On this page of StockholderLetter.com we present the latest annual shareholder letter from EXAGEN INC. — ticker symbol XGN. Reading current and past XGN letters to shareholders can bring important insights into the investment thesis.
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4/26/2024 Letter Continued (Full PDF)
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4/28/2023 XGN Stockholder Letter
• More "Diagnostics" Category Stockholder Letters
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XGN Benford's Law Stock Score = 76
4/26/2024 Letter Continued (Full PDF)
•
4/28/2023 XGN Stockholder Letter•
More "Diagnostics" Category Stockholder Letters•
XGN Benford's Law Stock Score = 76XGN Shareholder/Stockholder Letter Transcript:
2023 Annual Report $XGN @ExagenInc @ExagenInc Exagen Inc @ExagenInc exagen.inc Dear Shareholders, Over the last year, we ve worked to deliver the best testing for patients and clinicians, both in terms of testing accuracy and in the service provided. In order to accomplish this goal, the entire company focused on improving every aspect of our core product offering, AVISE CTD. We were successful in accomplishing the goals we set for 2023 and have positioned ourselves to achieve further progress towards operating a profitable company. 2023 Selected Financial Results 2023 2022 Growth % FY Revenue $52.5M $45.6M 15.3% FY Volume 137,650 135,210 1.8% TTM ASP $336 $285 18.0% Gross Margin 56.1% 46.9% 19.6% Adjusted EBITDA ($17.1M) ($39.8M) 57.1% Net Loss ($23.7M) ($47.4M) 50.0% Key Metrics ASP is the Opportunity Our primary focus this past year, which will continue into 2024, was to improve the realized reimbursed rate we obtain for AVISE CTD, which we commonly refer to as our average selling price, or ASP. When I joined the company, we were in the midst of a pricing and coverage discussion with CMS, our trailing twelve-month ASP sat at $285 at the end of 2022 and was in the process of moving lower due to repricing by Medicare, which was expected to occur in January of 2023. The team here at Exagen has worked extremely hard to not only make up for this headwind, but to further improve our TTM ASP from 2022 levels. As we look back at 2023, we dramatically overhauled our revenue cycle operations, changing personnel, processes and systems. We held claims in the first half of the year in order to better manage filing deadlines with commercial payors and this allowed us to Medicare Rate $1,067 2023 ASP $336 Opportunity $731 improve our processes without sacrificing efficacy as the year went on. Our primary goal with improving revenue cycle operations is not only to win individual appeals, but it has strategic implications and specifically, we are working to create awareness at the payor level of who we are, how our tests are critical to patient care and why it s a financial benefit to be included in their suite of covered services, all of which is included with each appeal. We are still in the infancy of our new appeals efforts, which increased 162% in 2023 and have set ourselves up well for 2024 and beyond. Improvement in our TTM ASP will be key in evaluating the success of our strategy and it s a metric we watch and report on consistently. TTM AVISE CTD ASP with Gross Margin % $336 at 56% GM $285 at 47% GM Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 As part of our focus on revenue cycle operations, we needed effective documentation of the clinical utility of each test ordered on a per patient basis to initiate an effective appeal effort. This necessitated us to change the requirements for ordering an AVISE test, such that progress notes, specifically citing the clinical presentation of the patient are needed. This can be cumbersome for office staff in the clinic, which are evermore under constraints to operate efficiently, but are essential in communicating effectively with payors and in pursuing adequate payment of our test. The net impact of these changes has been what I expect to be a one-time reset of our test volume growth trajectory. While we opened 2023 with consecutive quarters of test volume growth, we ended the year with consecutive quarters of test volume more consistent with 2021/2022 performance. Your field-based sales team is working diligently with each of our customers to find the most efficient and effective way to satisfy the needs of insurers with minimal burden to the daily practice of rheumatologic care in their clinics. This adjustment takes time, but we believe the clinical value gained in the use of AVISE CTD for patients who have typically waited on average 6-years or more to arrive at a diagnosis will outweigh the documentation needs we ve now imposed. In 2024, I expect the growth at Exagen to be both a combination of improving ASP paired with growth in test volume as we progress to a more profitable and sustainable business model. Additionally, this year we ve substantially revamped our research and development efforts and believe we are now better equipped to devote resources and capital to projects which will have improved prospects of contributing to the success of Exagen in the long-term. From late 2022 to early 2023, we set about a rigorous review of all pipeline efforts, specifically evaluating them against pre-set criteria. We are focused on opportunities which best fit existing customer needs, as identified through exhaustive voice of customer efforts. We have a very good understanding of where Rheumatologists prefer additional information in their clinical practice, and we are working to develop these assets. As a smaller esoteric diagnostic company, we will be successful in the long-term if we develop proprietary offerings; we lack the infrastructure advantages of larger laboratories and therefore need proprietary offerings with unique value propositions to operate effectively in the market. We are also committed to charting out the evidence development pathway at time of undertaking an opportunity. We have thought through how to prove, and what resources are likely to be required in proving, clinical utility of an offering. This has become an ever-increasing evidentiary threshold for payors, including Medicare. We plan to have Medicare coverage and pricing prior to commercial launch, as it serves as a significant anchor in private payor discussions, given the public nature of CMS s processes and the fact that most commercial insurers service some portion of managed Medicare patients and therefore are required to adhere to coverage policies, when finalized. Lastly, and parallel to the importance of clinical utility, we will have a concerted effort to establish guideline support for new products from the very beginning. We believe that evaluating opportunities against these criteria substantially reduces risk of poor long-term performance, but time will be needed to bear-out our beliefs. Path to Profitability In 2023, your company improved its current and long-term prospects of being a dominant contributor to the autoimmune testing ecosystem. The team at Exagen worked extremely hard to execute as quickly and effectively as possible in making Exagen a profitable organization, and real progress was made. Our adjusted EBITDA, which is a reasonable approximation of cash needed to operate the business on an annual basis, reduced by more than half in 2023 vs. 2022. With this progress, your company continued to grow top line revenue, by just over 15% and delivered marked improvement in TTM ASP. We are proud of these accomplishments which have pushed our current operating runway into 2026 with our existing cash balance, but we are not satisfied and will be working hard in 2024 to improve this further. $75M Revenue with 60% Gross Margin Achieves Profitability $110 $100 $90 $M $80 $70 $60 $50 $40 $30 $20 40% 45% 50% 55% 60% 65% 70% 75% Gross Margin % Revenue Fixed Costs Total Costs We very much appreciate your partnership in support of Exagen, we are contributing significantly to patient care in this space and, as owners of the company, are working hard to deliver strong operating returns for you in the coming years. John Aballi, President and CEO