Sera Prognostics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. The company develops pregnancy-related biomarker tests, led by its PreTRM test for predicting preterm birth risk. Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $42,000 | $87,000 | $265,000 | $203,000 |
| Operating expenses | $8.23 million | $11.28 million | $31.24 million | $35.44 million |
| Operating loss | $8.18 million | $11.19 million | $30.97 million | $35.23 million |
| Net loss | $7.21 million | $10.71 million | $28.32 million | $34.44 million |
| Net loss per share | $0.23 | $0.35 | $0.91 | $1.11 |
| Operating cash used | — | — | $20.42 million | $27.37 million |
- Q3 gross loss was approximately $2,000; nine-month gross profit was approximately $79,000, or about 30% of revenue. Revenue remains very small relative to operating costs.
- At September 30, cash and cash equivalents were $9.66 million; marketable securities totaled $75.38 million. Combined cash, cash equivalents, and securities were $85.04 million, down from $104.03 million at December 31, 2022.
- Total assets were $90.06 million, total liabilities $14.65 million, and stockholders’ equity $75.41 million. Accumulated deficit was $238.97 million. Lease liabilities totaled $2.10 million; the filing reports no credit facility or committed capital sources.
- Nine-month investing cash flow was a net inflow of $64,000, reflecting largely offsetting securities purchases and maturities. Financing cash flow was $136,000; cash declined by $20.22 million over the period.
Changes versus the prior comparable period
- Q3 revenue decreased $45,000 year over year; nine-month revenue increased $62,000. The filing attributes revenue primarily to PreTRM and does not report material revenue under the Elevance commercial collaboration agreement for the periods shown.
- Net loss narrowed by $3.50 million in Q3 and $6.12 million for the nine months. Lower selling and marketing expenses were the largest operating-expense reduction: down $1.61 million for Q3 and $4.60 million year to date, reflecting lower headcount and a refocused commercial strategy.
- Nine-month research and development expense increased $571,000, mainly from PRIME study enrollment and site activity; Q3 R&D expense decreased $637,000, primarily due to lower clinical-study and personnel costs.
- Other income rose to $2.70 million for the nine months from $837,000, principally due to higher investment and interest income. Despite lower operating losses, operating cash use remained substantial.
Outlook, developments, and risks
- Management expects continued operating losses and negative operating cash flow. It states existing resources should fund operations for at least 12 months from issuance of the financial statements; elsewhere it describes the cash runway as sufficient for several years under existing plans. These statements differ in specificity and depend on operating assumptions.
- Management is refocusing near-term commercial efforts on institutional sales while generating more clinical evidence. It expects selling and marketing and G&A expenses to decrease for the remainder of 2023; R&D could rise as PRIME enrollment accelerates. The filing provides no revenue or earnings guidance.
- The PRIME study interim analysis was expected in December 2023; management anticipated final results in 2025 and planned to add up to 1,000 patients, with only a few months’ expected impact on the study timeline. These were forward-looking expectations, not reported outcomes.
- Key risks include limited PreTRM adoption and reimbursement, customer concentration including Elevance Health, reliance on specimen-collection and laboratory suppliers, clinical-study outcomes, and the need for future financing. The company also disclosed that it was ineligible to file new short-form Form S-3 registration statements until June 2024 following a late Form 8-K filing.
- In October 2023, the FDA proposed a rule to phase out enforcement discretion for laboratory-developed tests. The ultimate regulatory requirements and their effect on PreTRM are uncertain.
- Subsequent to quarter-end, on November 6, 2023, the company appointed Zhenya Lindgardt as CEO and Austin Aerts as CFO. It reduced executive officers’ base salaries by 15% and target bonuses by 50%, expecting at least $900,000 of savings in 2024, and granted RSUs to employees. Lindgardt received an initial 800,000-RSU award plus 175,000 additional RSUs; Aerts received an initial 210,000-RSU award plus 125,000 additional RSUs.
- The company reported effective disclosure controls as of September 30, 2023, no material litigation, and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether PreTRM test volume, payer coverage, reimbursement, and customer diversification are improving; revenue remains only $265,000 for the first nine months.
- Current cash burn, planned spending, and the assumptions supporting management’s stated runway, especially given the decline in combined cash and securities and the absence of committed financing.
- PRIME interim and final study results, enrollment plans, timing, and whether clinical evidence translates into adoption and reimbursement.
- The impact of the proposed FDA LDT rule and any subsequent legislation on PreTRM’s ability to remain on the market and on compliance costs.
- Consequences of Form S-3 ineligibility through June 2024, potential financing alternatives, and dilution from outstanding equity awards, options, and warrants.
- Execution of executive compensation reductions and the retention and dilution implications of the November 2023 RSU grants.