Exagen Inc. (XGN) Q3 2025 Earnings Call Transcript
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Overview
The earnings call summary suggests mixed signals: positive revenue growth and ASP expansion are countered by challenges in achieving ASP targets and addressing payment denials. The Q&A section reveals management's unclear responses on key metrics, raising concerns. However, the strategic plan for 2025 shows optimism with new biomarker launches and potential pharma partnerships. Overall, the sentiment is balanced, leading to a neutral prediction for stock price movement over the next two weeks.
Key Financial Performance
Revenue Growth Year-to-date revenue grew by 19%, driven by 8% growth in testing volume and 9% growth in ASP. This growth is attributed to the synergistic impact of volume and reimbursement growth moving in the same direction.
Q3 Revenue Revenue for Q3 2025 was $17.2 million, the highest quarter in history, representing a nearly 40% increase over Q3 2024. Even after accounting for over $1 million in downside revenue adjustments in Q3 2024, the growth was over 25%. This growth was driven by a 15% increase in CTD test volume year-over-year and almost 2% sequentially.
Pharma Services Revenue Pharma Services generated $780,000 in revenue in Q3 2025, bringing the year-to-date total to $1.2 million, compared to $100,000 in 2024. The growth is attributed to a strong business development team and an expanding order backlog of $3.5 million.
Gross Margin Gross margin for Q3 2025 was just over 58%, up about 260 bps compared to Q3 2024. Year-to-date gross margin was just over 59%, up about 60 bps over the same period in 2024. The improvement is due to ASP improvements and favorable per-test costs offsetting ASP headwinds.
Operating Expenses Operating expenses for Q3 2025 were $13.2 million, up from $11.6 million in Q3 2024. The increase is due to higher R&D spending for PAD4 and other pipeline initiatives, as well as SG&A costs associated with sales territory expansion and commercial leadership additions.
Net Loss Net loss for Q3 2025 was $7 million, compared to $5 million in Q3 2024. The increase includes about $3 million in noncash expenses related to fair value adjustments from a new debt facility. Adjusted EBITDA loss improved to $1.9 million in Q3 2025 from $4 million in Q3 2024.
Cash Position The company ended Q3 2025 with $35.7 million in cash and cash equivalents, up from $30 million at the end of Q2 2025. This improvement was supported by $3.4 million raised through ATM sales and net cash generation of $2.3 million during the quarter.
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Operating Highlights
Launch of anti-PAD4 antibodies assays: Successfully launched assays for the detection of anti-PAD4 antibodies, a novel rheumatoid arthritis biomarker. This is the second biomarker launched this year. The product differentiates the rheumatoid arthritis offering and enhances clinical utility by identifying serological abnormalities in ambiguous cases. The development cost was under $3 million, with expected revenue payback in less than 24 months.
Enhanced rheumatoid arthritis profiling: With the addition of RA33 and anti-PAD4 antibodies, the serologic profiling now captures approximately 85% of rheumatoid arthritis patients, improving diagnostic precision and treatment guidance.
Territorial expansion: Expanded to 45 sales territories, up from 42. Two new territories emerged as top-performing growth areas, with others showing similar trends. This expansion is contributing to increased physician engagement and order volumes.
Pharma and CRO business growth: Generated $800,000 in Q3 revenue, with a year-to-date total of $1.2 million. The order backlog stands at $3.5 million, indicating strong momentum in this segment.
Revenue growth: Achieved a 19% year-to-date revenue growth, driven by an 8% increase in testing volume and a 9% rise in ASP. Q3 revenue was $17.2 million, the highest in company history.
Gross margin improvement: Gross margin improved to 58% in Q3, up 260 bps compared to Q3 2024, driven by ASP improvements and cost management.
Focus on ASP growth: Trailing 12-month ASP for CTD tests increased by 9% year-over-year to $441. Efforts are ongoing to address reimbursement challenges and further improve ASP.
Cash flow and financial positioning: Ended Q3 with $35.7 million in cash and equivalents, up from $30 million in Q2. The company is on track to achieve positive free cash flow, though sustained cash flow positivity may be delayed to 2026.
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Risk or Challenges
ASP (Average Selling Price) Challenges: The company is facing slower-than-expected ASP growth due to delayed reimbursement ramp-up for new biomarkers and the loss of a high ASP direct bill account. This is impacting revenue and bottom-line performance.
Revenue Cycle and Payer Education: Efforts to improve reimbursement through appeals, revenue cycle operations, and payer education are progressing slower than anticipated, leading to muted ASP gains.
Cash Flow Positivity: The timeline for achieving sustained cash flow positivity may be delayed to 2026 due to ASP challenges and other financial pressures.
Pharma Services Revenue Volatility: The pharma services revenue stream is described as 'lumpy,' with unpredictable timing of deliverables and revenue recognition, which could impact financial stability.
Operating Expenses: Increased R&D and SG&A expenses, including costs for new sales territories and leadership additions, are contributing to higher operating expenses, which could strain profitability.
Debt and Non-Cash Expenses: The company reported $3 million in non-cash expenses related to fair value adjustments from a new debt facility, contributing to a net loss for the quarter.
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Guidance & Outlook
Revenue Expectations: The company expects to deliver $65 million to $70 million in revenue for 2025, with the potential to be cash flow positive at the high end of this range. However, sustained cash flow positivity may be delayed until 2026 due to ASP challenges.
Market Trends and Business Segment Performance: The AVISE CTD testing volume trajectory remains strong, with Q3 volume being the highest recorded for a third quarter period. Volume remained strong into October, indicating positive trends for Q4. Expansion into new territories is contributing meaningfully, with two recent territories emerging as top-performing growth areas.
ASP (Average Selling Price) Projections: Trailing 12-month ASP for CTD is currently at $441, a 9% increase year-over-year. However, the company is not seeing the full second-half ASP expansion anticipated. Efforts around appeals, revenue cycle operations, and payer education are expected to drive incremental progress, but gains are coming more gradually than expected.
Pharma and CRO Business: The company has a growing order backlog of $3.5 million in the Pharma and CRO business, with year-to-date revenue of $1.2 million. This segment is expected to continue expanding, although revenue recognition may be lumpy.
Biomarker Innovation and Revenue Impact: The launch of anti-PAD4 antibodies and other biomarkers is expected to moderately expand ASP in Q4 as payment history is established. The company anticipates a revenue payback for these efforts in less than 24 months, with a relatively small investment of under $3 million.
Gross Margin Projections: Gross margin is currently near 60%, with a path to mid-60s over time through further ASP expansion and cost management.
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Shareholder Return Plan
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Key Q&A
Q:Do you have an updated revenue per territory for the third quarter and how should we think about the productivity ramp of these new territories?
A:The revenue per territory for the third quarter was slightly below $430,000, which was a record in the second quarter. This slight decrease is attributed to the addition of new territories, which takes time to become productive. Over time, the revenue per territory is expected to increase.
Q:Is there an incremental uplift to ASP that you're targeting with the launch of RA markers at the end of the third quarter?
A:The company has not yet established a robust history of collections for the RA markers and hesitates to proclaim a specific number. However, the uplift is expected to be modest compared to the $90 increase seen with lupus biomarkers. The RA markers are based on a lower-cost platform and are expected to contribute in the low single-digit to double-digit dollar range.
Q:Are there any updates on your first pharma partnership with the urine platform?
A:The company completed its first statement of work related to the urine platform, which has potential for noninvasive diagnosis of lupus nephritis. The profiling effort was successful, and discussions for subsequent efforts are ongoing.
Q:How should we think about approaching $500 ASP and the progression going forward?
A:The $500 ASP target is still realistic but is a matter of timing. Factors affecting ASP include the loss of a high ASP client bill account, slower-than-expected traction with new biomarkers, and the need to establish accrual rates for new product launches. The company expects the trailing 12-month ASP to continue rising over time.
Q:Should we expect a drop-off in volume in the fourth quarter due to seasonality and other factors?
A:Volume was up in Q3 relative to Q2, and October was a strong month. However, a slight step down in Q4 is expected due to significant holidays and the ACR conference. The company remains focused on ASP and volume growth for continued success.
Q:Why has pharma revenue been so strong this year, and could it become a significant business line in the future?
A:Pharma revenue reached $800,000 in the quarter compared to $100,000 for all of last year. This growth is attributed to the company's ability to meet quality, flexibility, and time constraints for pharma partners. While pharma services tend to be lumpy, the company expects annual growth and sees potential for it to become a more significant business line.
Q:How are you thinking about targets for new sales reps and the time it takes for them to reach maturity?
A:The company sets profitability targets on a per territory basis and expects new sales reps to start contributing within 6 to 9 months. Some territories have shown exceptional growth, reinforcing the effectiveness of the hiring and expansion strategy.
Q:What steps are being taken to drive payment for new biomarkers, and what is holding up payment?
A:Higher-than-expected initial denials are due to medical policy issues and diagnostic code mismatches. The company is addressing this through a robust appeals process and revenue cycle operations. Advocacy efforts with physicians and patients are also being employed as secondary tactics.
Q:What are the key factors to achieve mid-60s gross margin over time?
A:The primary driver will be ASP expansion, supported by optimization of labor and workflow in the lab. The company has already achieved lower-than-expected COGS per test and sees further opportunities for optimization.
Q:What are the drivers of volume growth, and how should we think about the impact of new markers and sales team expansion?
A:Volume growth is driven by the launch of new markers, a stable and high-caliber sales team, and a focus on clinical messaging. The new markers have reinvigorated both the sales team and customer interest, contributing to the growth.
Q:What was the impact of losing a large direct bill customer on ASP and volume?
A:The loss of the customer resulted in a $20 headwind to ASP for the quarter. Volume was initially suspended but is now trending back positively as the company works with the client to restore access through commercial insurance.
Q:Why are there higher denials for new markers, and how is the company addressing this?
A:Higher denials are due to payer scrutiny and diagnostic code issues. The company is leveraging its appeals process and updating content to address these challenges. The process is similar to what has been used successfully in the past for other markers.
Q:What is the long-term ASP target, and is it still achievable?
A:The long-term ASP target remains at $600, which is considered achievable. The company believes it can reach $500 in the near term, which would make it cash flow positive.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the specific incremental uplift to ASP from the new RA markers, citing the lack of a robust history of collections. They also did not provide a clear timeline for achieving the $500 ASP target, attributing delays to various factors without specifying a concrete plan.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ASP CTD
ASP bill
ASP challenge
ASP gain
ASP line
American College
Canaccord Genuity
Chicago
College Rheumatology
Corp Research
Division Canaccord
Genuity Corp
Inc Research
LLC Research
RA patient
Research Division
Riley Securities
Securities Inc
abnormality
abstract
assay detection
date
detection antibody
engagement
marker clinic
meeting
order
patient RA
positivity
profiling
return
trajectory
treatment escalation
treatment patient
XGN Transcript
Exagen Inc. (XGN) Q1 2026 Earnings Call Transcript
Unknown5-12
The earnings call presents a mixed picture: revenue declined 5% YoY, but gross margin improved to 65%. Despite a net loss, operational efficiencies reduced expenses by 8%. Revenue growth of 10-15% is expected, with a focus on new products and market expansion. However, lack of discussion on risks and returns, along with unclear Q&A responses, suggests caution. Overall, the sentiment is neutral, with no strong catalysts for significant stock movement.
Exagen Inc. (XGN) Q4 2025 Earnings Call Transcript
Unknown3-10
The earnings call presents a mixed outlook. While there is strong volume growth and positive trends in market expansion, the delay in profitability targets and ASP challenges weigh negatively. The Q&A reveals management's cautious stance on profitability timelines and ASP, which adds uncertainty. However, the company's strategic investments and potential ASP improvements, alongside strong relationships with ACR, provide a balance. Without market cap data, a neutral prediction (-2% to 2%) is reasonable, reflecting both positive growth aspects and financial uncertainties.
Exagen Inc. (XGN) Q3 2025 Earnings Call Transcript
Unknown11-4
The earnings call summary suggests mixed signals: positive revenue growth and ASP expansion are countered by challenges in achieving ASP targets and addressing payment denials. The Q&A section reveals management's unclear responses on key metrics, raising concerns. However, the strategic plan for 2025 shows optimism with new biomarker launches and potential pharma partnerships. Overall, the sentiment is balanced, leading to a neutral prediction for stock price movement over the next two weeks.
Exagen Inc. (XGN) Q2 2025 Earnings Call Transcript
Positive7-29
The earnings call reveals strong financial performance with improved gross margins and sustainable volume growth. Management is confident in achieving the ASP increase, and the strategic expansion of territories and pipeline developments are promising. Despite some increase in operating expenses and net loss, the company is on track for positive adjusted EBITDA and free cash flow. The Q&A section supports the positive outlook, highlighting market potential and strategic initiatives. While management avoided specific guidance on volume, the overall sentiment remains positive with expectations of continued growth.
XGN Report
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