We are registering the
offer and sale of these securities to satisfy certain registration rights we have granted. The Selling Securityholders may offer, sell
or distribute all or a portion of the securities hereby registered publicly or through private transactions at prevailing market prices
or at negotiated prices. We will not receive any of the proceeds from such sales of the shares of our Common Stock or warrants, except
with respect to amounts received by us upon the exercise of the warrants or the Madryn Options for cash. We will bear all costs, expenses
and fees in connection with the registration of these securities, including with regard to compliance with state securities or “blue
sky” laws. The Selling Securityholders will bear all commissions and discounts, if any, attributable to their sale of shares of
our Common Stock or warrants. See section entitled “Plan of Distribution” beginning on page 118 of this prospectus.
Our Common Stock and Public Warrants
are listed on the Nasdaq Capital Market of The Nasdaq Stock Market LLC (“Nasdaq”) under the symbols “SLGC”
and “SLGCW” respectively. On October 21, 2022, the last quoted sale price for our Common Stock and Public Warrants as reported
on Nasdaq were $2.82 and $0.35 respectively.
We are an “emerging
growth company,” as defined under the federal securities laws, and, as such, have elected to avail ourselves of certain reduced
public company reporting requirements.
Investing in our securities
involves a high degree of risk. Before buying any securities, you should carefully read the discussion of the risks of investing in our
securities in the section entitled “Risk Factors” beginning on page 7 of this prospectus.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995 and other federal securities laws. All statements, other than statements of historical fact included in
this prospectus, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in this prospectus, the words ““will be,”
“will,” “expect,” “anticipate,” “continue,” “project,” “believe,”
“plan,” “could,” “estimate,” “forecast,” “guidance,” “intend,”
“may,” “plan,” “possible,” “potential,” “predict,” “pursue,”
“should,” “target” and similar expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current
expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future
events.
These
statements include, but are not limited to the following:
|
● |
the
occurrence of any event, change or other circumstances, including the outcome of any legal proceedings that may be instituted against
the Company; |
|
● |
the
ability to maintain the listing of the Company’s Common Stock on the Nasdaq; |
|
● |
the
risk of disruption, including to the Company’s information technology systems, to the Company’s current plans and operations; |
|
● |
the
ability to protect the Company’s intellectual property; |
|
● |
the
Company’s plans to engage in acquisition activities and the anticipated impact of such activities on the Company’s financial
results; |
|
● |
the
impact of the procurement and budgetary cycles of customers; |
|
● |
the
ability to recognize the anticipated benefits of the Company’s business, which may be affected by, among other things, competition
and the ability to grow and manage growth profitably and retain its key employees; |
|
● |
costs
related to the Company’s business; |
|
● |
changes
in applicable laws or regulations; |
|
● |
the
ability of the Company to raise financing in the future; |
|
● |
the
success, cost and timing of the Company’s product development, sales and marketing, and research and development activities; |
|
● |
the
Company’s ability to obtain and maintain regulatory approval for its products, and any related restrictions and limitations
of any approved product; |
|
● |
the
Company’s ability to maintain existing license agreements and manufacturing arrangements; |
|
● |
the
Company’s ability to attract or retain sales and distribution partners; |
|
● |
the
Company’s ability to compete with other companies currently marketing or engaged in the development of products and services
that serve customers engaged in proteomic analysis, many of which have greater financial and marketing resources than the Company; |
|
● |
the
size and growth potential of the markets for the Company’s products, and the ability of each to serve those markets, either
alone or in partnership with others; |
|
● |
the
Company’s estimates regarding expenses, future revenue, capital requirements and needs for additional financing; |
|
● |
the
ability to use net operating losses and certain other tax attributes; |
|
● |
the
Company’s financial performance; |
|
● |
the
impact of the COVID-19 pandemic on the Company; and |
|
● |
other
factors detailed under the section entitled “Risk Factors.” |
The
forward-looking statements contained in this registration statement are based on the Company’s current expectations and beliefs
concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting
the Company will be those that the Company has anticipated. These forward-looking statements involve a number of risks, uncertainties
(some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially
different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited
to, those factors described under section entitled “Risk Factors” in this prospectus. Should one or more of these
risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from
those projected in these forward-looking statements. The Company will not and does not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable
securities laws.
PROSPECTUS
SUMMARY
This
summary highlights information contained in greater detail elsewhere in this prospectus. This summary is not complete and does not contain
all of the information you should consider in making your investment decision. You should read the entire prospectus carefully before
making an investment in our Common Stock. You should carefully consider, among other things, our consolidated financial statements and
the related notes and the sections entitled “Risk Factors,” “Business,” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
Overview
We
are a leading commercial-stage proteomics company. We have built an integrated proteomics platform that we believe is capable of robust,
high throughput proteomics analysis with broad proteome coverage, low limits of detection, high reproducibility and at low costs. We
designed our platform with the goal of being a universal proteomics platform, with the breadth (number of proteins measured) and precision
(accuracy of measurement) important for discovery and research applications, and both the reproducibility and robustness important for
clinical applications. Our platform is underpinned by our proprietary assay technology, our protein database (which we believe is one
of the largest proteomics databases worldwide), and artificial intelligence and machine learning capabilities. As of December 31, 2021,
our assay can measure approximately 7,000 protein target measurements in a single sample using only approximately 55 µL of plasma
or serum. Our proteomics database matches proteomics and clinical information and contains over 2.5 billion protein measurements with
over 675,000 participant-years of clinical follow-up. Leveraging our artificial intelligence-enabled bioinformatics capability, we use
our database to power diagnostic product development for our research and clinical customers. We currently run our platform within our
own laboratory, receive samples from customers and perform proteomics analysis on their behalf.
Our
proprietary platform is built upon our assay technology, our proprietary database and artificial intelligence and machine learning bioinformatics
capabilities. Our foundational assay technology includes our library of modified aptamer protein identification reagents, referred to
as “SOMAmer® reagents,” and our SomaScan® assay. Our SOMAmer® reagents are proprietary “slow off-rate modified
aptamers” which are short, synthetic single stranded DNA (ssDNA) sequences developed to bind specific protein targets with high
affinity and specificity across the proteome. As of December 31, 2021, we have reagents targeting approximately 7,000 protein target
measurements of the approximately 20,000 canonical human proteins included in our current SomaScan® assay, and plan to increase this
number to approximately 10,000 in 2023 for commercial availability. The SomaScan® assay is utilized for Research Use Only (“RUO”)
applications and SomaSignal™ tests, run on the SomaScan® Platform, and are also available as a Laboratory-Developed Tests (“LDT”)
in the United States.
Our
business model is currently focused on research and clinical customers. We continue to work with collaborators to explore new areas of
application for research and clinical proteomics. As a result of our significant government- or grant-funded customer base, whose cycles
often coincide with government fiscal year ends, our business is subject to significant seasonal factors which may cause sales of our
products to vary on a quarterly or yearly basis and increase the magnitude of quarterly or annual fluctuations in our operating results.
Our
assay services delivered to the research market are focused on pharmaceutical and biotechnology companies, and academic and government
research institutions. We facilitate drug development, analysis of clinical trials and new human biology insights by assessing protein-protein
and protein-gene networks. In addition to providing protein data for research customer use, as of December 31, 2021 we have released
20 SomaSignal™ RUO protein-pattern recognition tests covering multiple applications, including facilitation of clinical trials
(patient inclusion/exclusion, therapeutic effects of pharmaceuticals during trials, and other use cases).
Our
services and products delivered into the clinical market are focused on providing data-driven
diagnostic tests aimed at enabling high predictive power of biological disease and risks
to patients based on high-plex proteomic measurement and bioinformatics predictive model
development. We have released 16 SomaSignal™ tests for use as LDTs under our Clinical
Laboratory Improvement Amendments (“CLIA”) certification since late 2019.
We also have a pipeline of over 100 unique tests that could be developed and use claims targeting
multiple applications, including offerings for health and wellness, preventative medical
and disease management for pharmaceutical companies, health system providers and payors.
We have developed a number of health system partnerships in the United States which we are
studying use cases and benefits for SomaSignal™ tests for patient populations.
We generated $37 million
of revenue during the six months ended June 30, 2022 and over $81 million of revenue in 2021, almost entirely from our research market.
Our cash and cash equivalents balance as of June 30, 2022 is $418 million.
Our
investor relations website is located at http://www.somalogic.com/investors/. We use our investor relations website to post important
information for investors, including news releases, analyst presentations, and supplemental financial information, and as a means of
disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Accordingly, investors
should monitor our investor relations website, in addition to following press releases, SEC filings and public conference calls and webcasts.
We also make available, free of charge, on our investor relations website under “Financial Information-SEC Filings,” our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports as soon as reasonably
practicable after electronically filing or furnishing those reports to the SEC.
Recent Developments
Merger with Palamedrix, Inc.
On August 31, 2022, SomaLogic
completed its merger with Palamedrix, Inc. (“Palamedrix”). Pursuant to the Agreement and Plan of Merger, dated as
of July 25, 2022 (the “Palamedrix Merger Agreement”), by and among SomaLogic, Panther Merger Subsidiary I, LLC, a
Delaware limited liability company and wholly-owned subsidiary of SomaLogic (“Merger Sub I”), Panther Merger Subsidiary
II, LLC, a Delaware limited liability company and wholly-owned subsidiary of SomaLogic (“Merger Sub II” and, together
with Merger Sub I, the “Merger Subs”), Palamedrix, and Shareholder Representative Services LLC, a Colorado limited
liability company, solely in its capacity as the Securityholder Representative, Merger Sub I merged with and into Palamedrix, with Palamedrix
continuing as the surviving company (the “First Merger”). Immediately following the First Merger, Palamedrix merged
with and into Merger Sub II (the “Second Merger” and, together with the First Merger, collectively, the “Palamedrix
Merger”), with Merger Sub II continuing as the surviving company and a wholly owned subsidiary of SomaLogic.
Pursuant to the Palamedrix
Merger Agreement, and subject to the terms and conditions thereof, SomaLogic paid Palamedrix’s securityholders (the “Palamedrix
Securityholders”) upfront consideration in an aggregate amount of approximately $14.0 million payable in cash, subject to customary
purchase price adjustments, and 4,030,472 shares of SomaLogic Common Stock. With respect to certain Palamedrix Securityholders, the shares
of Common Stock payable as part of the upfront consideration are subject to vesting over the three years following the consummation of
the Palamedrix Merger. In addition, certain Palamedrix Securityholders are eligible to receive up to an additional $17.5 million in milestone
payments upon the achievement of certain pre-specified revenue milestones, payable through a combination of cash and Common Stock. The
shares of Common Stock payable as milestone consideration will be valued using the volume-weighted average price of the Common Stock
over the five (5) consecutive trading day period beginning on the trading day that is six (6) trading days immediately preceding the
date that the applicable milestone was achieved and ending on and including the trading day that is immediately prior to the date that
the applicable milestone was achieved. Within 60 days following the consummation of the Palamedrix Merger, SomaLogic has agreed to file
a registration statement to register for resale with the SEC the shares of Common Stock issuable pursuant to the Palamedrix Merger.
Lease Terminations – Louisville,
Colorado
On August 25, 2022 (the
“Termination Date”), SomaLogic Operating Co., Inc. (“SomaLogic Opco”), a wholly owned subsidiary
of SomaLogic, agreed with Louisville 1 Industrial Owner, LLC (“Landlord 1”) and Louisville 2 Industrial Owner, LLC
(“Landlord 2” and together with Landlord 1, collectively, the “Landlord”) to terminate that certain
Lease Agreement between SomaLogic Opco and Landlord 1 relating to the lease of a building (“Building 1”) at 1350 South
96th Street in Louisville, Colorado (“Lease 1”) and that certain Lease Agreement between SomaLogic Opco and Landlord
2 relating to the lease of a building (“Building 2”) at 1452 South 96th Street in Louisville, Colorado (“Lease
2” and together with Lease 1, collectively, the “Leases”). Building 1 and Building 2, comprise 100,080 square
feet and 98,640 square feet, respectively, of planned office, warehouse, laboratory and other space and was intended to serve as the
Company’s future headquarters. The Company evaluated the cost of the Leases and determined that it would be in the best interest
of the Company to terminate these agreements and maintain the location of its current headquarters at this time.
As consideration for the
termination of the Leases, SomaLogic Opco agreed to pay to the Landlord a termination fee of $6.0 million (the “Termination
Fee”) to be paid as follows: (i) $2.5 million on the Termination Date or within one business day of the Termination Date and
(ii) $3.5 million (the “Final Payment”) on January 2, 2023. In the event the Landlord enters into a subsequent lease
agreement for either the entirety of Building 1 or the entirety of Building 2 with certain counterparties on or before January 2, 2023,
then the Final Payment shall be reduced by $1.0 million so that the total Termination Fee paid by SomaLogic Opco is $5.0 million. If
SomaLogic Opco fails to make the Final Payment as and when due, interest shall thereafter accrue at a rate of 12% per annum until it
is paid.
Under the terms of the
Leases, SomaLogic Opco was required to deliver a letter of credit in the amount of approximately $2.0 million for each of Lease 1 and
Lease 2 to secure the obligations under each of the Leases (the “Security Deposit”). As a result of the termination
of the Leases, the Security Deposit shall remain in place to guarantee the payment of the Termination Fee. The Security Deposit shall
be released upon SomaLogic Opco’s full performance of the Termination Agreement, including full payment of the Termination Fee.
Appointment of Executive Chairman
On
October 17, 2022, the Company announced the appointment of Troy Cox, a current member of the Company’s Board of Directors, as Executive
Chair of the Board. Effective as of the same date, Charles M. Lillis stepped down as Chairman of the Board but continues to serve as a
member of the Board. Effective as of his appointment as Executive Chair, Mr. Cox assumed the responsibilities of the Company’s principal
executive officer for purposes of the rules and regulations of the Securities and Exchange Commission. Roy Smythe retained his current
title as the Company’s Chief Executive Officer.
Corporate
Information
SomaLogic
Operating Co., Inc. (formerly SomaLogic, Inc., and herein “SomaLogic Operating”) was incorporated in the state of
Delaware on October 13, 1999 and is headquartered in Boulder, Colorado. SomaLogic Operating is a protein biomarker discovery and clinical
diagnostics company that develops slow off-rate modified aptamers (“SOMAmers®”), which are modified nucleic acid-based
protein binding reagents that are specific for their cognate protein, and offers proprietary SomaScan® services, which provide multiplex
protein detection and quantification of protein levels in complex biological samples.
CM
Life Sciences II Inc. (“CMLS II”) was incorporated in Delaware as a blank check company on December 15, 2020. CMLS
II was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar
business combination with one or more businesses.
On
September 1, 2021, we consummated the business combination (the “Business Combination”) contemplated by the Merger
Agreement (as amended, the “Merger Agreement”), dated March 28, 2021, by and among CMLS II, S-Craft Merger Sub, Inc.,
a Delaware corporation and a direct, wholly-owned subsidiary of CMLS II (“Merger Sub”), and SomaLogic Operating (“Old
SomaLogic”). Pursuant to the Merger Agreement, Merger Sub merged with and into Old SomaLogic, with Old SomaLogic surviving
the merger as a wholly-owned subsidiary of CMLS II. Upon the closing of the Business Combination, CMLS II changed its name to SomaLogic,
Inc., and Old SomaLogic changed its name to SomaLogic Operating Co., Inc.
Our principal executive
offices are located at 2945 Wilderness Place, Boulder, Colorado 80301, and our telephone number at that address is (303) 625-9000.
Our
website address is http://www.somalogic.com. The information on, or that can be accessed through, our website is not part of this prospectus,
and you should not consider information contained on our website in deciding whether to purchase shares of our Common Stock. We have
included our website address in this prospectus solely as an inactive textual reference.
We
use the SomaLogic logo and other marks as trademarks in the United States and other countries. This prospectus contains references to
our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred
to in this prospectus, including logos, artwork and other visual displays, may appear without a trademark symbol, but such references
are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights
of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names,
trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.
We
are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). We will
remain an emerging growth company until the earliest to occur of: the last day of the fiscal year in which we have more than $1.07 billion
in annual revenues; the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held
by non-affiliates; the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; and the
last day of the fiscal year ending after the fifth anniversary of CMLS II’s initial public offering.
Section
107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act of 1933, as amended (“Securities Act”), for complying with new or revised accounting
standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We have elected not to opt out of such extended transition period, which means that when a standard
is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt
the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial
statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.
Additionally,
we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take
advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.
We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our ordinary shares
held by non-affiliates exceeds $250 million as of the prior June 30, or (ii) our annual revenue exceeded $100 million during such completed
fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30.
Unless
expressly indicated or the context requires otherwise, the terms “SomaLogic,” the “Company,” the
“Registrant,” “we,” “us” and “our” in this prospectus refer
to SomaLogic, Inc., the parent entity formerly named CM Life Sciences II Inc., after giving effect to the Business Combination, and as
renamed SomaLogic, Inc., and where appropriate, our wholly-owned subsidiaries (including Old SomaLogic).
Summary
of Risk Factors
In
evaluating an investment in our securities, investors should carefully read the risks described below, this prospectus and especially
consider the factors discussed in the section entitled “Risk Factors.” If any of the following events occur, our business,
financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could
decline, and you could lose all or part of your investment. Such risks include, but are not limited to:
|
● |
We
expect to make significant investments in our continued research and development of new services and products, which may not be successful. |
|
● |
We
have incurred losses since we were formed and we may incur losses in the future. |
|
● |
Seasonality
may cause fluctuations in our revenue and results of operations. |
|
● |
We
may need to raise additional capital to fund commercialization plans for our services and products, including manufacturing, sales
and marketing activities, expand investments in research and development and commercialize new products and applications. |
|
● |
Our
ability to use our net operating losses and certain other tax attributes may be limited. |
|
● |
Our
operating results have in the past fluctuated significantly and may continue to fluctuate significantly in the future, which makes
our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance
we may provide. |
|
● |
Our
current and future services and products may never achieve significant commercial market acceptance. |
|
● |
Errors
or defects in our services or products could harm our reputation, decrease market acceptance of our services or products or expose
us to product liability claims. |
|
● |
Our
business will depend significantly on research and development spending by pharmaceuticals, biotechnology, and academic, governmental
and other research institutions, and any reduction in spending could limit demand for our services and products and adversely affect
our business, results of operations, financial condition and prospects. |
|
● |
The
life sciences industry is subject to rapid change, which could make our proteomics platform and related services and products that
we develop obsolete. |
|
● |
Any
disruption at our current headquarters and laboratory facility could negatively impact our business. |
|
● |
Our
reliance on distributors for sales of our services and products in certain geographies outside of the United States could limit or
prevent us from selling our services and products and impact our revenue. |
|
● |
A
significant disruption in our information technology systems or the failure to maintain the integrity of our computer hardware, software
and internet applications and related tools and functions could result in damage to our reputation, data integrity and/or subject
us to costs, fines or lawsuits under data privacy or other laws or contractual requirements. |
|
● |
We
rely on assumptions and estimates and data to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics
may harm our reputation and negatively affect our business. |
|
● |
Our
current revenues are derived almost entirely from our research-based business operations with a limited number of customers and collaborators
in a concentrated and competitive business sector. |
|
● |
Old
SomaLogic identified a material weakness in its internal control over financial reporting. If our remediation measures are ineffective,
or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls
in the future, we may not be able to report our financial condition or results of operations accurately or on a timely basis, which
may adversely affect the value of our Common Stock. |
|
● |
We
rely on certain scientific methodologies and metrics to evaluate our services and products, and real or perceived inaccuracies in
such metrics or new developments in the industry may adversely affect our reputation and business. |
|
● |
We
have limited experience producing and supplying our products. We may be unable to consistently manufacture our products or source
our components to the necessary specifications or in quantities necessary to meet demand. |
|
● |
Our
research and development efforts will be hindered if we are not able to contract with third parties for access to samples. |
|
● |
We
rely on a limited number of suppliers for some of the equipment and materials, or components thereof, that we use for our services
and products and the loss of such suppliers could adversely impact our business. |
|
● |
Certain
aspects of our business rely on relationships with collaborative partners, distributors and other third parties and such collaborative
partners or other third parties could fail to perform sufficiently. |
|
● |
We
may experience problems with supply chain efficiencies, manufacturing processes, or logistical management, which could adversely
affect our business operations. |
|
● |
Unfavorable
United States or global economic conditions as a result of the COVID-19 pandemic, or otherwise, could adversely affect our ability
to raise capital and our business, results of operations and financial condition. |
|
● |
Intellectual
property rights do not necessarily protect us from all potential threats. |
|
● |
Claims
by third parties that we infringe or misuse their proprietary technology could subject us to significant liability. |
|
● |
Involvement
in lawsuits to defend against third-party claims of intellectual property infringement, or to enforce or defend our intellectual
property rights against infringers, could be time-intensive and costly. |
|
● |
Confidentiality
and trade secret protection agreements with employees and others may not adequately prevent disclosure of trade secrets and protect
other proprietary information. |
|
● |
If
we cannot license rights to use technologies on reasonable terms, we may not be able to commercialize new services and products in
the future. |
|
● |
Our
use of open source software could compromise our ability to offer our services and subject us to possible litigation. |
|
● |
We
may depend on proprietary technology licensed from others in the future. If we are unable to acquire or license additional proprietary
rights from third parties, we may not be able to develop our potential services and products. |
|
● |
We
rely on strategic collaboration and licensing arrangements with third parties for research and development of commercial products
and to further develop intellectual property. We may not be able to successfully establish and maintain such intellectual property. |
|
● |
Our
business is subject to state, federal and foreign regulations, including regulations related to data privacy and security, intellectual
property, environmental health and safety, consumer protection, false or fraudulent claims, anti-bribery, and laboratory licensing,
that could result in compliance costs. |
|
● |
Changes
in regulations or violations of regulations may, directly or indirectly, reduce our revenue, adversely affect our results of operations
and financial condition and harm our business. |
|
● |
The
United States Food and Drug Administration (“FDA”) may require us to obtain premarket authorizations and comply
with the FDA requirements for some of our products and services. Failure to do so may delay or prevent the marketing of our products
and services. |
|
● |
We
expect to rely on third parties in conducting any required future studies of diagnostic services and products that may be required
by the FDA or other regulatory authorities, and those third parties may not perform satisfactorily. |
|
● |
Our
employees, principal investigators, consultants and collaborators may engage in misconduct or other improper activities, including
non-compliance with regulatory standards and requirements and insider trading. |
|
● |
We
or our strategic partners or licensees may fail to successfully petition the Japanese National Health Services for use of the SomaSignal™
tests in the annual government-funded health check, which may harm our business.. |
|
● |
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud. |
|
● |
The
requirements of being a public company may strain our resources. |
|
● |
Our
principal stockholders and management own a significant percentage of our Common Stock and will be able to exercise significant influence
over matters subject to stockholder approval. |
|
● |
We
do not expect to pay dividends for the foreseeable future. Investors may never obtain a return on their investment. |
|
● |
The
price of our Common Stock and Public Warrants may be volatile. |
The
Offering
Issuer |
|
SomaLogic,
Inc. |
|
|
|
Issuance
of Common Stock |
|
|
|
|
|
Shares
of Common Stock offered by us |
|
Up
to 10,533,333 shares of Common Stock issuable upon exercise of warrants, consisting of:
a.
up to 5,520,000 shares of Common Stock that are issuable upon the exercise of the Public Warrants;
b.
up to 5,013,333 shares of Common Stock that are issuable upon the exercise of the Private Placement Warrants following the public
resale of the Private Placement Warrants by the Selling Securityholders; and
c.
up to 838,100 shares of Common Stock underlying options to purchase 838,100 shares of Common Stock. |
|
|
|
Exercise
price of Public Warrants and Private Placement Warrants |
|
$11.50 per share, subject to adjustments as described herein |
|
|
|
Exercise
price of Madryn Options |
|
$4.77
per share, subject to adjustments as described herein |
|
|
|
Resale
of Common Stock and Private Placement Warrants |
|
|
|
|
|
Shares
of Common Stock offered by the Selling Securityholders |
|
Up to 48,413,333 shares of Common Stock, consisting of:
a.
up to 36,500,000 PIPE Shares;
b.
up to 6,900,000 Founder Shares; and
c.
up to 5,013,333 shares of our Common Stock issuable upon the exercise of the Private Placement Warrants. |
|
|
|
Warrants
offered by the Selling Securityholders |
|
Up to 5,013,333 Private Placement Warrants. |
|
|
|
Terms
of the offering |
|
The
Selling Securityholders will determine when and how they will dispose of the shares of Common Stock and Private Placement Warrants
registered under this prospectus for resale. |
|
|
|
Use
of proceeds |
|
We
will not receive any proceeds from the sale of shares of Common Stock or Private Placement Warrants by the Selling Securityholders. |
|
|
|
Lock-up
restrictions |
|
Certain
of our stockholders are subject to certain restrictions on transfer until the termination of applicable lock-up periods. See the
section entitled “Certain Relationships, Related Party and Other Transactions.” |
|
|
|
Nasdaq
symbols |
|
Our
Common Stock and Public Warrants are listed on the Nasdaq under the symbols “SLGC” and “SLGCW,” respectively. |
|
|
|
Risk
Factors |
|
See
the section entitled “Risk Factors” and other information included in this prospectus for a discussion of factors
that you should consider carefully before deciding to invest in our securities. |
RISK
FACTORS
You
should carefully review and consider the following risk factors and the other information contained in this prospectus, including the
financial statements and notes to the financial statements included herein and the section entitled “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our securities. We cannot
assure you that any of the events discussed below will not occur. These events could have a material and adverse impact on our business,
financial condition, results of operations and prospects. In such event, the trading price of our Common Stock could decline, and you
could lose all or part of your investment. The risks and uncertainties described below represent the material risks known to us, but
they are not the only ones we face. We may face additional risks and uncertainties that are not presently known to us, or that we currently
deem immaterial, which may also impair our business or financial condition. The following discussion should be read in conjunction with
the financial statements and notes to the financial statements included herein. Unless expressly indicated or the context requires otherwise,
the terms “SomaLogic,” the “Company,” the “Registrant,” “we,”
“us” and “our” in this prospectus refer to SomaLogic, Inc., and where appropriate, our wholly-owned
subsidiaries. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements.
Please refer to “Cautionary Note Regarding Forward-Looking Statements.”
Risks
Related to Our Business and Industry
We
expect to make significant investments in our continued research and development of new services and products, which may not be successful
As
of December 31, 2021, we have a library of approximately 7,000 protein target measurements and plan to increase our library to approximately
10,000 protein target measurements in 2023, and an even greater number over time. We also plan to invest in our sales and marketing infrastructure
to grow our customer base and sell more products and services to existing customers. We expect to incur significant expenses to advance
these development efforts, but they may not be successful. Even if we are ultimately successful in these efforts, our gross margins may
suffer as we invest in advance of potential revenue growth. Further, despite our plans to increase our library of protein targets over
time, we cannot guarantee this trajectory.
Products,
services or software that initially show promise may fail to achieve the desired results or may not achieve acceptable levels of analytical
accuracy or clinical utility. We may need to alter our products in development and repeat studies before we identify a potentially successful
product or service. Product development is expensive, may take years to complete and can have uncertain outcomes. Failure can occur at
any stage of the development. If, after development, a product appears successful, we or our collaborators may, depending on the nature
of the product, need to obtain the FDA, European Medicines Agency (“EMA”) and other regulatory clearances, authorizations
or approvals before we can market the product. The FDA’s and EMA’s clearance, authorization or approval pathways are likely
to involve significant time, as well as additional research, development and clinical study expenditures. The FDA, EMA or other applicable
regulatory authority may not clear, authorize or approve any future product we develop. Even if we develop a product that receives regulatory
clearance, authorization or approval, we or our collaborators would need to commit substantial resources to commercialize, sell and market
the product before it could be profitable, and the product or service may never be commercially successful. Additionally, development
of any product or service may be disrupted or made less viable by the development of competing products or services.
New
potential products and services may fail at any stage of development or commercialization and if we determine that any of our current
or future services, products or software is unlikely to succeed, we may abandon them without any return on our investment. If we are
unsuccessful in developing additional services, products or software, our potential for growth may be impaired.
We
have incurred losses since we were formed and we may incur losses in the future.
We
incurred net losses since we were formed. We may incur additional losses in the future as we plan to invest significant additional funds
toward expansion of our commercial organization, the improvement and development of our technology and new product and service development.
We may incur additional losses in the future for a number of other reasons, many of which are beyond our control, including the other
risks described in this “Risk Factors” section, the market acceptance of our new services, future service development
and our market penetration and margins. Our failure to become profitable could depress the value of our Common Stock could impair our
ability to raise capital, expand our business, maintain our research and development efforts or continue our operations. A decline in
the value of our Common Stock could also cause you to lose all or part of your investment.
Seasonality
may cause fluctuations in our revenue and results of operations.
We
operate on a December 31 fiscal year end and believe that there are significant seasonal factors which may cause sales of our products
to vary on a quarterly or yearly basis and increase the magnitude of quarterly or annual fluctuations in our operating results. We believe
that this seasonality results from a number of factors, such as customer purchasing cycles-the procurement and budgeting cycles of many
of our customers, especially government- or grant-funded customers, whose cycles often coincide with government fiscal year ends or biopharmaceutical
companies whose approved budget expires by year end. These factors have contributed, and may contribute in the future, to substantial
fluctuations in our quarterly operating results, which may cause our operating results in some quarters to fall below the expectations
of securities analysts or investors. These fluctuations, among other factors, also mean that our operating results in any particular
period may not be relied upon as an indication of future performance. Seasonal or cyclical variations in our sales have in the past,
and may in the future, become more or less pronounced over time, and have in the past materially affected, and may in the future materially
affect, our business, financial condition, results of operations and prospects.
We
may need to raise additional capital to fund commercialization plans for our services and products, including manufacturing, sales and
marketing activities, expand investments in research, and development and commercialize new products and applications.
Our
operations have consumed substantial amounts of cash since inception. We expect to expend substantial additional amounts to continue
to commercialize our services and products and to develop new ones, and may require additional capital to do so. In addition, our operating
plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than
planned.
We
cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the
terms of any future financing may adversely affect the holdings or the rights of new stockholders and the issuance of additional securities,
whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our Common Stock to decline. The incurrence
of indebtedness could result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants,
such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property
rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to
seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we
may be required to relinquish rights to some of our technologies or products or otherwise agree to terms that are unfavorable to us,
any of which may have a material adverse effect on our business, operating results and prospects. In addition, raising additional capital
through the issuance of equity or convertible debt securities would cause dilution to holders of our equity securities, and may affect
the rights of then-existing holders of our equity securities. Even if we believe that we have sufficient funds for our current or future
operating plans, we may seek additional capital if market conditions are favorable or if it has specific strategic considerations.
Our
ability to use our net operating losses and certain other tax attributes may be limited.
Under
legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, as modified by the Coronavirus Aid, Relief, and Economic Security
Act, or CARES Act, unused federal net operating losses (“NOLs”) generated in tax years beginning after December 31,
2017, will not expire and may be carried forward indefinitely, and generally may not be carried back to prior taxable years, except that
under the CARES Act, net operating losses generated in 2018, 2019 and 2020 may be carried back five taxable years. Additionally, the
deductibility of such federal NOLs in tax years beginning after December 31, 2020, is limited to 80% of taxable income. It is uncertain
if and to what extent various states will conform to the Tax Cuts and Jobs Act, or the CARES Act. In addition, under Sections 382 and
383 of the Code, if a corporation undergoes an “ownership change,” generally defined as a cumulative change of more
than 50 percentage points (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s
ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change
income or taxes may be limited. We may experience ownership changes in the future as a result of shifts in our stock ownership (some
of which may be outside our control). As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards
to offset such taxable income may be subject to limitations. Similar provisions of state tax law may also apply to limit our use of accumulated
state tax attributes. For example, California recently imposed limits on the usability of California state NOLs to offset taxable income
in tax years beginning after 2019 and before 2022. As a result, even if we attain profitability, we may be unable to use a material portion
of our NOL carryforwards and other tax attributes, which could adversely affect our future cash flows.
Our
operating results have in the past fluctuated significantly and may continue to fluctuate significantly in the future, which makes our
future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may
provide.
Our
quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to the
various other factors described in this “Risk Factors” section.
The
cumulative effects of such factors could result in large fluctuations and unpredictability in our quarterly and annual operating results.
As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past
results as an indication of our future performance.
This
variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors
for any period.
Our
current and future services and products may never achieve and sustain sufficient commercial market acceptance.
Our
success depends on the market’s confidence that we can provide research and diagnostic products and services that improve clinical
outcomes, lower healthcare costs, aid in research efforts directed at the better understanding of human biology, and enable better biopharmaceutical
development. Failure of our services and products, or those jointly developed with our collaborators, to perform as expected could significantly
impair our operating results and our reputation. We believe academic institutions and biopharmaceutical companies are likely to be particularly
sensitive to defects, errors, inaccuracies, delays in or associated with our services. We and our collaborators may not succeed in achieving
and sustaining sufficient commercial market acceptance for our current or future services and products due to a number of factors, including:
|
● |
the
impact of our investments in service and product innovation and commercial growth; |
|
● |
our
ability to demonstrate the utility of our platform and related services and their potential advantages over existing technologies
to academic institutions, biopharmaceutical companies and the medical community; |
|
● |
our
ability, and that of our collaborators, to comply with regulatory requirements; and |
|
● |
the
rate of adoption of our services and products by academic institutions, key opinion leaders, advocacy groups and key customers and
potential customers. |
Additionally,
our customers and collaborators may decide to decrease or discontinue their use of our services due to changes in their research and
development plans, financial constraints, the regulatory environment, negative publicity about our services or competing products both
of which are circumstances outside of our control. We may not be successful in addressing these or other factors that might affect the
market acceptance of our services and technologies. Failure to achieve widespread market acceptance of our services and products could
materially harm our business, revenues, financial condition and results of operations.
Errors
or defects in our services or products could harm our reputation, decrease market acceptance of our services or products or expose us
to product liability claims.
We
are creating new services and products. The testing processes utilize a number of complex and sophisticated biochemical, informatics,
optical and mechanical processes, many of which are highly sensitive to external factors. An operational or technology failure in one
of these complex processes or fluctuations in external factors may result in less efficient processing or variation between testing runs.
Refinements to our processes may initially result in unanticipated issues that reduce the efficiency or increase variability. In particular,
sequencing, which is a key component of these processes, could be inefficient with higher than expected variability thereby increasing
total sequencing costs and reducing the number of samples we can process in a given time period. Therefore, inefficient or variable processes
can cause variability in our operating results and damage our reputation.
In
addition, our laboratory operations could result in any number of errors or defects. Our quality assurance system may fail to prevent
us from inadvertent problems with samples, sample quality, lab processes including sequencing, software, data upload or analysis, raw
materials, reagent manufacturing, assay quality or design, or other components or processes. In addition, our assays may have quality
or design errors, and we may have inadequate procedures or instrumentation to process samples, assemble our proprietary primer mixes
and commercial materials, upload and analyze data, or otherwise conduct our laboratory operations. If we provide services with undiscovered
errors to our customers, our clinical diagnostics may falsely indicate a patient has a disease or fail to detect disease in a patient
who requires treatment. We believe our customers are likely to be particularly sensitive to service and product defects, errors and delays,
including if our services and products fail to indicate the presence of residual disease with high accuracy from clinical specimens or
if we fail to list or inaccurately indicate the presence or absence of disease in our test report. In drug discovery, such errors may
interfere with our customers’ clinical studies or result in adverse safety or efficacy profiles for their products in development.
This may harm our customers’ businesses and may cause us to incur significant costs, divert the attention of key personnel, encourage
regulatory enforcement action against us, create a significant customer relations problem for us and cause our reputation to suffer.
We may also be subject to warranty and liability claims for damages related to errors or defects in our services or products. Any of
these developments could harm our business and operating results.
Our
business will depend significantly on research and development spending by pharmaceuticals, biotechnology, and academic, governmental
and other research institutions, and any reduction in spending could limit demand for our services and products and adversely affect
our business, results of operations, financial condition and prospects.
We
expect that substantially all of our sales revenue in the near term will be generated from sales to pharmaceuticals, biotechnology, and
academic, governmental and other research institutions. Much of these customers’ funding will be provided by various state, federal
and international government agencies. As a result, the demand for our services and products will depend upon the research and development
budgets of these customers, which are impacted by factors beyond our control, such as:
|
● |
decreases
in government funding of research and development; |
|
● |
changes
to programs that provide funding to research laboratories and institutions, including changes in the amount of funds allocated to
different areas of research or changes that have the effect of increasing the length of the funding process; |
|
● |
macroeconomic
conditions and the political climate; |
|
● |
researchers’
opinions of the utility of our technology platform; |
|
● |
citation
of our technology platform in published research; |
|
● |
potential
changes in the regulatory environment; |
|
● |
differences
in budgetary cycles, especially government- or grant-funded customers, whose cycles often coincide with government fiscal year ends; |
|
● |
competitor
services and product offerings or pricing; |
|
● |
market-driven
pressures to consolidate operations and reduce costs; and |
|
● |
market
acceptance of relatively new technologies. |
In
addition, various state, federal and international government agencies that provide grants and other funding may be subject to stringent
budgetary constraints that could result in spending reductions, reduced grant making, reduced allocations or budget cutbacks, which could
jeopardize the ability of these customers, or the customers to whom they provide funding, to purchase our assay services. There is no
guarantee that the National Institutes of Health (“NIH”) appropriations will not decrease in the future. A decrease
in the amount of, or delay in the approval of, appropriations to, or a decrease in the aggregate amount of grants awarded for life sciences
research or the redirection of existing funding to other projects or priorities by, NIH or other similar United States or international
organizations, such as the Medical Research Council in the United Kingdom, could result in fewer grants benefiting life sciences research.
Our operating results may fluctuate substantially due to any such reductions and delays.
The
life sciences industry is subject to rapid change, which could make our proteomics platform and related services and products that we
develop obsolete. Our long-term results depend upon our ability to improve existing services and products, and our ability to introduce
and market new services and products successfully.
Our
business is dependent on the continued improvement of our existing services and products and our development of new services and products
utilizing our existing technology or other potential future technology. As we introduce new services and products or refine, improve
or upgrade versions of existing services and products, we cannot predict the level of market acceptance or the amount of market share
these services and products will achieve, if any. We cannot assure you that we will not experience material delays in the introduction
of new services and products in the future.
We
generally sell our services and products in industries that are characterized by rapid technological changes, frequent new product introductions
and changing industry standards. If we do not develop new services and products and service enhancements based on technological innovation
on a timely basis, our services and products may become obsolete over time and our revenues, cash flow, profitability and competitive
position will suffer. Our success will depend on several factors, including our ability to:
|
● |
correctly
identify customer needs and preferences and predict future needs and preferences; |
|
● |
allocate
our research and development funding to services and products with higher growth prospects; |
|
● |
anticipate
and respond to our competitors’ development of new services and products and technological innovations; |
|
● |
innovate
and develop new technologies and applications, and acquire or obtain rights to third party technologies that may have valuable applications
in the markets we serve; |
|
● |
successfully
commercialize new technologies in a timely manner, price them competitively and manufacture and deliver sufficient volumes of new
services and products of appropriate quality on time; and |
|
● |
convince
customers to adopt new technologies. |
In
addition, if we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we may invest
heavily in research and development of services and products that do not lead to significant revenue. Even if we successfully innovate
and develop new services and products and service enhancements, we may incur substantial costs in doing so, and our profitability may
suffer.
Our
ability to develop new services and products based on innovation can affect our competitive position and often requires the investment
of significant resources. Difficulties or delays in research, development or production of new products and services or failure to gain
market acceptance of new services and products and technologies may reduce future revenues and adversely affect our competitive position.
The
majority of our operations and laboratory processes are currently conducted at a single location and any disruption at our facility could
negatively impact our operations and increase our expenses.
Our
headquarters in Boulder, Colorado contains nearly all of our corporate and administrative functions, the majority of our research, laboratory
facilities, and all of our in-house manufacturing. A natural or man-made disaster or casualty event could cause substantial delays or
other disruptions in our operations, damage or destroy our manufacturing equipment or inventory, and cause us to incur additional expenses.
The inability to perform our laboratory processes or to reduce the backlog that could develop if our facilities are inoperable, for even
a short period of time, may result in the loss of customers or harm to our reputation, and we may be unable to regain those customers
or repair our reputation in the future.
Additionally,
although we maintain insurance that may cover certain losses in connection with a fire and certain types of other casualty events, we
cannot be certain our insurance coverage will be adequate for losses actually incurred, that insurance will continue to be available
to us on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future losses. One or more large
losses that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases
or the imposition of large deductible requirements, could have a material adverse effect on our business, including our financial condition,
results of operations and reputation.
If
we are unable to support demand for our commercial assay services, our business could suffer.
As
demand for our assay services grows, we will need to continue to scale our assay capacity and processing technology in order to support
our data retention. We will also need to expand customer service, billing and systems processes and enhance our internal quality assurance
program in order to support demand for assay services. We will also need additional certified laboratory scientists and other scientific
and technical personnel to process higher volumes of samples. We cannot assure you that any increases in scale, related improvements
and quality assurance will be successfully implemented or that appropriate personnel will be available.
Further,
our data and bioinformatics platform leverages third-parties heavily for day-to-day operations. If we cannot expand capabilities or have
any issues relying on third-parties it could negatively impact our growth and our business. Additionally, if there are advancements in
artificial intelligence technologies that we do not have access to or the ability to use and our competitors can use them then they may
create a superior or more desirable service.
Failure to implement necessary
procedures, transition to new processes or hire the necessary personnel could result in higher costs of processing samples, quality control
issues or inability to meet demand. There can be no assurance that we will be able to perform our assay services on a timely basis at
a level consistent with demand, or that our efforts to scale our operations will not negatively affect the quality of assay services
results. If we encounter difficulty meeting market demand or quality standards, our reputation could be harmed and our future prospects
and our business could suffer.
Our reliance on distributors for sales
of our services and products in certain geographies outside of the United States could limit or prevent us from selling our services
and products and impact our revenue.
In Asia and certain regions
of Europe, we sell our services and products through third-party distributors, and we intend to continue to grow our business internationally
and to do so we must attract additional distributors and retain existing distributors to maximize the commercial opportunity for our
services. There is no guarantee that we will be successful in attracting or retaining desirable sales and distribution partners or that
we will be able to enter into such arrangements on favorable terms. Most of our distribution relationships are non-exclusive and permit
such distributors to distribute competing services. As such, our distributors may not commit the necessary resources to market our services
to the level of our expectations or may choose to favor marketing the services of our competitors. If current or future distributors
do not perform adequately or we are unable to enter into effective arrangements with distributors in particular geographic areas, we
may not realize long-term international revenue growth.
A significant disruption in our information
technology systems or the failure to maintain the confidentiality, integrity and availability of our computer hardware, software and
internet applications and related tools and functions, could result in damage to our reputation, data integrity and/or subject us to
costs, fines or lawsuits under data privacy or other laws or contractual requirements.
We rely on information
technology (“IT”) systems to keep financial records, manage our manufacturing operations, fulfill customer orders,
capture laboratory data, maintain corporate records, communicate with staff and external parties and operate other critical functions.
Our IT systems, and those of our vendors, are potentially vulnerable to disruption due to breakdown, malicious intrusion and computer
viruses or other disruptive events including but not limited to natural disaster. If we were to experience a prolonged system disruption
in our IT systems or those of certain of our vendors, it could negatively impact our ability to serve our customers, which could adversely
impact our business. Although we maintain offsite back-ups of our data, if operations at our facilities were disrupted, it could cause
a material disruption in our business if we are not capable of restoring function on an acceptable timeframe.
In addition, our IT systems,
and those of our vendors, are potentially vulnerable to hacking, social engineering, phishing, or other causes could lead to the accidental
or unlawful destruction, loss, alteration, unauthorized disclosure of, or access to confidential information, trade secrets or other
intellectual property, or personal information (including sensitive personal information) of our employees, customers and others (“Security
Incident”). The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may
originate from less regulated and remote areas of the world. As a result, we may not be able to address these techniques proactively
or implement adequate preventative measures. We are also reliant on the quality of our training of employees to allow them to spot and
appropriately respond to cyber security threats. We have been subject to a number of phishing attempts and require employees to remain
vigilant to ensure that such attempts are unsuccessful. A Security Incident could have a material adverse effect on our business, reputation,
financial condition and results of operations. In addition, a Security Incident could result in legal claims, investigations or proceedings
by governmental entities or private parties and/or related fines and penalties, and liability under laws or regulations, including US
federal and state data protection regulations and the GDPR (as defined below), and other regulations. For extensive breaches, notice
may need to be made to the media or state attorneys general (“AG”). Such a notice could harm our brand and reputation
and adversely affect our ability to compete. These breaches and other inappropriate access can be difficult to detect, and any delay
in identifying them may lead to increased harm of the types described above. We expect to continue to expend significant resources to
protect against, and where appropriate respond to and remediate, Security Incidents.
Although we maintain insurance
that may cover certain liabilities and losses in connection with a security breach or other security incident, we cannot be certain our
insurance coverage will be adequate for liabilities or losses actually incurred, that insurance will continue to be available to us on
commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion
of one or more large claims against us or experience of losses that exceed available insurance coverage, or the occurrence of changes
in our insurance policies, including premium increases or the imposition of large deductible requirements, could have a material adverse
effect on our business, including our financial condition, results of operations and reputation.
We rely on assumptions and estimates
and data to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics may harm our reputation and negatively
affect our business.
In addition to our financial
results, our management regularly reviews a number of operating and financial metrics, including a breakdown of assay services revenue,
product revenue and other revenue, and status of pipeline opportunities that represent customers in test, trials, pilots and full deployments,
to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic
decisions. As both the industry in which we operate and our businesses continue to evolve, so too might the metrics by which we evaluate
our businesses. While the calculation of the metrics we use is based on what we believe to be reasonable estimates, our internal tools
are not independently verified by a third party and have a number of limitations and our methodologies for tracking these metrics may
change over time. Further, our pipeline opportunities may fail to materialize, which may lead to an inability to develop our business
at all. Accordingly, investors should not place undue reliance on these metrics.
Our current revenues are derived almost
entirely from our research-based business operations with a limited number of customers and collaborators in a concentrated and competitive
business sector.
Our current and largest
customer base is primarily composed of pharmaceutical and academic institutions, as well as biopharmaceutical organizations. Given that
our current revenues are derived from these concentrated business sectors and a limited number of customers and collaborators our ability
to conduct our business and generate revenue could be harmed by the loss of major customers in our research-based business operations,
and any events or circumstances that broadly affect research-based sectors within our customer base, including pharmaceuticals, biotechnology,
contracted research and academia. Although research-based business is a large sector of the life sciences industry, it is a concentrated
sector and our future revenues and success will depend upon our ability to respond to the evolving needs of the marketplace, including
among existing customers and collaborators, and through increasing our customer base both in our research-based business and other sectors
of the life-sciences industry, such as our clinical-based business and direct-to-consumer business operations. Although we have recently
experienced success in the life sciences industry, which we believe is in part due to a growing customer base and wider acceptance of
our technology, it is not advisable to rely on our past results as an indication of our future performance in a competitive industry
where our continued success will be dependent upon our ability to expand our existing customer base and attracting new types of customers.
Our warrants are accounted for as liabilities
and the changes in value of our warrants could have a material effect on our financial results.
Our 5,519,991 Public Warrants
and 5,013,333 Private Placement Warrants are classified as derivative liabilities measured at fair value, with changes in fair value
each period reported in earnings. Accounting Standards Codification 815, Derivatives and Hedging, provides for the remeasurement of the
fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the change in the fair value
being recognized in earnings in the statement of operations. As a result of the recurring fair value measurement, our financial statements
and results of operations may fluctuate quarterly, based on factors, which are outside of our control. Due to the recurring fair value
measurement, we expect that we will recognize non-cash gains or losses on our warrants each reporting period and that the amount of such
gains or losses could be material.
Old SomaLogic identified a material
weakness in its internal control over financial reporting. If our remediation measures are ineffective, or if we experience additional
material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be
able to report our financial condition or results of operations accurately or on a timely basis, which may adversely affect investor
confidence in us and, as a result, the value of our Common Stock.
Old SomaLogic identified a
material weakness in its internal control over financial reporting for the years ended December 31, 2020 and December 31, 2021 due to
ineffective controls over the financial statement close process and lack of sufficient accounting and financial reporting personnel to
ensure consistent application of GAAP and compliance with SEC rules and regulations.
We are in the process of
remediating the deficiency. We cannot assure you that the material weakness will be remediated by us on the timelines currently anticipated,
or at all, and/or that there will not be additional material weaknesses in our internal control over financial reporting in the future.
Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial
condition, results of operations or cash flows.
If we are unable to conclude
that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we
have a material weakness in our internal control over financial reporting, investors may lose confidence in the accuracy and completeness
of our financial reports, the market price of our Common Stock could decline, and we could be subject to sanctions or investigations
by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting,
or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the
capital markets.
If we were to be sued for product liability
or professional liability, we could face substantial liabilities that exceed our resources.
The marketing, sale and
use of our services and products could lead to the filing of product or professional liability claims were someone to allege that our
services or products identified inaccurate, incomplete or untimely information regarding the binding specificity and/or performance of
our reagents for their respective protein targets, the performance consistency of our SomaScan® assay and SomaSignal™
tests, or that our services or products otherwise failed to perform as designed or intended. We may also be subject to liability for
errors in, a misunderstanding of or inappropriate reliance upon, the information we provide in the ordinary course of our business activities.
A product liability or professional liability claim, regardless of merit or eventual outcome, could result in substantial damages and
be costly and time-consuming for us to defend, and such claims may result in loss of revenue, injury to our reputation and significant
negative media attention, and/or decreased demand for, or inability to commercialize, any products, services or clinical solutions that
we have developed or may develop.
Although we maintain insurance
that may cover certain product liability and professional liability claims, we cannot be certain our insurance coverage will be adequate
for claims actually asserted, that insurance will continue to be available to us on commercially reasonable terms, or at all, or that
any insurer will not deny coverage as to any future liabilities. One or more large claims that exceed available insurance coverage, or
the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible requirements,
could have a material adverse effect on our business, including our financial condition, results of operations and reputation. Any product
liability or professional liability claim brought against us, with or without merit, could increase our insurance rates or prevent us
from securing insurance coverage in the future. Additionally, any product liability lawsuit could cause current collaborators to terminate
existing agreements or potential collaborators to seek other companies, any of which could impact our results of operations.
We rely on certain scientific methodologies
and metrics to evaluate our services and products, and real or perceived inaccuracies in such metrics or new developments in the industry
may adversely affect our reputation and business.
As part of achieving commercial
market acceptance for our current and future services and products, our management and experts regularly review and use a number of methodologies
and metrics, including affinity levels, to evaluate and measure the performance of our services and products. Although we believe that
the current science and data available to us, including metrics such as affinity levels, demonstrates that our services and products
are superior in the proteomics field, there is always potential that through discoveries, innovations and advances in technology in an
emerging field like proteomics, the metrics underlying our assumptions and estimations could be perceived to be inaccurate or misplaced,
or our services and products could be proved to be outdated or inferior to new technologies. As both the industry in which we operate
and our business continues to evolve, so too might the methodologies and metrics by which we evaluate our services and products. If we
do not continue to improve our methodologies and metrics and our ability to evaluate our services and products against other technologies,
or such efforts are outpaced by our competitors, it could ultimately have a negative effect on our business and reputation which we believe
to be a leader in the field of proteomics. Additionally, while the scientific methodologies and calculation of the metrics we use is
based on established science and current technology and data to inform what we believe to be reasonable estimates about our services
and products, there could be limitations or superior methods we are not aware of and, further, our current practices for tracking these
methodologies and metrics and may change over time, as new technologies, innovations and discoveries are adopted or become generally
accepted in the scientific community. Accordingly, investors should not place undue reliance on the scientific metrics and methodologies
that we use to evaluate the performance of our services and products given the evolving proteomics field and innovative nature of the
life sciences industry.
If we fail to offer high-quality customer
service, our business and reputation could suffer.
We will continue to differentiate
ourselves from our competition through our commitment to an exceptional customer experience. Accordingly, high-quality customer service
is important for the growth of our business and any failure to maintain such standards of customer service, or a related market perception,
could affect our ability to sell services and products to existing and prospective customers. Therefore, failure to scale our customer
service organization adequately may adversely impact our business results and financial condition.
Customers utilize our service
teams and online content for help with a variety of topics, including how to use our services and products efficiently, how to integrate
our services and products into existing workflows, how to determine which of our other services may be needed for a given experiment
and how to resolve technical, analysis and operational issues if and when they arise. As we introduce new services and enhance existing
services and products, we expect utilization of our customer service teams to increase. In particular, the introduction of new or improved
services that utilize different workflows or variations on existing workflows may require additional customer service efforts to ensure
customers use such services correctly and efficiently. Additionally, as our business scales, we may need to engage third-party customer
service providers, which could increase our costs and negatively impact the quality of the customer experience if such third parties
are unable to provide service levels equivalent to ours.
The number of our customers
has grown significantly and such growth, as well as any future growth, will put additional pressure on our customer service organization.
We may be unable to hire qualified staff quickly enough or to the extent necessary to accommodate increases in demand.
In addition, as we continue
to grow our operations and reach a global customer base, we need to be able to provide efficient customer service that meets our customers’
needs globally at scale. In geographies where we sell through distributors, we rely on those distributors to provide customer service.
If these third-party distributors do not provide a high-quality customer experience, our business operations and reputation may suffer.
We have limited experience producing
and supplying our products, we may be unable to consistently manufacture our products or source our components to the necessary specifications
or in quantities necessary to meet demand at an acceptable cost or at an acceptable performance level.
Our SomaScan®
assay requires an integrated workstation with many different components that work together. As such, a quality defect in a single
component can compromise the performance of the entire solution. In order to successfully generate revenue from our SomaScan®
assay services, we need to acquire products that meet our expectations for quality and functionality in accordance with established
specifications on a timely basis. Our equipment and components are manufactured with complex processes, sophisticated equipment and strict
adherence to specifications and quality systems procedures.
In order to successfully
generate revenue from our services and products, we need to supply our customers with services and products that meet their expectations
for quality and functionality in accordance with established specifications. While customer complaints regarding defects in our services
and products have historically been low, we have experienced quality control and manufacturing defects in the past. Our ability to generate
revenue could be impacted by any future quality control issues.
As we continue to grow
and introduce new services and products, and as our services and products incorporate increasingly sophisticated technology, it will
be increasingly difficult to ensure our services and products are produced in the necessary quantities without sacrificing quality. There
is no assurance that we or our third-party suppliers will be able to continue to manufacture our services, products and components thereof
so that they consistently achieve the product specifications and quality that our customers expect. Certain of our raw materials are
subjected to a shelf life, after which their performance is not ensured. While we have implemented liquid stability and expiry standards,
our long-term stability studies are underway and not complete. Use of raw materials that effectively expire early or shipment of defective
products or components to customers, or using such defective supplies, products or components in our own labs may result in incorrect
assay results, which could increase our costs or damage our reputation with customers, and depending upon current inventory levels and
the availability and lead time for additional inventory, could lead to availability issues. Any future design issues, unforeseen manufacturing
problems, such as contamination of facilities, equipment malfunctions, aging components, quality issues with components and materials
sourced from third-party suppliers, or failures to strictly follow procedures or meet specifications, may have a material adverse effect
on our brand, business, financial condition and operating results. If we or our third-party suppliers fail to maintain quality standards
or certifications, our customers might choose not to purchase services or products from us.
In addition, as we increase
manufacturing capacity, we will also need to make corresponding improvements to other operational functions, such as our customer service
and billing systems, compliance programs and our internal quality assurance programs. We will also need additional equipment, manufacturing
time, warehouse space and trained personnel to process higher volumes of services and products. We cannot assure that any increases in
scale, related improvements and quality assurance will be successfully implemented or that equipment, manufacturing and warehouse space
and appropriate personnel will be available. As we develop additional services and products, we may need to bring new equipment on-line,
implement new systems, technology, controls and procedures and hire personnel with different qualifications. Our ability to increase
our manufacturing capacity at our Boulder, Colorado location and in supplying services and products to our customers is complicated by
the use of our proprietary equipment that is not readily available from third-party manufacturers.
Development of new SomaSignal™
tests, is a complex process, and we may be unable to commercialize new diagnostic tests on a timely basis, or at all.
We cannot assure you that
we will be able to develop and commercialize new diagnostic tests on a timely basis. Before we can commercialize any new diagnostic tests,
we will need to expend significant funds in order to conduct research and development, further develop and scale our laboratory processes
and further develop and scale our infrastructure to be able to analyze increasingly larger and more diverse amounts of data.
Our testing service development
process involves risk, and development efforts may fail for many reasons, including failure of any test to perform as expected, lack
of validation or reference data, and failure to demonstrate utility of a test.
As we develop tests, we
will have to make significant investments in development resources, especially if we discover that proteomic signatures are not adequate
for certain tests that we are creating or might attempt to create in the future. Further, some new tests we are developing may require
biological signatures that are not available yet, or are not adequate to allow for an effective test. Finally, there may be protein target
classes that are more difficult to achieve high affinity measurements and test results. In addition, competitors may develop and commercialize
competing tests faster than we are able to do so, which may result in an adverse effect on our business or financial condition
If we cannot obtain enough
samples, it will limit our ability to grow the business. If there is a change in public confidence in personal data management, it could
lead to us not being able to store or have access to enough data. If we cannot develop strong enough insights from the data collected,
then we might not grow our business.
Our research and development efforts
could be hindered if we are not able to contract with third parties for access to samples, including sources such as biobanks.
Under standard clinical
practice, samples collected from patients, including serum, plasma, blood and other tissues, are preserved and stored onsite. We rely
on our ability to secure access to these archived samples, as well as information pertaining to the clinical outcomes of the patients
from which they were derived for our clinical development activities. Others compete with us for access to these samples. Additionally,
the process of negotiating access to archived samples is lengthy because it typically involves numerous parties and approval levels to
resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights, intellectual property
ownership and research parameters.
Furthermore, existing legal
requirements concerning the collection and archiving of human samples and privacy related thereto, or other legal factors arising in
the future, may impact our ability to negotiate access to samples with biobanks, hospitals, clinical partners, pharmaceutical companies,
or companies developing diagnostics or therapeutics on a timely basis or on commercially reasonable terms. Other laboratories or our
competitors may secure access to archived samples before us, and may therefore delay or limit our ability to research, develop and commercialize
future services or products.
We rely on a limited number of suppliers,
or in some cases, a sole supplier, for some of the equipment and materials, or components thereof, that we use for our services and products
and the loss of such suppliers or the need to find replacements or immediately transition to alternative suppliers could adversely impact
our business.
We rely on a limited number
of suppliers for equipment and materials, or components thereof, that we use in our services and products or laboratory operations. See
“Business-Manufacturing and Supply” for additional details. Any disruption in certain of our supplier’s operations,
or our inability to negotiate an extension to the applicable agreements on acceptable terms, or at all, or any competitive pressures,
could negatively impact our supply chain and operations and our ability to conduct our business and generate revenue. Our suppliers could
cease supplying these materials and equipment, or components thereof, at any time, or fail to provide us with sufficient quantities to
meet our specifications. Any such interruption could significantly affect our business, financial condition, results of operations, and
reputation.
We believe that there are
only a select number of manufacturers other than those we rely on that are currently capable of supplying and servicing the arrays and
other equipment and materials necessary for our operations. In the event it becomes necessary to utilize a different contract manufacturer
for our products, we would experience additional costs, delays and difficulties in doing so as a result of identifying and entering into
an agreement with a new manufacturer as well as preparing such new manufacturer to meet the logistical requirements associated with manufacturing
our services and products, and our business would suffer.
Additionally, the use of
equipment or materials provided by these replacement suppliers could require us to alter our current operations, establish new quality
or performance standards, or revalidate our tests. Transitioning to new suppliers could also result in interruptions to our operations
and affect our ability to service our customers and collaborators if we encounter delays or difficulties in securing these components,
or if the quality of the components supplied do not meet specifications, or if we cannot then obtain an acceptable substitute. Therefore,
we cannot assure you that, if we were forced to replace any of our limited or sole suppliers on which we rely, we would be able to secure
alternative equipment and materials, or components thereof, or integrate such alternatives or replacements into our business without
affecting our services and products or interrupting our current operations and business. If we encounter delays or difficulties in securing,
replacing, reconfiguring, or revalidating the equipment and materials, or components thereof, and other supplies we require for our services
and products and operations, it could adversely affect our business, revenue, financial condition and reputation.
Our suppliers have also
been impacted by the COVID-19 pandemic, and we have also experienced supply delays for certain equipment, instrumentation and other supplies
that we use for our services and products, as certain medical and testing supplies are otherwise diverted to COVID-19-related uses. If
any of these events occur, our business, results of operations, financial condition and prospects could be harmed.
Certain aspects of our business rely
on relationships with collaborative partners, distributors and other third parties for development, supply and marketing of certain services
and potential services, and such collaborative partners or other third parties could fail to perform sufficiently.
We believe that success
in penetrating certain geographic markets depends in part on our ability to develop and maintain relationships with key distributors
of our services and products. Relying on distribution relationships is risky because, among other things, our distributors may: not devote
sufficient resources to the sales of our services and products; fail to obtain approvals necessary to distribute our services and products;
be acquired by other companies and terminate our distribution agreements or become insolvent; or decline to renew existing agreements
on acceptable terms. Because these and other factors may be beyond our control, the distribution of our services and products in certain
jurisdictions may be delayed or otherwise adversely affected. If we or any of our distributors terminate a distribution agreement, we
may be required to devote additional resources to commercialization and distribution, which could adversely affect our business, financial
condition and results of operations.
Certain disruptions in supply of, and
changes in the competitive environment for, raw materials integral to the manufacturing of our services and products may adversely affect
our profitability.
We use a broad range of
materials and supplies, including metals, chemicals and other electronic components, in our services and products. A significant disruption
in the supply of these materials could decrease production and shipping levels, materially increase our operating costs and materially
adversely affect our profit margins. Shortages of materials or interruptions in transportation systems, labor strikes, work stoppages,
war, acts of terrorism or other interruptions to or difficulties in the employment of labor or transportation in the markets in which
we purchase materials, components and supplies for the production of our services and products, in each case may adversely affect our
ability to maintain production of our services and products and sustain profitability. Unforeseen end-of-life for certain components,
such as enzymes, could cause backorders as we modify our product specifications to accommodate replacement components. If we were to
experience a significant or prolonged shortage of critical components from any of our suppliers and could not procure the components
from other sources, we would be unable to manufacture our services and products and to ship such services and products to our customers
in a timely fashion, which would adversely affect our sales, margins and customer relations.
We may experience problems with supply
chain efficiencies or logistical management, which could adversely affect our business operations.
Certain aspects of our
business depend upon supply chain efficiencies and logistical management of samples. For example, our technology and assay services depend
on processing specifically sized samples from multiple locations while maintaining the integrity of the samples such they remain free
from corruption or contamination. If there are interruptions to the supply chain or sample logistics, including circumstances that cause
the improper handling of the samples, it would limit our ability to complete high quality assays and properly service our customers and
collaborators. Therefore, unlike some of our competitors, which do not need high-quality, uncorrupted samples of the size that we require,
our supply chain operations and logistical management are more integral to our sample processing and testing, and the breakdown of the
supply chain or sample logistics would negatively impact our business operations. Likewise, if there are technological advancements that
improve our competitors business operations, but which we are unable to utilize due to our specific requirements for the supply chain
and sample logistics, we would be at a competitive disadvantage which could harm our business, revenue and reputation.
We may experience manufacturing problems
or delays that could limit our growth or adversely affect our operating results.
Our products and services
are manufactured or performed at our facilities located in Boulder, Colorado using complex processes, sophisticated equipment and strict
adherence to specifications and quality systems procedures. Any unforeseen manufacturing problems, such as contamination of our facilities,
equipment malfunction, quality issues with components and materials sourced from third-party suppliers or failure to strictly follow
procedures or meet specifications, could result in delays or shortfalls in performance. Identifying and resolving the cause of any such
manufacturing or supplier issues could require substantial time and resources. If we are unable to keep up with demand for our products
or services by successfully manufacturing and delivering our products or services in a timely manner, our revenue could be impaired,
market acceptance for our products or services could be adversely affected and our customers might instead purchase our competitors’
products or services.
We have multi-step manufacturing
processes some with long cycle times (months/years) that will continue to expand as our platform content expands. We will need to begin
outsourcing some unit operations over time to ensure raw material availability and that has risks associated with it, as these are complex
process chemistry operations with quality and yield requirements. Our batch sizes for key internal manufactured items are relatively
fixed and generate multiple years of production in single lots. This may lead to inventory write-offs if technology advancements occur
at a faster pace than our consumption of existing inventories allow generating early obsolescence. Additionally, we are reliant on a
number of sole or single-sourced vendors for key raw material and those have relatively long lead times which may limit our ability to
quickly respond to market changes without large inventory investments. We have scalable service capacity as adequate raw materials are
available for surge capacities as we currently are not running a 24/7 operating model.
In addition, the introduction
of new products and services may require the development of new manufacturing processes and procedures as well as new suppliers. While
all of our assay services are performed using the same basic processes, significant variations may be required to meet new product or
service specifications. Developing new processes and negotiating supply agreements can be very time consuming, and any unexpected difficulty
in doing so could delay the introduction of a product or service.
Unfavorable United States or global
economic conditions as a result of the COVID-19 pandemic, or otherwise, could adversely affect our ability to raise capital and our business,
results of operations and financial condition.
While the potential economic
impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the COVID-19 pandemic has resulted in,
and may continue to result in, extreme volatility and disruptions in the capital and credit markets, reducing our ability to raise additional
capital through equity, equity-linked or debt financings, which could negatively impact our short-term and long-term liquidity and our
ability to operate in accordance with our operating plan, or at all.
Expansion of our business exposes us
to business, regulatory, political, operational, financial and economic risks.
In addition to pursuing
organic growth in the United States and internationally, we may also acquire other businesses, products or technologies as well as pursue
strategic alliances, joint ventures, technology licenses or investments in complementary businesses. The anticipated benefit of any strategic
transaction may not materialize and our ability to successfully pursue such transactions is unproven. Any of these transactions could
be material to our financial condition and operating results and expose us to many risks, including disruptions to our commercial relationships,
acquiring unanticipated liabilities, difficulties integrating acquired businesses, diversion of management time and focus from operating
our business, increases in our expenses and reductions in our cash available for operations and other uses, and possible write-offs or
impairment charges relating to acquired businesses. Furthermore, foreign acquisitions involve unique risks in addition to those mentioned
above, including those related to integration of operations across different cultures and languages, currency risks and the particular
economic, political and regulatory risks associated with specific countries. Additionally, because we and our collaborators currently
market our services and products outside of the United States and may market future services and products outside of the United States,
if cleared, authorized or approved, our business is subject to risks associated with doing business outside of the United States, including
an increase in our expenses and diversion of our management’s attention from the development of future services and products. Accordingly,
our business and financial results in the future could be adversely affected due to a variety of factors, including:
|
● |
multiple,
conflicting and changing laws and regulations such as privacy, security and data use regulations, tax laws, export and import restrictions,
economic sanctions and embargoes, employment laws, anticorruption laws, regulatory requirements, and other governmental approvals,
permits and licenses; |
|
● |
failure
by us, our collaborators or our distributors to obtain regulatory clearance, authorization or approval for the use of our services
and products in various countries; |
|
● |
additional
potentially relevant third-party patent rights; |
|
● |
complexities
and difficulties in obtaining intellectual property protection and enforcing our intellectual property; |
|
● |
difficulties
in attracting talent, staffing, and retention, and managing foreign operations; |
|
● |
logistics
and regulations associated with shipping samples, including infrastructure conditions and transportation delays; |
|
● |
limits
in our ability to penetrate international markets if we are not able to conduct our immunosequencing or clinical diagnostic services
locally; |
|
● |
financial
risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises
on demand and payment for our services and products and exposure to foreign currency exchange rate fluctuations; |
|
● |
natural
disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, retaliatory
measures or economic sanctions imposed by governments, curtailment of trade and other business restrictions; |
|
● |
regulatory
and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that
may fall within the purview of the United States Foreign Corrupt Practices Act (“FCPA”), its books and records
provisions, or its anti-bribery provisions, or laws similar to the FCPA in other jurisdictions in which we may now or in the future
operate; and |
|
● |
anti-bribery
requirements of several member states in the European Union (“EU”) and other countries, such as the United Kingdom’s
Bribery Act of 2010, that are constantly changing and require disclosure of information to which United States legal privilege may
not extend. |
Any of these factors could
significantly harm our future international expansion and operations and, consequently, our revenue and results of operations.
Implementing and maintaining compliance
with applicable laws, regulations, standards and obligations relating to data privacy and security is operationally and financially taxing
and the failure to comply could result in damage to our reputation and/or subject us to costs, fines or lawsuits under data privacy or
other laws or contractual requirements.
As an organization with
a global impact, we are subject to data privacy and security laws, regulations, and customer-imposed controls in numerous jurisdictions
as a result of having access to and processing confidential, personal and/or sensitive data in the course of our business. There are
numerous United States federal and state laws and regulations related to the privacy and security of personal information. In particular,
regulations promulgated pursuant to the federal Health Insurance Portability and Accountability Act (“HIPAA”) of 1996,
as amended by the American Recovery and Reinvestment Act of 2009, and implementing regulations, establish privacy and security standards
that limit the use and disclosure of individually identifiable health information, known as “protected health information”
(“PHI”) and require the implementation of administrative, physical and technological safeguards to protect the privacy
of PHI and ensure the confidentiality, integrity and availability of electronic protected health information. Determining whether PHI
has been handled in compliance with applicable privacy standards and our contractual obligations can require complex factual and statistical
analyses and may be subject to changing interpretation.
In addition, many states
in the United States in which we operate now or may operate in the future have laws that protect the privacy and security of sensitive
and personal information. Certain state laws in the United States may be more stringent or broader in scope, or offer greater individual
rights, with respect to sensitive and personal information than federal, international or other state laws, and such laws may differ
from each other, which may complicate compliance efforts. For example, the California Consumer Privacy Act of 2018 (“CCPA”),
which went into effect on January 1, 2020, imposes stringent data privacy and security requirements and obligations with respect to the
personal information of California residents and households. Among other things, it requires covered companies to provide new disclosures
to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain
sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain
data breaches that result in the loss of personal information that may increase the likelihood of, and risks associated with, data breach
litigation. In November 2020, California voters passed by ballot referendum the California Privacy Rights Act (“CPRA”),
which supersedes the CCPA and will be fully operative on January 1, 2023. The CPRA draws California law closer to core concepts that
were first articulated in the EU’s GDPR (discussed below) and imposes new obligations on covered entities. It remains unclear how
various provisions of the CRPA will be interpreted and enforced, and multiple states have enacted or are expected to enact similar laws.
The effects of the CCPA and other similar state laws on our business are potentially significant and may require us to modify our data
processing practices and policies and to incur costs and expenses in an effort to comply. State laws are changing rapidly, and there
is discussion in the United States Congress of a new federal data protection and privacy law to which we may be subject.
In Europe, laws, regulations
and standards in many jurisdictions apply broadly to the collection, use, retention, security, disclosure, transfer and other processing
of personal information. For example, in the European Economic Area (“EEA”) and the United Kingdom (“UK”),
the collection and use of personal data is governed by the EU General Data Protection Regulation - 2016/679 (“EU GDPR”)
and related guidance together with the UK General Data Protection Regulation (“UK GDPR,” collectively with the EU
GDPR, the “GDPR”). The GDPR, together with national legislation, regulations and guidelines of the EU member states
and the UK govern the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain,
protect, disclose, transfer and otherwise process personal data. In particular, the GDPR includes obligations and restrictions concerning
the consent and rights of individuals to whom the personal data relates, the transfer of personal data out of the EEA or the UK, data
breach notifications and the security and confidentiality of personal data. Both the EU and the UK GDPR authorize fines for certain violations
of up to 4% of a company’s global annual revenue or €20 million/£17.5 million, whichever is greater. Such fines are
in addition to any civil litigation claims by customers and data subjects. European data protection authorities may interpret the GDPR
and national laws differently and impose additional requirements, which contributes to the complexity of processing personal data in
or from the EEA or UK. Guidance on implementation and compliance practices is often updated or otherwise revised. Several other countries,
such as Brazil and Japan, have enacted or amended omnibus laws and others, such as China and Russia, have also passed laws that require
personal data relating to their citizens to be maintained on in the country under certain circumstances and impose additional data transfer
restrictions. Implementing and maintaining compliance with applicable security and privacy regulations may increase our operating costs,
increase the complexity of delivering our services, and/or adversely impact our ability to market our services and products to customers.
Complying with all applicable
laws, regulations, standards and obligations relating to data privacy, security and transfers may cause us to incur substantial operational
costs or require us to modify our data processing practices and processes. Government enforcement actions can be costly and interrupt
the regular operation of our business, and violations of data privacy laws can result in significant fines, reputational damage and civil
lawsuits, any of which may adversely affect our business, financial condition and results of operations. We may not be able to respond
quickly or effectively to regulatory, legislative and other developments, and these changes may in turn impair our ability to commercialize
our assay services or increase our cost of doing business. In addition, if our practices are not consistent or viewed as not consistent
with legal and regulatory requirements, including changes in laws, regulations and standards or new interpretations or applications of
existing laws, regulations and standards, we may become subject to audits, inquiries, whistleblower complaints, adverse media coverage,
investigations, loss of export privileges, severe criminal or civil sanctions or reputational damage. Any of the foregoing could have
an adverse effect on our competitive position, business, financial condition, results of operations and prospects.
We depend on our key personnel and other
highly qualified personnel, and if we are unable to recruit, train and retain our personnel, we may not achieve our goals.
Our future success depends
on our ability to recruit, train, retain and motivate key personnel, including our senior management, research and development, manufacturing
and sales, customer service and marketing personnel. In particular, Troy Cox, our Executive Chairman, and Roy Smythe, our Chief Executive
Officer, , are critical to our vision, strategic direction, culture and products. Competition for qualified personnel is intense, particularly
in the areas of Molecular Biology, Software and BioInformatics. As we grow, we may continue to make changes to our management team, which
could make it difficult to execute on our business plans and strategies. New hires also require significant training and, in most cases,
take significant time before they achieve full productivity. Our failure to successfully integrate these key personnel into our business
could adversely affect our business.
Our continued growth depends,
in part, on attracting, retaining and motivating highly trained sales personnel with the necessary scientific background and ability
to understand our systems at a technical level to effectively identify and sell to potential new customers. In addition, the continued
development of complementary software tools, such as our analysis tools and visualization software, requires us to compete for highly
trained software engineers and for highly trained sales and customer service personnel globally. We also compete for computational biologists
and qualified scientific personnel with other life sciences companies, academic institutions and research institutions.
We do not maintain key
person life insurance or fixed term employment contracts with any of our employees. As a result, our employees could leave the Company
with little or no prior notice and would be free to work for a competitor. Because of the complex and technical nature of our services
and products and the dynamic market in which we compete, any failure to attract, train, retain and motivate qualified personnel could
materially harm our operating results and growth prospects.
Risks Related to Intellectual Property
If we are unable to protect our intellectual
property effectively, our business would be harmed.
We rely on patent protection
as well as protection afforded by trademark, copyright, trade secret and other intellectual property rights and contractual restrictions
to protect our proprietary technologies, all of which provide limited protection and may not adequately protect our rights or permit
us to gain or keep any competitive advantage. Our proprietary, foundational aptamer-based technology and processes are supported by approximately
800 patents (issued or pending) and support unparalleled sensitivity and specificity, and dynamic range. We continue to file new patent
applications to attempt to obtain further legal protection of the full range of our technologies. If we fail to protect our intellectual
property, third parties may be able to compete more effectively against us and we may incur substantial litigation costs in our attempts
to recover or restrict the use of our intellectual property.
Our success depends in
part on obtaining patent protection for our services and processes, preserving trade secrets, registering copyrights and trademarks,
operating without infringing the proprietary rights of third parties and if needed acquiring licenses for certain aspects of our technology
or services. We may exercise our business judgment and choose to not pursue trade secret protection but file patent applications that
disclose and describe our inventions to seek patent protection for our services and technology. We cannot assure investors that any of
our currently pending or future patent applications will result in issued patents and we cannot predict how long it will take for such
patent applications to issue as patents. Further, securing patent protection may require us to participate in interference proceedings,
derivation proceedings or other post-grant proceedings declared by the United States Patent and Trademark Office (“USPTO”)
that could result in substantial cost to us. The outcome of such proceedings is uncertain. If third parties bring post-grant opposition
proceedings against our patents, we could experience significant costs and management distraction. Further, in some cases, we have only
filed provisional patent applications on certain aspects of our services and technologies and each of these provisional patent applications
is not eligible to become an issued patent until, among other things, we file a non-provisional patent application within 12 months of
the filing date of the applicable provisional patent application. Such provisional patent applications may not become issued patents
for a variety of reasons, including our failure to file a non-provisional patent application within the permitted timeframe or a decision
that doing so no longer makes business or financial sense.
Further, we cannot assure
investors that other parties will not challenge any patents issued to us or that courts or regulatory agencies will hold our patents
to be valid or enforceable. We cannot guarantee investors that we will be successful in defending challenges made against our patents
and patent applications. Any successful third-party challenge to our patents could result in the unenforceability or invalidity of such
patents and could deprive us of the ability to prevent others from using the technologies claimed in such issued patents.
Further, certain services
and technology may not be able to be patented, or cannot reasonably become patented due to the extensive scope and nature of the relevant
technology. As a result, we often can only rely on trade secrets to protect this technology. If we cannot protect our un-patentable trade
secrets or keep them confidential, our business results of operation will be adversely impacted.
With respect to all categories
of intellectual property protection, our competitors could purchase our services and products and attempt to replicate some or all of
the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around
our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights. In addition,
competitors may develop their own versions of our services and products in countries where we did not apply for patents, where our patents
have not issued or where our intellectual property rights are not recognized and compete with us in those countries and markets.
Issued patents covering our services
and products could be found invalid or unenforceable if challenged.
Although patents granted
by the USPTO or other patent granting authority are generally entitled to a presumption of validity and enforceability, a granted patent’s
scope, validity or enforceability can still be challenged. Some of our patents or patent applications (including in-bound licensed patents)
have been or may be challenged at a future point in time in opposition, derivation, reexamination, inter partes review, post-grant
review or interference proceedings. Any successful third-party challenge to our patents in this or any other proceeding could result
in the unenforceability or invalidity of such patents, which may lead to increased competition to our business, which could harm our
business. In addition, in patent litigation in the United States, defendant affirmative defenses and counterclaims alleging invalidity
and unenforceability are commonplace. Therefore, if we enforced our patents against an infringing third party, it is very likely that
the validity and unenforceability of our patents asserted in litigation would be challenged. The outcome of such assertions of invalidity
and unenforceability during patent litigation is unpredictable. If a defendant were to prevail on a legal assertion of invalidity or
unenforceability, we would lose at least part, and perhaps all, of the patent protection on certain aspects of our technologies. In addition,
if the breadth or strength of protection provided by our patents is threatened by such invalidity or unenforceability contentions, regardless
of the outcome, it could dissuade companies from collaborating with us to license, develop, or commercialize current or future services
and products. We may not be aware of all third-party intellectual property rights potentially relating to our services and products.
If our trademarks and trade names are
not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
If our trademarks and trade
names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely
affected. We currently own issued trademark registrations and have trademark applications pending, any of which may be the subject of
a governmental or third-party objection, which could prevent the registration or maintenance of the same. We cannot assure you that any
currently pending trademark applications or any trademark applications we may file in the future will be approved. During trademark registration
proceedings, we may receive rejections and although we are given an opportunity to respond to those rejections, we may be unable to overcome
such rejections. In addition, in proceedings before the USPTO and in proceedings before comparable agencies in many foreign jurisdictions,
third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition
or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we are unsuccessful
in obtaining trademark protection for our primary brand, we may be required to change our brand name, which could adversely affect our
business.
We may not be able to protect
our rights to these trademarks and trade names, which we need to build name recognition among potential partners or customers in our
markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build
brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims
brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names.
Over the long term, if we are unable to successfully register our trademarks and trade names and establish name recognition based on
our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts
to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property
may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition
or results of operations. We own the following registered or pending trademarks: SomaLogic®, SomaScan®,
SOMAmer®, SomaSignal™, Power by SomaLogic™ and corresponding and related logos.
Claims by third parties that we infringe
or misuse their proprietary technology could subject us to significant liability and could force us to redesign our services and products
or to incur significant costs.
Our competitors protect
their intellectual property rights by means such as trade secrets, patents, copyrights and trademarks. Although we have not been involved
in any litigation related to intellectual property rights of others, from time to time we receive letters from third parties alleging,
or inquiring about, violations of their intellectual property rights. Any third party asserting that our services and products infringe
their intellectual property rights would force us to defend ourselves, and possibly defend our customers, against the alleged infringement
claims. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and could enjoin
us from manufacturing and selling our infringing services and products. The risk of such a lawsuit will likely increase as our size and
the number and scope of our services and products increase, as our geographic presence and market share expand and as the number of competitors
in our market increases. Any such claims or litigation could:
|
● |
require
us to stop selling, incorporating or using our services and products that use the other party’s intellectual property; |
|
● |
require
us to enter into royalty or licensing agreements with third parties, which may not be available on terms that we deem acceptable,
if at all; |
|
● |
prevent
us from operating all or a portion of our business or force us to redesign our services and products, which could be difficult and
expensive and may degrade performance of our services and products, or withdraw one or more of our services and products altogether; |
|
● |
subject
us to significant liability for damages or result in significant settlement payments; |
|
● |
require
us to indemnify our customers, distribution partners or suppliers; and |
|
● |
refund
deposits and other amounts received for allegedly infringing technology or services and products. |
Intellectual property litigation
can be costly. Even if we prevail, the cost of such litigation could deplete our financial resources. Litigation is also time-consuming
and could divert management’s attention and resources away from our business. Furthermore, during the course of litigation, confidential
information will be disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony
under a protective order. Inadvertent disclosure of our confidential information despite an attorney’s eyes only protective order
and our involvement in intellectual property litigation could materially adversely affect our business. Some of our competitors may be
able to sustain the costs of complex intellectual property litigation more effectively than we can because they have substantially greater
resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could significantly limit
our ability to continue our operations. Any of the foregoing could disrupt our business and have a material adverse effect on our operating
results and financial condition.
Involvement in lawsuits to defend against
third-party claims of intellectual property infringement, or to enforce or defend our intellectual property rights against infringers,
could be time-intensive and costly and may adversely impact our business or stock price.
Numerous significant intellectual
property claims have been litigated, and will likely continue to be litigated, between existing and new participants in our existing
and targeted markets. Our success depends in part on our non-infringement of patents and proprietary rights of third parties. We develop
complex services and products that integrate a wide range of technologies which may impact our ability to do so clear of third-party
intellectual property rights and therefore may require a license to intellectual property rights of a third party or a successful challenge
to the validity of the intellectual property rights of a third party to achieve clearance to commercialize future services and products.
As we develop new technologies and move into new markets and applications for our services and products, we expect that incumbent participants
in such markets may assert their patents and other proprietary rights against us as part of a business strategy to slow our entry into
such markets, impede our successful competition and/or extract substantial license and royalty payments from us. In addition, we may
be unaware of pending third-party patent applications that relate to our technology and our competitors and others may have patents or
may in the future obtain patents and claim that use of our services and products infringes these patents. Our competitors and others
may now, and in the future, have significantly larger and more mature patent portfolios than we currently have. In addition, future litigation
may involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents
may provide little or no deterrence or protection. Therefore, our commercial success may depend in part on our non-infringement of the
patents or proprietary rights of third parties. Thus, litigation may be necessary to defend ourselves from third-party claims against
us.
We have received notices
of claims of infringement and misappropriation or misuse of other parties’ intellectual property in the past and may from time
to time receive additional notices. We cannot assure investors that we will prevail in such actions, or that other actions alleging misappropriation
or misuse by us of third-party trade secrets, infringement by us of third-party patents and trademarks or other rights, will not be asserted
or prosecuted against us in the future.
In addition, it may be
necessary to enforce our intellectual property against third-party infringers. Typically, defendants named in intellectual property lawsuits
challenge the validity of the asserted intellectual property as a defense. Thus, any enforcement litigation we may assert against an
infringer could put our intellectual property at risk, including by adversely affecting the scope of our patent protection or invalidating
our patents.
Litigation could result
in substantial legal fees and could adversely affect our ability to compete in the marketplace. Any adverse ruling or perception of an
adverse ruling in defending ourselves against these claims could have an adverse impact on our stock price, which may be disproportionate
to the actual impact of the ruling itself. Parties making claims against us may be able to obtain injunctive or other relief, which could
block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us. In the
event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third
parties, or be prohibited from selling certain services and products. We may not be able to obtain these licenses at a reasonable cost,
if at all. We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could
negatively affect our gross margins. In addition, we could encounter delays in product introductions while we attempt to develop alternative
methods or products to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any of
these licenses on favorable terms could prevent us from commercializing services and products, and the prohibition of sale of any of
our services and products could materially affect our ability to grow and gain market acceptance for our services and products.
Furthermore, because of
the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation,
there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts
or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our Common Stock.
In addition, our agreements
with some of our suppliers, distributors, customers, collaborators and other entities with whom we do business require us to defend or
indemnify these parties to the extent they become involved in infringement claims against us, including the claims described above. We
could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it
would be important to our business relationships. If we are required or agree to defend or indemnify any of these third parties in connection
with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results,
or financial condition.
Confidentiality and trade secret protection
agreements with employees and others may not adequately prevent disclosure of trade secrets and protect other proprietary information.
We consider proprietary
trade secrets, confidential know-how and unpatented know-how to be important to our business. We may rely on trade secrets or confidential
know-how to protect our technology, especially where patent protection is believed to be of limited value. However, trade secrets and
confidential know-how are difficult to maintain as confidential.
To protect this type of
information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and
advisors to enter into confidentiality and trade secret protection agreements with us. However, current or former employees, consultants,
contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements
may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third
party obtained illegally and is using trade secrets or confidential know-how is expensive, time consuming and unpredictable. The enforceability
of confidentiality agreements may vary from jurisdiction to jurisdiction. Furthermore, if a competitor lawfully obtained or independently
developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information to compete
with us, which could harm our competitive position. Additionally, if the steps taken to maintain our trade secrets are deemed inadequate,
we may have insufficient recourse against third parties for misappropriating the trade secret.
Failure to obtain or maintain
trade secrets or confidential know-how trade protection could adversely affect our competitive position. Moreover, our competitors may
independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same.
If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets or confidential know-how.
Under certain circumstances,
we may also decide to publish some know-how to attempt to prevent others from obtaining patent rights covering such know-how.
Intellectual property rights do not
necessarily protect us from all potential threats.
The degree of future protection
afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately
protect our business or permit us to maintain our competitive advantage. For example:
|
● |
others
may be able to make products that are similar to any products and potential services and products we may develop or utilize similar
technology that are not covered by the claims of the patents that we own or license now or in the future; |
|
● |
we,
our licensors or current or future collaboration partners might not have been the first to make the inventions covered by the issued
patent or pending patent application that we license or may own in the future; |
|
● |
we
or our licensors or current or future collaboration partners, might not have been the first to file patent applications covering
certain of our or their inventions; |
|
● |
others
may independently develop similar or alternative technologies or duplicate any of our technologies without infringing, misappropriating
or otherwise violating our owned or licensed intellectual property rights; |
|
● |
our
competitors or other third parties might conduct research and development activities in jurisdictions where we do not have patent
rights and then use the information learned from such activities to develop competitive products for sale in our major commercial
markets; |
|
● |
we
may not develop additional proprietary technologies that are patentable; |
|
● |
the
patents of others may harm our business; and |
|
● |
we
may choose not to file a patent for certain trade secrets or know-how, and a third party may subsequently file a patent covering
such intellectual property. |
Should any of these events
occur, they could have an adverse effect on our competitive position, business, financial condition or results of operations.
Obtaining and maintaining our patent
protection depends on compliance with various required procedures, document submissions, fee payments and other requirements imposed
by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees,
renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and
various governmental patent agencies outside of the United States at several stages over the lifetime of the patents and/or pendency
of the patent applications. We have systems in place to remind us to pay these fees, and we engage an outside service and rely on our
outside counsel to pay these fees due to non-United States patent agencies. The USPTO and various non-United States governmental patent
agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application
process. We employ reputable law firms and other professionals to help us comply, and in some cases, an inadvertent lapse can be cured
by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non-compliance
can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the
relevant jurisdiction. In such an event, our competitors may be able to enter the market without infringing our patents and this circumstance
could have a material adverse effect on our business.
Our inability to effectively protect
our proprietary technologies, including the confidentiality of our trade secrets, could harm our competitive position.
We currently rely upon
trade secret protection and copyright, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants
and third parties, and to a limited extent patent protection, to protect our confidential and proprietary information. Although our competitors
have utilized and are expected to continue utilizing similar methods and have aggregated and are expected to continue to aggregate similar
databases of proteomic testing information, our success will depend upon our ability to develop proprietary methods and databases and
to protect any advantages afforded to us by such methods and databases relative to our competitors. If we do not protect our intellectual
property adequately, competitors may be able to use our methods and databases and thereby erode any competitive advantages we may have.
We will be able to protect
our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid
and enforceable patents or are effectively maintained as trade secrets. In this regard, we have applied, and we intend to continue applying,
for patents covering such aspects of our technologies as we deem appropriate. However, we expect that potential patent coverage we may
obtain will not be sufficient to prevent substantial competition. In this regard, we believe it is probable that others will independently
develop similar or alternative technologies or design around those technologies for which we may obtain patent protection. In addition,
any patent applications we file may be challenged and may not result in issued patents or may be invalidated or narrowed in scope after
they are issued. Questions as to inventorship or ownership may also arise. Any finding that our patents are unenforceable could harm
our ability to prevent others from practicing the related technology, and a finding that others have inventorship or ownership rights
to our patents and patent applications could require us to obtain certain rights to practice related technologies, which may not be available
on favorable terms, if at all. If we initiate lawsuits to protect or enforce our patents, or litigate against third-party claims, which
would be expensive, and, if we lose, we may lose some of our intellectual property rights. Furthermore, these lawsuits may divert the
attention of our management and technical personnel.
We expect to rely primarily
upon trade secrets and proprietary know-how protection for our confidential and proprietary information, and we have taken security measures
to protect this information. These measures, however, may not provide adequate protection for our trade secrets, know-how or other confidential
information. Among other things, we seek to protect our trade secrets and confidential information by entering into confidentiality and
trade secret protection agreements with employees and consultants. There can be no assurance that any confidentiality agreements that
we have with our employees and consultants will provide meaningful protection for our trade secrets and confidential information or will
provide adequate remedies in the event of unauthorized use or disclosure of such information. Accordingly, there also can be no assurance
that our trade secrets will not otherwise become known or be independently developed by competitors. Enforcing a claim that a party illegally
disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. In addition,
trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential
or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently
developed by a competitor, our competitive position could be harmed.
Patent terms may be inadequate to protect
our competitive position on our services and products for an adequate amount of time.
Patents have a limited
lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from
its earliest United States non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection
it affords, is limited. Even if patents covering our services and products are obtained, once the patent life has expired, we may be
open to competition from competitive services and products. If one of our services or products requires extended development, testing,
regulatory review and/or examination by a patent granting authority, patents protecting such services or products might expire before
or shortly after such services or products are commercialized. As a result, our owned and licensed patent portfolio may not provide us
with sufficient rights to exclude others from commercializing services and products similar or identical to ours.
We may not be able to protect our intellectual
property rights throughout the world.
Filing, prosecuting and
defending patents on our services and products and technologies in every country throughout the world would be prohibitively expensive,
and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States.
The laws of some foreign
countries do not protect intellectual property rights to the same extent as the laws of the United States, and we and our licensor may
encounter difficulties in protecting and defending such rights in foreign jurisdictions. Consequently, we and our licensor may not be
able to prevent third parties from practicing our inventions in some or all countries outside the United States, or from selling or importing
services and products made using our or our licensor’s inventions in and into the United States or other jurisdictions. Competitors
and other third parties may use our technologies in jurisdictions where we have not obtained patent protection to develop their own services
and products and technologies and may also export infringing services and products to territories where we have patent protection, but
enforcement is not as strong as that in the United States. These services and products may compete with our services and products. Our
and our licensor’s patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
In addition, certain countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to other
parties. Furthermore, many countries limit the enforceability of patents against other parties, including government agencies or government
contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of any patents.
Many companies have encountered
significant problems in protecting and defending intellectual property rights in foreign jurisdictions. In some countries, local authorities
retain broad discretion to compel technology transfer or disclosure of proprietary trade secrets on the basis of national interests or
national security, cybersecurity or data protection, regulatory requirements pertaining to foreign direct investments or joint ventures,
or other regulations governing foreign companies’ business activities in these countries The legal systems of many other countries
do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for us to stop the
misappropriation or other violations of our intellectual property rights including infringement of our patents in such countries. The
legal systems in certain countries may also favor state-sponsored or companies headquartered in particular jurisdictions over our first-in-time
patents and other intellectual property protection. The absence of harmonized intellectual property protection laws and effective enforcement
makes it difficult to ensure consistent respect for patent, trade secret, and other intellectual property rights on a worldwide basis.
As a result, it is possible that we will not be able to enforce our rights against third parties that misappropriate our proprietary
technology in those countries.
Proceedings to enforce
our or our licensor’s patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention
from other aspects of our business, could put our and our licensor’s patents at risk of being invalidated or interpreted narrowly
and our and our licensor’s patent applications at risk of not issuing, and could provoke third parties to assert claims against
us. We and our licensors may not prevail in any lawsuits that we or our licensor initiate, or that are initiated against us or our licensor,
and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, changes in the law and legal decisions
by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our services and products,
services and other technologies and the enforcement of intellectual property. Accordingly, our efforts to enforce our intellectual property
rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop
or license. Any of the foregoing events could have a material adverse effect on our business, financial condition, results of operations
and prospects.
Changes in patent law in the United
States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability to protect our services
and products.
Changes in either the patent
laws or in interpretations of patent laws in the United States or other countries or regions may diminish the value of our intellectual
property. We cannot predict the breadth of the claims that may be allowed by the USPTO nor scope and meaning of issued claims by a court
during enforcement of our patents or in third party patents. We may not develop additional proprietary products, methods and technologies
that are patentable. Assuming that other requirements for patentability are met, prior to March 16, 2013, in the United States, the first
to invent the claimed invention was entitled to a patent, while outside the United States, the first to file a patent application for
the invention was entitled to a patent. On or after March 16, 2013, under the Leahy-Smith America Invents Act (“AIA”),
enacted in September 16, 2011, the United States transitioned from a first-to-invent to a first-to-file system in which, assuming that
other requirements for patentability are met, the first inventor to file a patent application for a particular invention will be entitled
to a patent regardless of whether a third-party was the first to invent the claimed invention. A third party that files a patent application
in the USPTO on or after March 16, 2013, but before us could therefore be awarded a patent covering an invention similar to or the same
as our invention, even if we had made the invention before such third party. This requires us to be cognizant of the conception of an
invention and the time it takes to filing a patent application on that invention. Since patent applications in the United States and
most other countries are confidential for a period of time after filing, we cannot be certain that we or our licensors were the first
to either (i) file any patent application related to our services and products or (ii) invent any of the inventions claimed in our or
our licensor’s patents or patent applications.
The AIA also includes a
number of significant changes that affect the way patent applications are prosecuted and also affects adversarial patent proceedings
at the Patent Trials and Appeals Board (“PTAB”). These changes include allowing third party submission of prior art
to the USPTO during patent prosecution and additional procedures to attack the validity of a patent in post-grant proceedings, including
post-grant review, inter partes review and derivation proceedings. Because there is a lower evidentiary standard needed to invalidate
a patent in these USPTO proceedings as compared to the evidentiary standard in a United States federal court, a third party could successfully
invalidate a patent before the PTAB on less evidence than would be required to meet the higher evidentiary standard to invalidate a patent
in a federal district court. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that
would not have been invalidated if first challenged by the third party in a district court action. Therefore, the AIA and its implementation
could increase the uncertainties and costs surrounding the prosecution of our owned or in-bound licensed patents or patent applications
and the enforcement or defense of our owned or in-bound licensed issued patents, all of which could have a material adverse effect on
our business, financial condition, results of operations, and prospects.
In addition, the patent
position of companies in the biotechnology field is particularly uncertain. Various courts, including the United States Supreme Court,
have rendered decisions that affect the scope of patentability of certain inventions or discoveries relating to biotechnology. These
decisions state, among other things, that a patent claim that recites an abstract idea, natural phenomenon or law of nature are not themselves
patentable. Precisely what constitutes a law of nature or abstract idea is uncertain, and it is possible that certain aspects of our
technology could be considered natural laws. Accordingly, the evolving case law in the United States could adversely affect our ability
to obtain patents and may facilitate third party challenges to any owned or licensed patents.
If we cannot license rights to use technologies
on reasonable terms, we may not be able to commercialize new services and products in the future.
In the future, we may identify
additional third-party intellectual property we may need to license in order to engage in our business, including to develop or commercialize
new products or services. However, such licenses may not be available on acceptable terms or at all. Even if such licenses are available,
we may be required to pay the licensor substantial royalties based on sales of our products and services. Such royalties are a component
of the cost of our products or services and may affect the margins on our products and services. In addition, such licenses may be nonexclusive,
which could give our competitors access to the same intellectual property licensed to us. If we are unable to enter into the necessary
licenses on acceptable terms or at all, if any necessary licenses are subsequently terminated, if our licensors fail to abide by the
terms of the licenses, if our licensors fail to prevent infringement by third parties, or if the licensed patents or other rights are
found to be invalid or unenforceable, our business, financial condition, results of operations, and prospects could be materially and
adversely affected.
If licenses to third-party
intellectual property rights are or become required for us to engage in our business, the rights may be non-exclusive, which could give
our competitors access to the same technology or intellectual property rights licensed to us. Moreover, we could encounter delays in
the introduction of tests while we attempt to develop alternatives. Defense of any lawsuit or failure to obtain any of these licenses
on favorable terms could prevent us from commercializing tests, which could materially affect our ability to grow and thus adversely
affect our business and financial condition.
Our use of open source software could
compromise our ability to offer our services and subject us to possible litigation.
We use open source software
in connection with our services and products. Companies that incorporate open source software into their products have, from time to
time, faced claims challenging their use of open source software and compliance with open source license terms. As a result, we could
be subject to lawsuits and other allegations by parties claiming ownership of what we believe to be open source software or claiming
noncompliance with open source licensing terms. Some open source software licenses require users who distribute software containing open
source software to publicly disclose all or part of the source code to the licensee’s software that incorporates, links or uses
such open source software, and make available to third parties for no cost, any derivative works of the open source code created by the
licensee, which could include the licensee’s own valuable proprietary code. While we monitor our use of open source software and
try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise breach
the terms of an open source agreement, such use could inadvertently occur, or could be claimed to have occurred, in part because open
source license terms can be ambiguous. Legal precedent in this area is not well established and any actual or claimed requirement to
disclose our proprietary source code or pay damages for breach of contract could harm our business and could help third parties, including
our competitors, develop products and services that are similar to or better than ours. Any of the foregoing could harm our business,
financial condition, results of operations, and prospects.
We may depend on proprietary technology
licensed from others in the future. If we are unable to acquire or license additional proprietary rights from third parties, we may not
be able to continue developing our potential services and products.
We may enter into agreements,
including license agreements, with other parties in the future that impose diligence, development and commercialization timelines, milestone
payments, royalties, insurance and other obligations on us. If we fail to comply with our obligations to our licensors or any of our
other current or future collaborators, our counterparties may have the right to terminate these agreements, in which event we might not
be able to develop, manufacture or market any potential services and products or other technology that is covered by these agreements,
which could adversely affect the value of the potential services and products being developed under any such agreement, or we may face
claims for monetary damages or other penalties under these agreements. Termination of these agreements or reduction or elimination of
our rights under these agreements may result in us having to negotiate new or reinstated agreements with less favorable terms, or cause
us to lose our rights under these agreements, including our rights to important intellectual property or technology. In addition, such
an event may cause us to experience significant delays in the development and commercialization of our services, potential services or
technologies or incur liability for damages. If any such license is terminated, our competitors or other third parties could have the
freedom to seek regulatory approval of, and to market, products and technologies identical or competitive to ours, and we may be required
to cease our development and commercialization of certain of our services and products, potential services and products or technologies.
The growth of our business
may depend in part on our ability to acquire or in-license additional proprietary rights. We may be unable to acquire or in-license any
relevant third-party intellectual property rights that we identify as necessary or important to our business operations. We may fail
to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all, which would harm our business. In that event,
we may be required to expend significant time and resources to redesign our services and products, potential services and products or
technologies or the methods for manufacturing them or to develop or license replacement technology, all of which may not be feasible
on a technical or commercial basis. If we are unable to do so, we may be unable to develop or commercialize the affected services and
products, potential services and products or technologies, which could adversely impact our business, financial condition, results of
operations and prospects. Even if we are able to obtain a license under such intellectual property rights, any such license may be non-exclusive,
which may allow our competitors access to the same technologies licensed to us.
We may need or may choose to obtain
licenses from third parties to advance our research or allow commercialization of our current or future services and products, and we
cannot provide any assurances that we would be able to do so.
We may need or may choose
to obtain licenses from third parties to advance our research or allow commercialization of our current or future services and products,
and we cannot provide any assurances that third party patents do not exist that might be enforced against our current or future services
and products in the absence of such a license. We may fail to obtain any of these licenses on commercially reasonable terms, if at all.
Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed
to us. If we could not obtain a license, we may be required to expend significant time and resources to develop or license replacement
technology. If we are unable to do so, we may be unable to develop or commercialize the affected services and products, which could materially
harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales,
or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation.
Licensing of intellectual
property involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual
property subject to a license agreement, including:
|
● |
the
scope of rights granted under the license agreement and other interpretation related issues; |
|
● |
whether
and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement; |
|
● |
our
right to sublicense patent and other rights to third parties under collaborative development relationships; |
|
● |
our
diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of
our services and products, and what activities satisfy those diligence obligations; and |
|
● |
the
ownership of inventions and know how resulting from the joint creation or use of intellectual property by our licensors and us and
our partners. |
If disputes over intellectual
property that we have licensed prevent or impair our ability to maintain the licensing arrangements on acceptable terms, we may be unable
to successfully develop and commercialize the affected services and products, or the dispute may have an adverse effect on our results
of operation.
In addition to agreements
pursuant to which we in license intellectual property, we have in the past and expect to in the future to grant licenses under our intellectual
property. Like in licenses, out licenses are complex, and disputes may arise between us and our licensees, such as the types of disputes
described above. Moreover, our licensees may breach their obligations, or we may be exposed to liability due to our failure or alleged
failure to satisfy our obligations. Any such occurrence could have an adverse effect on our business.
We rely on strategic collaboration and
licensing arrangements with third parties for research and development of commercial products and to further develop intellectual property.
We may not be able to successfully establish and maintain such intellectual property.
Our research and development
of our services and products relies, directly or indirectly, upon strategic collaborations and licensing agreements with third parties.
We have collaboration and licensing arrangements with numerous academics, pharmaceutical companies, and others, under which the collaborator
provides us with biological samples and associated clinical information. We use the biological samples for research and development by
generating SomaScan® data (typically owned by SomaLogic) and obtaining relevant clinical information related to each biological
sample (typically owned by the collaborator). Our collaboration and licensing arrangements also contain cross-licenses to permit the
collaborator to use our SomaScan® data for limited purposes, e.g., drug development or academic research, and the collaborator
grants us the right to use the clinical data for our products and services. Some collaborators limit our right to use their clinical
data.
The development and commercialization
of our products and services outside the United States rely upon strategic collaboration and licensing agreements with third parties.
We have a collaborative arrangement with NEC Solution Innovators, Ltd. (“NES”), a wholly-owned subsidiary of NEC Corporation
(“NEC”), under which NES was granted an exclusive license under SomaLogic’s intellectual property to develop
and commercialize tests for human healthcare management and a non-exclusive license to develop and commercialize SomaScan®
services in Japan. Under the agreement, NES grants SomaLogic an exclusive license under NES’ and its affiliates’ technology
and under any joint technology or patents to develop and commercialize tests in the rest of the world. This arrangement is exclusive
for a period of ten years.
In December 2021, SomaLogic
entered into the Collaboration Agreement with Illumina to develop co-branded, distributable NGS-based proteomic products. As part of
the Collaboration Agreement, Illumina will develop and deploy NGS-based protein identification and measurement tools into laboratories
worldwide, and facilitate the development and use of high-plex protein pattern recognition tests.
There can be no assurance
that any current contractual arrangements between us and third parties , such as Illumina, for example, or between our strategic partners
and other third parties will be continued on materially similar terms and will not be breached or terminated early. Any failure to obtain
or retain the rights to necessary technologies on acceptable commercial terms could require us to re-configure our products and services,
which could negatively impact their commercial sale or increase the associated costs, either of which could materially harm our business
and adversely affect our future revenues and ability to achieve sustained profitability.
We expect to continue and
expand our reliance on collaboration and licensing arrangements. Establishing new strategic collaboration and licensing arrangements
is difficult and time-consuming. Discussions with potential collaborators or licensors may not lead to the establishment of collaborations
on favorable terms, if at all. To the extent we agree to work exclusively with one collaborator in a given area, our opportunities to
collaborate with other entities could be limited. Potential collaborators or licensors may reject collaborations with us based upon their
assessment of our financial, regulatory or intellectual property position or other factors. Even if we successfully establish new collaborations,
these relationships may never result in the successful commercialization of any product or service. In addition, the success of the projects
that require collaboration with third parties will be dependent on the continued success of such collaborators. There is no guarantee
that our collaborators will continue to be successful and, as a result, we could expend considerable time and resources developing products
or services that will not ultimately be commercialized.
We may be subject to claims that our
employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that
our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We employ, and expect to
employ in the future, individuals who were previously employed at universities or other companies, including our competitors or potential
competitors. Although we try to ensure that our employees, consultants and independent contractors do not use the proprietary information
or know-how of others in their work for us, we may be subject to claims that our employees, consultants or independent contractors have
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers or other third
parties, or to claims that we have improperly used or obtained such trade secrets. Litigation may be necessary to defend against these
claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights
or personnel, which could adversely impact our business. A loss of key research personnel work product could hamper or prevent our ability
to commercialize potential products and services, which could harm our business. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a distraction to management and other employees.
Risks Related to Government Regulation
The FDA may require us to obtain premarket
authorizations and comply with the FDA requirements for some of our products and services. Failure to obtain such authorizations or failure
to comply with FDA requirements may delay or prevent the marketing of our products and services.
We believe that our services
are not presently regulated as medical devices by the FDA. However, the FDA’s policies may change or the FDA may disagree with
our conclusion, and the agency may require us to obtain a premarket authorization. Failure to comply with such requirements or the additional,
extensive and ongoing post-marketing obligations imposed by the FDA or other regulatory requirements of other regulatory agencies could
result in unanticipated compliance expenditures, a range of administrative enforcement actions, injunctions, and/or criminal prosecution.
FDA post-market obligations include, among other things, compliance with the FDA Quality System Regulations (“QSR”),
establishing registration and device listings, labeling requirements, reporting of certain adverse events and malfunctions, and reporting
of certain recalls. In addition, circumstances may arise that cause us to recall equipment used in connection with our products and services.
Such recalls could have an adverse effect on our ability to provide those products and services, which in turn would adversely affect
our financial condition. Our collaborators may also be required to maintain FDA clearance, authorization or approval for the products
and services that we jointly develop. Any failure by us or our collaborators to maintain such clearance, authorization or approval could
impair or cause a delay in our ability to profit from these collaborations.
We conduct our business in a heavily
regulated industry, and changes in regulations or violations of regulations may, directly or indirectly, reduce our revenue, adversely
affect our results of operations and financial condition and harm our business.
The life sciences industry
is highly regulated, and the regulatory environment in which we operate may change significantly and adversely to us in the future. Areas
of the regulatory environment that may affect our ability to conduct business include, without limitation, federal and state laws relating
to:
|
● |
laboratory
testing, including Clinical Laboratory Improvement Amendments (“CLIA”) and state laboratory licensing laws; |
|
● |
the
development, testing, use, distribution, promotion and advertising of research services, kits, clinical diagnostics and cellular
therapies, including certain Laboratory-Developed Tests (“LDT”), which are regulated by the FDA under the Food,
Drug, and Cosmetic Act (“FDCA”); |
|
● |
cellular
therapies, medical device and in vitro diagnostic clearance, marketing authorization or approval; |
|
● |
laboratory
anti-mark-up laws; |
|
● |
the
handling and disposal of medical and hazardous waste; |
|
● |
Occupational
Safety and Health Administration rules and regulations; |
|
● |
HIPAA
and other federal and state medical data privacy and security laws; and |
|
● |
the
Genetic Information Nondiscrimination Act (“GINA”) and similar state laws. |
In particular, while we
believe that our services are not presently regulated as medical devices because they are Research Use Only (“RUO”)
or LDTs, the laws, regulations and policies of the FDA and non-United States regulators governing the marketing of RUO products, LDTs,
and clinical diagnostic tests and services are extremely complex and the regulatory or judicial interpretations of the relevant laws
and regulations may change in the future. For example, our SomaScan® assay services and kits offered as RUO could, in the future,
be subject to greater regulation by the FDA pursuant to the medical device provisions of the FDCA beyond the current regulations governing
RUO labeling. In addition, while we believe certain of our services are LDTs and thus not subject to premarket review requirements, FDA
may disagree with our assessment or change its position in the future and assert that our products are medical devices that must receive
FDA’s premarket review, as discussed under “Risk Factors - The FDA may require us to obtain premarket authorizations and
comply with the FDA requirements for some of our products and services. Failure to obtain such authorizations or failure to comply with
FDA requirements may delay or prevent the marketing of our products and services.”.
If we fail to comply with federal and
state laboratory licensing requirements, we could lose the ability to perform our tests or experience disruptions to our business.
We are subject to CLIA,
a federal law that regulates clinical laboratories that perform testing on specimens derived from humans for the purpose of providing
information for the diagnosis, prevention or treatment of disease. CLIA regulations establish specific standards with respect to personnel
qualifications, facility administration, proficiency testing, quality control, quality assurance and inspections. CLIA certification
is also required in order for us to be eligible to bill state and federal healthcare programs, as well as many private third-party payers,
for our tests. We have current CLIA certifications to conduct our tests at our laboratory in Boulder, Colorado. To renew these certifications,
we are subject to survey and inspection every two years. Moreover, CLIA inspectors may make random inspections of our clinical reference
laboratories.
We also maintain out-of-state
laboratory licenses to conduct testing on specimens from California, Maryland, Pennsylvania and Rhode Island.
States may currently have
or later adopt laboratory licensure requirements, which, if operating in those states, may require us to modify, delay or stop our operations
in such jurisdictions. We may also be subject to regulation in foreign jurisdictions as we seek to expand international utilization of
our assay and tests or such jurisdictions adopt new licensure requirements, which may require review of our assay and tests in order
to offer them or may have other limitations such as restrictions on the transport of samples necessary for us to perform our assay or
tests that may limit our ability to make our tests available outside of the United States. Complying with licensure requirements in new
jurisdictions may be expensive, time-consuming, and subject us to significant and unanticipated delays.
Failure to comply with
applicable clinical laboratory licensure requirements may result in a range of enforcement actions, including license suspension, limitation,
or revocation, directed plan of action, onsite monitoring, civil monetary penalties, criminal sanctions, and cancellation of the laboratory’s
approval to receive Medicare and Medicaid payment for its services, as well as significant adverse publicity. Any sanction imposed under
CLIA, its implementing regulations, or state or foreign laws or regulations governing clinical laboratory licensure, or our failure to
renew our CLIA certificate, a state or foreign license, or accreditation, could have a material adverse effect on our business, financial
condition and results of operations. Even if we were able to bring our laboratory back into compliance, we could incur significant expenses
and potentially lose revenue in doing so.
The College of American
Pathologists (“CAP”), maintains a clinical laboratory accreditation program. CAP asserts that its program is “designed
to go well beyond regulatory compliance” and helps laboratories achieve the highest standards of excellence to positively impact
patient care. While not required to operate a CLIA-certified laboratory, many private insurers require CAP accreditation as a condition
to contracting with clinical laboratories to cover their tests. In addition, some countries outside the United States require CAP accreditation
as a condition to permitting clinical laboratories to test samples taken from their citizens. We have CAP accreditations for our laboratories.
Failure to maintain CAP accreditation could have a material adverse effect on the sales of our tests and the results of our operations.
Some of our activities may subject
us to risks under federal and state laws prohibiting ‘kickbacks’ and false or fraudulent claims.
In addition to FDA marketing
and promotion restrictions, several other types of state and federal healthcare fraud and abuse laws have been applied in recent years
to restrict certain marketing practices in the healthcare industry, and to regulate billing practices and financial relationships with
healthcare providers. These laws include a federal law commonly known as the Medicare/Medicaid Anti-Kickback Statute, and numerous similar
state laws, which prohibit payments intended to induce healthcare providers or others to refer patients or to acquire, arrange for or
recommend the acquisition of healthcare products or services. The Anti-Kickback Statute prohibits knowingly and willfully making a payment
to induce patient referrals or generate business in connection with any governmental heath care program, state laws, however, may apply
regardless of whether state or federal funds are involved. These laws generally constrain the sales, marketing and other promotional
activities of providers of laboratory services by limiting the kinds of financial arrangements, including sales programs, that may be
used with hospitals, healthcare providers, laboratories and other potential purchasers or prescribers of medical devices and laboratory
services.
In 2018, Congress passed
the Eliminating Kickbacks in Recovery Act (“EKRA”) as part of the Substance Use-Disorder Prevention that Promotes
Opioid Recovery and Treatment for Patients and Communities Act. EKRA is broader and imposes more restrictions than the federal Anti-Kickback
Statute. Like the Anti-Kickback Statute, EKRA imposes criminal penalties for knowing or willful payment or offer, or solicitation or
receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or
inducement of laboratory testing (among other healthcare services) unless a specific exception applies. EKRA is applicable to all “services
covered by a health care benefit program” and does not differentiate between governmental programs and private programs. As a result,
the federal government is fully within its authority to investigate and prosecute suspicious payments involving services reimbursed by
either governmental health plans and private health plans. In addition, while the Anti-Kickback Statute includes certain exceptions that
are widely relied upon in the healthcare industry, not all of those same exceptions apply under EKRA. For example, under the Anti-Kickback
Statute, there is a safe harbor exception for bona fide employees. EKRA, however, does not differentiate between employee-based commissions
and independent contractor-based commissions. This means that if a laboratory pays its employee a commission with respect to a referral,
the laboratory would be exposed to EKRA liability.
Because EKRA is a relatively
new law, there is no agency guidance or court precedent to indicate how and to what extent it will be applied and enforced. We cannot
assure you that our relationships with healthcare providers, sales representatives, hospitals, customers, or any other party will not
be subject to scrutiny or will survive regulatory challenge under EKRA.
The federal False Claims
Act and similar state laws prohibit individuals or entities from knowingly presenting, or causing to be presented, claims for payment
from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or are for items or services that were not provided
as claimed. Medicare payments are subject to audit, including through the Comprehensive Error Rate Testing (“CERT”)
program, and payments may be recouped by Centers for Medicare and Medicaid (“CMS”) if it is determined that they were
improperly made.
The federal Anti-Kickback
Statute and False Claims Act prescribe civil and criminal penalties (including fines) for noncompliance that can be substantial. While
we continually strive to comply with these complex requirements, interpretations of the applicability of these laws to marketing and
billing practices are constantly evolving and even an unsuccessful challenge could cause adverse publicity and be costly to respond to,
and thus could harm our business and prospects. Our failure to comply with applicable laws could result in various adverse consequences
that could have a material adverse effect upon our business, including the exclusion of our products and services from government programs
and the imposition of civil or criminal sanctions.
RUO products and services may
be subject to regulatory scrutiny.
Certain of our services
and products are currently labeled and sold for RUO and not for the diagnosis or treatment of disease. Because such products are not
intended for diagnostic use, and the products do not include clinical or diagnostic claims or provide directions for use as diagnostic
products, they are not subject to the same level of regulation by the FDA or by regulatory agencies of the EU as medical devices. In
particular, while the FDA regulations require that RUO products be appropriately labeled, “For Research Use Only,” the regulations
do not subject such products to the FDA’s pre- and post-market controls for medical devices provided that certain conditions are
met. Pursuant to FDA guidance on RUO products, a company may not make clinical or diagnostic claims about an RUO product or provide clinical
directions or clinical support services to customers of RUO products. A product labeled RUO but deemed by the FDA to be intended for
clinical diagnostic use may be viewed by the FDA as adulterated and misbranded under the FDCA and subject to FDA enforcement action.
The FDA considers the totality of the circumstances surrounding distribution and use of a product labeled as RUO, including how the product
is marketed and to whom, when determining its intended use. If the FDA were to disagree with our RUO classification or modify its approach
to regulating products labeled for RUO, we could experience reduced revenue or increased compliance and other costs, which could adversely
affect our business, prospects, results of operations and financial condition. In the event that the FDA requires marketing authorization
of our RUO products in the future, the FDA may not ultimately grant any clearance, authorization or approval requested by us in a timely
manner, or at all.
We expect to rely on third parties
in conducting any required future studies of diagnostic services and products that may be required by the FDA or other regulatory authorities,
and those third parties may not perform satisfactorily.
We do not currently have
the ability to independently conduct clinical trials or other studies that may be required to obtain FDA and other regulatory clearance
or approval for future diagnostic services and products, if such clearance or approval is required. Accordingly, we expect that we would
rely on third parties, such as clinical investigators, consultants, and collaborators to conduct such studies if needed. Our reliance
on these third parties for clinical and other development activities would reduce our control over these activities. If these third parties
do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need
to be replaced or if the quality or accuracy of the data they obtain is compromised, we may not be able to obtain regulatory clearance
or approval.
Our employees, principal investigators,
consultants and collaborators may engage in misconduct or other improper activities, including non-compliance with regulatory standards
and requirements and insider trading.
We are exposed to the
risk of fraud or other misconduct by our employees, consultants and those of our collaborators. Misconduct by these parties could include
intentional failures to comply with the regulations of the FDA and non-United States regulators, comply with healthcare fraud and abuse
laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities
to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations
intended to prevent improper marketing, fraud, misconduct, kickbacks, bribery, self-dealing and other abusive practices. These laws and
regulations may restrict or prohibit a range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs
and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical
studies, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have a code of conduct applicable
to all of our employees, but it is not always possible to identify and deter employee misconduct. In addition, our code of conduct and
the other precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses,
or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or
regulations. If any such investigations or actions are instituted against us and we are not successful in defending ourselves or asserting
our rights, those actions could result in the imposition of significant fines or other sanctions, which could have a significant impact
on our business. We currently have a compliance program in accordance with the elements of an effective program outlined by the Office
of Inspector General, which could help mitigate damages, but cannot prevent all misconduct. Whether or not we are successful in defending
against such actions or investigations, we could incur substantial costs, including legal fees, suffer adverse publicity and reputational
harm, and have the attention of management diverted in defending ourselves against any of these claims or investigations.
We could be adversely affected
by violations of the FCPA and other worldwide anti-bribery laws by us or our agents.
We are subject to the
FCPA which prohibits companies and their intermediaries from making payments in violation of law to non-United States government officials
for the purpose of obtaining or retaining business or securing any other improper advantage. Our reliance on independent distributors
to sell our assay services internationally demands a high degree of vigilance in maintaining our policy against participation in corrupt
activity, because these distributors could be deemed to be our agents, and we could be held responsible for their actions. We are also
subject to similar antibribery laws in the jurisdictions in which we operate, including the United Kingdom’s Bribery Act of 2010,
which also prohibits commercial bribery and makes it a crime for companies to fail to prevent bribery. We have limited experience in
complying with these laws and in developing procedures to monitor compliance with these laws by our agents. These laws are complex and
far-reaching in nature, and, as a result, we cannot assure you that we would not be required in the future to alter one or more of our
practices to be in compliance with these laws or any changes in these laws or the interpretation thereof. Any violations of these laws,
or allegations of such violations, could disrupt our operations, involve significant management distraction, involve significant costs
and expenses, including legal fees, and could result in a material adverse effect on our business, prospects, financial condition, or
results of operations. We could also incur severe penalties, including criminal and civil penalties, disgorgement, and other remedial
measures.
If we elect to label and promote
any of our products or services as medical devices, we may be required to obtain prior approval or clearance by the FDA, which would
take significant time and expense and could fail to result in FDA clearance or approval for the intended uses we believe are commercially
attractive.
Our services and products
are currently labeled and promoted, and are, and in the near-future will be, sold primarily to academic and research institutions and
research companies as RUO products, and are not currently designed, or intended to be used as medical devices. If we elect to label and
market our products for broader use as medical devices, we may be required to obtain premarket 510(k) clearance or premarket approval
from the FDA, unless an exception applies.
We may in the future register
with the FDA. We would be subject to ongoing FDA “general controls,” which include compliance with FDA regulations for labeling,
inspections by the FDA, complaint evaluation, corrections and removals reporting, promotional restrictions, reporting adverse events
or malfunctions for our products, and general prohibitions against misbranding and adulteration.
In addition, we may in
the future submit 510(k) premarket notifications to the FDA to obtain FDA clearance of certain of our products on a selective basis.
It is possible, in the event we elect to submit 510(k) applications for certain of our products, that the FDA would take the position
that a more burdensome premarket application, such as a premarket approval application (“PMA”) or a De Novo classification
request is required for some of our products. If such applications were required, greater time and investment would be required to obtain
FDA approval. Even if the FDA agreed that a 510(k) was appropriate, FDA clearance can be expensive and time consuming. It generally takes
a significant amount of time to prepare a 510(k), including conducting appropriate testing on our products, and several months to years
for the FDA to review a submission. Notwithstanding the effort and expense, FDA clearance or approval could be denied for some or all
of our products for which we choose to market as medical devices. Even if we were to seek and obtain regulatory approval or clearance,
it may not be for the intended uses we request or that we believe are important or commercially attractive. There can be no assurance
that future products for which we may seek premarket clearance or approval will be approved or cleared by FDA or a comparable foreign
regulatory authority on a timely basis, if at all, nor can there be assurance that labeling claims will be consistent with our anticipated
claims or adequate to support continued adoption of such products. Compliance with FDA or comparable foreign regulatory authority regulations
will require substantial costs, and subject us to heightened scrutiny by regulators and substantial penalties for failure to comply with
such requirements or the inability to market our products. The lengthy and unpredictable premarket clearance or approval process, as
well as the unpredictability of the results of any required clinical studies, may result in our failing to obtain regulatory clearance
or approval to market such products, which would significantly harm our business, results of operations, reputation, and prospects.
In addition, even if we
obtain an approval or clearance, we must be cautious in ensuring that the promotion of our products and services remains within the scope
of the approval or clearance because FDA’s regulations applicable to our products and services prohibit them from being promoted
for uses not within the scope of a given product’s intended use(s), among other promotional and labeling rules applicable to products
subject to the FDCA.
Even after we receive
an approval or clearance, we would be subject to ongoing FDA obligations and continued regulatory oversight and review, including the
general controls listed above and the FDA’s QSRs for our development and manufacturing operations. In addition, we would be required
to obtain a new 510(k) clearance before we could introduce subsequent modifications or improvements to such products. We could also be
subject to additional FDA post-marketing obligations for such products, any or all of which would increase our costs and divert resources
away from other projects. If we sought and received regulatory clearance or approval and are not able to maintain regulatory compliance
with applicable laws, we could be prohibited from marketing our products for use as, or in the performance of, clinical diagnostics and/or
could be subject to enforcement actions, including warning letters and adverse publicity, fines, injunctions, and civil penalties; recall
or seizure of products; operating restrictions; and criminal prosecution.
In addition, we could
decide to seek regulatory clearance or approval for certain of our products in countries outside of the United States. Sales of such
products outside the United States will likely be subject to foreign regulatory requirements, which can vary greatly from country to
country. As a result, the time required to obtain clearances or approvals outside the United States may differ from that required to
obtain FDA clearance or approval and we may not be able to obtain foreign regulatory approvals on a timely basis or at all. In Europe,
we would need to comply with the new In Vitro Diagnostic Regulation 2017/746, which became effective May 26, 2017, with application date
of May 26, 2022. This will increase the difficulty of regulatory approvals in Europe in the future. Failure to comply with these regulatory
requirements or obtain and maintain required approvals, clearances and certifications could impair our ability to commercialize our products
for diagnostic use outside of the United States.
Our services and products could
become subject to government regulation as medical devices by the FDA and other regulatory agencies even if we do not elect to seek regulatory
clearance or approval to market our services for diagnostic purposes, which would adversely impact our ability to market and sell our
services and harm our business. If our services become subject to FDA regulation, the regulatory clearance or approval and the maintenance
of continued and post-market regulatory compliance for such services will be expensive, time-consuming, and uncertain both in timing
and in outcome.
As we expand our product
line and the applications and uses of our current services and products into new fields, certain of our future services and products
could become subject to regulation by the FDA, or comparable international agencies, including requirements for regulatory clearance
or approval of such services and products before they can be marketed. Also, even if our services and products are labeled, promoted,
and intended as RUO or LDT, the FDA or comparable agencies of other countries could disagree with our conclusion that our services and
products are intended for research use only or otherwise not subject to marketing authorization requirements, and deem our sales, marketing
and promotional efforts as being inconsistent with the applicable legal requirements. For example, our customers may independently elect
to use our RUO labeled services and products for clinical diagnostic use without our consent, which could subject our services and products
to government regulation. The regulatory clearance or approval and maintenance process for services and products may be uncertain, expensive,
and time-consuming, and could adversely affect our business, financial condition, or results of operations. The FDA has historically
exercised enforcement discretion in not enforcing the premarket authorization and quality system regulations against laboratories offering
LDTs. However, on October 3, 2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework
for regulating LDTs, which are designed, manufactured, and used within a single laboratory. The draft guidance documents provide the
anticipated details through which the FDA would propose to establish an LDT oversight framework, including premarket review for higher-risk
LDTs, such as those that have the same intended use as FDA-approved or cleared companion diagnostic tests currently on the market. In
January 2017, the FDA announced that it would not issue final guidance on the oversight of LDTs and manufacturers of products used for
LDTs, but would seek further public discussion on an appropriate oversight approach, and give Congress an opportunity to develop a legislative
solution. More recently, the FDA has issued warning letters to certain labs for illegally marketing materials. The FDA has not created
a legal “carve-out” for LDTs and retains discretion to take action when appropriate, such as when certain materials raise
significant public health concerns.
Future legislative or
administrative rule making or oversight of LDTs may impact the sales of our services and products and how customers use our services
and products, and may require us to change our business model in order to maintain compliance with these laws. We cannot predict how
Congress or the FDA will regulate LDTs in the future, or how that regulatory system will impact our business. Changes to the current
regulatory framework, including the imposition of additional or new regulations, including regulation of our services and products, could
arise at any time during the development or marketing of our services and products, which may negatively affect our ability to obtain
or maintain FDA or comparable regulatory approval of our services and products, if required. Further, sales of our products and services
for diagnostic applications in certain instances, or other uses that fit the FDA’s definition for “device,” may subject
us to additional healthcare regulation and enforcement by the applicable government agencies.
In 2020, the Department
of Health and Human Services (“HHS”) announced rescission of guidance and other informal issuances of the FDA regarding
premarket review of LDTs absent notice-and-comment rulemaking, stating that, absent notice-and-comment rulemaking, those seeking approval
or clearance of, or an emergency use authorization for, an LDT may nonetheless voluntarily submit a PMA, premarket notification or an
Emergency Use Authorization request, respectively, but are not required to do so. However, laboratories opting to use LDTs without FDA
premarket review or authorization would not be eligible for liability protection under the Public Readiness and Emergency Preparedness
(“PREP”) Act that is normally provided to certain countermeasures that are approved, cleared, licensed, or otherwise
authorized to fight against a pandemic or an epidemic.
While this action by HHS
is expected to reduce the regulatory burden on clinical laboratories certified under the Clinical Laboratory Improvement Amendments of
1988 that develop LDTs, it is unclear how this action as well as future legislation by federal and state governments and the FDA will
impact the industry, including our business and that of our customers. Such HHS measure may compel the FDA to formalize earlier enforcement
discretionary policies and informal guidance through notice-and-comment rulemaking and/or impose further restrictions on LDTs. HHS’s
rescission policy may change over time. Congress could also enact legislation restricting LDTs. Any restrictions on LDTs by the FDA,
HHS, Congress, or state regulatory authorities may decrease the demand for our products. The adoption of new restrictions on RUO products,
whether by the FDA or Congress, could adversely affect demand for our specialized reagents and instruments. Further, we could be required
to obtain premarket clearance or approval before we can sell our services and products to certain customers. If we market countermeasures
to a pandemic or an epidemic, such as COVID-19, and we decide to forgo the FDA’s premarket review per the HHS’s policy, our
countermeasures will not receive the immunity protection under the PREP Act.
If we or our strategic partners
or licensees fail to obtain regulatory approvals in other countries for service and product candidates under development, we will not
be able to generate revenue in such countries from the commercialization of service and product candidates.
In order for us to market
our services and products outside of the United States and the EU, we and our strategic partners and licensees must comply with numerous
and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can
involve additional assay services and additional administrative review periods. The time required to obtain approval in other countries
might differ from that required to obtain FDA approval or EMA approval. The regulatory approval process in other countries may include
all of the risks detailed above regarding FDA approval in the United States and EMA approval in the EU. Regulatory approval in one country
does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively
impact the regulatory review processes in others. Failure to obtain regulatory approval in other countries or any delay or setback in
obtaining such approval could have the same adverse effects detailed above regarding FDA approval in the United States and EMA approval
in the EU. The adverse effects include the risk that our service and product candidate may not be approved for all indications that we
request, which could limit the uses of our service and product and adversely impact our potential royalties and sales, and the risk that
such approval may be subject to limitations on the indicated uses for which the service or product may be marketed or require costly,
post-marketing follow-up studies.
If we fail to comply with
applicable foreign regulatory requirements, we could be subject to penalties and suspension or withdrawal of regulatory approvals.
We or our strategic partners or
licensees may fail to successfully petition the Japanese National Health Services for use of the SomaSignal™ tests in the annual
government-funded health check. Failure to do so may adversely affect our business and we may not be able to achieve meaningful adoption
of SomaSignal™ tests in Japan, which could stunt our growth.
Our strategic partner
in Japan, NEC Solution Innovators, Ltd., established a wholly owned subsidiary in Japan for the purpose of pursuing increased adoption
and expansion of our service offerings in Japan. As a part of this plan, the wholly owned subsidiary plans to petition the Japanese National
Health Services to include the SomaSignal™ tests in the annual government-funded health check. Successful implementation of this
plan requires an agreement by government agencies such as the Central Social Insurance Medical Counsel, which makes the decision on whether
to reimburse for the services based on the recommendations that are made by the Ministry of Health, Labor and Welfare’s expert
panel. To our knowledge, the wholly owned subsidiary has not begun the petition process. There is no guarantee that we will be able to
obtain this approval and successfully include the SomaSignal™ tests in the annual government-funded health check. However, the
successful petition with the Japanese National Health Services does not impact SomaLogic’s ability to execute the NEC contract
or to generate revenue through this strategic partnership.
We could be adversely affected
by alleged violations of the Federal Trade Commission Act or other truth-in-advertising and consumer protection laws.
Our advertising for current
and future assay services is subject to federal and state laws that prohibit deceptive or unfair advertising and marketing practices.
Under federal and state law, regulators such as the Federal Trade Commission (“FTC”) and the AG of the various states
or district attorneys in some states have authority to bring actions against firms that engage in false or deceptive advertising or marketing
practices. The FTC’s authority emanates from the Federal Trade Commission Act (“FTC Act”), which empowers the
FTC to investigate and seek injunctive relief against deceptive or unfair acts or practices, including the dissemination of advertising
claims without possession at the time of dissemination of a reasonable basis for belief that the claims are true and non-deceptive. Substantiation
in the case of efficacy claims pertaining to health, safety, and life sciences generally must take the form of competent and reliable
scientific evidence. Failure to have substantiation of this type is deceptive under the FTC Act and may subject the advertiser to an
injunction to stop the advertising and possibly to engage in other remedial steps such as corrective advertising. Failure to comply with
an FTC administrative order subjects the advertiser to significant civil penalties. States have similar unfair and deceptive acts and
practices statutes (sometimes called “little FTC Acts” or “UDAP” statutes). They vary, but often
the state regulator can seek monetary relief along with an order of discontinuance.
Both the FTC and the state
AGs have broad powers, and failure to abide by the substantive requirements of the FTC Act and other consumer protection laws can result
in administrative or judicial penalties, including civil penalties, injunctions affecting the manner in which we would be able to market
services or products in the future, or in extreme instances criminal prosecution if significant fraud is involved. These laws relate
not only to the advertising produced and disseminated by us but also to statements made by endorsers or others in third-party testimonials
that are used by us in advertising in any form, including but not limited to social media.
Federal and state laws
also give causes of action to competitors to seek injunctive and monetary relief for false and misleading advertising statements. Any
person who is or may be likely to be damaged by false or misleading advertising statement may bring an action in federal court pursuant
to the Lanham Act, § 43(a). Proven damages may be trebled and attorney’s fees and costs may be awarded in appropriate cases.
There are state analogs of this sort of unfair competition statute as well.
Under state UDAP statutes,
consumers can bring private claims against companies who disseminate false or deceptive advertising claims. Although those UDAP statutes
often provide for statutory damages in the case of individual consumers, more often such cases take the form of class actions, which
can lead to massive damages awards and significant awards of attorney’s fees.
We are also subject to
self-regulatory risks. The BBB National Programs, Inc. operates the National Advertising Division (“NAD”), which is
the country’s leading self-regulatory body dedicated to truth and accuracy in advertising. A competitor can challenge advertising
before the NAD. The process is non-public until the decision is rendered by the NAD, at which point the BBB National Programs issues
a press release about the decision. Most advertisers comply with the recommendations of the NAD; those that refuse to comply can be referred
to the FTC for investigation.
Any of the potential action
described above if brought against us could disrupt our business operations, cause damage to our reputation, and result in a material
adverse effects on our business.
Our business is subject to environmental
regulation and regulations relating to the protection of health and safety matters that could result in compliance costs. Any violation
or liability under environmental laws or health and safety regulations could harm our business.
We are subject to environmental
and safety laws and regulations governing the use, storage and disposal of hazardous substances or wastes, including radioactive materials
and wastes, and imposing liability for the cleanup of contamination from these substances. We handle hazardous substances in our manufacturing
processes and in the compilation of our chemical library, and we could be liable for any improper use, storage, or disposal of such substances.
We cannot completely eliminate the risk of contamination or injury from hazardous substances or wastes, and, in the event of such an
incident, we could be held liable for any damages that result. In addition, we may be required to incur significant additional costs
to comply with environmental laws and regulations in the future. The failure to comply with environmental or safety regulations could
also result in fines by government authorities and payment of damages to private litigants, which could harm our business.
The Occupational Safety
and Health Act of 1970 (“OSHA”), establishes certain employer responsibilities, including maintenance of a workplace
free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational Safety
and Health Administration and various record keeping, disclosure and procedural requirements. Various OSHA standards may apply to our
operations. We have incurred, and will continue to incur, capital and operating expenditures and other costs in the ordinary course of
our business in complying with OSHA and other state and local laws and regulations.
Risks Related to SomaLogic Being a Public
Company
Our disclosure controls and procedures
may not prevent or detect all errors or acts of fraud.
We are in the process
of implementing disclosure controls and procedures designed to provide reasonable assurance that information we must disclose in reports
we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is accumulated and communicated
to management, and recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC.
We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. As a result, because of these
inherent limitations in our control system, misstatements or omissions due to error or fraud may occur and may not be detected, which
could result in failures to file required reports in a timely manner and filing reports containing incorrect information. Any of these
outcomes could result in SEC enforcement actions, monetary fines or other penalties, damage to our reputation, and harm to our financial
condition.
The requirements of being a public
company may strain our resources, result in litigation and divert management’s attention.
As a public company, we
are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations. Complying with these rules
and regulations has increased and will increase our legal and financial compliance costs, make some activities more difficult, time-consuming,
or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company”
as defined in the JOBS Act. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect
to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls
and procedures and internal control over financial reporting. We are required to disclose changes made in our internal control and procedures
on a quarterly basis. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over
financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s
attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need
to hire additional employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses.
In addition, changing
laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for public companies,
increasing legal and financial compliance costs and making some activities more time-consuming.
These laws, regulations,
and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application
in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to
invest resources to comply with evolving laws, regulations, and standards, and this investment will result in increased general and administrative
expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our
efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due
to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business
may be adversely affected. By disclosing information in this prospectus and in filings required of a public company, our business and
financial condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors
and other third parties. If those claims are successful, our business could be seriously harmed. Even if the claims do not result in
litigation or are resolved in our favor, the time and resources needed to resolve them could divert our management’s resources
and seriously harm our business. We also expect that being a public company and these new rules and regulations will make it more expensive
for us to obtain director and officer liability insurance and, in the future, we may be required to accept reduced coverage or incur
substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified
members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
In addition, as a result
of our disclosure obligations as a public company, we have reduced strategic flexibility and may be under pressure to focus on short-term
results, which may materially and adversely affect our ability to achieve long-term profitability.
Risks Related to Our Common Stock and
Public Warrants
Our principal stockholders and
management own a significant percentage of our Common Stock and will be able to exercise significant influence over matters subject to
stockholder approval.
As of June 30, 2022, our
directors, executive officers, holders of more than 5% of our outstanding shares of Common Stock and their respective affiliates beneficially
owned, collectively, approximately 23% of the outstanding shares of Common Stock. As a result, these stockholders, if they act together,
may significantly influence all matters requiring stockholder approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company
that our other stockholders may believe is in their best interests. This in turn could have a material adverse effect on our stock price
and may prevent attempts by our stockholders to replace or remove the board of directors or management.
We do not expect to pay any dividends
for the foreseeable future. Investors may never obtain a return on their investment.
You should not rely on
an investment in our Common Stock to provide dividend income. We do not anticipate that we will pay any dividends to holders of our Common
Stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations, fund our research
and development programs and continue to invest in our commercial infrastructure. In addition, any future credit facility or financing
we obtain may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our Common Stock. Accordingly,
investors must rely on sales of our Common Stock after price appreciation, which may never occur, as the only way to realize any return
on their investment. As a result, investors seeking cash dividends should not purchase our Common Stock.
We may amend the terms of the
Public Warrants with the approval by the holders of at least 50% of the then-outstanding Public Warrants in a manner that may be adverse
to holders. As a result, the exercise price of a holder’s Public Warrants could be increased, the exercise period could be shortened
and/or the number of shares of our Common Stock purchasable upon exercise of a Public Warrant could be decreased, all without the approval
of that warrant holder.
Our Public Warrants were
issued in registered form under a warrant agreement between CMLS II and Continental Stock Transfer & Trust Company, as warrant agent.
The warrant agreement provides that the terms of the Public Warrants may be amended without the consent of any holder to cure any ambiguity
or correct any defective provision, but requires the approval by the holders of at least 50% of the then-outstanding Public Warrants
to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the Public
Warrants in a manner adverse to a holder if holders of at least 50% of the then-outstanding Public Warrants approve of such amendment.
Although our ability to amend the terms of the Public Warrants with the consent of at least 50% of the then-outstanding Public Warrants
is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Public Warrants,
convert the warrants into cash or stock, shorten the exercise period or decrease the number of shares of Common Stock purchasable upon
exercise of a Public Warrant.
We may redeem unexpired Public
Warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their Public Warrants worthless.
We have the ability to
redeem outstanding Public Warrants (i) at any time after they become exercisable and prior to their expiration, at a price of $0.01 per
Public Warrant; provided that the last reported sales price of our Common Stock equals or exceeds $18.00 per share (as adjusted
for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period
ending on the third trading day prior to the date on which we give notice of such redemption to the warrant holders; and (ii) at any
time after they become exercisable and prior to their expiration, at a price of $0.10 per Public Warrant; provided that the last
reported sales price of our Common Stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date
on which we give notice of such redemption to the warrant holders; provided further that, if the last reported sales price of
our Common Stock is less than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and
the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we give notice
of such redemption to the warrant holders, the Private Placement Warrants must also be concurrently called for redemption on the same
terms as the outstanding Public Warrants, as described above.
If and when the Public
Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities
for sale under all applicable state securities laws. We will use our best efforts to register or qualify such shares of Common Stock
under the blue sky laws of the state of residence in those states in which the warrants were offered by us. Redemption of the outstanding
Public Warrants could force the warrant holders: (i) to exercise their Public Warrants and pay the exercise price therefor at a time
when it may be disadvantageous for them to do so; (ii) to sell their Public Warrants at the then-current market price when they might
otherwise wish to hold their Public Warrants; or (iii) to accept the nominal redemption price which, at the time the outstanding Public
Warrants are called for redemption, is likely to be substantially less than the market value of their Public Warrants. None of the Private
Placement Warrants will be redeemable by us (except as described in the section entitled “Redemption of Warrants When the Price
per Share of Common Stock Equals or Exceeds $10.00”) so long as they are held by the Sponsor or its permitted transferees.
Our warrants are exercisable for
our Common Stock, which will increase the number of shares eligible for future resale in the public market and result in dilution to
our stockholders.
Our Public Warrants are
exercisable for up to 5,519,991 shares of Common Stock at $11.50 per share. Our Private Placement Warrants are exercisable for up to
5,013,333 shares of Common Stock at $11.50 per share. The additional shares of our Common Stock issuable upon exercise of our warrants
will result in dilution to the then existing holders of our Common Stock and increase the number of shares eligible for resale in the
public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our Common
Stock.
USE OF PROCEEDS
All of the securities
offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts.
We will not receive any of the proceeds from the sale of the securities hereunder.
Assuming the exercise
of all outstanding warrants for cash and the exercise of all outstanding Madryn Options for cash, we will receive an aggregate of approximately
$125.1 million, but will not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. We expect
to use the net proceeds from the exercise of the warrants and the Madryn Options, if any, for investment in growth, and general corporate
purposes. We will have broad discretion over the use of any proceeds from the exercise of the warrants and the Madryn Options. There
is no assurance that the holders of the warrants or holders of the Madryn Options will elect to exercise for cash any or all of such
warrants or Madryn Options. To the extent that any warrants or Madryn Options are exercised on a “cashless basis,” the amount
of cash we would receive from the exercise of the warrants or Madryn Options will decrease.
The Selling Securityholders
will pay any underwriting discounts and commissions and expenses incurred by the Selling Securityholders for brokerage, accounting, tax
or legal services or any other expenses incurred by the Selling Securityholders in disposing of the securities. We will bear the costs,
fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including all registration and
filing fees, Nasdaq listing fees and fees and expenses of our counsel and our independent registered public accounting firm.
DETERMINATION OF OFFERING
PRICE
The offering price of
the shares of Common Stock underlying the Public Warrants, the Private Placement Warrants, and the Madryn Options offered hereby is determined
by reference to the exercise price of the warrants of $11.50 per share and the exercise price of the Madryn Options of $4.77 per share.
The Public Warrants are listed on the Nasdaq under the symbol “SLGCW.”
MARKET PRICE OF AND
DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information and Holders
Our Common Stock and Public
Warrants are currently listed on the Nasdaq under the symbols “SLGC” and “SLGCW,” respectively.
On October 21, 2022, the closing
sale price of our Common Stock was $2.82 per share and the closing price of the Public Warrants was $0.35 per Public Warrant.
As of October 21, 2022, there
were approximately 247 holders of record of our Common Stock and 6 holders of record of our Public Warrants. Such numbers do not include
beneficial owners holding our securities through nominee names.
Dividend Policy
We have never declared
or paid any cash dividends on our capital stock, and we do not currently intend to pay any cash dividends for the foreseeable future.
We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends
on our Common Stock will be at the discretion of our board of directors and will depend upon, among other factors, our financial condition,
operating results, current and anticipated cash needs, plans for expansion and other factors that our board of directors may deem relevant.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion
of SomaLogic’s results of operations and financial condition should be read in conjunction with the information set forth in SomaLogic’s
audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020 and the unaudited condensed consolidated
financial statements as of and for the six months ended June 30, 2022 and 2021, and the related respective notes thereto, included elsewhere
in this prospectus. This discussion contains forward-looking statements based upon SomaLogic’s current expectations, estimates
and projections that involve risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking
statements due to, among other considerations, the matters discussed under “Risk Factors” and “Cautionary
Note Regarding Forward-Looking Statements” included elsewhere in this prospectus. Unless the context otherwise requires, all
references in this section to the “Company,” “we,” “us” or “our”
refer to the business of Old SomaLogic prior to the consummation of the Business Combination, and to the Company and its consolidated
subsidiaries following the consummation of the Business Combination.
Business Overview
SomaLogic is a leading
commercial-stage proteomics company. We have built an integrated proteomics platform capable of robust, high throughput proteomics analysis
with broad proteome coverage, low limits of detection, high reproducibility and at low costs. We designed our platform with the goal
of being a universal proteomics platform, with the breadth (number of proteins measured) and precision (accuracy of measurement) important
for discovery and research applications, and both the reproducibility and robustness important for clinical applications. Our platform
is underpinned by our extensive global patent portfolio protecting our proteomics platform, products and services, our proprietary assay
technology, our proteomics database (which we believe is one of the largest proteomics databases worldwide), and artificial intelligence
and machine learning capabilities. As of December 31, 2021, our assay can measure approximately 7,000 protein target measurements in
a single sample using only approximately 55µL of plasma or serum. Our proteomics database matches proteomics and clinical information
and contains over 2.5 billion protein measurements with over 675,000 participant-years of longitudinal clinical data from follow-up.
Leveraging our artificial intelligence-enabled bioinformatics capability, we use our database to power diagnostic product development
for our research and clinical customers. We currently run our platform within our own laboratory, receive samples from customers and
provide them proteomics analysis services. We are also developing an integrated solution comprising kits and select equipment that would
enable customers to perform our proteomics assay at their own sites and leverage our bioinformatics capabilities to analyze the data.
Currently, we primarily
generate revenue through our assay services, which consists primarily of a service model whereby we receive samples from pharmaceutical,
biotechnology or academic clients, perform the SomaScan® assay, and subsequently use bioinformatics and analytics to further refine
the collected data and deliver the results back to the customer. In the years ended December 31, 2021 and 2020, approximately 70% and
85%, respectively, of our assay services sales were generated by pharmaceutical customers. In mid-2020, we re-introduced a simple fee-for-service
offering, in addition to our previous data-sharing model that has proven popular among customers. We expect our customer base to continue
to grow in 2022 as a result of the fee-for-service offering and an expanded commercial development team.
In addition to the SomaScan®
assay, we have developed and released SomaSignal™ tests into an observation market. The SomaSignal™ tests are data-driven
diagnostic tests with high predictive power of biological disease and risks to patients that have a wide range of potential applications.
We are currently evaluating a variety of different partnerships to drive adoption of SomaSignal™ tests.
We also generate product
revenue, which primarily consists of the sale of SomaScan® kits. Our assay kits are aimed at enabling our customers to bring our
proteomic platform in-house. Historically, we have sold our kits to a limited number of primarily academic customers.
As of December 31, 2021,
we had approximately 320 full-time employees, including a commercial team of more than 60 employees and a research and development team
of more than 60 employees. We plan to continue expanding our commercial team significantly in the coming years.
Our commercial and product
development teams are consistently partnering with our customers to develop products and services that speed up the adoption of proteomics
for our customers, including data analysis, data integration and ease of use tool sets. We are also actively exploring several potential
co-marketing and new channel and product development opportunities with various partners in closely aligned scientific verticals, such
as genomics.
We have historically and
will continue to invest heavily in new products and solutions. Our research and development efforts are primarily focused on developing
new proteomic content and additional SomaSignal™ tests as well as developing new applications for existing technologies.
Since our inception, we
have incurred net losses in each year. Our net losses were $87.5 million and $53.0 million for the years ended December 31, 2021 and
2020, respectively. As of December 31, 2021, we had an accumulated deficit of $498.9 million, cash and cash equivalents of $439.5 million,
and short-term investments of $218.2 million. We expect to continue to incur significant expenses for the foreseeable future and to incur
operating losses. We expect our expenses will increase in connection with our ongoing activities as we:
| ● | expand our sales and marketing
efforts to further commercialize our products; |
| ● | expand our research and
development efforts to improve our existing products and develop and launch new products; |
| ● | invest in processes, tools
and infrastructure to support the growth of our business, including incurring costs related
to operating as a public company; |
| ● | attract, hire and retain
qualified personnel; and |
| ● | protect and defend our
intellectual property. |
Business Combination
On September 1, 2021 (the
“Closing Date”), we consummated the Business Combination contemplated by the Merger Agreement, by and among CMLS II,
Merger Sub, and Old SomaLogic. Pursuant to the Merger Agreement, Merger Sub merged with and into Old SomaLogic, with Old SomaLogic surviving
the merger as a wholly-owned subsidiary of CMLS II. Upon the closing of the Business Combination, CMLS II changed its name to SomaLogic,
Inc., and Old SomaLogic changed its name to SomaLogic Operating Co., Inc.
Unless the context otherwise
requires, the terms “we,” “us,” “our,” “SomaLogic” and the
“Company” refer to, for periods prior to the completion of the Business Combination, SomaLogic, Inc. and its subsidiaries,
and, for periods upon or after the completion of the Business Combination, SomaLogic, Inc., the combined company and its subsidiaries.
See Note 2, Summary of Significant Accounting Policies-Presentation of Amounts After the Business Combination, and Note 3, Business Combination,
to our consolidated financial statements included elsewhere in this prospectus for more details of the Business Combination and the presentation
of historical amounts and balances after the Business Combination. The Company’s Common Stock and warrants to purchase Common Stock
are listed on the Nasdaq under the ticker symbols “SLGC” and “SLGCW,” respectively.
Impact of the COVID-19 Pandemic
In March 2020, the World
Health Organization declared the Coronavirus Disease 2019 (COVID-19) outbreak to be a global pandemic. Since then, COVID-19 has continued
to spread throughout much of the United States and the world causing uncertainty and disruption to business activities.
Our suppliers and customers
have been impacted by the COVID-19 pandemic, and we have experienced supply delays for certain equipment, instrumentation and other supplies
that we use for our services and products as well as delays in customer sample receipt.
The COVID-19 pandemic
continues to be dynamic and near-term challenges across the economy remain. We expect continued volatility and unpredictability related
to the impact of COVID-19 on our business results. We continue to actively monitor the pandemic and we will continue to take appropriate
steps to mitigate the adverse impacts on our business posed by the on-going spread of COVID-19.
Effects of Inflation
Inflation has impacted
our results of operations for the six-month period ended June 30, 2022, and our business could continue to be affected by inflation in
the future.
Factors Affecting Our Performance
The following factors
have been important to our business and we expect them to impact our results of operations and financial condition in future periods:
Continued adoption of our services
and products
Our performance depends
on our ability to drive adoption of our integrated platform of proteomic solutions and services, initially in the research and clinical
markets. We have a well-established base of marquee customer and Key Opinion Leaders (“KOL”) relationships in place,
and as we grow further, we expect to win contracts with new customers and expand the scope of existing contracts with existing customers.
To facilitate this growth, we will grow our commercial organization and raise awareness through all available channels, including our
KOL relationships and relevant publications. We plan to develop and grow our offering of reagents and corresponding solutions, including
both small and large plex capabilities, site-of-service deployed assay options, and bioinformatics offerings to attract additional customers
and cross-sell to existing customers. Additionally, we have an ongoing focus on growing our proteomics database and artificial intelligence
and machine learning analytics to drive value and market opportunities. We expect our total revenue may vary from period to period based
on, among other things, the timing and size of new contracts, fluctuations in customer consumption of and adoption trends, ramp time
and productivity of our salesforce, the impact of significant transactions, and seasonality. Failure to effectively develop and expand
our sales and marketing capabilities or improve the productivity of our sales and marketing organization could harm our ability to expand
our potential customer and sales pipeline, increase our customer base, and achieve broader market acceptance of our offering.
Continued investment in growth
Our significant revenue
growth has been driven by rapid innovation towards novel solutions that command price premiums and quick adoption of our solutions by
our customer base. We intend to continue to make focused investments to increase revenue and scale operations to support growth and therefore
expect expenses in this area to increase. We have invested, and will continue to invest, significantly in our laboratory process and
commercial infrastructure. Investments in research and development will include hiring of employees with the necessary scientific and
technical backgrounds to enable enhancements to our existing services and products and bring new services and products to market. Additionally,
we plan to invest in sales and marketing activities, and expect to incur additional general and administrative expenses. To support the
expansion, expenditures to develop and mature operational processes, financial and management information systems are expected to be
incurred. As cost of revenue, operating expenses and capital expenditures fluctuate over time, we may experience short-term, negative
impacts to our results of operations and cash flows, but we are undertaking such investments in the belief that they will contribute
to long-term growth.
We have made, and intend
to continue to make, investments that meet management’s criteria to expand or add key technologies we believe will facilitate the
development and commercialization of new products or services in the future. Such investments could take the form of an asset acquisition,
the acquisition of a business or the exclusive or non-exclusive license of patented technology. Any acquisitions we make may affect our
future financial results.
Ability to lower the costs associated
with performing the assay
Reducing the costs associated
with performing our assay is both our focus and strategic objective. Over the long term, our objective is to reduce the cost of raw materials
by improving the output efficiency of our assays and laboratory processes. Our approach to reducing these costs include, but are not
limited to, modifying our assays and laboratory processes to use materials and technologies that provide equal or greater quality at
lower cost, improving how we manage our materials and negotiating favorable terms for our materials purchases. We plan to reduce the
cost of performing our SomaScan® assay as we move to either a less expensive array or Next Generation Sequencing system for our DNA
readout of the protein concentrations present in a sample.
Seasonality
Our revenue can be seasonal
dependent upon the spending patterns of our customers. Seasonality results from a number of factors, including the procurement and budgeting
cycles of many of our customers, especially government- or grant-funded customers, whose cycles often coincide with government fiscal
year ends. For example, the academic budgetary cycle requires grantees to “use or lose” their grant funding, which seems
to be tied disproportionately to the end of the calendar year, driving sales higher during the fourth quarter. Similarly, our biopharmaceutical
customers typically have calendar year fiscal years which also result in a disproportionate amount of their purchasing activity occurring
during our fourth quarter.
Development and commercialization
of clinical diagnostic tests
To facilitate a more complete
understanding of human biology and improve human wellness, we aim to continue to advance our portfolio of clinical diagnostic tests that
leverage our proprietary proteomics platform and artificial intelligence-enabled bioinformatics. By developing additional tests, the
Company can provide more options to customers and collaborators and further commercialize our platform driving growth in revenue.
We have released 16 SomaSignal™
tests as LDTs under our CLIA license as of December 31, 2021. We have also developed 20 tests for the RUO market, most of which are directed
at characterizing individuals in clinical trials. We continue to invest in our SomaSignal™ test pipeline, largely directed at tests
helping to manage chronic disease and will be of significant interest to health system providers. We anticipate approximately four to
eight additional LDT SomaSignal™ tests and approximately five to 10 SomaSignal™ tests for the RUO market to clear our development
and validation process during 2022.
We are working closely
with our clinical implementation partners and prioritizing the test pipeline to have the greatest impact on their business. Our plan
is for these tests to focus on disease management and facilitate early intervention in diseases with the highest morbidity and mortality
burden, such as type 2 diabetes, obesity, and cardiovascular disease.
Working in conjunction
with our proteomics database and bioinformatics capabilities, our broad and versatile foundational assay, SomaScan®, enables the
natural expansion of our test menu given the continuous incorporation of real-world data into our growing foundational assay. We believe
this dynamic will support continuous and long-term growth of our research and clinical diagnostics business. Additionally, with our growing
foundational assay in place as the single source for all new test menus, we believe we are well positioned to expand to additional adjacent
markets within proteomics and genomics.
Expansion of our proteomic content
As of December 31, 2021,
we have a library of slow off-rate modified aptamers, SOMAmers® reagents against approximately 7,000 protein target measurements
of the 20,000 known canonical proteins encoded in the human genome. We believe the breadth (number of proteins measured) of our SomaScan®
assay is superior to other technologies in an aspect that is vital to customers. For each protein, we typically have a collection of
100’s to 1000’s of proprietary “monoclonal” SOMAmer® reagents (reagents with unique and defined sequences)
from which we select and place one, or in some cases several, reagents on our SomaScan® assay. Any follow-up studies, which are of
interest to many of our customers and partners, are facilitated with these collections of reagents, which is uniquely possible with our
technology. To maintain our competitive advantage, we plan to increase the number of protein reagents to approximately 10,000 in 2023
for commercial availability based on allocated funding, resource availability, and the successful validation of new reagents. Upon successful
commercialization of the new reagents, the impact to cost of revenue for the new proteomic content is estimated to be offset by the increased
efficiencies we may gain from sample volume growth and value engineering initiatives.
Macroeconomic conditions
A deterioration in macroeconomic
economic conditions including risk of recession, effects of inflation, labor shortages, supply chain issues and higher interest rates
could impact both our and our customers’ operations. We could experience pricing pressure and decreased demand as a result.
Components of Results of Operations
Revenue
We derive our revenue
from four primary sources: (1) assay services revenue, (2) product revenue, (3) collaboration revenue, and (4) other revenue. Customers
include top biopharmaceutical companies and leading academic research universities.
Assay services revenue
We generate assay services
revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived from performing the SomaScan®
assay on customer samples to generate data on protein biomarkers. We expect assay services revenue to increase over the long-term with
new and recurring sales opportunities. With the enhancement of our proteomic services, we expect to capture more market opportunities
outside of the United States region, as well as winning contracts with new customers and expanding the scope of sales with existing customers.
Product revenue
Product revenue primarily
consists of equipment and kit sales, which enable our customers to bring the SomaScan® proteomic platform in-house and to build lines
of business based on this technology. In preparation for a full-scale re-launch, we are establishing agreements with several sites to
deploy kits in the future. This will allow SomaLogic to quickly grow into new geographic regions and expand our customer base.
Collaboration revenue
Collaboration revenue
consists of fees earned for research and development services, except for grant revenue research and development services that are classified
in other revenue. Collaboration revenue currently relates to an arrangement with one customer, NES, a wholly owned subsidiary of NEC.
We believe expanding collaborative arrangements with KOLs will allow for further enhancements of our integrated platform, lower barriers
to adoption and introduce or expand new market channels and customers within geographic regions and markets we do not currently operate
in.
Other revenue
Other revenue includes
royalty revenue and revenue received from research grants. The Company recognizes royalty revenue for fees paid by customers in return
for the exclusive license to make, use or sell certain licensed products in certain geographic areas. Grant revenue represents funding
under cost reimbursement programs from government agencies, and non-profit foundations for qualified research and development activities
performed by the Company. We expect other revenue to continue to grow as we expand our commercial team and continue to pursue additional
licensing relationships.
Cost of revenue
Cost of assay services revenue
Cost of assay services
revenue consists of raw materials and production costs, salaries and other personnel costs, overhead and other direct costs related to
assay services revenue. It also includes provisions for excess or obsolete inventory and costs for production variances, such as yield
losses, material usages, spending and capacity variances. Cost of assay services revenue also includes royalty fees that the Company
owes to third parties related to assay services.
We expect cost of assay
services revenue to increase as we grow our sample volume. We expect the cost per sample to decrease over the long term due to the efficiencies
we may gain as sample volume increases from improved utilization of our laboratory capacity and other value engineering initiatives.
If our sample volume throughput is reduced as a result of the COVID-19 pandemic or otherwise, cost of revenue as a percentage of total
revenue may be adversely impacted due to fixed overhead cost.
Cost of product revenue
Cost of product revenue
consists of raw materials and production costs, salaries and other personnel costs, overhead and other direct costs related to product
revenue. Cost of product revenue is recognized in the period the related revenue is recognized. Shipping and handling costs incurred
for product shipments are included in cost of product revenue in the consolidated statements of operations and comprehensive loss. Cost
of product revenue also includes royalty fees that the Company owes to third parties related to the sale of products.
Research and development
Research and development
expenses consist primarily of salaries and benefits, laboratory supplies, clinical study costs, consulting fees and related costs. We
believe that our continued investment in research and development is essential to our long-term competitive position. We plan to continue
to invest significantly in our research and development efforts, including hiring additional employees, with an expected focus on advancing
our assay and our bioinformatics platform, new clinical studies, as well as lowering the cost of assays. As a result of these and other
initiatives, we expect research and development expenses will increase in absolute dollars in future periods and vary from period to
period as a percentage of revenue.
Selling, general and administrative
Selling expenses consist
primarily of personnel and marketing related costs. General and administrative expenses consist primarily of personnel costs for our
finance, human resources, business development and general management, as well as professional services, such as legal and accounting
services.
As we continue to introduce
new services and products, broaden our customer base and grow our business, we expect selling, general and administrative expenses to
increase in future periods as the number of sales and marketing and administrative personnel grows. We also anticipate incurring increased
accounting, audit, legal, regulatory, compliance, director and officer insurance costs, as well as, investor and public relations expenses
associated with operating as a public company.
Interest income and other, net
Interest income and other,
net primarily consists of interest earned on our cash equivalents and investments, which are invested in money market funds, commercial
paper, corporate bonds, agency bonds, United States Treasuries, asset-backed securities, and international government securities.
Interest expense
Prior to the Business
Combination, we had received various forms of financing including convertible debt, a credit agreement, and funds issued through the
Paycheck Protection Program (“PPP”). Prior to the consummation of the Business Combination, these forms of debt were
settled or forgiven. Interest expense is attributable to our borrowings under these debt agreements, as well as the change in fair value
of the compound derivative liability and non-cash amortization of debt issuance costs.
Change in fair value of warrant
liabilities
Change in fair value of
warrant liabilities consists of changes in fair value related to the Public Warrant and Private Warrant liabilities. The warrant liabilities
are classified as marked-to-market liabilities pursuant to ASC 815, Derivatives and Hedging (“ASC 815”),
and the corresponding increase or decrease in value impacts our net loss.
Change in fair value of earn-out
liability
Change in fair value of
earn-out liability consists of changes in the earn-out liability related to Earn-Out Shares issued as part of the Business Combination.
The earn-out liability is classified as a marked-to-market liability pursuant to ASC 815 and the corresponding increase or decrease in
value impacts our net loss.
Loss on extinguishment of debt,
net
Loss on extinguishment
of debt, net consists of a loss on extinguishment of debt due to conversion of the Convertible Debt and repayment of the Amended and
Restated Credit Agreement, and offset by a gain on extinguishment of debt due to forgiveness of the PPP loan during the year ended December
31, 2021. Loss on extinguishment of debt, net for the year ended December 31, 2020 is due to the partial prepayment of the Amended and
Restated Credit Agreement in November 2020.
Results of Operations
Comparison of the three months
ended June 30, 2022 versus the three months ended June 30, 2021
Revenue
| |
Three Months Ended June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Assay services revenue | |
$ | 10,931 | | |
$ | 16,236 | | |
$ | (5,305 | ) | |
| (33 | )% |
Product revenue | |
| 714 | | |
| 462 | | |
| 252 | | |
| 55 | % |
Collaboration revenue | |
| 762 | | |
| 762 | | |
| - | | |
| - | % |
Other revenue | |
| 1,737 | | |
| 2,320 | | |
| (583 | ) | |
| (25 | )% |
Total revenue | |
$ | 14,144 | | |
$ | 19,780 | | |
$ | (5,636 | ) | |
| (28 | )% |
Total revenue decreased
by $5.6 million, or 28%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.
The $5.3 million, or 33%,
decrease in assay services revenue for the three months ended June 30, 2022 compared to the three months ended June 30, 2021
was primarily due to a decrease in sample volumes resulting from fluctuations in consumer consumption, offset partially by an increase
in average selling price driven by customer mix.
Product revenue increased
by $0.3 million, or 55%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily
due to the sale of equipment to new kits customers.
Other revenue decreased
by $0.6 million, or 25%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 primarily
due to a $1.1 million decrease in royalty revenue driven by a decrease in COVID-19 research funding, offset by a $0.5 million increase
in grant revenue.
Cost of revenue
| |
Three Months Ended June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Cost of assay services revenue | |
$ | 6,571 | | |
| 7,656 | | |
| (1,085 | ) | |
| (14 | )% |
Cost of product revenue | |
| 506 | | |
| 329 | | |
| 177 | | |
| 54 | % |
Total cost of revenue | |
$ | 7,077 | | |
| 7,985 | | |
| (908 | ) | |
| (11 | )% |
Total cost of revenue
decreased by $0.9 million, or 11%, for the three months ended June 30, 2022 compared to the three months ended June 30,
2021.
Cost of assay services
revenue decreased by $1.1 million, or 14%, for the three months ended June 30, 2022 compared to the three months ended
June 30, 2021. The decrease in cost of assay services revenue was primarily due to a decrease in sample volumes resulting from fluctuations
in consumer consumption. This decrease was offset by varying degrees of production inefficiencies due to delays in sample receipts.
Cost of product revenue
increased by $0.2 million, or 54%, for the three months ended June 30, 2022 compared to the three months ended June 30,
2021 primarily due to the sale of equipment to new kits customers.
Research and development
| |
Three
Months Ended June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Research and development | |
$ | 17,636 | | |
$ | 8,590 | | |
$ | 9,046 | | |
| 105 | % |
Research and development
increased by $9.0 million, or 105%, for the three months ended June 30, 2022 compared to the three months ended June 30,
2021. The increase in research and development was primarily due to a $4.7 million increase in professional services and supplies related
to projects for reducing costs and content expansion, a $1.9 million increase related to increase in internal clinical studies, a $1.7
million increase in wages and benefits due to increased headcount in our research and development team and a $0.8 million increase
in stock-based compensation expense due to new option and RSU grants and Earn-Out Shares issued to certain employees and directors of
SomaLogic (“Earn-Out Service Providers”).
Selling, general, and administrative
| |
Three
Months Ended June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Selling, general and administrative | |
$ | 36,812 | | |
$ | 14,833 | | |
$ | 21,979 | | |
| 148 | % |
Selling, general, and
administrative increased by $22.0 million, or 148%, for the three months ended June 30, 2022 compared to the three months
ended June 30, 2021. The increase in selling, general and administrative was primarily due to a $4.4 million increase in advisory
and management services incurred in relation to public-company compliance and other transactions, including costs incurred in relation
to the Palamedrix Merger, a $7.5 million increase in wages and benefits due to increased headcount in our commercial and administrative
teams, a $6.4 million increase in services incurred related to marketing initiatives and product development, a $3.7 million increase
in stock-based compensation expense due to new option, RSU grants and Earn-Out Shares issued to Earn-Out Service Providers.
Other income (expense)
| |
Three Months Ended June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Other income (expense): | |
| | |
| | |
| | |
| |
Interest income and other, net | |
$ | 833 | | |
$ | 69 | | |
$ | 764 | | |
| NM | |
Interest expense | |
| - | | |
| (148 | ) | |
| 148 | | |
| (100 | )% |
Change in fair value of warrant liabilities | |
| 14,536 | | |
| - | | |
| 14,536 | | |
| NM | |
Change in fair value of earn-out liability | |
| 9,027 | | |
| - | | |
| 9,027 | | |
| NM | |
Loss on extinguishment of debt, net | |
| - | | |
| (1,630 | ) | |
| 1,630 | | |
| (100 | )% |
Total other income (expense) | |
$ | 24,396 | | |
$ | (1,709 | ) | |
$ | 26,105 | | |
| | |
NM | A percentage calculation is not meaningful
due to change in signs, a zero-value denominator or a percentage change greater than 200. |
Interest income and other,
net increased by $0.8 million for the three months ended June 30, 2022 compared to the three months ended June 30,
2021 due to an average higher cash equivalents and investment balances as well as rising interest rates during the three months ended
June 30, 2022 compared to the three months ended June 30, 2021.
Interest expense decreased
by $0.1 million, or 100%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021
primarily due to the interest on the credit agreement during the three months ended June 30, 2021. The credit agreement was paid
back in full in April 2021.
The change in fair value
of warrant liabilities resulted in a gain of $14.5 million during the three months ended June 30, 2022, due to the quarterly remeasurement
of the warrant liabilities. The warrant liabilities were recorded as part of the Business Combination and did not exist during the three
months ended June 30, 2021. Therefore no remeasurement of the warrant liabilities was recorded in the prior period.
The change in fair value
of the earn-out liability resulted in a gain of $9.0 million for the three months ended June 30, 2022, due to the quarterly remeasurement
of the earn-out liability. The earn-out liability was recorded as part of the Business Combination and did not exist during the three
months ended June 30, 2021. Therefore no remeasurement of the earn-out liability was recorded in the prior period.
Loss on extinguishment
of debt, net of $1.6 million for the three months ended June 30, 2021 is due to a $5.2 million loss on extinguishment of debt as a result
of the repayment of the Amended and Restated Credit Agreement in April 2021, offset by a $3.6 million gain on extinguishment of debt
as of result of the forgiveness of the PPP loan in June 2021.
Comparison of the six months ended
June 30, 2022 versus the six months ended June 30, 2021
Revenue
| |
Six Months Ended June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
| |
| | |
| | |
| | |
| |
Assay services revenue | |
$ | 29,731 | | |
$ | 30,809 | | |
$ | (1,078 | ) | |
| (3 | )% |
Product revenue | |
| 1,167 | | |
| 655 | | |
| 512 | | |
| 78 | % |
Collaboration revenue | |
| 1,525 | | |
| 1,525 | | |
| - | | |
| - | % |
Other revenue | |
| 4,701 | | |
| 5,651 | | |
| (950 | ) | |
| (17 | )% |
Total revenue | |
$ | 37,124 | | |
$ | 38,640 | | |
$ | (1,516 | ) | |
| (4 | )% |
Total revenue decreased
by $1.5 million, or 4%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
The $1.1 million, or 3%,
decrease in assay services revenue for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was
primarily due to a decrease in sample volumes resulting from fluctuations in consumer consumption.
Product revenue increased
by $0.5 million, or 78%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due
to the sale of equipment to new kits customers.
Other revenue decreased
by $1.0 million, or 17%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily due
to a decrease in royalty revenue driven by a decrease in COVID research funding, offset by a slight increase in grant revenue.
Cost of revenue
| |
Six Months Ended
June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Cost of assay services revenue | |
$ | 17,951 | | |
$ | 13,811 | | |
$ | 4,140 | | |
| 30 | % |
Cost of product revenue | |
| 778 | | |
| 419 | | |
| 359 | | |
| 86 | % |
Total cost of revenue | |
$ | 18,729 | | |
$ | 14,230 | | |
$ | 4,499 | | |
| 32 | % |
Total cost of revenue
increased by $4.5 million, or 32%, for the six months ended June 30, 2022 compared to the six months ended June 30,
2021.
Cost of assay services
revenue increased by $4.1 million, or 30%, for the six months ended June 30, 2022 compared to the six months ended June 30,
2021. The increase in cost of assay services revenue was primarily due to varying degrees of production inefficiencies due to delays
in sample receipts.
Cost of product revenue
increased by $0.4 million, or 86%, for the six months ended June 30, 2022 compared to the six months ended June 30,
2021 primarily due to the sale of equipment to new kits customers.
Research and development
| |
Six Months Ended
June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Research and development | |
$ | 31,436 | | |
$ | 16,708 | | |
$ | 14,728 | | |
| 88 | % |
Research and development
increased by $14.7 million, or 88%, for the six months ended June 30, 2022 compared to the six months ended June 30,
2021. The increase in research and development was primarily due to a $8.8 million increase in professional services and supplies related
to projects for reducing costs and content expansion, a $0.9 million increase in internal clinical studies, a $3.3 million increase in
wages and benefits due to increased headcount in our research and development team and a $1.7 million increase in stock-based compensation
expense due to new option and RSU grants and Earn-Out Shares issued to Earn-Out Service Providers.
Selling, general, and administrative
| |
Six Months Ended
June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Selling, general and administrative | |
$ | 67,627 | | |
$ | 27,642 | | |
$ | 39,985 | | |
| 145 | % |
Selling, general, and
administrative increased by $40.0 million, or 145%, for the six months ended June 30, 2022 compared to the six months
ended June 30, 2021. The increase in selling, general and administrative was primarily due to a $6.4 million increase in advisory
and management services incurred in relation to public-company compliance and other transactions, including costs incurred in relation
to the Palamedrix acquisition, a $14.9 million increase in wages and benefits due to increased headcount in our commercial team,
a $10.7 million increase in services incurred related to marketing initiatives and product development, and a $8.0 million increase
in stock-based compensation expense due to new option and RSU grants and Earn-Out Shares issued to Earn-Out Service Providers.
Other income (expense)
| |
Six Months Ended June 30, | | |
Change | |
(in thousands) | |
2022 | | |
2021 | | |
$ | | |
% | |
Other income (expense): | |
| | |
| | |
| | |
| |
Interest income and other, net | |
$ | 1,039 | | |
$ | 71 | | |
$ | 968 | | |
| NM | |
Interest expense | |
| - | | |
| (1,322 | ) | |
| 1,322 | | |
| (100 | )% |
Change in fair value of warrant liabilities | |
| 27,176 | | |
| - | | |
| 27,176 | | |
| NM | |
Change in fair value of earn-out liability | |
| 25,489 | | |
| - | | |
| 25,489 | | |
| NM | |
Loss on extinguishment of debt, net | |
| - | | |
| (1,630 | ) | |
| 1,630 | | |
| (100 | )% |
Total other income (expense) | |
$ | 53,704 | | |
$ | (2,881 | ) | |
$ | 56,585 | | |
| | |
NM | A percentage calculation is not meaningful
due to change in signs, a zero-value denominator or a percentage change greater than 200. |
Interest income and other,
net increased by $1.0 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021
due to an average higher cash equivalents and investment balances as well as rising interest rates during the six months ended June 30,
2022 compared to the six months ended June 30, 2021.
Interest expense decreased
by $1.3 million, or 100%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 primarily
due to the interest on the credit agreement during the three months ended June 30, 2021. The credit agreement was paid back in full
in April 2021.
The change in fair value
of warrant liabilities resulted in a gain of $27.2 million during the six months ended June 30, 2022, due to the quarterly remeasurement
of the warrant liabilities. The warrant liabilities were recorded as part of the Business Combination and did not exist during the six
months ended June 30, 2021. Therefore no remeasurement of the warrant liabilities was recorded in the prior period.
The change in fair value
of the earn-out liability resulted in a gain of $25.5 million for the six months ended June 30, 2022, due to the quarterly remeasurement
of the earn-out liability. The earn-out liability was recorded as part of the Business Combination and did not exist during the six months
ended June 30, 2021. Therefore no remeasurement of the earn-out liability was recorded in the prior period.
Loss on extinguishment
of debt, net of $1.6 million for the six months ended June 30, 2021 is due to a $5.2 million loss on extinguishment of debt as a
result of the repayment of the Amended and Restated Credit Agreement in April 2021, offset by a $3.6 million gain on extinguishment of
debt as of result of the forgiveness of the PPP loan in June 2021.
Comparison of Year Ended December
31, 2021 to Year Ended December 31, 2020
Revenue
| |
Year Ended December 31, | | |
Change | |
(in thousands) | |
2021 | | |
2020 | | |
$ | | |
% | |
Revenue: | |
| | |
| | |
| | |
| |
Assay services revenue | |
$ | 68,038 | | |
$ | 45,827 | | |
$ | 22,211 | | |
| 48 | % |
Product revenue | |
| 1,277 | | |
| 1,907 | | |
| (630 | ) | |
| (33 | )% |
Collaboration revenue | |
| 3,051 | | |
| 2,483 | | |
| 568 | | |
| 23 | % |
Other revenue | |
| 9,260 | | |
| 5,672 | | |
| 3,588 | | |
| 63 | % |
Total revenue | |
$ | 81,626 | | |
$ | 55,889 | | |
$ | 25,737 | | |
| 46 | % |
Total revenue increased
by $25.7 million, or 46%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Assay services revenue
increased by $22.2 million, or 48%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to
a $20.8 million increase related to sample volumes and a $1.4 million increase related to higher-than-average price per sample as a result
of the reintroduction of the fee-for-service model in the second half of 2020.
Product revenue decreased
by $0.6 million, or 33%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to a reduction
in the volume of kits sold as we discontinue sales of kits on our previous platform and prepare to re-launch kits on our upgraded platform.
Collaboration revenue
increased by $0.6 million, or 23%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to
the modification of our existing collaborative arrangement to develop a professional software tool to enable SomaScan® customers
to easily access and interpret the highly multiplexed proteomic data generated by SomaLogic’s SomaScan® assay technology in
March 2020. SomaLogic and NEC modified the collaboration agreement by entering into a new collaborative arrangement with NES in March
2020 to develop and commercialize SomaScan® services in Japan.
Other revenue increased
by $3.6 million, or 63%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to a $3.3 million
increase in royalty income related to an exclusive license to provide specific SOMAmers® in certain current and future products and
a $0.3 million increase related to grant revenue arrangements.
Cost of revenue
| |
Year Ended December 31, | | |
Change | |
(in thousands) | |
2021 | | |
2020 | | |
$ | | |
% | |
Cost of assay services revenue | |
$ | 32,782 | | |
$ | 21,857 | | |
$ | 10,925 | | |
| 50 | % |
Cost of product revenue | |
| 681 | | |
| 757 | | |
| (76 | ) | |
| (10 | )% |
Total cost of revenue | |
$ | 33,463 | | |
$ | 22,614 | | |
$ | 10,849 | | |
| 48 | % |
Total cost of revenue
increased by $10.8 million, or 48%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Cost of assay services
revenue increased by $10.9 million, or 50%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase
in cost of assay services revenue was primarily due to an increase in manufacturing costs as a result of volume increases.
Cost of product revenue
decreased by $0.1 million, or 10%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to
a reduction in the volume of kits sold, partly offset by an increase in the cost of materials.
Research and development
| |
Year Ended December 31, | | |
Change | |
(in thousands) | |
2021 | | |
2020 | | |
$ | | |
% | |
Research and development | |
$ | 43,496 | | |
$ | 30,749 | | |
$ | 12,747 | | |
| 41 | % |
Research and development
increased by $12.7 million, or 41%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in
research and development was primarily due to an $6.5 million non-recurring, non-cash stock-based compensation expense related to the
sale of common stock and vested options by an employee to an economic interest holder in excess of fair value, a $4.5 million increase
in professional services and supplies related to projects for reducing costs and content expansion, and a $1.7 million increase in wages
and benefits due to increased headcount in our research and development team.
Selling, general, and administrative
| |
Year Ended December 31, | | |
Change | |
(in thousands) | |
2021 | | |
2020 | | |
$ | | |
% | |
Selling, general and administrative | |
$ | 77,971 | | |
$ | 36,882 | | |
$ | 41,089 | | |
| 111 | % |
Selling, general, and
administrative increased by $41.1 million, or 111%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
The increase in selling, general and administrative was primarily due to a $17.2 million increase in advisory and management services
incurred in relation to public-readiness preparations and other transactions, a $10.9 million increase in wages and benefits due to increased
headcount in our commercial team, a $5.5 million increase in stock-based compensation expense due to new option grants, Earn-Out Shares
issued to Earn-Out Service Providers and option modifications, a $6.7 million increase in services incurred related to market research
and marketing initiatives, and a $0.8 million increase in stock-based compensation expense for consulting services.
Other expense
| |
Year
Ended December
31, | | |
Change | |
(in thousands) | |
2021 | | |
2020 | | |
$ | | |
% | |
Other expense: | |
| | |
| | |
| | |
| |
Interest income and other, net | |
$ | 225 | | |
$ | 230 | | |
$ | (5 | ) | |
| (2 | )% |
Interest expense | |
| (1,324 | ) | |
| (18,338 | ) | |
| 17,014 | | |
| (93 | )% |
Change in fair value of warrant liabilities | |
| (6,952 | ) | |
| - | | |
| (6,952 | ) | |
| 100 | % |
Change in fair value of earn-out liability | |
| (1,869 | ) | |
| - | | |
| (1,869 | ) | |
| 100 | % |
Loss on extinguishment of debt,
net | |
| (4,323 | ) | |
| (551 | ) | |
| (3,772 | ) | |
| 685 | |
Total other expense | |
$ | (14,243 | ) | |
$ | (18,659 | ) | |
$ | 4,416 | | |
| (24 | )% |
Total other expense decreased
by $4.4 million, or 24%, for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Interest income and other,
net decreased by less than $0.1 million, or 2%, for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily
due to lower interest rates on investments, partly offset by an average higher cash equivalents and investment balances during the year
ended December 31, 2021 compared to the year ended December 31, 2020.
Interest expense decreased
by $17.0 million, or 93%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The decrease in interest
expense was primarily due to a $12.3 million change in the fair value of the compound derivative liability for the year ended December
31, 2020. In April 2021, the Company repaid the Amended and Restated Credit Agreement in full and the fair value of the compound derivative
liability was included in the net carrying amount of the debt used to determine the loss on extinguishment of debt. As a result, interest
expense related to the Amended and Restated Credit Agreement was $4.6 million less during the year ended December 31, 2021 compared to
the year ended December 31, 2020. Additionally, the Convertible Debt was converted into equity in July 2021, and as a result the interest
expense related to the Convertible Debt was $0.1 million less during the year ended December 31, 2021 compared to the year ended December
31, 2020.
Change in fair value of
warrant liabilities of $7.0 million for the year ended December 31, 2021 is due to an increase in the fair value of the warrant liabilities
as of December 31, 2021 compared to the Closing Date of the Business Combination. The warrant liabilities were recorded as part of the
Business Combination and therefore did not exist in the prior year.
Change in fair value of
the earn-out liability of $1.9 million for the year ended December 31, 2021 is due to an increase in the fair value of the earn-out liability
as of December 31, 2021 compared to the Closing Date of the Business Combination. The earn-out liability was recorded as part of the
Business Combination and therefore did not exist in the prior year.
Loss on extinguishment
of debt, net of $3.8 million for the year ended December 31, 2021 is due to a $5.2 million loss on extinguishment of debt as a result
of the repayment of the Amended and Restated Credit Agreement in April 2021 and a $2.7 million loss on extinguishment of debt as a result
of the conversion of the Convertible Debt in July 2021, offset by a $3.6 million gain on extinguishment of debt as of result of the forgiveness
of the PPP loan in June 2021. Loss on extinguishment of debt, net of $0.6 million for the year ended December 31, 2020 is due to the
partial prepayment of the Amended and Restated Credit Agreement in November 2020.
Non-GAAP Financial Measures
We present non-GAAP financial
measures in order to assist readers of our consolidated financial statements in understanding the core operating results used by management
to evaluate and run the business, as well as, for financial planning purposes. Our non-GAAP financial measure, Adjusted EBITDA, provides
an additional tool for investors to use in comparing our financial performance over multiple periods.
Adjusted EBITDA is a key
performance measure that our management uses to assess its operating performance. Adjusted EBITDA facilitates internal comparisons of
our operating performance on a more consistent basis, and we use this measure for business planning, forecasting, and decision-making.
We believe that Adjusted EBITDA enhances an investor’s understanding of our financial performance as it is useful in assessing
our operating performance from period-to-period by excluding certain items that we believe are not representative of our core business.
Adjusted EBITDA should
not be considered as an alternative to, or more meaningful than, net loss as determined in accordance with GAAP or as an indicator of
our operating performance. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing a company’s
financial performance. Our presentation of Adjusted EBITDA should not be construed as an inference that our results will be unaffected
by those adjusted items. Our Adjusted EBITDA may not be comparable to similarly titled measures of other companies because they may not
calculate this measure in the same manner.
Adjusted EBITDA
We calculate Adjusted
EBITDA as net loss adjusted to exclude interest expense, net, depreciation and amortization, and other non-recurring items. The other
non-recurring items include the loss on extinguishment of debt, net, a one-time non-cash stock-based compensation expense, and change
in the fair value of warrant liabilities and the earn-out liability.
The following table is
a reconciliation of net loss in accordance with GAAP to non-GAAP adjusted EBITDA for the three and six months ended June 30, 2022 and
2021:
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
(in thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Net loss | |
$ | (22,985 | ) | |
$ | (13,337 | ) | |
$ | (26,964 | ) | |
$ | (22,821 | ) |
Adjustments to reconcile to EBITDA: | |
| | | |
| | | |
| | | |
| | |
Interest income and other, net | |
| (833 | ) | |
| (69 | ) | |
| (1,039 | ) | |
| (71 | ) |
Interest expense | |
| — | | |
| 148 | | |
| — | | |
| 1,322 | |
Depreciation and amortization | |
| 963 | | |
| 674 | | |
| 1,718 | | |
| 1,377 | |
EBITDA | |
| (22,855 | ) | |
| (12,584 | ) | |
| (26,285 | ) | |
| (20,193 | ) |
Adjustments to reconcile to Adjusted EBITDA: | |
| | | |
| | | |
| | | |
| | |
Loss on extinguishment debt, net (1) | |
| — | | |
| 1,630 | | |
| — | | |
| 1,630 | |
Change in fair value of warrant liabilities (2) | |
| (14,536 | ) | |
| — | | |
| (27,176 | ) | |
| — | |
Change in fair value of earn-out
liability (3) | |
| (9,027 | ) | |
| — | | |
| (25,489 | ) | |
| — | |
Adjusted EBITDA | |
$ | (46,418 | ) | |
$ | (10,954 | ) | |
$ | (78,950 | ) | |
$ | (18,563 | ) |
|
(1) |
Represents
the $5.2 million loss on extinguishment of debt as a result of the repayment of the Amended and Restated Credit Agreement in April
2021 and offset by the $3.6 million gain on extinguishment of debt as a result of the forgiveness of the PPP loan in June 2021. |
|
(2) |
Represents
change in fair value of warrant liabilities. See Note 4, Fair Value Measurements, for more details. |
|
(3) |
Represents
change in fair value of earn-out liability. See Note 4, Fair Value Measurements, for more details. |
The following table is a reconciliation of net loss in accordance
with GAAP to non-GAAP adjusted EBITDA for the year ended December 31, 2021 and 2020:
| |
Year Ended December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Net loss | |
$ | (87,547 | ) | |
$ | (53,015 | ) |
Adjustments to reconcile to EBITDA: | |
| | | |
| | |
Interest expense, net | |
| 1,099 | | |
| 18,108 | |
Depreciation and amortization | |
| 2,569 | | |
| 2,823 | |
EBITDA | |
| (83,879 | ) | |
| (32,084 | ) |
Adjustments to reconcile to Adjusted
EBITDA: | |
| | | |
| | |
Loss
on extinguishment debt, net (1) | |
| 4,323 | | |
| 551 | |
One-time
non-cash stock-based compensation (2) | |
| 6,461 | | |
| - | |
Change
in fair value of warrant liabilities (3) | |
| 6,952 | | |
| - | |
Change
in fair value of earn-out liability (4) | |
| 1,869 | | |
| - | |
Adjusted EBITDA | |
$ | (64,274 | ) | |
$ | (31,533 | ) |
|
(1) |
For
the year ended December 31, 2021 represents the $5.2 million loss on extinguishment of debt as a result of the repayment of the Amended
and Restated Credit Agreement in April 2021, the $2.7 million loss on extinguishment of debt as a result of the conversion of the
Convertible Debt in July 2021, and offset by the $3.6 million gain on extinguishment of debt as a result of the forgiveness of the
PPP loan in June 2021. For the year ended December 31, 2020, represents the $0.6 million loss on extinguishment of debt as a result
of a partial prepayment of the Amended and Restated Credit Agreement in November 2020. See Note 10, Debt to our consolidated financial
statements included elsewhere in this prospectus, for more details. |
|
(2) |
Represents
a one-time non-cash stock-based compensation expense of $6.5 million related to the sale of stock and vested options by an employee
to an economic interest holder in excess of fair value. See Note 13, Stock-based Compensation, to our consolidated financial statements
included elsewhere in this prospectus, for more details on this secondary sale transaction. |
|
(3) |
Represents
fair value adjustments to warrant liabilities. See Note 5, Fair Value Measurements to our consolidated financial statements included
elsewhere in this prospectus, for more details. |
|
(4) |
Represents
fair value adjustments to earn-out liability. See Note 5, Fair Value Measurements to our consolidated financial statements included
elsewhere in this prospectus, for more details. |
Liquidity and Capital Resources
Liquidity Outlook
We believe that our existing
cash and cash equivalents and investments will be sufficient to support working capital and capital expenditure requirements for at least
the next 12 months. Our future capital requirements will depend on many factors, including our sample volume growth rate, the pace of
expansion of sales and marketing activities, the timing and extent of spending to supporting research and development efforts, the introduction
of new and enhanced products and services, and the level of costs to operate as a public company. We may, in the future, enter into arrangements
to acquire or invest in complementary businesses, products and technologies.
Cash Sources
Historically, our primary
sources of liquidity have been proceeds from the Business Combination, cash collected from our customers, net proceeds from sale of our
capital stock, and borrowings from debt facilities. During the first six months of 2022, our primary source of liquidity was cash collected
from our customers in the amount of $72.3 million.
As of June 30, 2022, we did not have any outstanding
debt.
Cash Uses
Historically, our primary
use of cash has been to investment in research and development, our laboratory process, commercial infrastructure and scale our operations
to support growth.
We may be required to
seek additional equity or debt financing. In the event we require additional financing, we may not be able to raise such financing on
terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary to expand our operations
and invest in continued innovation, we may not be able to compete successfully, which would harm our business, operations, and financial
condition.
We also have entered into
various non-cancelable operating lease agreements for administrative and laboratory facilities. As of June 30, 2022, our total future
minimum lease commitments were $4.6 million, and we have two lease agreements for buildings to be constructed in Louisville, Colorado,
with lease terms that are expected to commence in 2023. See Note 5, Leases to our consolidated financial statements included elsewhere
in this prospectus, for more information on our lease commitments.
Cash flows
Comparison of Six Months Ended
June 30, 2022 to Six Months Ended June 30, 2021
The following table summarizes
our cash flows for the periods presented:
| |
Six Months Ended June 30, | |
(in thousands) | |
2022 | | |
2021 | |
Net cash used in operating activities | |
$ | (30,937 | ) | |
$ | (6,625 | ) |
Net cash provided by (used in) investing activities | |
| 8,886 | | |
| (72,188 | ) |
Net cash provided by (used in) financing activities | |
| 4,885 | | |
| (38,460 | ) |
Effect of exchange rates on cash,
cash equivalents and restricted cash | |
| (20 | ) | |
| (3 | ) |
Net decrease in cash, cash equivalents
and restricted cash | |
$ | (17,186 | ) | |
$ | (117,276 | ) |
Cash flows from operating activities
Cash
used in operating activities for the six months ended June 30, 2022 was $30.9 million, and was primarily attributable to a
net loss of $27.0 million, which included a non-cash gain on the change in fair value of the earn-out liability of $25.5 million and
a non-cash gain on the change in fair value of warrant liabilities of $27.2 million. This was partially offset by non-cash stock-based
compensation expense of $18.1 million, non-cash depreciation and amortization of $1.7 million, non-cash lease expense of right of use
asset of $0.7 million, non-cash provision for excess and obsolete inventory of $0.1 million, and non-cash amortization of premium on
available-for-sale securities, net, of $0.1 million. Additionally, we experienced a net increase in our operating assets and liabilities
of $29.3 million, which was primarily due to the $31.8 million increase in deferred revenue, a $3.5 million increase in accounts payable,
and a $3.4 million decrease in accounts receivable. These changes were partially offset by a $2.7 million decrease in accrued and other
liabilities and a $8.2 million increase in inventory.
Cash
used in operating activities for the six months ended June 30, 2021 was $6.6 million, which was primarily attributable to a net
loss of $22.8 million and was partially offset by non-cash stock-based compensation expense of $8.0 million, non-cash loss on extinguishment
of debt, net of $1.6 million, non-cash depreciation and amortization of $1.4 million, non-cash provision for excess and obsolete inventory
of $0.4 million, non-cash amortization of debt issuance costs, discounts and premiums of $0.3 million, non-cash amortization of premium
on available-for-sale securities, net, of $0.2 million, and non-cash paid-in-kind interest of $0.2 million. Additionally, we experienced
a net increase in our operating assets and liabilities of $4.2 million, which was primarily due to the $3.9 million decrease in accounts
receivable and a $2.5 million increase in deferred revenue. These changes were partially offset by a $0.9 million decrease in accrued
and other liabilities, the payment of paid-in-kind interest on extinguishment of debt of $0.8 million, and a $0.6 million increase in
prepaid expenses and other current assets.
Cash flows from investing activities
Cash provided by investing
activities for the six months ended June 30, 2022 was $8.9 million, consisting of $16.4 million for the proceeds from sales
and maturities of available-for-sale securities, net of purchase of available-for-sale securities, and $7.5 million for the purchase
of property and equipment.
Cash used in investing
activities for the six months ended June 30, 2021 was $72.2 million, consisting of $71.2 million for the purchase of available-for-sale
securities, net of proceeds from sales and maturities of available-for-sale securities, and $1.0 million for the purchase of property
and equipment.
Cash flows from
financing activities
Cash provided by financing
activities for the six months ended June 30, 2022 was $4.9 million, which was attributable to the proceeds from the exercise
of options to purchase our common stock.
Cash used in financing
activities for the six months ended June 30, 2021 was $38.5 million, consisting of $36.5 million for the repayment of long-term
debt and $4.7 million of deferred transaction costs related to the Business Combination, partially offset by $2.7 million in proceeds
from the exercise of options to purchase our common stock.
Comparison of Year Ended December
31, 2021 to Year Ended December 31, 2020
The following table summarizes
our cash flows for the periods presented:
| |
Year Ended
December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Net cash used in operating activities | |
$ | (36,972 | ) | |
$ | (28,338 | ) |
Net cash used in investing activities | |
| (185,431 | ) | |
| (9,535 | ) |
Net cash provided by financing activities | |
| 497,491 | | |
| 188,766 | |
Effect of exchange rates on cash,
cash equivalents and restricted cash | |
| (14 | ) | |
| (9 | ) |
Net increase in cash, cash equivalents
and restricted cash | |
$ | 275,074 | | |
$ | 150,884 | |
Cash flows from operating activities
Cash used in operating
activities for the year ended December 31, 2021 was $37.0 million, which was primarily attributable to a net loss of $87.5 million and
was partially offset by non-cash stock-based compensation expense of $28.4 million, non-cash change in the fair value of the warrant
liabilities of $7.0 million, non-cash change in the fair value of the earn-out liability of $1.9 million, loss on extinguishment of debt,
net of $4.3 million, non-cash depreciation and amortization of $2.6 million, non-cash PIK interest expense of $0.2 million, non-cash
provision for excess and obsolete inventory of $0.7 million, non-cash amortization of premium on available-for-sale securities, net,
of $0.4 million, non-cash amortization of debt issuance costs, discounts and premiums of $0.3 million. The cash used in operating activities
was also partially offset by a net increase in our operating assets and liabilities of $4.9 million.
Cash used in operating
activities for the year ended December 31, 2020 was $28.3 million, which was primarily attributable to a net loss of $53.0 million and
a net decrease in our operating assets and liabilities of $8.7 million, which were partially offset by non-cash stock-based compensation
expense of $15.2 million, non-cash change in fair value of the compound derivative liability of $12.3 million, non-cash depreciation
and amortization of $2.8 million, non-cash amortization of debt issuance costs, discounts, and premiums of $1.7 million. The net decrease
in our operating assets and liabilities was primarily due to the $13.3 million increase in accounts receivable and a $1.2 million increase
in deferred costs of services. These changes were offset by a $4.0 million increase in accounts payable, a $1.2 million increase in accrued
and other liabilities, and a $0.3 million decrease in deferred revenue.
Cash flows from investing activities
Cash used in investing
activities for the year ended December 31, 2021 was $185.4 million, consisting of $178.7 million for the purchase of available-for-sale
securities, net of proceeds from sales and maturities of available-for-sale securities, and $6.7 million for the purchase of property
and equipment.
Cash provided by investing
activities for the year ended December 31, 2020 was $9.5 million, consisting of $8.4 million from sales and maturities of available-for-sale
securities, net of amounts related to purchases of available-for-sale securities, offset by $1.1 million for the purchase of property
and equipment.
Cash flows from financing activities
Cash provided by financing
activities for the year ended December 31, 2021 was $497.5 million, consisting of the $357.2 million in net proceeds from the PIPE investment,
$172.9 million in net proceeds from the Business Combination, and $3.9 million in proceeds from the exercise of options to purchase our
common stock. The cash provided by financing activities was partially offset by the $36.5 million repayment of the Amended and Restated
Credit Agreement.
Cash provided by financing
activities for the year ended December 31, 2020 was $188.8 million, consisting of $5.0 million in proceeds related to the Simple Agreement
for Future Equity (“SAFE”), $3.5 million in proceeds from the PPP loan, and $1.1 million in proceeds from the exercise
of options to purchase our common stock.
Critical Accounting Policies and Estimates
Our discussion and analysis
of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in
accordance with United States generally accepted accounting principles, or GAAP. The preparation of the consolidated financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs, expenses and related
disclosures. We evaluate our estimates and judgments on an on-going basis. We base our estimates on current facts, historical and anticipated
results, trends, and other relevant assumptions that we believe are reasonable under the circumstances. Actual results could differ from
these estimates, and such differences could be material to the Company’s consolidated financial position and results of operations.
Within the context of these critical accounting policies, we are not currently aware of any reasonably likely event that would result
in materially different amounts being reported.
Our
significant accounting policies are described in more detail in Note 2, Significant Accounting
Policies, in our consolidated financial statements included elsewhere in this prospectus,
for more details. We believe that the following accounting policies are those most critical
as they require difficult, subjective, and/or complex judgments and estimates used in the
preparation of our consolidated financial statements.
Revenue recognition
We recognize revenue from
sales to customers under ASC 606, Revenue from Contracts with Customers (“ASC 606”). ASC 606 provides
a five-step model for recognizing revenue that includes identifying the contract with a customer, identifying the performance obligations
in the contract, determining the transaction price, allocating the transaction price to the performance obligations, and recognizing
revenue when, or as, an entity satisfies a performance obligation.
We recognize revenue when
or as control of promised goods or services is transferred to the customers, in an amount that reflects the consideration we expect to
be entitled to in exchange for those goods or services. Sales, value add, and other taxes collected concurrent with revenue-producing activities
are excluded from revenue and products are sold without the right of return.
Payment terms may vary
by customer, are based on customary commercial terms, and are generally less than one year. We do not adjust revenue for the effects
of a significant financing component for contracts where the period between the transfer of the goods or services and collection is one
year or less. We expense incremental costs to obtain a contract as incurred since the amortization period of the asset that would otherwise
be recognized is one year or less.
Assay services revenue
We generate assay services
revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived from performing the SomaScan® assay
on customer samples to generate data on protein biomarkers. Revenue from SomaScan® services is recognized at the time the analysis
data or report is delivered to the customer, which is when control has been transferred to the customer. SomaScan® services
are sold at a fixed price per sample without any volume discounts, rebates or refunds.
The delivery of each assay
data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction price must
be allocated to each performance obligation based on its relative standalone selling price. When assay services are included with other
products or services within a customer contract, judgment is required to determine whether the promises are distinct or should be combined
and to determine the transaction price allocation and standalone selling price. Standalone selling price is primarily determined based
on amounts invoiced to customers in observable transactions. Standalone selling price varies depending on customer size, volume and contract
length.
Product revenue
Product revenue primarily
consists of equipment and kit sales to customers who assay samples in their own laboratories. Equipment is generally accounted for as
a bundle with installation, qualification and training services. Revenue is recognized over time based on the progress made toward achieving
the performance obligation utilizing input methods, including costs and labor hours incurred. The Company receives fixed consideration
per kit and revenue from kit sales is recognized upon transfer of control to the customer. Shipping and handling costs billed to customers
are included in product revenue in the consolidated statements of operations and comprehensive loss.
Collaboration revenue
We provide research and
development services that are accounted for in accordance with ASC 808, Collaborative Arrangements, because both parties
are active participants and are exposed to significant risks and rewards depending on the activity’s commercial failure or success.
The most critical judgments used to estimate revenue from collaborative arrangements include the determination of units of account within
the scope of ASC 606, the number of distinct performance obligations, estimation of transaction price including allocation to the
identified performance obligations, and determination of the pattern of recognition.
Other revenue
Other revenue includes
royalty revenue and revenue received from research grants. We recognize royalty revenue for fees paid by customers in return for the
exclusive license to make, use or sell certain licensed products in certain geographic areas. We recognize revenue for a sales or usage-based royalty
promised in exchange for a license of intellectual property when the later of the following events occurs: (i) the subsequent sale
or usage occurs, or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty
has been satisfied. As such, revenue is recognized in the period in which the subsequent sale or usage has occurred.
Grant revenue represents
funding under cost reimbursement programs from government agencies and non-profit foundations for qualified research and development
activities performed by the Company. For efforts performed under these grant agreements, our policy is to recognize revenue when it is
reasonably assured that the grant funding will be received as evidenced through the existence of a grant arrangement, amounts eligible
for reimbursement are determinable and have been incurred, the applicable conditions under the grant arrangements have been met, and
collectability of amounts due is reasonably assured. The classification of costs incurred related to grants is based on the nature of
the activities provided by the Company. Grant revenue is recognized when the related costs are incurred and recorded in other revenue
in the consolidated statements of operations and comprehensive loss.
Illumina Cambridge, Ltd.
On December 31, 2021,
the Company entered into a multi-year arrangement with Illumina Cambridge, Ltd. (“Illumina Agreement”) to jointly
develop and commercialize co-branded kits that will combine Illumina’s Next Generation Sequencing (“NGS”) technology
with SomaLogic’s SomaScan technology. Pursuant to the agreement, we received a non-refundable upfront payment of $30.0 million
on January 4, 2022. This arrangement is accounted for in accordance with Topic 606 by analogy. The Company concluded there are two performance
obligations: (1) combined performance obligation that includes the following material promises: licenses, patents, training, transfer
of know-how and SOMAmer reagents necessary to use the SomaScan technology (“Bundled SomaScan Technology”), and (2)
an option to purchase goods post-commercialization with a material right (“Material Right”). The total transaction
price is subject to a constraint since it is uncertain that commercialization will be achieved; and therefore the transaction price was
determined to be $30.0 million and was allocated to each of the performance obligations identified on a relative standalone selling price
basis.
Bundled SomaScan Technology:
Revenue is recognized as control transfers when the SOMAmer reagents are shipped. The Company estimated the standalone selling price
(“SSP”) based on observable pricing of similar performance obligations.
Material Right: Revenue
is recognized when Illumina exercises its option to purchase goods post-commercialization. The Company estimated the SSP based on the
incremental discount adjusted for the likelihood that Illumina will exercise the option.
Contract Modification:
In June 2022, Illumina issued a purchase order that changed the future obligations due from SomaLogic under the Illumina Agreement.
The purchase order represents a contract modification that is accounted for prospectively as if it were a termination of the existing
contract and the creation of a new contract.
As a result, the Company
determined that there were three new performance obligations (total of five performance obligations): (1) equipment bundle that includes
customization services, integration services, system qualification services, site initiation services and training (“Equipment
Bundle”), (2) qualification kits, and (3) support services. The contract modification resulted in an increase in the transaction
price of $0.5 million. The updated transaction price was allocated between the performance obligations on a relative SSP basis.
Equipment Bundle: Revenue
is recognized over time based on the progress made toward achieving the performance obligation utilizing input methods, including costs
and labor hours incurred. The Company estimated the SSP based on observable pricing of similar performance obligations.
Qualification Kits:
Revenue is recognized as control transfers when the qualification kits are shipped. The Company estimated the SSP based on observable
pricing of similar performance obligations.
Support Services: Revenue
is recognized for the support services over the service period, using an input method based on time. The Company estimated the SSP based
on observable pricing of similar performance obligations.
During the three and six
ended June 30, 2022, the Company recognized $0.1 million of revenue pursuant to the Illumina Agreement.
Inventory
Inventory is stated at
the lower of cost or net realizable value on a first-in, first-out basis. Cost is determined using a standard cost system, whereby
the standard costs are updated periodically to reflect current costs. The Company estimates the recoverability of inventory by referencing
estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to
identify inventory that may expire prior to expected usage, no longer meets quality specifications, or has a cost basis in excess of
its estimated realizable value and records a charge to cost of revenue for such inventory as appropriate. In some cases, we have determined
a certain portion of inventories to be in excess or obsolete. In those cases, we write down the value of those inventories to their net
realizable value based upon judgment and estimates about future demand and market conditions. If actual market conditions are less favorable
than those projected by management, additional inventory write-downs may be required. Direct and indirect manufacturing costs incurred
during research and development activities are expensed to research and development as consumed. Judgment is required in determining
the value of inventory that is not expected to be used in our assay services within 12 months of the current reporting period and
is recorded as non-current inventory on the consolidated balance sheets.
Stock-based compensation
The Company incurs stock-based compensation
expense related to stock options, and we recognize stock-based employee compensation, net of an estimated forfeiture rate over
the employee’s requisite service period, which is generally the vesting period, on a straight-line basis. Stock-based compensation
costs are estimated at the grant date based on the fair value of the equity for financial reporting purposes. We utilize the Black-Scholes valuation
model for estimating the fair value of stock options granted. The fair value of each option is estimated on the date of grant. The model
assumptions include expected volatility, term, dividend yield and the risk-free interest rate. Assumptions used in applying the
Black-Scholes option-pricing model to determine the estimated fair value of stock options granted are complex, involve inherent
uncertainties and the application of judgment. As a result, if factors or expected outcomes change and significantly different assumptions
or estimates are used, the Company’s equity-based compensation could be materially different.
Set forth below are the
assumptions used in valuing the stock options granted and a discussion of the Company’s methodology for developing each of the
assumptions used:
| ● | Expected dividend yield - The
Company did not pay regular dividends on its common stock and does not anticipate paying
any dividends in the foreseeable future. Therefore, the Company used an expected dividend
yield of zero in the option valuation model. |
| ● | Expected volatility - Volatility
is a measure of the amount by which a financial variable, such as share price, has fluctuated
(historical volatility) or is expected to fluctuate (expected volatility) during a period.
The Company analyzes the volatility used by similar public companies at a similar stage of
development to estimate expected volatility. The comparable companies are chosen based on
their similar size, stage in the life cycle or area of specialty. |
| ● | Risk-free interest
rate - We use a range of United States Treasury rates with a term that
most closely resembles the expected life of the option as of the date of which the option
was granted. |
| ● | Expected average life
of options - The expected life assumption is the expected time to exercise.
The Company uses a simplified method to develop this assumption, which uses the average of
the vesting period and the contractual terms. |
Determination of Fair Value of
Common Stock
As there was no public
market for the Old SomaLogic common stock prior to the consummation of the Business Combination, on each grant date, Old SomaLogic developed
an estimate of the fair value of the Old SomaLogic common stock based on the information known to Old SomaLogic on the date of grant,
upon a review of any recent events and their potential impact on the estimated fair value per share of the Old SomaLogic common stock,
and in part on input from a third-party valuation firm.
The valuations of the
Old SomaLogic common stock were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants
Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (“Practice Aid”).
To determine the fair value of the Old SomaLogic common stock, Old SomaLogic utilized the probability-weighted expected return
method and incorporated valuations under different scenarios and methods, included the option pricing, or “backsolve” method,
which estimated the fair value of Old SomaLogic by reference to the value and preferences of its last round of financing, as well as
its capitalization.
The assumptions used to
determine the estimated fair value of the Old SomaLogic common stock were based on numerous objective and subjective factors, combined
with management’s judgment, including:
| ● | the progress of Old SomaLogic’s
research and development efforts, Old SomaLogic’s stage of development, and business
strategy; |
| ● | the rights, preferences,
and privileges of Old SomaLogic’s redeemable convertible preferred stock relative to
those of the Old SomaLogic common stock; |
| ● | the prices at which Old
SomaLogic sold shares of its redeemable convertible preferred stock; |
| ● | Old SomaLogic’s financial
condition and operating results, including its levels of available capital resources; |
| ● | equity market conditions
affecting comparable public companies; and |
| ● | general United States
market conditions and the lack of marketability of the Old SomaLogic common stock. |
As the public trading
market for our Common Stock has been established in connection with the consummation of the Business Combination, it is no longer necessary
for our Board of Directors (“Board”) to estimate the fair value of our Common Stock in connection with our accounting
for granted stock options and other such awards we may grant, as the fair value of our Common Stock will be determined based on the quoted
market price of our Common Stock.
Warrant Liabilities
We classify the warrants
as liabilities on the consolidated balance sheets as these instruments are precluded from being indexed to our own stock given that the
terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815. Since the warrants
meet the definition of a derivative under ASC 815-40, the Company recorded these warrants as long-term liabilities at fair value on the
date of the Business Combination, with subsequent changes in their respective fair values recognized within change in fair value of warrant
liabilities in the consolidated statements of operations and comprehensive loss at each reporting date.
Earn-Out Liability
As a result of the Business
Combination, the Company recognized Earn-Out Shares contingently issuable to former stockholders of Old SomaLogic as a liability in accordance
with ASC 815. The liability was included as part of the consideration transferred in the Business Combination and was recorded at fair
value. The earn-out liability is remeasured at the end of each reporting period, with the corresponding change in fair value recognized
within change in fair value of earn-out liability in the consolidated statements of operations and comprehensive loss at each reporting
date.
Recently Issued Accounting Pronouncements
Please refer to Note 2,
Significant Accounting Policies - Recent Accounting Pronouncements, in our consolidated financial statements included elsewhere in this
prospectus for a discussion of recent accounting pronouncements and their anticipated effect on our business.
Quantitative and Qualitative Disclosures
about Market Risks
Not required for smaller
reporting companies.
BUSINESS
Unless
expressly indicated or the context requires otherwise, the terms “SomaLogic,” the “Company,” the
“Registrant,” “we,” “us” and “our” in this prospectus refer
to SomaLogic, Inc., and where appropriate, our wholly-owned subsidiaries (including Old SomaLogic).
Company
Overview
Overview
SomaLogic
is a leading commercial-stage proteomics company. We have built an integrated proteomics platform that we believe is capable of robust,
high throughput proteomics analysis with broad proteome coverage, low limits of detection, high reproducibility and at low costs. We
designed our platform with the goal of being a universal proteomics platform, with the breadth (number of proteins measured) and precision
(accuracy of measurement) important for discovery and research applications, and both the reproducibility and robustness important for
clinical applications. Our platform is underpinned by our proprietary assay technology, our protein database (which we believe is one
of the largest proteomics databases worldwide), and artificial intelligence and machine learning capabilities. As of December 31, 2021,
our assay can measure approximately 7,000 protein target measurements in a single sample using only approximately 55 µL of plasma
or serum. Our proteomics database matches proteomics and clinical information and contains over 2.5 billion protein measurements with
over 675,000 participant-years of clinical follow-up. Leveraging our artificial intelligence-enabled bioinformatics capability, we use
our database to power diagnostic product development for our research and clinical customers. We currently run our platform within our
own laboratory, receive samples from customers and perform proteomics analysis on their behalf.
Our
proprietary platform is built upon our assay technology, our proprietary database, and artificial intelligence and machine learning bioinformatics
capabilities. Our foundational assay technology includes our library of modified aptamer protein identification reagents, referred to
as “SOMAmer® reagents,” and our SomaScan® assay. Our SOMAmer® reagents are proprietary
“slow off-rate modified aptamers” which are short, synthetic single stranded DNA (ssDNA) sequences developed to bind specific
protein targets with high affinity and specificity across the proteome. As of December 31, 2021, we have reagents targeting approximately
7,000 protein target measurements of the approximately 20,000 canonical human proteins included in our current SomaScan®
assay, and plan to increase this number to approximately 10,000 in 2023 for commercial availability. The SomaScan® assay
is utilized for RUO applications and SomaSignal™ tests, run on the SomaScan® Platform, and are also available as
LDTs in the United States.
Our
business model is currently focused on research and clinical customers. We continue to work with collaborators to explore new areas of
application for research and clinical proteomics. As a result of our significant government- or grant-funded customer base, whose cycles
often coincide with government fiscal year ends, our business is subject to significant seasonal factors which may cause sales of our
products to vary on a quarterly or yearly basis and increase the magnitude of quarterly or annual fluctuations in our operating results.
Our
assay services delivered to the research market are focused on pharmaceutical and biotechnology companies, and academic and government
research institutions. We facilitate drug development, analysis of clinical trials and new human biology insights by assessing protein-protein
and protein-gene networks. In addition to providing protein data for research customer use, as of December 31, 2021, we have released
20 SomaSignal™ RUO protein-pattern recognition tests covering multiple applications, including facilitation of clinical trials
(patient inclusion/exclusion, therapeutic effects of pharmaceuticals during trials, and other use cases).
Our
services and products delivered into the clinical market are focused on providing data-driven diagnostic tests aimed at enabling high
predictive power of biological disease and risks to patients based on high-plex proteomic measurement and bioinformatics predictive model
development. We have released 16 SomaSignal™ tests for use as LDTs under our CLIA certification since late 2019. We also have a
pipeline of over 100 unique tests that could be developed and use claims targeting multiple applications, including offerings for health
and wellness, preventative medical and disease management for pharmaceutical companies, health system providers and payors. We have developed
a number of health system partnerships in the United States which we are studying use cases and benefits for SomaSignal™ tests
for patient populations.
Recent
Events
In
May 2021, SomaLogic launched its SomaSignal™ Proteomics for Precision Medicine Initiative with Emory University, Intermountain
Healthcare, CommonSpirit Health and UCHealth as initial partners, with University of Pittsburgh Medical Center joining in September and
University Hospitals Cleveland Medical Center joining in November. These health systems will conduct trials using SomaSignal™ tests
to assess current health state and disease risk based on a patient’s proteomic signature, and use the results to determine whether
to change treatment.
In
December 2021, SomaLogic entered into an exclusive, multi-year partnership pursuant to a Collaboration Agreement (the “Collaboration
Agreement”) with Illumina Cambridge. Ltd. (“Illumina Cambridge”) and Illumina, Inc. (together with Illumina
Cambridge, collectively, “Illumina”) to develop co-branded, distributable Next-Generation Sequencing (“NGS”)
based proteomic products. As part of the Collaboration Agreement, Illumina will develop and deploy NGS-based protein identification and
measurement tools into laboratories worldwide, and facilitate the development and use of high-plex protein pattern recognition tests.
Illumina has rights to use certain of SomaLogic’s intellectual property to develop products in connection with the Collaboration
Agreement.
Proteomics
and Existing Technologies
Background
We
believe the value of proteomics remains largely untapped. Over the past decade, the genomics revolution has led to an acceleration of
biological insights arising from the development and incorporation of large-scale, high-throughput molecular profiling techniques into
research and clinical medicine. Although the knowledge of biological systems from the standpoint of both genomics and transcriptomics
has led to significant scientific advancements and biological discoveries, we believe the critical impact of protein function on biology
remains largely unexplored due to several inherent difficulties in proteomics that do not exist in genomics and slow the technological
progress to fully interrogate the proteome, such as the unique characteristics of each protein, including shapes, sizes (20,000 different
structures versus the fairly simple structure of nucleic acid), half-lives, and myriad locations throughout the human body in organs,
tissues and cells (versus the content localization of nucleic acid in the nuclei of cells and in mitochondria). Therefore, unlike DNA,
proteins can have unstable and variable chemical structures, and their presence in various biologic matrix samples can span an exceptionally
large dynamic range. This can make proteins difficult to detect and identify, especially at low concentrations. We believe that to extract
the multidimensional networks of biological information encoded in proteins, researchers generally have to be able to measure many proteins
at scale, over a very wide dynamic range, and with a high degree of precision (we believe to suggest otherwise would require one assume
the 20,000 known protein-encoding genes selected by millions of years of human evolution are not all important to understanding human
biology). In addition, we view robust and reproducible analysis as a requirement to drive adoption in the clinical setting. Although
there are several approaches widely practiced today that can identify and measure a large number of proteins, the ability to capture
a sufficiently broad number of proteins with high accuracy and repeatability, in order to capture a more comprehensive picture of the
dynamic state of a cell, tissue or organism has largely been an ongoing, difficult challenge for the life sciences industry.
Key
limitations of current proteomics technologies
We
believe there are currently few widely practiced methodologies for broad interrogation of the proteome, and each can have their own specific
set of limitations. The key methodologies today include mass spectrometry and antibody-based approaches. Protein sequencing and counting
technologies have also been recent innovations in the field, but generally have not been applied commercially at scale.
Our
Offerings
We
are using our platform to target research and clinical applications. Our offerings focused on research are for basic research and discovery,
as well as translational research and biopharmaceutical development applications. We also have an emerging clinical diagnostics business,
through which we have established relationships with several large health systems in the United States in 2021.
SomaLogic®
Offerings and Applications
We
have an established revenue stream from the research market, which as of December 31, 2021 consists primarily of a service model whereby
we receive samples (including, from pharmaceutical, biotechnology or academic clients), perform the SomaScan® assay, and
subsequently use bioinformatics and analytics to further refine the collected data and deliver the results back to the customer.
SomaScan®
Assay. As of December 31, 2021, our SomaScan® assay measures 7,000 protein target measurements in a single sample, with planned
development to expand to an approximately 10,000-plex assay for release. The SomaScan® assay is designed to have breadth (or number
of proteins measured), precision, specificity, dynamic range, depth (or lower limits of detection), and throughput. SomaScan® users
can also gain access to individual SOMAmer® reagents for a wide range of follow-up studies which is a feature we consider as uniquely
available with our research services compared to what other proteomic platforms are providing.
SomaSignal™
Tests. As of December 31, 2021, we had 16 SomaSignal™ tests currently available for use as LDT under our CLIA certification,
with greater than 100 tests in various stages of development. As of December 31, 2021, we have 20 RUO tests primarily targeting clinical
trial applications, such as characterizing and monitoring patients through the clinical trial cycle. We believe our SomaSignal™
tests will provide health systems and national health services with a leading-edge scientific tool set to allocate resources, risk stratify
both populations and individual patients and personalize therapy.
SomaScan®
Panels. As of December 31, 2021, we have launched several panel offerings to the market. There are two categories of these
panels: fixed panels and custom panels. SOMAmer® Reagents. Customers have licensed our reagents and the Systematic Evolution
of Ligands by Exponential enrichment (“Evolution”) technology in three ways: (i) individual reagents that have been
developed by SomaLogic, (ii) custom reagents developed by SomaLogic on our clients’ behalf, and (iii) custom reagents developed
by our clients through a license for both the SELEX development technology and the subsequent reagents. An example of the use of SOMAmer®
reagents for commercial purposes is the inclusion of SOMAmer®-based inhibitors of thermophilic enzymes, such as
polymerases used in “hot-start” PCR amplification, which are examples of the type of products offered by certain biotechnology
companies.
Our
Market Opportunity
Due
to extensive existing applications and broad potential, we believe proteomics represents one of the largest untapped opportunities in
the life sciences industry today. Currently, approximately 95% of FDA-approved drugs target a protein, and most other drugs interact
with, or are influenced by signal transduction cascades mediated by proteins. Our platform aims to address a large opportunity across
multiple proteomics-based markets and is uniquely designed to attract and retain customers in order to capture a substantial share in
each of these markets. With our growing foundational assay of proteins in place as the single source for all new test menus, we believe
we are well positioned to expand to additional adjacent markets within proteomics and genomics. Our initial target markets are research
and clinical diagnostics, both for which we have already began establishing our market presence among customers and collaborators.
Our
Strengths
Our
historical and anticipated future growth are underpinned by a set of competitive strengths and advantages we believe will enable us to
accelerate the field of proteomics, while establishing SomaLogic as the leading proteomics player. Our competitive strengths include:
| ● | A
universal proteomics platform that can be applied across research and discovery, translational
research and biopharmaceutical development, and clinical applications. |
| ● | Providing
high-multiplex and high-throughput proteomics. |
| ● | Proprietary,
foundational aptamer-based chemistry and reagents. |
| ● | One
of the largest proprietary proteomics database leveraging clinical relationships. |
| ● | Extensive
global patent portfolio protecting our proteomics platform, products and services. |
| ● | Established,
multi-year relationships with growing customer base and some of the leading KOLs across relevant
disease and application areas. |
| ● | Traction
in clinical markets with a growing menu of tests and relationships. |
Our
Strategy
Our
goal is to drive adoption of our integrated platform of proteomic solutions and services, initially in the research and clinical markets,
and then expanding into other attractive markets. Our strategy centers on lowering barriers to adoption and actively engaging
with our broad community of customers and KOLs to accelerate the adoption of proteomics. Our growth strategy includes:
| ● | Drive
adoption of our platform as the industry standard with research customers. |
| ● | Ramp
our presence in the clinical market. |
| ● | Grow
our database, and artificial intelligence and machine learning capabilities to strengthen
our value proposition for our customers. |
| ● | Strengthen
our partnerships and collaborations to validate our integrated platform and expand its capabilities. |
| ● | Enhance
our integrated platform for use in decentralized settings. |
| ● | Build
commercial product development and sales channel relationships with Genomics, Transcriptomics
and other molecular-based testing enterprises. |
Manufacturing
and Supply
We
depend on our manufacturing and supply chain operations for reagents and other components we use in our products and solutions. Our suppliers
and manufacturer are also the primary source of the instruments required to complete our assays and tests.
We
currently have supply agreements with two key single source suppliers, Agilent Technologies, Inc (“Agilent”) and Global
Life Sciences Solutions USA LLC (“GLSS”). The agreement with Agilent relates to the supply of the microarray readout
slide and supporting reagents and was amended in November of 2021 and has a termination date of April 2025 with the ability to be extended
for an additional two years. The agreement with GLSS relates to the supply of streptavidin beads and has been extended through December
31, 2023.
Some
of our products are built using unique components, such as our SomaScan® assay, but the majority of the components that make up our
products and solutions are commonly sourced or off-the-shelf. While we purchase some of our components and materials used in manufacturing
from single-source suppliers, we have qualified second sources for most, but not all, of our critical components and reagents. The loss
of any of these suppliers could potentially harm SomaLogic. We believe alternatives would be available; however, it may take time to
identify and validate replacement components, which could negatively affect our ability to supply our products on a timely basis. To
mitigate this risk, we typically carry a significant inventory of our critical components. For further discussion of the risks relating
to our third-party suppliers, see the section entitled “Risk Factors.”
Intellectual
Property
Our
success depends in part on our ability to maintain intellectual property protection for our products and technology. We utilize a variety
of intellectual property protection strategies including patents, trade secrets, trademarks and other methods of protecting proprietary
information.
Patents
We
have an extensive global patent portfolio to protect our proteomics platform, the products and services. Our owned patents and pending
applications, if issued, are expected to expire between 2022 and 2040, in each case without taking into account any possible patent term
adjustments or extensions and assuming payment of all appropriate maintenance, renewal, annuity or other government fees. Our proprietary,
foundational aptamer-based technology is supported by approximately 800 patents (issued or pending) and supports unsurpassed sensitivity
and specificity, and dynamic range.
Trademarks
We
own various trademarks, applications, and unregistered trademarks in the United States and in important markets outside the United States,
including our own company name and product and service names, including SomaLogic®,
SomaSignal™, SOMAmer®, and SomaScan®. Our trademark portfolio is designed to protect the brands for
our product and services, both current and in the pipeline.
Trade
Secrets
In
addition to our reliance on patent protection for our inventions, products and technologies, we also rely on trade secrets, know-how,
confidentiality agreements and continuing technological innovation to develop and maintain our competitive position. For example, most
of our aptamers and some elements of our analytical techniques and processes, as well as some of the bioinformatic methodologies used
to analyze data and software, are based on unpatented trade secrets and know-how not publicly disclosed. Although we take steps to protect
our proprietary information and trade secrets, including through contractual means with our employees, advisors and consultants, these
agreements may be breached and we may not have adequate remedies for any breach. In addition, third parties may independently develop
substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology.
As a result, we may not be able to meaningfully protect our trade secrets.
In-Licensing
of Intellectual Property
We
do not currently rely on any third party in-licensed intellectual property to provide any of our services or products.
Out-Licensing
of Intellectual Property
In
2008, pursuant to an agreement with a certain biotechnology company, SomaLogic licensed a worldwide exclusive right (on a target by target
basis), under SomaLogic’s patent portfolio (122 patents and patent applications) and proprietary information and know-how relating
to its modified SELEX processes and modified aptamers technology to make, use, sell, and have made, and have sold (a) commercial products
produced by or incorporating SomaLogic licensed technologies and (b) commercial products intended for use in nucleic acid amplification
that are rationally designed nucleic acid sequences that are temperature dependent inhibitors of a licensed target. SomaLogic retained
a non-exclusive right to make, use and have made the aptamers for internal research and development, including the right to grant non-exclusive
licenses to SomaLogic collaborator for research and development purposes. The biotechnology company’s license was amended in 2012
to grant such company enforcement of licensed patent rights against third-party infringers. In 2014, the biotechnology company’s
license was amended to exclude in vivo imaging applications in the licensed field and licensed product. The royalties were also amended
to include in addition to the original 15% royalty on net sales on licensed products and $50,000 annual minimum per calendar year for
each licensed target, a new $35,000 per calendar year payment for each new target class, plus a one-time license fee of $25,000 for each
target that is added. The term of this license continues on a country-by-country basis, until the later of the expiration of the last
to expire of the licensed patents having a valid claim that covers licensed products directed to a licensed target or the tenth anniversary
of the first commercial sale of a licensed product under category (a) above.
On
December 31, 2021, SomaLogic entered into a Collaboration Agreement with Illumina (as described in the section entitled “Recent
Events” above) under which we grant to Illumina rights to use certain of our intellectual property to develop, pursuant to
a mutually agreed upon development plan, co-branded NGS-based proteomic distributable kits (the “Licensed Products”).
We
intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective. We cannot
provide any assurance any of our current or future patent applications will result in the issuance of patents, or any of our current
or future issued patents will effectively protect any of our products, services or technology or prevent others from commercializing
infringing products, services or technology. For further discussion of the risks relating to intellectual property, see the section entitled
“Risk Factors — Risks Related to Intellectual Property.”
Collaboration
Agreements
SomaLogic
has several collaboration agreements with collaborators to facilitate various research efforts focused on proteomic profiling of several
diseases and conditions. Our current collaborators include many universities and private companies in the biotechnology space.
On
September 20, 2019, SomaLogic entered into a Master Collaboration Agreement (“MCA”) with Novartis Pharma AG, a Swiss
company (“Novartis”), pursuant to which the parties engage in collaborative research efforts to advance the study
of proteomic medicine. Under the MCA, SomaLogic agrees to provide SomaScan® assay services to Novartis upon Novartis’s
submission of samples to SomaLogic. The MCA will remain in effect until December 31, 2028 unless either earlier terminated by the parties
in accordance with the MCA or extended for an additional five years by mutual written agreement. Under the MCA, Novartis is expected
to submit an annual minimum number of samples to SomaLogic and pay a fee per sample of which SomaLogic provides its SomaScan services
to such sample.
On
March 30, 2020, SomaLogic entered into a Joint Development & Commercialization Agreement Collaboration Agreement (the “JDCA”)
with NES. Under the JDCA, NES was granted (1) a 10 year exclusive license to certain of SomaLogic’s intellectual property to develop
and commercialize tests in Japan for human healthcare management, which will convert to a non-exclusive license at the end of the 10)
year period of exclusivity and then continue for the remainder of the term of the agreement; and (2) a non-exclusive license to develop
and commercialize in Japan non-healthcare life sciences tests that employ SomaScan® services in exchange for annual payments for
five years and revenue sharing payments over the term of the agreement. Under the agreement, NES grants SomaLogic an exclusive license
under NES’ and its affiliates’ technology and under any joint technology or patents to develop and commercialize tests in
the rest of the world.
On
October 13, 2020, SomaLogic entered into an Amended and Restated Master SomaScan Discovery Services Agreement (“MSDS”)
with Amgen Inc., a Delaware corporation based in California (“Amgen”), pursuant to which SomaLogic agrees to use its
SomaScan® assay technology to study protein samples provided by Amgen and provides reports for such studies, as outlined
in individual statements of work (“SOWs”) from time to time. Each individual SOW sets forth the sample requirements,
and fees payable to SomaLogic pursuant thereto, that Amgen agrees to supply to SomaLogic in order for SomaLogic to provide SomaScan®
assay services. The MSDS will terminate on October 13, 2025 unless earlier terminated by the parties in accordance with the MSDS
and in any event not until any open SOW is completed.
On December 31, 2021,
SomaLogic entered into the Collaboration Agreement with Illumina, in connection with the development of the Licensed Products and related
commercial arrangements. Under the Collaboration Agreement, SomaLogic grants to Illumina rights to use certain of the Company’s
intellectual property to develop, pursuant to a mutually agreed upon development plan, the Licensed Products, in exchange for, among
other things, an upfront payment and certain minimum annual royalty payments, creditable against royalties paid to the Company based
on the net sales of the Licensed Products, with percentages ranging from the high-single digits to low-double digits during the co-exclusivity
term and prior to the expiration of the royalty term. Unless earlier terminated in accordance with its terms, the Collaboration Agreement
will remain in effect until the expiration of the last-to-expire royalty period for the Licensed Products.
Employees
and Human Capital
As
of December 31, 2021, we had approximately 320 full-time employees, including a commercial team of more than 60 employees and a research
and development team of more than 60 employees. Most of our employees hold an academic degree, with a significant number also holding
advanced degrees.
None
of our employees are represented by a labor union or covered under a collective bargaining agreement. We have not experienced any material
work stoppages and we consider our relationship with our employees to be good, healthy, and transparent. We actively engage with managers
to collect feedback and ideas on how to improve our working environment.
Our
human capital resources objectives include, as applicable, identifying, recruiting, retaining incentivizing and integrating our existing
and new employees, advisors and consultants. The principal purpose of our equity and cash incentive plans are to attract, retain and
reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase stockholder value and the
success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.
As
we continue to monitor the global spread of COVID-19, we have implemented and will continue to implement measures to ensure the safety
of our employees. We are continuously evaluating the guidance from federal and local authorities and have created strict polices and
guidelines that put our employees’ health and safety first. Compliance with environmental, health and safety laws and regulations
underlies the basis of applicable programs we have in place.
Facilities
Our
corporate headquarters and laboratory facilities are located in Boulder, Colorado, where we lease approximately 77,000 square feet of
space under three leases at 2945 Wilderness Place, 2950 Wilderness Place and 2995 Wilderness Place. One building lease terminates at
the end of 2023 and the other two leases have extension options through 2026 and 2036. We also leased office and laboratory space at
Warneford Hospital in Oxford, United Kingdom, under a sublease that expired in December 2021.
We
do not own any real property and believe our current facilities are sufficient to meet our immediate needs, but have entered into the
new leases in anticipation of future growth. If we require additional space, we believe we will be able to obtain additional facilities
on commercially reasonable terms and on an acceptable timeline.
Competition
The
life sciences market is highly competitive and dynamic. Other companies, both established and early-stage, have indicated they are designing,
manufacturing, and marketing products and services for, among other things, multiplexed or high-throughput proteomic analysis. These
companies include Nautilus, Olink, Quanterix, Quantum-Si and Seer, among others, each of which has products and services that may compete
to varying degrees with some of our services and products. Some of these companies are actively executing their commercial and operating
plans, actively commercializing products and services and growing established marketing and sales forces. Other competitors are developing
technologies for the life sciences market which may lead to services and products that rival or replace our products over time.
We
believe the principal competitive factors in our target markets include:
| ● | proteomic
content in terms of total number of proteins measured and ease of content expansion; |
| ● | assay
sensitivity and reproducibility; |
| ● | efficiency
and speed of workflows; |
| ● | the
scale required to address the complexity and dynamic range of the proteome; |
| ● | throughput
to meet lab testing volume; |
| ● | reputation
among customers and key thought leaders; |
| ● | innovation
in product offerings (notably clinical proteomics applications); |
| ● | accuracy
and reproducibility of results; |
| ● | strength
of intellectual property portfolio; |
| ● | operational
and manufacturing footprint; |
| ● | customer
support infrastructure; and |
| ● | a
leadership and commercial team with extensive execution and scientific background. |
Our
commercial opportunity could be reduced if our competitors develop and commercialize products or services that offer better performance
or are more convenient and cost-effective to use than our products or services. However, we believe we are substantially differentiated
from our competitors for a multitude of reasons, including our novel approach and platform, the unique and proprietary nature of our
aptamer-based technology (developed over more than two decades), our rigorous product development processes and quality of science, our
highly experienced and multidisciplinary teams, our breadth of both proteomics research enabling and applied clinical solutions, and
our access to an immediate growing market with opportunities to expand into adjacent market opportunities over time.
Government
Regulation
Our
products are intended for either (1) RUO or (2) clinical use applications; our RUO products are not used for clinical applications. Our
customers include entities such as healthcare providers, academic institutions, research laboratories, and biopharmaceutical and biotechnology
companies. Our products are used for obtaining proteomics information from pre-clinical or clinical trials, biomarker discovery, monitoring
patients’ physiological states, among others.
Under
a long-standing FDA regulation and policy, in vitro diagnostic (“IVD”) products intended for research use only are
subject to a regulatory classification separate from classifications for products with clinical use applications. In particular, products
that are RUO and that comply with certain labeling requirements (e.g., labeling that explains that the product is RUO) are typically
not regulated by the FDA as medical devices and are not subject to the regulatory requirements discussed below for clinical diagnostic
products. Therefore, in many cases, RUO products can be used or distributed for research use without first obtaining FDA clearance, authorization,
or approval. Such products must bear the statement: “For Research Use Only. Not for Use in Diagnostic Procedures,” and comply
with other legal requirements. RUO products cannot make any claims related to safety, effectiveness or diagnostic utility, and they cannot
be intended for human clinical diagnostic use.
In
November 2013, the FDA issued final guidance on products labeled RUO, which, among other things, reaffirmed a company may not make any
clinical or diagnostic claims about an RUO product, stating that merely including a labeling statement the product is for research purposes
only will not necessarily render the device exempt from the FDA’s clearance, approval, or other regulatory requirements if the
totality of circumstances surrounding the distribution of the product indicates the manufacturer knows its product is being used by customers
for diagnostic uses or the manufacturer intends such a use. A product labeled RUO but intended or promoted for clinical diagnostic use
may be viewed by the FDA as adulterated and/or misbranded under the FDCA and subject to FDA enforcement action. The FDA will consider
several factors surrounding distribution and use of an RUO product, including how the product is marketed and to whom, when determining
its intended use. If the FDA disagrees with a company’s RUO status for its product, the company may be subject to FDA enforcement
actions. In addition, the FDA may require the company to seek clearance, authorization or approval for the product.
Clinical
Diagnostics in the United States
In
the United States, the FDA defines a medical device as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent
or other similar or related article, including any component part or accessory, which is (i) intended for use in the diagnosis of disease
or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (ii) intended to affect
the structure or any function of the body of man or other animals and which does not achieve any of its primary intended purposes through
chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of
any of its primary intended purposes. Medical devices are subject to extensive regulation by the FDA under the FDCA and its implementing
regulations, and other federal and state statutes and regulations. The laws and regulations govern, among other things, medical device
design and development, pre-clinical and clinical testing, pre-market clearance, authorization or approval, establishment registration
and product listing, product manufacturing, product packaging and labeling, product storage, advertising and promotion, product distribution,
recalls and field actions, servicing and post-market clinical surveillance. A number of states in the United States also impose licensing
and compliance regimes on companies that manufacture or distribute prescription devices into or within the state.
The
FTC also oversees the advertising and promotion of SomaLogic’s current and future products pursuant to its broad authority to police
deceptive advertising for goods or services within the United States. Under the FTC Act, the FTC is empowered, among other things, to
(a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress
and other relief for conduct injurious to consumers; and (c) gather and compile information and conduct investigations relating to the
organization, business, practices, and management of entities engaged in commerce. In the context of performance claims for products
such as SomaLogic’s goods and services, compliance with the FTC Act includes ensuring there is scientific data to substantiate
the claims being made, the advertising is neither false nor misleading, and any user testimonials or endorsements SomaLogic or its agents
disseminate related to the goods or services comply with disclosure and other regulatory requirements.
IVDs
are a type of medical device and include reagents and instruments used in the diagnosis or detection of diseases, conditions or infections,
including, without limitation, the presence of certain chemicals, genetic information or other biomarkers. Predictive, prognostic, and
screening tests can also be IVDs. Most medical devices, including IVD products, must undergo pre-market review by and receive clearance,
authorization, or approval from the FDA prior to commercialization, unless the device is of a type exempted from such review by statute,
regulation, or an FDA exercise of enforcement discretion.
The
FDA classifies medical devices into three classes based on risk. The level of regulatory control increases from Class I (lowest risk)
to Class III (highest risk). Marketing of most Class II and III medical devices within the United States must be preceded either by pre-market
notification and FDA clearance pursuant to Section 510(k) of the FDCA or by the granting of a PMA. Both 510(k) notifications and PMA
applications must be submitted to the FDA with significant user fees, although reduced fees for small businesses are available. Class
I devices are generally exempt from pre-market review and notification, as are some moderate-risk Class II devices. Manufacturers of
all classes of devices must comply with the FDA’s QSR, establishment registration, medical device listing, labeling requirements,
and medical device reporting regulations, which are collectively referred to as medical device general controls. Class II devices may
also be subject to special controls such as performance standards, post-market surveillance, FDA guidelines, or particularized labeling.
Some Class I and Class II devices can be exempted by regulation from the requirement of compliance with substantially all of the QSR.
The FDA currently exercises enforcement discretion with respect to the regulation of LDTs.
Regulation
of Laboratory Developed Tests in the United States
Our
SomaSignal™ tests are available as LDTs for use in obtaining proteomics information from patients and monitoring patients’
physiological states, among others. LDTs have generally been considered to be tests that are designed, developed, validated and used
within a single laboratory. The FDA has historically taken the position that it has the authority to regulate such tests as medical devices
under the FDCA, but the FDA has exercised enforcement discretion for certain LDTs and has not required clearance, authorization, or approval
of such LDTs prior to marketing, unless the product poses health or safety concerns or the product is a direct-to-consumer test. Laboratories
certified as “high complexity” under CLIA may develop, manufacture, validate and run LDTs. The CLIA requirements are discussed
below in the section entitled “United States Federal and State Regulation of Laboratories.”
On
October 3, 2014, the FDA issued two draft guidance documents proposing a new regulatory paradigm for oversight of LDTs. These draft guidance
documents proposed more active review of LDTs. The draft guidance documents were the subject of considerable controversy, and in November
2016, the FDA announced that it would not be finalizing the 2014 draft guidance documents. On January 13, 2017, the FDA issued a discussion
paper which laid out elements of a possible revised future LDT regulatory framework, but did not establish any regulatory requirements.
Meanwhile, the FDA issued several warning letters against marketers of LDTs, although focusing on issues that the FDA considered to pose
high risks to the public. But in August 2020, the HHS declared that FDA will not be requiring premarket reviews for LDTs unless the FDA
issues such a requirement by notice-and-comment rulemaking. Following the change of the administration in 2021, it is not clear what
the HHS or FDA policy will be on the regulation of LDTs. Given the changing regulatory requirement, the FDA may decide to take action
against certain LDTs on a case-by-case basis if the FDA views them as presenting a risk to patients. The FDA may regulate products that
it does not consider to be LDTs as medical devices that are subject to the requirements that are described above.
United
States Federal and State Regulation of Laboratories
Given
aspects of SomaLogic’s business at certain facilities involve acting as a clinical laboratory, SomaLogic is required to hold certain
federal and state licenses, certifications and permits to conduct our business. As to federal certifications, CLIA establishes rigorous
quality standards for all laboratories that perform testing on specimens derived from humans for the purpose of providing information
for the diagnosis, prevention or treatment of disease, or the impairment of, or assessment of health. As a clinical laboratory, SomaLogic
must obtain a CLIA certificate based on the complexity of testing performed at the laboratory, such as a Certificate of Compliance for
high-complexity testing. CLIA also mandates compliance with various operational, personnel, facilities administration, quality and proficiency
requirements, intended to ensure clinical laboratory testing services are accurate, reliable and timely. CLIA compliance and certification
is also a prerequisite to be eligible to bill for services provided to government payors and for many private payors. Furthermore, SomaLogic
is subject to survey and inspection every two years to assess compliance with program standards, and may be subject to additional unannounced
inspections. Laboratories performing high-complexity testing are required to meet more stringent requirements than laboratories performing
less complex tests.
In
addition to CLIA requirements, SomaLogic participates in the accreditation program of the College of American Pathologists (“CAP”).
CMS, the agency that oversees CLIA, has deemed CAP standards to be equally or more stringent than CLIA regulations and has approved CAP
as a recognized accrediting organization. Inspection by CAP is performed in lieu of CMS inspections for accredited laboratories. Therefore,
because SomaLogic is accredited by the CAP Laboratory Accreditation Program, we are deemed to also comply with CLIA. CLIA provides a
state may adopt laboratory regulations more stringent than those under federal law, and a number of states have implemented their own
more stringent laboratory regulatory requirements.
Select
states have laboratory regulations that have been deemed by the federal government to be at least as stringent as CLIA, and thus laboratories
licensed under those state regimes are exempt from CLIA and the state Department of Health is permitted to issue a CLIA number, along
with a state Medical Test Site license, rather than a certificate being issued by CMS. State laws may require that laboratory personnel
meet certain qualifications, specify certain quality control procedures, facility requirements or prescribe record maintenance requirements.
Several states additionally require the licensure of out-of-state laboratories that accept specimens from those states. For example,
New York requires a laboratory to hold a permit, which is issued after an on-site inspection, and approval of each LDT offered by a laboratory,
and has various, more stringent requirements than CLIA and CAP, including those for personnel qualifications, proficiency testing, physical
facility and equipment and quality control standards.
If
a clinical laboratory is found to be out of compliance with CLIA certification, CAP accreditation or a state license or permit, the applicable
regulatory agency may, among other things, suspend, restrict or revoke the certification, accreditation, license or permit to operate
the clinical laboratory, assess civil monetary penalties and impose specific corrective action plans, among other sanctions.
United
States Fraud and Abuse Laws and Other Compliance Requirements
Successfully
commercializing our clinical products and services depends on obtaining broad health insurance or third party payor coverage. Government
and private payors institute coverage criteria to ensure the appropriate utilization of products and services and to control costs. Limited
third party payor coverage for a technology or procedure may limit adoption and commercial viability, while broader coverage supports
optimal market uptake. These laws can be implicated by inappropriate sales and marketing arrangements with healthcare providers. Many
commonly accepted commercial practices are illegal in the healthcare industry and violations of these laws are punishable by criminal
and civil sanctions, including, in some instances, exclusion from participation in United States federal and state healthcare programs,
including Medicare and Medicaid.
Federal
Anti-Kickback Statute. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering
or providing remuneration directly or indirectly to induce either the referral of an individual, or the furnishing, recommending, or
arranging of a good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid. The definition
of “remuneration” has been broadly interpreted to include anything of value, including such items as gifts, discounts, the
furnishing of supplies or equipment, credit arrangements, waiver of payments, and providing anything at less than its fair market value.
The Anti-Kickback law is broadly interpreted and aggressively enforced with the result that beneficial commercial arrangements in the
health care industry may be criminalized. The penalties for violating the federal Anti-Kickback Statute include imprisonment for up to
ten years, fines of up to $100,000 per violation and possible exclusion from federal healthcare programs such as Medicare and Medicaid.
Federal
False Claims Act. The federal False Claims Act prohibits knowingly presenting, or causing to be presented a false claim or the knowing
use of false statements or records to obtain payment from the federal government. When an entity is determined to have violated the False
Claims Act, it must pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $11,665
and $23,331 for each separate false claim. Suits filed under the False Claims Act, known as “qui tam” actions, can be brought
by any individual on behalf of the government and such individuals (known as “relators” or, more commonly, as “whistleblowers”)
may share in any amounts paid by the entity to the government in fines or settlement.
Federal
Physician Self-Referral Law. The federal Physician Self-Referral Law, also referred to as the Stark Law, prohibits a physician (or
an immediate family member of a physician) who has a financial relationship with an entity from referring patients to that entity for
certain designated health services, including durable medical equipment and supplies, payable by Medicare, unless an exception applies.
The Stark Law also prohibits such an entity from presenting or causing to be presented a claim to the Medicare program for such designated
health services provided pursuant to a prohibited referral, and provides that certain collections related to any such claims must be
refunded in a timely manner.
Civil
Monetary Penalties Law. The Civil Monetary Penalties Law authorizes the imposition of substantial civil money penalties against an
entity that engages in certain prohibited activities including but not limited to violations of the Stark Law or Anti-Kickback Statute,
knowing submission of a false or fraudulent claim, employment of an excluded individual, and the provision or offer of anything of value
to a Medicare or Medicaid beneficiary that the transferring party knows or should know is likely to influence beneficiary selection of
a particular provider for which payment may be made in whole or part by a federal health care program, commonly known as the Beneficiary
Inducement CMP.
State
Analogs of Federal Fraud and Abuse Laws. Many states in the United States have their own laws intended to protect against fraud and
abuse in the health care industry and more broadly. In some cases these laws prohibit or regulate additional conduct beyond what federal
law affects. Penalties for violating these laws can range from fines to criminal sanctions.
HIPAA.
The federal HIPAA, as amended by the American Recovery and Reinvestment Act of 2009, and implementing regulations, includes criminal
prohibitions against healthcare fraud, embezzlement, and making false statements relating to healthcare matters. The provisions of this
federal statute prohibit knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors.
A violation of this statute is a felony and may result in fines, imprisonment or exclusion from government sponsored programs. The false
statements sections of the statute prohibit knowingly and willfully falsifying, concealing or covering up a material fact or making any
materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or
services. HIPAA also sets out privacy and security obligations for entitles governed by the statute that are discussed in more detail
below.
FCPA
and Other Anti-Bribery and Anti-Corruption Laws. FCPA prohibits United States corporations and their representatives from offering,
promising, authorizing or making payments to any foreign government official, government staff member, political party or political candidate
in an attempt to obtain or retain business abroad. The scope of the FCPA would include interactions with certain healthcare professionals
or organizations in many countries. SomaLogic’s present and future business has been and will continue to be subject to various
other United States and foreign laws, rules and/or regulations.
Physician
Payment Sunshine Act. Manufacturers of United States FDA-regulated devices reimbursable by federal healthcare programs are subject
to the Physician Payment Sunshine Act, which requires manufacturers to track and annually report to CMS certain payments and other transfers
of value made to United States-licensed physicians or United States teaching hospitals. Manufacturers are also required to report certain
ownership interests held by physicians and their immediate family members. The law carries penalties of up to $1.15 million per year
for violations, depending on the circumstances, and payments reported also have the potential to draw scrutiny on payments to and relationships
with physicians, which may have implications under the Anti-Kickback Statute, Stark Law and other healthcare laws.
In
addition, there has been a recent trend of increased federal and state regulation of payments and other transfers of value provided to
healthcare professionals and entities. Similar to the federal law, certain states also have adopted marketing and/or transparency laws
relevant to device manufacturers, some of which are broader in scope. Certain states also mandate that device manufacturers implement
compliance programs. Other states impose restrictions on device manufacturer marketing practices and require tracking and reporting of
gifts, compensation, and other remuneration to healthcare professionals and entities. The need to build and maintain a robust compliance
program with different compliance and/or reporting requirements increases the possibility that a healthcare company may violate one or
more of the requirements, resulting in fines and penalties.
United
States and International Data Security and Data Privacy Laws
SomaLogic
is or in the future may be subject to diverse laws and regulations relating to data privacy and security, including, in the United States,
HIPAA, and, in the EU, EU GDPR, which came into effect across the EEA in May 2018. Some countries, such as Brazil and Japan, have enacted
or amended omnibus laws, and others, such as China and Russia, have also passed laws that require personal data relating to their citizens
to be maintained in the country under certain circumstances and impose additional data transfer restrictions. Complying with these numerous,
complex and often changing regulations is expensive and difficult, and failure to comply with any privacy laws or data security laws
or any security incident or breach involving the misappropriation, loss or other unauthorized use or disclosure of personal data (including
sensitive or confidential patient or consumer information), whether by SomaLogic or a third-party, could have a material adverse effect
on SomaLogic’s business, reputation, financial condition and results of operations, including but not limited to: material fines
and penalties; damages; litigation; consent orders; extensive audits and inspections; bans on all or some processing of personal data
carried out by noncompliant actors; and injunctive relief. The EU GDPR also confers a private right of action on data subjects and consumer
associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting
from violations of the EU GDPR.
HIPAA,
as well as a number of other federal and state privacy-related laws, extensively regulate the use and disclosure of individually identifiable
health information, known as “protected health information” or “PHI.” HIPAA applies to health plans, healthcare
providers who engage in certain standard healthcare transactions electronically, such as electronic billing, and healthcare clearinghouses,
all of which are referred to as “covered entities” under HIPAA. HIPAA also directly regulates “business associates,”
which are certain types of entities that act as service providers to covered entities and receive or have access to PHI as part of providing
the relevant services to the covered entity customer. Business Associates are responsible for complying with certain provisions of HIPAA
and can be subject to direct enforcement for violations of HIPAA. State imposed health information privacy and security laws typically
apply based on licensure, for example, licensed providers or licensed entities are limited in their ability to use and share health information.
Additionally,
many states have enacted legislation protecting the privacy and/or security of “personal information” such as identifiable
financial or health information, social security number and credit card information. These laws overlap in certain circumstances and
can apply simultaneously with federal privacy and security requirements and regulated entities must comply with all of them. The CCPA
that went into effect January 1, 2020, is one of the most restrictive state privacy laws, protecting a wide variety of personal information
and granting significant rights to California residents with respect to their personal information. In dealing with health information
for the development of its technology or for commercial purposes, SomaLogic will be affected by HIPAA and state-imposed health information
privacy and security laws because these laws regulate the ability of SomaLogic’s potential customers and research collaborators
to share health information with SomaLogic and may in certain circumstances impose additional direct obligations on SomaLogic. Additionally,
SomaLogic must also identify and comply with all applicable state laws for the protection of other types of personal information (e.g.,
consumer, employee, B2B information) that the company collects. In addition to the CCPA, many other states have proposed or already enacted
similar data privacy and security laws, including Massachusetts’ Standards for the Protection of Personal Information (MA 201 C.M.R.
§§ 17.00 et seq.) and the newly enacted Virginia Consumer Data Protection Act.
In
the EU, increasingly stringent data protection and privacy rules that have and will continue to have substantial impact on the use of
personal and patient data across the healthcare industry became stronger in May 2018. The EU GDPR applies across the EU (as well as the
EEA) and includes, among other things, a requirement for prompt notice of data breaches to data subjects and supervisory authorities
in certain circumstances and significant fines for non-compliance. The EU GDPR fine framework can be up to 20 million euros, or up to
4% of the company’s total global turnover of the preceding fiscal year, whichever is higher. The EU GDPR sets out a number of requirements
that must be complied with when handling the personal data of individuals (i.e., data subjects) in the EU including: providing expanded
disclosures about how their personal data will be used; higher standards for organizations to demonstrate that they have obtained valid
consent or have another legal basis in place to justify their data processing activities; the obligation to appoint data protection officers
in certain circumstances; new rights for individuals to be “forgotten” and rights to data portability, as well as enhanced
current rights (e.g., access requests); the principal of accountability and demonstrating compliance through policies, procedures, training
and audit; and the new mandatory data breach regime. In particular, medical or health data, genetic data and biometric data where the
latter is used to uniquely identify an individual are all classified as “special category” data under the EU GDPR and are
afforded greater protection and require additional compliance obligations. Noncompliance could result in the imposition of fines, penalties,
or orders to stop noncompliant activities. SomaLogic is subject to the EU GDPR since we offer products or services to individuals in
the EU or otherwise enters into contracts with EU entities that handle the collection and processing of data of individuals within the
EU.
SomaLogic
could also be subject to evolving EU laws on data export, for transfers of data outside the EU to itself or third parties. The GDPR only
permits transfers of data outside the EU to jurisdictions that ensure an adequate level of data protection. The United States has not
been deemed to offer an adequate level of protection, so in order for SomaLogic to transfer personal data from the EU to the United States,
SomaLogic must identify a legal basis for data transfer (e.g., the European Union Commission approved Standard Contractual Clauses) and
any supplementary measures taken, or to be taken, to provide an adequate level of protection for the data. On July 16, 2020, the Court
of Justice of the European Union or the CJEU, issued a landmark opinion in the case Maximilian Schrems vs. Facebook (Case C-311/18),
called Schrems II. This decision (a) calls into question commonly relied upon data transfer mechanisms as between the EU member states
and the United States (such as the Standard Contractual Clauses) and (b) invalidates the EU-U.S. Privacy Shield, an adequacy decision
on which many companies had relied as an acceptable mechanism for transferring such data from the EU to the United States. The CJEU is
the highest court in Europe and the Schrems II decision heightens the burden on data exporters and data importers to assess United States
national security laws on their business and future actions of EU data protection authorities are difficult to predict.
Further, the UK’s
decision to leave the EU, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the UK. At
the current time, the UK GDPR that implements and complements the EU GDPR achieved Royal Assent on May 23, 2018 and is now effective
in the UK . The UK authorities finalized the updated UK Standard Contractual Clauses on March 21, 2022. It is possible that additional
issues may arise from a data privacy perspective between the EU and the UK.
Other
Governmental Regulation
SomaLogic
is subject to laws and regulations related to the protection of the environment, the health and safety of employees and the handling,
transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials. For example, OSHA has established
extensive requirements relating specifically to workplace safety for employers in the United States. This includes requirements to develop
and implement multi-faceted programs to protect workers from exposure to blood-borne pathogens, including preventing or minimizing any
exposure through needle stick injuries. For purposes of transportation, some biological materials and laboratory supplies are classified
as hazardous materials and are subject to regulation by one or more of the following agencies: the United States Department of Transportation,
the United States Public Health Service, the United States Postal Service and the International Air Transport Association. We generally
use third-party vendors to dispose of regulated medical waste, hazardous waste and radioactive materials that we may use during our research.
International
Laws and Regulations for IVD Products
Whether or not we are
required to comply with requirements for marketing clinical diagnostic products in the United States, we anticipate that we will still
be required to obtain the requisite approvals from regulatory authorities in non-United States countries prior to the marketing of any
product for clinical diagnostic use in those countries. The regulations in other jurisdictions vary from those in the United States and
may be easier or more difficult to satisfy and are subject to change. For example, the EU published in 2017 new regulations that will
result in greater regulation of medical devices and IVDs. This new IVD regulation (“new IVD Regulation”) is significantly
different from the European directive for in vitro diagnostic products that it replaces in that it will ensure that the new requirements
apply uniformly and on the same schedule across the member states, include a risk-based classification system and increase the requirements
for conformity assessment. The new IVD became applicable in May 2022, and it will increase the requirements for covered products and
involve conformity assessments done by third parties that are designated under the IVD Regulation as notified bodies.
Outside
of the EU, regulatory authorization needs to be sought on a country-by-country basis in order for us to market any clinical diagnostic
products. Some countries have adopted medical device regulatory regimes, such as the Classification Rules for Medical Devices published
by the Hong Kong Department of Health, the Health Sciences Authority of Singapore regulation of medical devices under the Health Products
Act, and Health Canada’s risk classification system for invasive devices, among others, that incorporate IVD products like the
FDA’s current system. Each country may have its own processes and requirements for IVD licensing, approval/clearance, and regulation,
therefore requiring us to seek any regulatory approvals on a country-by-country basis.
Legal
Proceedings
From
time to time, we may be subject to legal proceedings. We are not currently party to or aware of any active legal proceedings that we
believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources
and other factors.
Corporate
Information
SomaLogic
Operating Co., Inc. (formerly SomaLogic, Inc., and herein “SomaLogic Operating”) was incorporated in the state of
Delaware on October 13, 1999 and is headquartered in Boulder, Colorado. SomaLogic Operating is a protein biomarker discovery and clinical
diagnostics company that develops slow off-rate modified aptamers (“SOMAmers®”), which are modified nucleic acid-based
protein binding reagents that are specific for their cognate protein, and offers proprietary SomaScan® services, which provide multiplex
protein detection and quantification of protein levels in complex biological samples.
CM
Life Sciences II Inc. (“CMLS II”) was incorporated in Delaware as a blank check company on December 15, 2020. CMLS
II was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar
business combination with one or more businesses.
On
September 1, 2021, we consummated the business combination (the “Business Combination”) contemplated by the Merger
Agreement , dated March 28, 2021, by and among CMLS II, S-Craft Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary
of CMLS II (“Merger Sub”), and SomaLogic Operating (“Old SomaLogic”). Pursuant to the Merger Agreement,
Merger Sub merged with and into Old SomaLogic, with Old SomaLogic surviving the merger as a wholly-owned subsidiary of CMLS II. Upon
the closing of the Business Combination, CMLS II changed its name to SomaLogic, Inc., and Old SomaLogic changed its name to SomaLogic
Operating Co., Inc.
Our
principal executive offices are located at 2945 Wilderness Place, Boulder, Colorado 80301, and our telephone number at that address is
(303) 625-9000.
MANAGEMENT
The following table provides
information regarding our executive officers and directors, as of September 21, 2022:
Name |
|
Age |
|
Position |
Executive Officers: |
|
|
|
|
Troy Cox |
|
58 |
|
Executive Chairman |
Roy Smythe |
|
62 |
|
Chief Executive Officer and Director |
Shaun Blakeman |
|
44 |
|
Chief Financial Officer |
Amy Graves |
|
47 |
|
Chief Accounting Officer |
Ruben Gutierrez |
|
48 |
|
General Counsel |
Directors: |
|
|
|
|
Robert Barchi |
|
75 |
|
Director |
Eli Casdin |
|
49 |
|
Director |
Troy Cox |
|
58 |
|
Executive Chairman |
Charles M. Lillis |
|
80 |
|
Director |
Anne Margulies |
|
66 |
|
Director |
Ted Meisel |
|
59 |
|
Director |
Richard Post |
|
63 |
|
Director |
Roy Smythe |
|
61 |
|
Director |
Executive
Officers
Troy Cox has served
as a member of our board of directors since September 2021 and currently serves as our Executive Chairman. Mr.
Cox has served as a director of SOPHiA GENETICS SA since July 2019 and as its chairman since February 2020, a director of LetsGetChecked
Inc. since October 2019 and as its vice chairman since May 2020, and as a director at Zymeworks Inc. (NYSE: ZYME) since June 2019. Mr.
Cox also serves as a director for two non-profits: Massachusetts BioTechnology Council (MassBio) and Dream Foundation. Mr. Cox
previously led Foundation Medicine, Inc., a genomic profiling biotechnology company, as President and Chief Executive Officer from February
2017 to February 2019, including its acquisition by Roche in July 2018. Prior to Foundation Medicine, Mr. Cox served as Senior Vice President
and Officer at Genentech, Inc., one of the world’s oldest biotechnology companies, from February 2010 to February 2017. Before joining
Genentech, Mr. Cox held executive and senior roles of increasingly broad accountabilities including President of CNS operations at UCB
BioPharmaceuticals, Senior Vice President at Sanofi-Aventis and diverse foundational roles at Schering-Plough. Mr. Cox received an M.B.A.
at the University of Missouri and B.B.A. in Finance from the University of Kentucky. His qualifications to serve as Executive Chairman
include his extensive experience in the life sciences industry as an executive and in connection with evaluation and execution of business
transaction and merger opportunities.
Roy
Smythe served as Old SomaLogic’s Chief Executive Officer and director since November 2018, and currently serves as our
Chief Executive Officer and director following the consummation of the Business Combination. Dr. Smythe came to Old SomaLogic from Royal
Philips, where he served as Global Chief Medical Officer for Strategy and Partnerships. Before joining Philips, he served as Chief Medical
Officer at Valence Health, a Chicago-based healthcare company. He held the same title previously at AVIA, a healthcare technology accelerator.
While in medical school at Texas A&M, he was a Charles A. Dana Foundation Scholar at the University of Pennsylvania School of Medicine
and the Wharton School of Business. Following medical school, he trained in general surgery, surgical oncology and thoracic surgery and
completed a postdoctoral research fellowship in molecular therapeutics at the University of Pennsylvania. His medical and translational
research career then began at the University of Texas MD Anderson Cancer Center, where he was the recipient of NIH and numerous other
funding awards. He subsequently chaired the Department of Surgery at Baylor Scott & White Health System and the Texas A&M Health
Science Center College of Medicine, where he was the Roney Endowed Chair, and later became the Medical Director of Innovation and Executive
Vice President for Institute Development before moving into expanded roles in corporate healthcare. Dr. Smythe’s qualifications
to serve as part of our management include his extensive experience as a healthcare business entrepreneur, health system administrator,
biomedical scientist, academician, and as an internationally recognized surgeon.
Shaun
Blakeman served as Old SomaLogic’s Chief Financial Officer since August 2021 and currently serves as our Chief Financial
Officer following the consummation of the Business Combination. Prior to joining Old SomaLogic, Mr. Blakeman served as Senior Vice President
and Chief Financial Officer of Cantel Medical, a public company focused on global infection prevention and control in the endoscopy,
hemodialysis water and dental spaces. Mr. Blakeman also served as a Senior Finance Director at Medtronic, where he oversaw finance for
multiple manufacturing sites in Medtronic’s Restorative Therapies Group. Before that, he was a Vice President of Finance for Cantel,
where he was the segment CFO for the company’s $500 million endoscopy platform, Medivators. Prior to his time at Medivators, Mr.
Blakeman spent five years with IDEX in financial leadership positions of increasing responsibility, up to the Vice President of Finance
for the company’s diaphragm and dosing pump and water platforms. Prior to IDEX, Mr. Blakeman worked for Eaton in various finance
positions. He began his career as an officer in the United States Navy in both Surface Warfare and Engineering Duty specialties. Mr.
Blakeman received his Bachelor of Science in economics from the University of Minnesota, his Master of Science in applied physics from
the Naval Postgraduate School, and his Master of Business Administration from the Indiana University Kelley School of Business. Mr. Blakeman’s
qualifications to serve as Chief Financial Officer include his demonstrated success as a key leader in business operations and overseeing
finance operations.
Amy
Graves served as Old SomaLogic’s Senior Corporate Controller from 2019 until April 2021, subsequently being promoted to
the Senior Vice President of Finance. Ms. Graves currently serves as our Chief Accounting Officer following the consummation of the Business
Combination. Previous to joining Old SomaLogic, Ms. Graves served in various roles for Medtronic PLC (NYSE: MDT), from September 2009
to June 2019, supporting key functions including; manufacturing operations, research and development, IT, internal audit and sales. Prior
to that, she served in the Assurance Practice of PricewaterhouseCoopers from October 2004 to September 2009. Ms. Graves received a B.S.
from Southern Oregon University and received an M.A. from John Jay College of Criminal Justice. Ms. Graves’ qualifications to serve
as part of our management include her proven record of orchestrating large-scale financial ecosystems and significant leadership experience.
Ruben
Gutierrez served as Old SomaLogic’s General Counsel since May 2021 and currently serves as our General Counsel following
the consummation of the Business Combination. Prior to joining Old SomaLogic, Mr. Gutierrez was Vice-President, Legal and Corporate Affairs
for Natera, Inc. (Nasdaq: NTRA), a genetic testing company based in San Carlos, California, from May 2019 to May 2021. From January 2018
to May 2019, Mr. Gutierrez was the General Counsel of Human Longevity, Inc., a San Diego based genomics research and health intelligence
company, and served as its Deputy General Counsel from October 2015 to December 2017. Prior to that, Mr. Gutierrez served as Division
Counsel, Biosciences at Thermo Fisher Scientific, Inc. (NYSE: TMO) from February 2014 to October 2015. Mr. Gutierrez received an LL.M.
in Taxation from the New York University School of Law, a J.D. from the University of Southern California Gould School of Law and a B.A.
from the University of California, Los Angeles. He is a member of the State Bar of California. His qualifications to serve as part of
our management include his extensive legal experience and roles at several companies in the life sciences industry.
Non-Employee
Directors
Robert
Barchi has served as a member of our board of directors since September 2021. Dr. Barchi is currently a Distinguished University
Professor at Rutgers University and previously served as its president from September 2012 to June 2020. Prior to that, Dr. Barchi served
as president of Thomas Jefferson University from 2004 to 2012. He is a trustee of the RWJ/Barnabas Health system and of the RWJ University
Hospitals. He previously served on the boards of Covance, Inc. (NYSE: CVD) and VWR International (Nasdaq: VWR). Dr. Barchi holds a B.S.
degree and an M.S. degree from Georgetown University. He is also a board-certified neurologist and holds a Ph.D in biochemistry and an
M.D. from the University of Pennsylvania. Dr. Barchi is a fellow of the American Neurological Association, the American Academy of Neurology,
and the American Association for the Advancement of Science. Dr. Barchi’s qualifications to serve on our board of directors include
his extensive experience as a physician, scientist, and academic.
Eli
Casdin has served as a member of our board of directors since September 2021 and serves as our nominating and corporate governance
committee chairperson. Since July 2020 and March 2021, Mr. Casdin has also served as Chief Executive Officer and a director of CM Life
Sciences Inc. (Nasdaq: CMLF) until August 2021 and CM Life Sciences III Inc. (Nasdaq: CMLT) until December 2021, respectively, both blank
check companies. Mr. Casdin serves on the boards of AbSci (Nasdaq: ABSI) (Member of Audit, Nominating and Corp Governance committees)
since December 2020, Century Therapeutics (Nasdaq: IPSC) (Member of Compensation, Nominating, and Corp Governance committees) since February
2021, EQRx (Nasdaq: EQRX) (Member of Audit, Nominating, and Corporate Governance committees) since January 2020, Sema4 (Nasdaq: SMFR)
since July 2021, Tenaya Therapeutics (Nasdaq: TNYA) (Member of Audit committee) since August 2019, and previously served on the board
of directors of Exact Sciences Corp. (Nasdaq: EXAS) (previously member of Audit & Finance/Innovation committee). Mr. Casdin is also
currently on the board of directors of the following private companies: C2i Genomics, Cedilla Therapeutics, DNA Script (member of Compensation
Committee, Nominating Committee, and Environment, Social and Governance Committee) Genomatica, Genome Medical, Imagen, LetsGetChecked,
Leyden Labs, Mnemo Therapeutics, Paige AI (member of Audit Committee and Nomination Committee), Prominex, and Vineti (member of Compensation
Committee and Strategic Committee). Previously within the last five years, Mr. Casdin served on the following private companies’
boards of directors: Gene Matters, Sexton Biotechnologies, and Thrive Earlier Detection. Mr. Casdin holds a B.S. degree from Columbia
University School of General Studies and an M.B.A. from Columbia Business School. His qualifications to serve on our Board include his
extensive leadership experience as an executive officer of an investment firm, his extensive public and private company directorship
experience in the life sciences and healthcare sectors, and his expertise in finance, capital markets, and the biotechnology industry.
Charles
M. Lillis has served as a member of our board of directors since September 2021 and serves as the Chairman of our board of directors.
Prior to the Business Combination, Mr. Lillis served as a member of Old SomaLogic’s board of directors since October 2013 and as
Chair of Old SomaLogic’s board of directors since December 2020. Mr. Lillis currently serves a trustee of the Lillis Foundation,
a non-profit that provides scholarships, grants and educational programming for underserved communities. Mr. Lillis also currently serves
as the chair of the University of Oregon Board of Trustees. From October 2013 to July 2020, Mr. Lillis served on the board of directors
of DISH Network Corporation (NASDAQ: DISH). Mr. Lillis received a B.A. in business and an M.B.A. from the University of Washington and
a Ph.D. from the University of Oregon. Mr. Lillis’ qualifications to serve on our board of directors include his extensive experience
serving on the boards and executive management teams of a number of companies as well as his business and finance background.
Anne
Margulies has served as a member of our board of directors since September 2021 and serves as our compensation committee chairperson.
Prior to the Business Combination, Ms. Margulies served as a director of Old SomaLogic since September 2019. Ms. Margulies currently
serves as a member of the board of directors of Henry Schein, Inc. (Nasdaq: HSIC), a global dental and health care solutions and products
company, and as an Advisor on the National Advanced Cybersecurity Center and the Massachusetts Governor’s Cyber Security Advisory
Board. Ms. Margulies served as the Vice President and University Chief Information Officer of Harvard University from September 2010
to May 2021. Ms. Margulies was awarded an Honorary Doctorate from the Universitat Politecnica de Valencia in 2019 and received her B.A.
from SUNY Plattsburgh. She was inducted into the CIO Hall of Fame in 2017 and was selected as the Boston CIO Leader of the Year in 2015.
Ms. Margulies’ qualifications to serve on our board of directors include her extensive experience managing information technology
strategy, policies, and services and developing internationally acclaimed initiatives such as the Massachusetts Institute of Technology’s
OpenCourseWare program.
Ted
Meisel has served as a member of our board of directors since September 2021. Mr. Meisel has served as the executive founder
of AVIA Health Innovation, a purpose-built consulting firm helping healthcare systems achieve technology-enabled transformation of care
delivery and operations, since 2012 and as Executive Chairman of WiserCare, a healthcare technology company, since 2010. He has also
been a board member of Doctor Evidence, LLC, which offers life sciences companies an automated platform to discover, analyze and use
medical evidence, since 2011. Mr. Meisel has also served as Senior Advisor to Next Equity Partners since 2016. Mr. Meisel holds a B.A.
from Dartmouth College and a J.D. from Stanford Law School. His qualifications to serve on our board of directors include his extensive
experience and success as an entrepreneur, executive, and investor in new healthcare models and technologies.
Richard
Post has served as a member of our board of directors since September 2021 and serves as our audit committee chairperson. Prior
to the Business Combination, Mr. Post served as a director of Old SomaLogic since October 2019. Mr. Post has served on the board of directors
of Grand Basket, Inc., an outdoor furniture company, since 2019 and has served as the Managing Partner of Grand Basket Investments LLC,
its affiliate investment company, since 2017. Mr. Post previously served as CEO of Autobytel Inc. (NASDAQ: ABTL), an internet-centric
automotive media and marketing services company, from April 2005 to March 2006 and as CFO of MediaOne Group, Inc. (NYSE:UMG), an international
broadband and wireless communications company, from 1998 to 2000. Mr. Post has served on the board of directors of Arbitron, Inc. (NYSE:
ARB), Autobytel Inc. (NASDAQ: ABTL) and Financial Security Assurance Holdings, Inc. (NYSE: FSA). Mr. Post received both his bachelor’s
degree in marketing and his M.B.A. from Delta State University. Mr. Post’s qualifications to serve on our board of directors include
his experience serving on the boards of a number of public companies as well as his business and finance background.
Corporate
Governance
Our business and affairs
are managed under the direction of our Board, which is elected by our stockholders. Our Board currently consists of eight directors,
all of whom, other than Troy Cox, Roy Smythe and Ted Meisel, qualify as “independent” under the listing standards of Nasdaq.
Board’s
Role in Risk Oversight
The
Board has extensive involvement in the oversight of risk management related to the Company and its business and accomplishes this oversight
through the regular reporting to the Board by its standing committees that address risks inherent in their respective areas of oversight.
The standing committees of our Board consist of an audit committee, a compensation committee and a nominating and corporate governance
committee. Our Board may from time to time establish other committees.
The
audit committee represents the Board by periodically reviewing the Company’s accounting, reporting and financial practices, including
the integrity of its financial statements, the surveillance of administrative and financial controls and its compliance with legal and
regulatory requirements. Through its regular meetings with management, including the finance, legal and information technology functions,
the audit committee reviews and discusses all significant areas of the Company’s business and summarizes for the Board all areas
of risk and the appropriate mitigating factors. In addition, the Board receives periodic detailed operating performance reviews from
management.
Our
nominating and corporate governance committee monitors the effectiveness of our corporate governance guidelines and director practices
and evaluates the composition, functions and duties of the committees of the Board.
Our
compensation committee reviews and discusses the risks arising from our compensation policies, plans and programs applicable to all employees
that are reasonably likely to have a materially adverse effect on us.
The
Company’s executive chairman, chief executive officer and other executive officers regularly report to the non-executive
directors and the audit, compensation and nominating and corporate governance committees to ensure effective and efficient oversight
of our activities and to assist in proper risk management and the ongoing evaluation of management controls.
Board
Committees
Our
Board has established standing committees in connection with the discharge of its responsibilities. These committees include the audit
committee, the compensation committee and the nominating and corporate governance committee. Our Board may also establish such other
committees as it deems appropriate, in accordance with applicable law and our corporate governance documents. A copy of each committee’s
charter is posted on the corporate governance section of our website, www.somalogic.com. Members serve on these committees until their
resignation or until as otherwise determined by our Board.
Audit
Committee
The
audit committee’s primary responsibilities include preparing the audit committee report required by the SEC to be included in any
proxy statement or prospectus required to be filed by the Company under the rules and regulations of the SEC and assisting our Board
in overseeing and monitoring (1) the quality and integrity of the financial statements, (2) compliance with legal and regulatory requirements,
(3) the Company’s independent registered public accounting firm’s qualifications and independence, (4) the performance of
the Company’s internal audit function, if any, and (5) the performance of the Company’s independent registered public accounting
firm.
The
audit committee consists of Richard Post, serving as the chairperson, Eli Casdin, Robert Barchi and Anne Margulies. The Board
has determined that each member of the audit committee qualifies as an independent director under the listing requirements and rules
of Nasdaq and the independence requirements of Rule 10A-3 under the Exchange Act. At least one member of the audit committee qualifies
as an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K. The Board has adopted
a written charter for the audit committee, which is available free of charge on our corporate website, www.somalogic.com.
Compensation
Committee
The
compensation committee’s responsibilities include assisting our Board in discharging its responsibilities relating to (1) setting
the Company’s compensation program and compensation of its executive officers and directors, (2) monitoring the Company’s
incentive and equity-based compensation plans, and (3) preparing the compensation committee report if and when required to be included
in any proxy statement or prospectus required to be filed by the Company under the rules and regulations of the SEC.
The compensation committee
consists of Anne Margulies, serving as the chairperson, Charles M. Lillis, and Richard Post.
The
Board has adopted a written charter for the compensation committee, which is available free of charge on our corporate website, www.somalogic.com.
Nominating
and Corporate Governance Committee
The
nominating and corporate governance committee’s responsibilities include: (1) overseeing all aspects of the Company’s corporate
governance functions on behalf of the Board; (2) making recommendations to the Board regarding corporate governance issues; (3) identifying,
reviewing and evaluating candidates to serve as directors of the Company and review and evaluate incumbent directors; (4) serving as
a focal point for communication between such candidates, non-committee directors and the Company management; (5) recommending to the
Board for selection candidates to serve as nominees for director for the annual meeting of stockholders; and (6) making other recommendations
to the Board regarding affairs relating to the directors of the Company including director compensation.
The nominating and corporate
governance committee consists of Eli Casdin, serving as the chairperson, and Anne Margulies.
The
Board has adopted a written charter for the nominating and corporate governance committee, which is available free of charge on our corporate
website, www.somalogic.com.
Corporate
Governance Guidelines and Code of Business Conduct and Ethics
Our
Board has adopted Corporate Governance Guidelines that address items such as the qualifications and responsibilities of our directors
and director candidates and corporate governance policies and standards applicable to us in general. In addition, our Board has adopted
a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive
officer, principal financial officer, principal accounting officer and persons performing similar functions. A copy of our Corporate
Governance Guidelines and Code of Business Conduct and Ethics will be available upon written request to our Secretary or on our website,
www.somalogic.com. If we amend or grant any waiver from a provision of our Code of Business Conduct and Ethics that applies to any of
our executive officers, we will publicly disclose such amendment or waiver on our website and as required by applicable law.
Compensation
Committee Interlocks and Insider Participation
No
member of our compensation committee was at any time during fiscal year 2021, or at any other time, one of our officers or employees.
None of our executive officers have served as a director or member of a compensation committee (or other committee serving an equivalent
function) of any entity, one of whose executive officers served as a director of our board of directors or member of our compensation
committee.
Director
Independence
Our
common stock is listed on Nasdaq. Under the listing standards of Nasdaq, independent directors must comprise a majority of a listed company’s
board of directors. In addition, the listing standards of Nasdaq require that, subject to specified exceptions, each member of a listed
company’s audit, compensation and nominating and corporate governance committees be independent. Under the listing standards of
Nasdaq, a director will only qualify as an “independent director” if, in the opinion of that listed company’s board
of directors, that director does not have a relationship that would interfere with the exercise of independent judgment in carrying out
the responsibilities of a director.
Audit
committee members must also satisfy the additional independence criteria set forth in the Exchange Act, and the listing standards of
Nasdaq. Compensation committee members must also satisfy the additional independence criteria set forth in the Exchange Act and the listing
standards of Nasdaq.
Our Board has undertaken a
review of the independence of each director. Based upon information requested from and provided by each director concerning his or her
background, employment and affiliations, including family relationships, the Board has determined that Charles M. Lillis, Robert Barchi,
Eli Casdin, Anne Margulies, and Richard Post, representing five of the Company’s eight directors, are “independent”
as that term is defined under the applicable rules and regulations of the SEC and the listing requirements and rules of the Nasdaq. Our
Board also determined that Richard Post, Eli Casdin, Robert Barchi and Anne Margulies, who comprise our audit committee, and that Anne
Margulies, Charles M. Lillis, and Richard Post, who comprise our compensation committee, each satisfy the independence standards for those
committees established by the SEC and the listing requirements and rules of Nasdaq. In making such determinations, our Board considered
the relationships that each such non-employee director has with our Company and all other facts and circumstances our Board deemed relevant
in determining independence, including the beneficial ownership of our capital stock by each non-employee director and any institutional
stockholder with which he or she is affiliated.
EXECUTIVE
COMPENSATION
The
following is a discussion and analysis of compensation arrangements of our named executive officers. This discussion contains forward-looking
statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs.
Actual compensation programs that we adopt may differ materially from currently planned programs as summarized in this discussion. As
an “emerging growth company” as defined in the JOBS Act, we are not required to include a Compensation Discussion and Analysis
section and have elected to comply with the scaled back disclosure requirements applicable to emerging growth companies.
To
achieve the Company’s goals, we have designed, and intend to modify as necessary, our compensation and benefits program to attract,
retain, incentivize and reward deeply talented and qualified executives who share our philosophy and desire to work towards achieving
these goals.
We
believe our compensation program should promote the success of the Company and align executive incentives with the long-term interests
of our stockholders. As our needs evolve, we intend to continue to evaluate our philosophy and compensation programs as circumstances
require.
This
section provides an overview of our executive compensation programs, including a narrative description of the material factors necessary
to understand the information disclosed in the summary compensation table below. Our Board, with input from the Chief Executive Officer,
has historically determined the compensation for our named executive officers. For the fiscal year ended December 31, 2021, our named
executive officers were:
| ● | Roy
Smythe, Chief Executive Officer; |
| ● | Shaun
Blakeman, Chief Financial Officer; and |
| ● | Melody
Harris, President and Chief Operating Officer. |
Summary
Compensation Table for the Fiscal Year Ended December 31, 2021
The
following table shows the compensation earned by our named executive officers for the fiscal year ended December 31, 2021.
Name and Principal Position |
|
Year |
|
|
Salary
($) |
|
|
Bonus
($) |
|
|
Stock
Awards(1)
($) |
|
|
Option
Awards(2)
($) |
|
|
Non-Equity
Incentive Plan Compensation(3) ($) |
|
|
All
other Compensation(6) ($) |
|
|
Total
Compensation ($) |
|
Roy
Smythe Chief Executive Officer |
|
|
2021 |
|
|
|
630,315 |
|
|
|
— |
|
|
|
594,641 |
|
|
|
12,440,896 |
|
|
|
626,575 |
|
|
|
13,102 |
|
|
|
14,305,529 |
|
|
|
|
2020 |
|
|
|
500,000 |
|
|
|
— |
|
|
|
— |
|
|
|
1,504,813 |
|
|
|
314,655 |
|
|
|
— |
|
|
|
2,319,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shaun
Blakeman Chief Financial Officer(4),(5) |
|
|
2021 |
|
|
|
173,077 |
|
|
|
30,000 |
|
|
|
277,760 |
|
|
|
5,142,354 |
|
|
|
107,308 |
|
|
|
6,108 |
|
|
|
5,736,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melody
Harris President & Chief Operating Officer |
|
|
2021 |
|
|
|
498,506 |
|
|
|
— |
|
|
|
300,323 |
|
|
|
5,018,611 |
|
|
|
389,719 |
|
|
|
13,225 |
|
|
|
6,220,296 |
|
|
|
|
2020 |
|
|
|
360,000 |
|
|
|
150,000 |
|
|
|
— |
|
|
|
782,734 |
|
|
|
161,675 |
|
|
|
11,108 |
|
|
|
1,465,517 |
|
| (1) | The
amounts reported represent the aggregate grant date fair value of the performance-based RSUs
(also called Earn-Out Shares) awarded to our named executive officers in the fiscal year
ended December 31, 2021, calculated in accordance with FASB ASC Topic 718. See Note 13 to
our consolidated financial statements included elsewhere in this prospectus for the assumptions
used in calculating the grant date fair value. The Earn-Out Shares become vested if at any
time between the 13-month anniversary of the consummation of the Business Combination and
the 24-month anniversary of the consummation of the Business Combination, or in connection
with a subsequent change in control, our Class A common share price is greater than or equal
to $20.00 for a period of at least 20 out of 30 consecutive trading days, subject to continued
service through such dates. |
| (2) | The
amounts reported represent the aggregate grant date fair value of the stock options awarded
under our 2017 Equity Incentive Plan and our 2021 Omnibus Incentive Plan to our named executive
officers in the fiscal year ended December 31, 2021, calculated in accordance with FASB ASC
Topic 718. See Note 13 to our consolidated financial statements included elsewhere in this
prospectus for the assumptions used in calculating the grant date fair value. Additionally,
for Mr. Blakeman, the amounts shown also include incremental fair value of $125,115 resulting
from a modification to his stock options granted in August 2021. |
| (3) | Annual
incentive amounts for the 2021 performance year were made under individual employment agreements
and are reported in the “Non-Equity Incentive Plan Compensation” column. These
amounts were paid to the named executive officers in March 2022. |
| (4) | Mr.
Blakeman assumed the position of Chief Financial Officer in August 2021. |
| (5) | Mr.
Blakeman received a sign on bonus in the amount of $30,000 during the fiscal year ended December
31, 2021, in connection with the commencement of his employment by the Company in August
2021. |
| (6) | Dr.
Smythe, Mr. Blakeman and Ms. Harris received 401(k) contributions in the amounts of $11,600,
$3,635 and $11,600, respectively, from the Company in the fiscal year ended December 31,
2021. |
Narrative
to Summary Compensation Table
Base
Salaries
The
named executive officers receive a base salary to compensate them for services rendered to the Company. The base salary payable to each
named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience,
role and responsibilities. As of December 31, 2021, the annual base salaries for Dr. Smythe, Mr. Blakeman, and Ms. Harris were equal
to $660,000, $450,000 and $510,000, respectively.
Non-Equity
Incentive Compensation
The
Company provides non-equity incentive compensation to its employees selected by the compensation committee, including our named executive
officers, based on the achievement of individual and corporate performance, as determined by the compensation committee. For the fiscal
year ended December 31, 2021, the compensation committee determined the value of non-equity incentive compensation for the named executive
officers based on a combination of Company strategic goals and, in the case of Mr. Blakeman, individual performance goals. The amounts
of such non-equity incentive compensation awarded to the named executive officers are set forth in the “Non-Equity Incentive Plan
Compensation” column of the Summary Compensation Table above.
Equity
Compensation
Please
see the section below entitled “Equity Incentive Compensation Plans” for a description of our equity compensation
plans.
Employee
Benefits
Our
named executive officers are eligible to participate in the Company’s employee benefit plans, including our medical, dental, vision,
group life, disability, and accidental death and dismemberment insurance plans, in each case, on the same basis as all of the Company’s
other employees. The Company generally does not provide perquisites or personal benefits to our named executive officers, except in limited
circumstances.
The
Company maintains the SomaLogic, Inc. 401(k) Plan (“401(k) Plan”) that provides eligible employees, including our
current named executive officers, with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to
defer eligible compensation into the 401(k) Plan, subject to applicable annual Internal Revenue Code limits. Employees are always fully
vested in their contributions. For the fiscal year ended December 31, 2021, the Company made safe harbor matching contributions of 100%
of elective deferrals into the 401(k) Plan, up to 4% of a participant’s eligible compensation. This safe harbor matching contribution
was 100% vested. We believe that providing a vehicle for tax-deferred retirement savings through the 401(k) Plan adds to the overall
desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in
accordance with our compensation policies.
None
of our named executive officers participated in any defined benefit pension plans or any non-qualified deferred compensation plans for
the fiscal year ended December 31, 2021. The Company does not make any gross-up payments to cover our named executive officers’
personal income taxes that may pertain to any of the compensation or perquisites paid or provided by the Company.
Outstanding
Equity Awards for the Fiscal Year Ended December 31, 2021
The
following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2021:
| |
Option
Awards(1) | | |
Stock
Awards | |
Name | |
Number
of Securities Underlying Unexercised Options (#) Exercisable | | |
Number
of Securities Underlying Unexercised Options (#) Unexercisable | | |
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#) | | |
Option
Exercise Price ($) | | |
Option
Expiration Date | | |
Number
of Shares or Units of Stock That Have Not Vested (#) | | |
Market
Value of Shares or Units of Stock That Have Not Vested ($) | | |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have
Not Vested (#) | | |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That
Have Not Vested ($) | |
Roy
Smythe(1) | |
| — | | |
| 1,250,000 | | |
| — | | |
$ | 11.53 | | |
| 10/20/2031 | | |
| — | | |
| — | | |
| — | | |
| — | |
Roy
Smythe(1) | |
| — | | |
| 1,005,720 | | |
| — | | |
$ | 4.77 | | |
| 2/19/2031 | | |
| — | | |
| — | | |
| — | | |
| — | |
Roy
Smythe(1) | |
| 1,292,072 | | |
| 384,128 | | |
| — | | |
$ | 4.77 | | |
| 11/18/2028 | | |
| — | | |
| — | | |
| — | | |
| — | |
Roy
Smythe(1) | |
| 152,442 | | |
| 232,669 | | |
| — | | |
$ | 4.77 | | |
| 5/11/2030 | | |
| — | | |
| — | | |
| — | | |
| — | |
Roy
Smythe | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 84,454 | | |
$ | 983,045 | |
Shaun Blakeman(1) | |
| — | | |
| 838,100 | | |
| — | | |
$ | 8.10 | | |
| 8/5/2031 | | |
| — | | |
| — | | |
| — | | |
| — | |
Shaun
Blakeman | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 39,449 | | |
$ | 459,186 | |
Melody
Harris(1) | |
| — | | |
| 500,000 | | |
| — | | |
$ | 11.53 | | |
| 10/20/2031 | | |
| — | | |
| — | | |
| — | | |
| — | |
Melody
Harris | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 42,641 | | |
$ | 496,341 | |
Melody
Harris(1) | |
| — | | |
| 419,050 | | |
| — | | |
$ | 4.77 | | |
| 2/18/2031 | | |
| — | | |
| — | | |
| — | | |
| — | |
Melody
Harris(2) | |
| 61,115 | | |
| 148,410 | | |
| — | | |
$ | 4.77 | | |
| 5/15/2029 | | |
| — | | |
| — | | |
| — | | |
| — | |
Melody
Harris(1) | |
| 222,622 | | |
| 91,665 | | |
| — | | |
$ | 4.77 | | |
| 2/7/2029 | | |
| — | | |
| — | | |
| — | | |
| — | |
Melody
Harris(3) | |
| 56,310 | | |
| 6,547 | | |
| — | | |
$ | 4.77 | | |
| 5/16/2028 | | |
| — | | |
| — | | |
| — | | |
| — | |
Melody
Harris(1) | |
| 225,240 | | |
| 26,190 | | |
| — | | |
$ | 4.77 | | |
| 5/16/2028 | | |
| — | | |
| — | | |
| — | | |
| — | |
Melody
Harris(1) | |
| 88,997 | | |
| 135,825 | | |
| — | | |
$ | 4.77 | | |
| 5/11/2030 | | |
| — | | |
| — | | |
| — | | |
| — | |
| (1) | Each
of the stock option grants vests 25% after one year, then monthly thereafter for 36 months. |
| (2) | Stock
option grant starts vesting one year after grant and vests monthly thereafter for 24 months. |
| (3) | Stock
option grant vests monthly for four years. |
| (4) | The
exercise price of each stock option is set equal to the closing price of our Class A common
stock on the grant date. However, for stock options granted prior to September 2, 2021, exercise
prices shown were adjusted upon the consummation of the Business Combination. |
| (5) | These
performance-based RSUs (also called Earn-Out Shares) become vested if at any time between
the 13-month anniversary of the consummation of the Business Combination and the 24-month
anniversary of the consummation of the Business Combination, or in connection with a subsequent
change in control, our Class A common share price is greater than or equal to $20.00 for
a period of at least 20 out of 30 consecutive trading days, subject continued service through
such dates. |
| (6) | Calculated
by multiplying the number of unvested RSUs by $11.64, the closing price of our Class A common
stock on the last trading day of 2021. |
Executive
Employment Agreements
General.
The Company has entered into employment agreements with each of Roy Smythe, Shaun Blakeman, and Melody Harris, in each case, providing
for the terms and conditions of their continued at-will employment with the Company. The agreements include, among other things (i) each
such named executive officer’s annual base salary, (ii) eligibility for an annual incentive bonus for each of Dr. Smythe, Mr. Blakeman
and Ms. Harris of up to 85%, 50% and 65% of their respective annual base salaries, subject to the achievement of certain financial targets
and certain other performance metrics, (iii) eligibility to participate in the 2017 Equity Incentive Plan (and any successor equity incentive
plans) and retention of their previously-granted awards under the 2009 Equity Incentive Plan, in each case, subject to the terms of the
applicable plan and as determined by our Board and (iv) eligibility to participate in our employee benefit plans, as in effect from time
to time.
Termination.
The agreements will terminate upon the applicable named executive officer’s death, and may be terminated by the Company in
the event of the applicable named executive officer’s “disability” (as defined in the agreements), or by the Company
with or without “cause” (as defined in the agreements). Each such named executive officer may resign his or her employment
with the Company with or without “good reason” (as defined in the agreements).
Non-Enhanced
Severance. In the event that the Company terminates any such named executive officer’s employment without cause, or in the
event that any such named executive officer resigns his or her employment with the Company for good reason, such named executive officer
would receive, in addition to accrued but unpaid salary and vested employment benefits through the termination date (i) continuation
of his or her annual base salary for a period of 12 months (in the case of Dr. Smythe and Ms. Harris) or six months (in the case of Mr.
Blakeman) following the termination date, and (ii) provided that the named executive officer has properly and timely elected coverage
under COBRA, a monthly COBRA premium payment for each month of monthly severance in an amount necessary to reimburse the named executive
officer for continued health care coverage for the named executive officer and his or her dependents, provided that the named
executive officer has not secured alternate health care coverage, and such COBRA premiums are not otherwise being paid by another entity.
Enhanced
Severance. In the event that the Company terminates any such named executive officer’s employment without cause, or in the
event that any such named executive officer resigns his or her employment with the Company for good reason, in either case, during the
12-month period following a “change in control” (as defined in the agreements) or the consummation of the Business Combination,
such named executive officer would receive from the Company, in addition to accrued but unpaid salary and vested employment benefits
through the termination date (i) continuation of his or her annual base salary for a period of 18 months (in the case of Dr. Smythe),
12 months (in the case of Mr. Blakeman), and 15 months (in the case of Ms. Harris) following such named executive officer’s termination
date, (ii) payment of his or her annual bonus, without regard to the achievement of financial targets and performance metrics, payable
in 18 monthly installments (in the case of Dr. Smythe), 12 months (in the case of Mr. Blakeman), and 15 monthly installments (in the
case of Ms. Harris), (iii) provided that the named executive officer has properly and timely elected coverage under COBRA, a monthly
COBRA premium payment for 18 months (in the case of Dr. Smythe), 12 months (in the case of Mr. Blakeman), and 15 months (in the case
of Ms. Harris) following such named executive officer’s termination date, in an amount necessary to reimburse the named executive
officer for continued health care coverage for the named executive officer and his or her dependents, provided that the named
executive officer has not secured alternate health care coverage, and such COBRA premiums are not otherwise being paid by another entity
and (iv) acceleration of all outstanding unvested stock options granted to the named executive officer, which will become exercisable
for the remainder of their full term.
Conditions
to Severance. Payment of the severance benefits described above is conditioned upon such named executive officer’s compliance
with his or her post-employment restrictive covenants, and such named executive officer’s execution and non-revocation of a release
of claims in favor of the Company and certain other parties within 60 days following the termination date.
Mr.
Cox’s Employment Agreement. In connection with Mr. Cox’s transition to Executive
Chair of the Board, on October 17, 2022, the Company and Mr. Cox entered into an Employment Agreement providing for the terms and conditions
of his employment with the Company (the “Executive Chair Agreement”). The Executive Chair Agreement includes, among other
things, Mr. Cox’s (i) annual base salary of $460,000, (ii) eligibility for an annual incentive bonus of up to 85% of his annual
base salary, subject to the achievement of certain financial targets and certain other performance metrics, (iii) eligibility to participate
in the Company’s 2021 Omnibus Incentive Plan (the “2021 Plan”) (and any successor equity incentive plan), subject to
the terms of the 2021 Plan and as determined by the Board and (iv) eligibility to participate in the Company’s employee benefit
plans, as in effect from time to time. The Executive Chair Agreement will terminate upon Mr. Cox’s death, and may be terminated
by the Company in the event of his Disability (as defined in the Executive Chair Agreement) or with Cause (as defined in the Executive
Chair Agreement). Mr. Cox may resign his employment with the Company with or without Good Reason (as defined in the Executive Chair Agreement).
In the event the Company terminates Mr. Cox’s employment without Cause, Mr. Cox resigns his employment for Good Reason, or the
Company or its successor terminates Mr. Cox without Cause or Mr. Cox resigns his employment for Good Reason during the twelve month period
following a Change of Control (as defined in the Executive Chair Agreement), then Mr. Cox would receive, in addition to accrued but unpaid
salary and vested employment benefits through the termination date, such termination benefits offered pursuant to the Company’s
then-effective Severance Plan (as discussed below). In addition to the compensation Mr. Cox will receive pursuant to the Executive Chair
Agreement, the Company also granted 885,416 stock options to Mr. Cox pursuant to the 2021 Plan, one third of which vest on the first
anniversary of the grant date, with the remaining portion of the award vesting in equal monthly installments over the subsequent twenty-four
months.
Incentive
Compensation Plans
2009
Equity Incentive Plan
Our
Board adopted the 2009 Equity Incentive Plan (the “2009 Plan”) on November 5, 2009, and our stockholders approved
the 2009 Plan on March 20, 2010. The 2009 Plan was terminated on September 22, 2017, when our Board adopted the 2017 Equity Incentive
Plan, and no further awards were granted under the 2009 Plan thereafter. The 2009 Plan provided for the Company’s ability to grant
eligible participants equity and equity-based awards in the form of incentive and nonstatutory stock options, stock appreciation rights,
restricted stock, RSUs and other stock-based awards. The 2009 Plan continues to govern the terms and conditions of outstanding awards
previously granted under the 2009 Plan.
As
of December 31, 2021, awards outstanding under the 2009 Plan consisted of stock options to purchase an aggregate of 1,312,556 shares
of our Class A common stock and no other form of awards were outstanding under the 2009 Plan.
2017
Equity Incentive Plan
Our
Board adopted the 2017 Equity Incentive Plan (the “2017 Plan”) on September 22, 2017, and our stockholders approved
the 2017 Plan on October 20, 2017. The 2017 Plan provided for our ability to grant eligible participants equity and equity-based awards
in the form of incentive and nonstatutory stock options, stock appreciation rights, restricted stock, RSUs and other stock-based awards.
Effective as of September 1, 2021, the 2021 Omnibus Incentive Plan was adopted by our Board and the 2017 Plan was terminated such that
no new awards will be available under the 2017 Plan. The 2017 Plan continues to govern the terms and conditions of outstanding awards
previously granted under the 2017 Plan.
As
of December 31, 2021, awards outstanding under the 2017 Plan consisted of stock options to purchase an aggregate of 10,200,302 shares
of our Class A common stock and no other form of awards were outstanding under the 2017 Plan.
2021
Omnibus Incentive Plan
Our
Board adopted the 2021 Omnibus Incentive Plan (the “2021 Plan”), and our stockholders approved the 2021 Plan on September
1, 2021. The 2021 Plan provided for the Company’s ability to grant eligible participants equity and equity-based awards in the
form of incentive and nonstatutory stock options, stock appreciation rights, restricted stock, RSUs and other stock-based awards. The
initial aggregate number of shares of our Class A common stock that could be issued under the 2021 Plan was 21,300,000 shares, plus any
shares of our Class A common stock subject to stock options that were assumed in the Business Combination. In addition, the number of
shares available for issuance under the 2021 Plan will be annually increased on January 1 of each calendar year beginning in 2022 by
an amount equal to 5% of the total outstanding shares of our Class A common stock on the last day of the prior calendar year. The maximum
number of shares of our Class A common stock with respect to which incentive stock options may be granted under the 2021 Plan is 21,300,000
shares, and will not be subject to the annual adjustment provision described above.
As
of December 31, 2021, awards outstanding under the 2021 Plan consisted of stock options covering an aggregate of 2,930,909 shares of
our Class A common stock. No other form of awards were outstanding under the 2021 Plan.
2021
Employee Stock Purchase Plan
Our
Board adopted the 2021 Employee Stock Purchase Plan (the “ESPP”), and our stockholders approved the ESPP on September
1, 2021. The purpose of the ESPP is to provide eligible employees with an opportunity to increase their proprietary interest in the success
of the Company by purchasing our Class A common stock on favorable terms and to pay for such purchases through payroll deductions. The
ESPP is administered by the compensation committee and a total of 425,100 shares of our Class A common stock was initially reserved for
issuance under the ESPP. The ESPP has been implemented using consecutive six-month option periods, beginning on January 1st and July
1st of each year and ending on the last day of June and December, respectively. The purchase price per share of our Class A common stock
under the ESPP is 85% of the fair market value per share on the last day of the option period.
As
of December 31, 2021, no awards were outstanding under the ESPP. The first offering period under the 2021 Employee Stock Purchase Plan
commenced on January 1, 2022.
Awards
Granted Outside of Equity Incentive Plans
Prior
to the Business Combination, the Company granted stock options to certain key executive officers (including Dr. Smythe and Mr. Blakeman)
outside of its equity incentive plans. Such stock option grants were approved by our Board, but not our stockholders, at the time of
grant. As of December 31, 2021, there were outstanding stock options to purchase an aggregate of 5,259,078 shares of our Class A common
stock that were granted outside of our equity incentive plans.
In connection with the Business
Combination, the Company granted, and our stockholders approved, performance-based RSUs (also called Earn-Out Shares) to certain employees
and non-employee directors, which become vested if at any time between the 13-month anniversary of the consummation of the Business Combination
and the 24-month anniversary of the consummation of the Business Combination, or in connection with a subsequent change in control, our
Class A common share price is greater than or equal to $20.00 for a period of at least 20 out of 30 consecutive trading days, subject
to continued service through such dates. As of December 31, 2021, there were 1,447,637 Earn-Out Shares of our Class A common stock contingently
issuable.
Key Employee Severance Plan
On
October 17, 2022, the Company’s Compensation Committee, as part of its ongoing review of the Company’s executive compensation
and retention programs, approved the SomaLogic, Inc. Key Employee Severance Plan (the “Severance Plan”) and also on October
17, 2022, the Board ratified the Committee’s approval of the Severance Plan. The Severance Plan provides for severance payments
and benefits to certain eligible employees, including the Company’s named executive officers.
Under
the terms of the Severance Plan, in the event that a participant experiences a Termination Without Cause (as defined in the Severance
Plan) or resigns for Good Reason (as defined in the Severance Plan) in each case that is not a Change in Control Termination (as defined
below), the participant will receive, subject to his or her satisfaction of the conditions to severance described below, (i) a lump sum
severance payment equal to a number of months of his or her base salary, which varies based on the participant’s designated employment
tier (from 4 months for “Tier 4” participants to 12 months for “Tier 1” participants), (ii) payment of the premiums
for the participant’s continued post-termination health insurance coverage or continued coverage under the Company’s health
insurance plans for up to the number of months in the participant’s severance period, and (iii) in the case of a “Tier 1”
participant, an additional 12 months’ of vesting acceleration for the participant’s then outstanding and unvested equity awards
that are subject to service-based vesting.
In
addition, in the event that a participant experiences a Termination Without Cause or resigns for Good Reason within twelve (12) months
after a Change in Control (a “Change in Control Termination”), the participant will receive, subject to his or her satisfaction
of the conditions to severance described below, (i) a lump sum severance amount equal to a number of months of his or her base salary
plus his or her target annual bonus opportunity (prorated for partial years in the severance period), which number of months varies based
on the participant’s designated employment tier (from 6 months for “Tier 4” participants to 18 months for “Tier
1” participants), (ii) payment of the premiums for the participant’s continued post-termination health insurance coverage
or continued coverage under the Company’s health insurance plans for up to the number of months in the participant’s severance
period, and (iii) full vesting acceleration of each of the participant’s then outstanding and unvested equity awards that are subject
to service-based vesting.
As
a condition to a participant’s receipt of payments or benefits under the Severance Plan, the participant must execute and not revoke
a general waiver and release of all claims against the Company. If the payments or benefits payable under the Severance Plan would be
subject to the excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, then those payments or benefits
will be reduced if such reduction would result in a higher net after tax benefit to the participant.
Potential
Payments upon Termination or Change in Control
The
Company does not provide “single-trigger” severance payments that are prompted solely by a change in control.
Pursuant to certain employment
agreements and the Severance Plan, in the event that any executive officer party to such an employment agreement or participant in the
Severance Plan experiences a qualifying termination during the 12-month period following a “change in control” (as defined
in the agreements or the Severance Plan, as applicable), such person would receive the payments and benefits discussed in the sections
above entitled “Executive Employment Agreements—Enhanced Severance” and “Key Employee Severance Plan”,
as applicable.
NON-EMPLOYEE
DIRECTOR COMPENSATION
The
following table sets forth the compensation of our non-employee directors in the fiscal year ended December 31, 2021. Dr. Smythe receives
no additional compensation for his services as a director of the Company. The following table does not include any directors of CMLS
II prior to the Business Combination, to the extent that those directors did not become directors of the Company at any time following
the Business Combination.
Name | |
Fees
Earned or Paid in Cash
($) | | |
Stock
Awards(4) ($) | | |
Option
Awards(5) ($) | | |
Total
($) | |
| |
| | |
| | |
| | |
| |
Charles
M. Lillis | |
| 74,500 | | |
| 45,499 | | |
| 429,410 | | |
| 549,409 | |
| |
| | | |
| | | |
| | | |
| | |
Jessica Mathews(1) | |
| 20,000 | | |
| - | | |
| 261,804 | | |
| 281,804 | |
| |
| | | |
| | | |
| | | |
| | |
Anne
Margulies | |
| 51,000 | | |
| 26,235 | | |
| 429,410 | | |
| 506,645 | |
| |
| | | |
| | | |
| | | |
| | |
Franck Moison(1) | |
| 22,375 | | |
| - | | |
| 49,648 | | |
| 72,023 | |
| |
| | | |
| | | |
| | | |
| | |
Richard
Post | |
| 63,750 | | |
| 29,100 | | |
| 429,410 | | |
| 522,260 | |
| |
| | | |
| | | |
| | | |
| | |
Eli
Casdin | |
| 58,000 | | |
| 26,453 | | |
| 485,395 | | |
| 569,848 | |
| |
| | | |
| | | |
| | | |
| | |
Robert Barchi(2) | |
| 12,500 | | |
| 21,923 | | |
| 379,762 | | |
| 414,185 | |
| |
| | | |
| | | |
| | | |
| | |
Troy Cox(2) | |
| 14,000 | | |
| 24,556 | | |
| 379,762 | | |
| 418,318 | |
| |
| | | |
| | | |
| | | |
| | |
Stephen Quake(2) | |
| 11,250 | | |
| 19,732 | | |
| 379,762 | | |
| 410,744 | |
| |
| | | |
| | | |
| | | |
| | |
Ted Meisel(2) | |
| 10,000 | | |
| 17,540 | | |
| 379,762 | | |
| 407,302 | |
| |
| | | |
| | | |
| | | |
| | |
Kevin Conroy(3) | |
| - | | |
| 17,540 | | |
| - | | |
| 17,540 | |
| (1) | Jessica
Mathews and Franck Moison resigned from the Board in June 2021. |
| (2) | Robert
Barchi, Troy Cox, Stephen Quake and Ted Meisel joined the Board in the last quarter of 2021. |
| (3) | Kevin
Conroy resigned from the Board in November 2021. |
| (4) | The
amounts reported represent the aggregate grant date fair value of the performance-based RSUs,
also called “Earn-Out Shares,” awarded to our directors in the fiscal
year ended December 31, 2021, calculated in accordance with FASB ASC Topic 718. The amounts
reported include incremental compensation due to any modifications. See Note 13 to our consolidated
financial statements included elsewhere in this prospectus for the assumptions used in calculating
the grant date fair value. |
| (5) | The
amounts reported represent the aggregate grant date fair value of the stock options awarded
under our 2017 Equity Incentive Plan and our 2021 Omnibus Incentive Plan to our directors
in the fiscal year ended December 31, 2021, calculated in accordance with FASB ASC Topic
718. The amounts reported include incremental compensation due to any modifications. See
Note 13 to our consolidated financial statements included elsewhere in this prospectus for
the assumptions used in calculating the grant date fair value. |
The
following table sets forth the number of stock awards (consisting solely of the Earn-Out Shares) and stock options held by each non-employee
director as of December 31, 2021. Ms. Mathews, Mr. Moison, and Mr. Conroy did not hold any outstanding equity awards as of December 31,
2021.
Name | |
Stock
Awards
(#) | | |
Option
Awards
(#) | |
| |
| | |
| |
Charles
M. Lillis | |
| 6,462 | | |
| 67,657 | |
Anne
Margulies | |
| 3,726 | | |
| 117,943 | |
Richard
Post | |
| 4,133 | | |
| 117,943 | |
Eli
Casdin | |
| 3,757 | | |
| 88,610 | |
Robert
Barchi | |
| 3,131 | | |
| 46,705 | |
Troy
Cox | |
| 3,507 | | |
| 46,705 | |
Stephen
Quake | |
| 2,818 | | |
| 46,705 | |
Ted Meisel | |
| 2,505 | | |
| 46,705 | |
Non-Employee
Director Compensation
Our
Board sets non-employee director compensation which is designed to provide competitive compensation necessary to attract and retain high
quality non-employee directors and to encourage ownership of Company stock to further align their interests with those of our stockholders.
Each non-employee director of the Company is eligible to receive an annual fee of $40,000, and the chairs of the Board, audit committee,
compensation committee, and nominating and governance committee are eligible to receive an annual fee of $40,000, $20,000, $14,500 and
$10,000, respectively. In addition, the members of the audit committee, compensation committee, and nominating and governance committee
(other than the chairs) are eligible to receive an annual fee of $10,000, $6,000 and $5,000, respectively. All annual fees are paid in
quarterly installments.
The
Company also grants annual stock options to its non-employee directors with a target grant date value of $380,000. 25% of the stock options
vest on the first anniversary of the grant date, and the remaining portion of the award vests in equal installments over the next 36
months thereafter, subject to the non-employee directors remaining on our Board through the applicable vesting dates.
In
the first quarter of 2021, the Board granted stock options to each of Ms. Margulies, Mr. Moison, Mr. Post, Mr. Casdin, Mr. Lillis and
Ms. Mathews in consideration for their service prior to the Business Combination. In addition, in connection with their resignation from
the Board in June 2021, the Company modified options held by Ms. Mathews and Mr. Moison to accelerate the vesting and/or extend contractual
terms. In connection with the Business Combination, the Company (i) adopted the 2021 Omnibus Incentive Plan, under which non-employee
directors will be subject to an annual compensation limit of $700,000 and (ii) granted Earn-Out Shares to certain non-employee directors,
which become vested if at any time between the 13-month anniversary of the consummation of the Business Combination and the 24-month
anniversary of the consummation of the Business Combination, or in connection with a subsequent change in control, our Class A common
share price is greater than or equal to $20.00 for a period of at least 20 out of 30 consecutive trading days, subject continued service
through such dates.
CERTAIN
RELATIONSHIPS, RELATED PARTY AND OTHER TRANSACTIONS
CMLS
II’s Related Party Transactions
Founder
Shares
On
December 17, 2020, the Sponsor paid $25,000, or approximately $0.004 per share, to cover certain offering costs in consideration for
5,750,000 CMLS II Class B common stock, par value $0.0001 (“Founder Shares”). In January and February 2021, the Sponsor
transferred 25,000 Founder Shares to certain CMLS II directors. On February 22, 2021, CMLS II effected a 1:1.2 stock split of the Class
B common stock, resulting in our Sponsor holding an aggregate of 6,800,000 Founder Shares and there being an aggregate of 6,900,000 Founder
Shares outstanding, including up to 900,000 Founder Shares subject to forfeiture by the Sponsor depending on the extent to which the
underwriters’ over-allotment option was exercised. As a result of the underwriters’ election to fully exercise their over-allotment
option on February 25, 2021, none of the Class B shares were forfeited.
The
Initial Stockholders agreed to (i) waive their redemption rights with respect to their Founder Shares and Public Shares in connection
with the completion of the Business Combination, (ii) waive their redemption rights with respect to their Founder Shares and Public Shares
in connection with a stockholder vote to approve an amendment to the CMLS II charter to modify the substance or timing of its obligation
to redeem 100% of our Public Shares if CMLS II did not complete an initial business combination within 24 months from the closing of
the IPO or to provide for redemption in connection with a business combination and (iii) waive their rights to liquidating distributions
from the Trust Account with respect to their Founder Shares if CMLS II failed to complete an initial business combination within 24 months
from the closing of the IPO.
Private
Placement Warrants
The
Sponsor and CMLS II’s independent directors have purchased an aggregate of 5,013,333 Private Placement Warrants at a price of $1.50
per Private Placement Warrant, for an aggregate purchase price of $7,520,000. The Sponsor purchased 4,346,669 Private Placement Warrants,
and certain CMLS II directors purchased 166,666 Private Placement Warrants each. The Private Placement Warrants are identical to the
Public Warrants except that the Private Placement Warrants, so long as they are held by the Sponsor or its permitted transferees, (i)
will not be redeemable by us (except as described herein), (ii) may not (including the Common Stock issuable upon exercise of these Private
Placement Warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the consummation
of the Business Combination, (iii) may be exercised by the holders on a cashless basis and (iv) will be entitled to certain registration
rights.
If
the Private Placement Warrants are held by holders other than the Sponsor or its permitted transferees, the Private Placement Warrants
will be redeemable by us and exercisable by the holders on the same basis as the Public Warrants.
Registration
Rights
The
holders of the Founder Shares, Private Placement Warrants (and any shares of Common Stock issuable upon the exercise of the Private Placement
Warrants) are entitled to registration rights pursuant to an Amended and Restated Registration Rights Agreement dated as of September
1, 2021 (“Amended and Restated Registration Rights Agreement”), requiring the Company to register such securities
for resale. The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that
the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect
to registration statements filed subsequent to the completion of a business combination and rights to require the Company to register
for resale such securities pursuant to Rule 415 under the Securities Act. However, the Amended and Restated Registration Rights Agreement
provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination
of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration
statements.
Promissory
Note — Related Party
On
December 17, 2020, the Sponsor agreed to loan CMLS II up to $300,000 to be used for a portion of the expenses of the IPO. This loan was
non-interest bearing and payable on the earlier of March 31, 2021 or the completion of the IPO. No amounts were ever borrowed under the
promissory note.
Underwriting
Agreement
The
underwriter was entitled to a deferred fee of $0.35 per Unit, or $9,660,000 in the aggregate. The deferred fee became payable to the
underwriter from the amounts held in the Trust Account solely upon the event that CMLS II completed a business combination and was paid
to the underwriter at Closing.
Forward
Purchase Agreement
CMLS
II entered into separate forward purchase agreements with affiliates of the Sponsor, Casdin Capital, LLC (“Casdin”)
and Corvex Management LP (“Corvex”), in their capacities as investment advisors on behalf of one or more investment
funds, clients or accounts managed by each of Casdin and Corvex, respectively (collectively, their “Clients”), pursuant
to which, subject to the conditions described below, they caused the Clients to purchase from CMLS II up to an aggregate amount of 7,500,000
shares of Common Stock, or the forward purchase shares, for $10.00 per forward purchase share, or an aggregate amount of up to $75,000,000,
in the PIPE Investment. The amount of forward purchase shares sold pursuant to the forward purchase agreements was determined in CMLS
II’s discretion based on CMLS II’s need for additional capital to consummate the Business Combination. Under each forward
purchase agreement, CMLS II was required to approach Casdin and Corvex if it proposed to raise additional capital by issuing any equity,
or securities convertible into, exchangeable or exercisable for equity securities in connection with the Business Combination. The respective
obligations of Casdin and Corvex to purchase forward purchase shares was, among other things, conditioned on CMLS II completing a business
combination with a company engaged in a business that is within the investment objectives of the Clients purchasing forward purchase
shares and on the business combination (including the target assets or business, and the terms of the business combination) being reasonably
acceptable to such Clients as determined by Casdin or Corvex, as relevant, as investment advisors on behalf of such Clients. Each of
Casdin and Corvex had the right to transfer a portion of its purchase obligation under the forward purchase agreement to third parties,
subject to compliance with applicable securities laws. To the extent that CMLS II obtained alternative financing to fund the initial
business combination and the Clients participated in such financing, the aggregate commitment under the forward purchase agreement was
reduced by the amount of such alternative financing. The Clients (directly or through one or more affiliates) agreed to purchase an aggregate
of 5,000,000 shares of Common Stock in the PIPE Investment, which satisfied the obligations of Casdin and Corvex under the forward purchase
agreements. As a result, CMLS II, Casdin and Corvex terminated the obligations under the forward purchase agreements at the Closing.
PIPE
Subscription Agreement
In
connection with the Business Combination, CMLS II entered into the Subscription Agreements each dated as of March 28, 2021 (the “Subscription
Agreements”) with certain institutional and accredited investors (“PIPE Investors”), pursuant to which,
among other things, CMLS II agreed to issue and sell to the PIPE Investors, in private placements to close immediately prior to the Closing,
an aggregate of 36,500,000 shares of Common Stock at $10.00 per share, for an aggregate purchase price of $365,000,000. The obligations
to consummate the subscriptions are conditioned upon, among other things, customary closing conditions and the consummation of the transactions
contemplated by the Merger Agreement. The PIPE Investment was consummated concurrently with the Closing.
Old
SomaLogic’s Related Party Transactions
Avia Consulting Agreement
In June 2019, the Company
entered into a consulting agreement (the “Master Agreement”) with Abundant Venture Innovation Accelerator (“AVIA”),
a company that engages in business incubation activities. In July 2021, we entered into a consulting agreement (the “Consulting
Milestone Agreement”) with AVIA, to provide services related to expanding our contractual relationships with health system
providers. AVIA is a related party to the Company because Ted Meisel, a member of our Board as of September 1, 2021, also serves
on the board of directors of AVIA. Pursuant to the Master Agreement and the Consulting Milestone Agreement, the Company agreed to pay
AVIA for business development activities. Pursuant to the Master Agreement and the Consulting Milestone Agreement, the Company agreed
to pay AVIA for business development activities. For the year ended December 31, 2021, the Company paid $0.9 million for these
consulting services in addition to issuing Common Stock for an aggregate fair value of approximately $0.8 million for milestones
achieved, with a remaining commitment of $0.04 million.
Eli
Casdin
Prior
to the consummation of the Business Combination, Eli Casdin served as a director of Old SomaLogic since December 2020 (upon being designated
by the holders of Old SomaLogic’s Series A preferred stock pursuant to the terms of the Series A Financing described in this section)
and also served as the Chief Executive Officer of CMLS II. Effective December 2020, Mr. Casdin was entitled to receive $56,000 annually
as a director of Old SomaLogic. Additionally, Mr. Casdin is a beneficial owner of the Sponsor because Sponsor is controlled by C-LSH
II LLC, an entity affiliated with Mr. Casdin. As a result, Mr. Casdin is a related party. As a result of the consummation of the transactions
contemplated by the Merger, Mr. Casdin was entitled to, but did not elect to, receive a portion of the merger consideration as cash.
In
view of Mr. Casdin’s role with CMLS II, Mr. Casdin did not attend any of the Old SomaLogic board of directors’ meetings that
discussed the proposed Merger and Business Combination or any alternative opportunities under consideration by Old SomaLogic, nor did
Mr. Casdin vote on any such matters. After the Old SomaLogic board of directors approved entering into the Merger Agreement with CMLS
II, Mr. Casdin, in his capacity as an Old SomaLogic Series A preferred stock director, provided his consent to Old SomaLogic entering
into the Merger Agreement.
Series
A Financing
On
November 20, 2020, Old SomaLogic entered into a Series A Preferred Stock Purchase Agreement, pursuant to which Old SomaLogic issued an
aggregate of 31,485,973 shares of Old SomaLogic Series A preferred stock in November and December 2020 at a purchase price of $6.78 per
share for aggregate consideration of approximately $213.5 million.
The
participants in this preferred stock financing include certain holders of more than 5% of Old SomaLogic’s stock. The following
table sets forth the aggregate number of shares of Old SomaLogic Series A preferred stock issued to these related persons in this preferred
stock financing:
Name | |
Shares | | |
Aggregate
Purchase
Price | | |
Date
of
Issuance | |
Casdin
Partners Master Fund, L.P. | |
| 4,424,778 | | |
$ | 29,999,995 | | |
| November 20, 2020 | |
Casdin
Private Growth Equity Fund, L.P. | |
| 1,474,926 | | |
| 9,999,998 | | |
| November
20, 2020 | |
Madryn
Health Partners, LP(1) | |
| 980,936 | | |
| 6,650,746 | | |
| November
20, 2020 | |
Madryn
Health Partners (Cayman Master), LP(1) | |
| 1,670,243 | | |
| 11,324,248 | | |
| November
20, 2020 | |
Novartis
Pharma AG(2) | |
| 5,125,367 | | |
| 34,749,988 | | |
| December
2020 | |
| (1) | In
November 2020, Old SomaLogic signed an amendment to the Madryn Credit Agreement and issued
a total of 2,651,179 shares of Series A preferred stock to Madryn Health Partners, LP, and
Madryn Health Partners (Cayman Master), LP to reduce principal by $10.0 million, reduce the
fixed annual interest rate and amend certain other provisions. |
| (2) | In
December 2019, Old SomaLogic entered into a Simple Agreement for Future Equity (“SAFE”)
with Novartis Pharma AG. The SAFE agreement provided Novartis Pharma AG with the right to
purchase a SAFE for $5.0 million. Old SomaLogic received the $5.0 million from Novartis Pharma
AG in February 2020 and, as a result, Novartis was issued 737,463 shares of Series A preferred
stock in connection with the Series A preferred stock financing. Old SomaLogic received the
aggregate purchase price in cash in December 2020 for the issuance of the remaining 4,387,904
shares of Series A preferred stock to Novartis Pharma AG. |
Side
Letters and Letter Agreements
In
connection with Old SomaLogic’s Series A preferred stock financing, Old SomaLogic entered into a series of side letters containing
various degrees of additional investor rights with each of the following related parties of Old SomaLogic: Casdin Partners Master Fund,
L.P., Madryn Health Partners, LP, Madryn Health Partners (Cayman Master), LP and Novartis Pharma AG.
Master
Collaboration Agreement
On
September 20, 2019, Old SomaLogic entered into a MCA with Novartis, pursuant to which the parties engage in collaborative research efforts
to advance the study of proteomic medicine. Under the MCA, Old SomaLogic agreed to provide SomaScan® assay services to Novartis upon
Novartis’s submission of samples. Novartis is a related party because Novartis is a security holder of more than 5% of the issued
and outstanding stock of Old SomaLogic. Under the MCA, Novartis is expected to pay the Company between $250 and $400 per sample provided
to Old SomaLogic for scan services, with a minimum sample requirement of 55,000 samples total in 2020 and 60,000 samples total in 2021.
The actual payment made by Novartis in 2020 was $13,768,045.
Independent
Contractor Services Agreement
On
July 31, 2017, Old SomaLogic entered into an Independent Contractor Services Agreement (“ICSA”) with CIO Source, LLC
(“CIO Source”), pursuant to which CIO Source provides management consulting services to Old SomaLogic under individual
statements of work issued under the ICSA. CIO Source is a related party because Greg Sparks, who currently serves as Chief Information
Officer of Old SomaLogic, is the current founder of CIO Source. During the year 2019, Old SomaLogic paid CIO Source $1,0173,113 under
the ICSA. During the year 2020, Old SomaLogic paid CIO Source $1,024,827 under the ICSA. During the year 2021, Old SomaLogic paid CIO
Source $258,765 under the ICSA. The ICSA was terminated upon Mr. Spark’s acceptance of employment with Old SomaLogic.
Grant
to Colorado Longitudinal Study
On
March 18, 2019, Old SomaLogic committed to providing a grant of up to $1,000,000 (payable in 10 biannual installments of $100,000) to
the Colorado Longitudinal Study (“COLS”), a 501(c)(3) non-profit organization, in the form of executing a Corporate
Founder Pledge Agreement with COLS. The purpose of the proceeds of the grant to support the goals of COLS in creating a biobank repository
of biological samples collected annually from Colorado residents. The intent is for the samples to be studied by scientific researchers.
COLS is a related party to Old SomaLogic because Lawrence Gold, who previously served as Chairman of the Old SomaLogic board of directors
and a member of management of Old SomaLogic (until his resignation, effective November 20, 2020), is the current Chairman of the Board
of Directors of COLS. Old SomaLogic paid $200,000 pursuant to the Corporate Founder Pledge Agreement during the fiscal year ended December
31, 2019, paid $100,000 during the year ended December 31, 2020, and during the year ended December 31, 2021, we paid $0.2 million of
an unconditional contribution to COLS. As of December 31, 2021, a pledge of $0.4 million remained outstanding and is expected to be paid
out within the 2022 fiscal year.
Severance
Agreement and First Amendment to Severance Agreement
Old
SomaLogic entered into a severance agreement with Lawrence Gold, as amended effective December 4, 2020, providing for the terms and conditions
of his continued service with Old SomaLogic. Pursuant to the agreement, Mr. Gold will serve as an employee of Old SomaLogic through the
period ending on December 31, 2021, and during the period beginning on January 1, 2022, through June 30, 2023, Mr. Gold will serve as
a consultant to Old SomaLogic pursuant to the terms of a consulting services agreement, in each case, unless Mr. Gold’s service
is terminated earlier in accordance with the terms of the agreement. The agreement provides that, among other things, during the period
that Mr. Gold serves as an employee, Mr. Gold will be (i) entitled to an annual base salary equal to $475,000, (ii) eligible for an annual
incentive bonus equal to $200,000, with the actual amount paid based upon the achievement of certain performance metrics and (iii) entitled
to salary continuation through December 31, 2021 in the event that Old SomaLogic terminates his employment other than for “cause”
(as defined in the agreement), and other than in the event of his death or “disability” (as defined in the agreement), subject
to Mr. Gold’s execution of a general release of claims in favor of Old SomaLogic. The agreement provides that, among other things,
during the period that Mr. Gold serves as a consultant, Mr. Gold will be (i) entitled to a monthly payment equal to $39,583, (ii) for
the 2022 calendar year, eligible for an annual incentive bonus equal to $200,000, with the actual amount paid based upon the achievement
of certain performance metrics and (iii) entitled to a lump-sum payment in an amount equal to the remaining consulting fee through June
30, 2023 in the event that Old SomaLogic terminates his consultancy other than for cause, subject to Mr. Gold’s execution of a
general release of claims in favor of Old SomaLogic.
In
connection with the agreement, Mr. Gold resigned from the Old SomaLogic board of directors, effective November 20, 2020. Further, on
December 4, 2020, the Old SomaLogic board of directors took action to fully accelerate the vesting of the stock options granted to Mr.
Gold, and to provide that such stock options will remain outstanding for the duration of their term.
Madryn
Options
The
Company may, from time to time, grant nonqualified stock options to eligible individuals and incentive stock options only to eligible
employees. The Company will determine the number of shares of Common Stock subject to each option, the term of each option, which may
not exceed 10 years, or five years in the case of an incentive stock option granted to a 10 percent stockholder, the exercise price,
the vesting schedule, if any, and the other material terms of each option. No incentive stock option or nonqualified stock option may
have an exercise price less than the fair market value of a share of Common Stock at the time of grant or, in the case of an incentive
stock option granted to a 10 percent stockholder, 110% of such share’s fair market value. Options will be exercisable at such time
or times and subject to such terms and conditions as determined by the Administrator at grant, and the exercisability of such options
may be accelerated by the Administrator.
As
a result of the Business Combination, each share of Class B common stock of Old SomaLogic was cancelled and converted into a portion
of the merger consideration on the terms set forth in the Merger Agreement. Pursuant to the terms of the Merger Agreement, the aggregate
merger consideration paid in connection with the Business Combination (excluding any potential Earn-Out Shares) was $1,250 million, which
consists of cash payments (at the election of Old SomaLogic stockholders) of $50.0 million and equity consideration in the form of (i)
the issuance of shares of Common Stock of the Company and (ii) rollover of Old SomaLogic’s outstanding options. The number of shares
of Common Stock issued to Old SomaLogic stockholders was based on a deemed value of $10.00 per share after giving effect to an exchange
ratio of 0.8381. Accordingly, (i) $50 million cash was paid to SomaLogic stockholders (thereby reducing the aggregate number of shares
issuable under the Merger Agreement at Closing from 125,000,000 to 120,000,000 shares of Common Stock), (ii) 110,973,213 shares of Common
Stock were issued to Old SomaLogic stockholders on the Closing Date and (iii) the remaining balance of the 120,000,000 shares of Common
Stock to be issued under the Merger Agreement may be issued in the future upon the exercise of options of the Company that were converted
from Old SomaLogic options.
Pursuant
to a Non-Statutory Stock Option Agreement, dated as of September 1, 2020, Old SomaLogic granted to Lawrence Gold an option to purchase
1,000,000 shares of Old SomaLogic’s Class B common stock. Pursuant to a Stock and Option Purchase Agreement, dated as of June 30,
2021, by and among Lawrence Gold and the entities set forth on Schedule I thereto (collectively, the “Sellers”), and
Madryn Health Partners, LP, a Delaware limited partnership and Madryn Health Partners (Cayman Master), LP, a limited partnership formed
in the Cayman Islands (collectively, “Madryn”), the Sellers transferred, on July 1, 2021, (i) 2,000,000 shares of
Old SomaLogic Class B common stock at a purchase price of $10.00 per share (or 1,676,198 shares of Common Stock at a purchase price of
$11.93 after giving effect to the exchange ratio of 0.8381) and (ii) options to acquire up to 1,000,000 shares of Old SomaLogic Class
B common stock at purchase price of $6.00 per option (or options to acquire up to 838,100 shares of Common Stock at a purchase price
of $7.16 per option after giving effect to the exchange ratio of 0.8381) to Madryn (the “Madryn Options”).
Executive
Agreements
For a description of the employment
agreements and compensation arrangements with our named executive officers and directors, see the section entitled “—Executive
Employment Agreements.”
Related
Party Transactions Entered into in Connection with the Business Combination
In
connection with the Business Combination, certain agreements were entered into pursuant to the Merger Agreement. These agreements include:
Amended
and Restated Registration Rights Agreement
In
connection with the closing of the Business Combination, the Company, the Sponsor and certain other parties thereto (collectively, the
“rights holders”) entered into the Amended and Restated Registration Rights Agreement, which amended and restated
in its entirety the Registration Rights Agreement, dated February 22, 2021, by and between CMLS II and the parties thereto. Pursuant
to the terms of the Amended and Restated Registration Rights Agreement, the Company must prepare and file with the SEC, no later than
30 days after the Closing Date, a shelf registration statement for an offering to be made on a continuous basis from time to time with
respect to the resale of the registrable shares under the Amended and Restated Registration Rights Agreement. The Company is further
required to use commercially reasonable efforts to cause such shelf registration statement to be declared effective as soon as possible
after filing, but in no event later than the earlier of 60 days following the filing date thereof and five business days after the SEC
notifies the Company that it will not review such registration statement, subject to extension in the event that the registration is
subject comments from the SEC.
In
addition, pursuant to the terms of the Amended and Restated Registration Rights Agreement and subject to certain requirements and customary
conditions, including with regard to the number of demand rights that may be exercised, the rights holders may demand at any time or
from time to time, that the Company file a registration statement on Form S-1 or Form S-3 to register certain shares of Common Stock
held by such rights holders. The Amended and Restated Registration Rights Agreement will also provide the rights holders with “piggy-back”
registration rights, subject to certain requirements and customary conditions. The Company will bear the expenses incurred in connection
with the filing of any such registration statement.
Forfeiture
Agreement
In
connection with the execution of the Merger Agreement, CMLS II and the Sponsor entered into the Forfeiture Agreement whereby the Sponsor
agreed to forfeit certain of its CMLS II Class B common stock. Under the Forfeiture Agreement, up to 33% of Sponsor’s shares were
subject to forfeiture based on the extent of redemptions from the Trust Account, such that Sponsor shall forfeit the full 33% of such
shares if there were redemptions for 100% of the Trust Account and no shares if there were 0% redemptions (with the portion of such 33%
of Sponsor’s shares that were forfeited adjusting on a linear basis in between 100% and 0% redemptions from the Trust Account).
Sponsor did not forfeit any of its CMLS II Class B common stock.
Stockholder
Support Agreement
In
connection with the execution of the Merger Agreement, CMLS II entered into the Stockholder Support Agreement with certain stockholders
of Old SomaLogic, pursuant to which, among other things, such stockholders executed written consents with respect to their shares of
Old SomaLogic stock held of record or thereafter acquired in favor of the Merger and related matters, in each case, on the terms and
subject to the conditions set forth in the Stockholder Support Agreement.
Sponsor
Support Agreement
In
connection with the execution of the Merger Agreement, the Sponsor entered into the Sponsor Support Agreement with CMLS II and Old SomaLogic,
pursuant to which, among other things, the Sponsor agreed to vote all shares of CMLS II common stock beneficially owned by the Sponsor
in favor of each of the proposals and any other matters necessary or reasonably requested by Old SomaLogic for consummation of the Merger
and the other transactions contemplated by the Merger Agreement, and against any other competing business combination proposal.
The
Sponsor Support Agreement provided that the Sponsor would not redeem any shares of its CMLS II common stock in connection with the Merger.
The Sponsor also agreed,
subject to certain exceptions, not to (a) transfer any of its CMLS II Class B common stock or Private Placement Warrants, (b) enter into
any swap or other arrangement that transferred to another the Sponsor’s CMLS II Class B common stock or Private Placement Warrants,
and (c) publicly announce any intention to effect any transaction specified by the foregoing until the earlier of (i) the Effective Time
(as defined in the Merger Agreement), (ii) such date and time as the Merger Agreement is terminated in accordance with its terms (the
earlier of (i) and (ii), the “Expiration Time”), and (iii) the liquidation of CMLS II subsequent to the Closing.
The Sponsor Support Agreement
provides for the terms of the Sponsor’s lock-up period with respect to its capital stock and warrants, the agreement also provides
that no amendment may be made to the Inside Letter.
The Sponsor Support Agreement
shall terminate and be of no further force or effect upon the earliest of: (i) the Expiration Time (as defined in the Merger Agreement),
(ii) the liquidation of the Company, and (iii) the written agreement of the Company and Sponsor. Upon such termination of the Sponsor
Support Agreement, all obligations of the parties under such agreement will terminate, without any liability or other obligation on the
part of any party to any person in respect hereof or the transactions contemplated hereby, and no party shall have any claim against
another (and no person shall have any rights against such party), whether under contract, tort or otherwise, with respect to the subject
matter hereof; provided, however, that the termination of the Sponsor Support Agreement shall not relieve any party hereto from liability
arising in respect of any breach of this Sponsor Support Agreement prior to such termination.
Insider Letter
In connection with the
underwriting agreement and the IPO, CMLS II, the Sponsor and each insider entered into the Insider Letter providing for a lock-up in
relation to the Sponsor’s Class B common stock of CMLS II or any shares of Class A common stock of CMLS II until the earlier of
(a) one year after the completion of the Company’s initial business combination and (b) subsequent to the business combination,
(x) if the closing price of the Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations,
recapitalizations, and the like) for any 20 trading days within any 30-day trading day period commencing at least 150 days after the
consummation of the Business Combination, or (y) the date following the completion of the Business Combination on which the Company completes
a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s
stockholders having the right to exchange their shares of Common Stock for cash securities or other property. The Sponsor and each insider
also agreed not to transfer any Private Placement Warrants (or any share of Common Stock issued or issuable upon the exercise of the
Private Placement Warrants), until 30 days after the completion of the Business Combination.
Lock-up Agreements
In connection with the
execution of the Merger Agreement, Old SomaLogic agreed to use reasonable best efforts to obtain a Stockholder Lock-Up Agreement from
each Old SomaLogic stockholder holding more than 1% of the outstanding capital stock of Old SomaLogic. Pursuant to such Stockholder Lock-Up
Agreement, each stockholder agreed, from the Closing Date until the earliest of (a) the date that is 180 calendar days from the Closing
Date, and (b) the date following the Closing Date on which the Company completes a liquidation, merger, stock exchange or other similar
transaction that results in all of the Company’s stockholders having the right to exchange their shares of Company capital stock
for cash, securities or other property; not to (i) sell, offer to sell, contract or agree to sell, hypothecate pledge, grant any option
to purchase or otherwise dispose of or agree to dispose of, directly or indirectly, or establish or increase a put equivalent position
or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, with respect to shares of Common
Stock issued to such stockholder pursuant to the Merger Agreement (such shares of Common Stock, the “Lock-up Shares”),
(ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership
of any of the Lock-up Shares, in cash or otherwise, or (iii) publicly announce any intention to effect any transaction specified in clause
(i) or (ii). Notwithstanding the foregoing, the referred stockholder may take any of the actions specified in clauses (i), (ii) and (iii)
above at any time after the first date on which the closing price of Common Stock has equaled or exceeded $12.00 per share (as adjusted
for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day
period commencing at least 150 days after the Closing Date.
Indemnification Agreements
Our Amended and Restated
Certificate of Incorporation contains provisions limiting the liability of directors, and our Amended and Restated Bylaws (as amended
from time to time, the “Bylaws”), provide that the Company will indemnify each of its directors to the fullest extent
permitted under Delaware law. Our Amended and Restated Certificate of Incorporation and Bylaws also provide our board of directors with
discretion to indemnify officers and employees when determined appropriate by the Company’s board of directors.
The Company entered into
new indemnification agreements with each of its directors and executive officers and certain other key employees. The indemnification
agreements provide that the Company will indemnify each of its directors, executive officers, and such other key employees against any
and all expenses incurred by that director, executive officer, or other key employee because of his or her status as one of the Company’s
directors, executive officers, or other key employees, to the fullest extent permitted by Delaware law, the Amended and Restated Certificate
of Incorporation and the Bylaws. In addition, the indemnification agreements provide that, to the fullest extent permitted by Delaware
law, the Company will advance all expenses incurred by its directors, executive officers, and other key employees in connection with
a legal proceeding involving his or her status as a director, executive officer, or key employee.
Related Party Policy
Under our Code of Business
Conduct and Ethics, our directors, officers, employees, and contractors are required to avoid, wherever possible, all conflicts of interests,
except under guidelines or resolutions approved by our Board (or the appropriate committee of our Board) or as disclosed in our public
filings with the SEC. Conflict of interest situations include any financial transaction, arrangement or relationship (including any indebtedness
or guarantee of indebtedness) involving the Company.
In addition, our audit
committee, pursuant to its written charter and our Related Party Transactions Policy, is responsible for reviewing and approving related
party transactions to the extent that we enter into such transactions. An affirmative vote of a majority of the members of the audit
committee present at a meeting at which a quorum is present is required in order to approve a related party transaction. A majority of
the members of the entire audit committee constitutes a quorum. Without a meeting, the unanimous written consent of all of the members
of the audit committee is required to approve a related party transaction. We also require each of our directors and executive officers
to complete a directors’ and officers’ questionnaire that elicits information about related party transactions.
These procedures are intended
to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on
the part of a director, employee or officer. In approving or rejecting the proposed transactions, the audit committee will take into
account all of the relevant facts and circumstances available, and may approve any such transaction only if it determines that, under
all of the circumstances, the transaction is in the best interests of the Company.
Under Item 404 of Regulation
S-K, a “Related Person Transaction” is a transaction, arrangement or relationship in which the Company or its subsidiary
was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have
a direct or indirect material interest. Transactions involving compensation for services provided to the Company or its subsidiary as
an employee, consultant or director will not be considered related person transactions under this policy. A “Related Person”
means:
|
● |
any
person who is, or at any time during the applicable period was, one of the Company’s officers or one of the Company’s
directors; |
|
● |
any
person who is known by the Company to be the beneficial owner of more than 5% of its voting stock; and |
|
● |
any
immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law,
father-in-law, daughter-in-law, brother-in-law or sister-in-law of a director, executive officer or a beneficial owner of more than
5% of its voting stock, and any person (other than a tenant or employee) sharing the household of such director, executive officer
or beneficial owner of more than 5% of its voting stock. |
The Company has policies
and procedures designed to minimize potential conflicts of interest arising from any dealings it may have with its affiliates and to
provide appropriate procedures for the disclosure of any real or potential conflicts of interest that may exist from time to time. Specifically,
pursuant to our Amended and Restated Certificate of Incorporation, the audit committee will have the responsibility to review related
party transactions.
Under the related person
transaction policy, the related person in question or, in the case of transactions with a beneficial holder of more than 5% of the Company’s
voting stock, an officer with knowledge of a proposed transaction, will be required to present information regarding the proposed related
person transaction to the Company’s audit committee (or to another independent body of our Board) for review. To identify related
person transactions in advance, the Company will rely on information supplied by its executive officers, directors and certain significant
stockholders. In considering related person transactions, the Company’s audit committee will take into account the relevant available
facts and circumstances, which may include, but are not limited to:
|
● |
the
related person’s interest in the transaction; |
|
● |
the
approximate dollar value of the amount involved in the transaction; |
|
● |
the
approximate dollar value of the amount of the related person’s interest in the transaction without regard to the amount of
any profit or loss; |
|
● |
whether
the transaction was undertaken in the ordinary course of business of the Company; |
|
● |
whether
the transaction with the related person is proposed to be, or was, entered into on terms no less favorable to the Company than terms
that could have been reached with an unrelated third party; |
|
● |
the
purpose of, and the potential benefits to the Company of, the transaction; and |
|
● |
any
other information regarding the transaction or the related person in the context of the proposed transaction that would be material
to investors in light of the circumstances of the particular transaction. |
The Company’s audit
committee will approve only those transactions that it determines are fair to the Company and in the Company’s best interests.
PRINCIPAL SECURITYHOLDERS
The following table sets
forth information with respect to the beneficial ownership of our capital stock, as of April 14, 2022, for:
|
● |
each
person who is the beneficial owner of more than 5% of the outstanding shares of Common Stock; |
|
● |
each
of our named executive officers and directors; and |
|
● |
all
of our executive officers and directors as a group. |
The number of shares beneficially
owned by each stockholder is determined under rules of the SEC and includes voting or investment power with respect to securities. Under
these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting power or investment
power. In computing the number of shares beneficially owned by an individual or entity and the percentage ownership of that person, shares
of common stock subject to options, warrants or other rights held by such person that are currently exercisable or will become exercisable
within 60 days are considered outstanding, although these shares are not considered outstanding for purposes of computing the percentage
ownership of any other person.
We have based our calculation
of the percentage of beneficial ownership on 182,217,516 shares of common stock outstanding as of April 14, 2022.
Name and Address of Beneficial Owner | |
Number of shares of Common Stock | | |
% of Common Stock | | |
% of Total Voting
Power | |
Directors
& executive officers(1) | |
| | |
| | |
| |
Roy Smythe(2) | |
| 2,037,413 | | |
| 1.1 | % | |
| 1.1 | % |
Melody Harris(3) | |
| 946,477 | | |
| * | | |
| * | |
Shaun Blakeman | |
| — | | |
| * | | |
| * | |
Charles
M. Lillis(4) | |
| 410,668 | | |
| * | | |
| * | |
Amy Graves(5) | |
| 103,461 | | |
| * | | |
| * | |
Ruben Gutierrez | |
| 68,098 | | |
| * | | |
| * | |
Eli Casdin(7)(8)(9)(10) | |
| 19,203,053 | | |
| 10.5 | % | |
| 10.5 | % |
Troy Cox(11) | |
| 75,000 | | |
| * | | |
| * | |
Stephen Quake(12) | |
| 425,000 | | |
| * | | |
| * | |
Anne Margulies(13) | |
| 80,763 | | |
| * | | |
| * | |
Richard Post(14) | |
| 74,763 | | |
| * | | |
| * | |
Ted Meisel | |
| — | | |
| * | | |
| * | |
Robert Barchi(15) | |
| 4,200 | | |
| * | | |
| * | |
All directors and executive officers as a group (13 individuals) | |
| 22,428,896 | | |
| 12.9 | % | |
| 12.9 | % |
5% beneficial owners | |
| | | |
| | | |
| | |
Casdin
Private Growth Equity Fund, LP(8)(9) | |
| 12,389,082 | | |
| 6.8 | % | |
| 6.8 | % |
Novartis(16) | |
| 10,367,340 | | |
| 5.7 | % | |
| 5.7 | % |
Lawrence
Gold and affiliates(17) | |
| 9,133,066 | | |
| 5.0 | % | |
| 5.0 | % |
* |
Indicates beneficial
ownership of less than 1%. |
(1) |
The business address
of each of these stockholders is c/o SomaLogic, 2945 Wilderness Place, Boulder, Colorado 80301. |
(2) |
Consists of options
to purchase 2,037,413 shares of Common Stock that are exercisable within 60 days of April 14, 2022. |
(3) |
Consists of options
to purchase 946,477 shares of Common Stock that are exercisable within 60 days of April 14, 2022. |
(4) |
Consists of (i) 276,573
shares of Common Stock held of record by Charles M. Lillis, (ii) 100,572 shares of Common Stock held of record by The Lillis Foundation,
(iii) 12,571 shares of Common Stock held of record by CAG LLC, and (iv) options to purchase 20,952 shares of Common Stock that are
exercisable within 60 days of April 14, 2022. Mr. Lillis may be deemed to be a beneficial owner of the shares held directly by CAG
LLC and The Lillis Foundation as a result of Mr. Lillis’ voting and dispositive power with respect to the shares. |
(5) |
Consists of options
to purchase 103,461 shares of Common Stock that are exercisable within 60 days of April 14, 2022. |
(6) |
Consists of options
to purchase 68,098 shares of Common Stock that are exercisable within 60 days of April 14, 2022. |
(7) |
CMLS Holdings II LLC
is the record holder of 6,800,000 shares of Common Stock. Eli Casdin is a member of the board of managers of CMLS Holdings II LLC
and shares voting and investment discretion with respect to the Common Stock held of record by CMLS Holdings II LLC. |
(8) |
Consists of (i) 7,416,812
shares of Common Stock held by Casdin Partners Master Fund, L.P. and (ii) 2,472,270 shares of Common Stock held by Casdin Private
Growth Equity Fund, L.P. The shares held by Casdin Partners Master Fund, L.P. may be deemed to be indirectly beneficially owned by
(i) Casdin Capital, LLC, the investment adviser to Casdin Partners Master Fund, L.P., (ii) Casdin Partners GP, LLC, the general partner
of Casdin Partners Master Fund L.P., and (iii) Eli Casdin, the managing member of Casdin Capital, LLC and Casdin Partners GP, LLC.
The address for the Casdin entities noted herein is 1350 Avenue of the Americas, Suite 2600, New York, New York 10019. |
(9) |
Includes 2,500,000 shares
of Common Stock issued in a private placement pursuant to subscription agreements each entered into on March 28, 2021 (the “PIPE
Investment”) to Casdin Partners Master Fund, L.P. The shares may be deemed to be indirectly beneficially owned by (i) Casdin
Capital, LLC, the investment adviser to Casdin Partners Master Fund, L.P., (ii) Casdin Partners GP, LLC, the general partner of Casdin
Partners Master Fund L.P., and (iii) Eli Casdin, the managing member of Casdin Capital, LLC and Casdin Partners GP, LLC. |
(10) |
Consists of options
to purchase 13,971 shares of Common Stock that are exercisable within 60 days of April 14, 2022. |
(11) |
Consists of (i) 25,000
shares of Common Stock held of record by Troy Cox and (ii) 50,000 shares of Common Stock issued in the PIPE Investment to Mr. Cox. |
(12) |
Consists of (i) 25,000
shares of Common Stock held of record by Stephen Quake, (ii) 150,000 shares of Common Stock held of record by Quake 2017 Charitable
Remainder Unitrust, (iii) 150,000 shares of Common Stock held of record by The Eleftheria Foundation, and (iv) 100,000 shares of
Common Stock held of record by DeltaXDeltaP Hbar Trust. Mr. Quake may be deemed to be a beneficial owner of the shares held directly
by Quake 2017 Charitable Remainder Unitrust, The Eleftheria Foundation and DeltaXDeltaP Hbar Trust as a result of Mr. Quake’s
voting and dispositive power with respect to the shares. |
(13) |
Consists of (i) 20,000
shares of Common Stock held of record by Anne Margulies and (ii) options to purchase 60,763 shares of Common Stock that are exercisable
within 60 days of April 14, 2022. |
(14) |
Consists of (i) 54,000
shares of Common Stock held of record by Richard Post and (ii) options to purchase 20,763 shares of Common Stock that are exercisable
within 60 days of April 14, 2022. |
(15) |
Consists of options
to purchase 4,200 shares of Common Stock that are exercisable within 60 days of April 14, 2022. |
(16) |
Consists of (i) 1,676,200
shares of Common Stock held of record by Novartis Institutes for BioMedical Research, Inc. (“Novartis Research”)
and (ii) 8,591,140 shares of Common Stock held of record by Novartis Pharma AG. Also includes 100,000 shares of Common Stock issued
to Novartis Pharma AG in the PIPE Investment. The business address for Novartis Research is 700 Main Street 421Q, Cambridge, MA 02139.
The business address for Novartis Pharma AG is Lichstrasse 35, Basel, Switzerland 4056. |
(17) |
Consists of (i) 437,822
shares of Common Stock jointly held with his wife, (ii) 3,713,076 shares of Common Stock held of record by MorrGold Holdings, LLC
and (iii) 4,982,168 shares of Common Stock held of record by MorrGold II, LLC. Mr. Gold and his wife are the managers of MorrGold
Holdings, LLC and MorrGold II, LLC. Mr. Gold shares voting and dispositive power with respect to all such shares. The principal business
address of the Reporting Person is 1033 5th Street, Boulder, CO 80302. |
SELLING SECURITYHOLDERS
The Selling Securityholders
may offer and sell, from time to time, any or all of the shares of Common Stock or Private Placement Warrants being offered for resale
by this prospectus, which consists of:
|
● |
up to 36,500,000 PIPE
Shares; |
|
● |
up to 6,900,000 Founder
Shares; |
|
● |
up to 5,013,333 shares
of Common Stock issuable upon the exercise of Private Placement Warrants; and |
|
● |
up to 5,013,333 Private
Placement Warrants. |
The Selling Securityholders
may from time to time offer and sell any or all of the shares of Common Stock or Private Placement Warrants set forth below pursuant
to this prospectus. In this prospectus, the term “Selling Securityholders” includes (i) the entities identified in
the table below (as such table may be amended from time to time by means of an amendment to the registration statement of which this
prospectus forms a part or by a supplement to this prospectus) and (ii) any donees, pledgees, transferees or other successors-in-interest
that acquire any of the securities covered by this prospectus after October 15, 2021 from the named Selling Securityholders as a gift,
pledge, partnership distribution or other non-sale related transfer.
The following tables provide,
as of October 15, 2021, information regarding the beneficial ownership of our Common Stock and Private Placement Warrants of each Selling
Securityholder, the number of shares of Common Stock and number of Private Placement Warrants that may be sold by each Selling Securityholder
under this prospectus and that each Selling Securityholder will beneficially own after this offering.
Because each Selling Securityholder
may dispose of all, none or some portion of their securities, no estimate can be given as to the number of securities that will be beneficially
owned by a Selling Securityholder upon termination of this offering. For purposes of the tables below, however, we have assumed that
after termination of this offering none of the securities covered by this prospectus will be beneficially owned by the Selling Securityholders
and further assumed that the Selling Securityholders will not acquire beneficial ownership of any additional securities during the offering.
In addition, the Selling Securityholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose
of, at any time and from time to time, our securities in transactions exempt from the registration requirements of the Securities Act
after the date on which the information in the tables is presented.
Selling Securityholder
information for each additional Selling Securityholder, if any, will be set forth by a prospectus supplement to the extent required prior
to the time of any offer or sale of such Selling Securityholder’s securities pursuant to this prospectus. Any prospectus supplement
may add, update, substitute, or change the information contained in this prospectus, including the identity of each Selling Securityholder
and the number of shares of Common Stock or Private Placement Warrants registered on its behalf.
Please see the section
entitled “Plan of Distribution” for further information regarding the Selling Securityholders’ method of distributing
these shares of Common Stock and Private Placement Warrants.
| |
Shares of Common Stock | |
Name of Selling
Securityholder | |
Number
Beneficially Owned Prior to Offering(1) | |
Number Registered for
Sale Hereby | | |
Number Beneficially
Owned After Offering | | |
Percentage
Beneficially Owned After Offering(2) | |
Ally
Bridge MedAlpha Master Fund L.P.(3) | |
| 800,000 | |
| 800,000 | | |
| — | | |
| — | |
Alyeska
Master Fund, L.P.(4) | |
| 500,000 | |
| 500,000 | | |
| — | | |
| — | |
ARK
PIPE Fund I LLC(5) | |
| 5,477,867 | |
| 1,500,000 | | |
| — | | |
| — | |
Boston
Millennia Partners IV Limited Partnership and certain of its affiliates(6) | |
| 582,535 | |
| 200,000 | | |
| — | | |
| — | |
Casdin
Private Growth Equity Fund, L.P. and certain of its affiliates(7) | |
| 12,701,006 | |
| 2,500,000 | | |
| — | | |
| — | |
Chimera
Investment LLC(8) | |
| 600,000 | |
| 600,000 | | |
| — | | |
| — | |
CMLS
Holdings II LLC(9) | |
| 11,146,669 | |
| 11,146,669 | | |
| — | | |
| — | |
Corvex
Master Fund LP and certain of its affiliates(10) | |
| 2,500,000 | |
| 2,500,000 | | |
| — | | |
| — | |
Certain
entities within the D. E. Shaw group(11) | |
| 1,438,834 | |
| 800,000 | | |
| — | | |
| — | |
Declaration
Capital Fund SPV XI LLC(12) | |
| 650,000 | |
| 650,000 | | |
| — | | |
| — | |
Dendur
Master Fund Ltd.(13) | |
| 530,613 | |
| 200,000 | | |
| — | | |
| — | |
Driehaus
Life Sciences Master Fund, L.P. and certain of its affiliates(14) | |
| 1,611,345 | |
| 1,000,000 | | |
| — | | |
| — | |
Farallon
Capital Partners, L.P. and certain of its affiliates(15) | |
| 5,962,939 | |
| 1,500,000 | | |
| — | | |
| — | |
Foresite
Capital Fund V, L.P.(16) | |
| 5,462,938 | |
| 1,000,000 | | |
| — | | |
| — | |
Illumina,
Inc.(17) | |
| 2,500,000 | |
| 2,500,000 | | |
| — | | |
| — | |
Janus
Capital Management LLC, as investment advisor for its clients(18) | |
| 2,999,900 | |
| 3,000,000 | | |
| — | | |
| — | |
Jason
Kelly(19) | |
| 191,666 | |
| 191,666 | | |
| — | | |
| — | |
JS
Capital LLC(20) | |
| 1,000,000 | |
| 1,000,000 | | |
| — | | |
| — | |
Kevin
Conroy(21) | |
| 191,666 | |
| 191,666 | | |
| — | | |
| — | |
Magnetar
Capital Master Fund Ltd and certain of its affiliates(22) | |
| 599,481 | |
| 500,000 | | |
| — | | |
| — | |
Howard
Hoffen and Sandra Hoffen, Tenants in Common(23) | |
| 225,000 | |
| 225,000 | | |
| — | | |
| — | |
Entities
affiliated with Millennium Management LLC(24) | |
| 2,273,021 | |
| 750,000 | | |
| — | | |
| — | |
Monashee
Solitario Fund LP(25) | |
| 1,525,125 | |
| 250,000 | | |
| — | | |
| — | |
Mossrock
Capital, LLC(26) | |
| 177,512 | |
| 50,000 | | |
| — | | |
| — | |
Morgan
Stanley entities(27) | |
| 1,454,916 | |
| 1,000,000 | | |
| — | | |
| — | |
Novartis
Pharma AG and certain of its affiliates(28) | |
| 10,691,195 | |
| 100,000 | | |
| — | | |
| — | |
Perceptive
Life Sciences Master Fund, Ltd.(29) | |
| 2,160,000 | |
| 1,500,000 | | |
| — | | |
| — | |
Pura
Vida Investments, LLC and certain of its affiliates(30) | |
| 3,044,689 | |
| 1,500,000 | | |
| — | | |
| — | |
Stephen
Quake and certain affiliates(31) | |
| 591,666 | |
| 591,666 | | |
| — | | |
| — | |
Redmile
Group, LLC and certain of its affiliates(32) | |
| 1,577,980 | |
| 1,500,000 | | |
| — | | |
| — | |
Sachem
Head LP and certain of its affiliates(33) | |
| 660,000 | |
| 500,000 | | |
| — | | |
| — | |
SB
Northstar LP(34) | |
| 2,200,000 | |
| 2,200,000 | | |
| — | | |
| — | |
Soleus
Capital Master Fund, L.P. and certain of its affiliates(35) | |
| 438,990 | |
| 400,000 | | |
| — | | |
| — | |
T.
Rowe Price New Horizons Fund, Inc. and certain of its affiliates(36) | |
| 7,162,914 | |
| 2,700,000 | | |
| — | | |
| — | |
TBC
222 LLC(37) | |
| 400,000 | |
| 400,000 | | |
| — | | |
| — | |
Certain
funds and accounts managed by TOMS Capital Investment Management LP(38) | |
| 500,000 | |
| 500,000 | | |
| | | |
| | |
Troy
M. Cox(39) | |
| 241,666 | |
| 241,666 | | |
| | | |
| | |
Velan
Capital Partners, LP(40) | |
| 441,760 | |
| 225,000 | | |
| | | |
| | |
Ziff
Capital Healthcare Ventures-SL, LLC(41) | |
| 2,775,125 | |
| 1,500,000 | | |
| | | |
| | |
| |
| | |
| | | |
| | | |
| | |
Total | |
| | |
| | | |
| | | |
| | |
(1) |
The first table includes
PIPE Shares, Founder Shares, Earn-Out Shares (includes both shares beneficially owned as determined in accordance with Rule 13d-3
of the Exchange Act and shares which the holder has a contingent right to receive and assumes that none of the restricted stock units
in respect of the Earn-Out Shares granted pursuant to the earn-out award agreement were forfeited), shares of Common Stock issuable
upon exercise of the Private Placement Warrants (including both shares beneficially owned as determined in accordance with Rule 13d-3
of the Exchange Act and additional shares underlying the Private Placement Warrants to purchase Common Stock which may be exercisable
or vest within one year following the Closing), shares of Common Stock issuable upon exercise of the Public Warrants (including both
shares beneficially owned as determined in accordance with Rule 13d-3 of the Exchange Act and additional shares underlying the Public
Warrants to purchase Common Stock which may be exercisable or vest within one year following the IPO), and the second table includes
the Private Placement Warrants included in this table (collectively, the “Resale Securities”). We do not know
when or in what amounts the Selling Securityholders will offer the Resale Securities for sale, if at all. |
(2) |
The percentage of shares
or warrants to be beneficially owned after completion of the offering is calculated on the basis of 181,163,363 shares of Common
Stock outstanding at the Closing Date, which excludes all currently outstanding warrants and Earn-Out Shares. |
(3) |
Includes 800,000 PIPE
Shares. |
(4) |
Includes 500,000 PIPE
Shares. |
(5) |
Includes (i) 1,500,000
PIPE Shares, (ii) 548,745 shares of Common Stock issuable upon exercise of the Public Warrants, and (iii) 3,429,122 shares of Common
Stock. |
(6) |
Includes (i) 200,000
PIPE Shares held by Boston Millennia Partners IV Limited Partnership, (ii) 342,297 shares of Common Stock held by Boston Millennia
Partners IV Limited Partnership, (iii) 11,112 Earn-Out Shares to be issued to Boston Millennia Partners IV Limited Partnership, (iv)
28,542 shares of Common Stock held by Boston Millennia Associates IV Partnership and (v) 584 Earn-Out Shares to be issued to Boston
Millennia Associates IV Partnership. |
(7) |
Includes (i) 2,500,000
PIPE Shares held by Casdin Partners Master Fund, L.P, (ii) 7,416,812 shares of Common Stock held by Casdin Partners Master Fund,
L.P., (iii) 233,943 Earn-Out Shares to be issued to Casdin Partners Master Fund, L.P, (iv) 2,472,270 shares of Common Stock held
by Casdin Private Growth Equity Fund, L.P., and (v) 77,981 Earn-Out Shares to be issued to Casdin Private Growth Equity Fund, L.P. |
(8) |
Includes 600,000 PIPE
Shares. |
(9) |
Includes 4,346,669 shares
of Common Stock issuable upon exercise of the Private Placement Warrants and 6,800,000 Founder Shares. |
(10) |
Includes (i) 125,000
PIPE Shares held by Corvex Master Fund LP, (ii) 2,335,000 PIPE Shares held by Corvex Select Equity Master Fund LP, and (iii) 40,000
PIPE Shares held by Corvex Dynamic Equity Select Master Fund LP. |
(11) |
Includes (i) 200,000
PIPE Shares held by D. E. Shaw Oculus Portfolios, L.L.C., and (ii) 600,000 PIPE Shares held by D. E. Shaw Valence Portfolios, L.L.C.
(together with D. E. Shaw Oculus Portfolios, L.L.C., the “D. E. Shaw Entities”), (iii) 106,472 shares of Common
Stock issuable upon exercise of the Public Warrants held by D. E. Shaw Valence Portfolios, L.L.C., and (iv) 532,362 shares of Common
Stock held by D. E. Shaw Valence Portfolios, L.L.C. Each of the D. E. Shaw Entities has the power to vote or to direct the vote of
(and the power to dispose or direct the disposition of) the shares directly owned by it. D. E. Shaw & Co., L.P. (“DESCO
LP”), as the investment adviser of the D. E. Shaw Entities, may be deemed to have the shared power to vote or direct the
vote of (and the shared power to dispose or direct the disposition of) the shares owned by the D. E. Shaw Entities. D. E. Shaw &
Co., L.L.C. (“DESCO LLC”), as the manager of the D. E. Shaw Entities, may be deemed to have the shared power to
vote or direct the vote of (and the shared power to dispose or direct the disposition of) the shares owned by the D. E. Shaw Entities.
Julius Gaudio, Maximilian Stone, and Eric Wepsic, or their designees, exercise voting and investment control over the shares owned
by the D. E. Shaw Entities on DESCO LP’s and DESCO LLC’s behalf. D. E. Shaw & Co., Inc. (“DESCO Inc.”),
as general partner of DESCO LP, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose
or direct the disposition of) the shares owned by the D. E. Shaw Entities. D. E. Shaw & Co. II, Inc. (“DESCO II Inc.”),
as managing member of DESCO LLC, may be deemed to have the shared power to vote or direct the vote of (and the shared power to dispose
or direct the disposition of) the shares owned by the D. E. Shaw Entities. None of DESCO LP, DESCO LLC, DESCO Inc., or DESCO II Inc.
owns any shares of the Company directly, and each such entity disclaims beneficial ownership of the shares owned by the D. E. Shaw
Entities. David E. Shaw does not own any shares of the Company directly. By virtue of David E. Shaw’s position as President
and sole shareholder of DESCO Inc., which is the general partner of DESCO LP, and by virtue of David E. Shaw’s position as
President and sole shareholder of DESCO II Inc., which is the managing member of DESCO LLC, David E. Shaw may be deemed to have the
shared power to vote or direct the vote of (and the shared power to dispose or direct the disposition of) the shares owned by the
D. E. Shaw Entities and, therefore, David E. Shaw may be deemed to be the beneficial owner of the shares owned by the D. E. Shaw
Entities. David E. Shaw disclaims beneficial ownership of the shares owned by the D. E. Shaw Entities. The business address of each
of the D. E. Shaw Entities is c/o D. E. Shaw & Co., L.P., 1166 Avenue of the Americas, 9th Floor, New York, NY 10036. |
(12) |
Includes 650,000 PIPE
Shares. |
(13) |
Includes (i) 200,000
PIPE Shares, (ii) 60,000 shares of Common Stock issuable upon exercise of the Public Warrants, and (iii) 270,613 shares of Common
Stock. |
(14) |
Includes (i) 439,830
PIPE Shares held by Destinations Multi Strategy Alternatives Fund, (ii) 77,310 shares of Common Stock issuable upon exercise of the
Public Warrants held by Destinations Multi Strategy Alternatives Fund; (iii) 386,550 shares of Common Stock held by Destinations
Multi Strategy Alternatives Fund, (iv) 131,600 PIPE Shares held by Driehaus Event Driven Fund; (v) 22,690 shares of Common Stock
issuable upon exercise of the Public Warrants Driehaus Event Driven Fund; (vi) 124,795 shares of Common Stock Driehaus Event Driven
Fund; and (vii) 428,570 PIPE Shares held by Driehaus Life Sciences Master Fund, L.P. |
(15) |
Includes (i) 50,000
PIPE Shares held by Farallon Capital F5 Master I, L.P., (ii) 13,600 PIPE Shares held by Farallon Capital (AM) Investors, L.P., (iii)
40,900 PIPE Shares held by Farallon Capital Institutional Partners II, L.P., (iv) 186,800 PIPE Shares held by Farallon Capital Institutional
Partners, L.P., (v) 26,200 PIPE Shares held by Four Crossings Institutional Partners V, L.P., (vi) 22,600 PIPE Shares held by Farallon
Capital Institutional Partners III, L.P., (vii) 290,900 PIPE Shares held by Farallon Capital Offshore Investors II, L.P., (viii)
119,000 PIPE Shares held by Farallon Capital Partners, L.P., (xiv) 750,000 PIPE Shares held by Zone II Healthcare Holdings, LLC,
(xv) 4,326,473 shares of Common Stock held by Zone II Healthcare Holdings, LLC, and (xvi) 136,466 Earn-Out Shares to be issued to
Zone II Healthcare Holdings, LLC. |
(16) |
Includes (i) 1,000,000
PIPE Shares, (ii) 4,326,472 shares of Common Stock and (iii) 136,466 Earn-Out Shares to be issued. |
(17) |
Includes 2,500,000 PIPE
Shares. |
(18) |
Includes (i) 2,827,394
PIPE Shares held by Janus Henderson Triton Fund, (ii) 13,411 PIPE Shares held by National Elevator Industry Health Benefit Plan,
(iii) 30,686 PIPE Shares held by PENN SERIES FUND, INC. SMALL CAP GROWTH FUND, (iv) 38,826 PIPE Shares held by Migros Pensionskasse
— Aktien Welt, (v) 58,963 PIPE Shares held by Nationwide Savings Plan, (vi) 15,071 PIPE Sharesheld by LIUNA National (Industrial)
Pension Fund and (vii) 15,549 PIPE Shares held by LIUNA Staff & Affiliates Pension Fund. Such shares may be deemed to be beneficially
owned by Janus Capital Management LLC (“Janus”), an investment adviser registered under the Investment Advisers
Act of 1940, who acts as investment adviser for the Fund and has the ability to make decisions with respect to the voting and disposition
of the shares subject to the oversight of the board of directors of the Fund. Under the terms of its management contract with the
Fund, Janus has overall responsibility for directing the investments of the Fund in accordance with the Fund’s investment objective,
policies and limitations. Each Fund has one or more portfolio managers appointed by and serving at the pleasure of Janus who makes
decisions with respect to the disposition of the Shares. The address for Janus is 151 Detroit Street, Denver, CO 80206. |
(19) |
Includes 166,666 shares
of Common Stock issuable upon exercise of the Private Placement Warrants and 25,000 Founder Shares. |
(20) |
Includes 1,000,000 PIPE
Shares. |
(21) |
Includes 166,666 shares
of Common Stock issuable upon exercise of the Private Placement Warrants and 25,000 Founder Shares. |
(22) |
Includes (i) 37,500
PIPE Shares held by Magnetar Capital Master Fund Ltd, (ii) 282 shares of Common Stock issuable upon exercise of the Public Warrants
held by Magnetar Capital Master Fund Ltd, (iii) 1,488 shares of Common Stock held by Magnetar Capital Master Fund Ltd, (iv) 95,050
PIPE Shares held by Map 243 Segregated Portfoli, (v) 2,674 shares of Common Stock issuable upon exercise of the Public Warrants held
by Map 243 Segregated Portfoli, (vi) 15,477 shares of Common Stock held by Map 243 Segregated Portfoli, (vii) 213,870 PIPE Shares
held by NR 1 SP, (viii) 3,201 shares of Common Stock issuable upon exercise of the Public Warrants held by NR 1 SP, (vix) 18,528
shares of Common Stock held by NR 1 SP, (x) 153,580 PIPE Shares held by Magnetar Constellation Fund II-PRA LP — Series H Interests,
(xi) 4,314 shares of Common Stock issuable upon exercise of the Public Warrants held by Magnetar Constellation Fund II — PRA
LP — Series H Interests, (xii) 22,485 shares of Common Stock held by Magnetar Constellation Fund II — PRA LP- Series
H Interests, (xiii) 11,926 shares of Common Stock held by Boothbay Absolute Return Strategies, LP, (xiv) 8,074 shares of Common Stock
held by Boothbay Diversified Alpha Master Fund LP, (xv) 979 shares of Common Stock issuable upon exercise of the Public Warrants
held by Corbin Hedged Equity Fund, L.P., (xvi) 5,061 shares of Common Stock held by Corbin Hedged Equity Fund, L.P., (xvii) 250 shares
of Common Stock issuable upon exercise of the Public Warrants held by Magnetar Healthcare Master Fund Ltd, and (xviii) 4,742 shares
of Common Stock held by Magnetar Healthcare Master Fund Ltd. |
(23) |
Includes 225,000 PIPE
Shares. |
(24) |
Includes (i) 750,000
PIPE Shares held by Integrated Core Strategies (US) LLC, (ii) 1,522,175 shares of Common Stock held by Integrated Core Strategies
(US) LLC, and (iii) 846 shares of Common Stock held by Integrated Assets II LLC. Integrated Assets II LLC is an affiliate of Integrated
Core Strategies (US) LLC. Millennium International Management LP is the investment manager to Integrated Assets II LLC and may be
deemed to have shared voting control and investment discretion over securities owned by Integrated Assets II LLC. Millennium Management
LLC is the general partner of the managing member of Integrated Core Strategies (US) LLC and may be deemed to have shared voting
control and investment discretion over securities owned by Integrated Core Strategies (US) LLC. Millennium Management LLC is also
the general partner of the 100% owner of Integrated Assets II LLC and may also be deemed to have shared voting control and investment
discretion over securities owned by Integrated Assets II LLC. Millennium Group Management LLC is the managing member of Millennium
Management LLC and may also be deemed to have shared voting control and investment discretion over securities owned by Integrated
Core Strategies (US) LLC. Millennium Group Management LLC is also the general partner of Millennium International Management LP and
may also be deemed to have shared voting control and investment discretion over securities owned by Integrated Assets II LLC. The
managing member of Millennium Group Management LLC is a trust of which Israel A. Englander (“Mr. Englander”) currently
serves as the sole voting trustee. Therefore, Mr. Englander may also be deemed to have shared voting control and investment discretion
over securities owned by Integrated Core Strategies (US) LLC and Integrated Assets II LLC. The foregoing should not be construed
in and of itself as an admission by Millennium International Management LP, Millennium Management LLC, Millennium Group Management
LLC or Mr. Englander as to beneficial ownership of the securities owned by Integrated Core Strategies (US) LLC or Integrated Assets
II LLC, as the case may be. |
(25) |
Includes (i) 250,000
PIPE Shares, (ii) 1,236,135 shares of Common Stock, and (iii) 38,990 Earn-Out Shares to be issued. |
(26) |
Includes (i) 50,000
PIPE Shares, (ii) 123,613 shares of Common Stock and (iii) 3,899 Earn-Out Shares to be issued. |
(27) |
Includes (i) 114,336
PIPE Shares held by EQ Advisors Trust — EQ/Morgan Stanley Small Cap Growth Portfolio, (ii) 50,597 shares of Common Stock held
by EQ Advisors Trust — EQ/Morgan Stanley Small Cap Growth Portfolio, (iii) 248,614 PIPE Shares held by Inception Trust, (iv)
97,892 shares of Common Stock held by Inception Trust, (v) 469 PIPE Shares held by Morgan Stanley Investment Funds — Counterpoint
Global Fund; (vi) 229 shares of Common Stock held by Morgan Stanley Investment Funds — Counterpoint Global Fund, (vii) 635,501
PIPE Shares held by Morgan Stanley Institutional Fund, Inc. — Inception Portfolio; (viii) 305,714 shares of Common Stock held
by Morgan Stanley Institutional Fund, Inc. — Inception Portfolio, (vix) 1,080 PIPE Shares held by Morgan Stanley Institutional
Fund, Inc. — Counterpoint Global Portfolio, and (vx) 484 shares of Common Stock held by Morgan Stanley Institutional Fund,
Inc. — Counterpoint Global Portfolio. |
(28) |
Includes (i) 100,000
PIPE Shares held by Novartis Pharma AG, (ii) 8,591,140 shares of Common Stock held by, Novartis Pharma AG, (iii) 270,984 Earn-Out
Shares to be issued to Novartis Pharma AG, (iv) 1,676,200 shares of Common Stock held by Novartis Institutes for BioMedical Research,
Inc., and (v) 52,871 Earn-Out Shares to be issued to Novartis Institutes for BioMedical Research, Inc. |
(29) |
Includes (i) 1,500,000
PIPE Shares, (ii) 110,000 shares of Common Stock issuable upon exercise of the Public Warrants, and (iii) 550,000 shares of Common
Stock. |
(30) |
Includes (i) 343,500
PIPE Shares held by Highmark Limited, in respect of its Segregated Account Highmark Long/Short Equity 20, (ii) 111,084 shares of
Common Stock issuable upon exercise of the Public Warrants held by Highmark Limited, in respect of its Segregated Account Highmark
Long/Short Equity 20, (iii) 436,673 shares of Common Stock held by Highmark Limited, in respect of its Segregated Account Highmark
Long/Short Equity 20, (iv) 60,000 PIPE Shares held by Sea Hawk Multi-Strategy Master Fund Ltd, (v) 8,613 shares of Common Stock issuable
upon exercise of the Public Warrants held by Sea Hawk Multi-Strategy Master Fund Ltd, (vi) 43,069 shares of Common Stock held by
Sea Hawk Multi-Strategy Master Fund Ltd, (vii) 93,000 PIPE Shares held by Walleye Manager Opportunities LLC, (viii) 10,291 shares
of Common Stock issuable upon exercise of the Public Warrants held by Walleye Manager Opportunities LLC, (vix) 51,460 shares of Common
Stock held by Walleye Manager Opportunities LLC, (x) 141,000 PIPE Shares held by Walleye Opportunities Master Fund Ltd, (xi) 14,747
shares of Common Stock issuable upon exercise of the Public Warrants held by Walleye Opportunities Master Fund Ltd, (xii) 120,779
shares of Common Stock held by Walleye Opportunities Master Fund Ltd, (xiii) 862,500 PIPE Shares held by Pura Vida Master Fund, Ltd.,
(xiv) 124,662 shares of Common Stock issuable upon exercise of the Public Warrants held by Pura Vida Master Fund, Ltd., and (xv)
623,311 shares of Common Stock held by Pura Vida Master Fund, Ltd. |
(31) |
Includes (i) 100,000
PIPE Shares held by DeltaXDeltaP Hbar Trust, (ii) 150,000 PIPE Share held by The Eleftheria Foundation, (iii) 150,000 PIPE Shares
held by Quake 2017 Charitable Remainder Unitrust, (iv) 166,666 shares of Common Stock issuable upon exercise of the Private Placement
Warrants and (v) 25,000 Founder Shares held by Stephen Quake. Stephen Quake is the President of The Eleftheria Foundation and the
settlor of DeltaXDeltap Hbar Trust. |
(32) |
Includes (i) 28,600
PIPE Shares held by Redmile Capital Offshore II Master Fund, Ltd., (ii) 35,200 PIPE Shares held by Redmile Capital Offshore Fund
(ERISA), Ltd., (iii) 917,300 PIPE Shares held by Redmile Capital Offshore Master Fund, Ltd., (iv) 74,000 PIPE Shares held by Map
20 Segregated Portfolio, a Segregated Portfolio of LMA SPC, (v) 444,900 PIPE Shares held by Redmile Capital Fund, LP and (v) 11,697
Earn-Out Shares to be issued to Redmile Strategic Master Fund, LP. and (vi) 66,283 Earn-Out Shares to be issued to RAF, LP. Redmile
Group, LLC is the investment manager/adviser to each of the private investment vehicles listed in items (i) through (vii) (collectively,
the “Redmile Funds”) and, in such capacity, exercises voting and investment power over all of the securities held
by the Redmile Funds and may be deemed to be the beneficial owner of these securities. Jeremy C. Green serves as the managing member
of Redmile Group, LLC and also may be deemed to be the beneficial owner of these shares. Redmile Group, LLC and Mr. Green each disclaim
beneficial ownership of these shares, except to the extent of its or his pecuniary interest in such shares, if any. The address of
the Redmile Funds is c/o Redmile Group, LLC, One Letterman Drive, Building D, Suite D3-300, San Francisco, California 94129. |
(33) |
Includes (i) 297,400
PIPE Shares held by Sachem Head LP, (ii) 94,624 shares of Common Stock issuable upon exercise of the Public Warrants held by Sachem
Head LP, (iii) 202,600 PIPE Shares held by Sachem Head Master LP, and (iv) 65,376 shares of Common Stock issuable upon exercise of
the Public Warrants held by Sachem Head Master LP. |
(34) |
Includes 2,200,000 PIPE
Shares. |
(35) |
Includes 400,000 PIPE
Shares held by Soleus Capital Master Fund, L.P. (“Soleus Master Fund”). Soleus Capital, LLC (“SC LLC”)
is the sole general partner of Soleus Master Fund and thus holds voting and dispositive power over the PIPE Shares held by Soleus
Master Fund. Soleus Capital Group, LLC (“SCG LLC”) is the sole managing member of SC LLC. Mr. Guy Levy is the
sole managing member of SCG LLC. Each of SCG LLC, SC LLC and Mr. Guy Levy disclaims beneficial ownership of the PIPE Shares held
by Soleus Master Fund, except to the extent of their respective pecuniary interests therein. Also includes 38,990 Earn-Out Shares
issuable to Soleus Private Equity Fund I, L.P. (“Soleus PE Fund I”). Soleus Private Equity GP I, LLC (“Soleus
GP”) is the sole general partner of Soleus PE Fund I. Soleus GP holds voting and dispositive power over the Earn-Out Shares
issuable to Soleus PE Fund I. Soleus PE GP I, LLC (“Soleus PE GP”) is the sole manager of Soleus GP. Mr. Guy Levy
is the sole managing member of Soleus PE GP. Each of Mr. Guy Levy, Soleus PE GP and Soleus GP disclaims beneficial ownership of the
Earn-Out Shares issuable to Soleus PE Fund I, except to the extent of their respective pecuniary interests therein. Soleus PE Fund
I does not hold voting or dispositive power over, nor does it hold any pecuniary interest in, the PIPE Shares held by Soleus Master
Fund, and Soleus Master Fund does not hold voting or dispositive power over, nor does it hold any pecuniary interest in, the Earn-Out
Shares issuable to Soleus PE Fund I. |
(36) |
Includes (i) 1,629,162
PIPE Shares held by T. Rowe Price New Horizons Fund, Inc., (ii) 202,676 PIPE Shares held by T. Rowe Price New Horizons Trust, (iii)
9,456 PIPE Shares held by T. Rowe Price U.S. Equities Trust, (iv) 6,363 PIPE Shares held by MassMutual Select Funds, (v) 756,585
PIPE Shares held by T. Rowe Price Health Sciences Fund, Inc., (vi) 122,177 Earn-Out Shares to be issued to T. Rowe Price Health Sciences
Fund, Inc., (vii) 62,011 PIPE Shares held by TD Mutual Funds — TD Health Sciences Fund, (viii) 8,783 Earn-Out Shares to be
issued to TD Mutual Funds — TD Health Sciences Fund, (ix) 33,747 PIPE Shares held by T. Rowe Price Health Sciences Portfolio,
(x) 5,505 Earn-Out Shares to be issued to T. Rowe Price Health Sciences Portfolio, (xi) 174,533 PIPE Shares held by HorizonBeach
& Co., (xii) 3,873,442 PIPE Shares held by LobsterCrew & Co., (xiii) 278,474 PIPE Shares held by Mac & Co., LLC. |
(37) |
Includes 400,000 PIPE
Shares. |
(38) |
Includes (i) 75,725
PIPE Shares held by PBCAY ONE LIMITED, (ii) 96,949 PIPE Shares held by TCIM SP Opportunities Master Fund LP, (iii) 166,419 PIPE Shares
held by TOMS Capital Investments LLC, and (iv) 160,907 PIPE Shares held by TCIM Capital Opportunities I Ltd. |
(39) |
Includes (i) 50,000
PIPE Shares, (ii) 166,666 shares of Common Stock issuable upon exercise of the Private Placement Warrants and (iii) 25,000 Founder
Shares. |
(40) |
Includes (i) 225,000
PIPE Shares, (ii) 2,060 shares of Common Stock issuable upon exercise of the Public Warrants and (iii) 10,300 shares of Common Stock. |
(41) |
Includes (i) 1,500,000
PIPE Shares, (ii) 1,236,135 shares of Common Stock and (iii) 38,990 Earn-Out Shares to be issued. |
| |
Warrants to Purchase Common Stock | |
Name of Selling Securityholder | |
Number Beneficially Owned
Prior to Offering | | |
Number Registered for
Sale Hereby | | |
Number Beneficially Owned After
Offering | | |
Percentage
Beneficially Owned After Offering(2) | |
CMLS Holdings
II LLC(42) | |
| 4,346,669 | | |
| 4,346,669 | | |
| — | | |
| — | |
Jason Kelly(43) | |
| 166,666 | | |
| 166,666 | | |
| — | | |
| — | |
Kevin Conroy(44) | |
| 166,666 | | |
| 166,666 | | |
| — | | |
| — | |
Stephen Quake(45) | |
| 166,666 | | |
| 166,666 | | |
| — | | |
| — | |
Troy Cox(46) | |
| 166,666 | | |
| 166,666 | | |
| — | | |
| — | |
Total | |
| 5,013,333 | | |
| 5,013,333 | | |
| — | | |
| — | |
(42) |
Includes 4,346,669 Private
Placement Warrants. |
(43) |
Includes 166,666 Private
Placement Warrants. |
(44) |
Includes 166,666 Private
Placement Warrants. |
(45) |
Includes 166,666 Private
Placement Warrants. |
(46) |
Includes 166,666 Private
Placement Warrants. |
DESCRIPTION OF SECURITIES
The following summary
of the material terms of our securities is not intended to be a complete summary of the rights and preferences of such securities. The
full text of our Second Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”)
is attached as an exhibit to Form 8-K filed on September 8, 2021. We urge you to read the Amended and Restated Certificate of Incorporation
in its entirety for a complete description of the rights and preferences of SomaLogic’s securities.
Authorized Stock
The Company is authorized
to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.” The total
number of shares of capital stock that the Company has the authority to issue is 601,000,000. The total number of shares of Common Stock
that the Company is authorized to issue is 600,000,000, having a par value of $0.0001 per share, and the total number of shares of Preferred
Stock that the Company is authorized to issue is 1,000,000, having a par value of $0.0001 per share.
Common Stock
Our Amended and Restated
Certificate of Incorporation provides that the Common Stock has the following rights, powers, preferences and privileges:
General
The voting, dividend,
liquidation and other rights and powers of the Common Stock are subject to and qualified by the rights, powers and preferences of any
series of Preferred Stock as may be designated by our board of directors and outstanding from time to time.
Voting Power
Except as otherwise provided
in our Amended and Restated Certificate of Incorporation or expressly required by law, each holder of Common Stock, as such, shall be
entitled to vote on each matter submitted to a vote of stockholders and shall be entitled to one vote for each share of Common Stock
held of record by such holder as of the record date for determining stockholders entitled to vote on such matter. Except as otherwise
required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to the Amended and Restated Certificate
of Incorporation (including any Certificate of Designation (as defined below)) that relates solely to the rights, powers, preferences
(or the qualifications, limitations or restrictions thereof) or other terms of one or more outstanding series of Preferred Stock if the
holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote
thereon pursuant to our Amended and Restated Certificate of Incorporation (including any Certificate of Designation) or pursuant to the
Delaware General Corporation Law (“DGCL”).
Subject to the rights
of any holders of any outstanding series of Preferred Stock, the number of authorized shares of Common Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the
Company entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL.
Dividends
Subject to applicable
law and the rights and preferences of any holders of any outstanding series of Preferred Stock, the holders of Common Stock, as such,
shall be entitled to the payment of dividends on the Common Stock when, as and if declared by our board of directors in accordance with
applicable law.
Liquidation
Subject to the rights
and preferences of any holders of any shares of any outstanding series of Preferred Stock, in the event of any liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, the funds and assets of the Company that may be legally distributed to
the Company’s stockholders shall be distributed among the holders of the then outstanding Common Stock pro rata in accordance
with the number of shares of Common Stock held by each such holder.
Transfer Rights
Subject to applicable
law and the transfer restrictions set forth in Article VII of the Bylaws, shares of Common Stock and the rights and obligations associated
therewith shall be fully transferable to any transferee.
Preferred Stock
Shares of Preferred Stock
may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the creation and issuance of such series adopted by our board of directors as hereinafter provided.
Authority is expressly
granted to our board of directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation
of any such series, by adopting a resolution or resolutions providing for the issuance of the shares thereof and by filing a certificate
of designation relating thereto in accordance with the DGCL (a “Certificate of Designation”), to determine and fix
the number of shares of such series and such voting powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, and to increase or decrease
(but not below the number of shares of such series then outstanding) the number of shares of any series as shall be stated and expressed
in such resolutions, all to the fullest extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing,
the resolution or resolutions providing for the creation and issuance of any series of Preferred Stock may provide that such series shall
be superior or rank equally or be junior to any other series of Preferred Stock to the extent permitted by law and our Amended and Restated
Certificate of Incorporation (including any Certificate of Designation). Except as otherwise required by law, holders of any series of
Preferred Stock shall be entitled only to such voting rights, if any, as shall expressly be granted thereto by our Amended and Restated
Certificate of Incorporation (including any Certificate of Designation).
The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the stock of the Company entitled to vote, irrespective of the provisions of Section 242(b)(2) of
the DGCL.
Warrants
Public Warrants
Each whole Public Warrant
entitles the registered holder to purchase one share of our Common Stock at a price of $11.50 per whole share, subject to adjustment
as discussed below. Pursuant to the warrant agreement, a warrant holder may exercise its Public Warrants only for a whole number of shares
of Common Stock. This means that only a whole Public Warrant may be exercised at any given time by a warrant holder. No fractional Public
Warrants were issued upon separation of the Units and only whole Public Warrants trade. The Public Warrants will expire five years after
the completion of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We are not obligated to
deliver any shares of Common Stock pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant
exercise unless a registration statement under the Securities Act with respect to the shares of Common Stock underlying the Public Warrants
is then effective and a prospectus relating thereto is current, subject to our satisfying our obligations described below with respect
to registration. No Public Warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares
to holders seeking to exercise their Public Warrants, unless the issuance of the shares upon such exercise is registered or qualified
under the securities laws of the state of the exercising holder, or an exemption is available. In the event that the conditions in the
two immediately preceding sentences are not satisfied with respect to a Public Warrant, the holder of such Public Warrant will not be
entitled to exercise such Public Warrant and such Public Warrant may have no value and expire worthless. In the event that a registration
statement is not effective for the exercised Public Warrants, the purchaser of a unit containing such Public Warrant will have paid the
full purchase price for the unit solely for the share of Common Stock underlying such unit.
We will use our best efforts
to maintain the effectiveness of our registration statement on Form S-1, as amended, and the prospectus related thereto (the “Registration
Statement”), until the expiration of the Public Warrants in accordance with the provisions of the warrant agreement. Notwithstanding
the foregoing, if our Common Stock is at the time of any exercise of a Public Warrant not listed on a national securities exchange such
that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option,
require holders of Public Warrants who exercise their Public Warrants to do so on a “cashless basis” in accordance with Section
3(a)(9) of the Securities Act (or any successor rule) and, in the event we so elect, we will not be required to maintain in effect our
Registration Statement, but will use commercially reasonable efforts to register the shares under applicable blue sky laws to the extent
an exemption is not available.
Redemption of Warrants
When the Price per Share of Common Stock Equals or Exceeds $18.00 — Once the Public Warrants become exercisable, we may redeem
the outstanding Public Warrants:
|
● |
in whole and not in
part; |
|
● |
at a price of $0.01
per Public Warrant; |
|
● |
upon not less than 30
days’ prior written notice of redemption to each warrant holder; and |
|
● |
if, and only if, the
closing price of the Common Stock equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30-trading day
period ending three trading days before sending the notice of redemption to warrant holders (“Reference Value”). |
If and when the Public
Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities
for sale under all applicable state securities laws.
Redemption of Warrants
When the Price per Share of Common Stock Equals or Exceeds $10.00 — Once the Public Warrants become exercisable, we may redeem
the outstanding Public Warrants:
|
● |
in whole and not in
part; |
|
● |
at $0.10 per Public
Warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their
Public Warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair
market value of the Common Stock; |
|
● |
if, and only if, the
closing price of the Common Stock equals or exceeds $10.00 per share (as adjusted) for any 20 trading days within the 30-trading
day period ending three trading days before we send the notice of redemption to the warrant holders; and |
|
● |
if the closing price
of the Common Stock for any 20 trading days within a 30-trading day period ending three trading days before we send notice of redemption
to the warrant holders is less than $18.00 per share (as adjusted), the Private Placement Warrants must also be concurrently called
for redemption on the same terms as the outstanding Public Warrants, as described above. |
The Private Placement
Warrants are identical to the Public Warrants underlying the Units sold in the IPO, except that (1) the Private Placement Warrants will
be exercisable on a cashless basis, (2) the Private Placement Warrants will be non-redeemable (except as described above in “Redemption
of Warrants When the Price per Share of Common Stock Equals or Exceeds $10.00”) so long as they are held by the initial purchasers
or their permitted transferees, and (3) the holders of the Private Placement Warrants and the Common Stock issuable upon the exercise
of the Private Placement Warrants will have certain registration rights. If the Private Placement Warrants are held by someone other
than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable
by such holders on the same basis as the Public Warrants.
We have established the
last of the redemption criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium
to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the Public Warrants,
each warrant holder will be entitled to exercise his, her or its Public Warrant prior to the scheduled redemption date. However, the
price of the Common Stock may fall below the $18.00 redemption trigger price as well as the $11.50 warrant exercise price after the redemption
notice is issued.
Redemption procedures
and cashless exercise. If we call the Public Warrants for redemption as described above, our management will have the option, under
certain circumstances as fully described in the Warrant Agreement, to require any holder that wishes to exercise his, her or its Public
Warrant to do so on a “cashless basis.” In determining whether to require all holders to exercise their Public Warrants on
a “cashless basis,” our management will consider, among other factors, our cash position, the number of Public Warrants that
are outstanding and the dilutive effect on our stockholders of issuing the maximum number of shares of Common Stock issuable upon the
exercise of our Public Warrants. If our management takes advantage of this option, all holders of Public Warrants would pay the exercise
price by surrendering their Public Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (i)
the product of the number of shares of Common Stock underlying the Public Warrants, multiplied by the difference between the exercise
price of the Public Warrants and the “fair market value” (defined below) by (ii) the fair market value. The “fair market
value” shall mean the average reported last sale price of the Common Stock for the 10 trading days ending on the third trading
day prior to the date on which the notice of redemption is sent to the holders of Public Warrants. If our management takes advantage
of this option, the notice of redemption will contain the information necessary to calculate the number of shares of Common Stock to
be received upon exercise of the Public Warrants, including the “fair market value” in such case. Requiring a cashless exercise
in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption. We believe
this feature is an attractive option to us if we do not need the cash from the exercise of the Public Warrants. If we call our Public
Warrants for redemption and our management does not take advantage of this option, our Sponsor and its permitted transferees would still
be entitled to exercise their Private Placement Warrants for cash or on a cashless basis using the same formula described above that
other warrant holders would have been required to use had all warrant holders been required to exercise their Public Warrants on a cashless
basis, as described in more detail below.
A holder of a Public Warrant
may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such
Public Warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates),
to the warrant agent’s actual knowledge, would beneficially own in excess of would beneficially own in excess of 4.9% or 9.8% (as
specified by the holder) of the shares of Common Stock outstanding immediately after giving effect to such exercise.
Anti-dilution Adjustments.
If the number of outstanding shares of Common Stock is increased by a stock dividend payable in shares of Common Stock, or by a split-up
of shares of Common Stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the
number of shares of Common Stock issuable on exercise of each Public Warrant will be increased in proportion to such increase in the
outstanding shares of Common Stock. A rights offering to holders of Common Stock entitling holders to purchase shares of Common Stock
at a price less than the fair market value will be deemed a stock dividend of a number of shares of Common Stock equal to the product
of (i) the number of shares of Common Stock actually sold in such rights offering (or issuable under any other equity securities sold
in such rights offering that are convertible into or exercisable for Common Stock) multiplied by (ii) one minus the quotient of (a) the
price per share of Common Stock paid in such rights offering divided by (b) the fair market value. For these purposes (1) if the rights
offering is for securities convertible into or exercisable for Common Stock, in determining the price payable for Common Stock, there
will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion
and (2) fair market value means the volume weighted average price of Common Stock as reported during the 10 trading day period ending
on the trading day prior to the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable
market, regular way, without the right to receive such rights.
In addition, if we, at
any time while the Public Warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other
assets to the holders of Common Stock on account of such shares of Common Stock (or other shares of our capital stock into which the
Public Warrants are convertible), other than (i) as described above; (ii) certain ordinary cash dividends; or (iii) in connection with
the redemption of our Public Shares had CMLS II failed to complete the Business Combination, then the warrant exercise price will be
decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities
or other assets paid on each share of Common Stock in respect of such event.
If the number of outstanding
shares of our Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Common
Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or
similar event, the number of shares of Common Stock issuable on exercise of each Public Warrant will be decreased in proportion to such
decrease in outstanding shares of Common Stock.
Whenever the number of
shares of Common Stock purchasable upon the exercise of the Public Warrants is adjusted, as described above, the warrant exercise price
will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which
will be the number of shares of Common Stock purchasable upon the exercise of the Public Warrants immediately prior to such adjustment,
and (y) the denominator of which will be the number of shares of Common Stock so purchasable immediately thereafter.
In case of any reclassification
or reorganization of the outstanding shares of Common Stock (other than those described above or that solely affects the par value of
such shares of Common Stock), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation
or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our outstanding
shares of Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of
us as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the Public Warrants will
thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Public Warrants
and in lieu of the shares of our Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented
thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification,
reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the Public Warrants
would have received if such holder had exercised their Public Warrants immediately prior to such event. However, if such holders were
entitled to exercise a right of election as to the kind or amount of securities, cash or other assets receivable upon such consolidation
or merger, then the kind and amount of securities, cash or other assets for which each Public Warrant will become exercisable will be
deemed to be the weighted average of the kind and amount received per share by such holders in such consolidation or merger that affirmatively
make such election, and if a tender, exchange or redemption offer has been made to and accepted by such holders (other than a tender,
exchange or redemption offer made by us in connection with redemption rights held by stockholders of the Company as provided for in our
Amended and Restated Certificate of Incorporation) under circumstances in which, upon completion of such tender or exchange offer, the
maker thereof, together with members of any group (within the meaning of Rule 13d-5(b)(1) under the Exchange Act (or any successor rule))
of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the
Exchange Act (or any successor rule)) and any members of any such group of which any such affiliate or associate is a part, own beneficially
(within the meaning of Rule 13d-3 under the Exchange Act (or any successor rule)) more than 50% of the outstanding shares of Common Stock,
the holder of a Public Warrant will be entitled to receive the highest amount of cash, securities or other property to which such holder
would actually have been entitled as a stockholder if such warrant holder had exercised the Public Warrant prior to the expiration of
such tender or exchange offer, accepted such offer and all of the Common Stock held by such holder had been purchased pursuant to such
tender or exchange offer, subject to adjustments (from and after the consummation of such tender or exchange offer) as nearly equivalent
as possible to the adjustments provided for in the warrant agreement. Additionally, if less than 70% of the consideration receivable
by the holders of Common Stock in such a transaction is payable in the form of Common Stock in the successor entity that is listed for
trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or
quoted immediately following such event, and if the registered holder of the Public Warrant properly exercises the Public Warrant within
30 days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement
based on the per share consideration minus Black-Scholes Warrant Value (as defined in the warrant agreement) of the Public Warrant.
The Public Warrants have
been issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and
CMLS II. You should review a copy of the warrant agreement, which is filed as an exhibit to the Current Report on Form 8-K filed on February
26, 2021, for a complete description of the terms and conditions applicable to the Public Warrants. The warrant agreement provides that
the terms of the Public Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision,
but requires the approval by the holders of at least 50% of the then outstanding Public Warrants to make any change that adversely affects
the interests of the registered holders of Public Warrants.
The Public Warrants may
be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the
exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the
exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to us, for the number of Public Warrants
being exercised. The warrant holders do not have the rights or privileges of holders of Common Stock and any voting rights until they
exercise their Public Warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the
Public Warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.
Warrants may be exercised
only for a whole number of shares of Common Stock. No fractional shares will be issued upon exercise of the Public Warrants. If, upon
exercise of the Public Warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round
down to the nearest whole number the number of shares of Common Stock to be issued to the warrant holder.
Private Placement Warrants
Our Sponsor and certain
CMLS II directors purchased an aggregate of 5,013,333 Private Placement Warrants at a price of $1.50 per Private Placement Warrant for
an aggregate purchase price of $7,520,000 in a private placement. The Private Placement Warrants have terms and provisions that are identical
to those of the Public Warrants sold as part of the Units in the IPO, including as to exercisability and exercise period, except that
(1) the Private Placement Warrants may be exercised on a cashless basis, (2) the Private Placement Warrants will be non-redeemable (except
as described above in “Redemption of Warrants When the Price per Share of Common Stock Equals or Exceeds $10.00”)
so long as they are held by the initial purchasers or their permitted transferees, and (3) the holders of the Private Placement Warrants
and the Common Stock issuable upon the exercise of the Private Placement Warrants will have certain registration rights. If the Private
Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants
will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
Madryn Options
The Company may, from
time to time, grant nonqualified stock options to eligible individuals and incentive stock options only to eligible employees. The Company
will determine the number of shares of Common Stock subject to each option, the term of each option, which may not exceed 10 years, or
five years in the case of an incentive stock option granted to a 10 percent stockholder, the exercise price, the vesting schedule, if
any, and the other material terms of each option. No incentive stock option or nonqualified stock option may have an exercise price less
than the fair market value of a share of Common Stock at the time of grant or, in the case of an incentive stock option granted to a
10 percent stockholder, 110% of such share’s fair market value. Options will be exercisable at such time or times and subject to
such terms and conditions as determined by the Company at grant, and the exercisability of such options may be accelerated by the Company.
As a result of the Business
Combination, each share of Class B common stock of Old SomaLogic was cancelled and converted into a portion of the merger consideration
on the terms set forth in the Merger Agreement. Pursuant to the terms of the Merger Agreement, the aggregate merger consideration paid
in connection with the Business Combination (excluding any potential Earn-Out Shares) was $1,250 million, which consists of cash payments
(at the election of Old SomaLogic stockholders) of $50.0 million and equity consideration in the form of (i) the issuance of shares of
Common Stock of the Company and (ii) rollover of Old SomaLogic’s outstanding options. The number of shares of Common Stock issued
to Old SomaLogic stockholders was based on a deemed value of $10.00 per share after giving effect to an exchange ratio of 0.8381. Accordingly,
(i) $50 million cash was paid to SomaLogic stockholders (thereby reducing the aggregate number of shares issuable under the Merger Agreement
at Closing from 125,000,000 to 120,000,000 shares of Common Stock), (ii) 110,973,213 shares of Common Stock were issued to Old SomaLogic
stockholders on the Closing Date and (iii) the remaining balance of the 120,000,000 shares of Common Stock to be issued under the Merger
Agreement may be issued in the future upon the exercise of options of the Company that were converted from Old SomaLogic options.
Pursuant to a Non-Statutory
Stock Option Agreement, dated as of September 1, 2020, Old SomaLogic granted to Lawrence Gold an option to purchase 1,000,000 shares
of Old SomaLogic’s Class B common stock. Pursuant to a Stock and Option Purchase Agreement, dated as of June 30, 2021, by and among
Lawrence Gold, the Sellers and Madryn, the Sellers transferred, on July 1, 2021, (i) 2,000,000 shares of Old SomaLogic Class B common
stock at a purchase price of $10.00 per share (or 1,676,198 shares of Common Stock at a purchase price of $11.93 after giving effect
to the exchange ratio of 0.8381) and (ii) options to acquire up to 1,000,000 shares of Old SomaLogic Class B common stock at purchase
price of $6.00 per option (or options to acquire up to 838,100 shares of Common Stock at a purchase price of $7.16 per option after giving
effect to the exchange ratio of 0.8381) to Madryn (the “Madryn Options”).
Transfer Agent and Warrant Agent
The Transfer Agent for
our Common Stock and warrant agent for our warrants is Continental Stock Transfer & Trust Company. We have agreed to indemnify Continental
Stock Transfer & Trust Company in its roles as transfer agent and warrant agent, its agents and each of its stockholders, directors,
officers and employees against all liabilities, including judgments, costs and reasonable counsel fees that may arise out of acts performed
or omitted for its activities in that capacity, except for any liability due to any gross negligence, willful misconduct, fraud or bad
faith of the indemnified person or entity.
Certain Anti-Takeover Provisions of Delaware
Law, Amended and Restated Certificate of Incorporation and Bylaws
Provisions of the DGCL
and our Amended and Restated Certificate of Incorporation could make it more difficult to acquire the Company by means of a tender offer,
a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are intended to discourage
coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of the Company to first
negotiate with the board of directors. We believe that the benefits of these provisions outweigh the disadvantages of discouraging certain
takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their
terms and enhance the ability of our board of directors to maximize stockholder value. However, these provisions may delay, deter or
prevent a merger or acquisition of us that a stockholder might consider is in its best interest, including those attempts that might
result in a premium over the prevailing market price of the Common Stock.
In addition, our Amended
and Restated Certificate of Incorporation provides for certain other provisions that may have an anti-takeover effect:
|
● |
There is no cumulative
voting with respect to the election of directors. |
|
● |
Our board of directors
is empowered to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death,
or removal of a director in certain circumstances. |
|
● |
Directors may only be
removed from our board of directors for cause. |
|
● |
Our board of directors
will be classified into three classes of directors. As a result, in most circumstances, a person can gain control of our board of
directors by successfully engaging in a proxy contest at two or more annual meetings. |
|
● |
A prohibition on stockholder
action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders. |
|
● |
A prohibition on stockholders
calling a special meeting and the requirement that a meeting of stockholders may only be called by members of our board of directors,
which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of
directors. |
|
● |
Our authorized but unissued
Common Stock and Preferred Stock are available for future issuances without stockholder approval and could be utilized for a variety
of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. Our board
of directors is entitled, without further stockholder approval, to designate one or more series of Preferred Stock and the associated
voting rights, preferences and privileges of such series of Preferred Stock. The existence of authorized but unissued and unreserved
Common Stock and Preferred Stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy
contest, tender offer, merger or otherwise. |
Forum Selection Clause
Our Amended and Restated
Certificate of Incorporation includes a forum selection clause. Our Amended and Restated Certificate of Incorporation provides that,
subject to limited exceptions, the Court of Chancery of the State of Delaware and federal court within the State of Delaware will be
exclusive forums for any:
|
● |
derivative action or
proceeding brought on the Company’s behalf; |
|
● |
action asserting a claim
of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer, or stockholder of the Company to the Company
or the Company’s stockholders; |
|
● |
action arising pursuant
to any provision of the DGCL, our Amended and Restated Certificate of Incorporation or Bylaws or as to which the DGCL confers jurisdiction
on the Court of Chancery of the State of Delaware: |
|
● |
any action or proceeding
as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or |
|
● |
other action asserting
a claim against the Company or any director, officer, or stockholder of the Company that is governed by the internal affairs doctrine. |
This choice of forum provision
does not apply to actions brought to enforce a duty or liability created by the Exchange Act or any other claim for which federal courts
have exclusive jurisdiction. Furthermore, in accordance with our Amended and Restated Certificate of Incorporation, unless we consent
in writing to the selection of an alternative forum, the federal district courts of the United States will be, to the fullest extent
permitted by law, the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.
The Company intends for this provision to apply to any complaints asserting a cause of action under the Securities Act despite the fact
that Section 22 of the Securities Act creates concurrent jurisdiction for the federal and state courts over all actions brought to enforce
any duty or liability created by the Securities Act or the rules and regulations promulgated thereunder.
Rule 144 and Restrictions on the Use of
Rule 144 by Shell Companies or Former Shell Companies
In general, Rule 144 of
the Securities Act (“Rule 144”), permits the resale of restricted securities without registration under the Securities
Act if certain conditions are met. Rule 144 is not available for the resale of restricted securities initially issued by shell companies
(other than business combination related shell companies) or issuers that have been at any time previously a shell company, including
the Company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met at the time
of such resale:
|
● |
the issuer of the securities
that was formerly a shell company has ceased to be a shell company; |
|
● |
the issuer of the securities
is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; |
|
● |
the issuer of the securities
has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter
period that the issuer was required to file such reports and materials), other than Form 8-K reports; and |
|
● |
at least one year has
elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that
is not a shell company. |
Prior to the consummation
of the Business Combination, CMLS II, our predecessor company, was a shell company. Following the consummation of the Business Combination,
we are no longer a shell company. As long as the conditions set forth in the exceptions listed above are satisfied, Rule 144 is available
for the resale of our restricted securities.
If the above conditions
have been met and Rule 144 is available, a person who has beneficially owned restricted shares of our Common Stock or warrants for at
least one year would be entitled to sell their securities pursuant to Rule 144, provided that such person is not deemed to have
been one of our affiliates at the time of, or at any time during the three months preceding, a sale. If such persons are our affiliates
at the time of, or at any time during the three months preceding, a sale, such persons would be subject to additional restrictions, by
which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater
of:
|
● |
1% of the total number
of shares of Common Stock or warrants, as applicable, then outstanding; or |
|
● |
the average weekly reported
trading volume of the Common Stock or warrants, as applicable, during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale. |
Any securities issued
to affiliates within the meaning of Rule 144 are restricted securities for purposes of Rule 144, and therefore sales of such securities
under Rule 144, when available, will also be limited by manner of sale provisions and notice requirements.
As of June 30, 2022, we
had 183,453,324 shares of Common Stock outstanding, of which 165,864,631 shares are freely tradable without restriction or further registration
under the Securities Act, except for any shares purchased by one of our affiliates. All of the 6,900,000 Founder Shares owned by our
Initial Stockholders are restricted securities under Rule 144, in that they were issued in private transactions not involving a public
offering. The shares of our Common Stock issued to the PIPE Investors pursuant to the Subscription Agreements are restricted securities
for purposes of Rule 144.
As of June 30, 2022, there
are 10,533,324 warrants of the Company outstanding, consisting of 5,519,991 Public Warrants originally sold as part of the Units issued
in the IPO and 5,013,333 Private Placement Warrants that were issued to our Sponsor and certain CMLS II directors in a private sale concurrently
with the IPO. Each warrant is exercisable for one share of our Common Stock, in accordance with the terms of the warrant agreement governing
the warrants. The Public Warrants are freely tradable, except for any Public Warrants purchased by one of our “Affiliates”
within the meaning of Rule 144 under the Securities Act.
Any shares issued to “Affiliates”
within the meaning of Rule 144 under the Securities Act will be restricted securities for of Rule 144.
In addition, we are obligated
to maintain the effectiveness of our Registration Statement until the expiration of the warrants.
We expect Rule 144 to
be available for the resale of the above noted restricted securities as long as the conditions set forth in the exceptions listed above
are satisfied.
Registration Rights
Company Registration Rights
The holders of the Founder
Shares and Private Placement Warrants (and any shares of Common Stock issuable upon the exercise of the Private Placement Warrants) are
entitled to registration rights pursuant to the Amended and Restated Registration Rights Agreement dated as of September 1, 2021, which
amended and restated in its entirety the Registration Rights Agreement signed February 22, 2021, requiring the Company to register such
securities for resale. The holders of the majority of these securities are entitled to make up to three demands, excluding short form
demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights
with respect to our Registration Statement and any subsequently filed registration statements and rights to require the Company to register
for resale such securities pursuant to Rule 415 under the Securities Act. However, the Amended and Restated Registration Rights Agreement
provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination
of the applicable lock-up period. The Company will bear the expenses incurred in connection with the filing of any such registration
statements.
Demand Registration Rights
Following the expiration
of the Founder Shares Lock-Up Period or the Private Placement Lock-Up Period (each as defined in the Amended and Restated Registration
Rights Agreement) or any other applicable lock-up period, holders of at least a majority in interest of the then-outstanding number of
registrable securities held by the holders or any holder expecting to sell registrable securities yielding aggregate gross proceeds in
excess of $50,000,000 may make a written demand for registration of all or part of their registrable securities. The Company will within
five days of the Company’s receipt of the demand, notify, in writing all other Holders of registrable securities of such demand.
Each holder who will want to participate in the registration will notify the Company, in writing, within five days after the receipt
by the holder of the notice from the Company. Upon receipt by the Company of any such written notification from a holder(s) to the Company
such holder(s) will be entitled to have their registrable securities included in a registration more than 60 days immediately after the
Company’s receipt of the demand.
Under no circumstances
will the Company be obligated to effect more than an aggregate of three registrations pursuant to a demand by the existing holders and
an aggregate of five registrations pursuant to a demand by the new holders with respect to any or all registrable securities.
Notwithstanding the foregoing,
(i) the Company shall not be required to give effect to a demand from a holder if the Company has registered registrable securities pursuant
to a demand (which has become effective) from such holder in the preceding 120 days, and (ii) the Company’s obligations with respect
to any demand will be deemed satisfied so long as the registration statement filed includes all of such holder’s registrable securities
and is effective.
Piggyback Registration Rights
If the Company proposes
to file a registration statement under the Securities Act with respect to an offering of equity securities, or securities or other obligations
exercisable or exchangeable for, or convertible into equity securities, for its own account or for the account of stockholders of the
Company, other than a registration statement (a) filed in connection with any employee stock option or other benefit plan, (b) for an
exchange offer or offering of securities solely to the Company’s existing stockholders, (c) for an offering solely of debt that
is convertible into equity securities of the Company, (d) for a dividend reinvestment plan, (e) for any issuances of securities in connection
with a transaction involving a merger, consolidation, sale, exchange, issuance, transfer, reorganization or other extraordinary transaction
between the Company or any of its Affiliates and any third party, or (f) filed pursuant to subsection 2.1.1 of the Amended and Restated
Registration Rights Agreement, then, the Company shall give written notice of such proposed filing to all of the holders of registrable
securities (excluding the Sponsor with respect to any Registrable Securities (as defined in the Amended and Restated Registration Rights
Agreement), distributed by the Sponsor to its members following the expiration of the Founder Shares Lock-up Period or the Private Placement
Lock-up Period, as applicable) as soon as practicable but not less than 20 days before the anticipated filing date of such registration
statement. This notice will offer to all of the Holders of Registrable Securities the opportunity to register the sale of such number
of Registrable Securities as such Holders may request in writing within five days after receipt of such written notice.
The Company shall, in
good faith, cause such Registrable Securities identified in a Holder’s response to be included in such Piggyback Registration and
shall use its commercially reasonable efforts to cause the managing Underwriter or Underwriters of a proposed Underwritten Offering,
if any, to permit the Registrable Securities requested by the Holders to be included in a Piggyback Registration on the same terms and
conditions as any similar securities of the Company or Company stockholder(s) for whose account the registration statement is to be filed
included in such registration and to permit the sale or other disposition of such Registrable Securities in accordance with the intended
method(s) of distribution thereof. All such Holders proposing to distribute their Registrable Securities through an Underwritten Offering
will enter into an underwriting agreement in customary form with the Underwriter(s) selected for such Underwritten Offering by the Company.
Shelf Registration Rights
The Company will, as soon
as practicable, but in any event within 30 days after the Business Combination, file a registration statement under the Securities Act
to permit the public resale of all the registrable securities held by the holders from time to time as permitted by Rule 415 under the
Securities Act on the terms and conditions specified in the Amended and Restated Registration Rights Agreement and will use its commercially
reasonable efforts to cause such registration statement to be declared effective as soon as practicable after the filing thereof, but
in no event later than the earlier of (i) 60 days following the Business Combination and (ii) five business days after the SEC notifies
the Company that it will not review the registration statement.
Without limiting the foregoing,
as soon as practicable, but in no event later than three business days, following the resolution or clearance of all SEC comments or,
if applicable, following notification by the SEC that the registration statement will not be subject to review, the Company will file
a request for acceleration of effectiveness of such registration statement to a time and date not later than two business days after
the submission of such request.
The registration statement
filed with the SEC will be on Form S-1 or such other form of registration statement as is then available to effect a registration for
resale of the registrable securities, provided, that the Company will file, within 30 days of such time as Form S-3 is available for
the registration, a post-effective amendment to the registration statement then in effect, or otherwise file a registration statement
on Form S-3, registering the registrable securities for resale on Form S-3 (provided that the Company will use commercially reasonable
efforts to maintain the effectiveness of the registration statement then in effect until such time as a registration statement (or post-effective
amendment) on Form S-3 covering such registrable securities has been declared effective by the SEC.
The registration statement
will cover all registrable securities, and will contain a prospectus in such form as permits any holder to sell such registrable securities
pursuant to Rule 415 under the Securities Act at any time beginning on the effective date for such registration statement and the Company
will file with the SEC the final form of such prospectus pursuant to Rule 424 (or successor thereto) under the Securities Act no later
than the second Business Day (as defined in the Amended and Restated Registration Rights Agreement) after the registration statement
becomes effective. The registration statement will provide for the resale pursuant to any method or combination of methods legally available
to, and requested by, the holders and will include a customary “plan of distribution.” The Company will use its commercially
reasonable efforts to cause the registration statement to remain effective, and to be supplemented and amended to the extent necessary
to ensure that the registration statement is available or, if not available, that another registration statement is available at all
times, for the public resale of all the registrable securities held by the holders until all such registrable securities have ceased
to be registrable securities. As soon as practicable following the effective date of the registration statement, but in any event within
three business days of such date, the Company will notify the Holders of the effectiveness of such registration statement.
PIPE Subscription Agreement
Under the terms of the
Subscription Agreements, we, as soon as practicable, but in no event later than 30 calendar days after the Business Combination, will
file with the SEC (at our sole cost and expense) a registration statement registering the resale of the PIPE Shares, and we will use
its commercially reasonable efforts to cause the registration statement to be declared effective as soon as practicable after the filing
thereof, but no later than the earlier of (i) the 60th calendar day (or 100th calendar day if the SEC notifies us that it will “review”
the registration statement) following the Business Combination and (ii) the tenth business day after the date we are notified by the
SEC that the registration statement will not be “reviewed” or will not be subject to further review.
If the SEC prevents us
from including any or all of the shares proposed to be registered under the registration statement due to limitations on the use of Rule
415 of the Securities Act for the resale of the PIPE Shares by the applicable stockholders or otherwise, such registration statement
will register for resale such number of PIPE Shares which is equal to the maximum number of PIPE Shares as is permitted by the SEC. In
such event, the number of PIPE Shares to be registered for each selling stockholder named in the registration statement will be reduced
pro rata among all such selling stockholders. In the event we amend the registration statement in accordance with the foregoing, we will
use our commercially reasonable efforts to file with the SEC, as promptly as allowed by the SEC, one or more registration statements
to register the resale of those Registrable Securities that were not registered on the initial registration statement. The Company will
use its commercially reasonable efforts to maintain the continuous effectiveness of the registration statement until all such securities
cease to be Registrable Securities or such shorter period upon which each undersigned party with Registrable Securities included in such
registration statement have notified us that such Registrable Securities have actually been sold.
The Company will provide
all customary and commercially reasonable cooperation necessary to enable the holders to resell Registrable Securities pursuant to the
registration statement or Rule 144, as applicable, qualify the Registrable Securities for listing on the primary stock exchange on which
its Common Stock are then listed, update or amend the registration statement as necessary to include Registrable Securities and provide
customary notice to holders of Registrable Securities.
Public Warrants
Under the terms of the
warrant agreement pursuant to which the Public Warrants were issued, we agreed that as soon as practicable, but in no event later than
15 business days after the closing of the Business Combination, we will use its best efforts to file with the SEC a registration statement
for the registration under the Securities Act of the shares of Common Stock issuable upon exercise of the Public Warrants. The Company
will thereafter use its best efforts to cause the same to become effective within 60 business days following the Business Combination
and to maintain a current prospectus relating to the Common Stock issuable upon exercise of the Public Warrants, until the expiration
of the Public Warrants in accordance with the provisions of the warrant agreement. If any such registration statement has not been declared
effective by the 60th Business Day following the Business Combination, holders of the Public Warrants shall have the right, during the
period beginning on the sixty-first Business Day after the closing of the Business Combination and ending upon such registration statement
being declared effective by the SEC, and during any other period when we failed to have maintained an effective registration statement
covering the issuance of the shares of Common Stock issuable upon exercise of the Public Warrants, to exercise such Public Warrants on
a “cashless basis,” by exchanging the Public Warrants (in accordance with Section 3(a)(9) of the Securities Act or another
exemption) in accordance with the provisions of the warrant agreement.
If the Common Stock is
at the time of any exercise of a Public Warrant not listed on a national securities exchange such that they satisfy the definition of
a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, (i) require holders of Public Warrants
who exercise Public Warrants to exercise such Public Warrants on a “cashless basis” in accordance with Section 3(a)(9) of
the Securities Act and (ii) in the event we so elect, we shall (x) not be required to file or maintain in effect a registration statement
for the registration, under the Securities Act, of the shares of Common Stock issuable upon exercise of the Public Warrants, notwithstanding
anything in the warrant agreement to the contrary, and (y) use its commercially reasonable efforts to register or qualify for sale the
shares of Common Stock issuable upon exercise of the Public Warrant under applicable blue sky laws to the extent an exemption is not
available.
Listing of Securities
Our Common Stock and Public
Warrants are traded on Nasdaq under the symbols “SLGC” and “SLGCW,” respectively.
PLAN OF DISTRIBUTION
The Selling Securityholders,
which as used herein includes donees, pledgees, transferees, distributees or other successors-in-interest selling shares of our Common
Stock or Private Placement Warrants or interests in our Common Stock or Private Placement Warrants received after October 15, 2021 from
the Selling Securityholders as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer, distribute
or otherwise dispose of certain of their shares of Common Stock or Private Placement Warrants or interests in our Common Stock or Private
Placement Warrants on any stock exchange, market or trading facility on which shares of our Common Stock or Private Placement Warrants,
as applicable, are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time
of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
The Selling Securityholders
may use any one or more of the following methods when disposing of their shares of Common Stock or Private Placement Warrants or interests
therein:
|
● |
ordinary brokerage transactions
and transactions in which the broker-dealer solicits purchasers; |
|
● |
one or more underwritten
offerings; |
|
● |
block trades (which
may involve crosses) in which the broker-dealer will attempt to sell the shares of Common Stock or Private Placement Warrants as
agent, but may position and resell a portion of the block as principal to facilitate the transaction; |
|
● |
purchases by a broker-dealer
as principal and resale by the broker-dealer for its accounts; |
|
● |
an exchange distribution
and/or secondary distribution in accordance with the rules of the applicable exchange; |
|
● |
privately negotiated
transactions; |
|
● |
distributions to their
employees, partners, members or stockholders; |
|
● |
short sales (including
short sales “against the box”) effected after the date of the registration statement of which this prospectus is a part
is declared effective by the SEC; |
|
● |
through the writing
or settlement of standardized or over-the-counter options or other hedging transactions, whether through an options exchange or otherwise; |
|
● |
in market transactions,
including transactions on a national securities exchange or quotations service or over-the-counter market; |
|
● |
by pledge to secure
debts and other obligation; |
|
● |
directly to purchasers,
including our affiliates and stockholders, in a rights offering or otherwise; |
|
● |
in “at the market”
offerings, as defined in Rule 415 under the Securities Act, at negotiated prices, at prices prevailing at the time of sale or at
prices related to such prevailing market prices, including sales made directly on a national securities exchange or sales made through
a market maker other than on an exchange or other similar offerings through sales agents; |
|
● |
broker-dealers may agree
with the Selling Securityholders to sell a specified number of such shares of Common Stock or Private Placement Warrants at a stipulated
price per share or per Private Placement Warrant; and |
|
● |
through a combination
of any of these methods or any other method permitted by applicable law. |
The Selling Securityholders
may effect the distribution of our Common Stock and Private Placement Warrants from time to time in one or more transactions either:
|
● |
at a fixed price or
prices, which may be changed from time to time; |
|
● |
at market prices prevailing
at the time of sale; |
|
● |
at prices relating to
the prevailing market prices; or |
The Selling Securityholders
may, from time to time, pledge or grant a security interest in some shares of our Common Stock or Private Placement Warrants owned by
them and, if a Selling Securityholder defaults in the performance of its secured obligations, the pledgees or secured parties may offer
and sell such shares of Common Stock or Private Placement Warrants, as applicable, from time to time, under this prospectus, or under
an amendment or supplement to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list
of the Selling Securityholders to include the pledgee, transferee or other successors in interest as the Selling Securityholders under
this prospectus. The Selling Securityholders also may transfer shares of our Common Stock or Private Placement Warrants in other circumstances,
in which case the transferees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
We and the Selling Securityholders
may agree to indemnify an underwriter, broker-dealer or agent against certain liabilities related to the sale of our Common Stock and
Private Placement Warrants, including liabilities under the Securities Act. The Selling Securityholders have advised us that they have
not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their Common
Stock and Private Placement Warrants. Upon our notification by a Selling Securityholder that any material arrangement has been entered
into with an underwriter or broker-dealer for the sale of Common Stock and Private Placement Warrants through a block trade, special
offering, exchange distribution, secondary distribution or a purchase by an underwriter or broker-dealer, we will file a supplement to
this prospectus, if required, pursuant to Rule 424(b) under the Securities Act, disclosing certain material information, including:
|
● |
the name of the selling
security holder; |
|
● |
the number of Common
Stock and Private Placement Warrants being offered; |
|
● |
the terms of the offering; |
|
● |
the names of the participating
underwriters, broker-dealers or agents; |
|
● |
any discounts, commissions
or other compensation paid to underwriters or broker-dealers and any discounts, commissions or concessions allowed or reallowed or
paid by any underwriters to dealers; |
|
● |
the public offering
price; |
|
● |
the estimated net proceeds
to us from the sale of the Common Stock and Private Placement Warrants; |
|
● |
any delayed delivery
arrangements; and |
|
● |
other material terms
of the offering. |
In addition, upon being
notified by a Selling Securityholder that a donee, pledgee, transferee or other successor-in-interest intends to sell Common Stock and
Private Placement Warrants, we will, to the extent required, promptly file a supplement to this prospectus to name specifically such
person as a Selling Securityholder.
Agents, broker-dealers
and underwriters or their affiliates may engage in transactions with, or perform services for, the Selling Securityholders (or their
affiliates) in the ordinary course of business. The Selling Securityholders may also use underwriters or other third parties with whom
such selling stockholders have a material relationship. The Selling Securityholders (or their affiliates) will describe the nature of
any such relationship in the applicable prospectus supplement.
There can be no assurances
that the Selling Securityholders will sell, nor are the Selling Securityholders required to sell, any or all of the Common Stock and
Private Placement Warrants offered under this prospectus.
In connection with the
sale of shares of our Common Stock or Private Placement Warrants or interests therein, the Selling Securityholder may enter into hedging
transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of our Common Stock or Private
Placement Warrants in the course of hedging the positions they assume. The Selling Securityholders may also sell shares of our Common
Stock or Private Placement Warrants short and deliver these securities to close out their short positions, or loan or pledge shares of
our Common Stock or Private Placement Warrants to broker-dealers that in turn may sell these securities. The Selling Securityholders
may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative
securities that require the delivery to such broker-dealer or other financial institution of shares of our Common Stock or Private Placement
Warrants offered by this prospectus, which shares or Private Placement Warrants such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds
to the Selling Securityholders from the sale of shares of our Common Stock or Private Placement Warrants offered by them will be the
purchase price of such shares of our Common Stock or Private Placement Warrants less discounts or commissions, if any. The Selling Securityholders
reserve the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase
of share of our Common Stock or Private Placement Warrants to be made directly or through agents. We will not receive any of the proceeds
from any offering by the Selling Securityholders.
The Selling Securityholders
also may in the future resell a portion of our Common Stock or Private Placement Warrants in open market transactions in reliance upon
Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule, or pursuant
to other available exemptions from the registration requirements of the Securities Act.
The Selling Securityholders
and any underwriters, broker-dealers or agents that participate in the sale of shares of our Common Stock or Private Placement Warrants
or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions,
concessions or profit they earn on any resale of shares of our Common Stock or Private Placement Warrants may be underwriting discounts
and commissions under the Securities Act. If any Selling Securityholder is an “underwriter” within the meaning of Section
2(11) of the Securities Act, then the Selling Securityholder will be subject to the prospectus delivery requirements of the Securities
Act. Underwriters and their controlling persons, dealers and agents may be entitled, under agreements entered into with us and the Selling
Securityholders, to indemnification against and contribution toward specific civil liabilities, including liabilities under the Securities
Act.
To the extent required,
our Common Stock or Private Placement Warrants to be sold, the respective purchase prices and public offering prices, the names of any
agent, dealer or underwriter, and any applicable discounts, commissions, concessions or other compensation with respect to a particular
offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement
that includes this prospectus.
To facilitate the offering
of shares of our Common Stock and Private Placement Warrants offered by the Selling Securityholders, certain persons participating in
the offering may engage in transactions that stabilize, maintain or otherwise affect the price of our Common Stock or Private Placement
Warrants. This may include over-allotments or short sales, which involve the sale by persons participating in the offering of more shares
of Common Stock or Private Placement Warrants than were sold to them. In these circumstances, these persons would cover such over-allotments
or short positions by making purchases in the open market or by exercising their over-allotment option, if any. In addition, these persons
may stabilize or maintain the price of our Common Stock or Private Placement Warrants by bidding for or purchasing shares of Common Stock
or Private Placement Warrants in the open market or by imposing penalty bids, whereby selling concessions allowed to dealers participating
in the offering may be reclaimed if shares of Common Stock or Private Placement Warrants sold by them are repurchased in connection with
stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of our Common Stock or
Private Placement Warrants at a level above that which might otherwise prevail in the open market. These transactions may be discontinued
at any time. These transactions may be effected on any exchange on which the securities are traded, in the over-the-counter market or
otherwise.
Under the Amended and
Restated Registration Rights Agreement and the Subscription Agreements, we have agreed to indemnify the applicable Selling Securityholders
party thereto against certain liabilities that they may incur in connection with the sale of the securities registered hereunder, including
liabilities under the Securities Act, and to contribute to payments that the Selling Securityholders may be required to make with respect
thereto. In addition, we and the Selling Securityholders may agree to indemnify any underwriter, broker-dealer or agent against certain
liabilities related to the selling of the securities, including liabilities arising under the Securities Act.
Under the Amended and
Restated Registration Rights Agreement, we have agreed to use our commercially reasonable efforts to cause the registration statement
of which this prospectus forms a part to remain effective with respect to any securities registered hereunder pursuant to such agreement
until: (i) such securities have been sold, transferred, disposed of or exchanged in accordance with such registration statement; (ii)
such securities have ceased to be outstanding; (iii) such securities have been otherwise transferred, new certificates for such securities
not bearing a legend restricting further transfer will have been delivered by us and subsequent public distribution of such securities
will not require registration under the Securities Act; (iv) with respect to a Selling Securityholder party to such agreement, all such
securities held by such Selling Securityholder could be sold pursuant to Rule 144 without restriction on volume or manner of sale in
any three-month period and without the requirement for us to be in compliance with the public information required under Rule 144; or
(v) such securities have been sold to, or through, a broker, dealer or underwriter in a public distribution or other public securities
transaction. Under each Subscription Agreement, we have agreed to our commercially reasonable efforts to maintain the continuous effectiveness
of the registration statement of which this prospectus forms a part with respect to any securities registered hereunder pursuant to such
agreement until: (A) with respect to a Selling Securityholder party to such agreement, such Selling Securityholder ceases to hold any
such securities; (B) the date all such securities held by such Selling Securityholder may be sold without restriction under Rule 144,
including without limitation, any volume and manner of sale restrictions which may be applicable to affiliates under Rule 144, and without
the requirement for us to be in compliance with the current public information required under Rule 144; or (C) when such securities shall
have ceased to be outstanding or three years from the date of effectiveness of such registration statement; or (B) such shorter period
upon which such Selling Securityholder has notified us that such securities have actually been sold. Under the warrant agreement, we
have agreed to maintain the effectiveness of this prospectus in respect of the shares of Common Stock issuable upon the exercise of the
Public Warrants and the Private Placement Warrants until the expiration or redemption of such Private Placement Warrants. We have agreed
to pay all expenses in connection with this offering, other than underwriting fees, discounts, selling commissions, stock transfer taxes
and certain legal expenses. The Selling Securityholders will pay, on a pro rata basis, any underwriting fees, discounts, selling commissions,
stock transfer taxes and certain legal expenses relating to the offering.
Selling Securityholders
may use this prospectus in connection with resales of shares of our Common Stock and Private Placement Warrants. This prospectus and
any accompanying prospectus supplement will identify the Selling Securityholders, the terms of our Common Stock or Private Placement
Warrants and any material relationships between us and the Selling Securityholders. Selling Securityholders may be deemed to be underwriters
under the Securities Act in connection with shares of our Common Stock or Private Placement Warrants they resell and any profits on the
sales may be deemed to be underwriting discounts and commissions under the Securities Act. Unless otherwise set forth in a prospectus
supplement, the Selling Securityholders will receive all the net proceeds from the resale of shares of our Common Stock or Private Placement
Warrants.
A Selling Securityholder
that is an entity may elect to make an in-kind distribution of Common Stock or Private Placement Warrants to its members, partners or
stockholders pursuant to the registration statement of which this prospectus is a part by delivering a prospectus, as amended or supplemented.
To the extent that such transferees are not affiliates of ours, such transferees will receive freely tradable shares of Common Stock
or Private Placement Warrants pursuant to the distribution effected through this prospectus.
LEGAL MATTERS
The validity of the securities
offered hereby has been passed upon for us by Bryan Cave Leighton Paisner LLP, Denver, CO.
EXPERTS
The consolidated financial
statements of SomaLogic, Inc. at December 31, 2021 and 2020 and for each of the two years in the period ended December 31, 2021, appearing
in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm,
as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority
of such firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL
INFORMATION
We have filed with the
SEC a registration statement on Form S-1 under the Securities Act that registers the shares of our Common Stock to be sold in this offering.
The registration statement, including the attached exhibits and schedules, contains additional relevant information about us and our
capital stock. The rules and regulations of the SEC allow us to omit from this prospectus certain information included in the registration
statement. For further information about us and the Securities, you should refer to the registration statement and the exhibits and schedules
filed with the registration statement. With respect to the statements contained in this prospectus regarding the contents of any agreement
or any other document, in each instance, the statement is qualified in all respects by the complete text of the agreement or document,
a copy of which has been filed as an exhibit to the registration statement.
We are subject to the
informational reporting requirements of the Exchange Act. We file reports, proxy statements and other information with the SEC under
the Exchange Act. Our SEC filings are available over the Internet at the SEC’s website at http://www.sec.gov. Our website address
is http://www.somalogic.com. The information on, or that can be accessed through, our website is not part of this prospectus.
INDEX TO FINANCIAL STATEMENTS
SomaLogic, Inc.
Condensed Consolidated Balance Sheets
Unaudited
(in thousands, except share data)
| |
June 30,
2022 | | |
December 31,
2021 | |
ASSETS | |
| | |
| |
Current assets | |
| | |
| |
Cash and cash equivalents | |
$ | 418,182 | | |
$ | 439,488 | |
Investments | |
| 200,912 | | |
| 218,218 | |
Accounts receivable, net | |
| 13,681 | | |
| 17,074 | |
Inventory | |
| 20,768 | | |
| 11,213 | |
Deferred costs of services | |
| 8 | | |
| 462 | |
Prepaid expenses and other current
assets | |
| 5,158 | | |
| 5,097 | |
Total current assets | |
| 658,709 | | |
| 691,552 | |
Non-current inventory | |
| 2,547 | | |
| 4,085 | |
Property and equipment, net of accumulated depreciation of
$16,448 and $15,244 as of June 30, 2022 and December 31, 2021, respectively | |
| 15,857 | | |
| 9,557 | |
Other long-term assets | |
| 8,966 | | |
| 908 | |
Total assets | |
$ | 686,079 | | |
$ | 706,102 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 19,076 | | |
$ | 15,089 | |
Accrued liabilities | |
| 9,305 | | |
| 11,109 | |
Deferred revenue | |
| 5,300 | | |
| 3,021 | |
Other current liabilities | |
| 1,250 | | |
| 66 | |
Total current liabilities | |
| 34,931 | | |
| 29,285 | |
Warrant liabilities | |
| 8,005 | | |
| 35,181 | |
Earn-out liability | |
| 1,396 | | |
| 26,885 | |
Deferred revenue, net of current portion | |
| 31,839 | | |
| 2,364 | |
Other long-term liabilities | |
| 2,690 | | |
| 363 | |
Total liabilities | |
| 78,861 | | |
| 94,078 | |
Commitments
and contingencies (Note 8) | |
| | | |
| | |
Stockholders’ equity | |
| | | |
| | |
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares
issued and outstanding at June 30, 2022 and December 31, 2021 | |
| — | | |
| — | |
Common stock, $0.0001 par value; 600,000,000 shares authorized;
183,453,324 and 181,552,241 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively | |
| 18 | | |
| 18 | |
Additional paid-in capital | |
| 1,134,024 | | |
| 1,110,991 | |
Accumulated other comprehensive loss | |
| (947 | ) | |
| (72 | ) |
Accumulated deficit | |
| (525,877 | ) | |
| (498,913 | ) |
Total stockholders’ equity | |
| 607,218 | | |
| 612,024 | |
Total liabilities and stockholders’ equity | |
$ | 686,079 | | |
$ | 706,102 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
SomaLogic, Inc.
Condensed Consolidated
Statements of Operations and Comprehensive Loss Unaudited
(in thousands, except share and per share
amounts)
| |
Three Months
Ended June 30, | | |
Six Months
Ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Revenue | |
| | |
| | |
| | |
| |
Assay services revenue | |
$ | 10,931 | | |
$ | 16,236 | | |
$ | 29,731 | | |
$ | 30,809 | |
Product revenue | |
| 714 | | |
| 462 | | |
| 1,167 | | |
| 655 | |
Collaboration revenue | |
| 762 | | |
| 762 | | |
| 1,525 | | |
| 1,525 | |
Other revenue | |
| 1,737 | | |
| 2,320 | | |
| 4,701 | | |
| 5,651 | |
Total revenue | |
| 14,144 | | |
| 19,780 | | |
| 37,124 | | |
| 38,640 | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Cost of assay services revenue | |
| 6,571 | | |
| 7,656 | | |
| 17,951 | | |
| 13,811 | |
Cost of product revenue | |
| 506 | | |
| 329 | | |
| 778 | | |
| 419 | |
Research and development | |
| 17,636 | | |
| 8,590 | | |
| 31,436 | | |
| 16,708 | |
Selling, general and administrative | |
| 36,812 | | |
| 14,833 | | |
| 67,627 | | |
| 27,642 | |
Total operating expenses | |
| 61,525 | | |
| 31,408 | | |
| 117,792 | | |
| 58,580 | |
Loss from operations | |
| (47,381 | ) | |
| (11,628 | ) | |
| (80,668 | ) | |
| (19,940 | ) |
Other income (expense) | |
| | | |
| | | |
| | | |
| | |
Interest income and other, net | |
| 833 | | |
| 69 | | |
| 1,039 | | |
| 71 | |
Interest expense | |
| — | | |
| (148 | ) | |
| — | | |
| (1,322 | ) |
Change in fair value of warrant liabilities | |
| 14,536 | | |
| — | | |
| 27,176 | | |
| — | |
Change in fair value of earn-out liability | |
| 9,027 | | |
| — | | |
| 25,489 | | |
| — | |
Loss on extinguishment of debt, net | |
| — | | |
| (1,630 | ) | |
| — | | |
| (1,630 | ) |
Total other income (expense) | |
| 24,396 | | |
| (1,709 | ) | |
| 53,704 | | |
| (2,881 | ) |
Net loss | |
$ | (22,985 | ) | |
$ | (13,337 | ) | |
$ | (26,964 | ) | |
$ | (22,821 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive loss | |
| | | |
| | | |
| | | |
| | |
Net unrealized loss on available-for-sale securities | |
$ | (209 | ) | |
$ | 14 | | |
$ | (861 | ) | |
$ | 8 | |
Foreign currency translation (loss)
gain | |
| (11 | ) | |
| — | | |
| (14 | ) | |
| 1 | |
Total other comprehensive (loss) gain | |
| (220 | ) | |
| 14 | | |
| (875 | ) | |
| 9 | |
Comprehensive loss | |
$ | (23,205 | ) | |
$ | (13,323 | ) | |
$ | (27,839 | ) | |
$ | (22,812 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share, basic and diluted | |
$ | (0.13 | ) | |
$ | (0.12 | ) | |
$ | (0.15 | ) | |
$ | (0.20 | ) |
Weighted-average shares outstanding, basic and diluted | |
| 183,143,391 | | |
| 114,904,241 | | |
| 182,599,949 | | |
| 114,691,007 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
SomaLogic, Inc.
Condensed Consolidated
Statements of Stockholders’ Equity Unaudited
(in thousands, except share amounts)
| |
Three
Months Ended June 30, 2022 | |
| |
| | |
| | |
| | |
| | |
Additional | | |
Accumulated
Other | | |
| | |
Total | |
| |
Common
Stock | | |
Treasury
Stock | | |
Paid-In | | |
Comprehensive | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Income | | |
Deficit | | |
Equity (Deficit) | |
Balance
at March 31, 2022 | |
| 182,176,926 | | |
$ | 18 | | |
| — | | |
$ | — | | |
$ | 1,120,910 | | |
$ | (727 | ) | |
$ | (502,892 | ) | |
$ | 617,309 | |
Issuance
of Common Stock upon exercise of options | |
| 1,241,871 | | |
| — | | |
| — | | |
| — | | |
| 3,510 | | |
| — | | |
| — | | |
| 3,510 | |
Shares
issued under employee stock purchase plan | |
| 34,527 | | |
| — | | |
| — | | |
| — | | |
| 133 | | |
| — | | |
| — | | |
| 133 | |
Stock-based
compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 9,471 | | |
| — | | |
| — | | |
| 9,471 | |
Net
unrealized loss on available-for-sale securities | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (209 | ) | |
| — | | |
| (209 | ) |
Foreign
currency translation loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (11 | ) | |
| — | | |
| (11 | ) |
Net
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (22,985 | ) | |
| (22,985 | ) |
Balance
at June 30, 2022 | |
| 183,453,324 | | |
$ | 18 | | |
| — | | |
$ | — | | |
$ | 1,134,024 | | |
$ | (947 | ) | |
$ | (525,877 | ) | |
$ | 607,218 | |
| |
Three Months Ended June 30, 2021 | |
| |
| | |
| | |
| | |
| | |
Additional | | |
Accumulated Other | | |
| | |
Total | |
| |
Common Stock | | |
Treasury Stock | | |
Paid-In | | |
Comprehensive | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Income | | |
Deficit | | |
Equity (Deficit) | |
Balance at March 31, 2021 | |
| 74,166,739 | | |
$ | 742 | | |
| (131,344 | ) | |
$ | (408 | ) | |
$ | 398,910 | | |
$ | (7 | ) | |
$ | (420,850 | ) | |
$ | (21,613 | ) |
Retrospective application of recapitalization | |
| 40,659,113 | | |
| (731 | ) | |
| 131,344 | | |
| 408 | | |
| 202,439 | | |
| — | | |
| — | | |
| 202,116 | |
Balance at March 31, 2021 | |
| 114,825,852 | | |
| 11 | | |
| — | | |
| — | | |
| 601,349 | | |
| (7 | ) | |
| (420,850 | ) | |
| 180,503 | |
Issuance of Common Stock upon exercise of options | |
| 545,677 | | |
| — | | |
| — | | |
| — | | |
| 1,915 | | |
| — | | |
| — | | |
| 1,915 | |
Issuance of Common Stock for services | |
| — | | |
| — | | |
| — | | |
| — | | |
| 150 | | |
| — | | |
| — | | |
| 150 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,614 | | |
| — | | |
| — | | |
| 4,614 | |
Net unrealized gain on available-for-sale securities | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 14 | | |
| — | | |
| 14 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (13,337 | ) | |
| (13,337 | ) |
Balance at June 30, 2021 | |
| 115,371,529 | | |
$ | 11 | | |
| — | | |
$ | — | | |
$ | 608,028 | | |
$ | 7 | | |
$ | (434,187 | ) | |
$ | 173,859 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
SomaLogic, Inc.
Condensed Consolidated Statements of Stockholders’
Equity Unaudited
(in thousands, except share amounts)
| |
Six Months Ended June 30, 2022 | |
| |
| | |
| | |
| | |
| | |
Additional | | |
Accumulated Other | | |
| | |
Total | |
| |
Common Stock | | |
Treasury Stock | | |
Paid-In | | |
Comprehensive | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Income | | |
Deficit | | |
Equity (Deficit) | |
Balance at December 31, 2021 | |
| 181,552,241 | | |
$ | 18 | | |
| — | | |
$ | — | | |
$ | 1,110,991 | | |
$ | (72 | ) | |
$ | (498,913 | ) | |
$ | 612,024 | |
Issuance of Common Stock upon exercise of options | |
| 1,866,556 | | |
| — | | |
| — | | |
| — | | |
| 4,752 | | |
| — | | |
| — | | |
| 4,752 | |
Shares issued under employee stock purchase plan | |
| 34,527 | | |
| — | | |
| — | | |
| — | | |
| 133 | | |
| — | | |
| — | | |
| 133 | |
Issuance of Common Stock for services | |
| — | | |
| — | | |
| — | | |
| — | | |
| 50 | | |
| — | | |
| — | | |
| 50 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 18,098 | | |
| — | | |
| — | | |
| 18,098 | |
Net unrealized loss on available-for-sale securities | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (861 | ) | |
| — | | |
| (861 | ) |
Foreign currency translation loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (14 | ) | |
| — | | |
| (14 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (26,964 | ) | |
| (26,964 | ) |
Balance at June 30, 2022 | |
| 183,453,324 | | |
$ | 18 | | |
| — | | |
$ | — | | |
$ | 1,134,024 | | |
$ | (947 | ) | |
$ | (525,877 | ) | |
$ | 607,218 | |
| |
Six Months Ended June 30, 2021 | |
| |
| | |
| | |
| | |
| | |
Additional | | |
Accumulated Other | | |
| | |
Total | |
| |
Common Stock | | |
Treasury Stock | | |
Paid-In | | |
Comprehensive | | |
Accumulated | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Income | | |
Deficit | | |
Equity (Deficit) | |
Balance at December 31, 2020 | |
| 73,481,228 | | |
$ | 735 | | |
| (113,220 | ) | |
$ | (352 | ) | |
$ | 394,786 | | |
$ | (2 | ) | |
$ | (411,366 | ) | |
$ | (16,199 | ) |
Retrospective application of recapitalization | |
| 40,785,287 | | |
| (724 | ) | |
| 113,220 | | |
| 352 | | |
| 202,488 | | |
| — | | |
| — | | |
| 202,116 | |
Balance at December 31, 2020 | |
| 114,266,515 | | |
$ | 11 | | |
| — | | |
$ | — | | |
$ | 597,274 | | |
$ | (2 | ) | |
$ | (411,366 | ) | |
$ | 185,917 | |
Issuance of Common Stock upon exercise of options | |
| 957,466 | | |
| — | | |
| — | | |
| — | | |
| 2,792 | | |
| — | | |
| — | | |
| 2,792 | |
Issuance of Common Stock for services | |
| 162,737 | | |
| — | | |
| — | | |
| — | | |
| 264 | | |
| — | | |
| — | | |
| 264 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 7,754 | | |
| — | | |
| — | | |
| 7,754 | |
Surrender of shares in cashless exercise | |
| (15,189 | ) | |
| — | | |
| — | | |
| — | | |
| (56 | ) | |
| — | | |
| — | | |
| (56 | ) |
Net unrealized gain on available-for-sale securities | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 8 | | |
| — | | |
| 8 | |
Foreign currency translation gain | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1 | | |
| — | | |
| 1 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (22,821 | ) | |
| (22,821 | ) |
Balance at June 30, 2021 | |
| 115,371,529 | | |
$ | 11 | | |
| — | | |
$ | — | | |
$ | 608,028 | | |
$ | 7 | | |
$ | (434,187 | ) | |
$ | 173,859 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
SomaLogic, Inc.
Condensed Consolidated
Statements of Cash Flows
Unaudited
(in thousands)
| |
Six Months Ended June 30, | |
| |
2022 | | |
2021 | |
Operating activities | |
| | |
| |
Net loss | |
$ | (26,964 | ) | |
$ | (22,821 | ) |
Adjustments to reconcile net loss to cash used in operating activities: | |
| | | |
| | |
Stock-based compensation expense | |
| 18,131 | | |
| 8,016 | |
Depreciation and amortization | |
| 1,718 | | |
| 1,377 | |
Amortization of debt issuance costs, discounts and premiums | |
| — | | |
| 258 | |
Noncash lease expense | |
| (746 | ) | |
| — | |
Change in fair value of compound derivative liability | |
| — | | |
| 7 | |
Change in fair value of warrant liabilities | |
| (27,176 | ) | |
| — | |
Change in fair value of earn-out liability | |
| (25,489 | ) | |
| — | |
Amortization of premium on available-for-sale securities, net | |
| 82 | | |
| 155 | |
Provision for excess and obsolete inventory | |
| 142 | | |
| 385 | |
Provision (recovery) for doubtful accounts | |
| 17 | | |
| (36 | ) |
Loss on extinguishment of debt, net | |
| — | | |
| 1,630 | |
Paid-in-kind interest | |
| — | | |
| 165 | |
Other | |
| 6 | | |
| 7 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 3,376 | | |
| 3,919 | |
Inventory | |
| (8,159 | ) | |
| 109 | |
Deferred costs of services | |
| 454 | | |
| (271 | ) |
Prepaid expenses and other current assets | |
| (64 | ) | |
| (570 | ) |
Other long-term assets | |
| 1,182 | | |
| — | |
Accounts payable | |
| 3,454 | | |
| 172 | |
Deferred revenue | |
| 31,754 | | |
| 2,502 | |
Accrued and other liabilities | |
| (2,655 | ) | |
| (877 | ) |
Payment of paid-in-kind interest on extinguishment of
debt | |
| — | | |
| (752 | ) |
Net cash used in operating activities | |
| (30,937 | ) | |
| (6,625 | ) |
Investing activities | |
| | | |
| | |
Proceeds from sale of property and equipment | |
| — | | |
| 8 | |
Purchase of property and equipment | |
| (7,477 | ) | |
| (962 | ) |
Purchase of available-for-sale securities | |
| (112,287 | ) | |
| (102,106 | ) |
Proceeds from sales and maturities of available-for-sale
securities | |
| 128,650 | | |
| 30,872 | |
Net cash provided by (used in) investing activities | |
| 8,886 | | |
| (72,188 | ) |
Financing activities | |
| | | |
| | |
Repayment of long-term debt | |
| — | | |
| (36,512 | ) |
Payment of deferred transaction costs | |
| — | | |
| (4,686 | ) |
Proceeds from exercise of stock options | |
| 4,885 | | |
| 2,738 | |
Net cash provided by (used in) financing activities | |
| 4,885 | | |
| (38,460 | ) |
Effect of exchange rates on cash, cash equivalents and restricted cash | |
| (20 | ) | |
| (3 | ) |
Net decrease in cash, cash equivalents and restricted cash | |
| (17,186 | ) | |
| (117,276 | ) |
Cash, cash equivalents and restricted cash at beginning of period | |
| 440,268 | | |
| 165,194 | |
Cash, cash equivalents and restricted cash at end of period | |
$ | 423,082 | | |
$ | 47,918 | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | — | | |
$ | 1,627 | |
Supplemental disclosure of non-cash investing and financing activities: | |
| | | |
| | |
Purchase of property and equipment included in accounts payable | |
$ | 533 | | |
$ | 910 | |
Operating lease assets obtained in exchange for lease obligations | |
| 4,134 | | |
| — | |
Surrender of shares in cashless exercise | |
| — | | |
| 56 | |
Issuance of Common Stock for services | |
| 50 | | |
| 262 | |
Transaction costs included in accounts payable | |
| — | | |
| 685 | |
Forgiveness of Paycheck Protection Program loan and accrued interest | |
| — | | |
| 3,561 | |
| |
| | | |
| | |
Reconciliation of cash, cash equivalents and restricted cash | |
| | | |
| | |
Cash and cash equivalents | |
$ | 418,182 | | |
$ | 47,138 | |
Restricted cash included in other long-term assets | |
| 4,900 | | |
| 780 | |
Total cash, cash equivalents and restricted cash at end of
period | |
$ | 423,082 | | |
$ | 47,918 | |
The accompanying notes are an integral part
of these unaudited condensed consolidated financial statements.
SomaLogic, Inc.
Notes
to Condensed Consolidated Financial Statements
Unaudited
Note 1 — Description of Business
Organization and Operations
SomaLogic, Inc. (“SomaLogic”
or the “Company”) was originally incorporated in Delaware on December 15, 2020 as a special purpose acquisition company
under the name CM Life Sciences II Inc. (“CMLS II”) for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses.
On September 1, 2021
(the “Closing Date”), we consummated the business combination (the “Business Combination”) of SomaLogic
Operating Co. Inc. (“SomaLogic Operating”), a Delaware corporation formed on October 13, 1999, wherein SomaLogic Operating
became a wholly-owned subsidiary of CMLS II. In connection with the closing of the Business Combination, we changed our name from CM
Life Sciences II Inc. to SomaLogic, Inc.
The Business Combination
was accounted for as a reverse recapitalization in accordance with U.S. generally accepted accounting principles (“GAAP”).
Under this method of accounting, CMLS II was treated as the “acquired” company for financial reporting purposes and SomaLogic
Operating was treated as the accounting acquirer. Accordingly, for accounting purposes, our financial statements represent a continuation
of the financial statements of SomaLogic Operating with the Business Combination being treated as the equivalent of SomaLogic Operating
issuing stock for the net assets of CMLS II, accompanied by a recapitalization. The net assets of SomaLogic Operating are stated at historical
cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination in these financial statements
are those of SomaLogic Operating. The recapitalization of our Common Stock is reflected retrospectively to the earliest period presented,
and is utilized for calculating net loss per share in all prior periods presented.
Other than information
discussed herein, there have been no significant changes to our description of business and Business Combination disclosed in our Annual
Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”).
We are a protein biomarker
discovery and clinical diagnostics company that develops slow off-rate modified aptamers (“SOMAmers®”), which
are modified nucleic acid-based protein binding reagents that are specific for their cognate protein, and offer proprietary SomaScan®
services, which provide multiplex protein detection and quantification of protein levels in complex biological samples. The SOMAmers®/SomaScan®
technology enables researchers to analyze various types of biological samples for protein biomarker signatures, which can be utilized
in drug discovery and development. Biomarker discoveries from SomaScan® can lead to diagnostic applications in various areas of diseases
including cardiovascular and metabolic disease, nonalcoholic steatohepatitis, and wellness, among others.
Unless the context otherwise
requires, the terms “we”, “us”, “our”, “SomaLogic” and
“the Company” refer to SomaLogic, Inc. and its consolidated subsidiaries.
COVID-19 Pandemic
The Company is subject
to ongoing uncertainty concerning the Coronavirus Disease 2019 (“COVID-19”) pandemic, including its length and severity
and its effect on the Company’s business. Our suppliers have been impacted by the COVID-19 pandemic, and we have experienced supply
delays for certain equipment, instrumentation, and other supplies that we use for our services and products.
The COVID-19 pandemic
continues to be dynamic and near-term challenges across the economy remain. The Company expects continued volatility and unpredictability
related to the impact of COVID-19 on business results. The Company continues to actively monitor the pandemic and will continue to take
appropriate steps to mitigate the adverse impacts on the business posed by the on-going spread of COVID-19.
SomaLogic, Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated
financial statements and accompanying notes include the accounts of SomaLogic and our wholly-owned subsidiaries. All intercompany transactions
and balances have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in
accordance with GAAP for interim financial information. Any reference in these notes to applicable guidance is meant to refer to the
authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASUs”)
of the Financial Accounting Standards Board (“FASB”).
Certain information and
disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly,
these condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements as
of and for the year ended December 31, 2021 included in the 2021 Form 10-K.
These unaudited condensed
consolidated financial statements have been prepared on the same basis as our annual consolidated financial statements and, in the opinion
of management, reflect all adjustments, which include normal recurring adjustments considered necessary for a fair presentation of interim
financial information, to present fairly the Company’s condensed consolidated financial position and its results of operations
and cash flows. The results of operations for the periods presented are not necessarily indicative of the results to be expected for
the year ending December 31, 2022 or for any other future annual or interim period.
Certain reclassifications
have been made to prior period amounts to conform to the current presentation.
Use of Estimates
The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results
could differ from those estimates. Significant estimates and assumptions reflected in these financial statements include, but are not
limited to, revenue recognition, inventory valuation, incremental borrowing rates used in the determination of lease assets and liabilities,
the valuation of stock-based compensation awards, warrant liabilities valuations, and earn-out liability valuations. We base our estimates
on current facts, historical and anticipated results, trends, and other relevant assumptions that we believe are reasonable under the
circumstances. Actual results could differ from these estimates, and such differences could be material to the Company’s consolidated
financial position and results of operations.
SomaLogic, Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments
that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, investments, and
accounts receivable. Our cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions
may, at times, exceed federally insured limits.
Significant customers
are those that represent more than 10% of the Company’s total revenues or gross accounts receivable balances for the periods and
as of each balance sheet date presented. For each significant customer, revenue as a percentage of total revenues and gross accounts
receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:
| |
Accounts Receivable | | |
Revenue | |
| |
June 30, | | |
December 31, | | |
Three months
ended June 30, | | |
Six months ended June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Customer A | |
| * | | |
| 10 | % | |
| * | | |
| 22 | % | |
| 25 | % | |
| 22 | % |
Customer B | |
| * | | |
| * | | |
| * | | |
| 14 | % | |
| * | | |
| 25 | % |
Customer C | |
| 28 | % | |
| 20 | % | |
| * | | |
| 10 | % | |
| 10 | % | |
| 13 | % |
Customer D | |
| * | | |
| 26 | % | |
| * | | |
| * | | |
| * | | |
| * | |
International sales entail
a variety of risks, including currency exchange fluctuations, longer payment cycles, and greater difficulty in accounts receivable collection.
The risks of international sales are mitigated in part by the fact that contracts are in U.S. dollars. Customers outside the United States
collectively represent 33% and 31% of the Company’s revenues for the three months ended June 30, 2022 and 2021, respectively,
and 40% and 28% for the six months ended June 30, 2022 and 2021, respectively. Customers outside of the United States collectively
represented 24% and 18% of the Company’s gross accounts receivable balance as of June 30, 2022 and December 31, 2021,
respectively.
Certain components included
in our products require customization and are obtained from a single source or a limited number of suppliers.
Leases
Following the adoption
of ASU 2016-02, Leases (Topic 842) (“ASC 842”), on January 1, 2022, we determine if an arrangement is a lease
at inception of the contract. Operating lease right-of-use (“ROU”) assets are included in other long-term assets,
and operating lease liabilities are included in other current liabilities and other long-term liabilities in the condensed consolidated
balance sheets.
SomaLogic, Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
ROU
assets and operating lease liabilities are recognized based on the present value of the future
lease payments over the lease term at commencement date. As the implicit rate in the Company's
leases is generally unknown, the Company uses its incremental borrowing rate based on the
information available at the lease commencement date in determining the present value of
future lease payments. The Company gives consideration to its credit risk, term of the lease,
total lease payments and adjusts for the impacts of collateral, as necessary, when calculating
its incremental borrowing rates.
Operating lease ROU assets
include lease incentives and initial direct costs incurred. When the lease incentives specify a maximum level of reimbursement and we
are reasonably certain to incur reimbursable costs equal to or exceeding this level, we include the lease incentive in the measurement
of the ROU assets and lease liabilities at commencement. The lease terms may include options to extend or terminate the lease when it
is reasonably certain the Company will exercise any such options. Lease costs for our operating leases are recognized on a straight-line
basis within operating expenses over the lease term in the condensed consolidated statements of operations and comprehensive loss.
We have lease agreements
with lease and non-lease components. However, we have elected the practical expedient to not separate lease and non-lease components
for all of our existing classes of assets. Therefore, the lease and non-lease components are accounted for as a single lease component.
We have also elected to not apply the recognition requirement to any short-term leases with a term of 12 months or less.
We monitor for events
or changes in circumstances that may require a reassessment or impairment of our leases, at which time our ROU assets for operating leases
may be reduced by impairment losses.
Warrant Liabilities
During February 2021,
in connection with CMLS II’s initial public offering, CMLS II issued 5,519,991 warrants (the “Public Warrants”)
to purchase shares of Common Stock at $11.50 per share. Simultaneously, with the consummation of the CMLS II initial public offering,
CMLS II issued 5,013,333 warrants through a private placement (the “Private Placement Warrants”, and together with
the Public Warrants, the “Warrants”) to purchase shares of Common Stock at $11.50 per share. All of the Warrants were
outstanding as of June 30, 2022.
We classify the Warrants
as liabilities on our condensed balance sheets as these instruments are precluded from being indexed to our own stock given that the
terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815, Derivatives and
Hedging (“ASC 815”). Since the Warrants meet the definition of a derivative under ASC 815-40, the Company recorded
these warrants as long-term liabilities at fair value on the date of the Business Combination, with subsequent changes in their respective
fair values recognized within change in fair value of warrant liabilities in the condensed consolidated statements of operations and
comprehensive loss at each reporting date.
SomaLogic, Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Earn-Out Liability
As a result of the Business
Combination, additional shares of Common Stock were provided to SomaLogic Operating shareholders and to certain employees and directors
of SomaLogic (“Earn-Out Service Providers”) of up to 3,500,125 and 1,499,875, respectively (the “Earn-Out
Shares”). The Earn-Out Shares are payable if the price of our Common Stock is greater than or equal to $20.00 for a period
of at least 20 out of 30 consecutive trading days at any time between the 13- and 24-month anniversary of the Closing Date (the “Triggering
Event”). Any Earn-Out Shares issuable to an Earn-Out Service Provider shall be issued only if such individual continues to
provide services (whether as an employee or director) through the date of occurrence of the corresponding Triggering Event (or a change
in control acceleration event, if applicable) that causes such Earn-Out Shares to become issuable. Any Earn-Out Shares that are forfeited
pursuant to the preceding sentence shall be reallocated to the SomaLogic Operating stockholders in accordance with their respective pro
rata Earn-Out Shares.
The Earn-Out Shares were
recognized as a liability in accordance with ASC 815. The liability was included as part of the consideration transferred in the Business
Combination and was recorded at fair value. The earn-out liability is remeasured at the end of each reporting period, with subsequent
changes in fair value recognized within change in fair value of earn-out liability in the condensed consolidated statements of operations
and comprehensive loss.
Revenue Recognition
The Company recognizes
revenue from sales to customers under ASC 606, Revenue from Contracts with Customers (“ASC 606”).
ASC 606 provides a five-step model for recognizing revenue that includes identifying the contract with a customer, identifying the
performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations,
and recognizing revenue when, or as, an entity satisfies a performance obligation.
The Company recognizes
revenue when or as control of promised goods or services is transferred to the Company’s customers, in an amount that reflects
the consideration the Company expects to be entitled to in exchange for those goods or services. Sales, value add, and other taxes collected
concurrent with revenue-producing activities are excluded from revenue and products are sold without the right of return.
Payment terms may vary
by customer, are based on customary commercial terms, and are generally less than one year. The Company does not adjust revenue for the
effects of a significant financing component for contracts where the period between the transfer of the good or service and collection
is one year or less. The Company expenses incremental costs to obtain a contract when incurred since the amortization period of the asset
that would otherwise be recognized is one year or less.
Assay Services Revenue
The Company generates
assay services revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived
from performing the SomaScan® assay on customer samples to generate data on protein biomarkers. Revenue from SomaScan®
services is recognized at the time the analysis data or report is delivered to the customer, which is when control has been transferred
to the customer. SomaScan® services are sold at a fixed price per sample without any volume discounts, rebates, or refunds.
The delivery of each
assay data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction price
must be allocated to each performance obligation based on its relative standalone selling price. Judgment is required to determine the
standalone selling price for each distinct performance obligation as there are few directly comparable products in the market and factors
such as customer size are factored into the determination of selling price. We determine standalone selling prices based on amounts invoiced
to customers in observable transactions.
SomaLogic,
Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Product Revenue
Product revenue primarily
consists of equipment and kit sales to customers who assay samples in their own laboratories. Equipment is generally accounted for as
a bundle with installation, qualification and training services. Revenue is recognized over time based on the progress made toward achieving
the performance obligation utilizing input methods, including costs and labor hours incurred. The Company receives fixed consideration
per kit and revenue from kit sales is recognized upon transfer of control to the customer. Shipping and handling costs billed to customers
are included in product revenue in the condensed consolidated statements of operations and comprehensive loss.
Collaboration Revenue
In July 2011, NEC Corporation
(“NEC”) and the Company entered into a Strategic Alliance Agreement (the “SAA”) to develop a professional
software tool to enable SomaScan® customers to easily access and interpret the highly multiplexed proteomic data generated
by SomaLogic’s SomaScan® assay technology in the United States. To support this development, NEC made an upfront
payment of $12.0 million and SomaLogic agreed to pay NEC a perpetual royalty on certain SomaScan® revenues. This agreement
includes a clause whereby if there is a material breach of the contract or change in control of the Company, the Company may be required
to pay a fee to terminate the agreement.
The Company determined
that the SAA met the criteria set forth in ASC 808, Collaborative Arrangements, (“ASC 808”) because both
parties were active participants and were exposed to significant risks and rewards dependent on commercial failure or success. The Company
recorded the upfront payment as deferred revenue to be recognized over the period of performance of 15 years. The revenue was recorded
in collaboration revenue in the condensed consolidated statements of operations and comprehensive loss.
In March 2020, NEC and
the Company mutually terminated the SAA and concurrently the Company and NEC Solution Innovators, Ltd. (“NES”), a
wholly owned subsidiary of NEC, entered into a new arrangement, the JDCA, to develop and commercialize SomaScan® services
in Japan, as described in the section entitled “Collaboration Agreements” above. NES agreed to make annual payments
of $2.0 million for 5 years, for a total of $10.0 million, in exchange for research and development activities, as described below. The
Company determined the JDCA should be accounted for as a modification of the SAA. Therefore, the remaining SAA deferred revenue
balance as of the date of the modification was included as consideration under the JDCA resulting in total consideration of $15.3 million
for research and development activities. We determined that this arrangement also meets the criteria set forth in ASC 808. The JDCA
contains three separate performance obligations: (i) research and development activities, (ii) assay services, and (iii) a
10-year exclusive license of the Company’s intellectual property.
(i) Research and
Development Activities
The Company determined
that NES is not a customer with respect to the research and development activities associated with the collaboration arrangement under
ASC 808. The Company’s efforts related to the research and development activities are incurred consistently throughout the
performance period. As a result, the Company recognizes revenue from these activities over time on a straight-line basis and records
revenue in collaboration revenue in the condensed consolidated statements of operations and comprehensive loss.
(ii) Assay Services
The Company determined
that NES is a customer for the assay services performance obligation, which should be accounted for using the criteria under ASC 606.
The Company receives a fixed fee (standalone selling price) per sample in exchange for assaying samples, which is a service performed
for other customers in the ordinary course of business. This performance obligation is recognized at a point in time when the assay data
report is delivered to the customer and recorded in assay services revenue in the condensed consolidated statements of operations and
comprehensive loss.
(iii) License of
Intellectual Property
The Company determined
that NES is a customer for the license performance obligation, which should be accounted for using the criteria under ASC 606. The
Company receives royalties based on NES’ net sales and determined the allocation of royalties solely to this performance obligation
is consistent with the objectives in ASC 606. This performance obligation was satisfied at the beginning of the license term. Subject
to the sales and usage-based royalty exception, revenue is recognized in the period in which the subsequent sale or usage has occurred.
Royalties are recorded in other revenue in the condensed consolidated statements of operations and comprehensive loss.
SomaLogic,
Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Other Revenue
Other revenue includes
royalty revenue and revenue received from research grants. The Company recognizes royalty revenue for fees paid by customers in return
for the exclusive license to make, use or sell certain licensed products in certain geographic areas. These fees are equivalent to a
percentage of the customer’s related revenues. The Company recognizes revenue for sales-based or usage-based royalties promised
in exchange for a license of intellectual property when the later of the following events occurs: (i) the subsequent sale or usage
occurs, or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been satisfied. As
such, revenue is recognized in the period in which the subsequent sale or usage has occurred.
In June 2008, the
Company and New England Biolabs, Inc. (“NEB”) entered into an exclusive licensing agreement, whereby the Company provides
a license to use certain proprietary information and know-how relating to its aptamer technology to make and use commercial products.
In exchange, the Company receives royalties from NEB for these products.
Grant revenue represents
funding under cost reimbursement programs from government agencies and non-profit foundations for qualified research and development
activities performed by the Company. The Company recognizes grant revenue when it is reasonably assured that the grant funding will be
received as evidenced through the existence of a grant arrangement, amounts eligible for reimbursement are determinable and have been
incurred, the applicable conditions under the grant arrangements have been met, and collectability of amounts due is reasonably assured.
The classification of costs incurred related to grants is based on the nature of the activities performed by the Company. Grant revenue
is recognized when the related costs are incurred and recorded in other revenue in the condensed consolidated statements of operations
and comprehensive loss.
Illumina Cambridge,
Ltd.
On December 31,
2021, the Company entered into a multi-year arrangement with Illumina Cambridge, Ltd. (“Illumina Agreement”) to jointly
develop and commercialize co-branded kits that will combine Illumina’s Next Generation Sequencing (“NGS”) technology
with SomaLogic’s SomaScan technology. Pursuant to the agreement, we received a non-refundable upfront payment of $30.0 million
on January 4, 2022. This arrangement is accounted for in accordance with Topic 606 by analogy. The Company concluded there are two performance
obligations: (1) combined performance obligation that includes the following material promises: licenses, patents, training, transfer
of know-how and SOMAmer reagents necessary to use the SomaScan technology (“Bundled SomaScan Technology”), and (2)
an option to purchase goods post-commercialization with a material right (“Material Right”). The total transaction
price is subject to a constraint since it is uncertain that commercialization will be achieved; and therefore the transaction price was
determined to be $30.0 million and was allocated to each of the performance obligations identified on a relative standalone selling price
basis.
Bundled SomaScan Technology:
Revenue is recognized as control transfers when the SOMAmer reagents are shipped. The Company estimated the standalone selling price
(“SSP”) based on observable pricing of similar performance obligations.
Material Right: Revenue
is recognized when Illumina exercises its option to purchase goods post-commercialization. The Company estimated the SSP based on the
incremental discount adjusted for the likelihood that Illumina will exercise the option.
Contract Modification:
In June 2022, Illumina issued a purchase order that changed the future obligations due from SomaLogic under the Illumina Agreement.
The purchase order represents a contract modification that is accounted for prospectively as if it were a termination of the existing
contract and the creation of a new contract.
As a result, the Company
determined that there were three new performance obligations (total of five performance obligations): (1) equipment bundle that includes
customization services, integration services, system qualification services, site initiation services and training (“Equipment
Bundle”), (2) qualification kits, and (3) support services. The contract modification resulted in an increase in the transaction
price of $0.5 million. The updated transaction price was allocated between the performance obligations on a relative SSP basis.
SomaLogic,
Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Equipment Bundle:
Revenue is recognized over time based on the progress made toward achieving the performance obligation utilizing input methods, including
costs and labor hours incurred. The Company estimated the SSP based on observable pricing of similar performance obligations.
Qualification Kits:
Revenue is recognized as control transfers when the qualification kits are shipped. The Company estimated the SSP based on observable
pricing of similar performance obligations.
Support Services:
Revenue is recognized for the support services over the service period, using an input method based on time. The Company estimated
the SSP based on observable pricing of similar performance obligations.
During the three and
six months ended June 30, 2022, the Company recognized $0.1 million of revenue pursuant to the Illumina Agreement.
Restricted Cash
Restricted cash represents
cash on deposit with a financial institution as security for letters of credit outstanding for the benefit of the landlords related to
operating leases. The restricted cash is classified as other long-term assets on the condensed consolidated balance sheets based on the
terms of the underlying leases. As of June 30, 2022 and December 31, 2021, the restricted cash on deposit was $4.9 million
and $0.8 million, respectively.
Segment Information
The Company has one operating
segment. The Company’s chief operating decision maker (the “CODM”) role is performed by the Company’s
Chief Executive Officer. The CODM manages the Company’s operations on a consolidated basis for purposes of allocating resources
and assessing performance. Substantially all of the Company’s operations and decision-making functions are located in the United States.
Other Significant Accounting Policies
Our significant accounting
policies are described in our 2021 Form 10-K. There have been no significant changes to those policies.
Recent Accounting Pronouncements
We are an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”).
The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised
accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We have elected to use this extended transition period and, as a result, we will not be required
to adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies
so long as we remain an emerging growth company.
Recently Adopted Accounting Standards
Leases. In February
2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for the rights
and obligations created by most leases on their balance sheet. In June 2020, the FASB issued ASU 2020-05, Revenue from Contracts with
Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which extended the effective date of ASU 2016-02
for non-public business entities.
We adopted ASU 2016-02,
as amended, on January 1, 2022 using a modified retrospective approach and elected to apply the legacy lease guidance and disclosure
requirements (“ASC 840”) in the comparative periods presented for the year of adoption.
We elected the package
of transition practical expedients, permitting us to not reassess our prior conclusions about lease identification, lease classification
and initial direct costs.
SomaLogic, Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
The new lease standard
impacted our condensed consolidated balance sheets as a result of the ROU assets and operating lease liabilities, but did not impact
our condensed consolidated statements of operations or condensed consolidated statements of cash flows. The adoption did not require
any cumulative-effect adjustments to opening accumulated deficit. We currently have no finance leases. Upon adoption, we recorded $4.1
million of ROU assets, $1.0 million of current operating lease liabilities, and $3.6 million of non-current operating lease liabilities.
For more information
on our leases, refer to Note 5, Leases.
Income Taxes. In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes, which removes certain exceptions to the general principles of ASC 740 as part of an overall simplification initiative.
We adopted ASU 2019-12 prospectively when it became effective on January 1, 2022 and the adoption did not have a material impact on our
condensed consolidated financial statements and related disclosures.
Accounting Standards Not Yet Adopted
Financial Instruments
— Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, which sets forth a “current expected
credit loss” (CECL) model that requires us to measure all expected credit losses for financial instruments held at the reporting
date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss
model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance
sheet credit exposures. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which extends the
effective date of ASU 2016-13 for non-public business entities. ASU 2016-13, as amended, is effective for us on January 1, 2023,
with early adoption permitted. We are currently evaluating the impact of adopting the standard on our condensed consolidated financial
statements and related disclosures.
Convertible Debt,
Contracts in an Entity’s Own Equity and EPS. In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in an Entity’s Own Equity (Subtopic 815-40): Accounting
for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible debt by
removing the requirements to separately present certain conversion features in equity. In addition, the amendment also simplifies the
guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity's Own Equity, by removing certain criteria that
must be satisfied in order to classify a contract as equity. Further, contracts which can be settled in cash or shares, excluding liability-classified
share-based payment awards, are to be included in diluted earnings per share using the “if-converted” method if the effect
is dilutive, regardless of whether the entity or the counterparty can choose between cash and share settlement. The share-settlement
presumption may not be rebutted based on past experience or a stated policy. ASC 2020-06 is effective for us on January 1, 2024, although
early adoption is permitted. ASU 2020-06 may be adopted through either the fully retrospective or modified retrospective method of transition.
We are currently evaluating the impact of this standard on our condensed consolidated financial statements and related disclosures.
Note 3 — Revenue
The following table provides
information about disaggregated revenue by product line:
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
(in
thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Assay services revenue | |
$ | 10,931 | | |
$ | 16,236 | | |
$ | 29,731 | | |
$ | 30,809 | |
Product revenue | |
| 714 | | |
| 462 | | |
| 1,167 | | |
| 655 | |
Collaboration revenue | |
| 762 | | |
| 762 | | |
| 1,525 | | |
| 1,525 | |
Other revenue: | |
| | | |
| | | |
| | | |
| | |
Royalties | |
| 930 | | |
| 2,050 | | |
| 3,885 | | |
| 5,050 | |
Other | |
| 807 | | |
| 270 | | |
| 816 | | |
| 601 | |
Total other revenue | |
| 1,737 | | |
| 2,320 | | |
| 4,701 | | |
| 5,651 | |
Total revenue | |
$ | 14,144 | | |
$ | 19,780 | | |
$ | 37,124 | | |
$ | 38,640 | |
SomaLogic,
Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Contract Balances and Remaining Performance Obligations
As of June 30, 2022
and December 31, 2021, deferred revenue of $37.1 million and $5.4 million, respectively, was comprised of balances related to our
collaboration revenue, assay services, and other revenue. As of June 30, 2022 and December 31, 2021, the portion of deferred
revenue related to collaboration revenue was $4.4 million and $3.9 million, respectively, which is being recognized on a straight-line
basis over the period of performance. As of June 30, 2022, the estimated remaining performance period is 2.8 years. As of June 30,
2022 and December 31, 2021, the portion of deferred revenue related to assay services and other revenue was $2.7 million and $1.5
million, respectively. As of June 30, 2022, the deferred revenue related to assay services and other revenue will be recognized
within 12 months.
As of June 30, 2022
and December 31, 2021, the deferred revenue related to the Illumina Agreement amounted to $30.0 million and nil, respectively. As
of June 30, 2022, the estimated remaining performance obligation period is approximately nine years.
A summary of the change in contract liabilities
is as follows:
(in thousands) | |
June 30,
2022 | | |
December 31,
2021 | |
Balance at beginning of period | |
$ | 5,385 | | |
$ | 5,177 | |
Recognition of revenue included in balance at beginning of
period | |
| (1,618 | ) | |
| (1,762 | ) |
Revenue deferred during the period,
net of revenue recognized | |
| 33,372 | | |
| 1,970 | |
Balance at end of period | |
$ | 37,139 | | |
$ | 5,385 | |
Note 4 — Fair Value Measurements
Assets measured at fair value on a recurring basis
The following tables
set forth our financial assets measured at fair value on a recurring basis and the level of inputs used in such measurements:
As
of June 30, 2022 (in
thousands) | |
Amortized
Cost | | |
Gross
Unrealized Gain | | |
Gross
Unrealized Loss | | |
Aggregate
Fair Value | | |
Fair
Value Level |
Cash and cash equivalents: | |
| | | |
| | | |
| | | |
| | | |
|
Cash | |
$ | 76,006 | | |
$ | — | | |
$ | — | | |
$ | 76,006 | | |
Level 1 |
Money market funds | |
| 328,933 | | |
| — | | |
| — | | |
| 328,933 | | |
Level 1 |
Commercial paper | |
| 13,246 | | |
| — | | |
| (3 | ) | |
| 13,243 | | |
Level 2 |
Total cash and cash equivalents | |
| 418,185 | | |
| — | | |
| (3 | ) | |
| 418,182 | | |
|
Investments: | |
| | | |
| | | |
| | | |
| | | |
|
Commercial paper | |
| 122,813 | | |
| — | | |
| (364 | ) | |
| 122,449 | | |
Level 2 |
U.S. Treasuries | |
| 60,612 | | |
| — | | |
| (430 | ) | |
| 60,182 | | |
Level 2 |
Asset-backed securities | |
| 4,011 | | |
| — | | |
| (11 | ) | |
| 4,000 | | |
Level 2 |
Corporate bonds | |
| 9,405 | | |
| — | | |
| (72 | ) | |
| 9,333 | | |
Level 2 |
Agency bonds | |
| 5,000 | | |
| — | | |
| (52 | ) | |
| 4,948 | | |
Level 2 |
Total investments | |
| 201,841 | | |
| — | | |
| (929 | ) | |
| 200,912 | | |
|
Total assets measured at fair
value on a recurring basis | |
$ | 620,026 | | |
$ | — | | |
$ | (932 | ) | |
$ | 619,094 | | |
|
SomaLogic, Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
As
of December 31, 2021 (in
thousands) | |
Amortized
Cost | | |
Gross
Unrealized Gain | | |
Gross
Unrealized Loss | | |
Aggregate
Fair Value | | |
Fair
Value Level |
Cash and cash equivalents: | |
| | | |
| | | |
| | | |
| | | |
|
Cash | |
$ | 114,533 | | |
$ | — | | |
$ | — | | |
$ | 114,533 | | |
Level 1 |
Money market funds | |
| 324,955 | | |
| — | | |
| — | | |
| 324,955 | | |
Level 1 |
Total cash and cash equivalents | |
| 439,488 | | |
| — | | |
| — | | |
| 439,488 | | |
|
Investments: | |
| | | |
| | | |
| | | |
| | | |
|
Commercial paper | |
| 177,852 | | |
| 16 | | |
| (57 | ) | |
| 177,811 | | |
Level 2 |
U.S. Treasuries | |
| 12,021 | | |
| — | | |
| (9 | ) | |
| 12,012 | | |
Level 2 |
Asset-backed securities | |
| 12,084 | | |
| — | | |
| (8 | ) | |
| 12,076 | | |
Level 2 |
Corporate bonds | |
| 16,332 | | |
| — | | |
| (13 | ) | |
| 16,319 | | |
Level 2 |
Total investments | |
| 218,289 | | |
| 16 | | |
| (87 | ) | |
| 218,218 | | |
|
Total assets measured at fair
value on a recurring basis | |
$ | 657,777 | | |
$ | 16 | | |
$ | (87 | ) | |
$ | 657,706 | | |
|
All of the commercial
paper, U.S. Treasuries, asset-backed securities, corporate bonds, and agency bonds that are designated as available-for-sale securities
have an effective maturity date that is less than one year from the respective balance sheet date, and accordingly, have been classified
as current in the condensed consolidated balance sheets.
We classify our investments
in money market funds within Level 1 of the fair value hierarchy because they are valued using quoted market prices. We classify our
commercial paper, U.S Treasuries, asset-backed securities, corporate bonds and agency bonds as Level 2 and obtain the fair value from
a third-party pricing service, which may use quoted market prices for identical or comparable instruments or model-driven valuations
using observable market data or inputs corroborated by observable market data.
As all of our available-for-sale
securities have been held for less than a year as of both June 30, 2022 and December 31, 2021, no security has been in an unrealized
loss position for 12 months or greater. We evaluated our securities for other-than temporary impairment and considered the decline
in market value for the securities to be primarily attributed to current economic and market conditions. It is not more likely than not
that we will be required to sell the securities, and we do not intend to do so prior to the recovery of the amortized cost basis. Based
on this analysis, the available-for-sale securities were not considered to be other-than-temporarily impaired as of June 30, 2022
and December 31, 2021.
Liabilities measured at fair value on a recurring basis
The following table presents
information about the Company’s liabilities that are measured at fair value on a recurring basis, and indicates the fair value
hierarchy of the valuation inputs the Company utilized to determine such fair value:
(in
thousands) | |
June 30,
2022 | | |
December 31,
2021 | | |
Fair Value
Level |
Warrant liability - public warrants | |
$ | 4,195 | | |
$ | 18,437 | | |
Level 1 |
Warrant liability - private placement warrants | |
| 3,810 | | |
| 16,744 | | |
Level 2 |
Earn-out liability | |
| 1,396 | | |
| 26,885 | | |
Level 3 |
Total liabilities measured at fair value on a recurring basis | |
$ | 9,401 | | |
$ | 62,066 | | |
|
Warrant liabilities
The public warrants were
valued using Level 1 inputs as they are traded in an active market. The fair value of the private placement warrants is equivalent to
that of the public warrants as they have substantially the same terms; however, as they are not actively traded, they are classified
as Level 2 in the hierarchy table above.
SomaLogic,
Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Earn-out liability
The fair value of the
Earn-Out Shares was estimated using a Monte Carlo simulation model. The fair value is based on the simulated price of the Company over
the maturity date of the contingent consideration and increased by estimated forfeitures of Earn-Out Shares issued to Earn-Out Service
Providers.
The significant unobservable
inputs used in the Monte Carlo simulation to measure the Earn-Out Shares that are categorized within Level 3 of the fair value hierarchy
were as follows:
| |
June 30,
2022 | | |
December 31,
2021 | |
Stock price on valuation date | |
$ | 4.52 | | |
$ | 11.64 | |
Volatility | |
| 73.8 | % | |
| 85.6 | % |
Risk-free rate | |
| 2.76 | % | |
| 0.34 | % |
Dividend yield | |
| — | % | |
| — | % |
The change in the fair
value of the earn-out liability for the six months ended June 30, 2022 is summarized as follows:
(in
thousands) | |
Fair Value | |
Balance as of December 31, 2021 | |
$ | 26,885 | |
Change in fair value of earn-out liability | |
| 25,489 | |
Balance as of June 30, 2022 | |
$ | 1,396 | |
Note 5 — Leases
We have operating leases
for certain office spaces with lease terms ranging from two to five years. These leases require monthly lease payments that may be subject
to annual increases throughout the lease term. Certain of these leases also include renewal options at our election to renew or extend
the leases for additional periods ranging from three to ten years. These optional periods have not been considered in the determination
of the ROU assets or lease liabilities associated with these leases as we did not consider the exercise of these options to be reasonably
certain.
Lease Costs
Lease costs for operating
leases are recognized on a straight-line basis over the lease term. The total lease cost for the period was as follows:
| |
Three Months Ended | | |
Six Months Ended | |
(in thousands) | |
June 30,
2022 | | |
June 30,
2022 | |
Operating lease cost | |
$ | 406 | | |
$ | 807 | |
Variable lease cost | |
| 209 | | |
| 390 | |
Short-term lease cost | |
| 12 | | |
| 23 | |
Total lease cost | |
$ | 627 | | |
$ | 1,220 | |
Rent expense for the
three and six months ended June 30, 2021 was $0.5 million and $0.9 million, respectively.
SomaLogic,
Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Lease Maturities
The table below reconciles
the undiscounted lease payment maturities to the lease liabilities for our operating leases as of June 30, 2022:
(in
thousands) | |
June 30,
2022 | |
Remainder of 2022 | |
$ | 925 | |
2023 | |
| 1,905 | |
2024 | |
| 810 | |
2025 | |
| 834 | |
2026 | |
| 144 | |
Total | |
| 4,618 | |
Less: amount of lease payments representing interest | |
| (181 | ) |
Less: tenant improvement allowance yet to be received | |
| (534 | ) |
Present value of future minimum lease payments | |
| 3,903 | |
Less: current operating lease liabilities (included in
other current liabilities) | |
| (1,250 | ) |
Long-term operating lease liabilities (including in other
long-term liabilities) | |
$ | 2,653 | |
Supplemental Lease Information
Supplemental information
related to our operating leases was as follows:
| |
June 30,
2022 | |
Weighted average remaining lease term | |
| 2.8
years | |
Weighted average discount rate | |
| 2.6 | % |
Cash paid for amounts
included in the measurement of our operating lease liabilities for the six months ended June 30, 2022 was $0.9 million.
As of June 30, 2022,
we executed two separate lease agreements to lease buildings pending construction that have not yet commenced. Both leases will expire
on November 30, 2033, unless extended or early terminated in accordance with the terms of the lease. In accordance with the lease agreements,
we made a deposit of $4.1 million during the first quarter of 2022, which is classified as restricted cash and included in other long-term
assets in the condensed consolidated balance sheets. The deposits are restricted from withdrawal and held by a bank in the form of collateral
for an irrevocable standby letter of credit held as security for the lease of one of the Company’s facilities.
Our obligation to pay
rent for each building will begin approximately six months following the applicable commencement date of each lease. The annual base
rent for each lease is approximately $1.3 million per year. Each lease is subject to annual increases of approximately 3% per annum,
up to approximately $1.8 million per year in the final year of the term. Both leases include tenant improvement allowances in the amount
of approximately $3.5 million per lease. We have the right to extend the term of these leases for 3 consecutive periods of 60 months
each following the end of the then-current term.
Note 6 — Inventory
Inventory was comprised
of the following:
(in thousands) | |
June 30,
2022 | | |
December 31,
2021 | |
Raw materials | |
$ | 21,905 | | |
$ | 15,205 | |
Work in process | |
| 1,401 | | |
| — | |
Finished goods | |
| 9 | | |
| 93 | |
Total inventory | |
$ | 23,315 | | |
$ | 15,298 | |
Inventory (current) | |
$ | 20,768 | | |
$ | 11,213 | |
Non-current inventory | |
$ | 2,547 | | |
$ | 4,085 | |
SomaLogic,
Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Note 7 — Accrued Liabilities
Accrued liabilities consisted
of the following:
(in
thousands) | |
June 30,
2022 | | |
December 31,
2021 | |
Accrued compensation | |
$ | 7,719 | | |
$ | 9,832 | |
Accrued charitable contributions | |
| 400 | | |
| 400 | |
Accrued medical claims | |
| 567 | | |
| 398 | |
Other | |
| 619 | | |
| 479 | |
Total accrued liabilities | |
$ | 9,305 | | |
$ | 11,109 | |
Note 8 — Commitments and Contingencies
Legal Proceedings
We are subject to claims
and assessments from time to time in the ordinary course of business. We will accrue a liability for such matters when it is probable
that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established,
the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the
range, the minimum amount in the range is accrued. We are not currently party to any material legal proceedings in which a potential
loss is probable or reasonably estimable.
Indemnification
In the normal course
of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for
general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made
against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to
defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these
indemnification obligations.
Note 9 — Debt
As of June 30, 2022
and December 31, 2021, we did not have any debt outstanding.
Prior to the Business
Combination, we had received various forms of debt including convertible debt, a credit agreement, and funds issued through the Paycheck
Protection Program. Prior to the consummation of the Business Combination, these forms of debt were settled or forgiven. The loan resulting
from the Paycheck Protection Program was forgiven during the second quarter of 2021 and resulted in a gain on extinguishment of debt
of $3.6 million for the three and six months ended June 30, 2021. The debt under the Company’s credit agreement was settled
in the second quarter of 2021, which resulted in a $5.2 million loss on extinguishment of debt for the three and six months ended
June 30, 2021.
Interest expense incurred
during the three and six months ended June 30, 2021 was related to these forms of debt, primarily from the Company’s credit
agreement.
Note 10 — Stockholders’ Equity
Under our amended and
restated certificate of incorporation, we are authorized to issue 600,000,000 shares of Common Stock, par value of $0.0001 per share,
and 1,000,000 shares of preferred stock, par value $0.0001 per share.
As of June 30, 2022,
there were an aggregate of 5,519,991 and 5,013,333 outstanding public warrants and private placement warrants, respectively. Each warrant
entitles the holder to purchase one share of our Common Stock at a price of $11.50 per share at any time commencing on February 25, 2022.
The warrants will expire on September 1, 2026 or earlier upon redemption or liquidation.
There have been no significant
changes to our Common Stock, preferred stock, and our public and private placement warrants, including warrant redemption terms disclosed
in our 2021 Form 10-K.
SomaLogic,
Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Note 11 — Stock-based Compensation
Stock-based compensation
includes grants of equity incentive awards in the form of stock options and other stock-based awards as well as the issuance of common
stock under a consulting agreement with a related party (see Note 14, “Related Parties”) and issuance of Earn-Out
Shares to service providers in connection with the Business Combination. Stock-based compensation also includes the impact of common
stock purchased through our employee stock purchase plan, which allows eligible employees to purchase shares of our common stock at a
price equal to 85% of their fair market value on the last day of a defined offering period. In January 2022, we increased the reserve
of Common Stock for issuance under all incentive plans by 9 million shares in accordance with our 2021 Omnibus Incentive Plan. There
have been no significant changes to our equity incentive plans and types of stock-based incentive awards disclosed in our 2021 Form 10-K.
Stock-based compensation
was recorded in the condensed consolidated statements of operations and comprehensive loss as shown in the following table:
| |
Three months ended
June 30, | | |
Six Months Ended
June 30, | |
(in thousands) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Cost of assay services revenue | |
$ | 292 | | |
$ | 92 | | |
$ | 583 | | |
$ | 181 | |
Cost of product revenue | |
| 18 | | |
| 5 | | |
| 25 | | |
| 6 | |
Research and development | |
| 1,834 | | |
| 871 | | |
| 3,566 | | |
| 1,574 | |
Selling, general and administrative | |
| 7,316 | | |
| 3,796 | | |
| 13,957 | | |
| 6,255 | |
Total stock-based compensation | |
$ | 9,460 | | |
$ | 4,764 | | |
$ | 18,131 | | |
$ | 8,016 | |
Stock-based compensation
will fluctuate based on the grant-date fair value of awards, the number of awards, the requisite service period of the awards, modification
of awards, employee forfeitures and the timing of the awards. Expense related to each stock option and restricted stock unit (“RSU”)
award is recognized on a straight-line basis over the requisite service period of the entire award.
The following table summarizes
our award activity for stock options and RSUs for the six months ended June 30, 2022:
| |
Stock
Options(1) | | |
RSUs(2) | |
Outstanding as of December 31, 2021 | |
| 19,702,845 | | |
| — | |
Granted | |
| 5,702,256 | | |
| 557,756 | |
Exercised | |
| (1,866,556 | ) | |
| — | |
Forfeited | |
| (505,952 | ) | |
| (11,044 | ) |
Expired | |
| — | | |
| n/a | |
Outstanding as of June 30, 2022 | |
| 23,032,593 | | |
| 546,712 | |
| (1) | The stock options generally vest over four years,
with 25% vesting upon the first-year anniversary of the grant date and the remaining options
vesting ratably each month thereafter. |
| (2) | The RSUs vest subject
to the satisfaction of service requirements. The grant date fair values of these awards are
determined based on the closing price of our Common Stock on the date of grant. |
Note 12 — Income Taxes
There has historically
been no federal or state provision for income taxes because the Company has incurred operating losses and maintains a full valuation
allowance against its net deferred tax assets in the United States. For the three and six months ended June 30, 2022 and
2021, the Company recognized no provision for income taxes in the United States. The provision for foreign income taxes was immaterial
for the three and six months ended June 30, 2022 and 2021.
Utilization of the Company’s
net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration or elimination
of the net operating loss and tax credit carryforwards before utilization. Management believes that the limitation will not limit utilization
of the carryforwards prior to their expiration.
SomaLogic,
Inc.
Notes to Condensed
Consolidated Financial Statements
Unaudited
Note 13 — Net Loss Per Share
The following table sets
forth the computation of basic and diluted net loss per share:
| |
Three
Months Ended
June 30, | | |
Six Months Ended
June 30, | |
(in thousands, except share
and per share data) | |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Net loss | |
$ | (22,985 | ) | |
$ | (13,337 | ) | |
$ | (26,964 | ) | |
$ | (22,821 | ) |
Weighted-average shares outstanding, basic and diluted | |
| 183,143,391 | | |
| 114,904,241 | | |
| 182,599,949 | | |
| 114,691,007 | |
Net loss per share, basic and diluted | |
$ | (0.13 | ) | |
$ | (0.12 | ) | |
$ | (0.15 | ) | |
$ | (0.20 | ) |
During periods in which
the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because
the effect of all awards is anti-dilutive. The following outstanding shares of potentially dilutive securities were excluded from the
computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:
| |
Three Months Ended
June 30, | | |
Six Months Ended
June 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Anti-dilutive shares: | |
| | |
| | |
| | |
| |
Stock options to purchase common stock | |
| 23,032,593 | | |
| 15,636,018 | | |
| 23,032,593 | | |
| 15,636,018 | |
Public warrants and private placement warrants | |
| 10,533,324 | | |
| — | | |
| 10,533,324 | | |
| — | |
Convertible debt (on an if-converted basis) | |
| — | | |
| 571,106 | | |
| — | | |
| 571,106 | |
Unvested RSUs outstanding | |
| 546,712 | | |
| — | | |
| 546,712 | | |
| — | |
Total anti-dilutive shares | |
| 34,112,629 | | |
| 16,207,124 | | |
| 34,112,629 | | |
| 16,207,124 | |
Note 14 — Related Parties
The Company did not make
any payments for an unconditional contribution to a related party during the six months ended June 30, 2022 or 2021. As of
June 30, 2022, the remaining pledge of $0.4 million is recorded in accrued liabilities and is expected to be paid out within the
next 12 months.
In June 2019, we entered
into a consulting agreement (the “Master Agreement”) with Abundant Venture Innovation Accelerator (“AVIA”),
a company that engages in business incubation activities. AVIA is a related party to the Company because Ted Meisel, a member of our
Board of Directors as of September 1, 2021, also serves on the board of directors of AVIA. We also entered into a consulting agreement
(the “Consulting Milestone Agreement”) with AVIA, to provide services related to expanding our contractual relationships
with health system providers. Pursuant to the Master Agreement and the Consulting Milestone Agreement, the Company agreed to pay AVIA
for business development activities. In June 2022, we amended the Consulting Milestone Agreement to redefine the milestones and payment
terms. For the six months ended June 30, 2022 and 2021, we paid $0.3 million and $0.3 million, respectively for these
consulting services.
Note 15 — Subsequent Events
On July 25, 2022, the
Company entered into an acquisition agreement to acquire 100% of the outstanding shares of Palamedrix, Inc. (“Palamedrix”).
Palamedrix is a DNA nano tech firm that provides deep scientific and engineering expertise, miniaturization technology and enhanced ease-of-use
capabilities that the Company intends to leverage as it develops the next generation of SomaScan® Assay. The purchase price includes
initial cash consideration of $14 million, initial stock consideration of $21 million and contingent consideration up to $17.5 million
based on certain milestones. In connection with this acquisition, we incurred approximately $0.7 million and $1.8 million of
transaction costs during the three and six months ended June 30, 2022, respectively. The related costs are recorded in Selling,
general and administrative on the condensed consolidated statement of operations and comprehensive loss. The acquisition is expected
to close during the third quarter of 2022.
Report
of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of SomaLogic, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of SomaLogic, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations and
comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results
of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally
accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were
we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2014.
Denver, Colorado
March 29, 2022
SomaLogic, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
| |
December 31, | |
| |
2021 | | |
2020 | |
ASSETS | |
| | |
| |
Current assets | |
| | |
| |
Cash and cash equivalents | |
$ | 439,488 | | |
$ | 164,944 | |
Investments | |
| 218,218 | | |
| 39,954 | |
Accounts receivable, net | |
| 17,074 | | |
| 17,449 | |
Inventory | |
| 11,213 | | |
| 7,020 | |
Deferred costs of services | |
| 462 | | |
| 1,450 | |
Prepaid expenses and other current assets | |
| 5,097 | | |
| 1,158 | |
Total current assets | |
| 691,552 | | |
| 231,975 | |
Non-current inventory | |
| 4,085 | | |
| 6,024 | |
Property and equipment, net | |
| 9,557 | | |
| 3,913 | |
Other long-term assets | |
| 908 | | |
| 378 | |
Total assets | |
$ | 706,102 | | |
$ | 242,290 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 15,089 | | |
$ | 7,064 | |
Accrued liabilities | |
| 11,109 | | |
| 6,310 | |
Deferred revenue | |
| 3,021 | | |
| 1,762 | |
Deferred rent | |
| 66 | | |
| 238 | |
Current portion of long-term debt | |
| — | | |
| 2,423 | |
Total current liabilities | |
| 29,285 | | |
| 17,797 | |
Warrant liabilities | |
| 35,181 | | |
| — | |
Earn-out liability | |
| 26,885 | | |
| — | |
Deferred revenue, net of current portion | |
| 2,364 | | |
| 3,415 | |
Convertible debt | |
| — | | |
| 1,926 | |
Long-term debt | |
| — | | |
| 32,326 | |
Other long-term liabilities | |
| 363 | | |
| 909 | |
Total liabilities | |
| 94,078 | | |
| 56,373 | |
Commitments and contingencies (Note 9) | |
| | | |
| | |
Stockholders’ equity: | |
| | | |
| | |
Preferred stock, $0.0001 par value; 1,000,000 shares
authorized; no shares issued and outstanding at December 31, 2021 and 2020 | |
| — | | |
| — | |
Common stock, $0.0001 par value; 600,000,000 shares
authorized; 181,552,241 and 114,266,515 shares issued and outstanding at December 31, 2021 and 2020, respectively | |
| 18 | | |
| 11 | |
Additional paid-in capital | |
| 1,110,991 | | |
| 597,274 | |
Accumulated other comprehensive loss | |
| (72 | ) | |
| (2 | ) |
Accumulated deficit | |
| (498,913 | ) | |
| (411,366 | ) |
Total stockholders’ equity | |
| 612,024 | | |
| 185,917 | |
Total liabilities and stockholders’ equity | |
$ | 706,102 | | |
$ | 242,290 | |
The accompanying notes are an integral part
of these consolidated financial statements.
SomaLogic, Inc.
Consolidated Statements of Operations and
Comprehensive Loss
(in thousands, except share and per share
amounts)
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
Revenue | |
| | |
| |
Assay services revenue | |
$ | 68,038 | | |
$ | 45,827 | |
Product revenue | |
| 1,277 | | |
| 1,907 | |
Collaboration revenue | |
| 3,051 | | |
| 2,483 | |
Other revenue | |
| 9,260 | | |
| 5,672 | |
Total revenue | |
| 81,626 | | |
| 55,889 | |
Operating expenses | |
| | | |
| | |
Cost of assay services revenue | |
| 32,782 | | |
| 21,857 | |
Cost of product revenue | |
| 681 | | |
| 757 | |
Research and development | |
| 43,496 | | |
| 30,749 | |
Selling, general and administrative | |
| 77,971 | | |
| 36,882 | |
Total operating expenses | |
| 154,930 | | |
| 90,245 | |
Loss from operations | |
| (73,304 | ) | |
| (34,356 | ) |
Other (expense) income | |
| | | |
| | |
Interest income and other, net | |
| 225 | | |
| 230 | |
Interest expense | |
| (1,324 | ) | |
| (18,338 | ) |
Change in fair value of warrant liabilities | |
| (6,952 | ) | |
| — | |
Change in fair value of earn-out liability | |
| (1,869 | ) | |
| — | |
Loss on extinguishment of debt, net | |
| (4,323 | ) | |
| (551 | ) |
Total other expense | |
| (14,243 | ) | |
| (18,659 | ) |
Net loss | |
$ | (87,547 | ) | |
$ | (53,015 | ) |
| |
| | | |
| | |
Other comprehensive loss | |
| | | |
| | |
Net unrealized loss on available-for-sale securities | |
$ | (68 | ) | |
$ | (25 | ) |
Foreign currency translation loss | |
| (2 | ) | |
| (4 | ) |
Total other comprehensive loss | |
| (70 | ) | |
| (29 | ) |
Comprehensive loss | |
$ | (87,617 | ) | |
$ | (53,044 | ) |
| |
| | | |
| | |
Net loss per share, basic and diluted | |
$ | (0.64 | ) | |
$ | (0.81 | ) |
Weighted-average shares used to compute net loss per share, basic and diluted | |
| 137,157,283 | | |
| 65,161,358 | |
The accompanying notes are an integral part
of these consolidated financial statements.
SomaLogic, Inc.
Consolidated Statements of Stockholders’
Equity
(in thousands, except share amounts)
| |
Common Stock | | |
Treasury Stock | | |
Additional
Paid-In
| | |
Accumulated
Other
Comprehensive
| | |
Accumulated | | |
Total
Stockholders’ | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Income (Loss) | | |
Deficit | | |
Equity | |
Balance at December 31, 2019 | |
| 72,657,092 | | |
$ | 727 | | |
| (112,645 | ) | |
$ | (347 | ) | |
$ | 378,364 | | |
$ | 27 | | |
$ | (358,351 | ) | |
$ | 20,420 | |
Retrospective application of recapitalization | |
| (11,857,590 | ) | |
| (721 | ) | |
| 112,645 | | |
| 347 | | |
| 374 | | |
| — | | |
| — | | |
| — | |
Adjusted Balance at December 31, 2019 | |
| 60,799,502 | | |
| 6 | | |
| — | | |
| — | | |
| 378,738 | | |
| 27 | | |
| (358,351 | ) | |
| 20,420 | |
Issuance of Series A Convertible preferred stock, net
of issuance costs of $11,359 | |
| 52,776,787 | | |
| 5 | | |
| — | | |
| — | | |
| 202,111 | | |
| — | | |
| — | | |
| 202,116 | |
Issuance of Common Stock upon exercise of options | |
| 616,955 | | |
| — | | |
| — | | |
| — | | |
| 1,110 | | |
| — | | |
| — | | |
| 1,110 | |
Issuance of Common Stock for services | |
| 73,752 | | |
| — | | |
| — | | |
| — | | |
| 227 | | |
| — | | |
| — | | |
| 227 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 14,945 | | |
| — | | |
| — | | |
| 14,945 | |
Surrender of shares in cashless exercise | |
| (481 | ) | |
| — | | |
| — | | |
| — | | |
| (5 | ) | |
| — | | |
| — | | |
| (5 | ) |
Net unrealized loss on available-for-sale securities | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (25 | ) | |
| — | | |
| (25 | ) |
Foreign currency translation loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (4 | ) | |
| — | | |
| (4 | ) |
Other | |
| — | | |
| — | | |
| — | | |
| — | | |
| 148 | | |
| — | | |
| — | | |
| 148 | |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (53,015 | ) | |
| (53,015 | ) |
Balance at December 31, 2020 | |
| 114,266,515 | | |
$ | 11 | | |
| — | | |
$ | — | | |
$ | 597,274 | | |
$ | (2 | ) | |
$ | (411,366 | ) | |
$ | 185,917 | |
Issuance of Common Stock upon exercise of options | |
| 1,311,326 | | |
| — | | |
| — | | |
| — | | |
| 4,001 | | |
| — | | |
| — | | |
| 4,001 | |
Issuance of Common Stock for services | |
| 228,199 | | |
| — | | |
| — | | |
| — | | |
| 1,337 | | |
| — | | |
| — | | |
| 1,337 | |
Issuance of Common Stock upon conversion of convertible
debt | |
| 571,642 | | |
| — | | |
| — | | |
| — | | |
| 4,631 | | |
| — | | |
| — | | |
| 4,631 | |
Stock-based compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| 27,042 | | |
| — | | |
| — | | |
| 27,042 | |
Surrender of shares in cashless exercise | |
| (15,189 | ) | |
| — | | |
| — | | |
| — | | |
| (56 | ) | |
| — | | |
| — | | |
| (56 | ) |
Issuance of Common Stock upon Business Combination,
net of transaction costs of $31,511 | |
| 28,689,748 | | |
| 3 | | |
| — | | |
| — | | |
| 119,568 | | |
| — | | |
| — | | |
| 119,571 | |
Issuance of Common Stock upon PIPE Investment, net
of transaction costs of $7,802 | |
| 36,500,000 | | |
| 4 | | |
| — | | |
| — | | |
| 357,194 | | |
| — | | |
| — | | |
| 357,198 | |
Net unrealized loss on available-for-sale securities | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (68 | ) | |
| — | | |
| (68 | ) |
Foreign currency translation loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2 | ) | |
| — | | |
| (2 | ) |
Net loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (87,547 | ) | |
| (87,547 | ) |
Balance at December 31, 2021 | |
| 181,552,241 | | |
$ | 18 | | |
| — | | |
$ | — | | |
$ | 1,110,991 | | |
$ | (72 | ) | |
$ | (498,913 | ) | |
$ | 612,024 | |
The accompanying notes are an integral part
of these consolidated financial statements.
SomaLogic, Inc.
Consolidated Statements of Cash Flows
(in thousands)
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
Operating activities | |
| | |
| |
Net loss | |
$ | (87,547 | ) | |
$ | (53,015 | ) |
Adjustments to reconcile net loss to cash used in operating activities: | |
| | | |
| | |
Stock-based compensation expense | |
| 28,415 | | |
| 15,172 | |
Depreciation and amortization | |
| 2,569 | | |
| 2,823 | |
Amortization of debt issuance costs, discounts and premiums | |
| 258 | | |
| 1,670 | |
Change in fair value of compound derivative liability | |
| 7 | | |
| 12,327 | |
Change in fair value of warrant liabilities | |
| 6,952 | | |
| — | |
Change in fair value of earn-out liability | |
| 1,869 | | |
| — | |
Amortization of premium (accretion of discount) on available-for-sale securities,
net | |
| 380 | | |
| (55 | ) |
Provision for excess and obsolete inventory | |
| 703 | | |
| 102 | |
(Recovery) provision for doubtful accounts | |
| (8 | ) | |
| 60 | |
Loss on extinguishment of debt, net | |
| 4,323 | | |
| 551 | |
Loss on disposal of equipment | |
| — | | |
| 98 | |
Paid-in-kind interest | |
| 165 | | |
| 587 | |
Other | |
| 12 | | |
| 9 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 383 | | |
| (13,306 | ) |
Inventory | |
| (2,957 | ) | |
| 483 | |
Deferred costs of services | |
| 988 | | |
| (1,194 | ) |
Prepaid expenses and other current assets | |
| (3,909 | ) | |
| 165 | |
Other long-term assets | |
| — | | |
| 211 | |
Accounts payable | |
| 6,460 | | |
| 4,025 | |
Deferred revenue | |
| 208 | | |
| (292 | ) |
Accrued and other liabilities | |
| 4,509 | | |
| 1,241 | |
Payment of paid-in-kind interest on extinguishment of
debt | |
| (752 | ) | |
| — | |
Net cash used in operating activities | |
| (36,972 | ) | |
| (28,338 | ) |
Investing activities | |
| | | |
| | |
Proceeds from sale of property and equipment | |
| 10 | | |
| 51 | |
Purchase of property and equipment | |
| (6,729 | ) | |
| (1,157 | ) |
Purchase of available-for-sale securities | |
| (279,918 | ) | |
| (45,702 | ) |
Proceeds from sales and maturities of available-for-sale
securities | |
| 101,206 | | |
| 37,273 | |
Net cash used in investing activities | |
| (185,431 | ) | |
| (9,535 | ) |
Financing activities | |
| | | |
| | |
Repayment of long-term debt | |
| (36,512 | ) | |
| — | |
Proceeds from PIPE Investment, net of transaction costs | |
| 357,198 | | |
| — | |
Proceeds from Business Combination, net of transaction costs | |
| 172,858 | | |
| — | |
Proceeds from issuance of redeemable convertible preferred stock, net of issuance
costs | |
| — | | |
| 179,141 | |
Proceeds from Paycheck Protection Program loan | |
| — | | |
| 3,520 | |
Proceeds from SAFE agreement | |
| — | | |
| 5,000 | |
Proceeds from exercise of stock options | |
| 3,947 | | |
| 1,105 | |
Net cash provided by financing activities | |
| 497,491 | | |
| 188,766 | |
Effect of exchange rates on cash, cash equivalents and restricted cash | |
| (14 | ) | |
| (9 | ) |
Net increase in cash, cash equivalents and restricted cash | |
| 275,074 | | |
| 150,884 | |
Cash, cash equivalents and restricted cash at beginning of period | |
| 165,194 | | |
| 14,310 | |
Cash, cash equivalents and restricted cash at end of period | |
$ | 440,268 | | |
$ | 165,194 | |
SomaLogic, Inc.
Consolidated Statements of Cash Flows
(in thousands)
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
Supplemental cash flow information: | |
| | |
| |
Cash paid for interest | |
$ | 1,627 | | |
$ | 3,730 | |
Supplemental disclosure of non-cash
investing and financing activities: | |
| | | |
| | |
Purchase of property and equipment included in accounts
payable | |
$ | 1,492 | | |
$ | 19 | |
Surrender of shares in cashless exercise | |
| 56 | | |
| 6 | |
Amendment fee related to extinguishment of debt financed
through additional principal | |
| — | | |
| 2,500 | |
Redeemable convertible preferred stock issued for debt
prepayment penalty in connection with debt modification | |
| — | | |
| 2,500 | |
Redeemable convertible preferred stock issued for prepayment
of principal penalty in connection with debt modification | |
| — | | |
| 10,000 | |
Redeemable convertible preferred stock issued for debt
issuance costs in connection with debt modification | |
| — | | |
| 5,475 | |
Redeemable convertible preferred stock issued for conversion
of SAFE agreement | |
| — | | |
| 5,000 | |
Redeemable convertible preferred stock issued for issuance
costs | |
| — | | |
| 1,500 | |
Redeemable convertible preferred stock issuance costs
included in accounts payable | |
| — | | |
| 2,501 | |
Issuance of Common Stock for services | |
| 1,334 | | |
| 227 | |
Forgiveness of Paycheck Protection Program loan and
accrued interest | |
| 3,561 | | |
| — | |
Issuance of Common Stock for conversion of convertible
debt | |
| 4,631 | | |
| — | |
| |
| | | |
| | |
Reconciliation of cash, cash equivalents
and restricted cash | |
| | | |
| | |
Cash and cash equivalents | |
$ | 439,488 | | |
$ | 164,944 | |
Restricted cash included in
other long-term assets | |
| 780 | | |
| 250 | |
Total cash,
cash equivalents and restricted cash at end of period | |
$ | 440,268 | | |
$ | 165,194 | |
The accompanying notes are an integral part
of these consolidated financial statements.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Note 1 — Description
of Business
Organization and
Operations
SomaLogic Operating Co.,
Inc. (formerly SomaLogic, Inc., and herein “SomaLogic Operating”) was incorporated in the state of Delaware on October 13,
1999 and is headquartered in Boulder, Colorado. SomaLogic Operating is a protein biomarker discovery and clinical diagnostics company
that develops slow off-rate modified aptamers (“SOMAmers®”), which are modified nucleic acid-based protein
binding reagents that are specific for their cognate protein, and offer proprietary SomaScan® services, which provide multiplex
protein detection and quantification of protein levels in complex biological samples. The SOMAmers®/SomaScan® technology
enables researchers to analyze various types of biological samples for protein biomarker signatures, which can be utilized in drug discovery
and development. Biomarker discoveries from SomaScan® can lead to diagnostic applications in various areas of diseases including cardiovascular
and metabolic disease, nonalcoholic steatohepatitis, and wellness, among others.
CM Life Sciences II Inc.
(“CMLS II”) is a blank check company incorporated as a Delaware corporation on December 15, 2020. CMLS II was formed
for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business
combination with one or more businesses.
On September 1,
2021 (the “Closing Date”), we consummated the business combination (the “Business Combination”)
contemplated by the Merger Agreement (as amended, the “Merger Agreement”), dated March 28, 2021 by and among CMLS
II, S-Craft Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned subsidiary of CMLS II (“Merger Sub”),
and SomaLogic Operating (“Old SomaLogic”). Pursuant to the Merger Agreement, Merger Sub merged with and into Old SomaLogic,
with Old SomaLogic surviving the merger as a wholly-owned subsidiary of CMLS II. Upon the closing of the Business Combination (the “Closing”),
CMLS II changed its name to SomaLogic, Inc., and Old SomaLogic changed its name to SomaLogic Operating Co., Inc.
Unless the context otherwise
requires, the terms “we”, “us”, “our”, “SomaLogic” and “the
Company” refer to Old SomaLogic, SomaLogic, Inc., or the combined company and its subsidiaries following the Business Combination.
See Note 2, Summary of Significant Accounting Policies—Presentation of Amounts After the Business Combination, and Note
3, Business Combination, for more details of the Business Combination and the presentation of historical amounts and balances
after the Business Combination. The Company’s Common Stock and warrants to purchase Common Stock are listed on the Nasdaq under
the ticker symbols “SLGC” and “SLGCW”, respectively.
COVID-19 Pandemic
The Company is subject
to ongoing uncertainty concerning the Coronavirus Disease 2019 (COVID-19) pandemic, including its length and severity and its effect
on the Company’s business. The COVID-19 pandemic resulted in delays in fundraising efforts and revenue during fiscal year 2020.
In response, the Company took aggressive actions to reduce spend and contain costs including implementing a hiring freeze, eliminating
travel, executing early lease terminations for two administrative buildings in Boulder, Colorado, as well as closing the Company’s
Oxford, United Kingdom laboratory. The Company experienced notable shifts in research funding in the pharmaceutical industry to
COVID-19 research, largely delaying revenue from the first half of 2020 to the second half of 2020. The Company modified its Amended
and Restated Credit Agreement in the second and fourth quarters of 2020 in order to avoid noncompliance with financial and nonfinancial
covenants (see Note 10, Debt).
Our suppliers have been
impacted by the COVID-19 pandemic, and we have experienced supply delays for certain equipment, instrumentation and other supplies that
we use for our services and products
Despite the economic
challenges due to the COVID-19 pandemic, we ended fiscal year 2020 with revenue growth of 74% year over year and we ended fiscal year
2021 with revenue growth of 46% compared to fiscal year 2020. We also benefited from our cost savings actions which included reduction
in travel and non-essential spending.
The COVID-19 pandemic
continues to be dynamic and near-term challenges across the economy remain. The Company expects continued volatility and unpredictability
related to the impact of COVID-19 on business results. The Company continues to actively monitor the pandemic and will continue to take
appropriate steps to mitigate the adverse impacts on the business posed by the on-going spread of COVID-19.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Note 2 — Summary of Significant
Accounting Policies
Basis of Presentation
The consolidated financial
statements and accompanying notes include the accounts of SomaLogic and our wholly-owned subsidiaries. All intercompany transactions
and balances have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (“GAAP”) for financial information. Any reference
in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”)
and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).
Basis for Financial
Balances After the Business Combination
The Business Combination
was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, CMLS II is treated as the “acquired”
company for financial reporting purposes and Old SomaLogic is treated as the accounting acquirer. This determination was primarily based
on the following:
| ● | the
Old SomaLogic stockholders hold the majority of voting rights in the Company; |
| ● | Old
SomaLogic had the right to designate a majority of members of the board of directors of the
Company immediately after giving effect to the Business Combination; |
| ● | the
senior management of Old SomaLogic comprises the senior management of the Company; and |
| ● | the
operations of Old SomaLogic comprise the ongoing operations of the Company. |
Accordingly, for accounting
purposes, our financial statements represent a continuation of the financial statements of Old SomaLogic with the Business Combination
being treated as the equivalent of Old SomaLogic issuing stock for the net assets of the CMLS II, accompanied by a recapitalization.
The net assets of Old SomaLogic are stated at historical cost, with no goodwill or other intangible assets recorded.
In connection with the
Business Combination each share of Old SomaLogic Class B common stock (including shares of Old SomaLogic Class B common stock resulting
from the deemed conversion of Old SomaLogic redeemable convertible preferred stock) converted into the right to receive 0.8381 shares
(the “Exchange Ratio”) of our Class A common stock, par value $0.0001, (“Common Stock”). The recapitalization
of the number of shares of our Common Stock is reflected retrospectively to the earliest period presented, based upon the Exchange Ratio,
and is utilized for calculating net loss per share in all prior periods presented.
Certain reclassifications
have been made to prior period amounts to conform to the current presentation.
Correction of Error
in Previously Reported 2021 Interim Consolidated Financial Statements
In connection with our
year-end financial close process and related preparation of our 2021 Annual Report on Form 10-K, a misstatement of net loss per share
was identified in our previously filed 2021 unaudited interim consolidated financial statements for the quarter and year-to date periods
ended September 30, 2021 related to the calculation of the weighted average shares outstanding used as the denominator to calculate net
loss per share in the condensed consolidated statements of operations and comprehensive loss. The weighted average shares outstanding
was inconsistent with the presentation of outstanding common stock in the consolidated balance sheets and statements of stockholders’
equity, which reflected the recapitalization of common stock based on the Exchange Ratio retrospectively to the earliest period presented.
For further information, see Note 19, Correction of Error in Previously Reported 2021 Interim Financial Statements (Unaudited).
Use of Estimates
The preparation of financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results
could differ from those estimates. Significant estimates and assumptions reflected in these financial statements include, but are not
limited to, revenue recognition, inventory valuation, compound derivative liability valuation, the valuation of stock-based compensation
awards, warrant liabilities valuations, and earn-out liability valuations. We base our estimates on current facts, historical and anticipated
results, trends, and other relevant assumptions that we believe are reasonable under the circumstances. Actual results could differ from
these estimates, and such differences could be material to the Company’s consolidated financial position and results of operations.
Concentration of
Credit Risk and Other Risks and Uncertainties
Financial instruments
that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, investments, and
accounts receivable. Our cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions
may, at times, exceed federally insured limits.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Significant customers
are those that represent more than 10% of the Company’s total revenues or gross accounts receivable balances for the periods and
as of each balance sheet date presented. For each significant customer, revenue as a percentage of total revenues and gross accounts
receivable as a percentage of total gross accounts receivable as of the periods presented were as follows:
| |
Accounts Receivable | | |
Revenue | |
| |
December 31, | | |
Year Ended December 31, | |
| |
2021 | | |
2020 | | |
2021 | | |
2020 | |
Customer A | |
| 10 | % | |
| 26 | % | |
| 21 | % | |
| 30 | % |
Customer B | |
| * | | |
| 11 | % | |
| 13 | % | |
| 26 | % |
Customer C | |
| 20 | % | |
| 25 | % | |
| 10 | % | |
| * | |
Customer D | |
| 26 | % | |
| 16 | % | |
| * | | |
| * | |
International sales entail
a variety of risks, including currency exchange fluctuations, longer payment cycles, and greater difficulty in accounts receivable collection.
The risks of international sales are mitigated in part by the fact that contracts are in U.S. dollars. Customers outside the United States
collectively represent 31% and 35% of the Company’s revenues for the years ended December 31, 2021 and 2020, respectively.
Customers outside of the United States collectively represented 18% and 23% of the Company’s gross accounts receivable balance
as of December 31, 2021 and 2020, respectively.
Certain components included
in our products require customization and are obtained from a single source or a limited number of suppliers.
Foreign Currency
Translation
The functional currency
of the Company’s foreign subsidiary is the British pound sterling. In preparing its consolidated financial statements, the Company
is required to translate the financial statements of this subsidiary from British pounds sterling to U.S. dollars. Accordingly, the assets
and liabilities of the Company’s subsidiary are translated into U.S. dollars at current exchange rates and the results of operations
are translated at the average exchange rates for the period. Since the Company’s functional currency is deemed to be the local
currency, any gain or loss associated with the translation of its consolidated financial statements is included in other comprehensive
income (loss) in the consolidated statements of operations and comprehensive loss. Net foreign currency transaction gains (losses) were
not significant for the years ended December 31, 2021 and 2020.
Cash and Cash Equivalents
Cash and cash equivalents
consist of cash deposits and short-term, highly liquid investments that are readily convertible into cash, with original maturities of
three months or less. Cash equivalents consist primarily of amounts invested in money market funds and commercial paper and are stated
at fair value.
Restricted Cash
Restricted cash represents
cash on deposit with a financial institution as security for a letter of credit outstanding for the benefit of the landlord related to
an operating lease for one of the Company’s laboratory facilities. The restricted cash is classified as a long-term asset on the
consolidated balance sheets based on the term of the underlying lease.
Investments
The Company has designated
all investments, which consist of U.S. Treasury securities, asset-backed securities, commercial paper, and corporate bonds, as available-for-sale
securities. Available-for-sale securities are reported at fair value on the consolidated balance sheets, with unrealized gains and losses
excluded from earnings and reported as a component of other comprehensive (loss) income. Realized gains and losses, amortization of premiums
and discounts, and interest and dividends earned on available-for-sale securities are included in interest income and other in the consolidated
statements of operations and comprehensive loss. The cost of investments for purposes of computing realized and unrealized gains and
losses is based on the specific identification method. The Company determines the appropriate classification of its debt securities at
the time of purchase based on their maturities and re-evaluates such classification at each balance sheet date.
A decline in the fair
value of a security below its cost that is deemed to be other-than-temporary is recorded as interest income and other, net and results
in the establishment of a new basis for the security. Factors evaluated to determine if an investment is other-than-temporarily impaired
include significant deterioration in earnings performance, credit rating, asset quality or business prospects of the issuer; adverse
changes in the general market conditions in which the issuer operates; the Company’s intent to sell the security, and whether or
not the Company will be required to sell the security before the recovery of its amortized cost.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Fair Value Measurements
Fair value is defined
as the exchange price that would be received for an asset or paid to transfer a liability, or the exit price, in the principal or most
advantageous market for that asset or liability to be transferred in an orderly transaction between market participants on the measurement
date. ASC 820, Fair Value Measurements, establishes a fair value hierarchy that requires an entity to maximize the use of observable
inputs, where available, and minimize the use of unobservable inputs when measuring fair value. The hierarchy defines three levels of
inputs that may be used to measure fair value:
| ● | Level
1 — Quoted prices in active markets for identical assets or liabilities; |
| ● | Level
2 — Observable inputs other than Level 1 prices, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, or other inputs that
are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities; |
| ● | Level
3 — Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. |
A financial instrument
categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our financial
instruments consist of Level 1, Level 2, and Level 3 assets and liabilities. The carrying amounts of certain financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate fair value due to their relatively
short-term maturities.
Accounts Receivable
and Allowance for Doubtful Accounts
Accounts receivable are
stated at the amount management expects to collect from customers based on their outstanding invoices. We review accounts receivable
regularly to determine if any receivable may not be collectible. Management estimates the amount of the allowance for doubtful accounts
necessary to reduce accounts receivable to its estimated net realizable value by analyzing the status of significant past due receivables
and current and historical bad debt trends. The Company writes off accounts receivable against the allowance when it determines a balance
is uncollectible and ceases collection efforts. We did not write off any material accounts receivable balances during the years ended
December 31, 2021 and 2020.
Accounts receivable consisted
of the following:
| |
December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Accounts receivable | |
$ | 17,146 | | |
$ | 17,529 | |
Less: allowance for doubtful accounts | |
| (72 | ) | |
| (80 | ) |
Accounts receivable, net | |
$ | 17,074 | | |
$ | 17,449 | |
Inventory
Inventory is stated at
the lower of cost (on a first-in, first-out basis) or net realizable value. Cost is determined using a standard cost system, whereby
the standard costs are updated periodically to reflect current costs. The Company estimates the recoverability of inventory by referencing
estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to
identify inventory that may expire prior to expected usage, no longer meets quality specifications, or has a cost basis in excess of
its estimated net realizable value and records a charge to cost of revenue for such inventory as appropriate. The value of inventory
that is not expected to be used within 12 months of the balance sheet date is classified as non-current inventory in the accompanying
consolidated balance sheets.
Deferred Costs
of Services
Deferred costs of services
relate to costs incurred to run customer samples through the SomaScan® assay. These costs are deferred until the final report is
provided to the customer and the related revenue is recognized.
Property and Equipment
Property and equipment
is stated at cost, less accumulated depreciation and amortization. Additions and improvements that extend the lives of the assets are
capitalized, while expenditures for repairs and maintenance are expensed as incurred. Depreciation for property and equipment is recorded
on a straight-line basis over the estimated useful lives of the assets, which we estimate to be: lab equipment, 1 to 5 years; computer
equipment, 3 years; furniture and fixtures, 4 years; and software, the shorter of 5 years or its useful life. Leasehold improvements
are amortized over the shorter of the life of the lease term or the estimated useful life of the assets.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
The Company capitalizes
certain internal and external costs related to the acquisition and development of internal use software during the application development
stages of projects. When the software is ready for its intended use, the Company amortizes these costs using the straight-line method
over the estimated useful life of the asset. Costs incurred during the preliminary project or the post-implementation/operation stages
of the project are expensed as incurred.
Costs for capital assets
not yet placed into service are capitalized as construction in progress and depreciated once placed into service. Upon retirement or
sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts and any
resulting gain or loss is included in loss from operations.
Impairment of Long-Lived
Assets
The Company evaluates
a long-lived asset (or asset group) for impairment whenever events or changes in circumstances indicate that the carrying value of the
asset (or asset group) may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the asset
is expected to generate are less than the carrying value of the asset, an impairment loss is recorded to write down the asset to its
estimated fair value based on a discounted cash flow approach. There were no impairment losses recorded for the years ended December 31,
2021 and 2020.
Leases
Leases are reviewed and
classified as capital or operating at their inception in accordance with ASC 840, Leases. The Company enters into lease agreements
for its administrative and laboratory facilities, which are classified as operating leases. The Company records rent expense on a straight-line
basis over the term of the lease, which includes the lease extension periods, if appropriate. The difference between rent payments and
straight-line rent expense is recorded as deferred rent in current or other long-term liabilities, as appropriate. Lease agreements may
include tenant improvement allowances from landlords. The Company recognizes these allowances as leasehold incentive obligations in deferred
rent and amortizes them on a straight-line basis over the lease term as a reduction to rent expense. Leasehold improvements are capitalized
and included in property and equipment on the consolidated balance sheets.
Warrant Liabilities
During February 2021,
in connection with CMLS II’s initial public offering, CMLS II issued 5,519,991 warrants (the “Public Warrants”)
to purchase shares of Common Stock at $11.50 per share. Simultaneously, with the consummation of the CMLS II initial public offering,
CMLS II issued 5,013,333 warrants through a private placement (the “Private Placement Warrants”, and together with
the Public Warrants, the “Warrants”) to purchase shares of Common Stock at $11.50 per share. All of the Warrants were
outstanding as of December 31, 2021.
We classify the Warrants
as liabilities on our consolidated balance sheets as these instruments are precluded from being indexed to our own stock given that the
terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815, Derivatives and
Hedging (“ASC 815”). Since the Warrants meet the definition of a derivative under ASC 815-40, the Company recorded
these warrants as long-term liabilities at fair value on the date of the Business Combination, with subsequent changes in their respective
fair values recognized within change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive
loss at each reporting date. See Note 11, Stockholders’ Equity, for more information on the Warrants.
Earn-Out Liability
As a result of the Business
Combination, the Company recognized Earn-Out Shares (defined below) contingently issuable to former stockholders of Old SomaLogic as
a liability in accordance with ASC 815. The liability was included as part of the consideration transferred in the Business Combination
and was recorded at fair value. The earn-out liability is remeasured at the end of each reporting period, with subsequent changes in
fair value recognized within change in fair value of earn-out liability in the consolidated statements of operations and comprehensive
loss. See Note 3, Business Combination, for more information on the Earn-Out Shares and liability.
Revenue Recognition
The Company recognizes
revenue from sales to customers under ASC 606, Revenue from Contracts with Customers (“ASC 606”).
ASC 606 provides a five-step model for recognizing revenue that includes identifying the contract with a customer, identifying the
performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations,
and recognizing revenue when, or as, an entity satisfies a performance obligation.
The Company recognizes
revenue when or as control of promised goods or services is transferred to the Company’s customers, in an amount that reflects
the consideration the Company expects to be entitled to in exchange for those goods or services. Sales, value add, and other taxes collected
concurrent with revenue-producing activities are excluded from revenue and products are sold without the right of return.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Payment terms may vary
by customer, are based on customary commercial terms, and are generally less than one year. The Company does not adjust revenue for the
effects of a significant financing component for contracts where the period between the transfer of the good or service and collection
is one year or less. The Company expenses incremental costs to obtain a contract when incurred since the amortization period of the asset
that would otherwise be recognized is one year or less.
Assay Services Revenue
The Company generates
assay services revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived from performing the
SomaScan® assay on customer samples to generate data on protein biomarkers. Revenue from SomaScan® services is recognized at
the time the analysis data or report is delivered to the customer, which is when control has been transferred to the customer. SomaScan®
services are sold at a fixed price per sample without any volume discounts, rebates, or refunds.
The delivery of each
assay data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction price
must be allocated to each performance obligation based on its relative standalone selling price. Judgment is required to determine the
standalone selling price for each distinct performance obligation as there are few directly comparable products in the market and factors
such as customer size are factored into the determination of selling price. We determine standalone selling prices based on amounts invoiced
to customers in observable transactions.
Product Revenue
Product revenue primarily
consists of kit sales to customers who assay samples in their own laboratories. The Company receives a fixed price per kit and revenue
from product sales is recognized upon transfer of control to the customer. The principal terms of sale are freight on board (“FOB”)
shipping point and as such, the Company transfers control and records revenue for product sales upon shipment. Shipping and handling
costs billed to customers are included in product revenue in the consolidated statements of operations and comprehensive loss.
Collaboration Revenue
In July 2011, NEC Corporation
(“NEC”) and the Company entered into a Strategic Alliance Agreement (the “SAA”) to develop a professional
software tool to enable SomaScan® customers to easily access and interpret the highly multiplexed proteomic data generated by SomaLogic’s
SomaScan® assay technology in the United States. To support this development, NEC made an upfront payment of $12.0 million and
SomaLogic agreed to pay NEC a perpetual royalty on certain SomaScan® revenues. This agreement includes a clause whereby if there
is a material breach of the contract or change in control of the Company, the Company may be required to pay a fee to terminate the agreement.
The Company determined
that the SAA met the criteria set forth in ASC 808, Collaborative Arrangements, (“ASC 808”) because both
parties were active participants and were exposed to significant risks and rewards dependent on commercial failure or success. The Company
recorded the upfront payment as deferred revenue to be recognized over the period of performance of 15 years. The revenue was recorded
in collaboration revenue in the consolidated statements of operations and comprehensive loss.
In March 2020, NEC and
the Company mutually terminated the SAA and concurrently the Company and NEC Solution Innovators, Ltd. (“NES”), a
wholly owned subsidiary of NEC, entered into a new arrangement, the JDCA, to develop and commercialize SomaScan® services in Japan,
as described in the section entitled “Collaboration Agreements” above. NES agreed to make annual payments of $2 million
for five years, for a total of $10.0 million, in exchange for research and development activities, as described below. The Company determined
the JDCA should be accounted for as a modification of the SAA. Therefore, the remaining SAA deferred revenue balance as of the date
of the modification was included as consideration under the JDCA resulting in total consideration of $15.3 million for research and development
activities. We determined that this arrangement also meets the criteria set forth in ASC 808. The JDCA contains three separate performance
obligations: (i) research and development activities, (ii) assay services, and (iii) a 10-year exclusive license of the
Company’s intellectual property.
(i) Research and
Development Activities
The Company determined
that NES is not a customer with respect to the research and development activities associated with the collaboration arrangement under
ASC 808. The Company’s efforts related to the research and development activities are incurred consistently throughout the
performance period. As a result, the Company recognizes revenue from these activities over time on a straight-line basis and records
revenue in collaboration revenue in the consolidated statements of operations and comprehensive loss.
(ii) Assay Services
The Company determined
that NES is a customer for the assay services performance obligation, which should be accounted for using the criteria under ASC 606.
The Company receives a fixed fee (standalone selling price) per sample in exchange for assaying samples, which is a service performed
for other customers in the ordinary course of business. This performance obligation is recognized at a point in time when the assay data
report is delivered to the customer and recorded in assay services revenue in the consolidated statements of operations and comprehensive
loss.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
(iii) License of
Intellectual Property
The Company determined
that NES is a customer for the license performance obligation, which should be accounted for using the criteria under ASC 606. The
Company receives royalties based on NES’ net sales and determined the allocation of royalties solely to this performance obligation
is consistent with the objectives in ASC 606. This performance obligation was satisfied at the beginning of the license term. Subject
to the sales and usage-based royalty exception, revenue is recognized in the period in which the subsequent sale or usage has occurred.
Royalties are recorded in other revenue in the consolidated statements of operations and comprehensive loss.
Other Revenue
Other revenue includes
royalty revenue and revenue received from research grants. The Company recognizes royalty revenue for fees paid by customers in return
for the exclusive license to make, use or sell certain licensed products in certain geographic areas. These fees are equivalent to a
percentage of the customer’s related revenues. The Company recognizes revenue for sales-based or usage-based royalties promised
in exchange for a license of intellectual property when the later of the following events occurs: (i) the subsequent sale or usage
occurs, or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been satisfied. As
such, revenue is recognized in the period in which the subsequent sale or usage has occurred.
In June 2008, the
Company and New England Biolabs, Inc. (“NEB”) entered into an exclusive licensing agreement, whereby the Company provides
a license to use certain proprietary information and know-how relating to its aptamer technology to make and use commercial products.
In exchange, the Company receives royalties from NEB for these products. The Company recognized royalties of approximately $8.5 million
and $5.3 million for the years ended December 31, 2021 and 2020, respectively.
Grant revenue represents
funding under cost reimbursement programs from government agencies and non-profit foundations for qualified research and development
activities performed by the Company. The Company recognizes grant revenue when it is reasonably assured that the grant funding will be
received as evidenced through the existence of a grant arrangement, amounts eligible for reimbursement are determinable and have been
incurred, the applicable conditions under the grant arrangements have been met, and collectability of amounts due is reasonably assured.
The classification of costs incurred related to grants is based on the nature of the activities performed by the Company. Grant revenue
is recognized when the related costs are incurred and recorded in other revenue in the consolidated statements of operations and comprehensive
loss.
Cost of Assay Services
Revenue
Cost of assay services
revenue consists of raw materials and production costs, salaries and other personnel costs, overhead and other direct costs related to
assay services revenue. It also includes provisions for excess or obsolete inventory and costs for production variances, such as yield
losses, material usages, spending and capacity variances. Cost of assay services revenue also includes royalty fees that the Company
owes to third parties related to assay services.
Cost of Product
Revenue
Cost of product revenue
consists primarily of raw materials and production costs, salaries and other personnel costs, overhead and other direct costs related
to product revenue. Cost of product revenue is recognized in the period the related revenue is recognized. Shipping and handling costs
incurred for product shipments are included in cost of product revenue in the consolidated statements of operations and comprehensive
loss. Cost of product revenue also includes royalty fees that the Company owes to third parties related to the sale of products.
Research and Development
Research and development
expenses, consisting primarily of salaries and benefits, laboratory supplies, clinical study costs, consulting fees and related costs,
are expensed as incurred.
Selling, General
and Administrative
Selling expenses consist
primarily of personnel and marketing related costs and are expensed as the related costs are incurred. Advertising costs totaled approximately
$0.7 million and $0.2 million during the years ended December 31, 2021 and 2020, respectively.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
General and administrative
expenses consist primarily of personnel costs for the Company’s finance, human resources, business development and general management,
as well as professional services, such as legal and accounting services. General and administrative expenses are expensed as incurred.
Income Taxes
The provision for income
taxes is included in interest income and other, net in the consolidated statements of operations and comprehensive loss.
Deferred income tax assets
and liabilities are recognized for tax consequences in future years attributable to differences between the tax bases of assets and liabilities
and their respective financial reporting amounts, based on enacted tax laws and statutory tax rates applicable to the periods in which
these temporary differences are expected to reverse. The Company evaluates the need to establish or release a valuation allowance based
upon expected levels of taxable income, future reversals of existing temporary differences, tax planning strategies, and recent financial
operations. Valuation allowances are established to reduce deferred tax assets to the amount expected to be more likely than not realized
in the future.
The effect of income
tax positions is recognized only when it is more likely than not to be sustained. Interest and penalties associated with uncertain tax
positions are recorded in interest income and other, net in the consolidated statements of operations and comprehensive loss.
We made an accounting
policy election to treat the tax effects of the global intangible low-taxed income as a component of interest income and other, net in
the period incurred.
Stock-Based Compensation
The Company incurs stock-based
compensation expense related to its stock options, and we recognize stock-based employee compensation, net of an estimated forfeiture
rate, over the employee’s requisite service period, which is generally the vesting period, on a straight-line basis.
The Company utilizes
the Black-Scholes valuation model for estimating the fair value of stock options granted. The fair value of each option is estimated
on the date of grant.
Set forth below are the
assumptions used in valuing the stock options granted and a discussion of the Company’s methodology for developing each of the
assumptions used:
| ● | Expected
dividend yield — The Company did not pay regular dividends on its common stock and
does not anticipate paying any dividends in the foreseeable future. Therefore, the Company
used an expected dividend yield of zero in the option valuation model. |
| ● | Expected
volatility — Volatility is a measure of the amount by which a financial
variable, such as share price, has fluctuated (historical volatility) or is expected to fluctuate
(expected volatility) during a period. The Company analyzes the volatility used by similar
public companies at a similar stage of development to estimate expected volatility. The comparable
companies are chosen based on their similar size, stage in the life cycle or area of specialty. |
| ● | Risk-free interest
rate — We use a range of United States Treasury rates with a term
that most closely resembles the expected life of the option as of the date of which the option
was granted. |
| ● | Expected
average life of options — The expected life assumption is the expected
time to exercise. The Company uses a simplified method to develop this assumption, which
uses the average of the vesting period and the contractual terms. |
Fair Value of Common
Stock
The grant date fair value
of the shares of common stock underlying stock options had historically been determined by the Company’s Board of Directors with
assistance of third-party valuation specialists prior to the Business Combination. Because there was no public market for the Company’s
common stock, the Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors, combined
with management’s judgments, to determine the best estimate of the fair value, which include financial condition and actual operating
results; the progress of the Company’s research and development efforts; its stage of development; business strategy; the rights,
preferences and privileges of the Company’s redeemable convertible preferred stock relative to those of the Company’s common
stock; the prices at which the Company sold shares of its redeemable convertible preferred stock; equity market conditions of comparable
public companies; general U.S. market conditions; and the lack of marketability of our common stock. Following the Business Combination,
the grant date fair values of these awards are determined based on the closing price of the Company’s common stock on the date
of the grant.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Comprehensive Loss
Comprehensive loss is
comprised of net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that are recorded as an element
of stockholders’ equity but excluded from net loss. Our other comprehensive loss consists of foreign currency translation adjustments
and net unrealized gain or losses on investments in available-for-sale securities.
Net Loss Per Share
Basic net loss per share
is computed by dividing net loss by the weighted average number of shares of common stock issued and outstanding during the period. Diluted
net loss per share is similarly computed, except that the denominator includes the effect of contingently issuable shares, warrants,
and stock options, using the treasury stock method, if including such potential shares of common stock is dilutive.
Segment Information
The Company has one operating
segment. The Company’s chief operating decision maker (the “CODM”) role is performed by the Company’s
Chief Executive Officer. The CODM manages the Company’s operations on a consolidated basis for purposes of allocating resources
and assessing performance. Substantially all of the Company’s operations and decision-making functions are located in the United States.
Recent Accounting
Pronouncements
We are an “emerging
growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”).
The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised
accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We have elected to use this extended transition period and, as a result, we will not be required
to adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies
so long as we remain an emerging growth company.
Accounting Standards
Not Yet Adopted
Leases. In February
2016, the FASB issued ASU 2016-02, Leases (Topic 842), which requires lessees to recognize assets and liabilities for the rights
and obligations created by most leases on their balance sheet. In June 2020, the FASB issued ASU 2020-05, Revenue from Contracts with
Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities, which extended the effective date of ASU 2016-02
for non-public business entities. The amended standard is effective for the Company on January 1, 2022.
The Company will adopt
ASU 2016-02, as amended, using a modified retrospective approach as permitted under ASU 2018-11, which allows the Company to apply the
legacy lease guidance and disclosure requirements in the comparative periods presented prior to the year of adoption. No cumulative-effect
adjustment to retained earnings is expected to be recognized upon adoption of ASU 2016-02.
As part of the adoption,
the Company will elect the short-term lease recognition policy election for all leases with a term of 12 months or less, and as such,
no right-of-use assets or lease liabilities will be recorded on the balance sheet for these leases. The Company also expects to elect
the following practical expedients:
| ● | the
package of transition practical expedients, permitting the Company to not reassess its prior
conclusions about lease identification, lease classification and initial direct costs; and |
| ● | the
practical expedient to not separate lease and non-lease components. |
We are finalizing our
implementation of ASU 2016-02, but expect the adoption will result in increases to long-term assets, current liabilities and long-term
liabilities on its consolidated balance sheets, related to the recognition of right-of-use assets and lease liabilities, and will require
additional disclosures of key information related to its leases in the footnotes to the consolidated financial statements. As part of
our implementation procedures, we have identified long-term leases for certain asset classes, including corporate office space. As of
December 31, 2021, the Company’s undiscounted obligations for operating leases in the Company’s future minimum lease table
totaled approximately $5.5 million (see Note 9, Commitments and Contingencies, for additional information).
Income Taxes. In
December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes, which removes certain exceptions to the general principles of ASC 740 as part of an overall simplification initiative. ASU
2019-12 is effective for the Company on January 1, 2022. The Company is currently evaluating the impact this standard, however, the Company
does not believe the adoption of ASU 2019-12 will have a material impact on its consolidated financial statements and related disclosures.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Financial Instruments
— Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit
Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which sets forth a “current expected credit
loss” (CECL) model that requires the Company to measure all expected credit losses for financial instruments held at the reporting
date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss
model and is applicable to the measurement of credit losses on financial assets measured at amortized cost and applies to some off-balance
sheet credit exposures. In November 2019, the FASB issued ASU 2019-10, Financial Instruments — Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which extends the
effective date of ASU 2016-13 for non-public business entities. ASU 2016-13, as amended, is effective for the Company on January
1, 2023, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard on its consolidated financial
statements and related disclosures.
Note 3 — Business
Combination
As described in Note
1, Description of Business—Organization and Operations, we consummated the Merger Agreement on the Closing Date. Pursuant
to the terms of the Merger Agreement, the merger consideration payable to stockholders of Old SomaLogic at the Closing Date was $1.25
billion, consisting of cash payments of $50 million and equity consideration in the form of (i) the issuance of shares of Common Stock
and (ii) rollover of Old SomaLogic’s outstanding options. The number of shares of Common Stock issued to Old SomaLogic stockholders
was based on a deemed value of $10.00 per share after giving effect to the Exchange Ratio. Each option of Old SomaLogic that was outstanding
immediately prior to the Closing Date was assumed by SomaLogic and converted into an option to acquire an adjusted number of shares of
Common Stock of SomaLogic at an adjusted exercise price per share based on the Exchange Ratio. These assumed options will continue to
be governed by substantially the same terms and conditions, including vesting, as were applicable to the original instrument.
Earn-Out Shares
The Merger Agreement
also provides additional shares of Common Stock to Old SomaLogic shareholders and to certain employees and directors of SomaLogic (“Earn-Out
Service Providers”) of up to 3,500,125 and 1,499,875, respectively (the “Earn-Out Shares”). The Earn-Out
Shares are payable if the price of our Common Stock is greater than or equal to $20.00 for a period of at least 20 out of 30 consecutive
trading days at any time between the 13- and 24-month anniversary of the Closing Date (the “Triggering Event”). Any
Earn-Out Shares issuable to an Earn-Out Service Provider shall be issued only if such individual continues to provide services (whether
as an employee or director) through the date of occurrence of the corresponding Triggering Event (or a change in control acceleration
event, if applicable) that causes such Earn-Out Shares to become issuable (refer to Note 13, Stock-based Compensation). Any Earn-Out
Shares that are forfeited pursuant to the preceding sentence shall be reallocated to the Old SomaLogic stockholders in accordance with
their respective pro rata Earn-Out Shares. As of December 31, 2021, the contingency has not been met and, accordingly, no shares
of Common Stock have been issued.
PIPE (Private Investment
in Public Entity) Investment
In connection with the
Business Combination, CMLS II entered into subscription agreements with certain institutional and accredited investors (the “PIPE
Investors”), pursuant to which the PIPE Investors purchased, concurrently with the Closing, an aggregate of 36,500,000 shares
of Common Stock at a purchase price of $10.00 per share for an aggregate purchase price of $365.0 million (the “PIPE Investment”).
CMLS II Shares
In
connection with the Closing, certain CMLS II holders exercised their right to redeem certain
of their outstanding shares for cash, resulting in the redemption of 809,850 shares of CMLS
II common stock at an approximate price of $10.00 per share, for an aggregate of approximately
$8.1 million, which was paid to such holders at the Closing (the “CMLS II Redemption”).
Immediately following the Closing, all of the 6,900,000 issued and outstanding shares of
CMLS II Class B common stock (“CMLS II Founder Shares”), automatically
converted, on a one-for-one basis, into shares of Common Stock in accordance with CMLS II’s
amended and restated certificate of incorporation.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Summary of Shares
Issued
The following table details
the number of shares of Common Stock issued immediately following the consummation of the Business Combination:
| |
Shares | |
CMLS II Class A common stock, outstanding prior to Business Combination | |
| 27,600,000 | |
Less: CMLS II Redemption shares | |
| (809,850 | ) |
Class A common stock of CMLS II, net of redemptions | |
| 26,790,150 | |
Conversion of CMLS II Founder Shares for Common Stock | |
| 6,900,000 | |
Shares issued pursuant to PIPE Investment | |
| 36,500,000 | |
Conversion of Old SomaLogic shares for Common Stock (1) | |
| 110,973,213 | |
Total shares of SomaLogic Common Stock, immediately after
Business Combination | |
| 181,163,363 | |
| (1) | The
number of Old SomaLogic shares was determined as the 75,404,883 shares of Old SomaLogic Class
B common stock and 31,485,973 shares of Old SomaLogic redeemable convertible preferred stock
(assuming deemed conversion to Old SomaLogic Class B common stock) outstanding immediately
prior to the closing of the Business Combination multiplied by the Exchange Ratio of 0.8381. |
Summary of Net Proceeds
On the Closing Date,
SomaLogic received gross proceeds of $619.4 million, consisting of $365.0 million from the PIPE Investors and $254.4 million from CMLS
II. The gross proceeds were reduced by $50 million of cash payments made to Old SomaLogic stockholders (based on certain Old SomaLogic
stockholders’ election to receive cash instead of equity consideration) and $39.3 million of direct transaction costs incurred
by the Company. These direct transaction costs were included in additional paid-in capital and reflected as an offset against the proceeds.
Note 4 — Revenue
The following table provides
information about disaggregated revenue by product line:
| |
Year Ended
December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Assay services revenue | |
$ | 68,038 | | |
$ | 45,827 | |
Product revenue | |
| 1,277 | | |
| 1,907 | |
Collaboration revenue | |
| 3,051 | | |
| 2,483 | |
Other revenue: | |
| | | |
| | |
Royalties | |
| 8,515 | | |
| 5,261 | |
Other | |
| 745 | | |
| 411 | |
Total other revenue | |
| 9,260 | | |
| 5,672 | |
Total revenue | |
$ | 81,626 | | |
$ | 55,889 | |
Contract Balances
and Remaining Performance Obligations
Contract liabilities
represent the Company’s obligation to transfer goods or services to customers from which we have received consideration. Deferred
revenue is classified as current if the Company expects to be able to recognize the deferred amount as revenue within 12 months of the
balance sheet date. Deferred revenue is recognized as or when the Company satisfies its performance obligations under the contract.
A summary of the change
in contract liabilities is as follows:
| |
December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Balance at beginning of period | |
$ | 5,177 | | |
$ | 5,469 | |
Recognition of revenue included in balance at beginning of period | |
| (1,762 | ) | |
| (1,003 | ) |
Revenue deferred during the period, net of revenue recognized | |
| 1,970 | | |
| 711 | |
Balance at end of period | |
$ | 5,385 | | |
$ | 5,177 | |
SomaLogic, Inc.
Notes to Consolidated Financial Statements
At December 31,
2021 and 2020, deferred revenue of $5.4 million and $5.2 million, respectively, was comprised of balances related to our collaboration
revenue, assay services, and other revenue. At December 31, 2021 and 2020, the portion of deferred revenue related to collaboration
revenue was $3.9 million and $5.0 million, respectively, which is recognized on a straight-line basis over the performance period. As
of December 31, 2021, the estimated remaining performance period related to the deferred collaboration revenue is approximately 3.3 years.
At December 31, 2021 and 2020, the portion of deferred revenue related to assay services and other revenue was $1.5 million
and $0.2 million, respectively. As of December 31, 2021, the deferred revenue related to assay services and other revenue will
be recognized within 12 months.
Note 5 — Fair Value Measurements
Assets measured
at fair value on a recurring basis
The following tables
set forth our financial assets measured at fair value on a recurring basis and the level of inputs used in such measurements:
As of December 31, 2021
(in thousands) |
|
Amortized
Cost |
|
|
Gross
Unrealized
Gain |
|
|
Gross
Unrealized
Loss |
|
|
Aggregate
Fair Value |
|
|
Fair
Value
Level |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
114,533 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
114,533 |
|
|
|
Level 1 |
|
Money market funds |
|
|
324,955 |
|
|
|
— |
|
|
|
— |
|
|
|
324,955 |
|
|
|
Level 1 |
|
Total cash and cash equivalents |
|
|
439,488 |
|
|
|
— |
|
|
|
— |
|
|
|
439,488 |
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
177,852 |
|
|
|
16 |
|
|
|
(57 |
) |
|
|
177,811 |
|
|
|
Level 2 |
|
U.S. Treasuries |
|
|
12,021 |
|
|
|
— |
|
|
|
(9 |
) |
|
|
12,012 |
|
|
|
Level 2 |
|
Asset-backed securities |
|
|
12,084 |
|
|
|
— |
|
|
|
(8 |
) |
|
|
12,076 |
|
|
|
Level 2 |
|
Corporate bonds |
|
|
16,332 |
|
|
|
— |
|
|
|
(13 |
) |
|
|
16,319 |
|
|
|
Level 2 |
|
Total investments |
|
|
218,289 |
|
|
|
16 |
|
|
|
(87 |
) |
|
|
218,218 |
|
|
|
|
|
Total
assets measured at fair value on a recurring basis |
|
$ |
657,777 |
|
|
$ |
16 |
|
|
$ |
(87 |
) |
|
$ |
657,706 |
|
|
|
|
|
As of December 31, 2020
(in thousands) |
|
Amortized
Cost |
|
|
Gross
Unrealized
Gain |
|
|
Gross
Unrealized
Loss |
|
|
Aggregate
Fair Value |
|
|
Fair
Value
Level |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
138,977 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
138,977 |
|
|
|
Level 1 |
|
Money market funds |
|
|
23,568 |
|
|
|
— |
|
|
|
— |
|
|
|
23,568 |
|
|
|
Level 1 |
|
Commercial paper |
|
|
2,399 |
|
|
|
— |
|
|
|
— |
|
|
|
2,399 |
|
|
|
Level 2 |
|
Total cash and cash equivalents |
|
|
164,944 |
|
|
|
— |
|
|
|
— |
|
|
|
164,944 |
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
33,863 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
33,863 |
|
|
|
Level 2 |
|
Corporate bonds |
|
|
6,093 |
|
|
|
— |
|
|
|
(2 |
) |
|
|
6,091 |
|
|
|
Level 2 |
|
Total investments |
|
|
39,956 |
|
|
|
2 |
|
|
|
(4 |
) |
|
|
39,954 |
|
|
|
|
|
Total
assets measured at fair value on a recurring basis |
|
$ |
204,900 |
|
|
$ |
2 |
|
|
$ |
(4 |
) |
|
$ |
204,898 |
|
|
|
|
|
All of the U.S. Treasury
securities, asset-backed debt securities, commercial paper, corporate bonds, and international government securities that are designated
as available-for-sale securities have an effective maturity date that is less than one year from the respective balance sheet date, and
accordingly, have been classified as current in the consolidated balance sheets.
We classify our investments
in money market funds within Level 1 of the fair value hierarchy because they are valued using quoted market prices. We classify our
commercial paper, corporate bonds, U.S. Treasuries, asset-backed securities, and international government securities as Level 2
and obtain the fair value from a third-party pricing service, which may use quoted market prices for identical or comparable instruments
or model-driven valuations using observable market data or inputs corroborated by observable market data.
As all of our available-for-sale
securities have been held for less than a year as of both December 31, 2021 and 2020, no security has been in an unrealized loss
position for 12 months or greater. We evaluated our securities for other-than temporary impairment and considered the decline in
market value for the securities to be primarily attributed to current economic and market conditions. It is not more likely than not
that we will be required to sell the securities, and we do not intend to do so prior to the recovery of the amortized cost basis. Based
on this analysis, the available-for-sale securities were not considered to be other-than-temporarily impaired as of December 31,
2021 and 2020.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Liabilities measured
at fair value on a recurring basis
The following table presents
information about the Company’s liabilities that are measured at fair value on a recurring basis, and indicates the fair value
hierarchy of the valuation inputs the Company utilized to determine such fair value:
(in thousands) | |
December 31,
2021 | | |
December
31, 2020 | | |
Fair Value Level |
Liabilities: | |
| | |
| | |
|
Warrant liability - Public Warrants | |
$ | 18,437 | | |
$ | — | | |
Level 1 |
Warrant liability - Private Placement Warrants | |
| 16,744 | | |
| — | | |
Level 2 |
Earn-out liability | |
| 26,885 | | |
| — | | |
Level 3 |
Compound derivative liability | |
| — | | |
| 425 | | |
Level 3 |
Total liabilities measured at fair value on a recurring basis | |
$ | 62,066 | | |
$ | 425 | | |
|
Warrant liabilities
The Public Warrants were
valued using Level 1 inputs as they are traded in an active market. The fair value of the Private Placement Warrants is equivalent to
that of the Public Warrants as they have substantially the same terms; however, as they are not actively traded, they are classified
as Level 2 in the hierarchy table above.
Earn-out liability
The fair value of the
Earn-Out Shares was estimated using a Monte Carlo simulation model. The fair value is based on the simulated price of the Company over
the maturity date of the contingent consideration and increased by estimated forfeitures of Earn-Out Shares issued to Earn-Out Service
Providers.
The significant unobservable
inputs used in the Monte Carlo simulation to measure the Earn-Out Shares that are categorized within Level 3 of the fair value hierarchy
as of December 31, 2021 are as follows:
| |
December 31,
2021 | |
Stock price on valuation date | |
$ | 11.64 | |
Volatility | |
| 85.60 | % |
Risk-free rate | |
| 0.34 | % |
Dividend yield | |
| — | % |
The change in the fair
value of the earn-out liability for the year ended December 31, 2021 is summarized as follows:
(in thousands) | |
Fair Value | |
Fair value of earn-out liability at Closing | |
$ | 25,016 | |
Change in fair value of earn-out liability | |
| 1,869 | |
Balance as of December 31, 2021 | |
$ | 26,885 | |
Compound derivative
liability
The fair value of the
compound derivative liability was approximately $0.4 million as of December 31, 2020 and is recorded in other long-term liabilities
on the consolidated balance sheets. The compound derivative liability was measured at December 31, 2020 using a probability-weighted
method with unobservable inputs, which are classified as Level 3 within the fair value hierarchy. The primary inputs for the probability-weighted
valuation include the Company’s credit spread, applicable market discount rates, estimated recovery rates and U.S. Treasury
rates. The credit spread assumption was approximately 8% and the recovery rate was approximately 69% as of December 31, 2020.
Due to deteriorating
economic conditions and delays in fundraising efforts during the COVID-19 pandemic in the second quarter of 2020, we restructured the
Amended and Restated Credit Agreement on June 29, 2020 (see Note 10, Debt). We recorded an increase in the fair value of
the compound derivative of $4.8 million immediately prior to the restructuring, which was recorded as interest expense in the accompanying
consolidated statements of operations and comprehensive loss. The amendment fee of $2.5 million and the present value of the additional
interest of approximately $1.4 million were settled against the compound derivative liability.
On April 9, 2021,
the Company repaid the Amended and Restated Credit Agreement in full and the fair value of the compound derivative liability was included
in the net carrying amount of the debt used to determine the loss on extinguishment of debt. See Note 10, Debt, for more information.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Convertible debt
The fair value of the
Convertible Debt was $2.3 million as of December 31, 2020, which was a Level 3 measurement based on the conversion value of the
instrument. See Note 10, Debt, for more information.
Note 6 — Inventory
Inventory was comprised
of the following:
| |
December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Raw materials | |
$ | 15,205 | | |
$ | 12,883 | |
Finished goods | |
| 93 | | |
| 161 | |
Total inventory | |
$ | 15,298 | | |
$ | 13,044 | |
Inventory (current) | |
$ | 11,213 | | |
$ | 7,020 | |
Non-current inventory | |
$ | 4,085 | | |
$ | 6,024 | |
Note 7 — Property
and Equipment
Property and equipment
was comprised of the following:
| |
December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Lab equipment | |
$ | 10,504 | | |
$ | 9,865 | |
Computer equipment | |
| 1,416 | | |
| 1,402 | |
Furniture and fixtures | |
| 951 | | |
| 947 | |
Software | |
| 4,866 | | |
| 2,657 | |
Leasehold improvements | |
| 2,275 | | |
| 3,539 | |
Construction in progress | |
| 4,789 | | |
| 81 | |
Total property and equipment, at cost | |
| 24,801 | | |
| 18,491 | |
Less: Accumulated depreciation and amortization | |
| (15,244 | ) | |
| (14,578 | ) |
Property and equipment, net | |
$ | 9,557 | | |
$ | 3,913 | |
Depreciation expense
was $1.8 million and $2.3 million for the years ended December 31, 2021 and 2020, respectively. Amortization expense related
to internal use software was $0.8 million and $0.5 million for the years ended December 31, 2021 and 2020, respectively.
The unamortized internal use software costs as of December 31, 2021 and 2020 was $2.4 million and $1.0 million, respectively.
Note 8 — Accrued
Liabilities
Accrued liabilities consisted
of the following:
| |
December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Accrued compensation | |
$ | 9,832 | | |
$ | 5,378 | |
Accrued charitable contributions | |
| 400 | | |
| 400 | |
Accrued medical claims | |
| 398 | | |
| 307 | |
Other | |
| 479 | | |
| 225 | |
Total accrued liabilities | |
$ | 11,109 | | |
$ | 6,310 | |
Note 9 — Commitments
and Contingencies
Operating Leases
We have entered into
various non-cancelable operating lease agreements for our current headquarters and laboratory facilities in Boulder, Colorado. In August 2015,
the Company entered into a lease agreement for the Company’s corporate headquarters with a lease term that expires in June 2023;
however, in September 2020, we agreed to terminate the lease effective June 2021. As a result, we paid a termination penalty
of $0.3 million, which was recorded in selling, general and administrative expenses during the year ended December 31, 2020. A second
lease, originally entered into in January 2017, expired in August 2021. This lease expired with no termination penalties.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
In August 2020, we announced
the closure of our Oxford, United Kingdom laboratory. The related laboratory lease term expired in December 2021.
We also have operating
leases for our research and development lab facility and operations lab facility in Boulder, Colorado. During the year ended December 31,
2021, we extended the lease term on both leases until February 2026 and December 2023, respectively. The laboratory leases
include escalating rent payments and options to renew the leases. We have deposits of $0.8 million and $0.3 million classified as restricted
cash and included in other long-term assets as of December 31, 2021 and 2020, respectively. The deposits are restricted from withdrawal
and held by a bank in the form of collateral for an irrevocable standby letter of credit held as security for the lease of one of the
Company’s facilities. In December 2021, we entered into a lease for administrative offices which will expire on December 31, 2023.
On February 10,
2022, the Company entered into two separate lease agreements to lease two buildings pending construction. Both leases will expire on
November 30, 2033, unless extended by the parties or earlier terminated in accordance with the terms of the lease. The Company’s
obligation to pay rent for each building will begin approximately six months following the applicable commencement date of each lease.
The annual base rent for each lease is approximately $1.3 million per year in the aggregate. Each lease is subject to annual increases
of approximately 3% per annum and other adjustments, up to approximately $1.8 million per year in the aggregate in the final year of
the term. Both leases include tenant improvement allowances in the amount of approximately $3.5 million per lease. The Company has the
right to extend the term of each of the leases for three periods of sixty months each beginning immediately following the end of the
then-current term.
Rent expense for the
years ended December 31, 2021 and 2020 for operating leases was $1.8 million and $1.9 million, respectively. As of December 31,
2021, we have future commitments resulting from these operating lease arrangements totaling $5.5 million, which consisted of the following:
(in thousands) | |
December 31,
2021 | |
2022 | |
$ | 1,850 | |
2023 | |
| 1,905 | |
2024 | |
| 810 | |
2025 | |
| 834 | |
2026 | |
| 143 | |
Total future minimum lease payments | |
$ | 5,542 | |
SAFE Agreement
In
December 2019, in conjunction with a revenue contract with a customer, we entered into
a Simple Agreement for Future Equity (the “SAFE”). The SAFE agreement
provided the customer with the right to purchase a SAFE for a fixed payment of $5.0 million
that would convert into equity (variable number of shares based upon fair value at the date
of issuance) upon certain specified fundraising events. The right to purchase the SAFE was
contingent on the customer’s approval of our plan to move to the next version of our
SomaScan® platform (the “Reversioning Plan”), which did not occur
until January 2020. The obligation was classified as a liability and measured at fair
value upon the customers’ approval of the Reversioning Plan in January 2020. We
received $5.0 million in cash and the customer was issued 737,463 shares of Old SomaLogic
redeemable convertible preferred stock, which effectively converted the liability into redeemable
convertible preferred stock. The 737,463 shares of Old SomaLogic redeemable convertible preferred
stock that were issued for the SAFE are presented in the consolidated statements of stockholders’
equity as 1,236,135 shares of Common Stock as a result of the reverse recapitalization.
Legal Proceedings
We are subject to claims
and assessments from time to time in the ordinary course of business. We will accrue a liability for such matters when it is probable
that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established,
the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the
range, the minimum amount in the range is accrued. We are not currently party to any material legal proceedings in which a potential
loss is probable or reasonably estimable.
Indemnification
In the normal course
of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for
general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made
against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to
defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these
indemnification obligations.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Note 10 — Debt
Debt consisted of the
following:
| |
December 31, |
(in thousands) | |
2021 | | |
2020 | |
Paycheck Protection Program loan | |
$ | — | | |
$ | 3,520 | |
Amended and Restated Credit Agreement | |
| — | | |
| 33,087 | |
Plus: Premium | |
| — | | |
| 708 | |
Less: Unamortized debt issuance costs | |
| — | | |
| (2,566 | ) |
Total long-term debt | |
$ | — | | |
$ | 34,749 | |
Current portion of long-term debt | |
$ | — | | |
$ | 2,423 | |
Long-term debt, net of current portion | |
$ | — | | |
$ | 32,326 | |
Convertible Debt
We had an unsecured convertible
promissory note that was issued in March 2007, at par value, for an aggregate principal amount of $2.0 million (the “Convertible
Debt”). In June 2017, the original maturity date for the Convertible Debt was extended to June 30, 2024 and the interest
rate was amended to a fixed rate of 3.75%. We performed a two-step analysis in accordance with ASC 470-50, Debt — Modification
and Extinguishments, and determined that the amendment should be accounted for as a modification because the present value of the
cash flows under the terms of the modified agreement were not substantially different than the present value of the remaining cash flows
under the terms of the original agreement and the change in the value of the conversion option was not substantially different than the
carrying value of the Convertible Debt. The resulting impact was a reduction in the carrying amount of the Convertible Debt for $0.1
million and an offsetting impact to additional paid-in capital. Amortization of the discount was less than $0.1 million for the years
ended December 31, 2021 and 2020.
The Convertible Debt
had a voluntary conversion feature that allowed the holder, at its sole option, the right to request the Company to convert the principal,
any accrued, but unpaid interest and any other unpaid amount of the obligation into our common stock or preferred stock. There was also
an automatic conversion feature that permitted the Convertible Debt to be settled in common stock or cash upon certain events. The number
of shares of common or preferred stock that could have been issued would have been determined based on the total outstanding obligation
divided by $3.72 or $5.87, respectively.
On March 30, 2021, we
issued a notice of prepayment to the holder of the Convertible Debt stating the Company intended to prepay the full outstanding Convertible
Debt obligation. The holder then had the option to either request a conversion to equity pursuant to the Convertible Debt voluntary conversion
provisions, described above, or accept the Company’s prepayment. On July 9, 2021, the Company and the holder of the Convertible
Debt amended the conversion terms and simultaneously converted the Convertible Debt into 682,070 shares of Old SomaLogic Class B common
stock. We recognized a $2.7 million loss on extinguishment of debt in the consolidated statements of operations and comprehensive loss
during the year ended December 31, 2021 as a result of the conversion. Since the Convertible Debt was settled in full, there is
no outstanding balance as of December 31, 2021. The 682,070 shares of Old SomaLogic Class B common stock that were issued for the
conversion of Convertible Debt are presented in the consolidated statements of stockholders’ equity as 571,642 shares of Common
Stock as a result of the reverse recapitalization.
Interest expense on the
Convertible Debt was less than $0.1 million for the years ended December 31, 2021 and 2020.
Paycheck Protection
Program
In
April 2020, we received a loan in the aggregate amount of $3.5 million, pursuant to
the Paycheck Protection Program (the “PPP”), established pursuant to the
recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES
Act”) and administered by the U.S. Small Business Administration. The PPP
loan, which was in the form of a note dated April 13, 2020, matures on April 13, 2022
and bears interest at a rate of 0.98% per annum. All principal and interest payments were
deferred until April 13, 2021.
Under the terms of the
CARES Act, we could apply for and receive forgiveness for all, or a portion of the loans granted under the PPP. Such forgiveness
was determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including,
but not limited to, eligible payroll costs and mortgage interest, rent or utility costs, and on the maintenance or rehiring of employees
and maintaining compensation levels during the eight-week period following the funding of the PPP loan. On June 21, 2021, we were
notified by the lender that the PPP loan had been forgiven for the full amount borrowed under the PPP loan, including less than $0.1
million of accrued interest. In accordance with ASC 405-20, Extinguishment of Liabilities, the income from the forgiveness
of the amount borrowed and the accrued interest was recognized as a gain on extinguishment of debt recorded within loss on extinguishment
of debt, net in the consolidated statements of operations and comprehensive loss during the year ended December 31, 2021. As the
PPP loan was forgiven, there is no outstanding balance as of December 31, 2021.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Amended and Restated
Credit Agreement
In
February 2016, we entered into a credit agreement (the “Credit Agreement”)
with Madryn Health Partners, LP (“Madryn”), under which we received net
proceeds of approximately $35.0 million, including debt issuance costs of $0.8 million. Interest
on the Credit Agreement accrued at an annual floating interest rate of LIBOR (with a 1% floor)
plus 12.5%, payable quarterly, of which a portion could be deferred at our option and paid
together with the principal at maturity (“payment in kind” or “PIK”).
The Credit Agreement had an interest-only period through March 31, 2020 and a final
maturity date of December 31, 2021.
In December 2017,
we entered into the Amended and Restated Credit Agreement, receiving an additional $3.4 million in proceeds. The Amended and Restated
Credit Agreement reduced the floating interest rate of LIBOR plus 12.5% to 8.86%, waived revenue covenants until October 1, 2020
as long as cash and investments exceeded the principal balance of the debt, removed the option to defer a portion of the interest payment
until maturity and extended the term to December 2022. As of December 31, 2017, the additional debt recorded as PIK was approximately
$1.6 million. In exchange for these amendments, we issued 800,000 shares of Old SomaLogic Class B common stock to Madryn at a fair
value of $12.35 per share. The fair value of the Old SomaLogic Class B common stock issued of $9.9 million, plus additional financing
fees of $0.2 million, was recorded as deferred costs and is amortized to interest expense over the life of the loan using the effective
interest rate method. The 800,000 shares of Old SomaLogic Class B common stock that were issued to Madryn are presented in the consolidated
statements of stockholders’ equity as 670,480 shares of Common Stock as a result of the reverse recapitalization.
We
determined that the Amended and Restated Credit Agreement contained put options related to
early redemption mandatory prepayment terms in case of change in control or an event of default
(the “Redemption Features”). The Redemption Features embedded in the Credit
Agreement and Amended and Restated Credit Agreement met the requirements for separate accounting
and were accounted for as a single, compound derivative instrument, in accordance with ASC 815.
On June 29, 2020,
we signed an amendment to the Amended and Restated Credit Agreement. The amendment increased the fixed annual interest rate to 12%, of
which 3% can be deferred at our option and paid together with the principal at maturity, waived or amended certain covenants and eliminated
amortizing principal payments set to begin in March 2021. The entirety of the outstanding principal balance was due on the maturity
date of December 31, 2022. Additionally, we incurred an amendment fee of $2.5 million, which was added to the outstanding principal
balance. This amendment met the definition of a troubled debt restructuring under ASC 470-60, Troubled Debt Restructurings by
Debtors, as the Company was experiencing financial difficulties and received concessions. The amendment did not result in a gain
on restructuring because the total undiscounted cash outflows required under the Amended and Restated Credit Agreement exceeded the carrying
value of the debt immediately prior to the amendment. The present value of the additional interest resulted in a premium of $1.4 million.
On November 20,
2020, we signed an additional amendment to the Amended and Restated Credit Agreement. In connection with the amendment, we issued 2,651,179
shares of Old SomaLogic redeemable convertible preferred stock to Madryn for a total fair value of approximately $18.0 million in exchange
for the deemed prepayment of $10.0 million in the principal amount, a prepayment penalty of $2.5 million and amendment fees of approximately
$5.5 million. This amendment also reduced the fixed annual interest rate to 11%, of which 2% can be deferred at our option and paid together
with the principal at maturity and amended certain change of control provisions. We accounted for this amendment as a modification to
the Amended and Restated Credit Agreement as it was determined that no substantial change occurred. We elected to write down a proportionate
amount of debt issuance costs and premium related to the prepayment. As a result, we recognized $0.6 million in loss on extinguishment
of debt, net in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020. The 2,651,179
shares of Old SomaLogic redeemable convertible preferred stock that were issued for the conversion of the Convertible Debt are presented
in the consolidated statements of stockholders’ equity as 4,443,906 shares of Common Stock as a result of the reverse recapitalization.
On April 9, 2021,
we repaid the Amended and Restated Credit Agreement in full and the obligation was extinguished. In addition to the outstanding principal
balance of $33.3 million as of that date, we also paid a prepayment penalty of approximately $4.0 million. As a result of the repayment
of the Amended and Restated Credit Agreement, we recognized a $5.2 million loss on extinguishment of debt in the consolidated statements
of operations and comprehensive loss during the year ended December 31, 2021.
The Company incurred
$1.3 million and $5.8 million of interest expense for the years ended December 31, 2021 and 2020, respectively, under the Amended
and Restated Credit Agreement. The interest expense includes noncash amortization of the debt issuance costs of approximately $0.3 million
and $2.0 million for the years ended December 31, 2021 and 2020, respectively, and is net of amortization of premium of $0.1 million
and $0.5 million for the years ended December 31, 2021 and 2020, respectively. During the years ended December 31, 2021 and
2020, the additional interest recorded as PIK, which was added to the principal balance of the long-term debt, was $0.2 million and $0.6
million, respectively.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Note 11 — Stockholders’
Equity
Common and Preferred
Stock
On
September 1, 2021, in connection with the Business Combination, the Company amended and restated
its certificate of incorporation to authorize 600,000,000 shares of Common Stock, par value
of $0.0001 per share, and 1,000,000 shares of preferred stock, par value $0.0001 per share
(“Preferred Stock”).
Warrants
As of December 31,
2021, there were an aggregate of 5,519,991 and 5,013,333 outstanding Public Warrants and Private Placement Warrants, respectively. Each
warrant entitles the holder to purchase one share of our Common Stock at a price of $11.50 per share at any time commencing on February
25, 2022. The Warrants will expire on September 1, 2026 or earlier upon redemption or liquidation.
The Private Placement
Warrants are identical to the Public Warrants, except that the Private Placement Warrants, so long as they are held by CMLS Holdings
II LLC, a Delaware limited liability company (the “Sponsor”) or any of its permitted transferees, (i) will not be
redeemable by the Company (except as described below in “Redemption of Warrants When the Price per Share of Common Stock Equals
or Exceeds $10.00”), (ii) may be exercised by the holders on a cashless basis, and (iii) will be entitled to certain registration
rights. If the Private Placement Warrants are held by a holder other than the Sponsor or any of its permitted transferees, the Private
Placement Warrants will be redeemable by the Company in all redemption scenarios applicable to the Public Warrants and exercisable by
such holders on the same basis as the Public Warrants.
Redemptions
of warrants when the price per share of Common Stock equals or exceeds $18.00 - Once
the warrants become exercisable, the Company may redeem the outstanding Public Warrants:
| ● | in
whole and not in part; |
| ● | at
a price of $0.01 per warrant; |
| ● | upon
a minimum of 30 days’ prior written notice of redemption to each warrant holder;
and |
| ● | if,
and only if, the closing price of the Common Stock equals or exceeds $18.00 per share for
any 20 trading days within a 30-trading day period ending three business days before the
Company sends to the notice of redemption to the warrant holders. |
Redemptions
of warrants when the price per share of Common Stock equals or exceeds $10.00 - Once the warrants become exercisable, the Company
may redeem the outstanding Public Warrants:
| ● | in
whole and not in part; |
| ● | at
$0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption, provided
that holders will be able to exercise their warrants on a cashless basis prior to redemption
and receive that number of shares, based on the redemption date and the “fair market
value” of our Common Stock (as defined below) except as otherwise described below; |
| ● | if,
and only if, the closing price equals or exceeds $10.00 per share (as adjusted for stock
splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20
trading days within the 30-trading day period ending three trading days before the Company
sends the notice of redemption to the warrant holders; and |
| ● | if
the closing price of the Common Stock for any 20 trading days within a 30-trading day period
ending three trading days before the Company sends notice of redemption to the warrant holders
is less than $18.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations,
recapitalizations and the like), the Private Placement Warrants must also be concurrently
called for redemption on the same terms as the outstanding Public Warrants, as described
above. |
The
“fair market value” of our Common Stock shall mean the volume weighted average price of our Common Stock during the
10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants. We will provide
our warrant holders with the final fair market value no later than one business day after the 10-trading day period described
above ends. In no event will the warrants be exercisable in connection with this redemption feature for more than 0.361 shares of Common
Stock per warrant (subject to adjustment).
SomaLogic, Inc.
Notes to Consolidated Financial Statements
We will not redeem the
Warrants as described above unless an effective registration statement under the Securities Act of 1933, as amended, covering our Common
Stock issuable upon exercise of the warrants is effective and a current prospectus relating to those shares of Common Stock is available
throughout the 30-day redemption period. If the foregoing conditions are satisfied and we issue a notice of redemption, each warrant
holder will be entitled to exercise their warrants prior to the scheduled redemption date.
The Company may not redeem
the Private Warrants, so long as they continue to be held by the original purchasers or permitted transferees. However, if the Private
Warrants are transferred and no longer held by the original holder (or permitted transferees), such Warrants will automatically convert
into Public Warrants and become subject to the same redemption provisions. Such Warrants will cease to exist as Private Warrants.
Note 12 — Redeemable
Convertible Preferred Stock
In November and December
2020, Old SomaLogic issued and sold 17,842,914 shares and 13,643,059 shares, respectively, of redeemable convertible preferred stock
at a price of $6.78 per share for an aggregate purchase price of $213.5 million. We incurred equity issuance costs of $11.4 million in
connection with these offerings, which are reflected as a reduction to the carrying value of the redeemable convertible preferred stock.
As of December 31, 2020, there were 50,000,000 shares of redeemable convertible preferred stock authorized, 31,485,973 shares of
redeemable convertible preferred stock issued and outstanding and a liquidation preference of $213.5 million. Immediately prior to the
Closing, the redeemable convertible preferred stock of Old SomaLogic were converted into shares of Class B common stock of Old SomaLogic
on a two-for-one basis and then converted into the Company’s Common Stock at an Exchange Ratio of 0.8381. The aggregate 31,485,973
shares of redeemable preferred stock issued and sold are presented in the consolidated statements of stockholders’ equity as 52,776,787
shares of Common Stock as a result of the reverse recapitalization.
Prior to the closing
of the Business Combination, there were no significant changes to the terms of the redeemable convertible preferred stock as compared
to December 31, 2020. There are no shares of redeemable convertible preferred stock authorized, issued or outstanding as of December 31,
2021.
Note 13 — Stock-based
Compensation
We
maintained three equity incentive plans – the 2009 Equity Incentive Plan (the “2009
Plan”), the 2017 Equity Incentive Plan (the “2017 Plan”), and
the 2021 Equity Incentive Plan (the “2021 Plan”) under which incentive
and nonstatutory stock options to purchase shares of Old SomaLogic’s common stock were
granted to employees, directors, and non-employee consultants. The 2009 Plan was terminated
during 2017 upon the adoption of the 2017 Plan, and no further awards were granted under
the 2009 Plan thereafter. The outstanding options previously granted under the 2009 Plan
continued to remain outstanding under the 2017 Plan.
In connection with the
Business Combination, we assumed the 2017 Plan, including the 2009 Plan options outstanding under the 2017 Plan, upon Closing. We terminated
the 2017 Plan, provided that the outstanding awards granted under the 2009 Plan and 2017 Plan continue to remain outstanding. Upon consummation
of the Business Combination, all outstanding options were converted into an option to acquire an adjusted number of shares of Common
Stock of SomaLogic at an adjusted exercise price per share based on the Exchange Ratio. Such options continue to be governed by substantially
the same terms and conditions, including vesting, as were applicable to the original instrument.
In September 2021, our
Board of Directors adopted, and our stockholders approved, a new incentive plan (the “2021 Plan”), under which the
Company may grant cash and equity incentive awards in the form of stock options, stock appreciation rights, restricted stock, other stock-based
awards, other cash-based awards, and performance awards to employees, directors, and consultants of the Company. The 2021 Plan became
effective upon the closing of the Business Combination. Under the 2021 Plan, as of December 31, 2021, we were authorized to issue
a maximum of 21,300,000 shares of Common Stock. As of December 31, 2021, 2,944,448 awards have been granted under the 2021 Plan.
As of December 31, 2021, we have reserved 38,496,936 shares of Common Stock for issuance under all incentive plans.
Stock-based compensation
was recorded in the consolidated statements of operations and comprehensive loss as shown in the following table:
| |
Year Ended December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Cost of assay services revenue | |
$ | 633 | | |
$ | 413 | |
Cost of product revenue | |
| 14 | | |
| 14 | |
Research and development | |
| 10,958 | | |
| 4,173 | |
Selling, general and administrative | |
| 16,810 | | |
| 10,572 | |
Total stock-based compensation | |
$ | 28,415 | | |
$ | 15,172 | |
SomaLogic, Inc.
Notes to Consolidated Financial Statements
Stock Options Awards
At December 31,
2021, there were 14,443,767 options outstanding within the 2009 Plan, the 2017 Plan, and the 2021 Plan and 5,259,078 options outstanding
that were granted outside of the incentive plans. Generally, options vest over four years, with 25% vesting upon the first-year anniversary
of the grant date and the remaining options vesting ratably each month thereafter.
The following table shows
a summary of all stock option activity for the year ended December 31, 2021:
(in thousands, except share and per share data) | |
Number of
Shares | | |
Weighted
Average
Exercise Price
Per Share | | |
Weighted
Average
Remaining
Contractual Life
(in years) | | |
Aggregate
Intrinsic
Value | |
Outstanding as of December 31, 2020 | |
| 11,350,934 | | |
$ | 3.92 | | |
| | | |
| | |
Granted | |
| 10,271,113 | | |
$ | 7.49 | | |
| | | |
| | |
Exercised | |
| (1,311,307 | ) | |
$ | 3.05 | | |
| | | |
| | |
Forfeited | |
| (453,551 | ) | |
$ | 4.54 | | |
| | | |
| | |
Expired | |
| (154,344 | ) | |
$ | 2.26 | | |
| | | |
| | |
Outstanding as of December 31, 2021 | |
| 19,702,845 | | |
$ | 5.83 | | |
| 8.31 | | |
$ | 115,314 | |
Exercisable as of December 31, 2021 | |
| 7,554,433 | | |
$ | 3.88 | | |
| 6.77 | | |
$ | 58,655 | |
Vested and expected to vest as of December 31, 2021 | |
| 17,144,896 | | |
$ | 5.67 | | |
| 8.17 | | |
$ | 103,148 | |
The assumptions used
in valuing the stock options granted are set forth in the following table:
| |
| Year
Ended December 31, |
| |
| 2021 | | |
| 2020 | |
Expected dividend yield | |
| — | % | |
| — | % |
Expected volatility | |
| 71.4
– 92.8 | % | |
| 83.5
– 92.0 | % |
Risk-free interest rate | |
| 0.64
– 1.38 | % | |
| 0.32
– 0.54 | % |
Expected weighted-average life of options | |
| 6.04
years | | |
| 5.95
years | |
The total intrinsic value
of options exercised during the years ended December 31, 2021 and 2020 was approximately $4.7 million and $0.4 million, respectively.
The weighted-average
grant date fair value for options granted during the years ended December 31, 2021 and 2020 was $4.78 and $1.69, respectively.
Based on options granted
to employees as of December 31, 2021, total compensation expense not yet recognized related to unvested options is approximately
$40.2 million, which is expected to be recognized over a weighted average period of 2.97 years.
In June 2021, the
Company modified options held by directors that resigned from our Board of Directors to accelerate the vesting and/or extend contractual
terms. In connection with these modifications, the Company recorded incremental stock-based compensation expense of $0.7 million during
the year ended December 31, 2021.
Secondary Sale
Transaction
On July 1, 2021, an employee
of the Company sold shares of the Company’s common stock and vested options to acquire shares of our common stock at a sales price
that was above the then-current fair value. Since the purchasing parties are holders of economic interest in the Company and acquired
shares and options from a current employee at a price in excess of fair value of such shares and options, the amount paid in excess of
the fair value at the time of the secondary sale was recognized as stock-based compensation expense.
Total stock-based compensation
expense related to the secondary sale transaction of $6.5 million included in the consolidated statements of operations and comprehensive
loss for the year ended December 31, 2021 was recorded within research and development expenses.
Performance Awards
In July 2021, we entered
into a consulting agreement (the “Consulting Milestone Agreement”) with a vendor, Abundant Venture Innovation Accelerator
(“AVIA”), to provide services related to expanding our contractual relationships with health system providers. AVIA
is a related party (see Note 16, Related Parties). The Consulting Milestone Agreement includes a fixed amount of compensation
in our Common Stock for achievement of certain milestones related to our business. We account for these awards as stock compensation
liabilities with a performance condition, which are measured at fair value on the date of the grant and recognized over the expected
performance period when it is probable the milestone will be achieved.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
In August 2021, we issued
14,727 shares of Old SomaLogic Class B common stock related to this Consulting Milestone Agreement for milestones achieved. These shares
are presented in the consolidated statements of stockholders’ equity as 12,342 shares of Common Stock as a result of the reverse
recapitalization. In December 2021, we issued additional 53,120 shares of Common Stock related to the Consulting Milestone Agreement.
We recognized approximately $0.8 million of stock-based compensation expense during the year ended December 31, 2021. As of December
31, 2021, the remaining commitment of $0.04 million is recorded in other long-term liabilities.
Service Provider
Earn-Out Shares
Upon the consummation
of the Business Combination, 1,499,875 Earn-Out Shares, subject to vesting and forfeiture conditions, were issued to Earn-Out Service
Providers (the “Service Provider Earn-Outs”). As the issuance of the Service Provider Earn-Outs is contingent on services
being provided, we have accounted for them in accordance with ASC 718, Compensation - Stock Compensation. As of December 31,
2021, 1,444,484 Service Provider Earn-Outs were outstanding after forfeitures. Upon forfeiture, the forfeited shares will be redistributed
to the Old SomaLogic stockholders. The weighted average grant date fair value of the Service Provider Earn-Outs was $7.04 per share,
and will be recognized as stock-based compensation expense on a straight-line basis over the derived service period of 1.2 years or shorter
if the awards vest. The assumptions used in valuing the Service Provider Earn-Outs using the Monte Carlo simulation included volatility
of 89.8%, risk-free interest rate of 0.10% to 0.11%, a stock price of $10.63 to $10.67, and a forfeiture rate of approximately 8.3%.
The Company recorded $2.9 million in stock-based compensation expense related to the Service Provider Earn-Outs during the year ended
December 31, 2021, and $6.7 million is expected to be recorded over the remaining estimated service period.
Note 14 — Income
Taxes
The components of the
Company’s provision for income taxes are as follows:
| |
Year Ended December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Current income tax expense (benefit) | |
| | |
| |
Federal | |
$ | 17 | | |
$ | 3 | |
State | |
| 21 | | |
| 20 | |
| |
| 38 | | |
| 23 | |
Deferred tax expense (benefit) | |
| | | |
| | |
Federal | |
| — | | |
| — | |
State | |
| — | | |
| — | |
| |
| — | | |
| — | |
Provision for income taxes | |
$ | 38 | | |
$ | 23 | |
SomaLogic, Inc.
Notes to Consolidated Financial Statements
A reconciliation of the
income tax benefit calculated at the federal statutory rate to the total income tax provision is as follows:
| |
Year Ended December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Income tax benefit at the federal statutory rate | |
$ | (18,404 | ) | |
$ | (11,128 | ) |
State income taxes, net of federal income tax benefit | |
| (3,008 | ) | |
| (3,003 | ) |
Nondeductible stock-based compensation | |
| 1,049 | | |
| 1,094 | |
Expiration of net operating loss and research and development credits | |
| 3,244 | | |
| 1,056 | |
Term loan amendment | |
| — | | |
| 19 | |
Change in valuation allowance | |
| 15,092 | | |
| 14,446 | |
Other permanent items | |
| 1,311 | | |
| 4 | |
Research and development credits | |
| (1,110 | ) | |
| (1,110 | ) |
Return to provision adjustments | |
| 855 | | |
| (993 | ) |
Other, net | |
| 1,009 | | |
| (362 | ) |
Provision for income taxes | |
$ | 38 | | |
$ | 23 | |
The components of the
deferred income tax assets and liabilities is as follows:
| |
December 31, | |
(in thousands) | |
2021 | | |
2020 | |
Deferred income tax assets: | |
| | |
| |
Net operating loss carryforwards | |
$ | 98,032 | | |
$ | 84,358 | |
Research and development credits | |
| 11,264 | | |
| 10,590 | |
Depreciation and amortization | |
| 598 | | |
| 539 | |
Deferred revenue | |
| 1,344 | | |
| 1,389 | |
Accrued expenses and non-deductible reserves | |
| 200 | | |
| 761 | |
Compensation accruals | |
| 1,796 | | |
| 1,076 | |
Stock-based compensation | |
| 11,952 | | |
| 8,731 | |
Interest expense carryforward | |
| 6,628 | | |
| 3,242 | |
Loan discount and issuance costs | |
| — | | |
| 2,333 | |
Other | |
| 1,139 | | |
| 291 | |
| |
| 132,953 | | |
| 113,310 | |
Valuation allowance | |
| (132,953 | ) | |
| (113,310 | ) |
Deferred income taxes, net of valuation allowance | |
| — | | |
| — | |
Deferred income tax liabilities | |
| — | | |
| — | |
Net deferred income tax assets (liabilities) | |
$ | — | | |
$ | — | |
As of December 31,
2021, and 2020, a full valuation allowance of $133.0 million and $113.3 million was established against the Company’s deferred
tax assets as the Company believes it is more likely than not these tax attributes would not be realizable in the future. The valuation
allowance increased by $19.7 million for the year ended December 31, 2021.
The Company evaluates
the need to establish a valuation allowance by considering all available positive and negative evidence, including expected levels of
taxable income, future reversals of existing temporary differences, tax planning strategies, and recent financial operations. The Company
establishes a valuation allowance to reduce deferred tax assets to the extent it is more likely than not that some, or all, of the deferred
tax assets will not be realized. The Company determined it is more likely than not that all of its deferred tax assets would not be realized.
The Company will continue to monitor its available positive and negative evidence in assessing the realization of its deferred tax assets
in the future, and should there be a need to release the valuation allowance, a tax benefit will be recorded.
As of December 31,
2021, and 2020, the Company had federal net operating losses (“NOLs”) of $385.5 million and $328.6 million, respectively.
Of the aggregate federal NOLs at December 31, 2021, $179.9 million can be carried forward indefinitely, and the remaining $205.5
million will begin to expire in 2022.
As of December 31,
2021, and 2020, the Company had state NOLs of $359.9 million and $340.3 million, respectively, which begin to expire in 2022.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
As of December 31,
2021, and 2020, the Company had research and development credit carryforward of $12.5 million and $11.8 million, respectively, which
begin to expire in 2022.
Our U.S. deferred tax
assets are also subject to annual limitation under Section 382 of the Internal Revenue Code of 1986 due to stock ownership changes that
have occurred, primarily as a result of the business combination completed on September 1, 2021. Based on an analysis completed during
2021, we have concluded that all of our historical U.S. deferred tax assets generated through December 31, 2020 are available to us for
future use to offset taxable income. We may experience ownership changes in the future as a result of shifts in our stock ownership (some
of which may be outside our control). Therefore, available U.S. deferred tax assets may be further limited in the event of another significant
ownership change.
The Company files income
tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions with varying statutes of limitations. As of
December 31, 2021, the Company is not under examination in any jurisdiction and the tax years 2017 through 2020 remain open to examination
in its federal and state jurisdictions. The Company believes no significant changes in the unrecognized tax benefits will occur within
the next 12 months.
A reconciliation of the
unrecognized tax benefits is as follows:
| |
December 31, |
(in thousands) | |
2021 | | |
2020 | |
Unrecognized tax benefit – beginning balance | |
$ | 1,176 | | |
$ | 1,071 | |
Increase related to tax positions taken in the current year | |
| 111 | | |
| 111 | |
Increase related to tax positions taken in the prior year | |
| — | | |
| — | |
Decrease related to tax positions taken in the prior year | |
| (36 | ) | |
| (6 | ) |
Unrecognized tax benefit – ending balance | |
$ | 1,251 | | |
$ | 1,176 | |
The unrecognized tax
benefits are classified as a reduction of deferred tax assets on the consolidated balance sheets. As of December 31, 2021, and 2020,
there are $1.3 million and $1.2 million of unrecognized tax benefits that, if recognized, would favorably affect the Company’s
effective tax rate, respectively.
The Company did not recognize
any interests or penalties in all periods presented or accrue any interests or penalties as of December 31, 2021, and 2020.
Note 15 — Employee
Benefit Plans
The Company sponsors
a 401(k) plan, covering all employees in the United States. The Company matches 100% of the first 4% of employee contributions with immediate
vesting. We made matching contributions of approximately $1.1 million and $0.8 million during the years ended December 31, 2021
and 2020, respectively.
Note 16 — Related
Parties
The Company paid $0.2
million and $0.1 million of an unconditional contribution to a related party during the years ended December 31, 2021 and 2020,
respectively. As of December 31, 2021, the remaining pledge of $0.4 million is recorded in accrued liabilities and is expected to
be paid out within the next 12 months.
In June 2019, we entered
into a consulting agreement (the “Master Agreement”) with AVIA, a company that engages in business incubation activities.
AVIA is a related party to the Company because Ted Meisel, a member of our Board of Directors as of September 1, 2021, also serves on
the board of directors of AVIA. Pursuant to the Master Agreement and the Consulting Milestone Agreement, the Company agreed to pay AVIA
for business development activities. For the year ended December 31, 2021, the Company paid $0.9 million for these consulting services
in addition to issuing Common Stock for an aggregate fair value of approximately $0.8 million for milestones achieved (see Note 13, Stock-based
Compensation). As of December 31, 2021, the remaining commitment of $0.04 million is recorded in other long-term liabilities.
Note 17 — Net
Loss Per Share
The following table sets
forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):
| |
Year Ended December 31, |
(in thousands, except share and per share data) | |
2021 | | |
2020 | |
Net loss | |
$ | (87,547 | ) | |
$ | (53,015 | ) |
Weighted-average shares outstanding, basic and diluted | |
| 137,157,283 | | |
| 65,161,358 | |
Net loss per share, basic and diluted | |
$ | (0.64 | ) | |
$ | (0.81 | ) |
SomaLogic, Inc.
Notes to Consolidated Financial Statements
During periods in which
the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because
the effect of all awards is anti-dilutive. The following outstanding shares of potentially dilutive securities were excluded from the
computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:
| |
Year Ended December 31, | |
| |
2021 | | |
2020 | |
Anti-dilutive shares: | |
| | |
| |
Stock options to purchase common stock | |
| 19,702,845 | | |
| 11,350,934 | |
Public Warrants and Private Placement Warrants | |
| 10,533,324 | | |
| — | |
Convertible debt (on an if-converted basis) | |
| — | | |
| 450,591 | |
| |
| | | |
| | |
Total anti-dilutive shares | |
| 30,236,169 | | |
| 11,801,525 | |
The calculation of diluted
net loss per share does not consider the effect of contingently issuable shares that are contingent on the occurrence of a future event
that has not yet occurred. As of December 31, 2021, the contingency for the Earn-Out Shares had not been met and therefore the Earn-Out
Shares were not considered in the computation of diluted net loss per share.
Note 18 — Subsequent
Events
In February 2022 we entered
into two lease agreements for commercial buildings to be constructed in Louisville, Colorado. See Note 9, Commitments and Contingencies.
Pursuant to an agreement
entered into with Illumina Cambridge, Ltd. (“Illumina”) on December 31, 2021 to develop next-generation sequencing
based proteomic distributable kits with SomaScan Technology and SOMAmer reagents for commercialization, we received a non-refundable,
non-creditable payment of $30 million from Illumina on January 4, 2022. No activities were performed under this agreement during
the fiscal year 2021.
Note 19 — Correction of Error in
Previously Reported 2021 Interim Financial Statements (Unaudited)
In connection with our
year-end financial close process and related preparation of our 2021 Annual Report on Form 10-K, a misstatement of net loss per share
was identified in our previously filed 2021 unaudited interim financial statements for the quarter and year-to-date periods ended September
30, 2021. We assessed the materiality of this error in accordance with the U.S. Securities and Exchange Commission Staff Accounting Bulletin
No. 99, Materiality, and have concluded that our interim financial information as filed in the Quarterly Report on Form 10-Q for the
quarter and year-to-date period ended September 30, 2021 should be restated. The misstatement related to the calculation of the weighted
average shares outstanding. The weighted average shares outstanding was inconsistent with the presentation of outstanding common stock
in the consolidated balance sheets and statements of stockholders’ equity, which reflected the recapitalization of common stock
based on the Exchange Ratio retrospectively to the earliest period presented . There was no impact to our condensed consolidated balance
sheets, condensed consolidated statements of stockholders’ equity (deficit), condensed consolidated statements of cash flows and
the condensed consolidated statements of operations and comprehensive loss, the only exception being net loss per share and weighted
average shares outstanding.
SomaLogic, Inc.
Notes to Consolidated Financial Statements
The effects of this error
on our previously reported 2021 condensed consolidated statements of operations and comprehensive loss on a quarter-to-date and year-to-date
basis are as follows:
| |
Three Months
Ended September 30, 2021 | |
(in thousands, except share and per share
amounts) | |
Originally
Reported | | |
Adjustment | | |
As Restated | |
Revenue | |
| | |
| | |
| |
Assay services revenue | |
$ | 17,499 | | |
$ | — | | |
$ | 17,499 | |
Product revenue | |
| 75 | | |
| — | | |
| 75 | |
Collaboration revenue | |
| 763 | | |
| — | | |
| 763 | |
Other revenue | |
| 1,655 | | |
| — | | |
| 1,655 | |
Total revenue | |
| 19,992 | | |
| — | | |
| 19,992 | |
| |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | |
Cost of assay services revenue | |
| 8,737 | | |
| — | | |
| 8,737 | |
Cost of product revenue | |
| 33 | | |
| — | | |
| 33 | |
Research and development | |
| 15,596 | | |
| — | | |
| 15,596 | |
Selling, general and administrative | |
| 20,632 | | |
| — | | |
| 20,632 | |
Total operating expenses | |
| 44,998 | | |
| — | | |
| 44,998 | |
Loss from operations | |
| (25,006 | ) | |
| — | | |
| (25,006 | ) |
Other (expense) income | |
| | | |
| | | |
| | |
Interest income and other, net | |
| 55 | | |
| — | | |
| 55 | |
Interest expense | |
| (2 | ) | |
| — | | |
| (2 | ) |
Change in fair value of warrant liabilities | |
| (8,111 | ) | |
| — | | |
| (8,111 | ) |
Change in fair value of earn-out liability | |
| (5,662 | ) | |
| — | | |
| (5,662 | ) |
Loss on extinguishment of debt, net | |
| (2,693 | ) | |
| — | | |
| (2,693 | ) |
Total other expense | |
| (16,413 | ) | |
| — | | |
| (16,413 | ) |
Net loss | |
$ | (41,419 | ) | |
$ | — | | |
$ | (41,419 | ) |
| |
| | | |
| | | |
| | |
Other comprehensive loss | |
| | | |
| | | |
| | |
Net unrealized loss on available-for-sale securities | |
| (15 | ) | |
| — | | |
| (15 | ) |
Foreign currency translation loss | |
| (4 | ) | |
| — | | |
| (4 | ) |
Total other comprehensive loss | |
| (19 | ) | |
| — | | |
| (19 | ) |
Comprehensive loss | |
$ | (41,438 | ) | |
$ | — | | |
$ | (41,438 | ) |
| |
| | | |
| | | |
| | |
Net loss per share, basic and diluted | |
$ | (0.55 | ) | |
$ | 0.25 | | |
$ | (0.30 | ) |
Weighted average shares used in computing net loss
per share, basic and diluted | |
| 75,684,521 | | |
| 61,491,707 | | |
| 137,176,228 | |
SomaLogic, Inc.
Notes to Consolidated Financial Statements
| |
Nine Months
Ended September 30, 2021 | |
(in thousands, except share and per share
amounts) | |
Originally
Reported | | |
Adjustment | | |
As Restated | |
Revenue | |
| | |
| | |
| |
Assay services revenue | |
$ | 48,308 | | |
$ | — | | |
$ | 48,308 | |
Product revenue | |
| 730 | | |
| — | | |
| 730 | |
Collaboration revenue | |
| 2,288 | | |
| — | | |
| 2,288 | |
Other revenue | |
| 7,306 | | |
| — | | |
| 7,306 | |
Total revenue | |
| 58,632 | | |
| — | | |
| 58,632 | |
| |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | |
Cost of assay services revenue | |
| 22,548 | | |
| — | | |
| 22,548 | |
Cost of product revenue | |
| 452 | | |
| — | | |
| 452 | |
Research and development | |
| 32,304 | | |
| — | | |
| 32,304 | |
Selling, general and administrative | |
| 48,274 | | |
| — | | |
| 48,274 | |
Total operating expenses | |
| 103,578 | | |
| — | | |
| 103,578 | |
Loss from operations | |
| (44,946 | ) | |
| — | | |
| (44,946 | ) |
Other (expense) income | |
| | | |
| | | |
| | |
Interest income and other, net | |
| 126 | | |
| — | | |
| 126 | |
Interest expense | |
| (1,324 | ) | |
| — | | |
| (1,324 | ) |
Change in fair value of warrant liabilities | |
| (8,111 | ) | |
| — | | |
| (8,111 | ) |
Change in fair value of earn-out liability | |
| (5,662 | ) | |
| — | | |
| (5,662 | ) |
Loss on extinguishment of debt, net | |
| (4,323 | ) | |
| — | | |
| (4,323 | ) |
Total other expense | |
| (19,294 | ) | |
| — | | |
| (19,294 | ) |
Net loss | |
$ | (64,240 | ) | |
$ | — | | |
$ | (64,240 | ) |
| |
| | | |
| | | |
| | |
Other comprehensive loss | |
| | | |
| | | |
| | |
Net unrealized loss on available-for-sale securities | |
| (7 | ) | |
| — | | |
| (7 | ) |
Foreign currency translation loss | |
| (3 | ) | |
| — | | |
| (3 | ) |
Total other comprehensive loss | |
| (10 | ) | |
| — | | |
| (10 | ) |
Comprehensive loss | |
$ | (64,250 | ) | |
$ | — | | |
$ | (64,250 | ) |
| |
| | | |
| | | |
| | |
Net loss per share, basic and diluted | |
$ | (1.01 | ) | |
$ | 0.48 | | |
$ | (0.53 | ) |
Weighted average shares used in computing net loss
per share, basic and diluted | |
| 63,752,006 | | |
| 58,516,437 | | |
| 122,268,443 | |
F-54
CM Life Sciences II (NASDAQ:CMII)
Historical Stock Chart
From Jun 2024 to Jul 2024
CM Life Sciences II (NASDAQ:CMII)
Historical Stock Chart
From Jul 2023 to Jul 2024