10-Q: Exagen Reports Increased Revenue Amidst Higher Operating Costs and Net Losses in Q2 2025

Exagen Inc. reported a 14.2% increase in revenue for the second quarter of 2025, driven by new biomarker launches and higher test volumes, despite experiencing a significant rise in net losses and operating expenses.

Summary

• Revenue for the three months ended June 30, 2025, increased by $2.1 million, or 14.2%, to $17.2 million compared to $15.1 million in the same period of 2024.
• Net loss for the three months ended June 30, 2025, widened to $4.4 million, up from $3.0 million in the prior year period.
• Gross margin slightly increased to 60.4% for Q2 2025 from 60.1% in Q2 2024, primarily due to average selling price (ASP) expansion from new biomarkers and improved overhead absorption.
• Operating expenses rose by $1.4 million, or 11.9%, to $13.0 million for Q2 2025, driven by increases in selling, general and administrative (SG&A) and research and development (R&D) expenses.
• For the six months ended June 30, 2025, revenue grew 10.9% to $32.7 million, while net loss increased to $8.2 million from $6.3 million in the first half of 2024.
• Cash and cash equivalents stood at $30.0 million as of June 30, 2025, up from $22.0 million at December 31, 2024, primarily due to recent financing activities.
• The company secured a new senior secured delayed draw term loan facility of up to $75.0 million with Perceptive Credit Holdings IV, LP, with an initial $25.0 million funded on April 25, 2025.
• A public offering on May 9, 2025, generated approximately $18.6 million in net proceeds from the sale of 3,852,500 shares of common stock at $5.25 per share.
• The qui tam legal case was dismissed with prejudice by the presiding judge on July 15, 2025, following an appeal filed by the relator on April 14, 2025.
• Management believes existing capital resources are sufficient to fund obligations for at least twelve months following the issuance of these financial statements.

Sentiment

Score: 5

Explanation: While the company achieved strong revenue growth and secured significant capital, the widening net losses and increased cash burn from operations are concerning. The R&D pipeline and legal resolution are positive, but the path to profitability remains unclear, balancing potential with ongoing financial challenges.

Positives

• Revenue increased by 14.2% for the three months ended June 30, 2025, and 10.9% for the six months ended June 30, 2025, indicating strong top-line growth.
• The number of AVISE CTD tests delivered increased by approximately 7% in Q2 2025 compared to Q2 2024, and by 14% over Q1 2025, demonstrating expanding adoption.
• Average Selling Price (ASP) of AVISE CTD tests increased by approximately 7% in Q2 2025 compared to Q2 2024, driven by the commercial launch of new SLE and RA biomarker assays.
• Gross margin improved slightly to 60.4% in Q2 2025, reflecting ASP expansion and improved overhead absorption.
• Successful completion of a public offering raising $18.6 million in net proceeds, significantly bolstering the cash position.
• Secured a new $75.0 million term loan facility, providing substantial potential liquidity for future growth and operations.
• The qui tam legal proceeding was dismissed with prejudice, resolving a significant legal uncertainty.
• The company is actively developing a robust R&D pipeline, including PAD4, Lupus Nephritis, SLE Disease Activity, RA Disease Activity, and Kidney Damage Biomarkers, with expected commercial launches and collaborations.
• Management believes existing capital resources are sufficient to fund operations for at least the next 12 months.

Negatives

• Net loss increased significantly to $4.4 million in Q2 2025 from $3.0 million in Q2 2024, and to $8.2 million for the six months ended June 30, 2025, from $6.3 million in the prior year period.
• Cash used in operating activities increased to $13.6 million for the six months ended June 30, 2025, compared to $11.5 million in the same period of 2024, indicating higher cash burn.
• Operating expenses, including SG&A and R&D, increased in absolute dollars, contributing to the higher net loss.
• Interest expense more than doubled to $1.1 million in Q2 2025 due to the new Perceptive Term Loan Facility.
• Incurred a $0.3 million loss on extinguishment of debt due to the early repayment of the 2017 Term Loan.
• A $0.4 million negative change in the fair value of warrant liability impacted the net loss.
• Gross margin for the six months ended June 30, 2025, slightly decreased to 59.7% from 59.9% in the prior year, attributed to upfront investment in lab operations for new biomarkers and unamended client direct bill contracts.
• The company continues to incur recurring losses and negative cash flows from operating activities since inception, with an accumulated deficit of $302.5 million as of June 30, 2025.
• Interest income decreased to $85 thousand in Q2 2025 from $181 thousand in Q2 2024.

Risks

• The company has incurred recurring losses and negative cash flows from operating activities since inception and anticipates continued net losses in future periods.
• Additional funding may be required to support continuing operations and growth strategy, and there is no assurance of obtaining such financing on acceptable terms or at all.
• The terms of any future financing may adversely affect the holdings or rights of stockholders, including potential dilution from equity or convertible debt securities.
• Inability to obtain additional funding could force delays, reductions, or elimination of programs, product portfolio expansion, or commercialization efforts, materially affecting business and financial condition.
• Revenue depends on achieving broad coverage and adequate reimbursement for tests from third-party payors, including commercial and government payors, which can be uncertain and time-consuming.
• Commercial payors may proactively reduce reimbursement amounts or seek to recover perceived excess payments, impacting revenue and cash flow.
• The Local Coverage Determination (LCD) application for the AVISE Lupus test is pending with Noridian Healthcare Solutions, and its fate and timing are uncertain due to a federal Executive Order.
• The company is dependent on key suppliers for certain laboratory materials, and an interruption in supply would impact its ability to perform testing services.
• The Credit Agreement with Perceptive includes customary affirmative, negative, and financial covenants, including maintaining a minimum unrestricted cash balance of $3.0 million and achieving specified net revenue levels, with potential for immediate debt acceleration upon default.
• The current inflationary environment has resulted in higher prices, impacting costs to generate revenue, attract and retain personnel, and other operating costs, with uncertain severity and duration.
• Changes in U.S. trade policies, including tariffs or other restrictions on imports of reagents or materials, could increase costs and adversely affect business, results of operations, and financial condition.

Future Outlook

The company anticipates continued net losses in future periods as it invests in growth. It expects selling, general and administrative expenses to increase moderately in absolute dollars in the near-term due to sales force expansion and infrastructure investment, but to decrease as a percentage of revenue. Research and development expenses are expected to increase moderately in absolute dollars in the near-term for pipeline initiatives, but to remain flat or moderately decrease as a percentage of revenue. Gross margin is expected to maintain or improve moderately in the second half of 2025, as current factors are considered transitory headwinds. Management believes existing capital resources will be sufficient to meet anticipated cash requirements for at least the next 12 months.

Management Comments

• We are executing an operational turnaround of the business, resulting in a return to revenue growth and gross margin expansion while significantly reducing operating expenses and cash burn.
• We believe our strong focus and extensive background in the field of rheumatology, combined with our commitment to exceptional customer service and support, position us well to respond to the needs of rheumatologists, primary care physicians, other specialists, and the patients they serve.
• We believe there is significant potential to enhance existing or develop new testing products with superior clinical utility, on our own or through collaboration with partners.
• We expect the addition of these new biomarkers will continue to drive gains in our AVISE CTD average selling price, gross margin expansion and increase demand while positioning us for profitability.
• We expect that our selling, general and administrative expenses may increase moderately in absolute dollars in the near-term as we expand our sales force and invest in infrastructure to support expected volume and revenue growth, but should decrease year-over-year as a percentage of revenue.
• We expect that our research and development expenses may increase moderately in absolute dollars in the near-term as we execute on additional pipeline initiatives, but should remain flat or moderately decrease year-over-year as a percentage of revenue.
• 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.

Industry Context

Exagen operates in the medical technology sector, specifically focusing on diagnostic testing for complex rheumatic and autoimmune diseases. The company's strategy of developing and commercializing next-generation testing products, like the AVISE brand, aligns with broader industry trends towards precision medicine and personalized diagnostics. Its emphasis on unique biomarkers and AI-developed algorithms for disease activity monitoring positions it within the innovative segment of the diagnostics market. The pursuit of partnerships with pharmaceutical companies for research use of its panels also reflects a growing trend of collaboration between diagnostic companies and drug developers to enhance therapeutic outcomes and patient management.

Corporate Governance

Legal Proceedings

• The qui tam case, stemming from a settlement agreement with the Department of Justice (DOJ) in October 2023, was dismissed with prejudice by the presiding judge on July 15, 2025. The relator had filed an appeal on April 14, 2025, but a stipulation of dismissal was filed by both the DOJ and the relator's counsel.

Stakeholder Impact

• **Shareholders**: Experienced dilution from the public offering and potential future dilution from warrants and additional capital raises. The increased net loss and cash burn are negative, but the secured funding provides a longer runway. The dismissal of the qui tam case removes a legal overhang.
• **Employees**: Increased headcount and stock-based compensation indicate continued investment in the workforce. The ESPP and incentive award plan provide opportunities for employee ownership and retention.
• **Customers (Rheumatologists, Physicians, Patients)**: Benefit from the commercial launch of new SLE and RA biomarker assays on the AVISE CTD platform, which are expected to improve clinical utility and diagnostic accuracy. Ongoing R&D aims to provide more innovative testing products.
• **Suppliers**: The company has a supply agreement with a key supplier for reagents with minimum purchase commitments through December 31, 2025, indicating continued business for them.
• **Creditors (Perceptive Credit Holdings IV, LP)**: The new term loan facility provides a significant financing arrangement, secured by a first-priority lien on substantially all of the company's assets, and includes financial covenants to protect the lender's interests.

Next Steps

• Commercially launch the PAD4 biomarker around the end of 2025.
• Expect results of testing for Lupus Nephritis (LN) biomarkers in the third quarter of 2025.
• Make the LN biomarker panel available initially through Pharma collaborations for research use prior to commercial release.
• Continue clinical validation for the SLE Disease Activity candidate assay with ongoing patient recruitment.
• Continue development of the RA Disease Activity candidate assay, with the validation cohort procured for analysis.
• Make the Kidney Damage Biomarkers panel available initially through Pharma collaborations for research use prior to commercial release.
• Continue to expand the sales force and invest in infrastructure to support expected volume and revenue growth.
• Optimize revenue cycle practices and focus managed care efforts on medical policy expansion.
• Continue to educate insurance payors on the published, real-world evidence of the clinical utility of testing products.

Key Dates

Recommendation

While Exagen Inc. demonstrated strong revenue growth and successfully secured significant capital through a public offering and a new term loan, the company continues to incur substantial and increasing net losses, alongside a higher cash burn from operations. The R&D pipeline shows promise with new biomarker launches and ongoing development, and the resolution of the qui tam legal case is a positive. However, the long-term path to profitability remains uncertain, and the new debt facility comes with warrants and covenants. For a seasoned investor, the growth potential in the specialized diagnostics market and the strengthened balance sheet provide a basis for holding, but the persistent losses warrant caution and close monitoring of future financial performance and progress towards profitability.

Keywords

Medical Technology, Autoimmune Disease, Rheumatology, Diagnostic Testing, AVISE CTD, SLE, RA, Biomarkers, SEC Filing, 10-Q, Financial Results, Net Loss, Revenue Growth, Capital Raise, Term Loan, Public Offering, Research and Development, Clinical Laboratory, Reimbursement, Liquidity, Corporate Governance