Sera Prognostics, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The unaudited filing was dated August 9, 2023. Sera is a women’s health diagnostics company; its commercial product is the PreTRM blood test, which assesses risk of preterm birth. The company remains development- and commercialization-stage, with substantial operating losses and limited revenue.
Financial highlights
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $123,000 | $78,000 | $223,000 | $116,000 |
| Operating expenses | $11.6 million | $11.8 million | $23.0 million | $24.2 million |
| Operating loss | $11.5 million | $11.7 million | $22.8 million | $24.0 million |
| Net loss | $10.5 million | $11.5 million | $21.1 million | $23.7 million |
| Net loss per share | $0.34 | $0.37 | $0.68 | $0.77 |
Revenue less cost of revenue implies approximate gross profit of $43,000 in Q2 and $81,000 for the first half, or gross margins of about 35% and 36%, respectively. These figures are small relative to operating costs. Other income, primarily investment and interest income, was $932,000 in Q2 and $1.7 million for the first half, helping narrow net losses.
At June 30, cash and cash equivalents were $32.3 million; marketable securities totaled $59.8 million. Combined cash, cash equivalents and securities were $92.1 million, down from $104.0 million at December 31, 2022. Current assets were $64.4 million and current liabilities $14.2 million. Total liabilities were $15.5 million, including $2.4 million of lease liabilities. The accumulated deficit was $231.8 million.
Operating cash use was $12.8 million in the first half, compared with $18.6 million in the prior-year period. Investing activities provided $15.2 million, largely reflecting maturities and sales of marketable securities; cash and cash equivalents increased by $2.4 million during the period. The filing says existing resources are sufficient for at least 12 months from issuance of the financial statements.
Changes and notable items
- First-half revenue increased 92% year over year, but remained only $223,000. Q2 revenue increased 58% year over year.
- First-half operating expenses fell $1.2 million. Selling and marketing declined $3.0 million, primarily due to lower personnel-related costs and reduced travel and consulting; research and development increased $1.2 million, largely from PRIME study enrollment and site setup.
- First-half net loss improved by $2.6 million year over year, reflecting lower operating expenses and a $1.4 million increase in other income.
- Sera received $6.0 million from Elevance Health during the first half, relating to minimum payments for 2022. The amount had been recorded as deferred revenue and is recognized as revenue as test results are delivered; the filing reports no material revenue from the commercial collaboration agreement in the periods shown.
Outlook, risks and controls
- Management expects continued operating losses and negative operating cash flows. It expects R&D expense could increase during the rest of 2023 and selling and marketing and general and administrative expense to decrease as the company streamlines operations. No quantified revenue or earnings guidance is provided.
- Management says cash runway is sufficient for several years under its existing operating plans, while the financial-statement note and liquidity discussion state resources are sufficient for at least 12 months. The filing also says future funding needs depend on commercialization, clinical studies and other factors, and that there is no credit facility or committed capital source.
- Commercial adoption and reimbursement for PreTRM remain uncertain. The company identifies payer coverage, clinical evidence, customer concentration—including Elevance Health—competition, regulatory changes affecting laboratory-developed tests, and the ability to obtain financing as significant risks.
- The PRIME study had enrolled enough patients for a pre-specified interim analysis in 2023; the analysis evaluates neonatal hospital length of stay and a composite morbidity and mortality outcome. The filing provides no results from that interim analysis. Management also anticipates that PRIME and other evidence may support broader adoption.
- Disclosure controls were deemed ineffective as of June 30 because the company did not timely file a Form 8-K regarding an executive departure. The lapse caused loss of eligibility to file new Form S-3 registration statements until June 2024, potentially complicating capital raising. Management planned additional procedures and training. No material litigation was reported.
Important facts for investors to verify
- Whether PRIME interim and final results support clinical and economic utility, and when results will be released.
- Progress in payer coverage, provider adoption, PreTRM test volumes, and revenue conversion of deferred Elevance Health payments.
- Actual cash burn and runway relative to management’s differing “several years” and “at least 12 months” statements, including the assumptions underlying those estimates.
- Whether disclosure-control remediation is effective and the company regains Form S-3 eligibility as expected in June 2024.
- Potential dilution: 11.1 million warrants, options and RSUs were excluded from diluted loss per share as anti-dilutive; the filing also reports substantial equity-plan capacity.