Sera Prognostics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results; dollar amounts below are in millions unless stated otherwise.
Business context
Sera is a women’s health diagnostics company developing and commercializing biomarker tests. Its first commercial product, PreTRM, is a blood test intended to assess the risk of preterm birth. The company is pursuing payer coverage and adoption, while conducting clinical studies and developing additional pregnancy-related tests. Elevance Health is a commercial collaborator and is contractually committed to minimum test purchases and payments during the first three years of the agreement.
Financial highlights
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0.078 | $0.020 | $0.116 | $0.033 |
| Gross profit (revenue less cost of revenue) | $0.022 | $0.012 | $0.040 | $0.020 |
| Operating expenses | $11.824 | $7.401 | $24.162 | $13.440 |
| Operating loss | $(11.746) | $(7.381) | $(24.046) | $(13.407) |
| Net loss | $(11.520) | $(6.307) | $(23.728) | $(12.666) |
| Net loss per share, basic and diluted | $(0.37) | $(3.17) | $(0.77) | $(6.70) |
| Net cash used in operating activities | — | — | $(18.595) | $(13.188) |
Revenue remained very small relative to operating costs. Gross margin, calculated from reported revenue and cost of revenue, was approximately 28% in Q2 2022 and 34% for the first half of 2022.
- Expenses: First-half R&D was $6.583 million, selling and marketing was $8.677 million, and general and administrative expense was $8.826 million. Stock-based compensation totaled $2.436 million for the first half.
- Cash and liquidity: At June 30, cash and cash equivalents were $53.891 million; marketable securities were $66.698 million, for total cash, cash equivalents, and securities of $120.589 million. Current assets were $108.049 million and current liabilities were $7.303 million.
- Cash flow: First-half investing activities provided $13.425 million, principally from net maturities and sales of marketable securities. Financing activities provided $0.129 million. Cash and cash equivalents declined $5.041 million from year-end 2021.
- Debt and leases: Management reported no outstanding debt at June 30, 2022. Finance lease obligations totaled $1.304 million; operating lease liabilities were $0.299 million.
- Investment valuation: Available-for-sale securities had $0.829 million in gross unrealized losses at period-end. The company attributed declines to market and interest-rate movements, not credit quality, and said it did not expect to be required to sell before recovery or maturity.
Changes versus prior comparable periods
- Q2 revenue rose $58,000 year over year; first-half revenue rose $83,000. Management expects revenue to increase in the second half of 2022 as test sales grow and payment contracts are pursued.
- Q2 net loss widened by $5.213 million year over year; first-half net loss widened by $11.062 million. Higher selling and marketing and G&A costs were major contributors, alongside higher R&D expense.
- First-half operating cash use increased $5.407 million year over year. The prior-year comparison included approximately $100.1 million of Series E financing proceeds; 2022 had no comparable financing.
- Other income was lower year over year, primarily because 2021 included a one-time $1.1 million gain from forgiveness of the PPP loan. The 2022 period also recorded $0.635 million of other comprehensive loss, mainly unrealized losses on available-for-sale securities.
- Weighted-average shares rose substantially following the July 2021 IPO and conversion of preferred stock. Accordingly, per-share comparisons across periods are affected by the changed capital structure.
Outlook, risks, and other notable items
- Management believes existing financial resources can fund operations and capital needs for at least 12 months from issuance of the financial statements. It nevertheless expects significant future operating losses and negative operating cash flows, has no credit facility or committed capital sources, and may need additional financing.
- Management expects R&D expense to remain relatively consistent for the rest of 2022. It expects selling and marketing expense to remain relatively consistent or decrease slightly, and G&A expense to remain relatively consistent or decrease slightly. No quantified revenue or earnings guidance was provided.
- The PRIME study was expected to enroll approximately 2,800 patients in late 2022, with interim analysis expected in 2023; timing could be affected by COVID-19 conditions. Earlier COVID-related disruptions included cessation of AVERT PRETERM enrollment and delayed PRIME enrollment.
- Key risks include slow PreTRM adoption, payer coverage and reimbursement uncertainty, customer concentration (including dependence on Elevance Health), continued losses and potential financing needs, clinical-study execution, competition, laboratory and supplier disruptions, and evolving regulation of laboratory-developed tests.
- A hypothetical 100-basis-point increase in interest rates would have reduced the June 30 fair value of available-for-sale debt securities by $0.5 million, according to the filing.
- The company reported no material litigation. Management concluded disclosure controls and procedures were effective at the reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether PreTRM test volumes, realized revenue, and payer contracts are growing as management anticipates, and the timing and economics of the Elevance Health commitment.
- Whether cash burn and planned spending remain consistent with the stated minimum 12-month funding horizon, particularly if revenue growth or additional financing is delayed.
- PRIME enrollment progress, study timing, and whether clinical evidence supports broader adoption and reimbursement.
- Current payer coverage, reimbursement rates, prior-authorization requirements, and any billing disputes or recoupment exposure.
- Potential dilution from outstanding options and warrants; the filing lists 8.743 million options and 2.788 million warrants outstanding at June 30, 2022.