What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-03-16 compared with 2020-03-25 · 232 added, 257 removed, 697 unchanged (41% of the section changed)

10 unchanged sentences

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgement in evaluating the cost-benefit relationship of possible controls and procedures.

Management's Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K does not include a report of management's assessment regarding internal control over financial reporting due to a transition period established by the rules of the SEC, which requires such assessment to be included beginning with a registrant's second Annual Report on Form 10-K.

Attestation Report of the Registered Public Accounting Firm

3 unchanged sentences

Other Information

Appointment of Chief Operating Officer

On March 13, 2021, our board of directors appointed of Mark Hazeltine, age 47, as our Chief Operating Officer, effective as of March 15, 2021.

Mark Hazeltine has served in various positions of increasing responsibility since joining Exagen in March 2015, including general manager.

Hazeltine received his Bachelor of Business Administration degree from the University of San Diego and Master of Business Administration degree from the Marshall School of Business at the University of Southern California.

Additional information regarding Mr.

Hazeltine's background, business and experience will appear in our Definitive Proxy Statement on Schedule 14A, to be filed with the SEC within 120 days of the end of the fiscal year covered by this Annual Report on Form 10-K, under the heading's "Executive Officers."

Pursuant to the terms of Mr.

Hazeltine's offer letter, as amended effective as of March 15, 2021 in connection with his promotion, Mr.

Hazeltine will receive an annual base salary of $375,950 and will be eligible to receive an annual incentive bonus at an initial target for calendar year 2021 of 45% of his annual base salary.

The offer letter with Mr.

Hazeltine provides for an indefinite term and for at-will employment.

Hazeltine is also entitled to participate in all employee benefit plans, programs and arrangements maintained by the company and made available to employees generally.

There are no family relationships between Mr.

Hazeltine and any of our directors or executive officers that are required to be disclosed pursuant to Item 401(d) of Regulation S-K.

In addition, there are no transactions between us and Mr.

Hazeltine, or any member of Mr.

Hazeltine's immediate family, that are required to be disclosed pursuant to Item 404(a) of Regulation S-K.

Executive Change in Control Severance Plan

On March 15, 2021, the Compensation Committee of our board of directors adopted the Exagen Inc.

Executive Change in Control Severance Plan, or the Severance Plan.

The Severance Plan provides for the payment of cash severance and other benefits to our executives, including Fortunato Ron Rocca (President and Chief Executive Officer), Kamal Adawi (Chief Financial Officer and Corporate Secretary) and Mark Hazeltine (Chief Operating Officer), in the event of a qualifying termination of employment with us in connection with a change in control.

Under the Severance Plan, in the event of a termination of an executive’s employment by us without “cause” or by the executive for “good reason”, in either case, on or within twelve months following a “change in control”, the executive will be eligible to receive the following payments and benefits:

• a cash payment equal to 100% (or, for Mr.

Rocca, 125%) of the sum of (i) the executive’s then-current annual base salary, plus (ii) the executive’s target cash performance bonus for the year in which the termination occurs, to be paid in a lump sum on the 30 th day following the executive’s termination;

• a cash payment equal to the executive’s pro-rated cash performance bonus (based on actual performance) for the year in which the termination occurs;

• Company-subsidized COBRA premium payments for the executive and his or her covered dependents for up to 12 (or, for Mr.

Rocca, 15) months;

• full accelerated vesting of all outstanding equity awards of our company that vest solely based on the passage of time.

The executive’s right to receive the severance payments and benefits described above is subject to the executive’s delivery and, as applicable, non-revocation of a general release of claims in our favor and the executive’s continued compliance with any applicable restrictive covenants.

In addition, in the event that any payment under the Severance Plan, together with any other amounts paid to the executive by us, would subject the executive to an excise tax under Section 4999 of the Internal Revenue Code, such payments will be reduced to the extent that such reduction would produce a better net after-tax result for the executive.

The foregoing description of the Severance Plan is qualified in its entirety by reference to the full text of the Severance Plan, a copy of which is filed as Exhibit 10.46 to this Annual Report on Form 10-K and is incorporated herein by reference.

Directors, Executive Officers and Corporate Governance

23 unchanged sentences

Balance Sheets as of December 31, 2020 and 2019

Statement of Operations for the Years Ended December 31, 2019 and 2018

Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the Years Ended December 31, 2019 and 2018

Statement of Cash Flows for the Years Ended December 31, 2019 and 2018

Statements of Operations for the Years Ended December 31, 2020 and 2019

Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity for the Years Ended December 31, 2020 and 2019

Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

Notes to Financial Statements

4 unchanged sentences

We have audited the accompanying balance sheets of Exagen Inc.

(“the Company”) as of December 31, 2019 and 2018, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

(“the Company”) as of December 31, 2020 and 2019, the related statements of operations, redeemable convertible preferred stock and stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

19 unchanged sentences

(in thousands, except share and per share data)

December 31, 2019 December 31, 2018

Current assets:

7 unchanged sentences

Total assets $ 78,375 $ 88,310

Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable $ 3,014 $ 1,476

Accrued liabilities 4,419 3,923

Proceeds received prior to issuance of Series G redeemable convertible preferred stock — 3,750

Accrued and other current liabilities 5,757 4,419

Total current liabilities 8,771 5,895

Borrowings-non-current portion, net of discounts and debt issuance costs 26,659 25,854

Redeemable convertible preferred stock warrant liabilities — 1,503

Deferred tax liabilities 158 264

2 unchanged sentences

Commitments and contingencies (Note 5)

Redeemable convertible preferred stock, $ 0.001 par value;

none and 750,300,000 shares authorized at December 31, 2019 and 2018, respectively;

none and 532,606,084 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively;

liquidation preference of $ 0 and $ 163,316 at December 31, 2019 and December 31, 2018, respectively

Stockholders' equity (deficit):

Stockholders' equity:

Preferred stock, $ 0.001 par value;

10,000,000 shares authorized, no shares issued or outstanding at December 31, 2019;

no shares authorized, issued or outstanding at December 31, 2018

10,000,000 shares authorized, no shares issued or outstanding at December 31, 2020 and December 31, 2019

Common stock, $ 0.001 par value;

200,000,000 and 1,470,000,000 shares authorized at December 31, 2019 and December 31, 2018, respectively;

200,000,000 shares authorized at December 31, 2020 and December 31, 2019;

12,652,308 and 12,560,990 shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively

2 unchanged sentences

Accumulated deficit ( 181,289 ) ( 164,602 )

Total stockholders' equity (deficit) 55,659 ( 111,966 )

Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) $ 88,310 $ 28,887

Total stockholders' equity 41,839 55,659

Total liabilities and stockholders' equity $ 78,375 $ 88,310

The accompanying notes are an integral part of these financial statements

4 unchanged sentences

Operating expenses:

Costs of revenue (excluding amortization of purchased technology) 18,808 15,379

Costs of revenue 16,559 18,808

Selling, general and administrative expenses 37,033 28,702

Research and development expenses 3,568 2,176

Amortization of intangible assets — 141

Total operating expenses 57,160 49,686

4 unchanged sentences

Loss before income taxes ( 16,766 ) ( 12,013 )

Income tax expense 25 58

Income tax benefit (expense) 79 ( 25 )

Net loss ( 16,687 ) ( 12,038 )

5 unchanged sentences

The accompanying notes are an integral part of these financial statements

Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity

(in thousands, except share and per share amounts)

5 unchanged sentences

Balances at December 31, 2018 532,606,084 $ 105,232 63,005 $ — $ 40,598 $ ( 152,564 ) $ ( 111,966 )

Cumulative effect of changes in accounting principle related to revenue recognition — — — — — 3,086 3,086

Accretion of redeemable convertible preferred stock — 4,640 — — ( 4,640 ) — ( 4,640 )

Stock-based compensation — — — — 114 — 114

Issuance of Series F redeemable convertible preferred stock for aggregate proceeds of $ 0.078 per share, net of issuance costs of $ 7 , in the third tranche closing of the Series F financing

34,914,327 3,868 — — ( 1,152 ) — ( 1,152 )

Net loss — — — — — ( 8,012 ) ( 8,012 )

Balances at December 31, 2018 532,606,084 105,232 63,005 — 40,598 ( 152,564 ) ( 111,966 )

Accretion of redeemable convertible preferred stock — 4,640 — — ( 4,640 ) — ( 4,640 )

Exercise of stock options — — 1,548 — 4 — 4

12 unchanged sentences

Balances at December 31, 2019 — — 12,560,990 13 220,248 ( 164,602 ) 55,659

Exercise of stock options — — 47,549 — 13 — 13

Issuance of stock under Employee Stock Purchase Plan — — 11,649 — 142 — 142

Stock-based compensation — — — — 2,694 — 2,694

Exercise of common stock warrants — — 32,120 — 18 — 18

Net loss — — — — — ( 16,687 ) ( 16,687 )

Balances at December 31, 2020 — $ — 12,652,308 $ 13 $ 223,115 $ ( 181,289 ) $ 41,839

The accompanying notes are an integral part of these financial statements

17 unchanged sentences

Accounts payable 986 528

Accrued and other liabilities 688 284

Accrued and other current liabilities 1,596 688

Net cash used in operating activities ( 14,084 ) ( 9,711 )

2 unchanged sentences

Proceeds from sale of property and equipment — 300

Purchases of short-term investments — ( 2,000 )

Maturities of short-term investments — 2,000

Net cash used in investing activities ( 455 ) ( 103 )

1 unchanged sentence

Proceeds from sale of common stock upon exercise of stock options 13 4

Proceeds from common stock issued under Employee Stock Purchase Plan 142 —

Proceeds from exercise of common stock warrants 18 —

Principal payment on capital lease obligations ( 249 ) ( 138 )

Proceeds from issuance of 2017 Term Loan, net of issuance costs of $ 5

Proceeds from Paycheck Protection Program loan 2,865 —

Repayment of Paycheck Protection Program loan ( 2,865 ) —

Proceeds from initial public offering, net of issuance costs and offering costs — 50,444

Proceeds from the issuance of Series F redeemable convertible preferred stock, net of issuance costs — 2,716

Proceeds from issuance of Series G redeemable convertible preferred stock, net of issuance costs — 7,742

Proceeds from issuance of Series H redeemable convertible preferred stock, net of issuance costs — 10,682

Net cash provided by financing activities 68,734 11,423

Increase in cash, cash equivalents and restricted cash 58,920 1,923

Payments of deferred offering costs ( 21 ) —

Net cash (used in) provided by financing activities ( 97 ) 68,734

Net change in cash, cash equivalents and restricted cash ( 14,636 ) 58,920

Cash, cash equivalents and restricted cash, beginning of period 72,184 13,264

5 unchanged sentences

Equipment purchased under capital lease obligations $ 260 $ 654

Fair value of warrant liabilities recorded as discount on debt $ — $ 289

Costs incurred, but not paid, in connection with capital expenditures $ 553 $ —

1 unchanged sentence

Net exercise of common and preferred stock warrants $ — $ 511

Issuance costs included in accounts payable and accrued liabilities $ — $ 355

Deferred offering costs included in accounts payable and accrued and other current liabilities $ 40 $ —

Reclassification of redeemable convertible preferred stock warrant liabilities as equity $ — $ 726

2 unchanged sentences

Conversion of Series G to Series H redeemable convertible preferred stock $ — $ 11,875

Deemed dividend from issuance of Series F redeemable convertible preferred stock $ — $ 1,152

Adjustment upon adoption of Topic 606 $ — $ 3,086

The accompanying notes are an integral part of these financial statements

1 unchanged sentence

Description of Business

(the Company) was incorporated under the laws of the state of New Mexico in 2002, under the name Exagen Corporation.

In 2003, Exagen Corporation changed its state of incorporation from New Mexico to Delaware by merging with and into Exagen Diagnostics, Inc., pursuant to which the Company changed its name to Exagen Diagnostics, Inc.

In January 2019, the Company changed its name to Exagen Inc.

The Company is dedicated to transforming the care continuum for patients suffering from debilitating and chronic autoimmune diseases by enabling timely differential diagnosis and optimizing therapeutic intervention.

Initial Public Offering

On September 23, 2019, the Company closed its initial public offering (the IPO) of 4,140,000 shares of its common stock at a price to the public of $ 14.00 per share, including the exercise in full by the underwriters of their option to purchase 540,000 additional shares of the Company's common stock.

Including the exercise of the option to purchase additional shares, the aggregate net proceeds to the Company from the offering was approximately $ 50.4 million, net of underwriting discounts, commissions and other offering expenses, for aggregate expenses of approximately $ 7.5 million.

In addition, an aggregate of 7,816,643 shares of common stock, excluding warrant conversions, were issued to the holders of the Company's Series A-3, Series B-3, Series C, Series D, Series E, Series F and Series H redeemable convertible preferred stockholders upon the automatic conversion of all shares of redeemable convertible preferred stock to common stock.

Reverse Stock Split

On September 6, 2019, the Company effected a one-for-183.635 reverse stock split of its common stock (the Reverse Stock Split).

The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split.

All issued and outstanding common stock and the conversion ratio of the redeemable convertible preferred stock have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented in the accompanying financial statements and notes to the financial statements.

The Company has suffered recurring losses and negative cash flows from operating activities since inception.

The Company has incurred recurring losses and negative cash flows from operating activities since inception.

The Company anticipates that it will continue to incur net losses into the foreseeable future.

At December 31, 2019, the Company had cash and cash equivalents of $ 72.1 million and had an accumulated deficit of $ 164.6 million, respectively.

Since inception, the Company has financed its operations primarily through private placements of preferred securities, the sale of common stock through its IPO and debt financing arrangements.

At December 31, 2020, the Company had cash and cash equivalents of $ 57.4 million and had an accumulated deficit of $ 181.3 million.

Since inception, the Company has financed its operations primarily through private placements of preferred securities, the sale of common stock through its initial public offering (IPO) and debt financing arrangements.

Based on the Company's current business plan, management believes that its existing capital resources will be sufficient to fund the Company's obligations for at least twelve months following the issuance of these financial statements.

16 unchanged sentences

Such deposits may, at times, exceed federally insured limits.

Significant payers are those which represent more than 10% of the Company's total revenue or accounts receivable balance at each respective balance sheet date.

For each significant payer, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:

Significant payors and customers are those which represent more than 10% of the Company's total revenue or accounts receivable balance at each respective balance sheet date.

For each significant payor and customers, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:

Years Ended December 31,

Medicare 20 % 25 %

Janssen (SIMPONI ® )

Blue Shield 11 % 12 %

United Healthcare 11 % 12 %

Medicare Advantage 11 % 11 %

Janssen (SIMPONI ® )

United Healthcare * 11 %

* Less than 10%.

Accounts Receivable

Medicare * 26 %

Janssen (SIMPONI ® )

Blue Shield 11 % 15 %

United Healthcare * 22 %

Medicare Advantage * 11 %

Janssen (SIMPONI ® )

* Less than 10%.

For the years ended December 31, 2019 and 2018, approximately 82 % of the Company's revenue was related to the AVISE ® CTD test.

For the years ended December 31, 2020 and 2019, approximately 70 % and 82 % of the Company's revenue was related to the AVISE ® CTD test, respectively.

The Company is dependent on key suppliers for certain laboratory materials.

For the years ended December 31, 2019 and 2018, approximately 97 % and 95 %, respectively, of the Company's inventories were purchased from two suppliers.

For each of the years ended December 31, 2020 and 2019, approximately 97 % of the Company's diagnostic testing supplies were purchased from two suppliers.

An interruption in the supply of these materials would impact the Company's ability to perform testing services.

Disaggregation of Revenue

The following table includes the Company's revenues as disaggregated by payer category (in thousands):

The following table includes the Company's revenues as disaggregated by payor and customer category (in thousands):

Years Ended December 31,

5 unchanged sentences

Total revenue $ 41,975 $ 40,387

(1) Includes hospitals, other laboratories, etc.

(2) Includes patient self-pay that is immaterial .

Fair Value Measurements

The carrying value of the Company's cash and cash equivalents, other assets and accrued liabilities approximate fair value due to the short-term nature of these items.

The carrying value of the Company's cash and cash equivalents approximate fair value due to the short-term nature of these items.

Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the Company's long-term borrowings approximates its fair value, which is considered a Level 2 input.

23 unchanged sentences

Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized.

When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in other income or expense in the statements of operations in the period realized.

When assets are retired or otherwise disposed of, the cost and

accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in other income or expense in the statements of operations in the period realized.

Long-lived Assets

29 unchanged sentences

The healthcare professionals who order the Company's testing products and to whom test results are reported are generally not responsible for payment for these products.

The parties that pay for these services (the Payers) consist of healthcare insurers, government payers (primarily Medicare and Medicaid), client payers (i.e., hospitals, other laboratories, etc.), and patient self-pay.

The parties that pay for these services (the Payors) consist of healthcare insurers, government payors (primarily Medicare and Medicaid), client payors (i.e., hospitals, other laboratories, etc.), and patient self-pay.

The Company's service is a single performance obligation that is completed upon the delivery of test results to the prescribing physician which triggers revenue recognition.

Payers are billed at the Company's list price.

Net revenues recognized consist of amounts billed net of allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payers.

Payors are billed at the Company's list price.

Net revenues recognized consist of amounts billed net of allowances for differences between amounts billed and the estimated consideration the Company expects to receive from such payors.

The process for estimating revenues and the ultimate collection of accounts receivable involves significant judgment and estimation.

The Company follows a standard process, which considers historical denial and collection experience, insurance reimbursement policies and other factors, to estimate allowances and implicit price concessions, recording adjustments in the current period as changes in estimates.

Further adjustments to the allowances, based on actual receipts, is recorded upon settlement.

The transaction price is estimated using an expected value method on a portfolio basis.

The Company's portfolios are grouped per payer (i.e.

each individual third-party insurance, Medicare, client payers, patient self-pay, etc.) and per test basis.

Collection of the Company's net revenues from payers is normally a function of providing complete and correct billing information to the healthcare insurers and generally occurs within 30 to 90 days of billing.

The Company's portfolios are grouped per payor (i.e.

each individual third-party insurance, Medicare, client payors, patient self-pay, etc.) and per test basis.

Collection of the Company's net revenues from payors is normally a function of providing complete and correct billing information to the healthcare insurers and generally occurs within 30 to 90 days of billing .

Contracts do not contain significant financing components based on the typical period of time between performance of services and collection of consideration.

The Company early adopted Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606) as of January 1, 2018 using a cumulative-effect adjustment to the opening balance of accumulated deficit and accounts receivable of $ 3.1 million.

Janssen Promotion Agreement

In December 2018, the Company entered into a co-promotion agreement with Janssen (the Janssen agreement) to co-promote SIMPONI ® in the United States.

The Company is responsible for the costs associated with its salesforce

over the course of such co-promotion.

In December 2018, the Company entered into a co-promotion agreement (the Janssen Agreement) with Janssen Biotech, Inc.

(Janssen) to co-promote SIMPONI ® in the United States.

The Company is responsible for the costs associated with its salesforce over the course of such co-promotion.

Janssen is responsible for all other aspects of the commercialization of SIMPONI ® under the Janssen Agreement.

In exchange for the Company's sales and co-promotional services, the Company is entitled to a quarterly tiered promotion fee ranging from $ 750 to $ 1,250 per prescription based on the incremental increase in total prescribed units of SIMPONI ® for that quarter over a predetermined baseline.

The promotion fee is determined on a sliding rate, ranging from the high hundreds of dollars to the low one thousands per prescribed unit of SIMPONI ® , depending on the number of increased prescriptions, and varies per increased prescription.

In exchange for the Company's sales and co-promotional services, the Company is entitled to a quarterly tiered promotion fee based on the incremental increase in total prescribed units of SIMPONI ® for that quarter over a predetermined baseline.

For the years ended December 31, 2020 and 2019, the tiered promotion fee ranged from $ 750 to $ 1,250 per prescription over a predetermined baseline.

Due in part to COVID-19, in June 2020, the Janssen Agreement was amended (June Amended Janssen Agreement).

In accordance with the June Amended Janssen Agreement, the predetermined average baseline for prescribed units for each remaining quarter in 2020 was adjusted and is subject to further adjustment, and for each of the third and fourth quarters of 2020, the Company received a minimum promotion fee of $ 0.3 million and the fee was capped at 5 % above the adjusted predetermined baseline.

In December 2020, the Janssen Agreement amended.

The Janssen Agreement, as amended in June 2020 and December 2020 is collectively referred to as the Amended Janssen Agreement.

In accordance with the Amended Janssen Agreement, the predetermined average baseline for prescribed units for the quarters ending December 31, 2020, March 31, 2021 and June 30, 2021, was adjusted to approximately 28,750 prescribed units per quarter, subject to adjustment under certain circumstances.

For the first and second quarters of 2021, the Company will be entitled to an amended tiered promotion fee ranging from $ 500 to $ 1,000 per prescription based on the incremental increase in total prescribed units.

Pursuant to the Amended Janssen Agreement, for the first and second quarters of 2021, the Company will receive a minimum promotion fee of $ 0.3 million and the fee will be capped at 10 % above the adjusted predetermined baseline.

The Company continued to receive a minimum promotion fee of $ 0.3 million and the fee was capped at 5 % above the adjusted predetermined baseline for the quarter ended December 31, 2020.

The quarterly tiered promotion fee for the remaining term of the Janssen Promotion Agreement beginning with the quarter ended September 30, 2021 will revert to the terms set forth in the Janssen Agreement prior to amendment, with no minimum promotion fee and no cap on predetermined baseline units.

In addition, during the term of the Janssen Agreement, the Company is restricted from promoting any other biologic or Janus kinase inhibitor, or JAK inhibitor, used for treatment of indications covered by the agreement without first obtaining Janssen's written consent.

In September 2019, the Company exercised their option to extend the term of the Janssen agreement to December 31, 2021.

Janssen can terminate the agreement at any time for any reason upon 30 days' notice to the Company, and the Company can terminate the agreement for any reason at the end of any calendar quarter upon 30 days' notice to Janssen.

Either party may terminate the agreement in the event of the other party's default of any of its material obligations under the agreement if such default remains uncured for a specified period of time following receipt of written notice of such default.

The Janssen Agreement expires on December 31, 2021, unless extended by the Company for an additional 12 months upon 180 days written notice prior to the end of the current term.

If the Company elects to extend the term, the predetermined baseline for 2022 will be subject to future agreement by the Company and Janssen.

Janssen may terminate the Amended Janssen Agreement at any time for any reason upon 30 days' notice to the Company, and the Company may terminate the Amended Janssen Agreement for any reason at the end of any calendar quarter upon 30 days' notice to Janssen.

Either party may terminate the Amended Janssen Agreement in the event of the other party's default of any of its material obligations under the agreement if such default remains uncured for a specified period of time following receipt of written notice of such default.

The Company's obligations relating to sales and co-promotion services for SIMPONI ® is a series of single performance obligations since Janssen simultaneously receives and consumes benefits provided by the Company's sales and co-promotional services.

The method for measuring progress towards satisfying the performance obligations is based on prescribed units in excess of the contractual baseline at the contractual rate earned per unit since the agreement is cancelable.

The Company recognized revenue of approximately $ 1.5 million during the year ended December 31, 2019.

The Company recognized co-promotion revenue of approximately $ 5.1 million and $ 1.5 million during the years ended December 31, 2020 and 2019, respectively.

The related expenses for marketing SIMPONI ® are included in selling, general and administrative expenses and are expensed as incurred.

5 unchanged sentences

Shipping and Handling Costs

Costs incurred for shipping and handling are included in costs of revenue in the accompanying statements of operations and totaled approximately $ 1.4 million and $ 1.2 million for the years ended December 31, 2019 and 2018, respectively.

Costs incurred for shipping and handling are included in costs of revenue in the accompanying statements of operations and totaled approximately $ 1.4 million for each of the years ended December 31, 2020 and 2019.

Stock-Based Compensation

The Company recognizes compensation expense for all stock-based awards to employees and directors based on the grant-date estimated fair values over the requisite service period of the awards (usually the vesting period) on a straight-line basis.

The fair value of stock options is determined using the Black-Scholes-Merton (BSM) option pricing model, which requires management to make certain assumptions regarding a number of complex and subjective variables.

The fair value of stock options and purchases under the employee stock purchase plan (ESPP) rights is determined using the Black-Scholes-Merton (BSM) option pricing model, which requires management to make certain assumptions regarding a number of complex and subjective variables.

Equity award forfeitures are recorded as they occur.

3 unchanged sentences

In addition, due to the Company's limited historical data, the estimated volatility incorporates the historical volatility over the expected term of the award of comparable companies whose share prices are publicly available.

The risk-free interest rate for periods within the contractual term of the option is

based on the U.S.

The risk-free interest rate for periods within the contractual term of the option is based on the U.S.

Treasury yield in effect at the time of grant.

18 unchanged sentences

Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods.

Potentially dilutive common stock equivalents are comprised of redeemable convertible preferred stock, warrants for the purchase of redeemable convertible preferred and common stock and options outstanding under the Company's stock option plans.

Potentially dilutive common stock equivalents are comprised of redeemable convertible preferred stock, warrants for the purchase of redeemable convertible preferred and common stock, options outstanding under the Company's stock option plans and shares of the Company's common stock pursuant to Employee Stock Purchase Plan.

For the years ended December 31, 2020 and 2019, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as the inclusion of the potentially dilutive securities would be antidilutive.

1 unchanged sentence

Years Ended December 31,

Redeemable convertible preferred stock — 5,202,940

Warrants to purchase redeemable convertible preferred stock — 224,493

Warrants to purchase common stock 426,827 461,273

Common stock options 1,975,761 1,375,542

Employee stock purchase plan 11,640 —

Total 2,414,228 1,836,815

Government Assistance Grant Income

Government assistance grants which are unconditional when received and intended to compensate for expenses incurred or replace lost revenue are recognized when those expenses are incurred or during the period that lost revenue is experienced, and are included in other income, net in the accompanying statements of operations.

Segment Reporting

1 unchanged sentence

The Company views its operations as, and manages its business in, one operating segment.

Recent Accounting Pronouncements

Recent Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB), or other standard setting bodies and adopted by the Company as of the specified effective date.

8 unchanged sentences

The effective date of this guidance for public companies is for reporting periods beginning after December 15, 2018.

In June 2020, the FASB issued ASU 2020-05, which delays the adoption of ASU 2016-02 for non-public entities to fiscal years beginning after December 15, 2021, and interim periods beginning after December 15, 2022.

As an emerging growth company as defined in the JOBS Act, the Company has elected to delay adoption of this ASU until January 1, 2022.

2 unchanged sentences

The Company is currently evaluating the impact of Topic 842 on its financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes .

The new guidance removes certain exceptions to the general principles of ASC 740 in order to simplify the complexities of its application.

These changes include eliminations to the exceptions for intraperiod tax allocation, recognizing deferred tax liabilities related to outside basis differences, and year-to-date losses in interim periods, among others.

The effective date of this guidance for public companies is for fiscal years, and interim period within those fiscal years, beginning after December 15, 2020.

The Company does not anticipate the adoption will have a material impact on its financial statements.

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU No.

3 unchanged sentences

However, public companies will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income.

The narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption.

This update is effective for annual periods beginning after December 15, 2019, and interim periods within those periods, and early adoption is permitted.

The Company is currently evaluating the impact of ASU 2018-13 on its financial statements.

The Company adopted this guidance on January 1, 2020, and the adoption did not have a material impact on its financial statements.

Other Financial Information

4 unchanged sentences

Prepaid maintenance and insurance contracts 2,229 1,768

Other prepaid assets 133 148

Other prepaid and other current assets 659 133

Prepaid and other current assets $ 4,159 $ 3,451

9 unchanged sentences

Property and equipment, net $ 2,102 $ 1,380

Depreciation and amortization expense for the years ended December 31, 2019 and 2018, was approximately $ 0.6 million.

Depreciation and amortization expense for the years ended December 31, 2020 and 2019, was approximately $ 0.5 million and $ 0.6 million, respectively.

At December 31, 2020 and December 31, 2019, the gross book value of assets under capital lease was $ 1.2 million and $ 0.8 million, respectively, and is classified in "Laboratory equipment" in the table above.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):

Accrued payroll and related expenses $ 3,589 $ 2,362

Accrued deferred offering costs — 355

Accrued interest 147 145

4 unchanged sentences

Other accrued liabilities 953 588

Accrued liabilities $ 4,419 $ 3,923

Accrued and other current liabilities $ 5,757 $ 4,419

2017 Term Loan

3 unchanged sentences

At December 31, 2020, no additional amounts remain available to borrow under the 2017 Term Loan.

In November 2019, the Company executed the First Amendment to the Loan and Security Agreement (Loan Amendment).

The interest rate on all borrowings under the Loan Amendment is 8.5 %, of which 2.0 % is paid in-kind in the form of additional term loans, or PIK Loans, until December of 2022, after which interest accrues at an annual rate of 8.5 %.

In November 2019, the Company executed the First Amendment to the Loan and Security Agreement (the 2017 Loan Amendment).

The interest rate on all borrowings under the Loan Amendment is 8.5 %, of which 2.0 % is paid in-kind in the form of additional term loans (PIK Loans) until December of 2022, after which interest accrues at an annual rate of 8.5 %.

The Company has estimated the effective interest rate of this loan to be approximately 10 %.

Accrued interest is due and payable monthly, unless the Company elects to pay PIK interest.

Accrued interest is due and payable monthly, unless the Company elects to pay paid-in-kind interest.

The outstanding principal and accrued interest on the Loan Amendment will be repaid in twenty-four equal monthly installments commencing in December 2022.

1 unchanged sentence

This obligation is being accreted into interest expense over the term of Loan Amendment using the effective interest method.

For the years ended December 31, 2019 and 2018, the Company issued PIK Loans totaling $ 0.5 million.

If the Loan Amendment is prepaid after November 19, 2019, but before November 19, 2020, the Loan Amendment requires a prepayment premium of 3 % of the aggregate outstanding principal.

For each of the years ended December 31, 2020 and 2019, the Company issued PIK Loans totaling $ 0.5 million.

The Loan Amendment requires a prepayment premium of 3 % of the aggregate outstanding principal.

The prepayment premium decreases by 1 % during each subsequent twelve-month period after November 19, 2020.

2 unchanged sentences

The affirmative covenants require that the Company achieve a specified level of revenue, as measured quarterly on a rolling twelve-month basis, and commencing with the quarter ending December 31, 2019.

The consequences of failing to achieve the performance covenant will be waived if, within sixty days of failing to achieve the performance covenant, the Company issues additional equity securities or subordinated debt with net proceeds sufficient to fund any cash flow deficiency generated from operations, as defined.

In addition, the Loan Amendment requires that the Company maintain certain levels of minimum liquidity.

The consequences of failing to achieve the performance covenant may be cured if, within sixty days of failing to achieve the performance covenant, the Company issues additional equity securities or subordinated debt with net proceeds sufficient to fund any cash flow deficiency generated from operations, as defined.

The Company's revenues for the twelve-month ended September 30, 2020 were lower than the specified targets, as a result, the Company and Innovatus agreed on a new management plan and target to bring the Company back into compliance with the Loan Amendment.

The Loan Amendment requires that the Company maintain certain levels of minimum liquidity.

The Company is required to maintain an unrestricted cash balance of $ 2.0 million.

5 unchanged sentences

Accordingly, the Company has reflected the amounts of the Loan Amendment due beyond twelve months of the balance sheet date as non-current.

In connection with the 2017 Term Loan, the Company paid issuance costs of $ 0.4 million to Innovatus and an additional $ 0.1 million to third parties.

These fees were recorded as discounts to the carrying value of the 2017 Term Loan.

The Company also issued Innovatus warrants (i) on the closing date of the 2017 Term Loan, to purchase 15,384,615 shares of Series F redeemable convertible preferred stock at an exercise price of $ 0.078 per share and (ii) on December 7, 2018, to purchase 3,846,154 shares of Series F redeemable convertible preferred stock at an exercise price of $ 0.078 per share (Note 5).

These warrants are immediately exercisable and will expire if

unexercised seven years after their issuance.

The fair value of the warrants on each of their dates of issuance, determined using BSM option pricing model, was recorded as a discount to long-term debt and an offsetting amount recognized as a liability.

The resulting debt discount is being amortized to interest expense using the effective interest method over the term of the 2017 Term Loan.

In connection with the completion of the IPO in September 2019, the Series F redeemable convertible preferred stock warrants automatically converted into warrants exercisable for an aggregate of 104,722 shares of common stock.

Future Minimum Payments on the Outstanding Borrowings

4 unchanged sentences

Total borrowings, net of discounts and debt issuance costs $ 26,659

Warrants to Purchase Common or Preferred Stock

In connection with the completion of the Company's IPO in September 2019:

• The remaining outstanding Series F redeemable convertible preferred stock warrants automatically converted into warrants exercisable for an aggregate 104,722 shares of common stock.

• Warrants to purchase common stock for 569,184 shares of the Company's common stock were exercised via cashless exercise resulting in the issuance of 512,363 shares of common stock.

Unexercised warrants to purchase common stock for 9,054 shares were terminated prior to the completion of the IPO.

• Warrants to purchase Series D and Series E redeemable convertible preferred stock for 119,771 shares of the Company's common stock were exercised via cashless exercise resulting in the issuance of 27,431 shares of common stock.

Outstanding Warrants

The following warrants to purchase common stock were outstanding as of December 31, 2019:

Shares Exercise Price Issuance date Expiration date

Common stock warrants 282,402 $ 1.84 January 19, 2016 January 19, 2026

Common stock warrants 74,018 1.84 March 31, 2016 March 31, 2026

Common stock warrants 131 1.84 April 1, 2016 April 1, 2026

Common stock warrants (1) 83,778 14.32 September 8, 2017 September 8, 2024

Common stock warrants (1) 20,944 14.32 December 7, 2018 December 7, 2025

(1) Prior to the conversion upon IPO, the remaining warrants were for the purchase of Series F redeemable convertible preferred stock.

The outstanding warrants to purchase shares of common stock are equity classified at December 31, 2019.

Commitments and Contingencies

As of December 31, 2019, the Company leases an office and laboratory space in Vista, California, under a lease that expires in January 2021, with options to extend the lease for two additional 36 -month periods.

In addition, the Company also leases an office space in Vista, California, under a lease that expires in January 2021 with an option to extend the lease for an additional 24 -month period.

As of December 31, 2020, the Company leases office and laboratory space in Vista, California, under leases that expire in January 2026, with an option to extend a portion of the lease for an additional 5-year period.

In addition, the Company also leases additional office space in Vista, California, under a lease that expires in January 2026 with an option to extend the lease for an additional 5-year period.

The Company's lease payments under each of these leases are subject to escalation clauses.

3 unchanged sentences

2021 $ 344 $ 590

Thereafter — 55

Total minimum lease payments 951 $ 3,178

10 unchanged sentences

The remaining milestone obligation is for an additional $ 2.0 million payment due to Prometheus Laboratories, Inc.

(Prometheus) for which the fair value was determined to be zero at December 31, 2019 and December 31, 2018.

In addition, the Company has ongoing royalty payment obligations on net sales of products which incorporate certain acquired technologies ranging from 2.5 % to 7.5 %.

Future royalties payable under these arrangements are limited to the lesser of an aggregate of $ 4.2 million (including an upfront payment of $ 100,000 ) or the total royalties earned through January 1, 2024.

(Prometheus) for which the fair value was determined to be zero at December 31, 2020 and 2019.

In addition, the Company has ongoing royalty payment obligations on net sales of products which incorporate certain acquired technologies of 2.5 %.

Future royalties payable under these arrangements are limited to the lesser

of an aggregate of $ 1.2 million (including an upfront payment of $ 100,000 ) or the total royalties earned through January 1, 2024.

Licensing Agreements

3 unchanged sentences

Supply Agreement

In January 2018, the Company entered into a supply agreement with one supplier for reagents which includes a minimum annual purchase commitment of $ 3.25 million for each of the three years covered by the agreement, which terminates in 2021.

In September 2020, the Company entered into an amended supply agreement with one supplier for reagents which includes minimum annual purchase commitments of $ 4.1 million and $ 6.0 million for years ended December 31, 2021 and 2022, respectively, with a 15 % annual increase thereafter through the year ended December 31, 2025.

Contingencies

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications;

including subpoenas and other civil investigative demands, from governmental agencies, Medicare or Medicaid payers and managed care organizations reviewing billing practices or requesting comment on allegations of billing irregularities that are brought to their attention through billing audits or third parties.

The Company's exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made.

including subpoenas and other civil investigative demands, from governmental agencies, Medicare or Medicaid payors and managed care organizations reviewing billing practices or requesting comment on allegations of billing irregularities that are brought to their attention through billing audits or third parties.

The Company's exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made or of which of the Company believes to be immaterial.

The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

The Company is not a party to any litigation and does not have contingent reserves established for any litigation liabilities.

From time to time, the Company may be subject to various legal proceedings that arise in the ordinary course of business activities.

7 unchanged sentences

Money market funds $ 70,760 $ 70,760 $ — $ —

Redeemable convertible preferred stock warrant liabilities $ 1,503 $ — $ — $ 1,503

The fair value of the Company's money market funds is based on quoted market prices.

The following table includes a roll-forward of the financial instruments measured on a recurring basis and classified within Level 3 of the fair value hierarchy (in thousands):

Balances at December 31, 2017 $ 896

Issuance of warrants to purchase shares of Series F redeemable convertible preferred stock in connection with 2017 Term Loan (Note 4) 289

Remeasurement of financial instruments 318

Balances at December 31, 2018 1,503

Remeasurement of financial instruments ( 267 )

Net exercise of preferred stock warrants ( 510 )

Reclassification of liability classified warrants to stockholders' equity (deficit) ( 726 )

Balance at December 31, 2019 $ —

Changes in the fair value of the Company's liability classified warrants are recorded in the line item change in fair value of financial instruments in the accompanying statement of operations.

Redeemable Convertible Preferred Stock

On January 2, 2019, the Company amended and restated its restated certificate of incorporation to, among other things, increase its authorized shares of convertible preferred stock from 750,300,000 to 955,500,000 shares, of which 205,200,000 shares are designated as Series G convertible preferred stock and set forth the rights, preferences and privileges of the Series G convertible preferred stock.

On July 11, 2019, the Company amended and restated its restated certificate of incorporation to among other things, increase its authorized shares of convertible preferred stock from 955,500,000 to 1,038,667,059 shares, of which 479,967,595 shares are designated as Series H redeemable convertible preferred stock and set forth the rights, preferences and privileges of the Series H redeemable convertible preferred stock.

Upon completion of the Company's IPO in September 2019, an aggregate of 7,816,643 shares of common stock, excluding warrant conversions, were issued to the holders of the Company's Series A-3, Series B-3, Series C, Series D, Series E, Series F and Series H redeemable convertible preferred stockholders upon the automatic conversion of all shares of redeemable convertible preferred stock to common stock.

As a result, no shares of redeemable convertible preferred stock remain outstanding at December 31, 2019.

Series F Financing

In December 2017, the Company's Board of Directors authorized a third tranche closing of the issuance to existing preferred stockholders in connection with the Company's Series F financing, which was completed between December 2017 and January 2018.

In December 2017, a group of existing investors of the Company purchased 54,246,756 shares of Series F redeemable convertible preferred stock at a per share price of $ 0.078 for aggregate gross proceeds of approximately $ 4.2 million.

In early January 2018, a group of existing stockholders of the Company purchased an additional 34,914,327 shares of Series F redeemable convertible preferred stock at a per share price of $ 0.078 for aggregate gross proceeds of approximately $ 2.7 million.

The Company concluded that the third tranche closing of the Series F preferred stock purchase agreement contained a single freestanding financial instrument, shares of Series F redeemable convertible preferred stock, and the Company determined there were no embedded features requiring bifurcation in the shares of Series F redeemable convertible preferred stock issued in the third tranche closing.

The Company accounted for the difference between the estimated fair value and the $ 0.078 per share purchase price of shares of Series F redeemable convertible preferred stock issued in the third tranche closing as a deemed dividend since all investors in the third closing are existing preferred stockholders of the Company, and the Company did not identify any elements to the transaction which it believes were compensatory in nature.

As a result, the Company recognized a deemed dividend in the amount of $ 1.2 million in the first quarter of 2018, that was recorded as additional paid-in capital (in the absence of retained earnings) in the accompanying statement of redeemable convertible preferred stock and stockholders’ deficit.

Series G Financing

In January 2019, the Company entered into an agreement with new and certain existing preferred stockholders to issue shares of Series G redeemable convertible preferred stock in multiple separate closings at per share price of $ 0.078 in each closing.

Shares of Series G redeemable convertible preferred stock were issuable under the Series G preferred stock purchase agreement until the earlier of March 31, 2019 or the issuance of all authorized shares of Series G redeemable convertible preferred stock, as specified in the Company's amended and restated certificate of incorporation.

In January 2019 and March 2019, the Company sold 88,030,905 and 9,615,384 shares, respectively, of Series G redeemable convertible preferred stock for aggregate gross proceeds of approximately $ 7.6 million to new and existing investors, of which $ 3.75 million of gross proceeds were received as of December 31, 2018 and are included in the accompanying December 31, 2018 balance sheet.

In May 2019, the Company sold an additional 51,282,048 shares of Series G redeemable convertible preferred stock for aggregate gross proceeds of approximately $ 4.0 million to existing investors.

In addition, in May 2019, the Series G preferred stock purchase agreement was amended to include the right of the Company to require certain holders of Series G redeemable convertible preferred stock to purchase an additional 32,051,280 shares of Series G redeemable convertible preferred stock at $ 0.078 per share, for total aggregate proceeds of $ 2.5 million, at any time after July 31, 2019 and prior to May 31, 2020.

This right terminated in connection with the issuance of the Series H redeemable convertible stock in July 2019.

The Company concluded that the closings of the Series G preferred stock purchase agreement in January and March 2019, contained a single freestanding financial instrument, shares of Series G redeemable convertible preferred stock, and the Company determined there were no embedded features requiring bifurcation in the shares of Series G redeemable convertible preferred stock issued.

The Company concluded the closing in May 2019 contained two freestanding financial instruments, shares of Series G redeemable convertible preferred stock and the Company call right, and the Company concluded there were no embedded features requiring bifurcation in the shares of Series G redeemable convertible preferred stock issued.

The Company call right was deemed to have nominal value since it was with insiders with knowledge of the imminent closing of Series H redeemable convertible stock.

In conjunction with the issuance of the Series H redeemable convertible preferred stock,

each share of issued and outstanding Series G redeemable convertible preferred stock was converted into shares of Series H redeemable convertible preferred stock.

Series H Financing

In July 2019, the Company entered into an agreement with a new investor to issue shares of Series H redeemable convertible preferred stock at a per share price of $ 0.04712 .

Pursuant to the terms of the agreement, the new investor purchased 233,446,519 shares of Series H redeemable convertible preferred stock for gross proceeds of approximately $ 11.0 million.

In connection with the Series H financing, the Company converted all of the 148,928,337 outstanding shares of the Company's Series G redeemable convertible preferred stock into 246,521,076 shares of Series H redeemable convertible preferred stock on a dollar-for-dollar basis.

The Company concluded that the closing of the Series H preferred stock purchase agreement contained a single freestanding financial instrument, shares of Series H redeemable convertible preferred stock, and the Company determined there were no embedded features requiring bifurcation in the shares of Series H redeemable convertible preferred stock issued at closing.

The Company accounted for the difference between the effective conversion price of $ 0.04712 and the fair value of the underlying common stock at the commitment date as a beneficial conversion feature, which was immediately accreted as a deemed dividend.

As a result, the Company recognized a beneficial conversion feature in the amount of $ 6.7 million in the third quarter of 2019, that was recorded as additional paid-in capital (in the absence of retained earnings) in the accompanying statement of redeemable convertible preferred stock and stockholders’ equity (deficit).

Additionally, the Company concluded that the conversion of shares of Series G into shares of Series H redeemable convertible preferred stock in connection with the issuance of Series H redeemable convertible preferred stock represented an extinguishment of the Series G shares.

As a result, the Company recognized a deemed dividend for the extinguishment charge in the amount of $ 6.9 million in the third quarter of 2019, that was recorded as additional paid-in capital (in the absence of retained earnings) in the accompanying statement of redeemable convertible preferred stock and stockholders' equity (deficit).

Stockholders' Equity (Deficit)

Common stockholders are entitled to dividends as and when declared by the Board of Directors, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends.

There have been no dividends declared to date.

The holder of each share of common stock is entitled to one vote.

On January 2, 2019, the Company amended and restated its restated certificate of incorporation to, among other things, increase its authorized shares of common stock from 1,470,000,000 to 1,675,200,000 shares.

On July 11, 2019, the Company amended and restated its restated certificate of incorporation to, among other things, increase its authorized shares of common stock from 1,675,200,000 to 1,970,000,000 shares.

The Company filed its amended and restated certificate of incorporation on September 23, 2019, authorizing 200,000,000 shares of common stock and 10,000,000 shares of preferred stock.

Initial Public Offering

Upon completion of the Company's IPO in September 2019, an aggregate of 7,816,643 shares of common stock, excluding warrant conversion, were issued to the holders of the Company's Series A-3, Series B-3, Series C, Series D, Series E, Series F and Series H redeemable convertible preferred stockholders upon the automatic conversion of all shares of redeemable convertible preferred stock to common stock.

As a result, no shares of redeemable convertible preferred stock remained outstanding at December 31, 2020 and 2019.

Stockholders' Equity

Reverse Stock Split

On September 6, 2019, the Company effected a one-for-183.635 reverse stock split of its common stock (the Reverse Stock Split).

The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split.

On September 23, 2019, the Company closed its IPO of 4,140,000 shares of its common stock at a price to the public of $ 14.00 per share, including the exercise in full by the underwriters of their option to purchase 540,000 additional shares of the Company's common stock.

redeemable convertible preferred stockholders upon the automatic conversion of all shares of redeemable convertible preferred stock to common stock.

Outstanding Warrants

The following equity classified warrants to purchase common stock were outstanding as of December 31, 2020:

Shares Exercise Price Issuance date Expiration date

Common stock warrants 252,798 $ 1.84 January 19, 2016 January 19, 2026

Common stock warrants 69,176 1.84 March 31, 2016 March 31, 2026

Common stock warrants 131 1.84 April 1, 2016 April 1, 2026

Common stock warrants 83,778 14.32 September 7, 2017 September 7, 2024

Common stock warrants 20,944 14.32 December 7, 2018 December 7, 2025

During the year ended December 31, 2020, warrants to purchase common stock were exercised resulting in the issuance of 32,120 shares of the Company's common stock and cash proceeds of an immaterial amount.

Stock Option Plan

In December 2012, the Company's Board of Directors adopted the 2013 Stock Option Plan (the Plan).

Pursuant to the Plan, employees, consultants, and directors may be granted either incentive stock options or non-qualified stock options to purchase shares of the Company's common stock.

In July 2019, the number of shares reserved for issuance under the Plan was increased from 669,806 to 1,663,681 shares.

In September 2019, the Company's Board of Directors adopted, and the Company's stockholders approved, the 2019 Incentive Award Plan (the 2019 Plan).

A total of (i) 2,011,832 shares of common stock plus (ii) shares subject to awards granted under the 2013 Plan on or before the effective date of the 2019 Plan became available for issuance under the 2019 Plan and was initially be reserved for issuance under the 2019 Plan.

Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then employees, officers, non-employee directors or consultants of the Company or its subsidiaries.

A total of (i) 2,011,832 shares of common stock plus (ii) shares subject to awards granted under the 2013 Plan on or before the effective date of the 2019 Plan became available for issuance under the 2019 Plan and will initially be reserved for issuance under the 2019 Plan.

The options generally expire ten years after the date of grant and are exercisable to the extent vested.

Vesting is established by the Board of Directors and is generally four years from the date of grant.

The 2019 Plan contains an "evergreen provision" that allows annual increases in the number of shares available for issuance on the first day of each calendar year through January 1, 2029 in an amount equal to the lesser of:

2 unchanged sentences

Under the evergreen provision, on January 1, 2021, an additional 506,092 shares became available for issuance under the 2019 Plan.

The options generally expire ten years after the date of grant and are exercisable to the extent vested.

Vesting is established by the Board of Directors and is generally four years from the date of grant.

Activity under the Company's stock option plans is set forth below:

3 unchanged sentences

Outstanding, December 31, 2019

1,375,542 $ 8.33 9.16 $ 23,654

Granted 951,031 $ 16.02

11 unchanged sentences

The fair value of the Company's common stock is $ 13.20 and $ 25.40 per share at December 31, 2020 and 2019, respectively.

The intrinsic value of options exercised for the years ended December 31, 2019 and 2018 was an immaterial amount and zero, respectively.

The intrinsic value of options exercised for the years ended December 31, 2020 and 2019 was $ 1.0 million and an immaterial amount, respectively.

Stock-Based Compensation Expense

3 unchanged sentences

Risk-free interest rate 0.4 %- 1.7 %

1.4 % - 2.6 %

Dividend yield — —

Expected term (in years) 5.50 - 6.08

Total non-cash stock-based compensation expense recorded related to options granted in the statement of operations is as follows (in thousands):

Years Ended December 31,

Cost of revenue $ 9 $ 12

Selling, general and administrative 445 93

Research and development 118 9

Total $ 572 $ 114

As of December 31, 2019, total unrecognized compensation cost was $ 5.6 million, which is expected to be recognized over a remaining weighted-average vesting period of 3.3 years.

Employee Stock Purchase Plan

5 unchanged sentences

Under the evergreen provision, on January 1, 2021, an additional 126,523 shares became available for issuances under the ESPP.

There has been no stock-based compensation expense incurred related to the ESPP for the year ended December 31, 2019.

Stock-based compensation expense for the ESPP was an immaterial amount for the year ended December 31, 2020.

The following assumptions were used to calculate the stock-based compensation for each stock purchase right granted under the ESPP:

Years Ended December 31,

Expected volatility 58 %- 83 %

Risk-free interest rate 0.1 %- 1.1 %

Dividend yield —

Expected term (in years) 0.5

Total non-cash stock-based compensation expense recorded related to options granted and stock purchase rights granted under the ESPP in the statement of operations is as follows (in thousands):

Years Ended December 31,

Cost of revenue $ 33 $ 9

Selling, general and administrative 2,419 445

Research and development 242 118

Total $ 2,694 $ 572

As of December 31, 2020, total unrecognized compensation cost was $ 8.5 million, which is expected to be recognized over a remaining weighted-average vesting period of 2.8 years.

Common stock reserved for future issuance consists of the following at December 31, 2020:

10 unchanged sentences

Total deferred ( 106 ) 20

Provision for income tax $ 25 $ 58

(Benefit) provision for income tax $ ( 79 ) $ 25

The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows:

32 unchanged sentences

Approximately $ 43.5 million of the federal tax loss carryforwards will begin to expire in 2022, unless previously utilized.

The federal net operating loss carryforwards generated in after December 31, 2017 of $ 17.2 million will carryforward indefinitely and be available to offset up to 80% of future taxable income each year.

The federal net operating loss carryforwards generated in after December 31, 2017 of $ 27.1 million will carryforward indefinitely.

The Company’s state tax loss carryforwards will expire in 2032, unless previously utilized.

15 unchanged sentences

Related Parties

The Company entered into a consulting services agreement, as amended, with a member of the Company's Board of Directors under which this board member provides certain scientific consulting services to the Company.

Under this agreement, as amended in June 2018, this board member is compensated at a bi-weekly rate of $ 5,000 (plus reimbursement for certain administrative and travel related expenses) and received options to purchase 544 shares of common stock in November 2017, the commencement date of the agreement.

Total amounts paid to this board member under this agreement for the years ended December 31, 2019 and 2018, were $ 130,000 and $ 126,000 , respectively, which was recorded in research and development expenses in the accompanying statements of operations.

The Company accounted for the grant of options as an award to a non-employee and measures compensation cost for this award based on the value of the award at the date the consulting services are complete.

The options granted to this board member were granted at an exercise price of $ 0.367 (the estimated fair value of share of common stock on the grant date using an OPM model), and vests over a three -year term expected to coincide with the period the board member is expected to provide consulting services to the Company.

The estimated fair value of the awards and related compensation cost recognized during the years ended December 31, 2019 and 2018 was immaterial.

All compensation cost related to these awards is recorded in research and development expenses in the accompanying statements of operations.

Effective July 12, 2019, this consultant no longer serves on the Company's Board of Directors.

In September 2011, the Company entered into a license agreement with the Company's former Chief Scientific Officer, and a related company, De Novo Diagnostics, Inc.

The license agreement, covering novel methods for monitoring low-dose methotrexate therapy, relates to technology developed by the Company's former Chief Scientific Officer prior to joining the Company.

The technology has yet to be used by the Company.

Under the agreement, the Company's Chief Scientific Officer will be eligible to receive up to $ 0.6 million upon the achievement of certain sales milestones and an ongoing royalty of 5 % on sales.

The third tranche closing of the Series F financing, the closings of the Series G financing and the Series H financing described in Note 8 were issued to existing holders of the Company's redeemable convertible preferred stock, including certain members of our Board of Directors.

The closings of the Series G financing and the Series H financing described in Note 7 were issued to existing holders of the Company's redeemable convertible preferred stock, including certain members of our Board of Directors.

The Company sponsors an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Code.

1 unchanged sentence

Additionally, the Company may elect to make contributions into the savings plan at its sole discretion.

For the years ended December 31, 2019 and 2018, the Company made contributions to the Plan at 3 % of qualified employee compensation, which totaled approximately $ 0.4 million.

Subsequent Events

Subsequent to December 31, 2019, stock options for 290,000 shares of the Company's common stock were granted to Company employees.

In March 2020, the Company entered into a new lease agreement related to expanded office and laboratory space in the building attached to the Company's existing headquarters.

The initial term of the lease agreement is five years and nine months, expiring in January 2026.

The lease agreement provides for monthly base rent of $ 12,724

beginning in May 2020, which amount shall increase 3 % annually beginning in February 2022.

The lease agreement does not include any right or option to extend the term after its expiration.

In March 2020, the Company entered into a lease extension on our existing office space located adjacent to the Company's headquarters.

The lease extension extends the term from February 2021, until its new expiration in January 2026.

The lease extension provides that the base monthly rent for the leased space shall be $ 19,000 , for the 12-month period beginning in February 2021, which amount shall increase $ 600 on a monthly basis each additional 12-month period until its expiration.

In addition, the lease extension added an option for the Company to extend the term of the lease for one five year period, commencing when the prior term expires.

In addition, in March 2020, the Company entered into a lease amendment relating to its headquarters.

The lease amendment extends to the term of the lease from April 2020, until its new expiration in January 2026.

The lease amendment provides that the base monthly rent for the leased space shall be $ 16,308.57 , for the 10-month period beginning in April 2020, which amount shall increase to $ 17,325 in February 2021, and shall increase 3 % annually thereafter.

In addition, the lease amendment added an option for the Company to extend the term of the lease for one five year period, commencing when the prior term expires.

In March 2020 the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic.

As a result, the Company is taking the steps to protect the health, safety and well-being of its employees, Associates, and communities by equipping various staff members to work remotely for an uncertain period of time.

The Company has started to experience challenges resulting from social distancing and stay-at home orders through a reduction in testing volumes.

The Company cannot reasonably estimate the length or severity of this pandemic, which may result in a material adverse impact on its balance sheets, results of operations and cash flows in 2020.

For the years ended December 31, 2020 and 2019, the Company made contributions to the Plan at 3 % of qualified employee compensation, which totaled approximately $ 0.5 million and $ 0.4 million, respectively.

During 2020, due to the worldwide COVID-19 pandemic, the Company experienced a reduction in patient test volumes, delays in patient enrollment in ongoing and planned clinical studies, and delays in the procurement of its testing supplies.

In response to the pandemic, the Company has curtailed non-essential employee travel, equipped employees with the ability to work remotely with the exception of clinical laboratory employees, and reduced marketing spend and employee headcount.

The reduction in headcount resulted in a restructuring charge for termination benefits of $ 0.3 million which has been paid as of December 31, 2020.

The full extent to which the COVID-19 pandemic will directly or indirectly continue to impact the Company's business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional and international markets.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic.

The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.

Under the Tax Cuts and Jobs Act (TCJA), NOLs generated post TCJA were allowed to be carried forward indefinitely but were only allowed to offset 80% of taxable income.

As a result of the CARES Act and the change to permit NOLs generated in taxable years 2018, 2019 and 2020 to offset 100% of taxable income, the Company released valuation allowance against its deferred tax assets in the amount of $ 0.1 million for the year ended December 31, 2020.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law.

It provides additional COVID-19 focused relief and extends certain provisions of the CARES Act.

At this time, the Company does not believe that the Consolidated Appropriations Act, 2021 has a material impact on its financial statements.

In April 2020, the Company received $ 0.7 million of funding under the CARES Act Provider Relief Fund, subject to the Company's agreement to comply with the Department of Health & Human Services' (HHS) standard terms and conditions.

The CARES Act Provider Relief Fund is a federal fund allocated for general distributions to Medicare facilities and providers impacted by the COVID-19 pandemic and is intended to support COVID-related expenses or lost revenue attributable to COVID-19.

The funding received is considered a government grant which is recognized when there is reasonable assurance that the grant will be received and that conditions attached to the grant have

For the year ended December 31, 2020, the Company recognized $ 0.7 million due to lost revenue attributable to COVID-19, which is reflected in other income, net, on its statements of operations.

On April 16, 2020, the Company entered into a promissory note with BOKF, NA dba Bank of Oklahoma, the lender, evidencing an unsecured loan pursuant to the U.S.

Small Business Administration (SBA) Paycheck Protection Program (PPP) of the CARES Act of approximately $ 2.9 million (the PPP Loan).

The Company applied for and received the PPP Loan pursuant to the then published PPP qualification and certification requirements.

On April 23, 2020, the SBA, in consultation with the Department of Treasury, issued new guidance that created uncertainty regarding the qualification requirements for the PPP Loan (the New Guidance).

In light of the New Guidance, on May 11, 2020, the Company paid off in full the principal and interest on the PPP Loan, resulting in the termination of the promissory note.

Index to Exhibits

10 unchanged sentences

S-1/A 333-233446 4.2 9/9/2019

4.3 Form of Common Stock Purchase Warrant issued to investors by the Registrant in connection with private placement financings.

S-1/A 333-233446 4.4 9/9/2019

4.4 Form of Preferred Stock Purchase Warrant issued to Capital Royalty Partners and related advisors by the Registrant in connection with the Term Loan Agreement, by and between Capital Royalty Partners II L.P., Capital Royalty Partners II - Parallel Fund "A" L.P., Parallel Investment Opportunities Partners II L.P.

and the Registrant.

S-1/A 333-233446 4.5 9/9/2019

4.5 Form of Warrant to Purchase Shares of Preferred Stock issued to investors by the Registrant in October 2015.

S-1/A 333-233446 4.6 9/9/2019

4.3 Amendment to Convertible Promissory Notes and Warrants, dated January 19, 2016.

S-1/A 333-233446 4.7 9/9/2019

4.7 Form of Common Stock Purchase Warrant to purchase common stock issued to investors by the Registrant in 2016.

S-1/A 333-233446 4.8 9/9/2019

4.4 Form of Warrant to Purchase Stock issued to Innovatus Life Sciences Lending Fund I, LP in connection with the Registrant's 2018 loan agreement.

11 unchanged sentences

S-1/A 333-233446 10.4 9/9/2019

10.5# Form of Restricted Stock Unit Agreement under Exagen Inc.

2019 Incentive Award Plan.

10.6# Exagen Inc.

7 unchanged sentences

S-1/A 333-233446 10.7 9/9/2019

10.8 Asset Purchase Agreement, dated February 9, 2009, by and between the Registrant (as successor in interest to Cypress Bioscience, Inc.) and Cellatope Corporation.

S-1/A 333-233446 10.8 9/9/2019

10.9 Amendment No.

One to Asset Purchase Agreement, dated December 14, 2012, by and between the Registrant and Cellatope Corporation.

S-1/A 333-233446 10.9 9/9/2019

10.10 Amendment No.

Two to Asset Purchase Agreement, dated January 11, 2017, by and between the Registrant and Cellatope Corporation.

S-1/A 333-233446 10.10 9/9/2019

10.9† Asset Purchase Agreement, dated October 8, 2010, by and between Cypress Bioscience, Inc., Proprius, Inc.

41 unchanged sentences

S-1/A 333-233446 10.24 9/9/2019

10.23† Amendment #1 to Co-Promotion Agreement, dated January 1, 2019, by and between Janssen Biotech, Inc.

and the Registrant.

10-Q 001-39049 10.1 7/28/2020

10.24† Amendment #2 to Co-Promotion Agreement, dated June 18, 2020, by and between Janssen Biotech, Inc.

and the Registrant.

10-Q 001-39049 10.2 7/28/2020

10.25† Amendment #3 to Co-Promotion Agreement, dated December 23, 2020, by and between Janssen Biotech, Inc.

and the Registrant.

10.26 Standard Industrial/Commercial Multi-Tenant Lease, dated January 13, 2012, by and between RGS Properties and the Registrant.

S-1/A 333-233446 10.25 9/9/2019

10-Q 001-39049 10.1 7/28/2020

10.27 First Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated December 1, 2013, by and between RGS Properties and the Registrant.

S-1/A 333-233446 10.26 9/9/2019

10-Q 001-39049 10.2 7/28/2020

10.28 Second Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated April 29, 2016, by and between RGS Properties and the Registrant.

10-K 001-39049 10.27 3/25/2020

10.29 Third Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated June 16, 2017, by and between RGS Properties and the Registrant.

10-K 001-39049 10.28 3/25/2020

10.30 Fourth Amendment to Standard Industrial/Commercial Multi-Tenant Lease, dated March 16, 2020, by and between RGS Properties and the Registrant.

10-K 001-39049 10.29 3/25/2020

10.31 Standard Industrial/Commercial Single-Tenant Lease, dated September 4, 2014, by and between Geiger Court, LLC and the Registrant.

1 unchanged sentence

10.32 First Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated August 2, 2017, by and between Geiger Court, LLC and the Registrant.

10-K 001-39049 10.31 3/25/2020

10.33 Extension of Lease to Standard Industrial/Commercial Single-Tenant Lease, dated March 12, 2020, by and between Liberty Vista and the Registrant.

10-K 001-39049 10.32 3/25/2020

10.34 First Amendment to Standard Industrial/Commercial Single-Tenant Lease, dated January 6, 2021, by and between Liberty Vista and the Registrant.

10.35 Standard Industrial/Commercial Multi-Tenant Lease, dated March 17, 2020 by and between RGS Properties and the Registrant.

10-K 001-39049 10.33 3/25/2020

10.36 Master Lease Agreement, dated February 1, 2018, by and between Celtic Commercial Finance, a division of MB Equipment Finance, LLC and the Registrant.

3 unchanged sentences

10.38 First Amendment to Loan and Security Agreement with Innovatus Life Sciences Lending I, LP dated November 19, 2019.

10-K 001-39049 10.36 3/25/2020

10.39 Acknowledgement Letter to Loan and Security Agreement, by and between Innovatus Life Sciences Lending Fund I, LP and the Registrant.

10-Q 001-39049 10.1 11/10/2020

10.40# Offer Letter, dated October 12, 2010, by and between Thierry Dervieux, Ph.D.

9 unchanged sentences

and the Registrant.

10-K 001-39049 10.41 3/25/2020

10.45# Non-Employee Director Compensation Program.

S-1/A 333-233446 10.38 9/9/2019

10.46# Executive Change in Control Severance Plan.

23.1 Consent of Independent Registered Public Accounting Firm

27 unchanged sentences

/s/ Brian Birk Chairman of the Board of Directors March 16, 2021

/s/ Chet Burrell Director March 25, 2020

/s/ Jeff Elliott Director March 16, 2021

Johnson Director March 16, 2021

Director March 16, 2021

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures