San Diego-based Exagen Diagnostics Inc. has a somewhat unique business model. It's aiming to both improve diagnostics and monitoring for autoimmune patients, but also to partner with biopharmas to promote better testing – and even to market related therapeutics to autoimmune specialists.

Glaxosmithkline plc uses Exagen's tests to boost early diagnostic efforts around systemic lupus erythematosus, more simply known as lupus. But Johnson & Johnson's Janssen unit entered a co-promotion deal with Exagen for its autoimmune drug, Simponi (golimumab), which is an FDA-approved immunosuppressive biologic to treat rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis and ulcerative colitis.

To support its goal of being the all-around autoimmune go-to specialist, Exagen has priced an IPO to raise $50.4 million. The financing will support the marketing of existing tests, as well as the development of new ones for its Avise platform technology that primarily monitors the complement system, a pathway that is implicated across several autoimmune and related disorders, including lupus.

The offering priced at the bottom end of the anticipated range of $14 to $16 and sold 3.6 million shares, slightly more than the expected 3.3 million. But the IPO shares (NASDAQ:XGN) moved up by more than 32% on Sept. 19, its first day as a public company to close at $18.58. Shares closed Friday at $17. If the underwriters exercise the full overallotment, that would boost the IPO by $7.6 million to $58 million in total.

Prometheus redux?

"We built a franchise in rheumatology over the past eight years. And we did it by giving them diagnostics, prognostic monitoring products, as well as a biologic. In other words, we are giving them the tools they need to be more effective in diagnosing, monitoring and, when appropriate, giving therapeutic intervention to their patients," said Exagen President and CEO Ron Rocca on the company's IPO road show.

"Why autoimmune? First of all, it is a large underserved market. That's the key here. This is a market that's very complicated. It's hard to diagnose these patients and it is a large market," he continued. "Second, we have built this strong franchise into rheumatology. We've done it by doing the diagnostics, monitoring and prognostics and offering a biologic; this allows us to always have a reason to go in there and talk to the physicians about meaningful products for their practice."

Rocca and Exagen's chief scientific officer, Thierry Dervieux, had previously worked together at Prometheus Laboratories Inc., which was acquired by Nestle Health Science in 2011 for a reported sum of $567 million up to as much as $1 billion. Somewhat similarly, Prometheus was a diagnostics and specialty pharma company, but it focused on inflammatory bowel diseases. Nestle recently divested itself of Prometheus Labs for an undisclosed sum, spinning it back out and into the hands of San Diego startup Precision IBD with substantial layoffs slated to accompany the transaction.

More precise lupus Dx

Exagen's lead test, Avise CTD, enables a differential diagnosis for patients presenting with symptoms associated with a wide variety of connective tissue disorders to more precisely identify diseases such as lupus and rheumatoid arthritis (RA). It's based on the measurement of CB-CAPs biomarkers, which it said offers advantages to other standard diagnostic autoimmune testing, including a 22% greater sensitivity compared to C3/C4 and 48% greater sensitivity compared to anti-dsDNA

Low serum levels of C3/C4 are a test rheumatologists use to diagnose and monitor lupus, while anti-double-stranded DNA (anti-dsDNA) is an autoantibody that is indicative of the disease. Exagen cites mainstream diagnostics labs Quest and Lab Corp. amongst its competitors.

"There was a survey done by the Lupus Foundation of America. What they showed was it took six years to get correctly diagnosed and that's too long. Keep in mind that while you're waiting to be diagnosed, [that] doesn't mean that the disease is waiting; in that six years, it's ravaging your internal organs," explained Dervieux. "It's attacking your lungs, your heart, your brain, and oftentimes your kidneys with lupus nephritis, so it's going on while the doctor is trying to figure out what's wrong with you clinically. We were not surprised that 55% of the time, it was a misdiagnosis; we know it's hard. And we know that the majority of non-rheumatologists, close to 50%, get it wrong. But even the learned experts, even the rheumatologists, they often misconstrued or misdiagnosed the patients and often missed the overlapped disorders.

"Our solution is a balanced approach with 22 markers. So, with one blood draw, they get to do it all. CB-CAPs, our cell bound complement activation product, is very important," he added. "We all have a complement system and C3/C4 are good markers. However, they do have issues in the way they're chewed up in the body in giving you an accurate diagnosis."

Since the launch of Avise CTD in 2012, Exagen has delivered more than 326,000 tests with a compound annual growth rate of 87% through the end of December. During the first half of this year, it delivered more than 50,000 of the Avise CTD tests, up about 30% from the same period in 2018.

During the first half, 1,711 physicians ordered the test with 766 of them being new adopters. Exagen is targeting the roughly 5,000 rheumatologists in the U.S.

In addition to Avise CTD, Exagen markets Avise SLE, which is based on two CB-CAPs biomarkers to monitor lupus disease activity; RA-oriented products Avise MTX and Avise Anti-CarP to optimize methotrexate therapy and to identify patients more prone to severe disease, respectively.

During the first six months of this year, Exagen had $19.7 million in revenue, up from $14.6 million during the same period in 2018. It had a net loss of $5.5 million during that period, higher than the $4.9 million a year prior. The company reported only $404,000 in co-promotional Simponi revenues resulting from the Janssen deal during the first half of 2019.

Envista investors include Sun Mountain Capital Partners (22.4% post-IPO stake); Tullis-Dickerson Capital (18%); Hunt Holdings (13.1%) and H.I.G. Bio-Exagen (11.3%). Existing investors committed to buying up to $12 million worth of IPO shares. Through mid-2019, Exagen had already raised more than $161 million in venture capital and debt.

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