Sera Prognostics(SERA) - 2023 Q1 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section provides cautionary statements regarding the company's future expectations, market acceptance, financial performance, and operational plans, which are subject to various risks and uncertainties Forward-Looking Statements This section contains forward-looking statements regarding the company's future expectations, market acceptance of its PreTRM test, financial performance, and operational plans. These statements are subject to various risks, uncertainties, and assumptions, and actual results may differ materially - Forward-looking statements cover estimates of addressable market, market growth, future revenue, expenses, capital requirements, and needs for additional financing[11] - Other forward-looking statements include expectations regarding the rate and degree of market acceptance of the PreTRM test, its impact on bioinformatics and proteomics, and the ability to obtain funding and manage business growth[11] - The company operates in a competitive and rapidly changing environment, and new risks may emerge, making it impossible to predict all risks or assess their full impact on actual results[10] PART I — FINANCIAL INFORMATION This part presents the company's unaudited condensed financial statements, including balance sheets, statements of operations, cash flows, and detailed explanatory notes, along with management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the company's unaudited condensed financial statements for the period ended March 31, 2023, prepared in accordance with U.S. GAAP and SEC interim reporting rules. It includes the balance sheets, statements of operations and comprehensive loss, stockholders' equity, cash flows, and accompanying notes - The unaudited condensed financial statements are prepared in accordance with U.S. GAAP and SEC rules for interim financial reporting, condensing or omitting certain disclosures[28] - The statements are consistent with the audited annual financial statements as of December 31, 2022, and include only normal recurring adjustments[29] - The results for the three months ended March 31, 2023, are not necessarily indicative of the results to be expected for the full year ending December 31, 2023, or any other period[29] Condensed Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity as of March 31, 2023, and December 31, 2022 Condensed Balance Sheet Highlights (in thousands) | Item | March 31, 2023 | December 31, 2022 | Change ($) | Change (%) | | :-------------------------------- | :------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $27,201 | $29,878 | $(2,677) | -8.96% | | Marketable securities | $43,587 | $52,826 | $(9,239) | -17.49% | | Total current assets | $72,110 | $90,125 | $(18,015) | -19.99% | | Total assets | $105,610 | $116,329 | $(10,719) | -9.21% | | Total current liabilities | $13,800 | $15,538 | $(1,738) | -11.18% | | Total liabilities | $15,400 | $17,386 | $(1,986) | -11.42% | | Total stockholders' equity | $90,210 | $98,943 | $(8,733) | -8.83% | | Accumulated deficit | $(221,219) | $(210,654) | $(10,565) | 5.02% | Condensed Statements of Operations and Comprehensive Loss Details the company's revenue, expenses, and net loss for the three months ended March 31, 2023, and 2022, including comprehensive loss Condensed Statements of Operations and Comprehensive Loss Highlights (in thousands, except per share data) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change ($) | Change (%) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Revenue | $100 | $38 | $62 | 163.16% | | Cost of revenue | $62 | $20 | $42 | 210.00% | | Research and development | $4,103 | $3,322 | $781 | 23.51% | | Selling and marketing | $2,818 | $4,458 | $(1,640) | -36.79% | | General and administrative | $4,446 | $4,538 | $(92) | -2.03% | | Total operating expenses | $11,429 | $12,338 | $(909) | -7.37% | | Loss from operations | $(11,329) | $(12,300) | $971 | -7.90% | | Net loss | $(10,565) | $(12,208) | $1,643 | -13.46% | | Net loss per share, basic and diluted | $(0.34) | $(0.40) | $0.06 | -15.00% | | Comprehensive loss | $(10,041) | $(12,681) | $2,640 | -20.82% | Condensed Statements of Stockholders' Equity Summarizes changes in stockholders' equity, including common stock, additional paid-in capital, accumulated other comprehensive loss, and accumulated deficit Condensed Statements of Stockholders' Equity Highlights (in thousands) | Item | Balance as of Dec 31, 2022 | Issuance of common stock upon exercise of stock options | Stock-based compensation expense | Other comprehensive gain | Net loss | Balance as of Mar 31, 2023 | | :-------------------------- | :------------------------- | :---------------------------------------------------- | :------------------------------ | :----------------------- | :--------- | :------------------------- | | Common Stock (Class A and B) | $3 | $0 | $0 | $0 | $0 | $3 | | Additional Paid-In Capital | $310,575 | $4 | $1,304 | $0 | $0 | $311,883 | | Accumulated Other Comprehensive Loss | $(981) | $0 | $0 | $524 | $0 | $(457) | | Accumulated Deficit | $(210,654) | $0 | $0 | $0 | $(10,565) | $(221,219) | | Total Stockholders' Equity | $98,943 | $4 | $1,304 | $524 | $(10,565) | $90,210 | Condensed Statements of Cash Flows Reports the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023, and 2022 Condensed Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change ($) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net cash used in operating activities | $(4,881) | $(9,557) | $4,676 | | Net cash provided by investing activities | $2,320 | $14,634 | $(12,314) | | Net cash (used in) provided by financing activities | $(116) | $71 | $(187) | | Net (decrease) increase in cash and cash equivalents | $(2,677) | $5,148 | $(7,825) | | Cash and cash equivalents at end of period | $27,201 | $64,080 | $(36,879) | Notes to Condensed Financial Statements This section provides detailed explanatory notes to the condensed financial statements, covering business description, liquidity, significant accounting policies, and specific financial line items such as cash, marketable securities, property and equipment, liabilities, related party transactions, capital structure, stock-based compensation, warrants, commitments, contingencies, and net loss per share 1. Description of Business and Financial Condition Sera Prognostics, Inc. is a women's health company focused on developing and commercializing biomarker tests, with an initial emphasis on improving pregnancy outcomes through its PreTRM test. The company has incurred significant net losses and negative cash flows since inception, with an accumulated deficit of $221.2 million as of March 31, 2023, and expects to continue incurring losses - Sera Prognostics, Inc. is a women's health company utilizing proprietary proteomics and bioinformatics to develop biomarker tests, initially focusing on improving pregnancy outcomes[22] - The company has incurred net losses and negative cash flows from operations since inception, with an accumulated deficit of $221.2 million as of March 31, 2023[25] - Management expects significant additional operating losses and negative cash flows for the foreseeable future due to commercialization activities for the PreTRM test and R&D[25] - As of March 31, 2023, the company had $99.7 million in aggregate cash, cash equivalents, and available-for-sale securities, believing these resources are sufficient for at least 12 months of operating activities[26][27] 2. Significant Accounting Policies The unaudited condensed financial statements are prepared in accordance with U.S. GAAP and SEC interim reporting rules, consistent with the audited annual financial statements. The company's management uses estimates and assumptions, which are evaluated on an ongoing basis, and has considered the impact of the macroeconomic environment, including inflation and higher interest rates - The financial statements are prepared in conformity with U.S. GAAP and SEC rules for interim financial reporting, condensing certain information and note disclosures[28] - No significant changes in accounting policies occurred during the three months ended March 31, 2023, compared to the Annual Report on Form 10-K for December 31, 2022[30] - The preparation of financial statements requires management to make estimates and assumptions, which are based on historical and anticipated results, trends, and other reasonable assumptions[32] - The company's estimates reflect the impact of the macroeconomic environment, including inflation, higher interest rates, and the COVID-19 pandemic, with no specific events requiring an update to estimates as of the filing date[33] 3. Cash, Cash Equivalents and Marketable Securities The company classifies its marketable securities as available-for-sale and provides a detailed breakdown of cash, cash equivalents, and marketable securities by security type, including their amortized cost, unrealized gains/losses, and fair value. The majority of unrealized losses are attributed to normal market and interest rate fluctuations, and the company does not intend to sell these investments before recovery Cash, Cash Equivalents and Marketable Securities (in thousands) - March 31, 2023 | Item | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :------------------------------------ | :------------- | :--------------------- | :---------------------- | :--------- | | Cash and cash equivalents | $27,206 | $0 | $(5) | $27,201 | | Current marketable securities | $43,905 | $0 | $(318) | $43,587 | | Long-term marketable securities | $29,051 | $62 | $(196) | $28,917 | | Total cash, cash equivalents and marketable securities | $100,162 | $62 | $(519) | $99,705 | Cash, Cash Equivalents and Marketable Securities (in thousands) - December 31, 2022 | Item | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | | :------------------------------------ | :------------- | :--------------------- | :---------------------- | :--------- | | Cash and cash equivalents | $29,887 | $0 | $(9) | $29,878 | | Current marketable securities | $53,392 | $2 | $(568) | $52,826 | | Long-term marketable securities | $21,736 | $0 | $(407) | $21,329 | | Total cash, cash equivalents and marketable securities | $105,015 | $2 | $(984) | $104,033 | Marketable Securities by Contractual Maturities (in thousands) - March 31, 2023 | Maturity | Amortized Cost | Fair Value | | :-------------------------- | :------------- | :--------- | | Due within one year | $43,905 | $43,587 | | Due after one year through five years | $29,051 | $28,917 | | Total | $72,956 | $72,504 | - The company attributes declines in fair value of available-for-sale securities to normal market and interest rate fluctuations, not credit quality, and does not intend to sell them while in an unrealized loss position[36] 4. Property and Equipment This note details the components of property and equipment, net, as of March 31, 2023, and December 31, 2022, and reports the depreciation and amortization expense for the three-month periods Property and Equipment, Net (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Laboratory equipment | $5,990 | $5,914 | | Computer equipment | $1,239 | $1,230 | | Leasehold improvements | $710 | $710 | | Software | $1,141 | $1,141 | | Furniture and fixtures | $320 | $320 | | Total property and equipment | $9,400 | $9,315 | | Less accumulated depreciation and amortization | $(6,493) | $(6,256) | | Property and equipment, net | $2,907 | $3,059 | - Depreciation and amortization expense was $0.2 million for both the three months ended March 31, 2023, and 2022[39] 5. Accrued and Other Current Liabilities This note provides a breakdown of the company's accrued and other current liabilities as of March 31, 2023, and December 31, 2022, showing a decrease in total liabilities Accrued and Other Current Liabilities (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Accrued compensation | $744 | $2,290 | | Accrued vacation | $590 | $430 | | Accrued 401(k) matching contributions | $170 | $568 | | Operating lease liability, current portion | $533 | $519 | | Other current liabilities | $655 | $637 | | Total accrued and other current liabilities | $2,692 | $4,444 | 6. Other Income, net This note presents the components of other income, net, for the three months ended March 31, 2023, and 2022, showing a significant increase in investment and interest income Other Income, Net (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :---------------- | :-------------------------------- | :-------------------------------- | | Interest income | $257 | $78 | | Investment income, net | $523 | $18 | | Other income, net | $780 | $96 | 7. Fair Value Measurements This note explains the fair value hierarchy (Level 1, 2, and 3 inputs) used to measure assets on a recurring basis and presents the fair value of the company's cash equivalents and marketable securities. Money market funds are classified as Level 1, while most other securities are Level 2 - Fair value is defined as an exit price, measured using a hierarchy of Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1 quoted prices), and Level 3 (unobservable inputs)[45][46] Assets Measured at Fair Value (in thousands) - March 31, 2023 | Assets | Level 1 | Level 2 | Level 3 | | :-------------------------- | :------ | :------ | :------ | | Money market funds | $368 | $0 | $0 | | Commercial paper | $0 | $36,830 | $0 | | U.S. federal agency securities | $0 | $44,008 | $0 | | U.S. government securities | $0 | $17,123 | $0 | | Corporate debt securities | $0 | $1,176 | $0 | | Total assets | $368 | $99,137 | $0 | Assets Measured at Fair Value (in thousands) - December 31, 2022 | Assets | Level 1 | Level 2 | Level 3 | | :-------------------------- | :------ | :------ | :------ | | Money market funds | $2,618 | $0 | $0 | | Commercial paper | $0 | $41,502 | $0 | | Corporate debt securities | $0 | $1,658 | $0 | | U.S. federal agency securities | $0 | $38,211 | $0 | | U.S. government securities | $0 | $19,131 | $0 | | Total assets | $2,618 | $100,502 | $0 | 8. Related Party Transactions This note details the company's related party transactions, primarily with Elevance Health and its subsidiary Carelon Research. These include a master services agreement for research projects, a laboratory services agreement for the PRIME study, and a commercial collaboration agreement for the PreTRM test, which involves minimum test purchases and payments - The company paid Carelon Research (a subsidiary of Elevance Health) $0.8 million and $0.7 million for research projects, including the PRIME study, for the three months ended March 31, 2023 and 2022, respectively[50] - Revenues from a Laboratory Services Agreement with Elevance Health related to the PRIME study were $21 thousand and $19 thousand for the three months ended March 31, 2023 and 2022, respectively[50] - A Commercial Collaboration Agreement with Elevance Health provides for minimum test purchases and payments, with the company receiving $6.0 million during Q1 2023 related to 2022 minimum payments, initially recorded as deferred revenue[51] - The Commercial Collaboration Agreement is within the scope of ASC Topic 808 and ASC 606, with revenue recognized upon delivery of PreTRM test results[53] 9. Capital Structure This note describes the company's dual-class common stock structure, consisting of Class A (voting) and Class B (non-voting, convertible to Class A) shares. It also details the number of Class A common shares reserved for future issuance under various equity plans and warrants - The company has two authorized classes of common stock, Class A (one vote per share) and Class B (non-voting, convertible to Class A)[54] Class A Common Stock Reserved for Future Issuance | Item | March 31, 2023 | December 31, 2022 | | :---------------------------------------------------------------- | :------------- | :---------------- | | Warrants to purchase Class A common stock | 2,775,978 | 2,775,978 | | Options to purchase Class A common stock | 8,875,249 | 8,428,441 | | Restricted stock units outstanding | 347,436 | — | | Class A common stock available for future grants under the 2021 Equity Incentive Plan | 2,312,525 | 1,926,356 | | Class A common stock available for future grants under the 2021 Employee Stock Purchase Plan | 894,903 | 598,777 | | Total | 15,206,091 | 13,729,552 | 10. Stock-Based Compensation This note outlines the company's equity incentive plans (2011 Plan, 2021 Plan, 2021 ESPP), summarizes stock option and RSU activity, and presents the stock-based compensation expense recognized in the statements of operations. It also details unrecognized stock-based compensation expense for outstanding unvested awards - The 2011 Plan terminated in November 2021, while the 2021 Equity Incentive Plan and 2021 Employee Stock Purchase Plan provide for annual automatic increases in reserved shares[56][57][58] Stock Option Activity Summary | Item | Number of Shares Subject to Options | Weighted Average Exercise Price Per Share | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Outstanding — December 31, 2022 | 8,428,441 | $3.65 | | Granted | 612,276 | $3.79 | | Cancelled | (161,374) | $6.82 | | Exercised | (4,094) | $0.83 | | Outstanding — March 31, 2023 | 8,875,249 | $3.61 | Restricted Stock Units (RSUs) Activity Summary | Item | Number of Awards | Weighted-Average Grant Date Fair Value | | :-------------------------- | :--------------- | :------------------------------------- | | Outstanding — December 31, 2022 | — | $— | | Granted | 347,824 | $3.79 | | Forfeited | (388) | $3.80 | | Outstanding — March 31, 2023 | 347,436 | $3.79 | Stock-Based Compensation Expense (in thousands) | Expense Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Research and development expense | $349 | $383 | | Sales and marketing expense | $184 | $313 | | General and administrative expense | $771 | $526 | | Total employee stock-based compensation | $1,304 | $1,222 | Unrecognized Stock-Based Compensation Expense (in thousands) | Item | Unrecognized Stock-Based Compensation Expense | Weighted-Average Period of Recognition (in years) | | :------------------------------------ | :-------------------------------------------- | :---------------------------------------------- | | Stock Options | $10,071 | 2.4 | | RSUs | $1,013 | 3.9 | | Total unrecognized stock-based compensation expense | $11,084 | | 11. Warrants This note provides a summary of the company's outstanding common stock warrants, which are immediately exercisable for Class A common stock, detailing their exercise prices and quantities as of March 31, 2023, and December 31, 2022 Common Stock Warrants Outstanding | Exercise Price | Number of Warrants Outstanding as of March 31, 2023 | Number of Warrants Outstanding as of December 31, 2022 | | :------------- | :------------------------------------------------ | :-------------------------------------------------- | | $5.20 | 3,473 | 3,473 | | $9.03 | 1,032,404 | 1,032,404 | | $10.84 | 1,009,795 | 1,009,795 | | $12.38 | 8,083 | 8,083 | | $20.77 | 722,223 | 722,223 | | Total | 2,775,978 | 2,775,978 | 12. Commitments and Contingencies This note details the company's lease arrangements, including operating and finance leases, and provides information on lease-related assets, liabilities, costs, and future minimum payments. It also covers indemnification agreements, employee agreements, and legal matters, noting no material litigation Lease-Related Assets and Liabilities (in thousands) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------- | :---------------- | | Operating leases (Right-of-use assets) | $1,579 | $1,707 | | Finance leases (Right-of-use assets) | $1,234 | $1,317 | | Total right-of-use assets | $2,813 | $3,024 | | Operating leases (Lease liabilities) | $1,614 | $1,741 | | Finance leases (Lease liabilities) | $970 | $1,090 | | Total lease liabilities | $2,584 | $2,831 | Lease Costs and Other Information (in thousands, except terms and rates) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Finance lease cost | $99 | $20 | | Operating lease cost | $159 | $116 | | Total lease cost | $258 | $136 | | Finance leases: Weighted-average remaining lease term (in years) | 2.0 | 2.9 | | Finance leases: Weighted-average discount rate | 6.4% | 6.3% | | Operating leases: Weighted-average remaining lease term (in years) | 2.8 | 0.8 | | Operating leases: Weighted-average discount rate | 7.5% | 4.5% | Future Minimum Lease Payments (in thousands) - March 31, 2023 | Year | Operating Leases | Finance Leases | Total | | :--- | :--------------- | :------------- | :---- | | 2023 | $471 | $382 | $853 | | 2024 | $646 | $462 | $1,108 | | 2025 | $666 | $191 | $857 | | Total minimum lease payments | $1,783 | $1,035 | $2,818 | | Present value of future lease payments | $1,614 | $970 | $2,584 | - The company has agreed to indemnify its officers and directors for certain events, with potential future indemnification being unlimited, though covered by D&O insurance[70] - The company is not currently a party to any material litigation or other material legal proceedings[72] 13. Net loss per share This note explains that net loss per share for Class A and Class B common stock is calculated using the two-class method. For periods with a net loss, all potentially dilutive securities are considered anti-dilutive and are excluded from the diluted net loss per share calculation, resulting in basic and diluted net loss per share being the same - Net loss per share is calculated using the two-class method, with basic and diluted net loss per share being the same due to net losses making all potentially dilutive shares anti-dilutive[73] Potentially Dilutive Securities Excluded from Diluted Net Loss Per Share | Item | March 31, 2023 | March 31, 2022 | | :-------------------------------- | :------------- | :------------- | | Warrants to purchase Class A common stock | 2,775,978 | 2,788,484 | | Options to purchase Class A common stock | 8,875,249 | 8,016,915 | | Restricted stock units outstanding | 347,436 | — | | Total | 11,998,663 | 10,805,399 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and future outlook. It covers the business overview, key components of financial results, a comparative analysis of operations, liquidity and capital resources, and critical accounting policies, emphasizing the company's focus on the PreTRM test and ongoing need for funding - The discussion includes forward-looking statements that involve risks and uncertainties, and actual results could differ materially from those described[76] - The company routinely uses the Investors section of its website (investors.seraprognostics.com) to announce material information to investors and the marketplace[77] Overview Sera Prognostics is a women's health company leveraging proteomics and bioinformatics to develop biomarker tests, with the PreTRM test as its first commercial product for predicting preterm birth risk. The company has incurred significant operating losses since inception and expects this trend to continue, necessitating additional funding for commercialization and R&D. The COVID-19 pandemic has caused disruptions to clinical trials and commercialization efforts - Sera Prognostics is a women's health company using proteomics and bioinformatics to develop biomarker tests, with an initial focus on improving pregnancy outcomes[78] - The PreTRM test is the only broadly validated, commercially available blood-based biomarker test to accurately predict the risk of premature delivery[79] - The company has incurred significant operating losses since inception, with net losses of $10.6 million and $12.2 million for the three months ended March 31, 2023 and 2022, respectively[83] - The COVID-19 pandemic caused early cessation of enrollment in the AVERT PRETERM TRIAL, delayed commencement and slower enrollment in the PRIME study, and limited access to ordering clinicians[86] Key Components of Our Results of Operations This section outlines the primary drivers of the company's financial results. Revenue is expected to grow from PreTRM test sales and new payer contracts. Operating expenses include cost of revenue (expected to align with sales), research and development (expected to increase), selling and marketing (expected to decrease in 2023 then increase long-term), and general and administrative (expected to remain consistent in 2023 then increase long-term) - Revenue is expected to derive substantially from PreTRM test sales and increase with sales volume and new payment contracts with payers and health systems[87] - Research and development expenses are expected to increase in 2023 compared to 2022, supporting current and additional clinical studies, publications, and product development[89] - Selling and marketing expenses are expected to decrease in 2023 due to streamlining the sales team and focusing commercial strategy, but are anticipated to increase long-term with expanded sales channels[90] - General and administrative expenses are expected to remain relatively consistent in 2023 but increase in the medium to long-term to support future operations and anticipated revenue growth[92] Results of Operations This section provides a comparative analysis of the company's financial performance for the three months ended March 31, 2023, versus 2022. Revenue significantly increased, while total operating expenses decreased, leading to a reduced net loss. The changes were driven by increased clinical study costs in R&D, decreased personnel and travel costs in selling and marketing, and higher investment income Summary of Results of Operations (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | $ Change | % Change | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------- | :------- | | Revenue | $100 | $38 | $62 | 163.2% | | Total operating expenses | $11,429 | $12,338 | $(909) | -7.4% | | Loss from operations | $(11,329) | $(12,300) | $971 | -7.9% | | Net loss | $(10,565) | $(12,208) | $1,643 | -13.5% | | Other income, net | $780 | $96 | $684 | 712.5% | Research and Development Expenses Research and development expenses increased by $0.8 million, primarily due to a $0.6 million increase in clinical study costs, driven by increased enrollment and site setup activity in the PRIME study. Personnel costs and depreciation also contributed to the increase Research and Development Expenses (in thousands) | Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | $ Change | | :-------------------------- | :-------------------------------- | :-------------------------------- | :------- | | Clinical studies | $1,830 | $1,243 | $587 | | Research and bioinformatics | $1,096 | $1,038 | $58 | | Laboratory operations | $1,177 | $1,041 | $136 | | Total R&D expenses | $4,103 | $3,322 | $781 | - The $0.6 million increase in clinical study costs was primarily due to increased enrollment and site setup activity in the PRIME study[97] - Personnel costs from increased average headcount contributed to a $0.1 million increase in research and bioinformatics costs[97] - Laboratory operations costs increased by $0.1 million, mainly due to depreciation related to additional equipment and capitalized software[97] Selling and Marketing Expenses Selling and marketing expenses decreased by $1.6 million, primarily due to reductions in personnel-related costs from decreased average headcount, travel expenses, consulting and other professional service fees, and stock-based compensation expense - Selling and marketing expenses decreased by $1.6 million, driven by a $1.1 million decrease in personnel-related costs due to reduced average headcount[98] - Travel expenses decreased by $0.2 million, and consulting and other professional service fees also decreased by $0.2 million[98] - Stock-based compensation expense in selling and marketing decreased by $0.1 million[98] Other Income, Net Other income, net, increased by $0.7 million, primarily due to a $0.5 million increase in investment income and a $0.2 million increase in interest income, both related to marketable securities - The $0.7 million increase in other income, net, was primarily due to a $0.5 million increase in investment income on marketable securities[99] - Interest income related to marketable securities also increased by $0.2 million[99] Liquidity and Capital Resources The company has historically financed operations through equity and debt, including its 2021 IPO, and had $99.7 million in cash, cash equivalents, and marketable securities as of March 31, 2023, with an accumulated deficit of $221.2 million. It expects continued operating losses and negative cash flows, requiring additional funding for commercialization and R&D, but believes existing resources are sufficient for at least the next 12 months - Since inception, the company has incurred significant operating losses and negative cash flows, financing operations primarily through convertible preferred stock, debt, and its July 2021 IPO[100] - As of March 31, 2023, the company had $99.7 million in aggregate cash, cash equivalents, and available-for-sale securities, and an accumulated deficit of $221.2 million[100] - The company expects to incur significant additional operating losses and negative cash flows, requiring future funding for PreTRM test commercialization and R&D activities[106] - Management believes existing financial resources are sufficient to fund operating expenses and capital expenditure requirements for at least the next 12 months[108] Cash Flows Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Operating activities | $(4,881) | $(9,557) | | Investing activities | $2,320 | $14,634 | | Financing activities | $(116) | $71 | | Net (decrease) increase in cash and cash equivalents | $(2,677) | $5,148 | - Net cash used in operating activities decreased in Q1 2023 primarily due to a lower net loss and an increase in operating assets and liabilities[103] - Net cash provided by investing activities decreased in Q1 2023, with $17.1 million from marketable securities sales/maturities offset by $14.7 million in purchases[104] - Net cash used in financing activities in Q1 2023 was due to $0.1 million in finance lease principal payments[105] Contractual Obligations and Commitments There have been no material changes to the company's contractual obligations and commitments during the three months ended March 31, 2023, from those reported in its Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes have occurred in contractual obligations and commitments during the three months ended March 31, 2023, compared to the Annual Report on Form 10-K for December 31, 2022[109] Critical Accounting Policies, Significant Judgments and Use of Estimates There have been no significant changes in the application of the company's critical accounting policies, significant judgments, and use of estimates during the three months ended March 31, 2023, as compared to those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - No significant changes in critical accounting policies, significant judgments, and use of estimates occurred during the three months ended March 31, 2023[110] Emerging Growth Company and Smaller Reporting Company Status The company is an Emerging Growth Company (EGC) and a Smaller Reporting Company, allowing it to take advantage of reduced reporting requirements under the JOBS Act. This includes exemptions from auditor attestation for internal controls and reduced executive compensation disclosures. The company will remain an EGC until specific revenue, market value, or debt issuance thresholds are met, or until December 31, 2026 - The company is an Emerging Growth Company (EGC) as defined in the JOBS Act, allowing it to use an extended transition period for new accounting standards and reduced disclosure obligations[111] - EGC status will continue until the earliest of: $1.235 billion in annual revenue, becoming a 'large accelerated filer' ($700.0 million market value), issuing over $1.0 billion in non-convertible debt, or December 31, 2026[112] - The company is also a 'smaller reporting company,' which allows for scaled disclosures, such as presenting only two years of audited financial statements and reduced executive compensation information[113][308] Recent Accounting Pronouncements The company does not expect any recent accounting pronouncements to have a material impact on its financial position, results of operations, or cash flows - No recent accounting pronouncements are expected to have a material impact on the company's financial position, results of operations, or cash flows[114] Item 3. Quantitative and Qualitative Disclosure About Market Risk This section discusses the company's exposure to market risks, primarily interest rate risk, foreign currency risk, and the effects of inflation. Interest rate changes affect the value of cash, cash equivalents, and marketable securities, with a hypothetical 100 basis point increase resulting in a $0.6 million decrease in market value. Foreign currency and inflation have not had a material effect to date but could impact future costs and financial performance - The company's exposure to changes in interest rates primarily relates to interest earned and market value on cash, cash equivalents, and marketable securities[115] - A hypothetical 100 basis point increase in interest rates would result in a $0.6 million decrease in the market value of available-for-sale debt securities as of March 31, 2023[116] - Foreign currency exchange rate fluctuations have not had a material effect on results of operations to date, but could in the future if international expenses are incurred[117] - Inflation has not had a material effect on results of operations to date, but the current inflationary environment could increase costs for labor, supplies, and clinical trials, and affect borrowing rates[118] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2023, concluding they were effective at a reasonable assurance level. There were no changes in internal control over financial reporting during the period that materially affected, or are reasonably likely to materially affect, these controls - The company's disclosure controls and procedures were evaluated as effective at the reasonable assurance level as of March 31, 2023[120] - No changes in internal control over financial reporting occurred during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[121] PART II – OTHER INFORMATION This part includes disclosures on legal proceedings, comprehensive risk factors, equity sales, a list of exhibits, and the required corporate signatures Item 1. Legal Proceedings The company is not currently involved in any material litigation or other material legal proceedings. However, it acknowledges that it may be involved in various legal proceedings in the normal course of business, and an unfavorable resolution could materially affect its future financial results - The company is not currently a party to any material litigation or other material legal proceedings[124] - Unfavorable resolution of future legal proceedings arising from normal business activities could materially affect the company's future results of operations, cash flows, or financial position[124] Item 1A. Risk Factors This section outlines a comprehensive set of risks and uncertainties that could materially harm the company's business, operating results, and prospects. These risks are categorized into financial position, business and industry, reimbursement, government regulation, intellectual property, and Class A common stock, highlighting potential challenges such as ongoing losses, market acceptance, competition, regulatory changes, and stock price volatility - Investing in the company's Class A common stock involves a high degree of risk, and investors should carefully consider the risks and uncertainties described[125] - The occurrence of one or more events or circumstances described in the risk factors could have an adverse effect on the company's business, cash flows, financial condition, and results of operations[127] Risks Related to Our Financial Position and Need for Additional Capital The company has a history of net losses and an accumulated deficit of $221.2 million, expecting continued losses due to commercialization and R&D. It relies heavily on PreTRM test sales and third-party payer reimbursement, which is uncertain. Significant cash is required for operations, and the ability to raise additional capital on favorable terms is not assured, posing risks of dilution, operational curtailment, and adverse impacts from financial services industry developments - The company has incurred net losses since its inception in 2008, with a net loss of $10.6 million for the three months ended March 31, 2023, and an accumulated deficit of $221.2 million[131] - Future losses are anticipated as resources are devoted to increasing adoption and reimbursement for the PreTRM test, product improvements, and R&D for new products[131] - The company expects to rely on PreTRM test sales for substantially all near-term revenues, and failure to secure adequate reimbursement from third-party payers could prevent profitability[132] - Operating the business requires significant cash, and additional funds will be needed through equity, debt, or collaborations, which may not be available on satisfactory terms and could dilute stockholders[134][139] - Adverse developments in the financial services industry, such as bank failures, could impair access to funding sources and negatively impact liquidity and operations[141][145] - Quarterly and annual results may fluctuate due to various factors, including competitive pricing and reimbursement pressures, which could adversely impact stock value[147] Risks Related to Our Business and Industry The company's success is highly dependent on the PreTRM test, requiring broad scientific and market acceptance, which is uncertain. It faces intense competition in the life science industry, customer concentration risk, and challenges in establishing sales and marketing capabilities. Operational risks include potential failures in its CLIA-certified laboratory, product liability claims, and the need to continuously improve products. International expansion, reliance on third parties, supply chain disruptions, and the ability to scale operations and retain talent also pose significant risks. The re-emergence of COVID-19 or other public health threats could further impact business operations and financial condition - Substantially all revenues are derived from the PreTRM test; failure to increase its use, adoption, or develop new products will harm the business[148] - Achieving and maintaining scientific and commercial market acceptance for the PreTRM test is uncertain, depending on factors like demonstration of superiority, effective marketing, and competitive landscape[151][152] - Reliance on a limited number of direct customers, including Elevance Health, for a significant portion of revenue creates customer concentration risk[156] - Competition in the life science industry, particularly in molecular diagnostics and proteomics, is intense, with many competitors having greater resources[161][162] - If the CLIA-certified laboratory facility in Salt Lake City becomes inoperable due to disasters or other events, the company would be unable to perform tests, harming its business and reputation[167] - The marketing, sale, and use of the PreTRM test could result in substantial product or professional liability claims, potentially exceeding insurance coverage and harming reputation[168][169] - The proprietary biobank, a fundamental component of the platform, is vulnerable to contamination, loss, or destruction, which would significantly impair the company's ability to rely on its data[177] - Reliance on third parties for specimen collection and courier delivery services means disruptions could adversely affect specimen integrity, timely processing, and customer service[183] - The re-emergence of COVID-19 or other public health threats could materially affect operations, clinical trials, supply chain, and financial markets, as experienced previously[192][195][196] - The company's ability to utilize net operating loss (NOL) carryforwards may be limited by ownership changes under Section 382 of the Internal Revenue Code[200] - The current inflationary environment could materially adversely impact the business by increasing costs of labor, laboratory supplies, and clinical trials, and affecting borrowing rates[202] Risks Related to Reimbursement Adequate reimbursement from third-party payers is critical for the PreTRM test's acceptance and profitability, but obtaining it is a costly and time-consuming process with no guarantee of favorable rates or coverage. New reimbursement methodologies, billing disputes, and policy changes by government and commercial payers could decrease revenue and lead to recoupment claims. Challenges to informed consent could also impact billing and clinical trial results - Adequate coverage and reimbursement from third-party payers (federal, state, commercial) is critical for new product acceptance, and the company expects commercial insurers to be its most significant source of payment[204] - Obtaining coverage and reimbursement approval is a time-consuming and costly process, with no assurance that sufficient data can be provided to satisfy payers or that favorable rates will be obtained[206] - New reimbursement methodologies, including CPT codes, may decrease rates; the PreTRM test's PLA code was priced at $750 by CMS, but favorable rates are not guaranteed[210][211][212] - Billing disputes with third-party payers, including disagreements over CPT codes or medical necessity, may decrease realized revenue and lead to requests for recoupment of past amounts paid[214][215] - If third-party payers deny coverage or if patients have high deductibles, collecting payment can be difficult, increasing the risk of non-payment and potential disputes over billing practices[220] - Changes in government health care policy, such as the ACA or PAMA, could increase costs and negatively impact coverage and reimbursement for tests[228][231] - Challenges to the validity of informed consent from patients could preclude billing, force cessation of certain tests, or lead to lawsuits or regulatory enforcement[237] Risks Related to Government Regulation The company operates in a highly regulated healthcare industry, facing complex and often unclear federal and state laws. Changes in FDA regulation of Laboratory Developed Tests (LDTs), laboratory licensing requirements (CLIA, CAP, state-specific), and data protection laws (HIPAA, CCPA, CPRA) could lead to increased costs, operational disruptions, and substantial penalties. Non-compliance with healthcare fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act) or security breaches could severely damage the business and reputation - The health care industry is highly regulated, and failure to comply with complex and often unclear laws and regulations could adversely affect the business[238][239] - Changes in FDA regulation of Laboratory Developed Tests (LDTs), or disagreement with the company's LDT classification, could subject the company to extensive regulatory requirements, including premarket approval and additional clinical trials[250][252] - Failure to comply with federal (CLIA) and state laboratory licensing requirements (e.g., Utah, New York) or maintain CAP accreditation could result in loss of testing ability, civil penalties, or operational disruptions[243][245][249] - Actual or perceived failures to comply with data protection, privacy, and security laws (HIPAA, HITECH, CCPA, CPRA) could lead to negative publicity, government investigations, enforcement actions, and substantial penalties[259][260][263][264][265][266] - Security breaches, data losses, or other disruptions compromising sensitive information (PHI, PII, IP) could lead to liability, operational disruptions, and damage to business and reputation[270][271][272] - Engaging in conduct that violates healthcare laws such as the federal Anti-Kickback Statute, Stark Law, False Claims Act, or EKRA could result in substantial penalties, exclusion from federal programs, and reputational damage[275][276][278][282] Risks Related to Intellectual Property The company's success depends on its ability to obtain, maintain, and enforce intellectual property rights, including patents, trade secrets, and trademarks. However, patentability in diagnostics is uncertain, and patents may be challenged, found invalid, or infringed by third parties, leading to costly litigation and potential loss of market share. The company also faces risks of inventorship claims and unauthorized disclosure of trade secrets, which could diminish the value of its technology - Failure to obtain, maintain, and enforce patents, trade secrets, and other intellectual property rights could impair the ability to protect proprietary technology and brand, allowing competitors to make similar tests[284][285] - The patent positions of diagnostic companies are highly uncertain, with recent U.S. Supreme Court decisions impacting the patent-eligibility of diagnostic method claims, creating unpredictability[285][293] - Issued patents covering tests and technology could be found invalid or unenforceable if challenged in litigation or administrative proceedings, leading to increased competition[289] - Third parties may infringe patents, trademarks, or other IP rights, requiring expensive and time-consuming lawsuits with no guarantee of success or full financial compensation[291] - The company may be subject to claims challenging the inventorship of its patents and other intellectual property, potentially leading to loss of valuable rights or costly litigation[296] - Reliance on trade secret protection for proprietary know-how carries the risk of unauthorized use or disclosure by employees, consultants, or third parties, diminishing the value of tests and technology[298][299] Risks Related to Our Class A Common Stock The trading price of the company's Class A common stock is highly volatile, influenced by operational results, market conditions, and external factors. The company does not intend to pay dividends, limiting stockholder returns to stock appreciation. Concentrated ownership by executive officers and directors, along with a dual-class stock structure, allows significant control over corporate matters. As an Emerging Growth Company and Smaller Reporting Company, reduced reporting requirements may make the stock less attractive to investors. Sales by existing stockholders, anti-takeover provisions, and limited analyst coverage could also negatively impact the stock price. Furthermore, the company's disclosure controls and internal controls over financial reporting may not prevent all errors or fraud, and operating as a public company incurs significant costs and management time - The trading price of Class A common stock is likely to be highly volatile, influenced by operational results, competitor actions, reimbursement changes, litigation, and general economic conditions[300][301] - The company does not intend to pay dividends on its Class A common stock, so returns will be limited to stock appreciation[303] - Executive officers, directors, and significant stockholders own a large percentage of Class A common stock, allowing them to exert significant control over matters subject to stockholder approval[304] - The dual-class common stock structure, with non-voting Class B shares convertible to Class A, may limit the ability of Class A holders to influence corporate matters[305] - As an Emerging Growth Company and Smaller Reporting Company, reduced reporting requirements may make the Class A common stock less attractive to some investors, potentially leading to a less active trading market and more volatile stock price[306][309] - Sales of a substantial number of Class A common stock shares by existing stockholders in the public market could cause the stock price to decline[311] - Anti-takeover provisions in charter documents and Delaware law could delay or prevent a change in control, limiting the market price of Class A common stock[315][316] - The company's disclosure controls and procedures, and internal controls over financial reporting, may not prevent or detect all errors or acts of fraud due to inherent limitations[322][326] - Operating as a public company incurs significant legal, accounting, and compliance costs, and management must devote substantial time to new initiatives, potentially diverting attention from business concerns[323][325] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms that there were no unregistered sales of equity securities during the period. It also details the use of proceeds from the company's Initial Public Offering (IPO) completed in July 2021, stating that the net proceeds of approximately $66.6 million have been used as planned, with no material changes from the original prospectus - There were no unregistered sales of equity securities during the reported period[329] - The company completed its IPO on July 19, 2021, selling 4,687,500 shares of Class A common stock at $16.00 per share, resulting in net proceeds of approximately $66.6 million after deducting underwriting discounts and offering expenses[330][332] - There has been no material change in the planned use of proceeds from the IPO from those described in the final prospectus dated July 14, 2021[333] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, specimen stock certificates, warrants, investor rights agreements, officer certifications, and Inline XBRL taxonomy documents - Exhibits include corporate documents such as the Amended and Restated Certificate of Incorporation and Restated Bylaws[335] - Certifications from the Principal Executive Officer and Principal Financial Officer are included, as required by the Sarbanes-Oxley Act[335] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase) are provided for interactive data filing[335] Signatures This section contains the required signatures, certifying the report on behalf of Sera Prognostics, Inc. by its Chairman, President, and Chief Executive Officer, Gregory C. Critchfield, M.D., M.S., and its Chief Financial Officer, Jay Moyes, as of May 10, 2023 - The report is duly signed on behalf of Sera Prognostics, Inc. by Gregory C. Critchfield, M.D., M.S., Chairman, President and Chief Executive Officer[339][340] - The report is also signed by Jay Moyes, Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)[340] - The signing date for the report is May 10, 2023[339][340]