Sera Prognostics(US:SERA)2023-11-08 21:10PART I — FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company's financial statements show reduced net losses and negative operating cash flow, with declining assets and equity Condensed Balance Sheets The company's balance sheet reflects a decrease in total assets and stockholders' equity, mainly due to reduced cash Condensed Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,655 | $29,878 | | Total current assets | $47,546 | $90,125 | | Total assets | $90,057 | $116,329 | | Liabilities & Equity | | | | Total current liabilities | $13,545 | $15,538 | | Total liabilities | $14,646 | $17,386 | | Total stockholders' equity | $75,411 | $98,943 | - The company had an accumulated deficit of $239.0 million as of September 30, 20232514 Condensed Statements of Operations and Comprehensive Loss The company reported a reduced net loss for Q3 and the nine months ended September 30, 2023, driven by lower operating expenses Statement of Operations Summary (in thousands) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $42 | $87 | $265 | $203 | | Total operating expenses | $8,226 | $11,275 | $31,238 | $35,437 | | Loss from operations | $(8,184) | $(11,188) | $(30,973) | $(35,234) | | Net loss | $(7,210) | $(10,712) | $(28,317) | $(34,440) | | Net loss per share | $(0.23) | $(0.35) | $(0.91) | $(1.11) | Condensed Statements of Cash Flows Net cash used in operating activities decreased for the nine months ended September 30, 2023, ending the period with $9.7 million in cash Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(20,423) | $(27,372) | | Net cash provided by investing activities | $64 | $7,129 | | Net cash provided by financing activities | $136 | $121 | | Net decrease in cash and cash equivalents | $(20,223) | $(20,122) | | Cash and cash equivalents at end of period | $9,655 | $38,810 | Notes to Condensed Financial Statements The notes to financial statements detail the company's accumulated deficit, liquidity outlook, and significant commercial and compensation agreements - The company has incurred net losses since inception and had an accumulated deficit of $239.0 million as of September 30, 202325 - Management believes that existing financial resources, including $85.0 million in cash, cash equivalents, and marketable securities, are sufficient to continue operating activities for at least 12 months from the filing date2627 - The company has a commercial collaboration agreement with Elevance Health, which includes minimum test purchase and payment commitments; $6.0 million was received during the first nine months of 2023 related to minimum payments for 202249 - As of September 30, 2023, there was $6.9 million of total unrecognized stock-based compensation expense related to unvested stock options and RSUs61 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses PreTRM test commercialization, expense reduction, and the sufficiency of current cash to fund operations for at least 12 months Overview Sera Prognostics focuses on the PreTRM test and PRIME study, managing operating losses to extend its cash runway - The company's 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 delivery77 - The ongoing PRIME study will have an interim analysis in 2023, with final enrollment expected in 2024 and final results reported in 2025; the company is adding up to 1,000 more patients to the study based on insights from the AVERT trial7879 - The company has incurred significant operating losses, with net losses of $28.3 million for the nine months ended September 30, 2023; it has taken steps to reduce annual operating expenses and believes its cash runway is sufficient for several years8485 Results of Operations Net loss improved for Q3 and the nine months ended September 30, 2023, primarily due to reduced operating expenses Comparison of Operating Results (in thousands) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $42 | $87 | $265 | $203 | | Research and development | $3,539 | $4,176 | $11,330 | $10,759 | | Selling and marketing | $1,355 | $2,967 | $7,045 | $11,644 | | General and administrative | $3,288 | $4,074 | $12,677 | $12,900 | | Net loss | $(7,210) | $(10,712) | $(28,317) | $(34,440) | - The $1.6 million decrease in Q3 2023 selling and marketing expenses was primarily due to a $1.2 million reduction in personnel-related costs from decreased headcount, reflecting a streamlined commercial strategy focused on institutional sales100 - The $0.6 million increase in R&D expenses for the nine-month period was mainly due to a $0.7 million increase in costs from increased enrollment and site setup activity in the PRIME study104 Liquidity and Capital Resources The company's liquidity position, including $85.0 million in cash and equivalents, is deemed sufficient for at least 12 months despite an accumulated deficit - As of September 30, 2023, the company had aggregate cash, cash equivalents, and available-for-sale securities of $85.0 million and an accumulated deficit of $239.0 million109 - The company believes its existing cash and cash equivalents will be sufficient to fund operating expenses and capital expenditure requirements for at least the next 12 months115 Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(20,423) | $(27,372) | | Net cash provided by investing activities | $64 | $7,129 | | Net cash provided by financing activities | $136 | $121 | Quantitative and Qualitative Disclosure About Market Risk The company's primary market risk is interest rate fluctuations on marketable securities, with potential cost increases from inflation - The company's primary market risk is interest rate risk on its cash, cash equivalents, and marketable securities; a hypothetical 100 basis point interest rate increase would have resulted in a $0.7 million decrease in the market value of its available-for-sale debt securities as of September 30, 2023123 - The company does not believe inflation has had a material effect on results to date, but acknowledges the current inflationary environment could increase costs of labor, supplies, and clinical trials125 Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2023, with no material changes to internal financial reporting controls - The company's management, including the CEO and CFO, concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level127 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting128 PART II – OTHER INFORMATION Legal Proceedings The company is not currently involved in any material litigation or legal proceedings, but may be in the future - The company is not currently a party to any material litigation or other material legal proceedings130 Risk Factors The company faces significant risks related to financial position, product commercialization, regulatory environment, intellectual property, and stock price volatility Risks Related to Financial Position and Capital The company faces risks from ongoing net losses, dependence on PreTRM test adoption, and challenges in raising capital efficiently - The company has incurred net losses since inception and anticipates continued losses, which could harm future business prospects134136 - The business relies substantially on revenues from the PreTRM test, and failure to increase its adoption and secure reimbursement will harm the business134155 - Due to a failure to timely file a Form 8-K, the company is currently ineligible to file new short-form registration statements on Form S-3, which may impair its ability to raise capital favorably or in a timely manner153154 Risks Related to Business and Industry The company faces business risks from intense competition, reliance on a single lab, and dependence on limited suppliers for key materials - The company faces intense competition from companies with greater financial resources and expertise in R&D, manufacturing, and commercialization134165166 - The company's CLIA-certified laboratory in Salt Lake City is its sole facility for processing tests; if it becomes inoperable, the business will be harmed134170 - The company relies on a limited number of, or single-source, suppliers for laboratory instruments and materials, as well as third parties for specimen collection, creating supply chain and operational vulnerabilities134189191 Risks Related to Reimbursement The company faces critical risks from the uncertainty of obtaining and maintaining adequate reimbursement for the PreTRM test from third-party payers - The company's ability to generate revenue is highly dependent on obtaining adequate coverage and reimbursement from third-party payers, which is uncertain and may not be achieved135206 - The AMA has issued a unique CPT PLA code for the PreTRM test, but there is no guarantee of favorable reimbursement rates; billing disputes and potential recoupment of past payments from payers are significant risks213216 - Being an out-of-network provider for major insurers may cause healthcare providers to avoid recommending the company's tests, negatively impacting test volume135229 Risks Related to Government Regulation The company faces significant regulatory risks from potential FDA regulation of LDTs, CLIA compliance, and adherence to data privacy and anti-kickback laws - The FDA has issued a proposed rule to regulate LDTs, which could subject the PreTRM test to extensive regulatory requirements, including premarket approval, and significantly increase costs135252 - Failure to comply with federal (CLIA) and state laboratory licensing requirements could lead to sanctions, including the loss of the ability to perform tests, which would severely disrupt business135245 - The company is subject to complex data privacy and security laws like HIPAA and CCPA, and a security breach could lead to significant liability, fines, and reputational damage261271 - Business activities are subject to federal and state anti-kickback and fraud and abuse laws (e.g., AKS, Stark Law), and violations could result in substantial penalties, exclusion from healthcare programs, and criminal proceedings277278 Risks Related to Intellectual Property The company faces intellectual property risks related to obtaining, maintaining, and enforcing rights, including patent challenges and trade secret protection - Failure to obtain, maintain, and enforce intellectual property rights for its tests and technology could impair the company's ability to compete135287 - Issued patents could be found invalid or unenforceable if challenged, and recent court decisions have created uncertainty regarding the patent-eligibility of diagnostic methods135291296 - The company relies on trade secrets, including its proprietary algorithm, and if it cannot prevent their disclosure, the value of its technology could be significantly diminished135302 Risks Related to Class A Common Stock The company's Class A common stock faces risks from price volatility, concentrated ownership, dual-class structure, and anti-takeover provisions - The trading price of the Class A common stock is likely to be highly volatile due to various factors, including operating results, competitor announcements, and market fluctuations135304 - Executive officers, directors, and stockholders with 5% or more ownership hold a significant percentage of stock, enabling them to exert significant control over matters subject to stockholder approval309 - The company is an emerging growth company and a smaller reporting company, which allows for reduced disclosure requirements that may make its stock less attractive to investors313 - Anti-takeover provisions in the company's charter and Delaware law could delay or prevent a change in control, potentially limiting the market price of the stock320 Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The company reported no unregistered equity sales or repurchases in Q3 2023, and confirmed no material change in IPO proceeds use - The company received net proceeds of approximately $66.6 million from its IPO in July 2021, and there has been no material change in the planned use of these proceeds336 - There were no unregistered sales of equity securities or issuer repurchases of equity securities during the quarter ended September 30, 2023333337 Other Information The company appointed new permanent CEO and CFO, reduced executive compensation for cost savings, and granted new RSU awards for employee retention - On November 6, 2023, the Board appointed Evguenia (Zhenya) Lindgardt as President and Chief Executive Officer and Austin Aerts as Treasurer and Chief Financial Officer338346 - Effective November 6, 2023, all executive officers' annual base salaries were reduced by 15% and annual target bonuses were reduced by 50%, expected to result in savings of at least $900,000 in 2024354 - On November 6, 2023, the company granted new RSU awards to all employees, including its executive officers, to help retain key talent355 Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents and new executive and RSU agreements - Filed exhibits include new employment agreements for CEO Evguenia Lindgardt and CFO Austin Aerts, and the form of a new Restricted Stock Unit (RSU) agreement358