Sera PROGNOSTICS, INC. – 10-Q – Management report and analysis of the financial position and operating results

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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 and the Final
Prospectus. 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, www.seraprognostics.com/investors/.
Overview
We are a women's health diagnostic company utilizing our proprietary proteomics
and bioinformatics platform to discover, develop, and commercialize clinically
meaningful and economically impactful biomarker tests, with an initial focus on
improving pregnancy outcomes. We believe that our method of combining the
disciplines of proteomics and bioinformatics with rigorous clinical testing and
economic analysis enables us to provide physicians and patients with actionable
data and information designed to result in better maternal and neonatal health
at lower cost. Our vision is to deliver pivotal and actionable information to
pregnant women, their physicians, and healthcare payers to significantly improve
maternal and neonatal health and to dramatically reduce healthcare 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 conditions of
pregnancy. 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. We
also believe that the work we perform in pregnancy can ultimately be leveraged
more broadly to address other areas in medicine and healthcare.
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 week 19 or 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. Anthem, Inc., or Anthem, whose health plans cover more than 10% of
U.S. pregnancies annually, will make our PreTRM test available to eligible
pregnant members as part of a multi-year contract. Anthem is the nation's second
largest health insurer with greater than 43 million members nationwide. Through
this collaboration, a significant number of physicians and patients in the U.S.
gain access to early and accurate predictions of preterm birth to enable more
informed decision-making during pregnancy. Sera believes that its commercial
collaboration with Anthem further validates the clinical and economic value of
its PreTRM test and significantly de-risks initial commercialization. Sera
further expects this provides a pathway for broader market adoption through
subsequent coverage decisions by other major payers. 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 benefits to women
and their babies.
There are approximately 140 million births globally each year. Of these, it is
estimated that as many as 25% are affected by various complications, including:
preterm birth, preeclampsia, fetal growth restriction, stillbirth, hypertension
of pregnancy, gestational diabetes, and others. In the United States, there are
approximately 3.8 million births annually, and over 10% of those pregnancies
result in preterm births with profound short- and long-term health consequences
to the mother and baby. These health consequences are estimated to lead to
associated costs of approximately $25 billion annually in the United States.
Traditional methods to detect prematurity risk in time for proactive management
have been limited and fail to identify the vast majority of women who will
deliver prematurely. We believe our actionable blood-based biomarker test for
prematurity risk can enable patients, physicians, and payers to more proactively
manage and
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mitigate the complications and associated costs of prematurity. Given that
pregnancy is the launch point for the future health of babies and a key
determinant in the future health of mothers and babies, we believe this area is
ripe for innovation and better tools to improve patient outcomes.
Our operations are located 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 market 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 IPO, which was completed in July 2021. See Note 10-Capital
Structure for additional details about the IPO.
We have incurred significant operating losses since inception. Our net losses
were $9.9 million and $5.1 million for the three months ended September 30, 2021
and 2020, respectively, and $22.5 million and $14.5 million for the nine months
ended September 30, 2021 and 2020, 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 activities.
We had no significant commercial revenue for the nine months ended September 30,
2021 and 2020, and we have no recurring sources of licensing or other revenue.
We have signed an agreement with Anthem, pursuant to which Anthem will purchase
our PreTRM test, and we continue to negotiate private payer insurance contracts
that could eventually result in revenues. If we are unable to secure payer
contracts that result in significant revenues or access additional funds, 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.
Impact of COVID-19
The degree to which COVID-19 impacts our future business operations, research
and development programs, and financial condition will depend on future
developments, including the ultimate duration and/or severity of the outbreak
and any resurgences, actions by government authorities to contain the spread of
the virus, the effectiveness of vaccines against the virus, and when and to what
extent normal economic and operating conditions can resume. The ability of our
employees and other business partners to travel and conduct other routine
business activity has been and is likely to continue to be disrupted or
adversely affected. The primary impacts to our business have been the early
cessation of enrollment in our Serum Assessment of Preterm Birth Outcomes
Compared to Historical Controls study, or the AVERT PRETERM TRIAL study, in
March 2020, the delayed commencement of enrollment in our PRIME study until
November 2020, and limited access to clinicians as we have initiated the
commercialization of our PreTRM test. However, our laboratory has remained
operational and, to the extent possible, we are conducting our other business
operations with necessary or advisable modifications to employee travel and many
of our employees working remotely. We will continue to actively monitor the
rapidly evolving situation related to COVID-19 and may take further actions that
alter our operations, including those that may be required by federal, state or
local authorities, or that we determine are in the best interests of our
employees and other third parties with whom we do business. At this point, the
extent to which the COVID-19 pandemic may affect our business, operations, and
development timelines and plans, including the resulting impact on our
expenditures and capital needs, remains uncertain and is subject to change.
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Collaboration Agreement with Anthem
On February 17, 2021, we entered into a Commercial Collaboration Agreement with
Anthem relating to the commercialization of the PreTRM test. Under the
agreement, we will provide PreTRM tests to eligible individuals enrolled in, or
serviced or covered by, the health insurance products of Anthem. Pursuant to the
agreement, Anthem will purchase a certain minimum number of tests from us for
each of the first three years of the term of the agreement. Additionally, Anthem
has agreed to pay us a certain minimum amount per year for the first three years
of the term of the Commercial Collaboration Agreement. Anthem has been
participating in our PRIME study, and at the conclusion of the PRIME study, we
agreed to enter into Anthem's standard lab provider agreement with longer term
commercial pricing.
Key Components of Our Results of Operations
Revenues
We expect to derive substantially all of our revenue in the near term from sales
of the PreTRM test. To date, we have not generated material revenues from the
commercial sale of the PreTRM test. We have signed an agreement with Anthem and
we continue to engage with other commercial payers to close additional
reimbursement contracts. These additional contracts could also enable an upfront
negotiated reimbursement rate which could eventually result in revenues when
healthcare providers order the PreTRM test.
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
sample 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 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 clinical study expenses incurred under agreements with clinical 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 will continue to increase for the foreseeable future as we
support additional clinical studies, publications, and other product development
activities.
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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 increase in the future as we incur additional
expenses associated with the commercialization activities for the PreTRM test
and related initiatives. Based on our commercial collaboration with Anthem, we
initially deployed our U.S. based specialty OB-GYN commercial sales force to
cover the key states where Anthem has a significant market share. We expect to
expand our dedicated sales force into additional territories in the United
States to cover the entire U.S. OB-GYN sales channel over time as we seek to
enter into contracts with payers and employers.
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 anticipate that our general and administrative expenses will increase in the
future as we construct the appropriate infrastructure to support expanded
commercialization efforts and ongoing research and development activities. We
expect increased expenses related to audit, tax, and legal services associated
with maintaining compliance with SEC requirements, as well as increased director
and officer insurance premiums, board of director fees, and investor relations
costs associated with operating as a public company.
Interest Expense
Interest expense represents interest expense incurred on our loans payable and
convertible promissory note, amortization of a discount feature on a convertible
promissory note, and periodic fair value adjustments on certain liabilities. As
of September 30, 2021, we had no outstanding debt.
Other Income (Expense), Net
Other income (expense), net consists of interest earned on our cash, cash
equivalents, and marketable securities, grant income, periodic fair value
adjustments on certain liabilities, and other gains and losses.
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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 September 30, 2021 and 2020
The following table summarizes our results of operations for the three months
ended September 30, 2021 and 2020:
                                       Three Months Ended September 30,
                                       2021                2020        $ Change
                                                (in thousands)
                                                 (unaudited)
Revenue                       $         23              $      5      $     18
Operating expenses:
Cost of revenue                         10                     3             7
Research and development             2,724                 1,888           

836

Selling and marketing                2,690                 1,054         

1,636

General and administrative           4,041                 1,704         2,337
Total operating expenses             9,465                 4,649         4,816
Loss from operations                (9,442)               (4,644)       (4,798)
Interest expense                      (439)                 (425)          (14)
Other income (expense), net             22                    (3)           25
Net loss                      $     (9,859)             $ (5,072)     $ (4,787)


Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended September 30, 2021 and 2020:
                                                                 Three 

Ended months September 30,

                                                            2021                 2020             $ Change
                                                                          (in thousands)
                                                                            (unaudited)
Research and development expenses:
Clinical studies                                      $         769          $     536          $      233
Research and bioinformatics                                     783                638                 145
Laboratory operations                                         1,172                714                 458
Total research and development expenses               $       2,724         

$ 1,888 $ 836


The $0.8 million increase was due to a $0.5 million increase in laboratory
operations costs, a $0.2 million increase in clinical study costs, and a
$0.1 million increase in research and bioinformatics expenses. The $0.5 million
increase in laboratory operations costs is primarily due to a $0.3 million
increase in lab supplies, a $0.1 million increase in stock-based compensation
expense, and a $0.1 million increase in personnel costs driven by increased
headcount. The $0.2 million increase in clinical study costs is primarily due to
a $0.1 million increase of enrollment and site setup activity in the PRIME study
and a $0.1 million increase in personnel costs driven by increased headcount.
The $0.1 million increase in research and bioinformatics expenses was due to
personnel costs primarily driven by increased headcount.
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Selling and Marketing Expenses
The $1.6 million increase was due primarily to increases of $1.1 million in
personnel-related costs driven by increased headcount, $0.2 million of marketing
programs and materials development, $0.1 million of consulting and outside
services related to developing payer and reimbursement strategies for the PreTRM
test, $0.1 million of travel expenses, and $0.1 million of increased stock-based
compensation expense.
General and Administrative Expenses
The $2.3 million increase was due primarily to increases of $0.7 million of
personnel expenses driven by increased headcount, $0.5 million of director and
officer insurance costs which increased as a result of our becoming a public
company, $0.4 million of professional services and fees related to public
company compliance, $0.3 million of recruiting expenses, $0.3 million of
increased stock-based compensation expense, and $0.2 million of legal expenses.
Interest Expense
Interest expense remained consistent between periods due to a $0.4 million
decrease in interest expense as a result of paying the remaining loan payable
balance in the first quarter of 2021, offset by a $0.4 million increase in
interest expense related to fair value adjustments on certain liabilities.
Comparison of the Nine Months Ended September 30, 2021 and 2020
The following table summarizes our results of operations for the nine months
ended September 30, 2021 and 2020:
                                     Nine Months Ended September 30,
                                    2021               2020         $ Change
                                              (in thousands)
                                               (unaudited)
Revenue                      $         56           $      19      $     37
Operating expenses:
Cost of revenue                        23                   8            15
Research and development            7,944               5,690         2,254
Selling and marketing               5,780               2,634         3,146
General and administrative          9,157               4,904         4,253
Total operating expenses           22,904              13,236         9,668
Loss from operations              (22,848)            (13,217)       (9,631)
Interest expense                     (744)             (1,282)          538
Other income, net                   1,067                  26         1,041
Net loss                     $    (22,525)          $ (14,473)     $ (8,052)


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Research and Development Expenses
The following table summarizes our research and development expenses for the
nine months ended September 30, 2021 and 2020:
                                                   Nine Months Ended September 30,
                                                   2021                2020        $ Change
                                                            (in thousands)
                                                             (unaudited)
Research and development expenses:
Clinical studies                          $     2,347                $ 1,721      $    626
Research and bioinformatics                     2,298                  1,862           436
Laboratory operations                           3,299                  2,107         1,192
Total research and development expenses   $     7,944                $ 

5 690 $ 2,254


The $2.3 million increase was due to a $1.2 million increase in laboratory
operations costs, a $0.6 million increase in clinical study costs, and a
$0.4 million increase in research and bioinformatics expenses. The $1.2 million
increase in laboratory operations costs is primarily due to a $0.7 million
increase in lab supplies, a $0.3 million increase in stock-based compensation
expense, and a $0.3 million increase in personnel costs driven by increased
headcount, partially offset by a $0.1 million decrease in depreciation expense.
The $0.6 million increase in clinical study costs is primarily due to a
$0.3 million increase resulting from the increased enrollment and site setup
activity in the PRIME study, a $0.2 million increase in personnel costs driven
by increased headcount, and a $0.1 million increase in stock-based compensation
expense. The $0.4 million increase in research and bioinformatics expenses was
primarily due to an increase of $0.3 million in personnel costs driven by
increased headcount and a $0.1 million increase in consulting costs.
Selling and Marketing Expenses
The $3.1 million increase was due primarily to increases of $1.9 million in
personnel-related costs driven by increased headcount, $0.4 million of
consulting and outside services related to developing payer and reimbursement
strategies for the PreTRM test, $0.4 million of marketing programs and materials
development, $0.3 million of increased stock-based compensation expense, and
$0.1 million of travel costs.
General and Administrative Expenses
The $4.3 million increase was due primarily to increases of $1.7 million of
personnel expenses driven by increased headcount, $0.7 million of professional
services and fees related to public company compliance, $0.7 million of
stock-based compensation expense, $0.5 million of director and officer insurance
costs which increased as a result of our becoming a public company, $0.5 million
of recruiting fees, and $0.3 million of legal expenses.
Interest Expense
The $0.5 million decrease in interest expense between periods was due primarily
to a decrease of $0.9 million in interest expense as a result of paying the
remaining loan payable balance in the first quarter of 2021, partially offset by
a $0.4 million increase in interest expense related to fair value adjustments on
certain liabilities.
Other Income (Expense), net
The $1.0 million increase in other income (expense) was primarily due to a
$1.1 million gain on extinguishment of the PPP loan, which was forgiven in June
2021.
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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.
See Note 10-Capital Structure for additional details about the IPO. As of
September 30, 2021, we had cash and cash equivalents of $82.5 million,
available-for-sale securities of $67.5 million, and an accumulated deficit of
$154.0 million.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
                                                                Nine Months Ended September 30,
                                                                  2021                     2020
                                                                         (in thousands)
                                                                          (unaudited)
Net cash provided by (used in):
Operating activities                                       $        (22,484)         $     (12,683)
Investing activities                                                (68,127)                  (105)
Financing activities                                                159,557                 10,080

Net increase (decrease) in cash and cash equivalents $ 68,946

$ (2 708)


Operating Activities
The net cash used in operating activities during the nine months ended September
30, 2021 was primarily due to a net loss of $22.5 million and a decrease in
operating assets and liabilities of $2.1 million, partially offset by non-cash
charges of $2.1 million. The net cash used in operating activities during the
nine months ended September 30, 2020 was primarily due to a net loss of
$14.5 million and a decrease in operating assets and liabilities of
$0.5 million, partially offset by non-cash charges of $2.3 million.
Investing Activities
Net cash used in investing activities was $68.1 million for the nine months
ended September 30, 2021, representing $67.6 million in purchases of marketable
securities and $0.6 million in purchases of property and equipment. Net cash
used in investing activities was $0.1 million for the nine months ended
September 30, 2020, representing purchases of property and equipment.
Financing Activities
Net cash provided by financing activities for the nine months ended September
30, 2021 was primarily due to net proceeds of $99.0 million from the sale of
Series E convertible preferred stock, net proceeds of $66.6 million from our
IPO, proceeds of $1.1 million from issuance of common stock warrants in
connection with the sale of our Series E convertible preferred stock, and
$0.5 million in proceeds from options exercised, partially offset by
$3.1 million and $4.5 million of loan and note repayments, respectively. Net
cash provided by financing activities for the nine months ended September 30,
2020 was primarily due to $10.7 million of net proceeds from the sale of Series
D convertible preferred stock and proceeds of $1.1 million from a loan payable,
partially offset by $1.7 million of note repayments.
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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 be
principally as a result of our commercialization activities for the PreTRM test,
and to support additional clinical studies and anticipated research and
development activities. We had no significant commercial revenue for the nine
months ended September 30, 2021 and 2020, and we have no recurring sources of
licensing or other revenue. 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 diagnostic products 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, if any, from the PreTRM test;
•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;
•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 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 product 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, 2020
are set forth in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in our Final Prospectus. Material changes
that have occurred during the nine months ended September 30, 2021 include the
following:
•The outstanding principal, accrued interest, and applicable final payment fees
for the Loan Agreement and the February 2019 Convertible Note were repaid.
•The PPP loan was fully forgiven.
•Future minimum lease payments have increased by approximately $0.1 million as a
result of an amendment to our corporate office operating lease for additional
space which was signed during the period.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements,
as defined in the rules and regulations of the SEC.
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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 Final Prospectus. There
have been no significant changes in the application of our critical accounting
policies, significant judgments and use of estimates during the nine months
ended September 30, 2021.
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 $1.07 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.
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
A description of recent accounting pronouncements that may potentially impact
our financial position, results of operations or cash flows is disclosed in Note
2-Significant Accounting Policies.
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 $0.7 million in the market
value of our available-for-sale debt securities as of September 30, 2021. Any
realized gains or losses resulting from such interest rate changes would only
occur if we sold the investments prior to maturity.
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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
Inflation generally affects us by increasing our costs of labor, laboratory
supplies, and clinical trials. We do not believe inflation has had a material
effect on our results of operations during the periods presented and do not
anticipate a material impact going forward.
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.
Our management, with the participation of our Chief Executive Officer (our
principal executive officer) and Chief Financial Officer (our principal
financial officer and principal accounting officer), evaluated the effectiveness
of our disclosure controls and procedures as of September 30, 2021. Based on the
evaluation of our disclosure controls and procedures as of September 30, 2021,
our Chief Executive Officer and Chief Financial Officer concluded that, as of
such date, our disclosure controls and procedures were effective at the
reasonable assurance level.
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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