value of the Company's long-term borrowings are determined by Level 2 inputs and is based primarily on quoted market prices for the same or similar issues. The recorded value of the Company's long-term borrowings approximates the current fair value as the interest rate and other terms are that which are currently available to the Company.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 - Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly-liquid investments purchased with a remaining maturity date upon acquisition of three months or less to be cash equivalents and are stated at cost, which approximates fair value.

The Company has an arrangement with a financial institution with which it has an existing banking relationship whereby, in exchange for the issuance of corporate credit cards, the Company agreed to obtain a $0.1 million certificate of deposit with this financial institution as collateral for the balances borrowed on these credit cards. The Company has classified the value of this certificate of deposit (including all interest earned thereon) within other assets in the accompanying balance sheets. The Company has the right to terminate the credit card program at any

time. Upon termination of the credit card program and repayment of all outstanding balances owed, the Company may redeem the certificate of deposit (and all interest earned thereon).

Cash, cash equivalents and restricted cash presented in the accompanying condensed statements of cash flows consist of the following (in thousands):


	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	89,751	$	99,442
Restricted cash	100		100
	$	89,851	$	99,542

Revenue Recognition

Substantially all of the Company's revenue has been derived from sales of its testing products and is primarily comprised of a high volume of relatively low-dollar transactions. The Company primarily markets its testing products to rheumatologists and their physician assistants in the United States. The healthcare professionals who order the Company's testing products and to whom test results are reported are generally not responsible for payment for these products. The parties that pay for these services (each, payors) consist of healthcare insurers, government payors (primarily Medicare and Medicaid), client payors (i.e., hospitals, other laboratories, etc.), and patient self-pay. The Company's service is a single performance obligation that is completed upon the delivery of test results to the prescribing physician which triggers revenue recognition.

Payors are billed at the Company's list price. Net revenues recognized consist of amounts billed net of allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payors. The process for estimating revenues and the ultimate collection of accounts receivable involves significant judgment and estimation. The Company follows a standard process, which considers historical denial and collection experience, insurance reimbursement policies and other factors, to estimate allowances and implicit price concessions, recording adjustments in the current period as changes in estimates occur. Further adjustments to the allowances, based on actual receipts, are recorded upon settlement. The transaction price is estimated using an expected value method on a portfolio basis. The Company's portfolios are grouped per payor (i.e. each individual third-party insurance, Medicare, client payors, patient self-pay, etc.) and per test basis.

Collection of the Company's net revenues from payors is normally a function of providing complete and correct billing information to the healthcare insurers and generally occurs within 30 to 90 days of billing. Contracts do not contain significant financing components based on the typical period of time between performance of services and collection of consideration.

Janssen Promotion Agreement

In December 2018, the Company entered into a co-promotion agreement (as amended from time to time, the Janssen Agreement) with Janssen Biotech, Inc. (Janssen) to co-promote 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, as amended, the Company was responsible for the costs associated with its sales force over the course of such co-promotion. Janssen was responsible for all other aspects of the commercialization of SIMPONI® under the Janssen Agreement. In exchange for the Company's sales and co-promotional services, the Company was 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. The Company's obligations relating to sales and co-promotion services for SIMPONI® were a series of single performance obligations since Janssen simultaneously received and consumed benefits provided by the Company's sales and co-promotional services. The method for measuring progress towards satisfying the performance obligations was based on prescribed units in excess of the contractual baseline at the contractual rate earned per unit since the Janssen Agreement, as amended, was cancelable. The Company recognized no co-promotion revenue and $0.3 million during the three months ended March 31, 2022 and 2021, respectively. The related expenses for marketing SIMPONI® are included in selling, general and administrative expenses and are expensed as incurred.

Upon the termination of the Janssen Agreement on August 31, 2021, the Company became entitled to receive an aggregate of $0.6 million in consideration, which was earned in the year ended December 31, 2021. Pursuant to the terms of the termination, the Company is restricted from promoting any other biologic or Janus kinase inhibitor used for the treatment of indications covered by the Janssen Agreement without first obtaining Janssen's written consent until May 31, 2022.

Leases

The Company categorizes leases at their commencement as either operating or finance leases. Effective January 1, 2022 upon adoption of ASC 842, the Company recognizes operating lease ROU assets and operating lease liabilities for each lease arrangement identified. Lease liabilities are recorded at the present value of future lease payments discounted using the Company's incremental borrowing rate for the lease established at the commencement date and ROU assets are measured at the amount of the lease liability plus any initial direct costs, less any lease incentives received before commencement. Lease expense is recognized as a single lease cost over the lease term on a straight-line basis. The Company has elected not to apply the recognition requirements to short-term leases and not to separate non-lease components from lease components for its leases. See Note 5 for details on the Company's leases.

Research and Development

Costs associated with research and development activities are expensed as incurred and include, but are not limited to, personnel-related expenses, 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.

Advertising and Marketing Costs

Costs associated with advertising and marketing activities are expensed as incurred. Total advertising and marketing costs were approximately $

SEC Form 10-Q filed by Exagen Inc.