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William Blair, Cowen Initiate Coverage of Exagen

NEW YORK – Investment banks William Blair and Cowen today separately initiated coverage of autoimmune disease diagnostics firm Exagen with Outperform ratings.

Cowen also set a price target on Exagen's stock at $17 per share.

In an investment note, William Blair analyst Brian Weinstein said the market for Exagen's flagship Avise CTD test is roughly $3.7 billion, and when adding in other testing options for prognosis and monitoring the market opportunity jumps to $5 billion. The Avise CTD is an autoimmune rheumatic disease test to help clinicians differentially diagnose systemic lupus erythematosus, and the company has estimated 7 million patients are candidates for referral to the rheumatology community, where the Avise CTD test is used.

Cowen's Doug Schenkel said in an investment note that the penetration of the market is below 5 percent, allowing for a "long runway of growth." He also noted that the Avise CTD has a longer-term gross margin potential that exceeds 70 percent and is targeting a relatively small customer base, which Schenkel said could allow them to reach operating breakeven over the next several years.

In addition to potential upside relative to his revenue forecast, Schenkel said that Exagen "could be an attractive acquisition target for a strategic buyer."

Weinstein cited Exagen's access to Cell-Bound Complement Activation Products (CB-CAPS) technology, which is better at diagnosing autoimmune disease than current methods. CB-CAPS evaluates activation of the complement system, a biological pathway that can indicate an autoimmune disease. Exagen has incorporated CB-CAPS into its tests, which allows the company to provide faster and more accurate differential diagnoses, Weinstein said.

The Vista, California-based company, which went public last month at $14 per share, also entered an agreement last year with Janssen Pharmaceuticals to exclusively promote the antitumor necrosis factor biologic Simponi in the US. The market for Simponi is $28 billion for all indications, and Weinstein noted that each incremental 1 percent market share Simponi gains could add $84 million to Exagen.

Weinstein also noted potential risks in the investment note, namely that the Simponi deal is controlled by Janssen and that reimbursement hasn't been formally settled.

In mid-morning trading on the Nasdaq, shares of Exagen were trading up almost 3 percent to $12.95.