10-Q: Exagen Reports Strong Q3 Revenue Growth, Bolsters Liquidity

Exagen Inc. announced significant revenue growth and improved operational cash flow in its third-quarter 2025 results, driven by increased test volumes and new biomarker launches, while also securing substantial new financing.

Summary

• Revenue for the three months ended September 30, 2025, increased 37.9% to $17.2 million, and for the nine months, increased 19.0% to $49.9 million, compared to the same periods in 2024.
• Gross profit for the three months ended September 30, 2025, rose 44.3% to $10.1 million, with gross margin improving to 58.4% from 55.8% year-over-year.
• Net loss for the three months ended September 30, 2025, was $(7.1) million, compared to $(5.0) million in the prior year, primarily due to a $2.7 million increase in the fair value of warrant liability.
• Net cash used in operating activities for the nine months ended September 30, 2025, improved to $(10.6) million from $(13.6) million in the prior year.
• The company raised $18.6 million in net proceeds from a public offering in May 2025 and secured a new $75.0 million term loan facility with Perceptive, with an initial $25.0 million funded.
• New SLE, RA, and PAD4 biomarker assays were commercially launched on the AVISE CTD platform in January and Q3 2025, contributing to Average Selling Price (ASP) expansion.
• The qui tam legal case was dismissed with prejudice on July 15, 2025.

Sentiment

Score: 7

Explanation: The company demonstrated strong revenue growth and improved gross margins, coupled with a significant increase in cash reserves from recent financing activities. Operational cash burn has decreased, and a key legal proceeding was favorably resolved. However, the company continues to incur net losses, and future profitability is contingent on successful market penetration and favorable reimbursement policies, which remain uncertain. The increase in warrant liability also negatively impacted net loss.

Positives

• Strong revenue growth: 37.9% increase in the three months ended September 30, 2025, and 19.0% increase in the nine months ended September 30, 2025.
• Improved gross margin: 58.4% in the three months ended September 30, 2025 (vs 55.8% in Q3 2024) and 59.3% in the nine months (vs 58.7% in 2024).
• Increased AVISE CTD test volume: Approximately 16% increase in the three months ended September 30, 2025, and 8% increase in the nine months ended September 30, 2025, compared to prior year periods.
• Average Selling Price (ASP) expansion: AVISE CTD trailing twelve-month ASP increased by $37 to $441 per test in Q3 2025.
• Improved operational cash flow: Net cash used in operating activities decreased to $(10.6) million for the nine months ended September 30, 2025, from $(13.6) million in 2024.
• Strengthened liquidity: Cash and cash equivalents increased to $35.7 million as of September 30, 2025, from $22.0 million at December 31, 2024.
• Successful capital raises: $18.6 million net from public offering and $25.0 million initial funding from Perceptive Term Loan Facility.
• New product launches: Commercial launch of SLE, RA, and PAD4 biomarker assays on AVISE CTD platform.
• Positive resolution of legal proceedings: Qui tam case dismissed with prejudice on July 15, 2025.
• Management believes existing capital resources are sufficient to fund obligations for at least twelve months.

Negatives

• Continued net losses: Net loss increased to $(7.1) million in the three months ended September 30, 2025 (from $(5.0) million in Q3 2024) and to $(15.3) million for the nine months (from $(11.4) million in 2024).
• Accumulated deficit increased to $309.6 million as of September 30, 2025.
• Significant increase in warrant liability fair value: $2.7 million in the three months ended September 30, 2025, and $3.1 million for the nine months, contributing to higher net loss.
• Increased interest expense: $0.8 million increase in the three months ended September 30, 2025, and $1.3 million increase for the nine months, primarily due to the new Perceptive Term Loan Facility.
• Interest income decreased by $0.2 million in the three months ended September 30, 2025, and $0.3 million for the nine months due to lower cash and cash equivalents held in money market funds.

Risks

• Recurring losses and negative cash flows from operating activities since inception, with anticipation of continued net losses.
• Need for additional funding to support continuing operations and growth strategy, with no assurance of obtaining such financing on acceptable terms.
• Potential adverse effects on stockholders' holdings or rights from terms of any future financing.
• Risk of being forced to delay, reduce, or eliminate programs, product portfolio expansion, or commercialization efforts if unable to obtain additional funding.
• Dependence on a limited number of key suppliers for diagnostic testing materials (approximately 97% from two suppliers in Q3 2025).
• Uncertainty in achieving broad coverage and adequate reimbursement from third-party payors for tests.
• Commercial payors may proactively reduce reimbursement amounts or seek to recover perceived excess payments.
• Fluctuations in revenue due to changes in estimated reimbursements for tests performed in prior periods.
• Uncertainty regarding the fate and timing of the Local Coverage Determination (LCD) application for AVISE Lupus due to the 'Regulatory Freeze Pending Review' Executive Order.
• MolDX technical assessment for multi-analyte proteomic testing is on hold until an LCD is issued by CMS.
• Consistent challenges with commercial payor claim processing and denials due to unfavorable medical policy.
• Impact of the current inflationary environment on costs of revenue, personnel, and other operating costs.
• Adverse effects from changes in U.S. trade policies, including tariffs, on costs of reagents sourced internationally.
• Covenants under the Perceptive Term Loan Facility, 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.
• Dilution of ownership interest for stockholders if additional capital is raised through equity or convertible debt securities.

Future Outlook

The company anticipates continued net losses in future periods but expects to achieve sustainable profitable growth through gross margin enhancements and improved operating expense efficiencies. It plans to continue investing in research and development for new testing products, including Lupus Nephritis, SLE Disease Activity, RA Disease Activity, and Kidney Damage Biomarkers, with initial availability through Pharma collaborations. Selling, general, and administrative expenses are expected to increase moderately in absolute dollars in the near-term due to sales force expansion and infrastructure investment, but decrease as a percentage of revenue. Research and development expenses are also expected to increase moderately in absolute dollars but remain flat or moderately decrease as a percentage of revenue. The company expects to continue incurring interest expense under the Perceptive Term Loan Facility. Management believes existing capital resources, combined with anticipated future revenue, will be sufficient to meet cash requirements for at least the next 12 months.

Management Comments

• "We have executed 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 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."
• "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."

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 AVISE CTD, with enhanced biomarkers for conditions such as SLE and RA, aligns with a broader industry trend towards more precise and earlier diagnosis in autoimmune disease management. The emphasis on leveraging clinical laboratory data for AI-developed algorithms and pursuing partnerships with pharmaceutical companies for research use of new panels reflects the increasing integration of advanced analytics and collaborative models in diagnostics. The challenges faced with reimbursement and coverage from third-party payors are common across the diagnostic industry, highlighting the importance of clinical validity and utility studies to demonstrate healthcare cost savings.

Legal Proceedings

• The qui tam case, previously disclosed, was dismissed with prejudice by the presiding judge on July 15, 2025, following a stipulation of dismissal filed by the Department of Justice (DOJ) and the relator's counsel.

Stakeholder Impact

• Shareholders experienced dilution from recent equity offerings but saw an increase in total stockholders' equity and improved liquidity, potentially reducing immediate capital raise risks.
• Employees saw increased headcount and stock-based compensation, indicating growth and investment in human capital.
• Customers (Healthcare Providers & Patients) benefit from new biomarker assays (SLE, RA, PAD4) on the AVISE CTD platform, offering improved diagnostic utility and potentially shorter diagnostic journeys for autoimmune diseases.
• Suppliers, specifically one with an amended supply agreement, have minimum purchase commitments, providing a degree of revenue certainty.
• Creditors, particularly Perceptive Credit Holdings IV, LP, now hold a senior secured delayed draw term loan facility with a first-priority lien on substantially all assets, providing strong collateral.

Next Steps

• Expect results of new customized array testing for Lupus Nephritis (LN) biomarkers in Q4 2025.
• Plan to make LN and Kidney Damage biomarker panels available initially through Pharma collaborations for research use prior to commercial release.
• Continue clinical validation for the SLE Disease Activity candidate assay.
• Continue development and analysis of the validation cohort for the RA Disease Activity candidate assay.
• CMS will align local MAC pricing for the AVISE Lupus PLA code with national payment rates on the 2026 Clinical Laboratory Fee Schedule.
• Continue to submit Medicare claims for AVISE Lupus, appeal denials, and respond to requests for additional information.
• MolDX technical assessment for multi-analyte proteomics testing will proceed once an LCD is issued by CMS.
• Continue revenue cycle management initiatives to optimize appeals and cash collections.
• Expand sales force and invest in infrastructure to support expected volume and revenue growth.
• Execute on additional pipeline initiatives in research and development.
• Evaluate the impact of ASU 2024-03 and ASU 2025-05 on financial statement presentation and disclosures.
• Assess the impact of the One Big Beautiful Bill Act (OBBBA) on financial statements.

Key Dates

Recommendation

Exagen Inc. demonstrated strong revenue growth and improved gross margins, driven by increased test volumes and the successful launch of new biomarker assays. The company also significantly strengthened its liquidity position through a public offering and a new debt facility, and favorably resolved a legal proceeding. These factors are positive indicators. However, the company continues to incur net losses and has a substantial accumulated deficit, indicating it is not yet profitable. Future success hinges on continued market adoption, favorable reimbursement policies, and successful R&D, all of which carry inherent uncertainties. The increase in warrant liability also negatively impacted the net loss. Given the mixed signals of strong operational growth alongside persistent unprofitability and future funding needs, a "Hold" recommendation is appropriate for a seasoned investor, suggesting to monitor progress on profitability and reimbursement.

Keywords

Autoimmune disease, Rheumatology, Diagnostic testing, AVISE CTD, Lupus, Rheumatoid Arthritis, Biomarkers, Medical technology, SEC filing, 10-Q, Financial results, Perceptive Term Loan, Capital raise, Clinical laboratory