Filing identity and reporting period
The supplied filing is Signal Genetics, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2014. It does not identify Viridian Therapeutics, Inc.; verify that this is the intended filing before relying on the summary.
Signal Genetics was a commercial-stage molecular diagnostics company whose revenue primarily came from its MyPRS multiple myeloma test. In June 2014, it converted from an LLC to a corporation, converted most related-party debt into equity, and completed an IPO.
Financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Net revenue | $1.301 million | $0.984 million | $3.665 million | $3.226 million |
| Operating loss | $1.633 million | $0.312 million | $4.611 million | $0.451 million |
| Net loss attributable to stockholders | $1.637 million | $0.940 million | $5.632 million | $2.196 million |
| Basic and diluted loss per share | $0.43 | $0.35 | $1.78 | $0.85 |
- Revenue increased 32% in Q3 and 14% year to date. Cost of revenue was 67% of revenue in Q3 and 64% year to date, implying gross margins of approximately 33% and 36%, respectively; comparable 2013 gross margins were approximately 27% and 35%.
- Operating expenses rose substantially, including $704,000 of Q3 and $3.578 million of year-to-date stock compensation, as well as increased public-company, hiring, and commercial-development costs.
- Interest expense fell to $4,000 in Q3 from $568,000, and to $1.021 million year to date from $1.505 million, primarily after the June related-party debt conversion.
- Operating cash use was $1.216 million for the first nine months, versus $810,000 in 2013. Investing activities used $13,000; financing activities provided $7.408 million. Cash at September 30 was $6.388 million.
- Current assets were $8.656 million and current liabilities $1.995 million, giving reported working capital of approximately $6.660 million. Total stockholders’ equity was $7.530 million.
- Related-party amounts due on demand were $1.045 million and non-interest-bearing. The remaining equipment note had an $11,000 balance at quarter-end and was paid off in October 2014. Most prior related-party note debt—$27.326 million—was converted into equity.
Changes, outlook, and risks
- Revenue growth reflected higher average UAMS test prices and increased testing at non-UAMS hospitals. UAMS remained highly concentrated, accounting for 82% of Q3 and 81% of nine-month 2014 net revenue; it also sourced approximately 70% of receivables at quarter-end.
- Management expected continued operating losses and negative operating cash flow while expanding sales and marketing and pursuing research and development. It believed available cash would fund operations for at least a year, but said it might seek additional financing or strategic investment; neither availability nor acceptable terms were assured. No numerical earnings or revenue guidance was provided.
- Management planned to broaden insurer reimbursement, sales coverage, partnerships, and test indications. The UAMS laboratory-services agreements were extended through September 19, 2017. The company also signed a new California headquarters lease, beginning in November 2014.
- Key risks include dependence on UAMS, limited insurer coverage, reimbursement and collections uncertainty, test adoption and competition, and reliance on a single supplier for testing materials. Days sales outstanding rose to 93 from 89 at year-end 2013.
- The company recorded a $144,000 doubtful-account allowance, including amounts associated with payments sent to patients in error and older Medicare claims. It also recorded unfavorable prior-period revenue-estimate adjustments, including $134,000 in Q3.
- Management disclosed a material weakness in prior-period financial-reporting controls, related to insufficient accounting personnel and reliance on outside consultants. A CFO and Controller were hired in August 2014 to address it. Management concluded disclosure controls were effective at quarter-end; internal control over financial reporting had not yet been evaluated under Section 404.
- The filing states no current defendant litigation and no material changes to previously reported risk factors. A $50,000 standby letter of credit was collateralized by restricted cash.
Important facts to verify
- Confirm the issuer: the filing is for Signal Genetics, Inc., not Viridian Therapeutics, Inc.
- Assess the sustainability of revenue growth, reimbursement coverage, UAMS concentration, and collections from non-contracted payors.
- Review cash runway against ongoing losses and planned commercial and research spending, including the need for additional financing.
- Evaluate the impact of IPO-related stock compensation on reported losses and the progress of remediation of the disclosed material weakness.
- Check the company’s revenue-estimate assumptions, doubtful-account allowance, and exposure to its single testing-material supplier.