Sera Prognostics, Inc. — Q3 2022 Form 10-Q
Reporting period: Unaudited quarter and nine months ended September 30, 2022; filed November 9, 2022. Sera is a women’s health diagnostics company, with its PreTRM blood test as its first commercial product.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $87,000 | $23,000 | $203,000 | $56,000 |
| Operating expenses | $11.3 million | $9.5 million | $35.4 million | $22.9 million |
| Operating loss | $11.2 million | $9.4 million | $35.2 million | $22.8 million |
| Net loss | $10.7 million | $9.9 million | $34.4 million | $22.5 million |
| Net loss per share | $0.35 | $0.39 | $1.11 | $2.32 |
- Gross profit was approximately $29,000 for Q3 and $69,000 for the first nine months, implying gross margins of approximately 33% and 34%, respectively, based on reported revenue less cost of revenue.
- At September 30, cash and cash equivalents were $38.8 million; current and long-term marketable securities totaled $72.3 million. Combined cash, cash equivalents, and available-for-sale securities were $111.2 million, down from $140.0 million at December 31, 2021.
- Operating cash use was $27.4 million for the first nine months, versus $22.5 million in the prior-year period. Cash and cash equivalents declined by $20.1 million; investing activities provided $7.1 million, mainly reflecting net marketable-security maturities and purchases.
- Accumulated deficit was $200.9 million. The company reported no outstanding debt; finance lease obligations totaled $1.2 million. Current assets of $90.8 million compared with current liabilities of $8.7 million.
Changes versus prior comparable periods
- Revenue increased by $64,000 in Q3 and $147,000 for the nine-month period, but remained small relative to operating expenses.
- Nine-month operating expenses rose $12.5 million. Selling and marketing increased $5.9 million, general and administrative increased $3.7 million, and research and development increased $2.8 million.
- Nine-month net loss widened by $11.9 million. The prior-year period included a $1.1 million PPP loan-forgiveness gain; 2022 also had higher operating costs and lower other income overall.
- Q3 net loss widened by $0.9 million. Higher research and development and selling and marketing expenses were partly offset by lower interest expense and increased investment income.
Outlook, commentary, and risks
- Management expects continued significant operating losses and negative operating cash flows, driven by PreTRM commercialization and clinical and research programs. It believes existing financial resources are sufficient for at least 12 months from the financial-statement issuance date, but has no credit facility or committed capital sources.
- Management expected research and development expense to increase slightly for the remainder of 2022 as PRIME study enrollment continued; selling and marketing and general and administrative expenses were expected to remain relatively consistent over that period. No revenue or earnings guidance was provided.
- Management expected to enroll enough PRIME study patients for an interim analysis in 2023, subject to enrollment and possible public-health disruptions. The filing says COVID-19 had delayed or slowed study enrollment and limited clinician access.
- Elevance Health agreed to minimum PreTRM test purchases and payments for the first three years of its commercial collaboration. Sera received $3.1 million during the first nine months of 2022 relating to minimum payments for 2021; the filing says there was no material revenue from the commercial collaboration in the period, as test revenue is recognized upon delivery of results.
- Key risks include limited adoption and reimbursement for PreTRM, reliance on a small number of customers including Elevance Health, continued cash burn and potential need for additional financing, clinical-study execution, competition, and regulatory uncertainty regarding laboratory-developed tests. The company reported no material litigation.
- After quarter-end, Sera extended its headquarters lease through December 31, 2025, with approximately $1.9 million of rent during the extended term, subject to adjustment; an early termination option applies in specified circumstances after July 1, 2024.
Important facts for investors to verify
- Whether PreTRM test volume, payer coverage, and recognized revenue are growing beyond the reported low revenue base.
- The terms, remaining duration, and actual test-purchase performance under the Elevance Health collaboration, and how minimum payments translate into recognized revenue.
- Cash burn, investment maturities, and financing needs relative to management’s stated 12-month liquidity outlook.
- PRIME study enrollment and timing of its planned 2023 interim analysis, including any effects on costs or timelines.
- Potential dilution: 8.5 million options and 2.8 million warrants were outstanding at September 30, 2022; diluted loss per share excluded these as anti-dilutive.