Sera Prognostics, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Sera is a women’s health diagnostics company developing and commercializing biomarker tests; its lead product is PreTRM, a blood test intended to assess preterm-birth risk. The interim financial statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $20,000 | $6,000 | $33,000 | $14,000 |
| Operating expenses | $7.401m | $4.287m | $13.440m | $8.587m |
| Operating loss | $7.381m | $4.281m | $13.407m | $8.573m |
| Net loss | $6.307m | $4.705m | $12.666m | $9.401m |
| Net loss per share | $3.17 | $3.08 | $6.70 | $6.16 |
Gross profit was $12,000 for Q2 and $20,000 for the six-month period, equivalent to approximate gross margins of 60% and 61%, respectively; the very small revenue base limits the significance of these percentages. Cash used in operations was $13.188m for the first six months, versus $8.760m a year earlier. Investing cash use was $126,000; financing provided $90.632m.
At June 30, cash and cash equivalents were $90.851m, total assets $95.067m, current liabilities $3.232m and total liabilities $3.877m. Bank loan and convertible-note balances had been repaid, leaving capital lease obligations of about $162,000. The company raised $99.1m net from Series E preferred stock during the six months. After quarter-end, its July 19 IPO raised approximately $66.6m net; this proceeds amount is not included in June 30 cash. Management said available resources were expected to fund operations for at least 12 months from the financial-statement issuance date.
Changes from the comparable period
- Q2 revenue increased by $14,000 year over year, while operating expenses rose $3.114m; the net loss widened by $1.602m.
- For the first six months, revenue rose $19,000, operating expenses increased $4.853m and net loss widened $3.265m.
- Research and development, selling and marketing, and general and administrative costs all increased, primarily reflecting higher staffing and stock-based compensation, clinical-study activity, and commercialization and payer-access work.
- Interest expense fell as the company repaid its remaining bank loan and convertible note in Q1 2021. A $1.05m PPP-loan forgiveness gain boosted other income in 2021; it is a non-recurring item.
- The July IPO converted preferred shares into Class A and Class B common shares and added post-period liquidity.
Outlook, risks and notable items
- No quantified revenue, earnings or cash-flow guidance was provided. Management expects substantial additional losses and negative operating cash flows as it commercializes PreTRM and funds clinical studies and research and development.
- The February 2021 Anthem collaboration provides for minimum test purchases and minimum annual payments during the first three years, but the filing does not provide clear values for those minimums. The company reported no material revenue or cash receipts under the arrangement through June 30.
- Commercial success depends on adoption of PreTRM, payer coverage and reimbursement, and expansion beyond Anthem. The company warns that reliance on a limited number of customers, particularly Anthem, could create concentration risk.
- COVID-19 previously caused early cessation of enrollment in the AVERT PRETERM TRIAL and delayed PRIME study enrollment. The company said the pandemic’s future effects on operations and timelines remained uncertain.
- Other material risks include continued cash burn and potential need for financing, competition, clinical-study outcomes, laboratory and supplier continuity, regulatory changes affecting laboratory-developed tests, reimbursement disputes, and protection of intellectual property.
- The company reported no material litigation and said disclosure controls and procedures were effective as of June 30, 2021. It is an emerging growth company and smaller reporting company.
Important facts for investors to verify
- Whether Anthem’s minimum purchase and payment commitments translate into test volumes, cash receipts and recognized revenue; the filing does not disclose the contractual minimum amounts.
- Post-IPO cash, quarterly cash burn and the duration of the stated runway, particularly as commercialization and clinical-study spending grows.
- Evidence of payer coverage, reimbursement rates and broader adoption beyond Anthem, given negligible reported revenue to date.
- Progress and results of PRIME and other clinical programs, including any further effects from COVID-19.
- The effects of preferred-stock conversion, IPO issuance, outstanding options and warrants, and equity-plan share increases on dilution and voting control.