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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
March 31,
2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number:
001-38943
Personalis, Inc.
(Exact Name of registrant as specified in its charter)
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Delaware
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27-5411038
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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6600 Dumbarton Circle
Fremont,
California
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94555
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
(650)
752-1300
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Trading
Symbol(s)
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Name of each exchange on which registered
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Common Stock, par value $0.0001
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PSNL
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The Nasdaq Global Market
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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
☒ No ☐
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
☒ No ☐
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.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☒
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Emerging growth company
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|
☐
|
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.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No ☒
The number of shares of registrant’s Common Stock outstanding as of
April 27, 2023 was
46,783,757.
PERSONALIS, INC.
Form 10-Q
For the Quarterly Period Ended March 31, 2023
TABLE OF CONTENTS
2
Table of Contents
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements other than statements of
historical facts contained in this Quarterly Report on Form 10-Q,
including statements regarding our future results of operations or
financial condition, business strategy and plans, and objectives of
management for future operations, are forward-looking statements.
In some cases, you can identify forward-looking statements because
they contain words such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “might,”
“objective,” “ongoing,” “plan,” “potential,” “predict,” “project,”
“should,” “will,” or “would” or the negative of these words or
other similar terms or expressions. These forward-looking
statements include, but are not limited to, statements concerning
the following:
•
the evolution of cancer therapies and market adoption of our
services and products;
•
estimates of our total addressable market, future revenue and the
timing thereof, expenses, use of cash and other resources, cost
savings, capital requirements, and our needs for additional
financing;
•
future reimbursement and reimbursement rulings;
•
our ability to enter into and compete in new markets;
•
the impact our collaboration agreements and key opinion leaders may
have on the broader use of our platform in the future;
•
the potential impacts of inflation, macroeconomic conditions, and
geopolitical conflicts on our business and operations;
•
the potential impact of a public health crisis on our business, our
customers’ and suppliers’ businesses and the general
economy;
•
the benefits of our products and services, including their ability
to increase the probability of clinical trial success;
•
our ability to compete effectively with existing competitors and
new market entrants;
•
the expected completion of our move of our Clinical Laboratory
Improvement Amendments of 1988-certified and College of American
Pathologists-accredited laboratory to our Fremont facility and the
timing thereof;
•
our planned closure of our operations in China and the timing
thereof;
•
our ability to benefit from the scaling of our infrastructure and
new facility in Fremont;
•
our ability to manage and grow our business by expanding our sales
to existing customers or introducing our services and products to
new customers;
•
our ability to establish and maintain intellectual property
protection for our services and products or avoid claims of
infringement;
•
potential effects of extensive government regulation;
•
our ability to hire and retain key personnel;
•
our ability to obtain financing when needed;
•
our belief that approval of personalized cancer therapies by the
U.S. Food and Drug Administration may drive benefits to our
business;
•
our future business with the U.S. Department of Veterans Affairs’
Million Veteran Program and Natera, Inc.; and
•
our ability to maintain proper and effective internal
controls.
Actual events or results may differ from those expressed in
forward-looking statements. As such, you should not rely on
forward-looking statements as predictions of future events. We have
based the forward-looking statements contained in this Quarterly
Report on Form 10-Q primarily on our current expectations and
projections about future events and trends that we believe may
affect our business, financial condition, operating results,
prospects, strategy, and financial needs. The outcome of the events
described in these forward-looking statements is subject to risks,
uncertainties, assumptions, and other factors described in the
section titled “Risk Factors” and elsewhere in this Quarterly
Report on Form 10-Q. Moreover, we operate in a highly competitive
and rapidly changing environment. New risks and uncertainties
emerge from time to time, and it is not possible for us to predict
all risks and uncertainties that could have an impact on the
forward-looking statements contained in this Quarterly Report on
Form 10-Q. The results, events and circumstances reflected in the
forward-looking statements may not be achieved or occur, and actual
results, events or circumstances could differ materially from those
described in the forward-looking statements.
In addition, statements that “we believe” and similar statements
reflect our beliefs and opinions on the relevant subject. These
statements are based on information available to us as of the date
of this Quarterly Report on Form 10-Q. While we believe that such
information provides a reasonable basis for these statements, such
information may be limited or incomplete. Our statements should not
be read to indicate that we have conducted an exhaustive inquiry
into, or review of, all relevant information. These statements are
inherently uncertain, and investors are cautioned not to unduly
rely on these statements.
The forward-looking statements made in this Quarterly Report on
Form 10-Q relate only to events as of the date on which the
statements are made. We undertake no obligation to update any
forward-looking statements made in this Quarterly Report on Form
10-Q to reflect events or circumstances after the date of this
Quarterly Report on Form 10-Q or to reflect new information, actual
results, revised expectations, or the occurrence of unanticipated
events, except as required by law. We may not actually achieve the
plans, intentions or expectations disclosed in our forward-looking
statements, and you should not place undue reliance on our
forward-looking statements.
Unless the context otherwise requires, references in this Quarterly
Report on Form 10-Q to the “company,” “Personalis,” “we,” “us” and
“our” refer to Personalis, Inc.
3
Table of Contents
PART I—FINANCIAL
INFORMATION
Item 1. Financial Statements
PERSONALIS, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS (unaudited)
(in thousands, except share and per share data)
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March 31, 2023
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December 31, 2022
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Assets
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Current assets
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Cash and cash equivalents
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$
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87,172
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$
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89,128
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Short-term investments
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61,767
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78,530
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Accounts receivable, net
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18,103
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16,642
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Inventory and other deferred costs
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8,219
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8,591
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Prepaid expenses and other current assets
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7,511
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6,808
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Total current assets
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182,772
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199,699
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Property and equipment, net
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61,446
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61,935
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Operating lease right-of-use assets
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23,971
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26,480
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Other long-term assets
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3,991
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4,586
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Total assets
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$
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272,180
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$
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292,700
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Liabilities and Stockholders’ Equity
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Current liabilities
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Accounts payable
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$
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10,927
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$
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12,854
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Accrued and other current liabilities
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20,653
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19,013
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Contract liabilities
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2,563
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1,264
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Total current liabilities
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34,143
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33,131
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Long-term operating lease liabilities
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40,309
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41,041
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Other long-term liabilities
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4,096
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389
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Total liabilities
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|
78,548
|
|
|
|
74,561
|
|
|
Commitments and contingencies (Note
9)
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par
value —
10,000,000 shares
authorized;
none issued
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.0001 par
value —
200,000,000 shares
authorized;
46,774,490 and
46,707,084 shares
issued and outstanding at March 31, 2023 and December 31, 2022,
respectively
|
|
|
5
|
|
|
|
5
|
|
|
Additional paid-in capital
|
|
|
583,151
|
|
|
|
579,456
|
|
|
Accumulated other comprehensive loss
|
|
|
(455
|
)
|
|
|
(912
|
)
|
|
Accumulated deficit
|
|
|
(389,069
|
)
|
|
|
(360,410
|
)
|
|
Total stockholders’ equity
|
|
|
193,632
|
|
|
|
218,139
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
272,180
|
|
|
$
|
292,700
|
|
See notes to condensed consolidated financial
statements.
4
Table of Contents
PERSONALIS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Revenue
|
|
$
|
18,860
|
|
|
$
|
15,227
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
14,130
|
|
|
|
10,949
|
|
|
Research and development
|
|
|
16,573
|
|
|
|
17,098
|
|
|
Selling, general and administrative
|
|
|
14,097
|
|
|
|
15,486
|
|
|
Restructuring and other charges
|
|
|
3,885
|
|
|
|
—
|
|
|
Total costs and expenses
|
|
|
48,685
|
|
|
|
43,533
|
|
|
Loss from operations
|
|
|
(29,825
|
)
|
|
|
(28,306
|
)
|
|
Interest income
|
|
|
1,253
|
|
|
|
144
|
|
|
Interest expense
|
|
|
(47
|
)
|
|
|
(59
|
)
|
|
Other income (expense), net
|
|
|
(26
|
)
|
|
|
19
|
|
|
Loss before income taxes
|
|
|
(28,645
|
)
|
|
|
(28,202
|
)
|
|
Provision for income taxes
|
|
|
14
|
|
|
|
7
|
|
|
Net loss
|
|
$
|
(28,659
|
)
|
|
$
|
(28,209
|
)
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.61
|
)
|
|
$
|
(0.63
|
)
|
|
Weighted-average shares outstanding, basic and diluted
|
|
|
46,740,270
|
|
|
|
44,995,752
|
|
See notes to condensed consolidated financial
statements.
5
Table of Contents
PERSONALIS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF COMPREHENSIVE LOSS (unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Net loss
|
|
$
|
(28,659
|
)
|
|
$
|
(28,209
|
)
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
28
|
|
|
|
(8
|
)
|
|
Change in unrealized gain (loss) on available-for-sale debt
securities
|
|
|
429
|
|
|
|
(701
|
)
|
|
Comprehensive loss
|
|
$
|
(28,202
|
)
|
|
$
|
(28,918
|
)
|
See notes to condensed consolidated financial
statements.
6
Table of Contents
PERSONALIS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS’ EQUITY (unaudited)
For the Three Months Ended March 31, 2023 and 2022
(in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit
|
|
|
Equity
|
|
|
Balance—December 31, 2022
|
|
|
46,707,084
|
|
|
$
|
5
|
|
|
$
|
579,456
|
|
|
$
|
(912
|
)
|
|
$
|
(360,410
|
)
|
|
$
|
218,139
|
|
|
Proceeds from exercise of stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Restricted stock units vested
|
|
|
67,406
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
3,695
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,695
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28
|
|
|
|
—
|
|
|
|
28
|
|
|
Unrealized gain on available-for-sale debt securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
429
|
|
|
|
—
|
|
|
|
429
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28,659
|
)
|
|
|
(28,659
|
)
|
|
Balance—March 31, 2023
|
|
|
46,774,490
|
|
|
$
|
5
|
|
|
$
|
583,151
|
|
|
$
|
(455
|
)
|
|
$
|
(389,069
|
)
|
|
$
|
193,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2021
|
|
|
44,904,512
|
|
|
$
|
4
|
|
|
$
|
557,558
|
|
|
$
|
(166
|
)
|
|
$
|
(247,095
|
)
|
|
$
|
310,301
|
|
|
Proceeds from exercise of stock options
|
|
|
279,205
|
|
|
|
1
|
|
|
|
515
|
|
|
|
—
|
|
|
|
—
|
|
|
|
516
|
|
|
Restricted stock units vested
|
|
|
66,370
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
4,816
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,816
|
|
|
Foreign currency translation adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
(8
|
)
|
|
Unrealized loss on available-for-sale debt securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(701
|
)
|
|
|
—
|
|
|
|
(701
|
)
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(28,209
|
)
|
|
|
(28,209
|
)
|
|
Balance—March 31, 2022
|
|
|
45,250,087
|
|
|
$
|
5
|
|
|
$
|
562,889
|
|
|
$
|
(875
|
)
|
|
$
|
(275,304
|
)
|
|
$
|
286,715
|
|
See notes to condensed consolidated financial
statements.
7
Table of Contents
PERSONALIS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(28,659
|
)
|
|
$
|
(28,209
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
3,695
|
|
|
|
4,816
|
|
|
Depreciation and amortization
|
|
|
2,781
|
|
|
|
1,774
|
|
|
Noncash operating lease cost
|
|
|
539
|
|
|
|
2,096
|
|
|
Amortization of premium (discount) on short-term
investments
|
|
|
(390
|
)
|
|
|
347
|
|
|
Restructuring and other charges
|
|
|
1,204
|
|
|
|
—
|
|
|
Other
|
|
|
144
|
|
|
|
43
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,460
|
)
|
|
|
4,949
|
|
|
Inventory and other deferred costs
|
|
|
262
|
|
|
|
(2,455
|
)
|
|
Prepaid expenses and other assets
|
|
|
(254
|
)
|
|
|
1,720
|
|
|
Accounts payable
|
|
|
(1,407
|
)
|
|
|
1,132
|
|
|
Accrued and other current liabilities
|
|
|
426
|
|
|
|
3,398
|
|
|
Contract liabilities
|
|
|
4,999
|
|
|
|
(522
|
)
|
|
Operating lease liabilities
|
|
|
2,375
|
|
|
|
(24
|
)
|
|
Other long-term liabilities
|
|
|
—
|
|
|
|
(422
|
)
|
|
Net cash used in operating activities
|
|
|
(15,745
|
)
|
|
|
(11,357
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Purchases of available-for-sale debt securities
|
|
|
(21,529
|
)
|
|
|
(59,702
|
)
|
|
Proceeds from maturities of available-for-sale debt
securities
|
|
|
39,100
|
|
|
|
65,175
|
|
|
Purchases of property and equipment
|
|
|
(3,778
|
)
|
|
|
(8,634
|
)
|
|
Net cash provided by (used in) investing activities
|
|
|
13,793
|
|
|
|
(3,161
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds from exercise of equity awards
|
|
|
—
|
|
|
|
515
|
|
|
Net cash provided by financing activities
|
|
|
—
|
|
|
|
515
|
|
|
Effect of exchange rates on cash, cash equivalents and restricted
cash
|
|
|
(4
|
)
|
|
|
4
|
|
|
Net change in cash, cash equivalents and restricted cash
|
|
|
(1,956
|
)
|
|
|
(13,999
|
)
|
|
Cash, cash equivalents and restricted cash, beginning of
period
|
|
|
90,918
|
|
|
|
107,375
|
|
|
Cash, cash equivalents and restricted cash, end of
period
|
|
$
|
88,962
|
|
|
$
|
93,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of cash, cash equivalents and restricted cash to the
condensed consolidated balance sheets:
|
|
|
Cash and cash equivalents
|
|
$
|
87,172
|
|
|
$
|
91,586
|
|
|
Restricted cash, included in other long-term assets
|
|
|
1,790
|
|
|
|
1,790
|
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
88,962
|
|
|
$
|
93,376
|
|
See notes to condensed consolidated financial
statements.
8
Table of Contents
9
Table of Contents
PERSONALIS, INC.
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Company and
Nature of Business
Personalis, Inc. (the "Company") is a provider of advanced genomic
tests for precision oncology and personalized testing. The Company
also provides sequencing and data analysis services to support
population sequencing initiatives. The Company's genomic tests are
sold primarily to pharmaceutical companies, biopharmaceutical
companies, diagnostics companies, universities, non-profits, and
government entities, while services for population sequencing
initiatives are sold primarily to government entities. The
principal markets for the Company's services are in the United
States and Europe.
The Company was incorporated in Delaware in February 2011 and began
operations in September 2011. The Company formed a wholly owned
subsidiary, Personalis (UK) Ltd., in August 2013 and a wholly owned
subsidiary, Shanghai Personalis Biotechnology Co., Ltd., which is
referred to as “Personalis (Shanghai) Ltd” herein, in October 2020.
Management is in the process of closing its operations in China.
Refer to Note 11 for further information. The Company operates and
manages its business as
one
reportable operating segment, which is the sale of sequencing and
data analysis services.
The Company has incurred losses to date and expects to incur
additional losses for the foreseeable future. The Company continues
to invest the majority of its resources in the development and
growth of its business, including investments in product
development and sales and marketing efforts. The Company’s
activities have been financed to date primarily through the sale of
its equity securities and cash from operations.
Note 2. Summary of Significant
Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”) and the
applicable rules and regulations of the Securities and Exchange
Commission (the “SEC”) regarding interim 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, the information included in this Quarterly Report on Form
10-Q should be read in conjunction with the consolidated financial
statements and accompanying notes included in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31,
2022.
The condensed consolidated financial statements include the
accounts of Personalis, Inc. and its wholly owned subsidiaries,
Personalis (UK) Ltd. and Personalis (Shanghai) Ltd. All
intercompany balances and transactions have been eliminated in
consolidation.
The condensed consolidated financial statements reflect all normal
recurring adjustments that are necessary to present fairly the
results for the interim periods presented. Interim results are not
necessarily indicative of the results for the full year ending
December 31, 2023.
Use of Estimates
The preparation of consolidated financial statements in conformity
with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities,
at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting
period. The estimates include, but are not limited to, useful lives
assigned to long-lived assets, discount rates for lease accounting,
the valuation of stock options, the valuation of stock-based
awards, and provisions for income taxes and contingencies. Actual
results could differ from these estimates, and such differences
could be material to the Company’s consolidated financial position
and results of operations.
At-the-Market Equity Offerings
In December 2021, the Company entered into an At-the-Market Sales
Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”) under
which it may offer and sell its common stock having aggregate sales
proceeds of up to $100.0
million from time to time through BTIG as its sales agent. BTIG
will use commercially reasonable efforts to sell the Company’s
common stock from time to time, based upon instructions from the
Company (including any price, time or size limits or other
customary parameters or conditions the Company may impose). The
Company will pay BTIG a commission of up to
3%
of the gross sales proceeds of any common stock sold through BTIG
under the Sales Agreement. The Company is not obligated to make any
sales of common stock under the Sales Agreement. No shares of the
Company’s common stock have been offered or sold under the Sales
Agreement.
Concentration of Credit Risk and Other Risks and
Uncertainties
The Company is subject to credit risk from its portfolio of cash
and cash equivalents. The Company’s cash and cash equivalents are
deposited with high-quality financial institutions. Deposits at
these institutions may, at times, exceed federally insured limits.
Management believes these financial institutions are financially
sound and, accordingly, that minimal credit risk exists.
10
Table of Contents
The Company also invests in investment‑grade debt instruments and
has policy limits for the amount it can invest in any one type of
security, except for securities issued or guaranteed by the U.S.
government. The goals of the Company’s investment policy are as
follows: preservation of principal; liquidity of investments
sufficient to meet cash flow requirements; avoidance of
inappropriate concentration and credit risk; competitive after‑tax
rate of returns; and fiduciary control of cash and investments.
Under its investment policy, the Company limits the amounts
invested in such securities by credit rating, maturity, investment
type, and issuer. As a result, management believes that these
financial instruments do not expose the Company to any significant
concentrations of credit risk.
The Company purchases various reagents and sequencing materials
from sole source suppliers. Any extended interruption in the supply
of these materials could result in the Company’s inability to
secure sufficient materials to conduct business and meet customer
demand.
The Company performs regular reviews of customer activity and
associated credit risks and does not require collateral.
Historically, the Company has not experienced significant credit
losses from accounts receivable.
Multiple customers have provided more than 10% of total revenue in
the periods presented, or accounted for more than 10% of accounts
receivable at each respective balance sheet date, as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
Accounts Receivable
|
|
|
|
Three Months Ended March 31,
|
|
March 31, 2023
|
|
December 31, 2022
|
|
|
|
2023
|
|
2022
|
|
|
|
|
|
Natera, Inc.
|
|
50%
|
|
27%
|
|
35%
|
|
43%
|
|
VA MVP
|
|
16%
|
|
23%
|
|
14%
|
|
*
|
|
Pfizer Inc.
|
|
*
|
|
11%
|
|
13%
|
|
10%
|
|
GSK plc
|
|
*
|
|
*
|
|
12%
|
|
12%
|
|
* Less than
10%
of revenue or accounts receivable
|
Revenue Recognition
The Company applies the revenue recognition guidance in accordance
with Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) Topic 606, Revenue from Contracts
with Customers (“Topic 606”).
Revenue Recognition
The revenue guidance provides a five-step framework through which
revenue is recognized when control of promised goods or services is
transferred to a customer at an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. To determine revenue
recognition for arrangements that the Company concludes are within
the scope of Topic 606, management performs the following five
steps: (i) identifies the contract(s) with a customer; (ii)
identifies the performance obligations in the contract(s); (iii)
determines the transaction price, including whether there are any
constraints on variable consideration; (iv) allocates the
transaction price to the performance obligations; and (v)
recognizes revenue when (or as) the Company satisfies a performance
obligation. At contract inception, once a contract is determined to
be within the scope of the new revenue standard, the Company
assesses whether individual goods or services promised within each
contract are distinct and, therefore, represent separate
performance obligations.
The Company derives revenue from the sale of sequencing and data
analysis services. The Company's contracts are in the form of a
combination of signed agreements, statements of work, and/or
purchase orders. The Company accounts for a contract with a
customer when there is approval and commitment from both parties,
the rights of the parties are identified, payment terms are
identified, the contract has commercial substance, and it is
probable that the Company will collect substantially all of the
consideration to which it will be entitled.
The sequencing and data analysis services are the only distinct
services that meet the definition of a performance obligation and
are accounted for as one performance obligation under Topic 606.
The Company recognizes revenue from such services at the point in
time when control of the test results is transferred to the
customer. The Company has elected to exclude all sales and value
added taxes from the measurement of the transaction
price.
Payment terms and conditions vary by contract and customer. The
Company's standard payment terms are typically
90
days or less from the invoice date. In instances where the timing
of the Company's revenue recognition differs from the timing of its
invoicing, the Company does not assess whether a contract has a
significant financing component if the expectation at contract
inception is such that the period between payment by the customer
and the transfer of the promised services to the customer will
be
one year
or less. After assessing each of its revenue-generating
arrangements to determine whether a significant financing component
exists, the Company concluded that a significant financing
component does not exist in any of its arrangements. The primary
purpose of the Company's invoicing terms is to provide customers
with simplified and predictable ways of purchasing the Company's
services and to provide payment protection for the
Company.
Practical Expedients and Exemptions
As a practical expedient, the Company recognizes the incremental
costs of obtaining contracts, such as sales commissions, as an
expense when incurred since the amortization period of the asset
the Company otherwise would have recognized is
one year
or
less.
11
Table of Contents
Sales
commissions are recorded within selling, general and administrative
expenses in the condensed consolidated statements of
operations.
Cost of Revenue
Cost of revenue consists of raw materials costs, personnel costs
(salaries, bonuses, benefits, payroll taxes, and stock-based
compensation), laboratory supplies and consumables, depreciation
and maintenance on equipment, and allocated facilities and
information technology (“IT”) costs.
Research and Development Expenses
The Company charges research and development costs to expenses as
incurred, including lab and automation development costs. The
expenses primarily consist of personnel costs (salaries, bonuses,
stock-based compensation, payroll taxes, and benefits); laboratory
supplies and consumables; costs of processing samples for research,
product development, collaborations, and studies; depreciation and
maintenance on equipment; and allocated facilities and IT
costs.
Stock-Based Compensation
For options granted to employees, non-employees, and directors,
stock-based compensation is measured at grant date based on the
fair value of the award. The Company determines the grant-date fair
value of options using the Black-Scholes option-pricing model,
except for certain performance-based awards for which an
alternative valuation method may be used. The Company determines
the fair value of restricted stock unit awards using the closing
market price of the Company’s common stock on the date of grant.
The grant-date fair value of awards is amortized over the
employees’ requisite service period on a straight-line basis, or
the non-employees’ vesting period as the goods are received or
services rendered. Forfeitures are accounted for as they occur.
Additionally, the Company’s 2019 Employee Stock Purchase Plan (the
“ESPP”) is deemed to be a compensatory plan and therefore is
included in stock-based compensation expense.
Inputs used in Black-Scholes option-pricing models to measure fair
value of options are summarized as follows:
Expected Term. The expected term is calculated using the simplified
method, which is available if there is insufficient historical data
about exercise patterns and post-vesting employment termination
behavior. The simplified method is based on the vesting period and
the contractual term for each grant, or for each vesting tranche
for awards with graded vesting. The midpoint of the vesting date
and the contractual expiration date is used as the expected term
under this method. For awards with multiple vesting tranches, the
assumed period for each tranche is computed separately and then
averaged together to determine the expected term for the
award.
Expected Volatility. The Company used an average historical stock
price volatility of a peer group of publicly traded companies to be
representative of its expected future stock price volatility, as
the Company did not have sufficient trading history for its common
stock. For purposes of identifying these peer companies, the
Company considered the industry, stage of development, size, and
financial leverage of potential comparable companies. For each
grant, the Company measured historical volatility over a period
equivalent to the expected term.
Risk-Free Interest Rate. The risk-free interest rate is based on
the implied yield currently available on U.S. Treasury zero-coupon
issues with remaining terms equivalent to the expected term of a
stock award.
Expected Dividend Rate. The Company has
not
paid and does not anticipate paying any dividends in the near
future. Accordingly, the Company has estimated the dividend yield
to be
zero.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with
maturities at the time of purchase of three months or less. Cash
equivalents include bank demand deposits and money market accounts
that invest primarily in cash, U.S. Treasury bills, notes, and
other obligations issued or guaranteed as to principal and interest
by the U.S. Government, its agencies or instrumentalities, and
repurchase agreements secured by such obligations or cash. Cash
equivalents also include commercial paper and U.S. Treasury bills,
which are marketable debt securities recorded at fair value and
accounted for in the same manner as other marketable debt
securities described below.
Short-term Investments
The Company’s investments in marketable debt securities are
classified as available-for-sale and recorded at fair value.
Investments with original maturities of greater than three months
and remaining maturities of less than one year are classified as
short-term investments. Investments with maturities beyond one year
may be classified as short-term based on their highly liquid nature
and because such marketable securities represent the investment of
cash that is available for current operations. Short-term
investments primarily consist of U.S. Treasury notes, U.S. Treasury
bills, commercial paper, and U.S. government agency
bonds.
12
Table of Contents
Any discount or premium arising at purchase is accreted or
amortized to interest income or expense. Unrealized gains and
losses are included in accumulated other comprehensive income
(loss) in stockholders’ equity. Realized gains and losses are
reported in other income (expense), net. When securities are sold,
any associated unrealized gain or loss initially recorded as a
separate component of stockholders’ equity is reclassified out of
stockholders’ equity on a specific-identification basis and
recorded in earnings for the period. If an available-for-sale debt
security's fair value is less than its amortized cost basis, the
Company evaluates whether the decline is the result of a credit
loss, in which case an impairment is recorded through an allowance
for credit losses.
Accounts Receivable, Net
Trade accounts receivable are recorded at the invoiced amount and
are noninterest bearing. The Company maintains an allowance for
credit losses, consisting of known specific troubled accounts as
well as an amount based on overall estimated potential
uncollectible accounts receivable based on historical experience
and review of their current credit quality. Expected credit losses
are recorded as selling, general and administrative expenses in the
condensed consolidated statements of operations.
Inventory and Other Deferred Costs
Inventory consists of raw materials and supplies used to fulfill
customer genomic analysis contracts and is valued at the lower of
cost or net realizable value. Cost is determined using actual
costs, on a first-in, first-out basis.
Other deferred costs relate to work that has begun on customer
contracts but not yet completed or recognized as revenue. Other
deferred costs are comprised of direct labor and overhead costs
incurred.
Leases
The Company categorizes leases with contractual terms longer than
12 months as either operating or finance leases. Finance leases are
generally those leases that allow the Company to substantially
utilize or pay for the entire asset over its estimated life. All
other leases are categorized as operating leases. As of March 31,
2023, the Company had no finance leases.
Certain lease contracts include obligations to pay for other
services, such as maintenance. The Company elected to account for
these other services as a component of the lease (i.e., the Company
elected the practical expedient not to separate lease and non-lease
components).
Lease liabilities are recognized at the present value of the fixed
lease payments using a discount rate based on the Company’s current
borrowing rate at the lease commencement date, adjusted for various
factors including level of collateralization and term (the
“incremental borrowing rate”), unless the rate implicit in the
lease is readily determinable. The current portion of lease
liabilities is included in “Accrued and other current liabilities.”
Lease assets are recognized based on the initial present value of
the fixed lease payments plus any direct costs from executing the
leases and any lease prepayments. Lease assets are presented as
“Operating lease right-of-use assets” as a long-term asset.
Leasehold improvements are capitalized at cost and amortized over
the lesser of their expected useful life or the lease term. Costs
associated with operating lease assets are recognized on a
straight-line basis within operating expenses over the term of the
lease.
The Company has made an accounting policy election not to recognize
right-of-use assets and lease liabilities that arise from leases
with a term of 12 months or less. Fixed lease payments are
recognized as an expense on a straight-line basis over the lease
term. Variable lease costs are amounts owed by us to a lessor that
are not fixed, such as reimbursement for common area maintenance,
operating expenses, utilities, or other costs that are subject to
fluctuation from period to period. The Company has also elected to
include expenses related to leases with a term of one month or less
in the short-term lease cost disclosure.
Recent Accounting Pronouncements
New Accounting Pronouncements Adopted
In June 2016, the FASB issued Accounting Standards Update (“ASU”)
2016-13, Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, which amends
the impairment model by requiring entities to use a forward-looking
approach based on expected losses to estimate credit losses on
certain types of financial instruments, including trade
receivables. The accounting update also made minor changes to the
impairment model for available-for-sale debt securities. The
Company
adopted
the new guidance as of the beginning of the first quarter of 2023
by means of a cumulative-effect adjustment to opening retained
earnings. The adoption
did not
impact the condensed consolidated financial statements.
Note 3.
Revenue
The Company disaggregates revenue by the following four customer
types:
•
Pharma tests and services
includes sales of testing services and data analytics for clinical
trials and research to pharmaceutical companies in support of their
drug development programs. Individual contracts typically
contemplate a single project and involve a wide range of tests and
analytics deliverables from the Company that are suitable for each
particular project.
13
Table of Contents
•
Enterprise sales
includes sales of tumor profiling and diagnostic tests directly to
other businesses as an input to their products. The Company is
typically contracted to deliver a limited number of tests and
analytics deliverables, but in high volume over time, and may offer
tiered pricing. Revenue from the Company's partnership with Natera
to provide advanced tumor analysis for use in Natera's MRD test
makes up substantially all of the revenue in this
category.
•
Population sequencing
includes sales of genomic sequencing services and data analytics to
support large-scale genetic research programs. The Company is
typically contracted to deliver a genomic test and provide data
that can be used for analysis across a large volume of samples. All
of the revenue within this category is from the Company's
partnership with the VA MVP.
•
Other
includes sales of genomic tests and analytics to universities and
non-profits.
The following table presents the Company’s revenue disaggregated by
customer type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Pharma tests and services
|
|
$
|
6,333
|
|
|
$
|
7,562
|
|
|
Enterprise sales
|
|
|
9,458
|
|
|
|
4,116
|
|
|
Population sequencing
|
|
|
3,005
|
|
|
|
3,501
|
|
|
Other
|
|
|
64
|
|
|
|
48
|
|
|
Total revenue
|
|
$
|
18,860
|
|
|
$
|
15,227
|
|
Revenue from countries outside of the United States, based on the
billing addresses of customers, represented approximately
13%
and
18%
of the Company’s revenue for the three months ended March 31, 2023
and 2022, respectively.
Contract Assets and Liabilities
Contract assets as of March 31, 2023 and December 31, 2022 were
immaterial.
Amounts collected in advance of services being provided are
deferred as contract liabilities in the condensed consolidated
balance sheets. The associated revenue is recognized, and the
contract liability is reduced, as the contracted services are
subsequently performed. The balance of contract liabilities was
$6.3
million (of which $3.7
million is included within "Other long-term liabilities") and
$1.3
million as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023, amounts related to
unsatisfied services under contracts with an original expected
duration of more than one year
was $5
million. The Company expects to recognize approximately
$1.3
million of this amount throughout the next
12 months
and the remainder thereafter. Revenue recognized that was included
in the contract liability balance at the beginning of each
reporting period was immaterial for the three months ended March
31, 2023, and was $2.5
million for the three months ended March 31, 2022.
Note 4. Balance
Sheet Details
Inventory and other deferred costs consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023
|
|
|
December 31, 2022
|
|
|
Raw materials
|
|
$
|
5,517
|
|
|
$
|
6,384
|
|
|
Other deferred costs
|
|
|
2,702
|
|
|
|
2,207
|
|
|
Total inventory and other deferred costs
|
|
$
|
8,219
|
|
|
$
|
8,591
|
|
Property and equipment.
Depreciation and amortization expense for the three months ended
March 31, 2023 and 2022 was $2.8
million and $1.8
million, respectively. Accumulated depreciation and amortization
was $29.6
million and $26.9
million as of March 31, 2023 and December 31, 2022,
respectively.
Restricted cash.
The Company’s restricted cash is pledged as collateral for a
standby letter of credit related to a property lease. The balance
of restricted cash was $1.8
million as of March 31, 2023 and December 31, 2022, and is included
in other long-term assets.
Accrued and other current liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023
|
|
|
December 31, 2022
|
|
|
Accrued compensation
|
|
$
|
9,675
|
|
|
$
|
9,008
|
|
|
Operating lease liabilities
|
|
|
6,529
|
|
|
|
5,391
|
|
|
Loans—current portion (Note 6)
|
|
|
2,257
|
|
|
|
2,218
|
|
|
Accrued liabilities
|
|
|
1,018
|
|
|
|
1,700
|
|
|
Employee ESPP contributions
|
|
|
1,010
|
|
|
|
543
|
|
|
Accrued taxes
|
|
|
134
|
|
|
|
123
|
|
|
Customer deposits
|
|
|
30
|
|
|
|
30
|
|
|
Total accrued and other current liabilities
|
|
$
|
20,653
|
|
|
$
|
19,013
|
|
14
Table of Contents
Note 5. Fair
Value Measurements
The following tables show the Company’s financial assets measured
at fair value on a recurring basis and the level of inputs used in
such measurements as of March 31, 2023 and December 31, 2022 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023
|
|
|
|
Adjusted Cost
|
|
|
Unrealized Gains
|
|
|
Unrealized Losses
|
|
|
Fair Value
|
|
|
Fair Value Level
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,506
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,506
|
|
|
|
|
Money market funds
|
|
|
40,062
|
|
|
|
—
|
|
|
|
—
|
|
|
|
40,062
|
|
|
Level 1
|
|
Commercial paper
|
|
|
27,294
|
|
|
|
—
|
|
|
|
(6
|
)
|
|
|
27,288
|
|
|
Level 2
|
|
U.S. agency securities
|
|
|
5,350
|
|
|
|
2
|
|
|
|
—
|
|
|
|
5,352
|
|
|
Level 2
|
|
U.S. government securities
|
|
|
9,961
|
|
|
|
3
|
|
|
|
—
|
|
|
|
9,964
|
|
|
Level 2
|
|
Total cash and cash equivalents
|
|
|
87,173
|
|
|
|
5
|
|
|
|
(6
|
)
|
|
|
87,172
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
|
11,156
|
|
|
|
—
|
|
|
|
(32
|
)
|
|
|
11,124
|
|
|
Level 2
|
|
U.S. agency securities
|
|
|
6,847
|
|
|
|
—
|
|
|
|
(35
|
)
|
|
|
6,812
|
|
|
Level 2
|
|
U.S. government securities
|
|
|
44,018
|
|
|
|
2
|
|
|
|
(189
|
)
|
|
|
|