Exagen (XGN) is a med-tech company primarily focused on the design, development, and commercialization of portfolio of innovative testing products under AVISE brand, which allows for the differential diagnosis, prognosis, and monitoring of complex rheumatic, autoimmune and related diseases including SLE, RA and others. The company is on track to produce positive earnings and free cash flow by the end of this year, while revenue growth accelerating at a rapid pace. As Exagen introduces more biomarkers, the performance of their diagnostics improve, and they are able to realize a higher average selling price (ASP) per test.
Autoimmune Diseases Landscape
Properly diagnosing an autoimmune disease can be challenging. Approximately more than 41 million Americans have tested antinuclear antibody (ANA) positive (+), which is a first line screen for autoimmune disease. This compares to approximately one million patients that have been diagnosed with lupus and two million individuals that have been diagnosed with rheumatoid arthritis (RA) (relatively common autoimmune diseases).
Issues with diagnosing autoimmune diseases (and lupus in particular) include ambiguous symptoms, manifestations overlap, outdated technology, testing delays, low test sensitivity and specificity and a high rate of misdiagnosis. Specifically, average lupus diagnosis takes roughly six years and fifteen doctor’s visits (compares to two years for rheumatoid arthritis).
Earlier intervention meaningfully improves outcomes (1.5 x reduction in lupus mortality risk and prevention of articular damages and bone erosion for rheumatoid arthritis).
Conventional biomarkers are not associated with one specific disease. For example, specific antibodies have multiple clinical associations.
Types of autoimmune diseases
Connective Tissue Diseases
CTDs are a sub-category of autoimmune diseases involving inflammation of the joints, tissues and internal organs. Persons with CTDs often present to their rheumatologist with complaints of joint pain, fatigue, unexplained fever, inflammation, rash, stiffness, and muscle aches. These symptoms overlap among numerous CTDs, including SLE, one of the most severe CTDs, which historically has been difficult to rule out, as well as other autoimmune-related diseases and other disorders that mimic these diseases, such as fibromyalgia.
Systemic Lupus Erythematosus
SLE, the most common and severe form of lupus, is a chronic, inflammatory disorder that can damage any part of the body, including the skin, joints and internal organs. The blood of a person afflicted with SLE contains auto antibodies, which are the cause of the inflammation and organ damage and are one indicator of immune system abnormalities. SLE is characterized by a rise in symptoms and/or abnormal laboratory test results. SLE varies in severity, from mild cases to those in which significant, and potentially fatal, damage occurs to vital organs such as the brain, heart, kidneys, and lungs. Detection of these autoantibodies can assist rheumatologists in the diagnosis of SLE. Diagnosis of SLE allows rheumatologists to initiate the most appropriate therapy to minimize irreversible organ damage and reduce morbidity.
Rheumatoid Arthritis
RA is a chronic, systemic autoimmune disease in which the immune system attacks the joints and can also affect other organ systems. The annual incidence and prevalence of RA in the United States is estimated to b 1 e approximately 135,000 and 2 million, respectively. Patients suffering from RA develop joint damage that is associated with painful inflammation and often progresses to irreversible damage of cartilage and bone, leading to significant disability and a reduction in quality of life and the ability to work.
Exagen commercially launched flagship testing product, AVISE CTD in 2012. AVISE CTD enables differential diagnosis for patients presenting with symptoms indicative of a wide variety of connective tissue diseases (CTDs) and other related diseases with overlapping symptoms. Traditional screening methods often lack accuracy, resulting in repeat testing and delayed diagnosis. With significant increases in autoimmune incidence in recent years, AVISE CTD provides unique biomarkers that empower clinicians to confidently and quickly diagnose various CTDs.
AVISE CTD - Flagship product
Exagen’s AVISE CTD test leverages multiple CB-CAPs, which are biomarkers that have demonstrated sensitivity for lupus at least roughly 50% higher than most conventional markers. In Exagen's CAPSTONE study, AVISE CTD demonstrated it enables a 6 x greater likelihood of lupus diagnosis than conventional testing. Exagen also has solid intellectual property protections and a strong competitive position in lupus and rheumatoid arthritis (RA) testing. Conventional biomarkers including anti-Smith, anti-dsDNA and C 3/C 4 have demonstrated sensitivity for lupus below 50%.
Other AVISE Tests
| Test | Test Description |
|---|---|
| AVISE® APS | AVISE® APS aids in both the diagnosis and management of APS, a hyper-coagulation state leading to thrombosis, pregnancy complications and even death. Rheumatologists would typically request the AVISE® APS test in patients who initially tested positive for one or more APS biomarkers contained in AVISE® CTD, or in the management of patients experiencing a high-risk pregnancy. |
| AVISE® Vasculitis AAV | AVISE® Vasculitis AAV utilizes a testing panel of individual analytes designed to provide physicians with rapid and reliable results in the assessment and monitoring of anti-neutrophil cytoplasmic antibody (ANCA) associated vasculitis (AAV). AAV is a group of autoimmune diseases characterized by vascular inflammation and damage. Early signs and symptoms vary greatly and are not always indicative of the severity of the disease. Rapid and accurate testing is essential to prevent death and long-term disability. |
| AVISE® Anti-Histone | AVISE® Anti-Histone is a test for autoantibodies to histone proteins commonly found in drug induced lupus and SLE patients. |
| AVISE® SLE Prognostic | AVISE® SLE Prognostic is a panel of autoantibodies that have established predictive value for assessing the potential for complications affecting the kidney, brain and cardiovascular system, including lupus nephritis, lupus psychos2is, stroke and heart attacks related to lupus. Rheumatologists rely on insights from the AVISE® SLE Prognostic test to help tailor their treatment approach. |
| AVISE® Anti-CarP | AVISE® Anti-CarP, is a biomarker-driven RA prognostic test, offered through a distribution agreement with Werfen USA, LLC to help identify RA patients with an increased risk for joint damage. |
| AVISE® SLE Monitor | AVISE® SLE Monitor is a blood test that employs CB-CAPs technology and is intended to assess the condition of a patient that has been diagnosed with SLE. AVISE® SLE Monitor offers additional insight into a patient’s disease activity as well as possible adverse events. AVISE® SLE Monitor may be utilized by patients multiple times a year and throughout their lives. |
| AVISE® MTX | AVISE® MTX is a patented and validated blood test that precisely measures blood levels of methotrexate polyglutamates (MTXPG), the active metabolite of methotrexate linked to disease control in RA patients. Methotrexate is the most widely prescribed drug by rheumatologists in the treatment of RA. Measuring MTXPGs allows rheumatologists to identify patients presenting with inadequate exposure to methotrexate, enabling them to optimize dosing and achieve therapeutic levels commensurate with adequate disease control. |
| AVISE® HCQ | AVISE® HCQ is a blood test designed to help rheumatologists objectively monitor levels of hydroxychloroquine (HCQ), in whole blood as they treat patients with SLE and other CTDs, including RA. HCQ is typically prescribed to patients to control SLE disease activity and prevent flares. |
Progress towards profitability : A story of Competent management
In mid-October 2022, Exagen announced the company had appointed John Aballi as CEO and President. Longtime CEO and President Ron Rocca (who took the company public) stepped down after 11 years. John has transformed commercial and laboratory operations and has broad experience building efficient clinical diagnostics operations.
Prior to Exagen, John was General Manager, Urology and CLIA COO at Veracyte (VCYT) from April 2021 to October 2022. He also served as VCYT's Senior Vice President, Operations and Sales, Urologic Cancers. At Veracyte, Mr. Aballi led a business unit of 245 individuals. Aballi also served as COO at Decipher Biosciences where he oversaw revenue growth from $12.6 million in 2018 to $39 million in 2020. He was a key part of the executive team that helped take Decipher from a struggling company to being sold to Veracyte for $600 million in early 2021. He had P&L responsibility for all aspects of operations including sales, quality management, medical operations, customer service, IT, assay development, billing, managed care, internal expansion and laboratory operations.
AVISE CTD focused strategy employed by Aballi has led to significant improvements in the company’s financial performance since 2022. Exagen has achieved total revenue growth of 22%, average selling price increase of 45% and doubled sales productivity in this two-year period. Company’s gross margin expanded by 1,300 basis points and adjusted EBITDA improved by 75%. Exagen’s improvements to adjusted EBITDA were partially driven by a 30% reduction in operating expenses.
Exagen’s revenue growth and gross margin expansion during this two-year period has mainly been driven by average selling price expansion. Given the $90 in incremental revenue per test driven by the addition of new markers (and dollars from other biomarkers to be added over time), increases in ASP to remain a key driver of revenue growth and margin expansion over time. Exagen also expects “base” (absent the biomarkers added in 2025 or any future biomarkers) ASP for AVISE CTD to increase as well.
Although ASP has been a key driver of the company’s improved financial performance, test volume has not experienced a comparable trajectory. The company achieved record test volume in 1 H 23 (over 37,000 total quarterly tests in both 1 Q 23 and 2 Q 23). Since then, test volume has fluctuated between approximately 29,000-33,000 tests per quarter. Management elaborated that test volume has been impacted by significant turnover of sales professionals over time. That said, the company aims to expand test volume and the Salesforce into geographic regions that are of high need for auto immune testing. Specifically, the company could expand the Salesforce in the near term to 41-45 territories.
Improving ASP & Pricing Power
Exagen’s CEO has been able to leverage his experience in the diagnostics market to significantly increase the average selling price of AVISE CTD. John Aballi’s experience in diagnostics involves leveraging a focused approach to significantly improve the average selling price (ASP) of key tests in order to drive improved financial performance. Since joining Exagen, the company has refocused its efforts on driving AVISE CTD average selling price higher. ASP was in the roughly high-$200 to low-$300 range in 2021 and 2022.
To increase the AVISE CTD ASP, Exagen employed a multi-pronged strategy that involved enhancing billing and collection processes, revamping the appeals process and increasing patient payment responsibility and made the strategic decision in 2023-24 to require physicians to include detailed clinical notes with test orders which caused a temporary slowdown in test volume growth, representing a one-time reset. These resulted in an improvement in ASP and has surpassed the $400 mark for the first time in company’s history.
Overall, it appears Exagen has the leadership team and strategy (to support timely collections) in place to meaningfully improve the average selling price of AVISE CTD over time. Company expects base ASP, absent the impact of new biomarkers, to improve over time as well.
New Lupus and RA Biomarkers
T-Cell Lupus Profile: Exagen introduced a set of three novel T-cell biomarkers (called TC 4 d, TIgG, and TIgM) that significantly improve sensitivity for systemic lupus erythematosus (SLE). In plain language, these tests can detect lupus cases that traditional antibody tests might miss, especially in patients whose symptoms are ambiguous. By augmenting existing AVISE CTD profile with these T-cell markers, physicians get a more comprehensive tool for diagnosing lupus, even in complicated cases.
RA (Anti-RA 33) Profile: Exagen also added three anti-RA 33 antibody tests (IgA, IgG, and IgM) to enhance rheumatoid arthritis diagnosis. These markers provide crucial data to identify RA in patients who would otherwise be considered seronegative. These biomarkers significantly increase TAM for exagen and could be much larger than lupus market.
Exagen expects the recently launched biomarkers will be accretive to revenue (i.e., ASP) and gross margin. Management currently estimates the new markers may add about $90 to AVISE CTD test ASP over time (potentially bringing ASP to $500 by the end of 2025). Exagen also has additional biomarkers that it aims to add to AVISE CTD later in 2025 or in 2026 that should further benefit ASP (and improve test sensitivity to 85%).
Pipeline & Product Developments
Exagen is utilizing clinical and laboratory data collected across multiple longitudinal SLE cohorts to identify a set of biomarkers that can inform an AI-developed algorithm aimed at guiding ongoing treatment decisions throughout the course of a lupus patient’s journey. The unpredictable nature of SLE and the lack of reliable conventional biomarkers indicative of present and near-term disease activity results in a significant unmet need for a surrogate method to monitor disease activity. The company expects to commercialize this test in the intermediate term.
The company is also leveraging its intellectual property licensed from Johns Hopkins University (JHU) to develop a test for detecting protein analytes in urine that can aid rheumatologists in the ongoing management and risk stratification of patients suffering from lupus nephritis (commercialization expected in the longer term).
Company has also developed a four-protein blood-based panel, which detects kidney damage in early lupus nephritis and diabetic nephropathy that significantly outperforms creatinine and estimated glomerular filtration rate (eGFR).
Progress toward profitability
Exagen remains confident in its path toward adjusted EBITDA and free cash flow break even (by the end of 2025). The company also stood by its multi-year target to achieve “profitability” when Exagen generates $75 million in annual revenue and gross margin approaches 60% (with total costs such as costs of goods sold and operating expenses approaching a roughly $75 million annual run-rate).
Key Risks
- Dependent on physician adoption of AVISE tests and partially dependent on growth in therapeutics co-promotion. The primary driver of Exagen’s revenue ramp is physicians' ordering of AVISE molecular diagnostic tests. Success will rely on continued clinical use of AVISE CTD.
- Success will also be dependent on reimbursement dynamics for molecular diagnostic tests. There may be continued pressure on reimbursement levels for diagnostic tests issued by CMS or private payors. Exagen plans to seek to develop premium reimbursement through clinical utility data, but a change in reimbursement dynamics may have an impact on financial performance.
- Exagen participates in highly competitive industries against significantly larger companies. Many of Exagen’s competitors have significantly greater financial, technical, and human resources. There are a number of lab competitors offering competing tests, including LabCorp and Quest.
This post has been provided solely for information purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The author makes no representations as to the accuracy or completeness of any information in this post, Do your own diligence and consider this blog as just an educational piece.