Exagen Inc.
11/04/2025 | Press release | Distributed by Public on 11/04/2025 08:16
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
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 (this Quarterly Report) and with our audited financial statements and notes thereto included in our 2024 Annual Report.
Forward Looking Statements
The following discussion and other parts of this Quarterly Report contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (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, current and future product offerings, reimbursement and coverage, the expected benefits from our partnership 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 I, Item IA, "Risk Factors" in our 2024 Annual Report. 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 a medical technology company primarily focused on the design, development and commercialization of a next-generation portfolio of innovative testing products under our AVISE® brand, which allow for the differential diagnosis, prognosis and monitoring of complex rheumatic, autoimmune and autoimmune-related disease including, among others, SLE and RA. 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.
Our tests are used in a variety of clinical settings to provide clarity in autoimmune disease decision-making with the goal of improving patients' clinical outcomes. We commercially launched our 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. Beginning in late 2022, we revitalized our organization with the addition of key members to our senior leadership team, including our Chief Executive Officer, Chief Financial Officer, Vice President of Sales, Chief Medical Officer, and Medical and Laboratory Director. By leveraging our team's extensive experience to create clinically distinct solutions that improve patient lives, we have created a strong foundation for growth and believe that we are well-positioned to positively impact patient care and address unmet clinical needs in autoimmune disease. We strive to become a partner of choice for doctors, hospitals, healthcare systems, and payors.
Under the leadership of our Chief Executive Officer, John Aballi, who joined Exagen in October 2022, 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.
All of our AVISE® tests are performed in our approximately 13,000 square foot laboratory located in Vista, California, which is certified under the clinical laboratory testing administered by the Centers for Medicare &
Medicaid Services (CLIA) and accredited by the College of American Pathologists (CAP). Our laboratory is certified for performance of high-complexity testing by the Centers for Medicare & Medicaid Services (CMS) in accordance with CLIA and is licensed by all states requiring out-of-state licensure. Our clinical laboratory typically reports all AVISE® testing product results within five business days.
Reimbursement for our testing services comes from several sources, including commercial payors (such as insurance companies and health maintenance organizations), government payors (such as Medicare and Medicaid), client payors (such as hospitals, other laboratories, etc.) and patients. Reimbursement rates vary by product and payor.
Since launching AVISE® CTD, we have produced an extensive body of peer-reviewed literature supporting the test's clinical validity and utility, demonstrating the importance of AVISE® CTD in patient care. Revenue from this product comprised 89% and 91% of our revenue for each of the nine months ended September 30, 2025 and 2024, respectively.
In addition to providing diagnostic testing, we are leveraging our clinical laboratory to enter into agreements in the normal course of business with leading pharmaceutical companies and contract research organizations for the use of our testing products and/or the de-identified data generated from such tests. We believe the quality of our testing, proprietary offerings and specialized knowledge give us an advantage in this space. We plan to continue to pursue additional partnerships with leading pharmaceutical companies and academic research centers that are synergistic with our evolving portfolio of testing products, as more of these organizations realize the extent of the service we can provide.
We market our AVISE® testing products using our specialized sales force covering 40 territories in the United States. Many diagnostic sales forces are trained only to understand the comparative benefits of the tests they promote. In contrast, the specialized backgrounds of our sales personnel, 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. We believe our focus on and experience in the field of rheumatology, combined with our commitment to excellent customer service and support, position us very well to respond to the needs of rheumatologists and the patients they serve.
Recent Developments
Research and Development
We continue our thoughtful approach to research and development. 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.
▪Lupus Nephritis (LN) Biomarkers. We continue to leverage our intellectual property licensed from Johns Hopkins University 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 LN. We are currently testing a new customized array and currently expect to have results of this testing in the fourth quarter of 2025. We expect to make this panel available initially through Pharma collaborations for research use prior to releasing commercially through our clinical lab.
▪SLE Disease Activity. We are continuing to leverage 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. This candidate assay for SLE Disease Activity is currently being clinically validated with patient recruitment ongoing.
▪RA Disease Activity. We are also continuing to leverage our extensive biorepository containing clinically annotated serum collected from RA patients to screen for a host of protein antibody markers in an effort to develop an algorithmic solution that accurately predicts RA disease activity in a manner that outperforms conventional RA biomarkers. This candidate assay for RA disease activity is in development, with the validation cohort procured for analysis.
▪Kidney Damage Biomarkers. We have developed a four-protein blood-based panel, which sensitively detects kidney damage in early LN and diabetic nephropathy which significantly outperforms creatinine and eGFR. A provisional patent application was filed in November 2024 for methods of detecting kidney damage using the blood-based panel. An additional patent was filed in May 2025. We continue to expect to make this panel available initially through Pharma collaborations for research use prior to releasing commercially through our clinical lab.
Factors Affecting Our Performance
We believe there are several important factors that have impacted, and that we expect will impact, our operating performance and results of operations, including:
▪Commercial Launch of AVISE® CTD Enhancements. Our flagship product, AVISE® CTD, enables clinicians to more effectively diagnose complex autoimmune conditions such as SLE, RA, and Sjögren's syndrome earlier and with greater accuracy, in each case, as compared to the current standard of care. Our laboratory specializes in the testing of rheumatic diseases, delivering precise and timely results, supported by a full suite of AVISE®-branded tests for disease diagnosis, prognosis, and monitoring. With a focus on research, innovation, education, and patient-centered care, we are dedicated to addressing the ongoing challenges of autoimmune disease management.
In January 2025, we announced conditional approval by the New York State Department of Health and commercial launch of our new SLE and RA biomarker assays on the AVISE® CTD platform. Collectively, we believe these new biomarkers will further improve the clinical utility of AVISE® CTD, providing clinicians with the information they need to definitively diagnose patients and shorten their autoimmune diagnostic journeys. 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.
▪Peptidyl Arginine Deiminase 4 (PAD4) Biomarkers. During the third quarter of 2025, we received conditional approval from the New York State Department of Health and commercially launched our new PAD4 biomarker assays on the AVISE® CTD platform. Anti-PAD4 antibodies have been found to be 35% sensitive and 95% specific for RA in a peer-reviewed validation study. Additionally, anti-PAD4 antibodies have been found in 19% of anti-CCP negative RA patients, helping to address a critical seronegative diagnostic gap. Beyond the diagnostic utility, anti-PAD4 antibodies have been shown to associate with increased risk for radiographic progression, a sign of permanent joint changes.
▪Reimbursement for Our Testing Products.Our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payors, including both commercial payors and government payors. Payment from third-party payors differs depending on whether we are considered a "participating provider" (have entered into a contract with the payors as a participating provider) or a "non-participating provider" (do not have a contract and are considered a "non-participating provider"). Payors will often reimburse non-participating providers at a lower amount than participating providers, if at all. We have received a substantial portion of our revenue from a limited number of 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, changes in our estimated reimbursements for tests performed in prior periods can positively or negatively impact our revenue in the current period and cause our financial results to fluctuate. In addition, in connection with our revenue cycle management initiatives, we held claims in the first half of the fiscal year ended December 31, 2024, which
resulted in increases in our accounts receivable and an accelerated decrease in our cash in the same period. As expected, this trend reversed in the second half of the fiscal year ended December 31, 2024 as cash was collected on billed tests. We held claims in the first quarter of the fiscal year ending December 31, 2025, which resulted in increases in our accounts receivable and an accelerated decrease in our cash in the same period and a reversal of that trend is expected in the remaining quarter of the fiscal year ending December 31, 2025.
▪Expanding Adoption of AVISE® CTD.Since the launch of AVISE®CTD in 2012 and through September 30, 2025, we have delivered over one million of these tests. During the three months ended September 30, 2025, the number of AVISE®CTD tests delivered increased by approximately 16% over the same period in 2024 and increased sequentially by approximately 2% over the second quarter of 2025. Revenue growth for our testing products will depend, in part, on our ability to continue to expand our base of ordering healthcare providers and increase our penetration with existing healthcare providers, and on the success of the T-Cell Biomarkers and RA Sub-Profile Biomarkers which we added to our AVISE®CTD tests in January 2025.
▪Development of Innovative Testing Products. We expect to continue to invest in research and development in order to develop additional testing products. Our success in developing new testing products will be important in our efforts to grow our business by expanding the potential market for our products and diversifying our sources of revenue. We intend to leverage our protein and molecular assay development capabilities, bioinformatic team and proprietary technologies to pursue the development of additional testing products designed to have superior clinical utility for rheumatic conditions.
▪Deliver Sustainable Profitable Growth.We seek to establish a solid foundation for growth and a path to sustained profitability through continued gross margin enhancements and improved operating expense efficiencies through the implementation of certain internal initiatives, such as leveraging validation, utility and reimbursement-oriented clinical studies to facilitate payor coverage of our testing products. We center our efforts around long-term reimbursement and Average Selling Price (ASP) growth. This strategy includes optimizing revenue cycle practices, focusing managed care efforts on medical policy expansion and continuing to educate insurance payors on the published, real-world evidence of the clinical utility of our testing products, demonstrating healthcare cost savings and reductions in time to diagnosis.
▪Timing of Our Research and Development Expenses.We conduct clinical studies to validate our new testing products, as well as ongoing clinical and outcome studies to further expand the published evidence that supports our commercialized AVISE®testing products. We also expend funds to secure clinical samples that can be used in discovery, product development, clinical validation, utility and outcome studies. Our spending on experiments and clinical studies may vary substantially from quarter to quarter, and 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.
▪How We Recognize Revenue.We record revenue on an accrual basis, using an estimate of the amount that we will ultimately realize, as determined based on a historical analysis of amounts collected by test and by payor, among other factors. 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 that may affect our performance in the section entitled "Risk Factors"in our 2024 Annual Report.
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 (for example, excess sun exposure can cause flares in SLE), seasonal conditions that may affect medical practices and provider activity (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.
Inflationary Environment
The current inflationary environment has resulted in higher prices, which have impacted our costs incurred to generate revenue from our laboratory testing services, costs to attract and retain personnel, and other operating costs. The severity and duration of the current inflationary environment remains uncertain and may continue to impact our financial condition and results of operations.
Changes in U.S. Trade Policy
Our business, results of operations and financial condition may be adversely affected by uncertainty and changes in U.S. trade policies, including tariffs, quotas, trade agreements or other trade restrictions imposed by the U.S. or other governments. Our business requires access to reagents and other materials to run our tests, some of which we source from suppliers located outside the U.S., including Germany. Any imposition of or increase in tariffs or other restrictions on imports of reagents or other materials, as well as corresponding price increases for such materials available domestically, if any, could increase our costs. We would likely be unable to pass all or any such cost increases on to our customers and such cost increases could materially and adversely affect our business, results of operations and financial condition, including our gross margin.
Financial Overview
Revenue
We recognize revenue in accordance with the provisions of ASC Topic 606, Revenue from Contracts with Customers.We record revenue on an accrual basis, using an estimate of the amount we will ultimately receive, as determined based on a historical analysis of amounts collected by test and by payor, among other factors. These assessments require significant judgment by management.
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 and their physician assistants in the United States. The healthcare professionals 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 (payors) consist of commercial payors (insurance companies, health maintenance organizations, etc.), government payors (primarily Medicare and Medicaid), client payors (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.
Our ability to increase our revenue may depend, in part, on the success of the T-Cell Biomarker and RA and PAD4 Sub-Profile Biomarkers enhancements to our AVISE® CTD test, in addition to our ability to further penetrate the market for our current and future testing products and increase our reimbursement and collection rates (ASP) for tests delivered.
In April 2022, we were granted a Proprietary Laboratory Analyses code (PLA code) for our protein-based test, AVISE® Lupus, which is offered standalone or as part of our AVISE® CTD test. Noridian Healthcare Solutions (Noridian), our Medicare Administrative Contractor (MAC), has set the current pricing for this PLA code at $840.65 per test. CMS will align local MAC pricing with national payment rates for the PLA code on the 2026 Clinical Laboratory Fee Schedule (CLFS) through their annual payment determination process to provide a standardized, nationally determined payment rate. The process for obtaining and maintaining consistent reimbursement for new tests can be uncertain, lengthy and time consuming. A pricing determination is not synonymous with a coverage determination. Having a price associated with the PLA code for any particular test does not secure coverage or reimbursement for that PLA code from Medicare or any other third-party payor.
We submitted a formal request to Noridian for coverage of our AVISE® Lupus test under the new PLA Code and on September 27, 2022, we received notice that Noridian deemed our application for a Local Coverage Determination (LCD) to be valid, but our application is still pending. Ultimately receiving a favorable LCD is uncertain and may be time-consuming, resource intensive and require multiple quarterly or annual periods to complete and is subject to risks and uncertainties described in the section entitled "Risk Factors" in our 2024 Annual Report and this Quarterly Report. Further, on January 20, 2025, President Trump issued an Executive Order entitled Regulatory Freeze Pending Review, which halted all federal level regulatory rules and guidance not yet in effect. Because the Executive Order extends to LCDs not yet in effect, it leaves the fate and timing of our LCD application uncertain.
In the meantime, we have continued to submit Medicare claims for AVISE® Lupus, appeal denials and responses to requests for additional information. On January 31, 2024, CMS released a coverage article under which all multi-analyte proteomic testing will be considered within the scope of the Molecular Diagnostic Services Program administered by Palmetto GBA on behalf of CMS (MolDX) and reviewed through their technology assessment process. The article listed several such tests, including the AVISE® Lupus test, and requires all laboratories furnishing multi-analyte proteomics testing in MolDX jurisdictions to register with the DEX® Diagnostics Exchange Registry and obtain a Z-Code® identifier. We were issued a Z-Code® identifier in May 2024. To determine if the submitted tests are compliant with relevant policy requirements, these tests will undergo technical assessment by Palmetto GBA as part of the MolDX program. That technical assessment is on hold until such time as an LCD is issued by CMS. In the interim, we expect our current status with CMS to remain unchanged.
We face consistent challenges relating to commercial payor claim processing and revenue. While collectability has improved with certain plans year-over-year, we continue to experience denials due to unfavorable medical policy with certain plans, and we expect this situation to persist.
During the year ended December 31, 2023, we implemented several revenue cycle management initiatives, including among others, withholding the submission of commercial payor claims for reimbursement until subsequent quarters, increasing appeals efforts, adjusting the documentation required of physicians when ordering our tests and implementing increases to our patient payment rates. Additionally, in November 2023, we increased the list price billed for our tests. These ongoing revenue cycle management initiatives aim to optimize our appeals process and the potential for cash collections. During the fiscal year ended December 31, 2024, we experienced moderate declines in test volume since the second half of the fiscal year ended December 31, 2023, as rheumatologists and patients adjusted to these changes. During the first three quarters of 2025, we saw a return to volume growth. The number of AVISE® CTD tests delivered during the three months ended September 30, 2025 improved by approximately 16% as compared to the number of AVISE® CTD tests delivered during the three months ended September 30, 2024 due to continuing physician demand and adoption, early traction from our new biomarkers, and salesforce expansion. Additionally, the trailing-twelve-month ASP of our AVISE® CTD tests increased by approximately 9% during the three months ended September 30, 2025 compared to the same period in 2024.
Cost of Revenue
Cost of revenue represents the expenses associated with obtaining and testing patient specimens. The components of our cost of revenue include materials costs, direct labor, equipment, infrastructure expenses, shipping charges to transport specimens, blood specimen collections fees, royalties, depreciation and allocated overhead (including rent and utilities).
Each payor, whether commercial, government, or individual, reimburses us at different amounts. These differences can be significant. As a result, our cost 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. Our cost per AVISE® CTD test has increased year-over-year as a result of costs associated with the addition of the T-Cell Biomarkers and RA Sub-Profile Biomarkers to our AVISE® CTD test.
Operating Expenses
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).
Research and Development Expenses
Research and development expenses include costs incurred to develop our technology, test products and product candidates, in addition to costs incurred to collect clinical specimens and conduct clinical studies to develop and support those products and product candidates. These costs consist of 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). We expense all research and development costs in the periods in which they are incurred.
Interest Expense
Interest expense consists of cash and non-cash interest expense associated with our financing arrangements. We expect interest expense to increase by approximately $1.7 million annually, including an increase of $0.9 million in non-cash interest expense, in the year ending December 31, 2025 as compared to the year ended December 31, 2024, as a result of borrowings under the Perceptive Term Loan Facility.
Loss on Extinguishment of Debt
Loss on extinguishment of debt consists of the unamortized debt issuance costs and final payment fee due under the terms of the Amended Loan Agreement. The Amended Loan Agreement was fully repaid and terminated on April 25, 2025.
Change in Fair Value of Warrant Liability
Changes in the fair value of the warrant liability relates to our issued warrants and commitments to issue warrants for the purchase of our common stock in connection with the Credit Agreement with Perceptive.
Interest Income
Interest income consists of interest income earned on our cash and cash equivalents.
Results of Operations
Comparison of the Three Months Ended September 30, 2025 and 2024 (in thousands):
| Three Months Ended September 30, | ||||||||||||||||||||
| 2025 | 2024 | Change | ||||||||||||||||||
| Revenue | $ | 17,244 | $ | 12,507 | $ | 4,737 | ||||||||||||||
| Cost of revenue | 7,169 | 5,526 | 1,643 | |||||||||||||||||
| Gross profit | 10,075 | 6,981 | 3,094 | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative expenses | 11,445 | 10,163 | 1,282 | |||||||||||||||||
| Research and development expenses | 1,730 | 1,481 | 249 | |||||||||||||||||
| Total operating expenses | 13,175 | 11,644 | 1,531 | |||||||||||||||||
| Loss from operations | (3,100) | (4,663) | 1,563 | |||||||||||||||||
| Interest expense | (1,319) | (562) | (757) | |||||||||||||||||
| Loss on extinguishment of debt | - | - | - | |||||||||||||||||
| Change in fair value of warrant liability | (2,670) | - | (2,670) | |||||||||||||||||
| Interest income | 3 | 197 | (194) | |||||||||||||||||
| Loss before income taxes | (7,086) | (5,028) | (2,058) | |||||||||||||||||
| Income tax expense | (1) | - | (1) | |||||||||||||||||
| Net loss | $ | (7,087) | $ | (5,028) | $ | (2,059) | ||||||||||||||
Revenue
Revenue increased $4.7 million, or 37.9%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, due to an increase in test volume and continued ASP expansion. The number of AVISE®CTD tests delivered in the three months ended September 30, 2025 increased by approximately 16% compared to the same period in 2024. In addition, our AVISE®CTD trailing twelve-month ASP increased by $37 per test to $441 per test in the third quarter of 2025 from $404 per test in the third quarter of 2024.
Cost of Revenue
Cost of revenue increased $1.6 million, or 29.7%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase was primarily due to increases in materials and supplies related to our new biomarkers and employee-related expenses (including salaries, benefits and stock-based compensation) related to increased headcount, and in facility-related expenses.
Gross Margin
Gross margin as a percentage of revenue increased slightly to 58.4% for the three months ended September 30, 2025 compared to 55.8% for the three months ended September 30, 2024, primarily due to ASP expansion driven by our new biomarkers and improved overhead absorption.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1.3 million, or 12.6%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase was primarily due to an increase in employee-related expenses (including salaries, benefits, travel and stock-based compensation) related to increased headcount, and an increase in outside services and facilities expense, partially offset by a decrease in other expenses.
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.
Research and Development Expenses
Research and development expenses increased $0.2 million, or 16.8%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. This increase was primarily due to an increase in employee-related expenses (including salaries, benefits and stock-based compensation), partially offset by a decrease in outside services and other expenses.
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 decrease year-over-year as a percentage of revenue.
Interest Expense
Interest expense increased by $0.8 million, including an increase of $0.3 million in non-cash interest expense, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to the Perceptive Term Loan Facility that we entered into in April 2025 and the embedded finance lease related to the Amended Supply Agreement. We expect to continue to incur this interest expense under the Perceptive Term Loan Facility.
Change in Fair Value of Warrant Liability
The fair value of the warrant liability increased by $2.7 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to increases in the fair value of the underlying common stock.
Interest Income
Interest income decreased by $0.2 million for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to a decrease in cash and cash equivalents held in money market funds.
Comparison of the Nine Months Ended September 30, 2025 and 2024 (in thousands):
| Nine Months Ended September 30, | ||||||||||||||||||||
| 2025 | 2024 | Change | ||||||||||||||||||
| Revenue | $ | 49,944 | $ | 41,986 | $ | 7,958 | ||||||||||||||
| Cost of revenue | 20,351 | 17,351 | 3,000 | |||||||||||||||||
| Gross profit | 29,593 | 24,635 | 4,958 | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative expenses | 34,191 | 31,169 | 3,022 | |||||||||||||||||
| Research and development expenses | 4,497 | 3,719 | 778 | |||||||||||||||||
| Total operating expenses | 38,688 | 34,888 | 3,800 | |||||||||||||||||
| Loss from operations | (9,095) | (10,253) | 1,158 | |||||||||||||||||
| Interest expense | (2,988) | (1,671) | (1,317) | |||||||||||||||||
| Loss on extinguishment of debt | (295) | - | (295) | |||||||||||||||||
| Change in fair value of warrant liability | (3,108) | - | (3,108) | |||||||||||||||||
| Interest income | 246 | 570 | (324) | |||||||||||||||||
| Loss before income taxes | (15,240) | (11,354) | (3,886) | |||||||||||||||||
| Income tax expense | (38) | - | (38) | |||||||||||||||||
| Net loss | $ | (15,278) | $ | (11,354) | $ | (3,924) | ||||||||||||||
Revenue
Revenue increased $8.0 million, or 19.0%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, due to continued ASP expansion, and an increase in test volume. The number of AVISE®CTD tests delivered in the nine months ended September 30, 2025 increased by approximately 8% compared to the same period in 2024. In addition, our AVISE®CTD trailing twelve-month ASP increased by $37 per test to $441 per test in the third quarter of 2025 from $404 per test in the third quarter of 2024.
Cost of Revenue
Cost of revenue increased $3.0 million, or 17.3%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase was primarily due to increases in materials and supplies, related to our new biomarkers, increases in employee-related expenses (including salaries, benefits and stock-based compensation) related to increased headcount, as well as increased in facilities and other expenses, partially offset by decreases in shipping and handling costs, royalties, and outside services.
Gross Margin
Gross margin as a percentage of revenue increased slightly to 59.3% for the nine months ended September 30, 2025 compared to 58.7% for the nine months ended September 30, 2024, primarily due to ASP expansion driven by our new biomarkers and improved overhead absorption.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $3.0 million, or 9.7%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase was primarily due to increases in employee-related expenses (including salaries, benefits and stock-based compensation) related to increased headcount, as well as increased travel expenses and outside services, partially offset by a decrease in facilities-related expenses.
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.
Research and Development Expenses
Research and development expenses increased $0.8 million, or 20.9%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This increase was primarily due to increases in employee-related expenses (including salaries, benefits and stock-based compensation), and outside services and other expenses.
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.
Interest Expense
Interest expense increased by $1.3 million, including an increase of $0.5 million in non-cash interest expense, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to the Perceptive Term Loan Facility that we entered into in April 2025 and the embedded finance lease related to the Amended Supply Agreement. We expect to continue to incur this interest expense under the Perceptive Term Loan Facility.
Loss on Extinguishment of Debt
Loss on extinguishment of debt increased by $0.3 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, as a result of our early payoff of all outstanding indebtedness under the Amended Loan Agreement in April 2025.
Change in Fair Value of Warrant Liability
The fair value of the warrant liability increased by $3.1 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to increases in the fair value of the underlying common stock.
Interest Income
Interest income decreased by $0.3 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to a decrease in cash and cash equivalents held in money market funds.
Liquidity and Capital Resources
We have incurred net losses since our inception. For the nine months ended September 30, 2025 and 2024, we incurred a net loss of $15.3 million and $11.4 million, respectively, and we expect to incur additional losses in future periods. To date, we have generated only limited revenue, and despite any estimates we may make regarding our ability to become profitable, we may never achieve revenue sufficient to offset our expenses. As of September 30, 2025, we had an accumulated deficit of $309.6 million and cash and cash equivalents of $35.7 million. 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. We held claims in the first quarter of the fiscal year ending December 31, 2025, which resulted in increases in its accounts receivable and an accelerated decrease in its cash and cash equivalents in the first quarter of the fiscal year ending December 31, 2025 and a reversal of that trend has occurred in the second and third quarters and is expected to continue in the remaining quarter of the fiscal year ending December 31, 2025. A total of an additional $50.0 million is available at our option under the Perceptive Term Loan Facility should we attain specified revenue levels and satisfy other conditions.
Since becoming a public company, our primary sources of capital have been cash inflows from product sales, sales of our common stock and, to a lesser extent, borrowings under term loan facilities.
Our obligations under the Perceptive Term Loan Facility are secured by a first-priority lien on substantially all of our existing and future assets. In connection with the Credit Agreement, we have issued the Warrant Certificate to Perceptive. The Warrant Certificate has a ten-year term from the applicable issuance date and includes protection for certain dilutive issuances and registration rights provisions. The Perceptive Term Loan Facility includes
customary affirmative, negative, and financial covenants. These include, among others, restrictions on additional indebtedness, liens, dividends, mergers and acquisitions, and affiliate transactions. The Perceptive Term Loan Facility also requires that we maintain a minimum unrestricted cash balance of $3.0 million and achieve specified net revenue levels on a quarterly basis beginning with the quarter ending June 30, 2025. In addition, upon the occurrence of an event of default, Perceptive, 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. As of September 30, 2025, we were in compliance with all covenants of the Perceptive Term Loan Facility.
On May 9, 2025, we issued and sold an aggregate of 3,852,500 shares of our common stock (inclusive of 502,500 shares pursuant to the exercise in full of the Underwriters' option to purchase additional shares) at a public offering price of $5.25 per share, for aggregate net proceeds of $18.6 million after deducting underwriting discounts and commissions and other offering expenses.
On November 17, 2023, we filed the 2023 Shelf Registration Statement covering the offering, from time to time, of up to $150.0 million shares of our common stock, preferred stock, debt securities, warrants and units, of which $129.8 million remains available for sale at September 30, 2025.
On September 15, 2022, we entered into the Sales Agreement with TD Securities, as sales agent, pursuant to which we may offer and sell, from time to time, shares of common stock having an aggregate offering price of up to $50.0 million. We are not obligated to sell any shares of the Company's common stock in the offering. During the three months ended September 30, 2025, we have sold 360,554 shares of common stock under the Sales Agreement at an average per share price of $9.82, for gross proceeds of approximately $3.5 million and net proceeds of approximately $3.4 million after deducting $0.1 million in commissions paid to TD Securities and other offering expenses payable by us.
Funding Requirements
Our primary use of cash is to fund our operations as we continue to grow our business. We expect to continue to incur operating losses in the near term. In the short-term, we expect increases in cost of revenue as a result of costs associated with the addition of the T-Cell Biomarkers and RA Sub-Profile Biomarkers to our AVISE® CTD test. We also anticipate increases in our selling, general and administrative expenses due to increased headcount. We expect research and development expenses to remain relatively consistent in the short-term. We believe we have sufficient laboratory capacity to support increased test volume. 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 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, CA and our office space in Carlsbad, CA and payments for operating and finance leases related to our laboratory equipment (see "Note 4. Borrowings," and "Note 5. Commitments and Contingencies," to our unaudited financial statements included in this Quarterly Report). 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. Actual results could vary as a result of a number of factors, including:
•our ability to improve AVISE® CTD ASP as a result of the launch of the T-Cell Biomarkers and RA Sub-Profile Biomarkers, in addition to our ability to achieve adequate reimbursement for these additions to our AVISE® CTD test offering;
•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;
•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;
•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 and commercialization efforts; and
•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.
Until such time, if ever, as we can generate revenue to support our costs structure, we may be required to finance our operations as needed through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. The Perceptive Term Loan Facility involves, and any additional 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 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
The following table summarizes our cash flows for the periods indicated:
| Nine Months Ended September 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| (in thousands) | ||||||||||||||
| Net cash provided by (used in): | ||||||||||||||
| Operating activities | $ | (10,612) | $ | (13,642) | ||||||||||
| Investing activities | (591) | (369) | ||||||||||||
| Financing activities | 24,819 | (447) | ||||||||||||
| Net change in cash, cash equivalents and restricted cash | $ | 13,616 | $ | (14,458) | ||||||||||
Cash Flows from Operating Activities
Net cash used in operating activities for the nine months ended September 30, 2025 was $10.6 million, primarily resulting from (i) our net loss of $15.3 million adjusted for non-cash charges of $7.9 million primarily related to stock-based compensation, depreciation, amortization, change in fair value of warrant liability, loss on extinguishment of debt, bad debt expense, non-cash lease expense and non-cash interest and (ii) changes in our net operating assets of $3.3 million primarily related to net increases in accounts receivable and net decreases in operating lease liabilities and accrued and other current liabilities and accounts payable, partially offset by net decreases in prepaid expenses and other current assets and other assets.
Net cash used in operating activities for the nine months ended September 30, 2024 was $13.6 million, primarily resulting from (i) our net loss of $11.4 million adjusted for non-cash charges of $3.7 million primarily related to stock-based compensation, depreciation, amortization and non-cash lease expense and (ii) changes in our net operating assets of $6.0 million primarily related to net increases in accounts receivable and net decreases in accounts payable, operating lease liabilities and accrued and other current liabilities, partially offset by net decreases in prepaid expenses. The increase in accounts receivable was primarily due to delays in claim submission as part of our revenue cycle management initiatives.
Cash Flows from Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2025 and 2024 was $0.6 million and $0.4 million, respectively, due to net purchases of property and equipment.
Cash Flows from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2025 was $24.8 million, primarily resulting from $23.7 million in proceeds from the issuance of debt and warrants, net of discounts, $18.6 million in proceeds from common stock issued in public offering, net of issuance costs, $3.4 million in proceeds from common stock issued under the Sales Agreement with TD Securities, net of issuance costs, and $0.4 million in proceeds from common stock issued under the ESPP, partially offset by a $19.7 million payment to early extinguish debt, $0.9 million in payments of debt issuance costs, $0.4 million in principal payments on notes payable obligations, and $0.3 million in principal payments on finance lease obligations.
Net cash used in financing activities for the nine months ended September 30, 2024 was $0.4 million, primarily resulting from payments on finance lease and notes payable obligations, partially offset by proceeds from purchases under our ESPP.
Critical Accounting 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 GAAP. The year-end condensed balance sheets data was derived from audited financial statements, but does not include all disclosures required by 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 estimates, please see the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" contained in our 2024 Annual Report. There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2025 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 2024 Annual Report.
Recent Accounting Pronouncements
Please see "Note 2. Summary of Significant Accounting Policies," to the unaudited condensed financial statements included in this Quarterly Report for a summary of recent accounting pronouncements.
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