SERA PROGNOSTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Investors and others should note that we routinely use the Investors section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investors section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that we share on the Investors section of our website, investors.seraprognostics.com.
Overview
We are a women's health company utilizing our proprietary proteomics and bioinformatics platform to discover, develop, and commercialize clinically meaningful and economically impactful biomarker tests, with an initial focus on improving pregnancy outcomes. We believe that our method of combining the disciplines of proteomics and bioinformatics with rigorous clinical testing and economic analysis enables us to provide physicians and patients with actionable data and information designed to result in better maternal and neonatal health at lower cost. Our vision is to deliver pivotal and actionable information to pregnant women, their physicians, and health care payers to significantly improve maternal and neonatal health and to dramatically reduce health care costs. We have built an advanced, proprietary, and scalable proteomics and bioinformatics platform to characterize the biology of pregnancy and to discover and validate key protein biomarkers found in blood that are highly accurate predictors of dynamic changes that occur during pregnancy. By incorporating our proprietary technology platform into our rigorous data-driven development process, we have created a differentiated approach for effectively addressing major conditions of pregnancy. We envision that our comprehensive approach will enable us to fully characterize one of the most important periods in the lives of women and children, and will help to improve their well-being. Our goal is to develop and commercialize tests that inform important decisions during all pregnancies. We also believe that the work we perform in pregnancy can ultimately be leveraged more broadly to address other areas in medicine and health care.
Our first commercial product, the PreTRM test, is the only broadly validated,
commercially available blood-based biomarker test to accurately predict the risk
of a premature delivery, also known as preterm birth. The PreTRM test is a
non-invasive blood test given to a pregnant woman, carrying a single fetus,
during week 19 or 20 of gestation that provides an accurate prediction of the
expectant mother's risk of delivering spontaneously before 37 weeks' gestation.
Our commercialization strategy includes conducting clinical trials to
demonstrate the health and economic benefits of early and accurate detection of
preterm birth risk coupled with well-recognized interventions in higher risk
patients. Anthem, Inc., or Anthem, whose health plans cover more than 10% of
There are approximately 140 million births globally each year. Of these, it is
estimated that as many as 25% are affected by various complications, including:
preterm birth, preeclampsia, fetal growth restriction, stillbirth, hypertension
of pregnancy, gestational diabetes, and others. In
23
--------------------------------------------------------------------------------
Table of Contents
mitigate the complications and associated costs of prematurity. Given that pregnancy is the launch point for the future health of babies and a key determinant in the future health of mothers and babies, we believe this area is ripe for innovation and better tools to improve patient outcomes.
Our operations are located in
We have incurred significant operating losses since inception. Our net losses
were
We have signed an agreement with Anthem, pursuant to which Anthem will purchase our PreTRM test, and we continue to negotiate private payer insurance contracts that could eventually result in revenues. If we are unable to secure payer contracts that result in significant revenues or access additional funds, we may be required to delay, scale back or abandon some, or all, of our development programs and other operations. Until such time as we can generate significant revenue from the sales of our products, if ever, we may need to continue to finance our cash needs through equity offerings, debt financings or other capital sources, potentially including collaborations or other similar arrangements. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends and may require the issuance of warrants. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may have to significantly delay, reduce, or eliminate some or all of our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition, and results of operations.
Impact of COVID-19
The degree to which COVID-19 impacts our future business operations, research
and development programs, and financial condition will depend on future
developments, including the ultimate duration and/or severity of the outbreak
and any resurgences, actions by government authorities to contain the spread of
the virus, the effectiveness of vaccines against the virus, and when and to what
extent normal economic and operating conditions can resume. The ability of our
employees and other business partners to travel and conduct other routine
business activity has been and is likely to continue to be disrupted or
adversely affected. The primary impacts to our business have been the early
cessation of enrollment in our Serum Assessment of Preterm Birth Outcomes
Compared to Historical Controls study, or the AVERT PRETERM TRIAL study, in
24
--------------------------------------------------------------------------------
Table of Contents
Key Components of Our Results of Operations
Revenues
We expect to derive substantially all of our revenue in the near term from sales of the PreTRM test. To date, we have not generated material revenues from the commercial sale of the PreTRM test. We have signed an agreement with Anthem and we continue to engage with other commercial payers to close additional contracts. These additional contracts could enable an upfront negotiated reimbursement rate which could eventually result in revenues when health care providers order the PreTRM test.
Operating Expenses
Cost of Revenue
Cost of revenue reflects the aggregate costs incurred in delivering the proteomic testing results to clinicians and includes expenses for third-party specimen collection and shipping costs, as well as our lab personnel, materials and supplies, equipment, and infrastructure expenses associated with clinical testing, and allocated overhead including rent and equipment depreciation. We expect costs of revenue will generally move in line with the sales of the PreTRM test.
Research and Development Expenses
Research and development expenses consist of costs incurred for our research activities and development of our product candidates. These expenses include:
•clinical studies;
•laboratory processes;
•research and bioinformatic activities;
•biobanking and publication efforts;
•personnel-related expenses, including salaries, payroll taxes, employee benefits, and stock-based compensation charges for employees engaged in these research and development activities;
•direct clinical study expenses incurred under agreements with clinical study sites or contract research organizations;
•consultants engaged in our research and development efforts;
•laboratory materials and supplies;
•facilities costs; and
•depreciation, amortization, and other direct and allocated expenses, including rent, insurance, and other operating costs, incurred as a result of our research and development activities.
We expense all research and development costs, both internal and external, in the period in which they are incurred. We expect that our research and development expenses will continue to increase for the foreseeable future as we support additional clinical studies, publications, and other product development activities.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries, payroll taxes,
employee benefits, and stock-based compensation charges for sales, marketing,
and payer access personnel. Other significant costs include travel, consulting,
public relations, and legal costs related to commercial efforts. We expect
selling and marketing expenses to increase in the future as we incur additional
expenses associated with the commercialization activities for the PreTRM test
and related initiatives. Based on our commercial collaboration with Anthem, we
initially deployed our
25
--------------------------------------------------------------------------------
Table of Contents
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, payroll taxes, employee benefits, and stock-based compensation charges for personnel in executive, finance, information technology, human resources, and other administrative functions. Other significant costs include facilities, corporate and intellectual property legal fees, accounting, insurance, consulting, and other professional fees.
We anticipate that our general and administrative expenses will increase in the
future as we construct the appropriate infrastructure to support expanded
commercialization efforts and ongoing research and development activities. We
expect increased expenses related to audit, tax, and legal services associated
with maintaining compliance with
Interest Expense
Interest expense represents interest expense incurred on our loans payable and
convertible promissory note, amortization of a discount feature on a convertible
promissory note, and periodic fair value adjustments on certain liabilities. As
of
Other Income (Expense), Net
Other income (expense), net consists of interest earned on our cash, cash equivalents, and marketable securities, periodic fair value adjustments on certain liabilities, and other gains and losses.
Results of Operations
The results of operations presented below should be reviewed in conjunction with the condensed financial statements and related notes included elsewhere in this report.
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended March 31,
2022 2021 $ Change
(in thousands)
(unaudited)
Revenue $ 38 $ 13 $ 25
Operating expenses:
Cost of revenue 20 5 15
Research and development 3,322 2,396 926
Selling and marketing 4,458 1,350 3,108
General and administrative 4,538 2,287 2,251
Total operating expenses 12,338 6,038 6,300
Loss from operations (12,300) (6,025) (6,275)
Interest expense (4) (307) 303
Other income (expense), net 96 (27) 123
Net loss $ (12,208) $ (6,359) $ (5,849)
26--------------------------------------------------------------------------------
Table of Contents
Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three Months Ended March 31,
2022 2021 $ Change
(in thousands)
(unaudited)
Research and development expenses:
Clinical studies $ 1,243 $ 693 $ 550
Research and bioinformatics 1,038 732 306
Laboratory operations 1,041 971 70
Total research and development expenses $ 3,322 $ 2,396 $ 926 The
Selling and Marketing Expenses
The
General and Administrative Expenses
The
Interest Expense
Interest expense decreased by
Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have not generated a significant amount of commercial
revenue from product sales or any other sources and have incurred significant
operating losses and negative cash flows from operations. We anticipate that we
will continue to incur net losses for the foreseeable future. We have financed
our operations primarily through proceeds from the sale and issuance of
convertible preferred stock and convertible notes, bank loans, and the sale and
issuance of Class A common stock in our IPO, which was completed in
27
--------------------------------------------------------------------------------
Table of Contents
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31,
2022 2021
(in thousands)
(unaudited)
Net cash provided by (used in):
Operating activities $ (9,557) $ (6,950)
Investing activities 14,634 (41)
Financing activities 71 53,474
Net increase in cash and cash equivalents $ 5,148 $ 46,483 Operating Activities
The net cash used in operating activities during the three months ended
Investing Activities
Net cash provided by investing activities was
Financing Activities
Net cash provided by financing activities for the three months ended
Future Funding Requirements
We expect to incur significant additional operating losses and negative cash flows for the foreseeable future. We expect our losses in the future to be principally as a result of our commercialization activities for the PreTRM test, and to support additional clinical studies and anticipated research and development activities. There can be no assurance that we will eventually achieve significant revenues or profitability, or if achieved, can sustain either on a continuing basis. If we are unable to achieve significant revenues or raise additional funding, when needed, we may not be able to continue the development or commercialization of our diagnostic products and could be required to delay, scale back, or abandon some or all of our development programs and other operations. No assurance can be given that we will be successful in raising the required capital at reasonable cost and at the required times, or at all. Any additional equity financing may not be available on favorable terms, most likely will be dilutive to our current stockholders, and debt financing, if available, may involve restrictive covenants and dilutive financing instruments. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility or committed sources of capital. Our future funding requirements will depend on many factors, including the following:
•the timing, receipt, and amount of sales, if any, from the PreTRM test;
28
--------------------------------------------------------------------------------
Table of Contents
•the cost and timing of establishing sales, marketing, and other
commercialization capabilities in
•our ability to develop and commercialize other products;
•the terms and timing of any collaborative, licensing, and other arrangements that we may establish;
•the cost, timing, and outcomes of regulatory approvals;
•the scope, rate of progress, results, and cost of our clinical studies, and other related activities;
•the cost of preparing, filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights;
•the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions;
•partnerships and other strategic options for our product and other product candidates; and
•other factors described in the "Risk Factors" section and elsewhere in this report.
We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months.
Contractual Obligations and Commitments
Our contractual obligations and commitments for the year ended
•Future minimum lease payments increased as a result of entering a new finance
lease during the three months ended
Critical Accounting Policies, Significant Judgments and Use of Estimates
A summary of our critical accounting policies, significant judgments, and use of
estimates is included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in our Annual Report on Form 10-K
for the year ended
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (1) are no longer an EGC or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies, reduce disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. As an EGC, we are also not required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates and we are not required to provide auditor attestation regarding requirements of Section 404(b) of Sarbanes-Oxley.
We will remain an EGC until the earliest to occur of: (1) the last day of the
fiscal year in which we have at least
29
--------------------------------------------------------------------------------
Table of Contents
we have issued more than
We are also a "smaller reporting company" as defined in the Exchange Act. We may
continue to be a smaller reporting company even after we are no longer an
emerging growth company. We may take advantage of certain of the scaled
disclosures available to smaller reporting companies until the fiscal year
following the determination that the market value of our voting and non-voting
common stock held by non-affiliates is more than
Recent Accounting Pronouncements
A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2-Significant Accounting Policies.
© Edgar Online, source
