iSpecimen Inc. 2021 Form 10-K Summary
Business context and reporting period
iSpecimen operates a technology-enabled marketplace connecting life-science researchers with healthcare providers and other organizations that supply human biospecimens and associated data. The Company derives substantially all revenue from procuring and distributing specimens; it does not currently charge marketplace access or platform fees. The filing covers the fiscal year ended December 31, 2021, with comparisons to fiscal 2020. The Company operates as one reporting segment and completed its IPO in June 2021.
- As of December 31, 2021, the network included approximately 200 supply organizations in 15 countries and approximately 415 customer organizations.
- The platform had more than 5,200 registered external users and had ingested approximately 14 million patient records, 75 million clinical specimen records, one million banked specimen records and 600 million laboratory test results.
- The Company delivered more than 165,000 specimens supporting nearly 2,200 projects since inception.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $11.14 million | $8.18 million | +36% |
| Cost of revenue | $5.25 million | $3.59 million | +46% |
| Gross profit | $5.89 million | $4.60 million | +28% |
| Gross margin | 52.9% | 56.2% | Down 3.3 percentage points |
| Operating loss | $(5.93) million | $(2.41) million | Loss increased 146% |
| Operating margin | (53.2%) | (29.4%) | Down 23.8 percentage points |
| Net loss | $(8.96) million | $(4.65) million | Loss increased 93% |
| Net loss margin | (80.5%) | (56.8%) | Down 23.7 percentage points |
| Adjusted EBITDA | $(4.33) million | $(1.48) million | Loss increased |
| Adjusted EBITDA margin | (38.9%) | (18.1%) | Down 20.8 percentage points |
- Revenue growth reflected a more experienced sales team, continued COVID-19 specimen demand and increased non-COVID-19 research demand.
- Approximately 28% of 2021 revenue was related to COVID-19 specimens, compared with approximately 43% in 2020. Research-use-only biofluids contributed approximately 52% of 2021 revenue, research-use-only tissue 37%, remnant biofluids 8% and research-use-only hematopoietic stem and immune cells 2%.
- Specimens accessioned declined approximately 6% to 20,800, but average selling price per specimen increased approximately 44% because of a higher-value specimen mix. Average cost per specimen increased approximately 55%, contributing to margin compression.
- Total operating expenses increased 61% to $17.06 million. General and administrative expense increased 134%, principally due to IPO-related compensation, public-company insurance, professional fees, factoring costs and other public-company expenses.
- Net loss included significant non-operating and unusual items, including a $2.74 million loss on extinguishment of bridge notes, a $0.26 million loss on extinguishment of convertible notes, a $0.79 million gain from forgiveness of the PPP loan and a $1.58 million gain from the change in fair value of bridge-note derivative liabilities.
Cash flow, liquidity and debt
- Cash and cash equivalents were $27.74 million at December 31, 2021, compared with $0.70 million at December 31, 2020.
- Working capital was $30.44 million, compared with a working-capital deficit of $18.66 million in 2020. Total assets were $35.72 million and stockholders’ equity was $29.79 million.
- Operating cash flow was $(10.67) million, compared with $(0.29) million in 2020. Investing cash flow was $(1.04) million, primarily reflecting $1.04 million capitalized for internally developed software.
- Financing cash flow was $38.75 million, primarily from the IPO, the December 2021 private placement and a $3.50 million term loan, partially offset by debt repayments and offering costs.
- The December 2021 private placement generated approximately $21.0 million of gross proceeds from 1,749,999 common shares and warrants to purchase 1,312,500 shares. The IPO and over-allotment generated approximately $20.7 million of gross proceeds in aggregate.
- At year-end, the Company had $3.50 million principal amount outstanding under a term loan, presented net of debt issuance costs at $3.42 million. The loan bears interest at Prime plus 0.75%; the reported rate was 4.00% at year-end. Principal payments begin in March 2023 and continue through August 2025.
- The term loan is secured by substantially all Company assets, and the Company reported compliance with its covenants at December 31, 2021. Management stated that existing cash was sufficient to fund operations for at least 12 months from issuance of the financial statements, but continued viability beyond March 2023 may depend on additional capital.
Material changes versus the prior comparable period
- Revenue increased 36%, but cost of revenue grew faster at 46%, reducing gross margin.
- Operating expenses increased 61%, driven particularly by general and administrative costs associated with becoming a public company.
- Operating loss nearly 2.5 times increased, and net loss nearly doubled.
- Cash improved substantially after the IPO, over-allotment financing, private placement and term loan. Convertible notes, bridge notes and preferred stock were converted or retired in connection with the IPO and related transactions.
- COVID-19-related revenue concentration decreased, although COVID-19 continued to affect specimen collections, supply-chain operations and customer demand.
- The Company’s customer concentration by revenue declined: no customer exceeded 10% of revenue in 2021, compared with two customers representing approximately 11% and 10% in 2020. Supplier concentration remained material, with four suppliers accounting for approximately 11%, 11%, 10% and 10% of cost of revenue in 2021.
Guidance, outlook, management commentary, risks and unusual items
- Management expects continued investment in marketplace technology, supply development, sales and marketing, and capabilities for prospective collections, deeper search and workflow functions and direct pricing. No formal revenue or earnings guidance was provided.
- The Company remains unprofitable and expects losses for the foreseeable future. Its revenue is transactional and project-based rather than recurring, and quarterly results may fluctuate substantially.
- Management identified the business as supply constrained: customer requests exceed available supply-network capabilities. Growth depends on expanding access to specimens, subjects and deeper healthcare data.
- COVID-19 may continue to reduce collection activity and disrupt healthcare-provider operations, although it also created demand for COVID-19 specimens. The Company reported approximately $4.8 million of COVID-19 purchase orders in 2021 and approximately $5.3 million in 2020.
- The filing discusses potential effects from Russia’s invasion of Ukraine, international sanctions, inflation, cybersecurity incidents, data breaches, regulatory noncompliance, shipping disruptions and changing healthcare and research budgets; the financial impact of the Russia-Ukraine conflict could not be estimated.
- The Company relies on HIPAA, Common Rule, FDA, GDPR, import/export, biohazard and other regulatory compliance by itself and its suppliers. It reported no PHI breach to date, but the marketplace has not been certified or audited for 21 CFR Part 11 compliance.
- The Company has no patents protecting its technology and relies primarily on copyrights, trademarks, trade secrets and contractual protections.
- The independent auditor issued an unqualified opinion on the financial statements. Because the Company was a newly public emerging growth company, management’s report on internal control over financial reporting and an auditor attestation were not required in this filing.
- No material litigation was pending as of December 31, 2021, and the Company reported no unresolved SEC staff comments.
Important facts for investors to verify
- Whether revenue growth can continue as COVID-19-related demand normalizes and the business remains non-recurring and project-based.
- Whether specimen volume, supply-network expansion and technology investments can improve gross margins and reduce operating losses.
- Cash-burn trends and the timing of any need for additional equity or debt financing, particularly before or around the March 2023 liquidity horizon identified by management.
- Terms, collateral coverage, covenants and repayment schedule of the secured term loan, including the unused $1.5 million additional borrowing option.
- Potential dilution from 1,312,500 PIPE warrants, 90,000 underwriter warrants, 12,500 lender warrants, outstanding options and restricted stock units.
- Customer and supplier concentration, accounts receivable collectability and the sustainability of the Company’s just-in-time procurement model.
- Compliance, privacy, cybersecurity, product-liability and international regulatory exposures, including the limitations regarding 21 CFR Part 11.
- The effect of public-company costs, stock-based compensation and unusual debt-extinguishment items on future operating results and cash needs.