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Exagen Secures $48 Million for Push on Lupus Diagnostic

Exagen Diagnostics Inc., a Vista-based company that makes tests to diagnose lupus, has received $48 million from investors and lenders to boost commercialization. The dollars come on the promise of a new product, despite the company’s rocky track record for product development.

The new capital comes in two parts: a $25 million loan from Innovatus Capital Partners, and $23 million from existing investors in a Series F round. Funding rounds this late in the game aren’t very common, as companies often either fail or become self-sustaining far before they require a sixth tranche of investment capital. If a company is still raising money by a Series F, it often signals that it is working on a capital intensive product or the company is burning through cash as it pivots.

For Exagen, both are true. Life science products are notoriously capital intensive and Exagen is on its third iteration. The company, originally based in New Mexico, was founded in 2002 on technology for a breast cancer test, but the science didn’t pan out and the product was scrapped. Exagen rebounded with venture capital, and tried again with technology in the gastrointestinal (GI) space. In 2010, the company launched tests to diagnose inflammatory bowel disease and irritable bowel syndrome. But the company pulled those tests from the market a year later because they proved less useful than originally thought.

Third time’s the charm

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In 2012, the company recruited San Diego biotech executive Ron Rocca to take over as CEO, and moved its headquarters to Vista. The company is unrecognizable today.

“There’s nobody here from the breast cancer or GI company,” Rocca said. “Investors look at us as a brand new company.”

That’s because back in 2012, Rocca took a hard look at the GI health product and found it lacking.

Rocca felt comfortable making that call, because he came to Exagen straight from Prometheus Laboratories Inc., a prominent San Diego firm that specialized in GI products. Prometheus was acquired by Nestle S.A. in 2011 for an estimated $1 billion (according to analysts), making it a notable M&A transaction in San Diego life sciences. When Rocca left, he took a number of ex-Prometheus employees with him, including Thierry Dervieux, a former Prometheus director who now serves as Exagen’s chief scientific officer.

Sales of new test fill the coffers

Rocca and Dervieux thought Exagen’s GI product was no good, and identified a more lucrative opportunity in rheumatology. The company scrapped the GI products and launched a new focus on a test for lupus — a condition notoriously difficult to diagnose.

“(Lupus) can be a chronic and debilitating illness which can affect many internal organs in the body including the heart, joints, skin, lungs, blood vessels, liver, kidneys, and nervous system,” said Dr. Helen Torley, a former rheumatologist and current CEO of Halozyme Inc. “As a result, lupus can be difficult to diagnose as each person’s disease can present with a different range of signs and symptoms, sometimes mimicking other diseases. Early diagnosis is important for controlling the disease.”

Diagnosing lupus more effectively is what Exagen hopes to accomplish with its test. According to peer-reviewed studies, the company’s test can more accurately diagnose lupus.

That’s generating interest from doctors. The company is on track to sell 65,000 tests in 2017, up from 37,234 in 2015. Rocca said the tests cost about $500, which puts Exagen’s annual revenue at just under $30 million this year. That’s a significant jump from 2015, when the company reported about $18 million in revenue.

Growth capital needed to scale

Even though Exagen is bringing revenue, it still needs investment capital to scale, said Kamal Adawi, the company’s chief financial officer. That’s why he orchestrated the Series F and debt capital after joining the team in June.

“This bridges us to cash flow positive, and that’s a game changer for our organization,” Adawi said.

With the new capital, Exagen will be expanding its laboratory and doing more clinical utility studies.

Payers want such studies, Rocca said. “They want to see that if they use your test, they save money. And these studies are expensive; millions of dollars. We have one now, and we’d like to do more.”

Exagen employs about 120 people, up from 58 people in 2015. Adawi said the company plans to expand its sales team, but could not disclose how many people they plan to hire.

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