Sera Prognostics, Inc. — Q1 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2023. Sera is a women’s health diagnostics company; its commercial product is the PreTRM blood test, which estimates preterm-birth risk. The company continues to invest in commercialization, clinical studies and product development.
Key financial results
Amounts are in millions of dollars unless otherwise noted.
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $0.10 | $0.04 | +$0.06 |
| Cost of revenue | $0.06 | $0.02 | +$0.04 |
| Operating expenses | $11.43 | $12.34 | -$0.91 |
| Loss from operations | -$11.33 | -$12.30 | Loss narrowed $0.97 |
| Net loss | -$10.57 | -$12.21 | Loss narrowed $1.64 |
| Net loss per share, basic and diluted | -$0.34 | -$0.40 | Improved $0.06 |
| Net cash used in operations | -$4.88 | -$9.56 | Use decreased $4.68 |
- Revenue and margins: Revenue rose by $62,000, but remained very small relative to operating costs. Gross profit was approximately $38,000, or 38% of revenue, compared with $18,000, or about 47%, in Q1 2022; these percentages are calculated from reported revenue and cost of revenue.
- Expense mix: Research and development increased to $4.10 million from $3.32 million, primarily with higher PRIME study costs. Selling and marketing decreased to $2.82 million from $4.46 million, mainly reflecting lower personnel costs. General and administrative expense was $4.45 million versus $4.54 million.
- Cash and investments: Cash and cash equivalents were $27.2 million and marketable securities were $72.5 million at March 31, 2023, totaling $99.7 million. This compares with $104.0 million at December 31, 2022. Q1 cash and cash equivalents decreased $2.7 million.
- Cash flow: Investing activities provided $2.32 million, primarily from net maturities and sales of marketable securities. Financing activities used $0.12 million, primarily for finance-lease principal payments. Purchases of property and equipment were $39,000; the filing does not present a separate free-cash-flow measure.
- Liquidity and obligations: Current assets were $72.1 million and current liabilities were $13.8 million. Total liabilities were $15.4 million, including $2.6 million of finance and operating lease obligations. The filing reports no credit facility or committed capital sources and no conventional borrowing balance in the presented balance sheet.
- Accumulated deficit and equity: Accumulated deficit was $221.2 million; stockholders’ equity was $90.2 million at quarter-end. Weighted-average shares were 31.0 million.
Material changes and unusual items
- Net loss narrowed year over year, but the improvement in operating loss was accompanied by a $0.68 million increase in other income, net, to $0.78 million. Management attributed the increase mainly to investment and interest income on cash and marketable securities.
- The company received $6.0 million from Elevance Health during Q1, relating to minimum payments for 2022 under the commercial collaboration agreement. The amount had initially been recorded as deferred revenue; revenue is recognized as test results are delivered. The company reported no material revenue from this collaboration in Q1 2023 or Q1 2022.
- Deferred revenue was $9.1 million at March 31, 2023. Related-party research and laboratory arrangements with Elevance Health also generated $0.8 million of research fees paid by Sera and $21,000 of laboratory-services revenue during the quarter.
- Available-for-sale securities had $519,000 of aggregate unrealized losses at quarter-end. Management attributed the declines to market and interest-rate fluctuations, not credit quality, and said it did not expect to need to sell the investments before recovery or maturity.
Outlook, risks and contingencies
- Management expects continued significant operating losses and negative operating cash flows. It believes existing financial resources are sufficient to fund operations for at least 12 months from the issuance date of the financial statements; the filing does not give a more specific runway estimate.
- For 2023, management expects research and development expense to increase, selling and marketing expense to decrease as the sales team is streamlined, and general and administrative expense to remain relatively consistent. Longer term, it expects commercial and administrative costs to rise as operations and sales channels expand.
- Future results depend heavily on PreTRM adoption, payer coverage and reimbursement, clinical-study outcomes, and the ability to obtain additional financing if needed. The filing warns that failure to secure significant revenues or financing could require the company to delay, scale back or abandon development programs or other operations.
- The Elevance Health relationship is important to commercialization and creates customer-concentration risk. Sera also highlights reimbursement and billing uncertainty, competition, reliance on third-party suppliers and specimen services, laboratory continuity, and potential changes to FDA oversight of laboratory-developed tests as material business risks.
- The PRIME study had sufficient enrollment for an interim analysis in 2023; management said it expected to report results if and when it could do so. COVID-19 had previously disrupted enrollment and clinician access, and future public-health disruptions could cause further delays.
- A hypothetical 100-basis-point increase in interest rates would have reduced the fair value of available-for-sale debt securities by an estimated $0.6 million at March 31, 2023. The company reported no material litigation and stated that disclosure controls and procedures were effective at a reasonable-assurance level.
Most important facts for investors to verify
- Whether PreTRM test volumes, payer contracts, reimbursement and recognized revenue grow meaningfully beyond the very low Q1 revenue base.
- How much of the $9.1 million deferred-revenue balance is recognized as Elevance Health test results are delivered, and the status and terms of the Elevance agreement.
- Whether the PRIME interim analysis is completed and reported, and what the results indicate about clinical and economic utility.
- Whether the $99.7 million of cash, cash equivalents and marketable securities supports the operating plan beyond management’s stated minimum 12-month outlook, given continuing losses and no committed financing.
- Whether spending trends match management’s 2023 expectations, particularly higher R&D and lower selling and marketing expense, and whether reliance on investment income changes as liquidity declines.