Sera Prognostics, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The unaudited results compare with the three months ended March 31, 2021; balance-sheet figures compare with December 31, 2021. Sera is a women’s health diagnostics company whose first commercial product is the PreTRM blood test for predicting preterm birth risk.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $38,000 | $13,000 | +$25,000 |
| Cost of revenue | $20,000 | $5,000 | +$15,000 |
| Gross profit / approximate gross margin | $18,000 / 47% | $8,000 / 62% | Margin declined |
| Operating expenses | $12.338 million | $6.038 million | +$6.300 million |
| Operating loss | $12.300 million | $6.025 million | Loss increased |
| Net loss | $12.208 million | $6.359 million | Loss increased by $5.849 million |
| Basic and diluted loss per share | $0.40 | $3.55 | Per-share comparison affected by IPO and share count |
| Net cash used in operating activities | $9.557 million | $6.950 million | Cash use increased |
Financial position and liquidity
- At March 31, 2022, cash and cash equivalents were $64.1 million; available-for-sale marketable securities were $65.8 million, for total cash, cash equivalents, and securities of $129.9 million.
- Total assets were $134.9 million and stockholders’ equity was $127.2 million. Accumulated deficit was $178.7 million.
- The company reported no outstanding debt. Finance lease liabilities totaled $1.1 million; operating lease liability was $446,000. The office and laboratory operating lease ends December 31, 2022, with a five-year renewal option the company said it was not reasonably certain to exercise.
- Operating cash outflow was $9.6 million. Investing activities provided $14.6 million, primarily from marketable-security maturities and sales; financing activities provided $71,000, primarily from option exercises net of lease principal payments. Cash increased by $5.1 million during the quarter, largely reflecting investment portfolio movements rather than operating cash generation.
- Management believes existing financial resources are sufficient for at least 12 months from issuance of the financial statements. The company expects continuing losses and negative operating cash flows and has no credit facility or committed capital sources.
Material changes and operating developments
- Revenue remained immaterial despite rising from $13,000 to $38,000. Sera stated that it had not generated material revenue from commercial PreTRM sales.
- Research and development expense rose $926,000 to $3.322 million, reflecting higher clinical study, research and bioinformatics, and laboratory costs.
- Selling and marketing expense rose $3.108 million to $4.458 million, principally due to increased personnel, travel, stock compensation, and marketing activity. General and administrative expense rose $2.251 million to $4.538 million, including higher personnel, public-company insurance, stock compensation, and compliance costs.
- Total cash and marketable securities fell from $140.0 million at December 31, 2021 to $129.9 million at March 31, 2022. Available-for-sale securities recorded $473,000 of unrealized loss in other comprehensive income; the company attributed fair-value declines to normal market and interest-rate fluctuations, not credit deterioration, and reported no securities as other-than-temporarily impaired.
- Sera adopted lease accounting standard Topic 842 on January 1, 2022, recognizing an operating lease right-of-use asset and liability. Adoption had no impact on accumulated deficit.
Outlook, commentary, and risks
- Anthem’s multi-year commercial collaboration provides for minimum test purchases and payments. The $3.1 million received in Q1 2022 related to minimum payments for 2021 and had been recorded as deferred revenue at year-end; it was not recognized as material Q1 collaboration revenue. Revenue is recognized as test results are delivered.
- Sera is pursuing additional payer contracts and expects to invest further in PreTRM commercialization, clinical studies, and product development. Management provided no specific revenue or earnings guidance.
- The PRIME study was expected to enroll 2,800 patients by late 2022, with interim analysis expected in 2023; timing remained subject to COVID-19 disruption. COVID-19 had previously halted AVERT PRETERM enrollment and delayed PRIME commencement, and limited access to ordering clinicians.
- Key risks include continued losses and potential need for financing; dependence on PreTRM and a limited number of customers, particularly Anthem; uncertain payer coverage and reimbursement; market adoption and clinical-study outcomes; competition; laboratory, supplier, and specimen-transport disruptions; and possible changes to regulation of laboratory-developed tests. The company reported no material litigation and said disclosure controls were effective.
Important facts for investors to verify
- Whether PreTRM test volumes, Anthem purchases, and other payer contracts translate into material recognized revenue and cash collections.
- Anthem contract minimums, delivery schedule, remaining deferred revenue, and the extent of customer concentration.
- Actual cash burn and investment balances against management’s stated 12-month liquidity assessment, especially as commercialization and clinical expenses rise.
- PRIME enrollment and interim-analysis timing, and any resulting evidence relevant to clinical utility, adoption, and reimbursement.
- Reimbursement rates and coverage decisions, including the practical impact of the CMS $750 price for the PreTRM CPT PLA code disclosed in the filing.
- Potential dilution from equity compensation and outstanding options and warrants; the filing lists 8.0 million options and 2.8 million common-stock warrants outstanding at quarter-end.