Executive Summary / Key Takeaways

• Exagen is executing a strategic turnaround, shifting focus to profitable growth driven by significant average selling price (ASP) expansion for its core AVISE CTD test and disciplined expense management.
• The company's differentiated AVISE platform, particularly its proprietary Cell-Bound Complement Activation Products (CB-CAPs) technology and newly launched biomarkers, provides a competitive edge with enhanced diagnostic accuracy and utility in complex autoimmune diseases like SLE and RA.
• Recent financial performance demonstrates this progress, with Q1 2025 revenue growing 7.5% year-over-year, driven by ASP gains from new markers, and a significant narrowing of adjusted EBITDA losses.
• Management guides for at least $65 million in revenue for 2025 and targets achieving positive adjusted EBITDA by the fourth quarter of 2025, anticipating cash flow positivity by the end of 2025 or within a year of the new marker launch.
• A new $75 million credit facility provides enhanced liquidity and flexibility to fund operations and strategic initiatives, supporting the path to sustained free cash flow positivity targeted for 2026 and beyond.

The Specialist's Edge in Autoimmune Diagnostics

Exagen Inc. stands as a medical technology company specializing in the complex field of autoimmune disease diagnostics. Its core mission revolves around providing clarity for clinicians and improving outcomes for patients suffering from conditions like Systemic Lupus Erythematosus (SLE) and Rheumatoid Arthritis (RA), diseases often characterized by overlapping symptoms and challenging diagnoses. At the heart of Exagen's offering is the AVISE platform, a suite of testing products performed in the company's CLIA-certified and CAP-accredited laboratory.

The company's journey has seen it evolve from the commercial launch of its flagship AVISE CTD test in 2012, navigating the inherent challenges of establishing reimbursement and market adoption in a specialized area. A pivotal moment arrived in late 2022 with the introduction of new senior leadership, initiating a strategic turnaround. This shift redirected the company's focus from top-line volume growth at any cost to a deliberate pursuit of profitable growth, marked by rigorous expense control, optimization of revenue cycle management, and a strategic reduction in its commercial footprint to prioritize profitable territories.

Within the competitive landscape, Exagen operates alongside large, diversified clinical laboratories like Quest Diagnostics (DGX) and LabCorp (LH), as well as more specialized molecular diagnostics companies such as Veracyte (VCYT) and Myriad Genetics (MYGN). While Quest and LabCorp benefit from immense scale, broad networks, and established payer relationships, Exagen carves out its niche through specialized expertise and proprietary technology focused specifically on rheumatology. Veracyte and Myriad also offer specialized testing, but Exagen's core technological differentiation lies in its AVISE platform and the unique biomarkers it measures.

Exagen's competitive moat is significantly bolstered by its proprietary technology, particularly its ability to measure Cell-Bound Complement Activation Products (CB-CAPs). While specific quantitative benefits of CB-CAPs over alternatives were not detailed, the company emphasizes its role in providing enhanced diagnostic accuracy and utility. The recent strategic focus has been on leveraging this platform to introduce new, high-impact biomarkers.

The company commercially launched new T-cell and RA sub-profile biomarkers as enhancements to the AVISE CTD platform in January 2025. These additions are designed to directly address unmet clinical needs. The T-cell markers aim to improve the sensitivity for SLE diagnosis; studies have shown they can identify approximately 51% of serologically negative lupus patients, potentially boosting overall SLE detection sensitivity to around 90%, significantly higher than conventional markers. The new RA biomarkers, including the first set launched in January 2025 and a second set expected in late 2025 or early 2026, target the challenging seronegative RA population. The combined sets are expected to capture 30-40% of these patients, increasing overall RA detection sensitivity to roughly 85%, which the company states is "far above conventional markers alone."

Beyond these launched enhancements, Exagen's R&D pipeline includes other promising initiatives. The PAD4 biomarker is planned for commercial launch around the end of 2025, targeting an 8% sensitivity gain in seronegative RA. Development is underway for Lupus Nephritis biomarkers (leveraging licensed IP, with a new array being tested), SLE Disease Activity markers (using an AI-developed algorithm), RA Disease Activity markers, and Kidney Damage biomarkers (a four-protein blood panel that has shown "great discriminating power" and outperforms standard measures like creatinine and eGFR in early LN and diabetic nephropathy). A provisional patent was filed for the kidney damage panel in November 2024. The strategic intent behind these R&D efforts is clear: to develop novel, high-utility tests that expand the market opportunity (e.g., the RA market is estimated to be 3x larger than the lupus market), enhance the competitive moat, and drive future ASP and margin expansion. The company is also actively pursuing biopharma collaborations for some of these pipeline assets, leveraging its platform and data for research use before potential commercial release.

Performance Reflecting a Turnaround

The strategic shift initiated in late 2022 is visibly impacting Exagen's financial performance. The focus on profitable growth has led to a significant improvement in key metrics, even as the company navigated the transient impact on volume from changes in ordering processes aimed at improving reimbursement.

Revenue trends demonstrate a return to growth, albeit with some quarter-to-quarter variability influenced by seasonality and revenue cycle initiatives. Q1 2025 revenue reached $15.5 million, a 7.5% increase over Q1 2024 ($14.4 million). Full-year 2024 revenue was $55.6 million, up 6% from $52.5 million in 2023, and over 20% higher than 2022 revenue of $45.6 million. This growth has been primarily fueled by consistent ASP expansion for AVISE CTD. The trailing 12-month ASP reached $419 per test in Q1 2025, building on $411 in FY 2024, a substantial increase from $285 in 2022. The newly launched biomarkers are already contributing, with an early read indicating approximately $90 per test in incremental revenue, which is expected to fully impact the trailing 12-month ASP over the remainder of 2025.

Gross margins have expanded significantly as a direct result of the ASP gains and operational efficiencies in the lab. Q1 2025 gross margin was 58.9%, slightly down from 59.6% in Q1 2024 due to bearing costs for new biomarkers under unamended client contracts (now largely resolved), but up substantially from the approximately 47% seen in 2022. Full-year 2024 gross margin was just under 60%, a notable improvement from 56% in 2023. The company expects gross margins to improve steadily throughout 2025 into the low 60% range, with a long-term target in the mid-60s, driven by ASP expansion from new markers and continued lab efficiencies.

Operating expenses have been tightly controlled. Total operating expenses (including COGS) were $12.5 million in Q1 2025, up from $11.6 million in Q1 2024, reflecting investments in headcount and R&D for new launches. However, full-year 2024 OpEx ($46.7 million) was down significantly from 2023 ($52.3 million) and 2022 ($61.9 million), demonstrating the impact of cost reduction efforts. While SG&A and R&D are expected to increase moderately in absolute dollars in the near term to support growth and pipeline initiatives, they are projected to decrease year-over-year as a percentage of revenue due to anticipated operating leverage.

The combined effect of revenue growth, margin expansion, and expense control is evident in the dramatic improvement in profitability metrics. The adjusted EBITDA loss narrowed to $2.5 million in Q1 2025, compared to $2.0 million in Q1 2024 (note: Q1 2024 loss was lower despite lower revenue due to timing of expenses and revenue adjustments). Full-year 2024 adjusted EBITDA loss was $10.1 million, a 40% improvement from the $17.0 million loss in 2023, and a massive reduction from the $40 million loss in 2022. This trajectory underscores the effectiveness of the turnaround strategy.

Liquidity remains a critical focus for a company still incurring losses. As of March 31, 2025, cash and cash equivalents stood at $11.2 million.

However, a significant development occurred post-quarter close. On April 25, 2025, Exagen secured a new senior secured credit facility with Perceptive Advisors for up to $75 million. An initial $25 million tranche was funded, with $19.7 million used to repay the prior debt facility, effectively extending the debt maturity to April 2030 with interest-only payments. This facility, secured by company assets including IP, requires maintaining a minimum cash balance ($3 million) and achieving specified quarterly net revenue levels. Additional tranches are available based on revenue milestones and approved strategic transactions, providing crucial financial flexibility.

Following the initial funding and prior debt repayment, combined cash, cash equivalents, and accounts receivable were approximately $28 million as of April 30, 2025. While operating cash flow was negative in Q1 2025 ($10.7 million used), partly due to revenue cycle initiatives involving holding claims early in the year, the new credit facility is designed to provide the necessary runway to reach cash flow positivity.

Competitive Dynamics and Strategic Positioning

Exagen operates in a competitive environment where scale, technology, and payer access are key determinants of success. Against the backdrop of large players like Quest and LabCorp, Exagen positions itself as a specialized innovator. While Quest and LabCorp offer broad testing menus and benefit from economies of scale that can lead to lower per-unit costs and extensive payer networks, Exagen differentiates through its focus on rheumatology and its proprietary technology. Exagen's TTM gross margin of 59.3% compares favorably to Quest's 33% and LabCorp's 27%, suggesting greater efficiency or pricing power within its niche, though its operating margin (-24.68% TTM) reflects its smaller scale and ongoing investment phase compared to profitable larger labs.

Against specialized peers like Veracyte and Myriad, Exagen's competitive standing is based on the specific performance and clinical utility of its autoimmune tests. Exagen's new biomarkers, particularly those addressing seronegative RA and SLE, are designed to offer diagnostic capabilities currently unavailable from competitors, providing a unique selling proposition. The IP protection on these novel markers, such as the T-cell IP through 2035, helps build a competitive moat. While Veracyte and Myriad may excel in genomic or other specialized areas, Exagen aims to be the leader in blood-based, protein-focused autoimmune diagnostics.

Exagen's strategy directly addresses competitive pressures by leveraging its strengths. The focus on ASP expansion through improved reimbursement and the launch of higher-value tests directly counters potential pricing pressure from larger labs. Market access efforts, including successful ALJ hearings and securing positive TRICARE policy, are critical steps in improving payer coverage and reducing reliance on out-of-network billing, which is a vulnerability against competitors with broader contracted access. The planned sales force expansion aims to increase market penetration from the estimated mid-single digits among the target ANA-positive population. The biopharma collaboration strategy offers a path to diversify revenue and leverage the platform beyond clinical testing, potentially providing a higher-margin revenue stream less exposed to traditional reimbursement challenges.

However, risks remain. The ability to maintain and grow ASP depends on continued success in payer negotiations and appeals, and the clinical adoption of new markers. Regulatory uncertainty regarding Laboratory Developed Tests (LDTs), despite a recent favorable court ruling, could still impact the business if appealed or if new legislation is enacted. Dependency on key suppliers for reagents poses a supply chain risk. The Perceptive credit facility, while providing liquidity, introduces financial covenants that must be met, and future tranches are conditional. Litigation, such as the relator's appeal, could divert resources. Seasonality and inflationary pressures also present ongoing challenges.

Outlook and Path to Profitability

Management's outlook reflects confidence in the strategic turnaround and the anticipated impact of recent initiatives. The company guides for full-year 2025 revenue of at least $65 million, representing significant growth over 2024. This growth is expected to be driven by continued ASP expansion, particularly from the full-year impact of the new biomarkers launched in Q1 2025 (expected to add ~$90 incremental ASP by year-end), and a return to volume growth fueled by the enhanced test utility and sales force expansion.

Crucially, Exagen is targeting achieving positive adjusted EBITDA by the fourth quarter of 2025. This milestone is expected to be reached through the combination of higher revenue, expanding gross margins (targeting low 60s in H2 2025, mid-60s long-term), and operating expense leverage as revenue growth outpaces moderate increases in absolute OpEx. Management anticipates achieving overall cash flow positivity by the end of 2025 or within a year of the new marker launch, a significant step towards financial sustainability. The Perceptive credit facility provides the necessary capital bridge to execute on this plan and reach sustained free cash flow positivity, targeted for the full year 2026 and beyond.

Conclusion

Exagen Inc. has undergone a significant operational and strategic transformation under its new leadership, pivoting towards a model focused on profitable growth. By leveraging its differentiated AVISE platform and investing in novel, high-utility biomarkers, the company is enhancing its competitive position in the specialized autoimmune diagnostics market. Recent financial results demonstrate tangible progress, with strong ASP expansion, improving margins, and reduced losses. With a clear strategic roadmap, a strengthened balance sheet following the debt refinancing, and a pipeline of innovative tests, Exagen is positioned to capitalize on the significant market opportunity in autoimmune diseases. The company's guidance for robust revenue growth and a target of achieving adjusted EBITDA positivity by the end of 2025 signals a critical inflection point, suggesting that the turnaround strategy is gaining momentum and the path to sustainable profitability is coming into view. While risks related to reimbursement, competition, and funding remain, the company's execution on its strategic priorities, particularly the successful launch and adoption of its new biomarkers, will be key determinants of its ability to deliver on its promising outlook and create long-term shareholder value.