Seer, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Seer is an early-stage life sciences company commercializing its Proteograph proteomics platform. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $4.16 | $3.96 | $12.22 | $10.89 |
| Gross profit | $2.16 | $1.95 | $6.51 | $4.80 |
| Gross margin | 51.8% | 49.2% | 53.2% | 44.1% |
| Operating expenses | $28.00 | $27.01 | $87.74 | $77.08 |
| Loss from operations | $(25.85) | $(25.07) | $(81.23) | $(72.29) |
| Net loss | $(21.09) | $(23.98) | $(68.48) | $(70.44) |
| Net loss per share | $(0.33) | $(0.38) | $(1.07) | $(1.13) |
Q3 revenue increased 5%; nine-month revenue increased 12%. Product revenue fell 28% in Q3 and 18% year to date, while service, related-party, and grant and other revenue increased. Nine-month gross profit rose 36%, but operating expenses increased 14%, primarily reflecting higher R&D spending. Higher investment yields drove interest income to $4.77 million in Q3 and $13.04 million for nine months, substantially offsetting operating losses in net loss.
Cash flow: Operating activities used $48.88 million in the first nine months, compared with $46.52 million in 2022. Investing activities provided $31.79 million, mainly from investment maturities, versus $120.01 million used in 2022. Capital expenditures were $5.47 million. Cash, cash equivalents and restricted cash declined $16.81 million to $36.92 million.
Liquidity and obligations: At quarter-end, cash and cash equivalents were $36.40 million, short-term investments $294.85 million, and long-term investments $49.57 million. Total cash, cash equivalents and investments were $380.8 million; cash and cash equivalents plus short-term investments were $331.2 million. Total liabilities were $39.17 million, including $28.81 million of operating lease liabilities. The filing reports no borrowings or debt. Inventory purchase commitments were $4.8 million. Accumulated deficit was $288.0 million.
Material changes and management commentary
- Q3 product revenue was $1.85 million, down from $2.57 million; service revenue rose to $0.54 million from $0.07 million. For nine months, product revenue declined to $5.84 million from $7.13 million, while service revenue increased to $1.07 million from $0.20 million.
- PrognomiQ, a related party, generated $1.43 million, or 34% of Q3 revenue, and $4.09 million, or 33% of nine-month revenue. Seer held $1.5 million in related-party receivables.
- R&D expense rose 26% to $41.85 million for nine months, reflecting Proteograph development, compensation, allocated costs and laboratory depreciation. SG&A rose 4% to $45.88 million.
- In August 2023, Seer announced a workforce reduction affecting approximately 12% of full-time employees and other cost-saving measures. Management cautioned that anticipated savings may not be realized and the measures could limit capacity or result in additional costs.
- Management expects continued significant expenses, operating losses and negative operating cash flows for the foreseeable future. It believes existing cash and investments are sufficient for at least 12 months from the filing date; no quantified revenue or earnings guidance is provided.
Risks, contingencies and other notable items
- Commercialization remains early-stage and depends on scientific and market acceptance, customer adoption, sales execution and growth in consumables use. Seer warns revenue may not become sufficient to offset expenses or lead to profitability.
- Revenue is concentrated: PrognomiQ accounts for about one-third of revenue. Seer also relies on Hamilton Company as its sole instrument manufacturer and identifies single- or limited-source suppliers for certain components.
- Seer holds approximately 15% of PrognomiQ; its equity-method investment had a carrying value of zero at year-end 2022. PrognomiQ’s future financing, commercial relationship and purchasing levels are uncertain.
- Investments include $49.6 million with maturities between one and two years. Unrealized investment losses were considered temporary and not credit-related; management reported no material interest-rate fair-value exposure due to the short-term nature of holdings.
- The company reported no material legal proceedings and no material indemnification claims. Management concluded disclosure controls were effective; no material change in internal control over financial reporting was reported during the quarter.
- Class B shares carry ten votes each; holders had approximately 40% of voting power as of November 3, 2023. The filing also highlights dilution from equity awards and substantial commercialization, intellectual-property, regulatory, cybersecurity, funding and market-acceptance risks.
Important facts for investors to verify
- Whether product and consumables demand improves, and whether revenue growth becomes less dependent on grant, service and related-party revenue.
- PrognomiQ’s share of revenue, receivable collections and ongoing purchasing needs.
- Operating cash burn and investment balances relative to management’s stated liquidity runway, including the effect of ongoing losses and planned spending.
- Whether workforce reductions and cost controls deliver savings without impairing product development, sales, customer support or commercialization.
- Instrument supply continuity from Hamilton, customer adoption, and the trajectory of operating expenses and gross margins.