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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________________
FORM 10-Q
___________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-40606
___________________________
SERA PROGNOSTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
___________________________
Delaware26-1911522
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2749 East Parleys Way, Suite 200
Salt Lake City, Utah
84109
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (801) 990-0520
___________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A Common Stock, $0.0001 par value per shareSERA
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyx
Emerging growth companyx
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of August 4, 2023, the registrant had 29,877,246 and 1,405,259 shares of Class A and Class B common stock, $0.0001 par value per share, outstanding, respectively.



TABLE OF CONTENTS
“Sera,” “PreTRM,” “The Pregnancy Company” and our logo are our trademarks. All other service marks, trademarks, and trade names appearing in this quarterly report on Form 10-Q are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies. Solely for convenience, trademarks and tradenames referred to in this quarterly report on Form 10-Q may appear without the ® or ™ symbols, 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 that the applicable owner will not assert its rights, to these trademarks and tradenames. Unless the context otherwise requires, we use the terms “Sera,” “Company,” “we,” “us” and “our” in this report to refer to Sera Prognostics, Inc.
2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
estimates of our addressable market, market growth, future revenue, key performance indicators, expenses, capital requirements, and our needs for additional financing;
our expectations regarding the rate and degree of market acceptance of our products and services, including our PreTRM test;
the impact of our PreTRM test, including the results of any studies of the test, on the field of bioinformatics and proteomics and the size and growth of the addressable bioinformatics and proteomics market;
our ability to obtain funding for our operations;
our ability to manage and grow our business and commercialize our PreTRM test;
our ability to develop and commercialize new products and services;
our ability to retain the continued service of our key professionals and to identify, hire, and retain additional qualified professionals;
the pricing and reimbursement of our products and services;
the implementation of our business model, strategic plans for our business, products, services, and technology;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
developments relating to our competitors and our industry;
the accuracy of our estimates regarding expenses, capital requirements, and needs for additional financing;
conditions in general economic and financial markets; and
our financial performance.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in the “Risk Factors” section and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable as of the date of this report, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to new information, actual results or to changes in our expectations, except as required by law.
3

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
SERA PROGNOSTICS, INC.
Condensed Balance Sheets
(unaudited)
(in thousands, except share and per share data)
June 30,
2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents$32,285 $29,878 
Marketable securities31,536 52,826 
Accounts receivable163 113 
Other receivables 6,000 
Prepaid expenses and other current assets444 1,308 
Total current assets64,428 90,125 
Property and equipment, net2,411 3,059 
Long-term marketable securities28,307 21,329 
Other assets1,534 1,816 
Total assets$96,680 $116,329 
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable$1,244 $1,548 
Accrued and other current liabilities3,444 4,444 
Finance lease obligation, current portion446 464 
Deferred revenue9,049 9,082 
Total current liabilities14,183 15,538 
Finance lease obligation, net of current portion422 626 
Operating lease obligation, net of current portion938 1,222 
Total liabilities15,543 17,386 
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock, $0.0001 par value; 150,000,000 Class A shares authorized; 29,793,246 and 29,612,687 Class A shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively; 1,500,000 Class B shares authorized; 1,405,259 Class B shares issued and outstanding as of June 30, 2023 and December 31, 2022.
3 3 
Additional paid-in capital313,567 310,575 
Accumulated other comprehensive loss(672)(981)
Accumulated deficit(231,761)(210,654)
Total stockholders' equity81,137 98,943 
Total liabilities and stockholders' equity$96,680 $116,329 
The accompanying notes are an integral part of the condensed financial statements
4

SERA PROGNOSTICS, INC.
Condensed Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Revenue$123 $78 $223 $116 
Operating expenses:
Cost of revenue80 56 142 76 
Research and development3,688 3,261 7,791 6,583 
Selling and marketing2,872 4,219 5,690 8,677 
General and administrative4,943 4,288 9,389 8,826 
Total operating expenses11,583 11,824 23,012 24,162 
Loss from operations(11,460)(11,746)(22,789)(24,046)
Interest expense(14)(18)(30)(22)
Other income, net932 244 1,712 340 
Net loss$(10,542)$(11,520)$(21,107)$(23,728)
Net loss per share, basic and diluted$(0.34)$(0.37)$(0.68)$(0.77)
Weighted-average shares outstanding, basic and diluted31,077,420 30,945,616 31,048,526 30,873,995 
Other comprehensive (loss) gain:
Unrealized (loss) gain on available-for-sale debt securities $(215)$(162)$309 $(635)
Total other comprehensive (loss) gain(215)(162)309 (635)
Comprehensive loss$(10,757)$(11,682)$(20,798)$(24,363)
The accompanying notes are an integral part of the condensed financial statements
5

SERA PROGNOSTICS, INC.
Condensed Statements of Stockholders’ Equity
(unaudited)
(in thousands, except share data)
Common Stock
(Class A and B)
Additional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders'
Equity
SharesAmount
Balance as of December 31, 2022
31,017,946 $3 $310,575 $(981)$(210,654)$98,943 
Issuance of common stock upon exercise of stock options4,094 — 4 — — 4 
Stock-based compensation expense— — 1,304 — — 1,304 
Other comprehensive gain— — — 524 — 524 
Net loss— — — — (10,565)(10,565)
Balance as of March 31, 202331,022,040 3 311,883 (457)(221,219)90,210 
Issuance of common stock upon exercise of stock options117,839 — 178 — — 178 
Issuance of common stock under employee stock purchase plan58,626 — 66 — — 66 
Stock-based compensation expense— — 1,440 — — 1,440 
Other comprehensive loss— — — (215)— (215)
Net loss— — — — (10,542)(10,542)
Balance as of June 30, 202331,198,505 $3 $313,567 $(672)$(231,761)$81,137 
Common Stock
(Class A and B)
Additional Paid-In CapitalAccumulated Other Comprehensive LossAccumulated
Deficit
Total
Stockholders'
Equity
SharesAmount
Balance as of December 31, 2021
30,774,126 $3 $305,212 $(183)$(166,468)$138,564 
Issuance of common stock upon exercise of stock options123,467 — 98 — — 98 
Stock-based compensation expense— — 1,222 — — 1,222 
Other comprehensive loss— — — (473)— (473)
Net loss— — — — (12,208)(12,208)
Balance as of March 31, 202230,897,593 3 306,532 (656)(178,676)127,203 
Issuance of common stock upon exercise of stock options94,393 — 170 — — 170 
Stock-based compensation expense— — 1,214 — — 1,214 
Other comprehensive loss— — — (162)— (162)
Net loss— — — — (11,520)(11,520)
Balance as of June 30, 202230,991,986 $3 $307,916 $(818)$(190,196)$116,905 
The accompanying notes are an integral part of the condensed financial statements
6

SERA PROGNOSTICS, INC.
Condensed Statements of Cash Flows
(unaudited)
(in thousands)
Six Months Ended
June 30,
20232022
Cash flows from operating activities
Net loss$(21,107)$(23,728)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization472 350 
Stock-based compensation2,744 2,436 
Non-cash lease expense259 223 
Non-cash interest expense 9 
Other(414)5 
Changes in operating assets and liabilities:
Accounts receivable(50)(46)
Other receivables6,000 3,116 
Prepaid expenses and other assets872 1,054 
Accounts payable(289)(484)
Accrued and other current liabilities(1,284)(1,516)
Deferred revenue(32)(14)
Net cash used in operating activities(12,829)(18,595)
Cash flows from investing activities
Purchases of marketable securities(23,068)(21,217)
Proceeds from maturities and sales of marketable securities38,113 34,852 
Purchases of property and equipment(86)(226)
Proceeds from disposal of property and equipment269 16 
Net cash provided by investing activities15,228 13,425 
Cash flows from financing activities
Proceeds from exercise of stock options182 214 
Proceeds from employee stock purchase plan66  
Finance lease principal payments(240)(85)
Net cash provided by financing activities8 129 
Net increase (decrease) in cash and cash equivalents2,407 (5,041)
Cash and cash equivalents at beginning of period29,878 58,932 
Cash and cash equivalents at end of period$32,285 $53,891 
Supplemental disclosure of cash flow information
Cash paid for interest$30 $13 
Supplemental disclosure of non-cash investing and financing information
Purchases of property and equipment in accounts payable and accruals$ $68 
The accompanying notes are an integral part of the condensed financial statements
7

SERA PROGNOSTICS, INC.
Notes to Condensed Financial Statements
(Unaudited)
1. Description of Business and Financial Condition
Sera Prognostics, Inc. (the “Company”) is a women’s health company utilizing its proprietary proteomics and bioinformatics platform to discover, develop, and commercialize biomarker tests with an initial focus on improving pregnancy outcomes. The Company was incorporated in the State of Delaware on January 17, 2008 and its operations are located in Salt Lake City, Utah, including a Clinical Laboratory Improvement Amendments (“CLIA”)-certified laboratory.
Since its inception, the Company’s activities have consisted of performing research and development and conducting clinical studies for its pipeline products and services, acquiring product rights, raising capital, establishing facilities, and organizing commercial operations to market PreTRM.
Liquidity and Capital Resources
The accompanying condensed financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
The Company has incurred net losses and negative cash flows from operations since inception and had an accumulated deficit of $231.8 million as of June 30, 2023. The Company’s management expects the Company to incur significant additional operating losses and negative cash flows for the foreseeable future, principally as a result of the Company’s activities relating to the PreTRM test and the Company’s other pipeline products and services, including clinical and preclinical trials and anticipated research and development activities as well as commercialization activities. There can be no assurance that the Company will eventually achieve significant revenues or profitability to sustain operations, or if achieved, can sustain either on a continuing basis. If the Company is unable to achieve significant revenues or raise additional funds, when needed, it may not be able to continue the development or commercialization of its products and services and could be required to delay, scale back, or abandon some or all of its operations. No assurance can be given that the Company will be successful in raising the required capital on reasonable terms and at the required times, or at all. Any additional equity financing, if available to the Company, may not be available on favorable terms and may be dilutive to current stockholders, and any debt financing, if available, may involve restrictive covenants and dilutive financing instruments. The Company’s future operations are highly dependent on a combination of factors, including (i) the commercialization and market acceptance of the PreTRM test and the successful development, commercial launch, marketing, and distribution of other pipeline products and services; (ii) the success of scientific and clinical studies and other research and development programs that support current and future products and services; (iii) the development of competitive products by other biotechnology and laboratory companies; (iv) the Company’s ability to manage growth of the organization; (v) the Company’s ability to protect its intellectual property, technology, and products; and, ultimately (vi) the timely and successful completion of any additional financing.
The principal sources of the Company’s working capital to date have been the proceeds from the sale and issuance of convertible preferred stock and convertible notes, bank loans, and the sale and issuance of Class A common stock in an initial public offering (“IPO”), which was completed in July 2021. As of June 30, 2023, the Company had aggregate cash, cash equivalents, and available-for-sale securities of $92.1 million. See Note 3—Cash, Cash Equivalents and Marketable Securities.
The Company believes that its existing financial resources are sufficient to continue operating activities at least 12 months from the issuance date of these unaudited condensed financial statements.
2. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, these unaudited condensed financial statements should be read in
8

conjunction with the audited financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The unaudited interim condensed financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2022, and, in the opinion of the Company’s management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial results. The balance sheet as of December 31, 2022 has been derived from the audited financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. The results of the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the full year ending December 31, 2023, or any other period.
There have been no significant changes in the Company’s significant accounting policies during the six months ended June 30, 2023, as compared with those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 22, 2023.
Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S. GAAP included in the Accounting Standards Codification (“ASC”), and Accounting Standards Updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”).
Certain prior period amounts have been reclassified to conform with the current period’s presentation. The reclassifications did not have a significant impact on the condensed financial statements.
Use of Estimates
The preparation of the condensed financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes. The Company evaluates these estimates on an ongoing basis. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ materially from those estimates.
The Company’s financial statements as of and for the three and six months ended June 30, 2023 reflect the Company’s estimates of the impact of the current macroeconomic environment, including the impact of inflation and higher interest rates. The extent to which these conditions will directly or indirectly impact the Company’s business, results of operations, and financial condition is uncertain. The Company is not aware of any specific event or circumstance that would require an update to its estimates, judgments and assumptions or a revision of the carrying value of the Company’s assets or liabilities as of the date of this filing.
9

3. Cash, Cash Equivalents and Marketable Securities
The Company has classified its marketable securities as available-for-sale. The Company’s cash, cash equivalents and marketable securities by major security type as of June 30, 2023 and December 31, 2022 were as follows (in thousands):
June 30, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash and cash equivalents:
Cash$1,784 $ $ $1,784 
Money market funds85   85 
Commercial paper30,423  (7)30,416 
Total cash and cash equivalents32,292  (7)32,285 
Current marketable securities:
Commercial paper9,236  (14)9,222 
U.S. federal agency securities9,068  (130)8,938 
U.S. government securities13,561  (185)13,376 
Total current marketable securities31,865  (329)31,536 
Long-term marketable securities:
U.S. federal agency securities20,338  (254)20,084 
U.S. government securities7,150  (74)7,076 
Corporate debt securities1,156  (9)1,147 
Total long-term marketable securities28,644  (337)28,307 
Total cash, cash equivalents and marketable securities$92,801 $ $(673)$92,128 
December 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesFair Value
Cash and cash equivalents:
Cash$913 $ $ $913 
Money market funds2,618   2,618 
Commercial paper26,356  (9)26,347 
Total cash and cash equivalents29,887  (9)29,878 
Current marketable securities:
Commercial paper15,219 2 (66)15,155 
Corporate debt securities507  (5)502 
U.S. federal agency securities28,964  (364)28,600 
U.S. government securities8,702  (133)8,569 
Total current marketable securities53,392 2 (568)52,826 
Long-term marketable securities:
U.S. federal agency securities9,810  (199)9,611 
U.S. government securities10,770  (208)10,562 
Corporate debt securities1,156   1,156 
Total long-term marketable securities21,736  (407)21,329 
Total cash, cash equivalents and marketable securities$105,015 $2 $(984)$104,033 
10

The following tables summarize the Company’s available-for-sale debt securities and cash equivalents with unrealized losses as of June 30, 2023 and December 31, 2022, aggregated by major security type and the length of time that individual securities have been in a continuous loss position (in thousands):
June 30, 2023
Less than 12 months12 months or greaterTotal
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Commercial paper$39,638 $(21)$ $ $39,638 $(21)
Corporate debt securities1,147 (9)  1,147 (9)
U.S. federal agency securities23,851 (288)5,171 (96)29,022 (384)
U.S. government securities16,276 (241)4,176 (18)20,452 (259)
Total$80,912 $(559)$9,347 $(114)$90,259 $(673)
December 31, 2022
Less than 12 months12 months or greaterTotal
Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Commercial paper$40,063 $(75)$ $ $40,063 $(75)
Corporate debt securities1,156  502 (5)1,658 (5)
U.S. federal agency securities12,869 (228)25,342 (335)38,211 (563)
U.S. government securities10,562 (208)8,569 (133)19,131 (341)
Total$64,650 $(511)$34,413 $(473)$99,063 $(984)
As of June 30, 2023 and December 31, 2022, the Company had not recorded any allowance for credit losses related to its available-for-sale securities. The Company attributes the declines in the fair value of its available-for-sale securities to normal market and interest rate fluctuations. The declines in fair value are not attributed to declines in credit quality. The Company does not intend to sell investments while they are in an unrealized loss position and does not believe that it is more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. All of the Company’s investments mature in less than two years.
The Company’s marketable securities classified by contractual maturities as of June 30, 2023 were as follows (in thousands):
Amortized CostFair Value
Due within one year$31,865 $31,536 
Due after one year through five years28,644 28,307 
Total$60,509 $59,843 
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4. Property and Equipment
The following table presents the components of property and equipment, net, as of June 30, 2023 and December 31, 2022 (in thousands):
June 30,
2023
December 31,
2022
Laboratory equipment$5,738 $5,914 
Computer equipment1,214 1,230 
Leasehold improvements710 710 
Software1,141 1,141 
Furniture and fixtures320 320 
Total property and equipment9,123 9,315 
Less accumulated depreciation and amortization(6,712)(6,256)
Property and equipment, net$2,411 $3,059 
Depreciation and amortization expense was $0.2 million for each of the three months ended June 30, 2023 and 2022. Depreciation and amortization expense was $0.5 million and $0.4 million for the six months ended June 30, 2023 and 2022, respectively.
5. Accrued and Other Current Liabilities
The following table presents the components of accrued and other current liabilities as of June 30, 2023 and December 31, 2022 (in thousands):
June 30,
2023
December 31,
2022
Accrued compensation$1,678 $2,290 
Accrued vacation433 430 
Accrued 401(k) matching contributions135 568 
Operating lease liability, current portion548 519 
Other current liabilities650 637 
Total accrued and other current liabilities$3,444 $4,444 
6. Other Income, net
The following table presents the components of other income, net, for the three and six months ended June 30, 2023 and 2022 (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Interest income$337$66$593$144
Investment income, net5951781,119196
Other income, net$932$244$1,712$340
7. Fair Value Measurements
As of June 30, 2023 and December 31, 2022, the carrying amounts of the Company’s receivables, prepaid and other current assets, accounts payable, and accrued and other current liabilities approximate their fair values, principally due to the short-term nature of the assets and liabilities. The recorded values of the finance leases approximate fair value as the interest rates approximate market interest rates.
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Money market funds are highly liquid investments and are actively traded. The pricing information on money market funds is readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.
U.S. government agency bonds, U.S. government bonds, commercial paper, and corporate debt securities are measured at fair value using Level 2 inputs. The Company reviews trading activity and pricing for these investments as of each measurement date.
The Company follows a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The three levels of the fair value hierarchy are as follows:
Level 1 inputs are observable, quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2 inputs are observable inputs other than quoted prices included in Level 1 that are observable either directly or indirectly or 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 inputs are unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions.
The following table shows the Company’s assets measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands) as of June 30, 2023:
Level 1Level 2Level 3
Assets:
Cash equivalents:
Money market funds$85 $ $ 
Commercial paper 30,416  
Marketable securities:
Commercial paper 9,222  
Corporate debt securities 1,147  
U.S. federal agency securities 29,022  
U.S. government securities 20,452  
Total assets$85 $90,259 $ 
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The following table shows the Company’s assets measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands) as of December 31, 2022:
Level 1Level 2Level 3
Assets:
Cash equivalents:
Money market funds$2,618 $ $ 
Commercial paper 26,347  
Marketable securities:
Commercial paper 15,155  
Corporate debt securities 1,658  
U.S. federal agency securities 38,211  
U.S. government securities 19,131  
Total assets$2,618 $100,502 $ 
8. Related Party Transactions
In June 2019, the Company entered into a master services agreement with Carelon Research, a subsidiary of Elevance Health, Inc. (“Elevance Health”). This agreement covers a range of research projects, including Carelon Research’s role as a contract research organization for the Prematurity Risk Assessment Combined With Clinical Interventions for Improving Neonatal outcoMEs (“PRIME”) study. The Company paid fees related to this agreement of $0.8 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and $1.7 million and $1.1 million for the six months ended June 30, 2023 and 2022, respectively, which were recorded in research and development expenses. Fees incurred under this agreement generally increase as the Company enrolls more PRIME study patients. In November 2020, the Company entered into a Laboratory Services Agreement with Elevance Health related to the PRIME study. This agreement provides a contracted rate for certain tests performed pursuant to the study, and revenue varies depending on the number of tests performed for PRIME patients that are members of the Elevance Health network. The Company recognized revenues related to this agreement of $14 thousand and $23 thousand for the three months ended June 30, 2023 and 2022, respectively, and $34 thousand and $42 thousand for the six months ended June 30, 2023 and 2022, respectively.
In February 2021, the Company entered into a commercial collaboration agreement with Elevance Health and its affiliates (the “Commercial Collaboration Agreement”). The Commercial Collaboration Agreement provides defined payment within a defined period for use of the PreTRM test within Elevance Health’s network of covered members. Pursuant to the Commercial Collaboration Agreement, Elevance Health agreed to purchase a certain minimum number of tests for each of the first three years of the term of the agreement. Additionally, Elevance Health agreed to pay a certain minimum amount per year for the first three years of the term of the Commercial Collaboration Agreement. The Company received $6.0 million during the six months ended June 30, 2023, which amount related to the minimum payments for the year ended December 31, 2022. Such minimum payments were initially recorded as deferred revenue. Deferred revenue is recognized as revenue when the Company delivers PreTRM test results to Elevance Health patients pursuant to the Commercial Collaboration Agreement. The Company also agreed to develop a sales, marketing, and customer service program, and to provide training and marketing to duly licensed physicians specializing in obstetrics and gynecology or family medicine, or licensed nurse midwives, at the reasonable request of Elevance Health.
Elevance Health has been participating in the Company’s PRIME study, and at the conclusion of the PRIME study, under the Commercial Collaboration Agreement, the parties agreed to use commercially reasonable efforts to enter into Elevance Health’s standard lab provider agreement. Unless earlier terminated due to breach, the Commercial Collaboration Agreement will remain in effect until the later of (a) the third anniversary of the effective date or (b) the date on which Elevance Health has purchased a fixed number of PreTRM tests as agreed by the parties.
The Commercial Collaboration Agreement with Elevance Health is considered to be within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”), as the parties are active participants and exposed to the risks and rewards of the collaborative activity. The Company determined the PreTRM tests to be a performance obligation for which Elevance Health is a customer and a unit of account within the scope of ASC 606. The associated transaction price is based on the contractual minimum number of tests and the agreed upon defined payment amount per test. The transaction price was allocated to this single performance obligation, which will be recognized upon delivery of test results expected to
14

occur over the term of the agreement. All other items promised to Elevance Health are immaterial in the context of the Commercial Collaboration Agreement. There were no material revenues related to the Commercial Collaboration Agreement for the three and six months ended June 30, 2023 and 2022.
9. Capital Structure
The Company has two authorized classes of common stock, Class A and Class B. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote and shares of Class B common stock are non-voting. Each share of Class B common stock may be converted at any time to one share of Class A common stock at the option of its holder, subject to the ownership limitations provided for in the Company’s amended and restated certificate of incorporation.
The following shares of Class A common stock were reserved for future issuance:
June 30,
2023
December 31,
2022
Warrants to purchase Class A common stock2,775,978 2,775,978 
Options to purchase Class A common stock8,062,442 8,428,441 
Restricted stock units outstanding240,832  
Class A common stock available for future grants under the 2021 Equity Incentive Plan3,114,097 1,926,356 
Class A common stock available for future grants under the 2021 Employee Stock Purchase Plan836,277 598,777 
Total15,029,626 13,729,552 
10. Stock-Based Compensation
Equity Incentive Plans
In November 2011, the Company established the 2011 Employee, Director and Consultant Equity Incentive Plan (the “2011 Plan”) and reserved shares of the Company’s common stock for sale and issuance under the 2011 Plan. Options granted under the 2011 Plan generally vest over a four-year period and generally expire ten years from the date of grant. Options are exercisable only to the extent vested. The 2011 Plan terminated in November 2021, and accordingly, no additional shares are available for grant under the 2011 Plan. The 2011 Plan continues to govern outstanding awards granted under the 2011 Plan.
The 2021 Equity Incentive Plan (the “2021 Plan”) was established in July 2021. The 2021 Plan provides for the grant of incentive and non-statutory stock options as well as other stock rights to employees, directors, and consultants of the Company. Options generally vest over a four-year period, are exercisable only to the extent vested, and generally expire ten years from the date of grant. Restricted stock units (“RSUs”) generally vest over a four-year period. The 2021 Plan includes provisions for annual automatic increases to the number of shares of Class A common stock reserved for issuance under the 2021 Plan. In addition, any shares that otherwise would be returned to the 2011 Plan as a result of the expiration or cancellation of stock options may be added to the 2021 Plan. As of June 30, 2023, there were 3,114,097 shares of the Company’s Class A common stock that were available for future grants under the 2021 Plan.
The 2021 Employee Stock Purchase Plan (the “2021 ESPP”) was established in July 2021. The 2021 ESPP includes provisions for annual automatic increases to the number of shares of Class A common stock reserved for issuance under the 2021 ESPP. As of June 30, 2023, there were 836,277 shares of the Company’s Class A common stock that were available for future grants under the 2021 ESPP.
15

Stock Options
Unless otherwise noted, references to “options” in the subsequent disclosures, refers to the combined incentive and non-statutory stock options issued as employee and non-employee stock-based compensation, and authorized under the 2011 Plan and the 2021 Plan. The following table summarizes information about these options granted and outstanding:
Number of
Shares
Subject to
Options
Outstanding
Weighted-
Average
Exercise Price
Per Share
Weighted-
Average
Remaining
Contractual
Life (In Years)
Aggregate
Intrinsic Value
(In Thousands)
Outstanding — December 31, 2022
8,428,441 $3.65 7.7$115 
Granted991,866 3.49 
Expired  
Cancelled(1,235,932)4.06 
Exercised(121,933)1.49 
Outstanding — June 30, 2023
8,062,442 $3.60 7.4$6,701 
Vested and expected to vest at June 30, 2023
7,828,850 $3.58 7.3$6,659 
Vested and exercisable at June 30, 2023
5,411,736 $3.09 6.7$6,070 
RSUs
The following table summarizes information about RSUs granted and outstanding under the 2021 Plan:
Number of AwardsWeighted-Average Grant Date Fair Value
Outstanding — December 31, 2022 $ 
Granted347,824 3.79 
Forfeited(106,992)3.75 
Vested  
Outstanding — June 30, 2023240,832 $3.80 
Stock-Based Compensation Expense
The following table presents the impact of stock-based compensation expense in the statements of operations for the periods indicated (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Research and development expense$382 $451 $732 $834 
Sales and marketing expense294 76 477 389 
General and administrative expense764 687 1,535 1,213 
Total employee stock-based compensation$1,440 $1,214 $2,744 $2,436 
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The information about unrecognized stock-based compensation expense for outstanding unvested stock options and RSUs as of June 30, 2023 was as follows (in thousands, except years):
Unrecognized Stock-Based Compensation ExpenseWeighted-Average Period of Recognition (in years)
Stock Options$7,303 2.0
RSUs670 3.7
Total unrecognized stock-based compensation expense$7,973 
11. Warrants
All outstanding common stock warrants were exercisable immediately when granted. All outstanding common stock warrants are exercisable for shares of Class A common stock. The Company’s common stock warrants outstanding were as follows:
Number of Warrants Outstanding as of:
Exercise PriceJune 30, 2023December 31, 2022
$5.20 3,473 3,473 
9.03 1,032,404 1,032,404 
10.84 1,009,795 1,009,795 
12.38 8,083 8,083 
20.77 722,223 722,223 
2,775,978 2,775,978 
12. Commitments and Contingencies
Leases
The Company is the lessee in all of its lease arrangements. The Company did not enter into any leases with related parties during the presented periods. The Company makes assumptions and judgments when assessing contracts for lease components, determining lease classifications, and calculating right-of-use asset and lease liability values. These assumptions and judgments may include the useful lives and fair values of the leased assets, the implicit rate underlying the Company’s leases, the Company’s incremental borrowing rate or the Company’s intent to exercise or not exercise options available in lease contracts.
The following table shows right-of-use assets and lease liabilities, and the associated financial statement line items as of June 30, 2023 and December 31, 2022 (in thousands):
Lease-Related Assets and LiabilitiesFinancial Statement Line ItemsJune 30,
2023
December 31,
2022
Right-of-use assets:
Operating leasesOther assets$1,448 $1,707 
Finance leasesProperty and equipment, net1,169 1,317 
Total right-of-use assets$2,617 $3,024 
Lease liabilities:
Operating leasesAccrued and other current liabilities$548 $519 
Operating lease obligation, net of current portion938 1,222 
Finance leasesFinance lease obligation, current portion446 464 
Finance lease obligation, net of current portion422 626 
Total lease liabilities$2,354 $2,831 
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Lease costs and other information consisted of the following (in thousands, except terms and rates):
Three Months Ended
June 30,
Six Months Ended
June 30,
2023202220232022
Lease cost
Finance lease cost:
Amortization of right-of-use assets$83 $67 $166 $113 
Interest on lease liabilities14 18 30 22 
Operating lease cost159 116 318 233 
Total lease cost$256 $201 $514 $368 
Other information
Finance leases:
Operating cash outflows$14 $11 $30 $13 
Financing cash outflows$120 $67 $240 $85 
Right-of-use assets obtained in exchange for lease liabilities$18 $295 $18 $1,253 
Weighted-average remaining lease term (in years)1.82.71.82.7
Weighted-average discount rate
6.5%
6.4%
6.5%
6.4%
Operating leases:
Operating cash outflows$157 $151 $314 $302 
Right-of-use assets obtained in exchange for lease liabilities$ $ $ $453 
Weighted-average remaining lease term (in years)2.50.52.50.5
Weighted-average discount rate
7.5%
4.5%
7.5%
4.5%
Future minimum lease payments for the Company’s leases as of June 30, 2023 were as follows (in thousands):
Operating LeasesFinance LeasesTotal
2023$314 $252 $566 
2024646 469 1,115 
2025666 198 864 
2026 2 2 
2027 and thereafter   
Total minimum lease payments1,626 921 2,547 
Less: imputed interest(140)(53)(193)
Present value of future lease payments1,486 868 2,354 
Less: current portion548 446 994 
Long-term portion$938 $422 $1,360 
Operating Leases
The Company leases a total of approximately 24,300 square feet of office and laboratory space under a single non-cancelable operating lease with a termination date of December 31, 2025 (as amended, the “Office Lease”). The Office Lease includes an early termination right which termination would occur under certain circumstances, as provided in the amended Office Lease, after July 1, 2024, if exercised. The Company is not currently reasonably certain it will exercise the termination right. The implicit rate provided in the Company’s operating lease is not readily determinable. As such, the Company uses its incremental borrowing rate to calculate the present value of its operating lease liabilities.
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Finance Leases
The Company leases certain equipment related to its information technology infrastructure and laboratory operations. All of the Company’s current finance leases include bargain purchase options that the Company is reasonably certain to exercise. The Company has elected not to separate lease and non-lease components for its equipment leases. The rates implicit in the Company’s finance leases are determinable, and the Company uses those rates to calculate the present value of its finance lease liabilities.
Indemnification
The Company has agreed to indemnify its officers and directors for certain events or occurrences while the officer or director is or was serving at the Company’s request in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company purchases director and officer insurance coverage that provides for corporate reimbursements of covered obligations that limits the Company’s exposure and enables it to recover a portion of potential future amounts paid. The Company is unable to reasonably estimate the maximum amount that could be payable under these arrangements since these obligations are not capped but are conditional to the unique facts and circumstances involved. Accordingly, the Company has no liabilities recorded for these agreements as of June 30, 2023 and December 31, 2022. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
Employee Agreements
The Company has signed various employment agreements with key executives pursuant to which, if their employment is terminated by the Company without cause or by the employees for good reason, or following a change of control of the Company, the employees are entitled to receive certain benefits, including severance payments, accelerated vesting of stock and stock options, and certain insurance benefits.
Legal Matters
The Company is not currently a party to any material litigation or other material legal proceedings. The Company may, from time to time, be involved in various legal proceedings arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect the Company’s future results of operations, cash flows, or financial position.
13. Net loss per share
The Company calculates net loss per share of Class A and Class B common stock using the two-class method. For periods in which the Company reports a net loss, all potentially dilutive shares are anti-dilutive and are therefore excluded from the calculation of diluted net loss per share. For the three and six months ended June 30, 2023 and 2022, the Company reported net losses and as such, basic and diluted net loss per share are the same.
As the liquidation and dividend rights are identical for Class A and Class B common stock, the undistributed earnings are allocated on a proportionate basis and the resulting amount per share for Class A and Class B common stock was the same for the three and six months ended June 30, 2023 and 2022.
The Company excluded the following potentially dilutive securities, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because their impact would have been anti-dilutive:
June 30,
20232022
Warrants to purchase Class A common stock2,775,978 2,788,484 
Options to purchase Class A common stock8,062,442 8,743,143 
Restricted stock units outstanding240,832  
Total11,079,252 11,531,627 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Investors and others should note that we routinely use the Investors section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investors section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that we share on the Investors section of our website, investors.seraprognostics.com.
Overview
We are a women’s health company utilizing our proprietary proteomics and bioinformatics platform, and significant data resources, to discover, develop, and commercialize blood-based biomarker tests, with an initial focus on improving maternal and neonatal health. We believe that our method of combining the disciplines of proteomics and bioinformatics with rigorous clinical testing, data, and economic analysis enables us to provide physicians and patients with clinically meaningful and economically impactful information designed to improve the pregnancy experience and outcomes for mothers and babies. Our vision is to deliver pivotal and actionable information to pregnant women, their physicians, and health care payers to significantly enhance a mother’s pregnancy journey, improve maternal and neonatal health, and dramatically reduce health care costs. We have built an advanced, proprietary, and scalable proteomics and bioinformatics platform to characterize the biology of pregnancy and to discover and validate key protein biomarkers found in blood that are highly accurate predictors of dynamic changes that occur during pregnancy. By incorporating our proprietary technology platform into our rigorous data-driven development process, we have created a differentiated approach for effectively addressing major milestones and conditions of pregnancy. We see our large and growing pregnancy dataset (clinical, demographic, proteomic) as a substantial asset for understanding pregnancy complications, health inequities, and the personal pregnancy journey. We envision that our comprehensive approach will enable us to fully characterize one of the most important periods in the lives of women and children, and will help to improve their well-being. Our goal is to develop and commercialize tests that inform important decisions during all pregnancies.
Our first commercial product, the PreTRM test, is the only broadly validated, commercially available blood-based biomarker test to accurately predict the risk of a premature delivery, also known as preterm birth. The PreTRM test is a non-invasive blood test given to a pregnant woman, carrying a single fetus, during weeks 18 through 20 of gestation that provides an accurate prediction of the expectant mother’s risk of delivering spontaneously before 37 weeks’ gestation. Our commercialization strategy includes conducting clinical trials to demonstrate the health and economic benefits of early and accurate detection of preterm birth risk coupled with well-recognized interventions in higher risk patients.
We believe market adoption by both health care providers and payers will be aided by positive data from our Serum Assessment of Preterm Birth Outcomes Compared to Historical Controls study, or the AVERT PRETERM TRIAL, our Prematurity Risk Assessment Combined With Clinical Interventions for Improving Neonatal outcoMEs study, or PRIME study, and other real-world evidence studies. We believe the data from these studies will be published over the next one to three years and, together with our current body of evidence, will further demonstrate the clinical and economic utility of our test. We are excited about the conclusion of the PRIME study, which has a pre-specified interim look to evaluate the two co-primary endpoints, total neonatal hospital length of stay and composite neonatal morbidity and mortality, with a stopping criterion of statistical significance being reached by either one of these outcomes. We have enrolled sufficient numbers of PRIME study patients to enable the interim analysis to occur in 2023.
There are approximately 140 million births globally each year, and approximately 3.7 million births annually in the United States. Of these, it is estimated that as many as 30% are affected by various complications (i.e., a high-risk pregnancy), including: preterm birth, preeclampsia, fetal growth restriction, stillbirth, hypertension of pregnancy, gestational diabetes, and others. In many cases these complications have profound short- and long-term health consequences for the mother and baby. These health consequences of preterm birth alone are estimated to be approximately $25 billion annually in the United States. This underscores that existing methods to predict adverse pregnancy outcomes
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are insufficient for timely and effective proactive management for the vast majority of high-risk pregnancies. We believe there is a coming shift in the guidelines set by professional societies establishing the standard of care administered to each patient, and the primary differentiator of that care will be based on a determination of high or low risk.
We are actively discovering and developing several additional biomarker tests to predict other major conditions of pregnancy, such as preeclampsia, and gestational diabetes, among others, that have the potential to offer significant health and lifestyle benefits to women and their babies.
Our operations are headquartered in Salt Lake City, Utah, including a CLIA-certified laboratory. Since our inception, we have devoted the majority of our efforts and resources to performing research and development, acquiring product rights, raising capital, establishing facilities, conducting clinical trials, and establishing commercial operations to develop and commercialize the PreTRM test. During this period, we have incurred annual net losses. We have largely funded our operations with proceeds from the sale and issuance of convertible preferred stock, debt financings, bank loans, and the sale and issuance of Class A common stock in our initial public offering, or IPO, which was completed in July 2021.
We have incurred significant operating losses since inception. Our net losses were $10.5 million and $11.5 million for the three months ended June 30, 2023 and 2022, respectively, and $21.1 million and $23.7 million for the six months ended June 30, 2023 and 2022, respectively. We expect to incur significant additional operating losses and negative cash flows for the foreseeable future, principally as a result of our commercialization activities for the PreTRM test, and to support additional clinical studies, publications, and anticipated research and development of our other pipeline products and services.
We have recently taken steps to reduce our annual operating expenses across all aspects of our business and we believe our cash runway is sufficient for several years based on our existing operating plans. We will continue to evaluate the allocation of our resources as we focus our efforts to accelerate the market adoption of our PreTRM test and the development and launch of additional pipeline products and services. We will continue to negotiate contracts with private and governmental payers and health systems in anticipation of positive results from the PRIME study and the AVERT PRETERM TRIAL. We believe these efforts will eventually result in material revenues. However, if we are unable to secure payer contracts and generate significant market adoption by providers resulting in significant revenues, or if we fail to develop and successfully market our additional tests that generate additional revenues, we may be required to delay, scale back or abandon some, or all, of our development programs and other operations. Until such time as we can generate significant revenue from the sales of our products, if ever, we may need to continue to finance our cash needs through equity offerings, debt financings or other capital sources, potentially including collaborations or other similar arrangements. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends and may require the issuance of warrants. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may have to significantly delay, reduce, or eliminate some or all of our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Our ability to access capital when needed is not assured and, if not achieved on a timely basis, will materially harm our business, financial condition, and results of operations.
Key Components of Our Results of Operations
Revenues
Substantially all of our revenue in the near term is expected to come from sales of the PreTRM test. We expect to derive future revenues from PreTRM and other pipeline tests. We generally expect PreTRM revenue to increase as sales volumes increase and as we continue to engage with payers and health systems to close payment contracts. Additional contracts with upfront negotiated payment rates are expected to eventually result in additional revenues when health care providers order the PreTRM test. We believe market adoption by both health care providers and payers will be aided by the publication of positive PRIME study data and other evidence generated within the next three years. Revenue from our other pipeline products and services is expected to be dependent on our ability to successfully market them to patients, providers, payers, and, in most cases, a combination of the three.
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Operating Expenses
Cost of Revenue
Cost of revenue reflects the aggregate costs incurred in delivering the proteomic testing results to clinicians and includes expenses for third-party specimen collection and shipping costs, as well as our lab personnel, materials and supplies, equipment, and infrastructure expenses associated with clinical testing, and allocated overhead including rent and equipment depreciation. We expect costs of revenue will generally move in line with the sales of the PreTRM test.
Research and Development Expenses
Research and development expenses consist of costs incurred for our research activities and development of our product candidates. These expenses include:
clinical and real-world studies;
laboratory processes;
research and bioinformatic activities;
biobanking and publication efforts;
personnel-related expenses, including salaries, payroll taxes, employee benefits, and stock-based compensation charges for employees engaged in these research and development activities;
direct study expenses incurred under agreements with study sites or contract research organizations;
consultants engaged in our research and development efforts;
laboratory materials and supplies;
facilities costs; and
depreciation, amortization, and other direct and allocated expenses, including rent, insurance, and other operating costs, incurred as a result of our research and development activities.
We expense all research and development costs, both internal and external, in the period in which they are incurred. We expect that our research and development expenses may increase for the remainder of 2023 as we seek to accelerate enrollment in our PRIME study. Research and development costs may increase in the medium to long-term as we support current and additional clinical studies, publications, and other product development activities.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of salaries, payroll taxes, employee benefits, and stock-based compensation charges for sales, marketing, and payer access personnel. Other significant costs include travel, consulting, public relations, and legal costs related to commercial efforts. We expect selling and marketing expenses to decrease for the remainder of 2023 compared to the first half of 2023, as we recently took steps to further streamline our near-term commercial strategy to refocus on institutional sales as we generate additional clinical data. We expect selling and marketing expenses to increase in the medium to long-term as we increase our product portfolio and expand our commercial strategy as opportunity dictates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, payroll taxes, employee benefits, and stock-based compensation charges for personnel in executive, finance, information technology, human resources, and other administrative functions. Other significant costs include facilities, corporate and intellectual property legal fees, accounting, insurance, consulting, and other professional fees.
We expect general and administrative expenses will decrease for the remainder of 2023 as we continue streamlining our costs to maintain the appropriate level of support for our current level of operations. We expect general and administrative expenses will remain at that level through 2024, but such expenses could increase in the long-term as needed to support future operations and anticipated revenue growth.
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Interest Expense
Interest expense represents interest incurred on our finance leases.
Other Income, Net
Other income, net consists of interest income and other investment income earned on our cash, cash equivalents, and marketable securities, and other gains and losses.
Results of Operations
The results of operations presented below should be reviewed in conjunction with the condensed financial statements and related notes included elsewhere in this report.
Comparison of the Three Months Ended June 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022:
Three Months Ended June 30,
20232022$ Change
(in thousands)
(unaudited)
Revenue$123 $78 $45 
Operating expenses:
Cost of revenue80 56 24 
Research and development3,688 3,261 427 
Selling and marketing2,872 4,219 (1,347)
General and administrative4,943 4,288 655 
Total operating expenses11,583 11,824 (241)
Loss from operations(11,460)(11,746)286 
Interest expense(14)(18)
Other income, net932 244 688 
Net loss$(10,542)$(11,520)$978 
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended June 30, 2023 and 2022:
Three Months Ended June 30,
20232022$ Change
(in thousands)
(unaudited)
Research and development expenses:   
Clinical studies$1,540 $1,100 $440 
Research and bioinformatics1,079 1,151 (72)
Laboratory operations1,069 1,010 59 
Total research and development expenses$3,688 $3,261 $427 
The $0.4 million increase was due to a $0.4 million increase in clinical study costs and a $0.1 million increase in laboratory operations costs, partially offset by a $0.1 million decrease in research and bioinformatics expenses. The $0.4 million increase in clinical study costs was primarily due to a $0.5 million increase resulting from the increased enrollment and site setup activity in the PRIME study. The $0.1 million increase in laboratory operations costs was
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primarily due to a $0.1 million increase in depreciation related to additional equipment and capitalized software. The $0.1 million decrease in research and bioinformatics costs was primarily due to a $0.1 million decrease in specimen acquisition costs related to product development.
Selling and Marketing Expenses
The $1.3 million decrease was due primarily to decreases of $1.2 million in personnel-related costs driven by decreased average headcount, $0.3 million in travel expenses, $0.2 million in consulting and other professional service fees, partially offset by a $0.4 million increase in severance-related costs.
General and Administrative Expenses
The $0.7 million increase was due primarily to increases of $0.6 million related to one-time personnel costs, $0.2 million of various legal expenses, and $0.1 million of stock-based compensation expense, partially offset by a $0.3 million decrease in personnel expenses driven by decreased average headcount.
Other Income, Net
The $0.7 million increase in other income, net was due to a $0.4 million increase related primarily to investment income on our marketable securities and a $0.3 million increase in interest income related primarily to our marketable securities.
Comparison of the Six Months Ended June 30, 2023 and 2022
The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022:
Six Months Ended June 30,
20232022$ Change
(in thousands)
(unaudited)
Revenue$223 $116 $107 
Operating expenses:
Cost of revenue142 76 66 
Research and development7,791 6,583 1,208 
Selling and marketing5,690 8,677 (2,987)
General and administrative9,389 8,826 563 
Total operating expenses23,012 24,162 (1,150)
Loss from operations(22,789)(24,046)1,257 
Interest expense(30)(22)(8)
Other income, net1,712 340 1,372 
Net loss$(21,107)$(23,728)$2,621 
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Research and Development Expenses
The following table summarizes our research and development expenses for the six months ended June 30, 2023 and 2022:
Six Months Ended June 30,
20232022$ Change
(in thousands)
(unaudited)
Research and development expenses:   
Clinical studies$3,370 $2,343 $1,027 
Research and bioinformatics2,175 2,190 (15)
Laboratory operations2,246 2,050 196 
Total research and development expenses$7,791 $6,583 $1,208 
The $1.2 million increase was due to a $1.0 million increase in clinical study costs and a $0.2 million increase in laboratory operations costs. The $1.0 million increase in clinical study costs is due to a $1.0 million increase resulting from the increased enrollment and site setup activity in the PRIME study. The $0.2 million increase in laboratory operations costs is primarily due to a $0.2 million increase in depreciation related to additional equipment and capitalized software.
Selling and Marketing Expenses
The $3.0 million decrease was due primarily to decreases of $2.3 million in personnel-related costs driven by decreased average headcount, $0.5 million in travel expenses, $0.4 million in consulting and other professional service fees, partially offset by a $0.2 million increase in severance-related costs.
General and Administrative Expenses
The $0.6 million increase was due primarily to increases of $0.6 million related to one-time personnel costs, $0.3 million of stock-based compensation expense, $0.2 million of legal expenses, and $0.1 million of travel expenses, partially offset by a $0.5 million decrease in director and officer insurance costs and a $0.3 million decrease in personnel expenses driven by decreased average headcount.
Other Income, Net
The $1.4 million increase in other income, net was due to a $0.9 million increase related primarily to investment income on our marketable securities and a $0.5 million increase in interest income related primarily to our marketable securities.
Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have not generated a significant amount of commercial revenue from product sales or any other sources and have incurred significant operating losses and negative cash flows from operations. We anticipate that we will continue to incur net losses for the foreseeable future. We have financed our operations primarily through proceeds from the sale and issuance of convertible preferred stock and convertible notes, bank loans, and the sale and issuance of Class A common stock in our IPO, which was completed in July 2021. As of June 30, 2023, we had aggregate cash, cash equivalents, and available-for-sale securities of $92.1 million, and an accumulated deficit of $231.8 million.
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Cash Flows
The following table summarizes our cash flows for the periods indicated:
Six Months Ended June 30,
20232022
(in thousands)
(unaudited)
Net cash provided by (used in):  
Operating activities$(12,829)$(18,595)
Investing activities15,228 13,425 
Financing activities129 
Net increase (decrease) in cash and cash equivalents$2,407 $(5,041)
Operating Activities
The net cash used in operating activities during the six months ended June 30, 2023 was primarily due to a net loss of $21.1 million partially offset by non-cash charges of $3.1 million and an increase in operating assets and liabilities of $5.2 million. The net cash used in operating activities during the six months ended June 30, 2022 was primarily due to a net loss of $23.7 million partially offset by non-cash charges of $3.0 million and an increase in operating assets and liabilities of $2.1 million.
Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2023 was primarily due to $38.1 million in proceeds from maturities and sales of marketable securities, partially offset by $23.1 million in purchases of marketable securities. Net cash provided by investing activities for the six months ended June 30, 2022 was primarily due to $34.9 million in proceeds from maturities and sales of marketable securities, partially offset by $21.2 million in purchases of marketable securities.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2023 was primarily due to $0.2 million in proceeds from employee equity transactions, partially offset by $0.2 million of finance lease principal payments. Net cash provided by financing activities for the six months ended June 30, 2022 was primarily due to $0.2 million in proceeds from options exercised, partially offset by $0.1 million of finance lease principal payments.
Future Funding Requirements
We expect to incur significant additional operating losses and negative cash flows for the foreseeable future. We expect our losses in the future to arise principally as a result of our commercialization activities for the PreTRM test, the costs of our PRIME study and additional evidence-generating initiatives, and the development, commercialization, marketing, and distribution of our other pipeline products and services. There can be no assurance that we will eventually achieve significant revenues or profitability, or if achieved, can sustain either on a continuing basis. If we are unable to achieve significant revenues or raise additional funding, when needed, we may not be able to continue the development or commercialization of our products and services and could be required to delay, scale back, or abandon some or all of our development programs and other operations. No assurance can be given that we will be successful in raising the required capital at reasonable cost and at the required times, or at all. Any additional equity financing may not be available on favorable terms, most likely will be dilutive to our current stockholders, and debt financing, if available, may involve restrictive covenants and dilutive financing instruments. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility or committed sources of capital. Our future funding requirements will depend on many factors, including the following:
the timing, receipt, and amount of sales from the PreTRM test and other pipeline products and services, if approved;
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the cost and timing of establishing sales, marketing, and other commercialization capabilities in the United States and abroad;
our ability to develop and commercialize other products and services;
the terms and timing of any collaborative, licensing, and other arrangements that we may establish;
the cost, timing, and outcomes of regulatory approvals;
the scope, rate of progress, results, and cost of our clinical, scientific, and real-world studies, and other related activities;
the cost of preparing, filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights;
the extent to which we acquire or invest in businesses, products or technologies, although we currently have no commitments or agreements relating to any of these types of transactions;
partnerships and other strategic options for our PreTRM test and other product candidates; and
other factors described in the “Risk Factors” section and elsewhere in this report.
We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months.
Contractual Obligations and Commitments
Our contractual obligations and commitments for the year ended December 31, 2022 are set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 22, 2023. No material changes have occurred during the six months ended June 30, 2023.
Critical Accounting Policies, Significant Judgments and Use of Estimates
A summary of our critical accounting policies, significant judgments, and use of estimates is included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 22, 2023. There have been no significant changes in the application of our critical accounting policies, significant judgments and use of estimates during the six months ended June 30, 2023.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (1) are no longer an EGC or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies, reduce disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and are exempt from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. As an EGC, we are also not required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates and we are not required to provide auditor attestation regarding requirements of Section 404(b) of Sarbanes-Oxley.
We will remain an EGC until the earliest to occur of: (1) the last day of the fiscal year in which we have at least $1.235 billion in annual revenue; (2) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) December 31, 2026.
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We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that the market value of our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that we currently expect will have a material impact on our financial position, results of operations or cash flows.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to changes in interest rates relates primarily to interest earned and market value on our cash and cash equivalents and marketable securities.
Our cash and cash equivalents and marketable securities consist of cash held in banks, money market funds, commercial paper, U.S. government securities, U.S. federal agency securities and investment grade corporate securities. Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. Changes in U.S. interest rates affect the interest earned on our cash and cash equivalents and marketable securities, and the market value of those securities. A hypothetical 100 basis point increase in interest rates would have resulted in a decrease of $0.5 million in the market value of our available-for-sale debt securities as of June 30, 2023. Any realized gains or losses resulting from such interest rate changes would only occur if we sold the investments prior to maturity. We do not believe we will be required to sell the investments before recovery, which may be maturity.
Foreign Currency
We do not regularly incur expenses with vendors outside the United States or that are denominated in currencies other than the U.S. dollar. We may incur such expenses in the future at which point exchange rate fluctuations might adversely affect our expenses, results of operations, financial position and cash flows. To date, exchange rate fluctuations have not had a material effect on our results of operations.
Effects of Inflation
We do not believe inflation has had a material effect on our results of operations during the periods presented. However, the current inflationary environment could affect us by increasing our costs of labor, laboratory supplies, and clinical trials and could adversely affect our business, results of operations, financial position and cash flows. In addition, increased inflation has had, and may continue to have, an effect on interest rates and may adversely affect our borrowing rate and our ability to obtain any potential additional funding.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
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Our management, with the participation of our interim Chief Executive Officer (our principal executive officer) and interim Chief Financial Officer (our principal financial officer and principal accounting officer), evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2023. Based on the evaluation of our disclosure controls and procedures as of June 30, 2023, our interim Chief Executive Officer and interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were not effective at the reasonable assurance level because of our failure to timely file a current report on Form 8-K with respect to the departure of one of our named executive officers, which resulted in our loss of eligibility to use a Form S-3 registration statement until June 2024. In light of this, management intends to make certain procedural adjustments and institute additional training to ensure that the disclosure controls and procedures are designed, implemented, and functioning efficiently.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any material litigation or other material legal proceedings. We may, from time to time, be involved in various legal proceedings arising from the normal course of business activities, and an unfavorable resolution of any of these matters could materially affect our future results of operations, cash flows, or financial position.
Item 1A. Risk Factors
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, the section of this Quarterly Report Form 10-Q entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes, before investing in our Class A common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. If any of the following risks occur, our business, operating results and prospects could be materially harmed. In that event, the price of our Class A common stock could decline, and you could lose part or all of your investment.
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, including those highlighted in this section below, that represent challenges that we face in connection with the successful implementation of our strategy. The occurrence of one or more of the events or circumstances described in more detail in the risk factors below, alone or in combination with other events or circumstances, may have an adverse effect on our business, cash flows, financial condition, and results of operations. Such risks include, but are not limited to:
We have incurred net losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future, which could harm our future business prospects.
Operating our business requires a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which are beyond our control and if we cannot raise additional capital when needed, we may have to curtail or cease operations.
Our quarterly and annual results may fluctuate from period to period, which could adversely impact the value of our Class A common stock.
We have derived substantially all of our revenues to date from the PreTRM test, and if our efforts to further increase the use and adoption of the PreTRM test or to develop new products and services in the future do not succeed, our business will be harmed.
In the near future, we expect to rely on sales to a limited number of direct customers for a significant portion of our revenue and cash flows related to the sale of the PreTRM test, making us subject to customer concentration risk.
If we are unable to establish and maintain sales and marketing capabilities, we may not be successful in commercializing the PreTRM test.
Competition in the life science industry, including companies engaged in molecular diagnostics and proteomics, is intense. If we are unable to compete successfully with respect to our current or future products or services, we may not be able to increase or sustain our revenues or achieve profitability.
If our CLIA-certified laboratory facility becomes inoperable, we will be unable to perform our tests and our business will be harmed.
Interim, top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as additional data become available and are subject to confirmation, audit, and verification procedures that could result in material changes in the final data.
Our business would be materially harmed if our proprietary biobank were to become contaminated, lost or destroyed.
We rely on third parties for specimen collection, including phlebotomy services, and commercial courier delivery services, and if these services are disrupted, our business will be harmed.
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We rely on a limited number of suppliers or, in some cases, single suppliers, for some of our laboratory instruments and materials and may not be able to find replacements or immediately transition to alternative suppliers on a cost-effective basis, or at all.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
Our estimates of total addressable market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at a similar rate.
The inflationary environment could materially adversely impact our business and results of operations.
If third-party payers do not adequately reimburse for the PreTRM test or any new tests we may develop, such tests may not be purchased or used, which may adversely affect our revenue and profits.
New reimbursement methodologies applicable to the PreTRM test, and other future tests, including new CPT codes, may decrease reimbursement rates from third-party payers.
Billing disputes with third-party payers, including disagreement regarding the selection and use of CPT codes when submitting claims, may decrease realized revenue and may lead to requests for recoupment of past amounts paid.
When third-party payers deny coverage, we are often unable to collect from the patient or any other source and risk disputes if we attempt to do so.
Our revenues may be adversely impacted if third-party payers withdraw coverage or provide lower levels of reimbursement due to changing policies, billing complexities or other factors.
Status as an out-of-network provider with a large commercial insurer may cause health care providers to avoid recommending our tests.
If the validity of an informed consent from a patient is challenged, we could be precluded from billing for such patient’s testing, be forced to stop performing certain tests, forced to exclude the patient’s data or specimens from clinical trial results or be subject to lawsuits or regulatory enforcement.
Changes in the way the FDA regulates laboratory developed tests or the reagents, other consumables, and testing equipment we use when developing, validating, and performing our tests could result in delay or additional expense in bringing our tests to market or performing such tests for our customers.
If we fail to comply with federal and/or state laboratory licensing requirements, we could lose the ability to perform our tests or experience disruptions to our business.