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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
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 001-39747
SEER, INC.
(Exact name of Registrant as specified in its charter)
Delaware82-1153150
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
3800 Bridge Parkway, Suite 102
Redwood City, California 94065
650-453-0000
(Address, including zip code and telephone number, including area code, of Registrant’s principal executive offices)

Securities registered pursuant to section 12(b) of the Act:
Copies to:
Title of each classTrading Symbol(s)Name of Exchange on which registered
Common Stock, par value $0.00001SEERNASDAQ Global Select Market

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, a 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 filerAccelerated filer
Smaller reporting company
Non-accelerated filerEmerging growth company
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 ☒
As of May 5, 2021, the registrant had 56,630,310 shares of Class A common stock, $0.00001 par value per share, and 4,702,381 shares of Class B common stock, $0.00001 par value per share, outstanding.



TABLE OF CONTENTS






SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial position, business strategy, research and development costs, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report 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 ability to successfully implement our three phase commercial launch plan, including our ability to add additional collaborators during the collaboration phase and expand to additional key opinion leaders during the limited release phase;
the implementation of our business model and strategic plans for our Proteograph Product Suite, including the expected pricing of our SP100 automation instrument and associated consumables;
our expectations regarding the rate and degree of market acceptance of our Proteograph Product Suite;
the impact of our Proteograph Product Suite on the field of proteomics and the size and growth of the addressable proteomics market;
competitive companies and technologies and our industry;
our ability to manage and grow our business and commercialize our Proteograph Product Suite;
our ability to develop and commercialize new products;
our ability to establish and maintain intellectual property protection for our products or avoid or defend claims of infringement;
the performance of third-party manufacturers and suppliers;
the potential effects of government regulation;
our ability to hire and retain key personnel and to manage our future growth effectively;
the volatility of the trading price of our Class A common stock;
the benefits of the PrognomIQ, Inc. transaction;
the impact of local, regional, and national and international economic conditions and events;
the impact of COVID-19 on our business; and
our expectations about market trends.
We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report



and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we undertake no obligation to update or revise any forward-looking statements contained herein to reflect events or circumstances after the date of this Quarterly Report, whether as a result of any new information, future events or otherwise.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.



PART I—FINANCIAL INFORMATION
Item 1. Financial Statements
SEER, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
March 31,
December 31,
20212020
ASSETS
Current assets:
Cash and cash equivalents$445,763 $333,585 
Investments85,379 98,278 
Inventory1,541 551 
Other receivables412 163 
Other receivables, related parties101 99 
Prepaid expenses and other current assets3,041 452 
Total current assets536,237 433,128 
Property and equipment, net8,682 8,441 
Restricted cash343 343 
Other assets377 407 
Total assets
$545,639 $442,319 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$1,933 $2,115 
Accrued expenses4,201 5,147 
Accrued research and development820 396 
Deferred revenue256 250 
Deferred rent, current186 186 
Total current liabilities7,396 8,094 
Deferred rent, net of current portion1,884 1,899 
Other noncurrent liabilities589 717 
Total liabilities9,869 10,710 
Commitments
Stockholders’ equity:
Preferred stock, $0.00001 par value; 5,000,000 shares authorized as of March 31, 2021 and December 31, 2020; zero shares issued and outstanding as of March 31, 2021 and December 31, 2020
  
Class A common stock, $0.00001 par value; 94,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 56,606,968 and 53,395,319 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively;
1 1 
Class B common stock, $0.00001 par value; 6,000,000 shares authorized as of March 31, 2021 and December 31, 2020; 4,702,381 and 5,865,732 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively;
  
Additional paid-in capital607,531 486,915 
Accumulated other comprehensive income28 54 
Accumulated deficit(71,790)(55,361)
Total stockholders’ equity535,770 431,609 
Total liabilities and stockholders’ equity$545,639 $442,319 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1

SEER, INC.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)

Three Months Ended March 31,
20212020
Revenue:
Grant revenue
$62 $177 
Total revenue62 177 
Operating expenses:
Research and development6,227 4,222 
Selling, general and administrative10,333 1,780 
Total operating expenses16,560 6,002 
Loss from operations(16,498)(5,825)
Other income (expense):
Interest income69 332 
Total other income (expense)69 332 
Net loss$(16,429)$(5,493)
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities(26)533 
Comprehensive loss$(16,455)$(4,960)
Net loss per share attributable to common stockholders, basic and diluted$(0.27)$(0.61)
Weighted-average common shares outstanding, basic and diluted59,887,842 8,944,284 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.











2

SEER, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)



Convertible Preferred Stock
Class A and Class B
Common Stock
Additional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal
SharesAmountSharesAmount
Balance at December 31, 2020 $ 59,261,051 $1 $486,915 $(55,361)$54 $431,609 
Issuance of Class A common stock from exercise of options
— — 399,174 — 171 — — 171 
  Repurchase of Class A common stock— — (876)— — — —  
Vesting of early exercised stock options and restricted common stock
— — — — 44 — — 44 
Issuance of Class A common stock upon follow-on offering, net of issuance costs of $7,591
— — 1,650,000 — 102,959 — — 102,959 
Return of profit— — — 11,403 — — 11,403 
Stock-based compensation— — — — 6,039 — — 6,039 
Other comprehensive income— — — — — — (26)(26)
Net loss— — — — — (16,429)— (16,429)
Balance at March 31, 2021 $ 61,309,349 $1 $607,531 $(71,790)$28 $535,770 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.








3

SEER, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)

Convertible Preferred Stock
Class A and Class B
Common Stock
Additional Paid in CapitalAccumulated DeficitAccumulated Other Comprehensive IncomeTotal
SharesAmountSharesAmount
Balance at December 31, 201922,173,216 $107,953 12,193,677 $ $2,288 $(22,586)$24 $87,679 
Issuance of Class A common stock from exercise of options
— — 40,207 — 24 — — 24 
Vesting of early exercised stock options and restricted common stock— — — — 4 — — 4 
Stock-based compensation— — — — 579 — — 579 
Other comprehensive income— — — — — — 533 533 
Net loss— — — — — (5,493)— (5,493)
Balance at March 31, 202022,173,216 $107,953 12,233,884 $ $2,895 $(28,079)$557 $83,326 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.










4

SEER, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Three Months Ended March 31,
20212020
OPERATING ACTIVITIES
Net loss$(16,429)$(5,493)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation6,039 579 
Depreciation and amortization482 277 
Net amortization of premium on available-for-sale securities152 46 
Changes in operating assets and liabilities:
Other receivables(249)(112)
Other receivables - related parties(2) 
Prepaid expenses and other current assets(2,589)(106)
Inventory(990) 
Other assets30 (79)
Accounts payable(234)481 
Deferred revenue6  
Deferred rent(15)166 
Accrued expenses(1,414)(885)
Accrued research and development424 52 
Other noncurrent liabilities(83) 
Net cash used in operating activities(14,872)(5,074)
INVESTING ACTIVITIES
Purchases of property and equipment(838)(1,063)
Purchase of available-for-sale securities(30,279)(3,485)
Proceeds from maturities of available-for-sale securities43,000 7,500 
Net cash provided by investing activities11,883 2,952 
FINANCING ACTIVITIES
Proceeds from issuance of common stock upon follow-on public offering, net of issuance costs103,595  
Proceeds from return of profit
11,403  
Repurchase of Class A common stock(2) 
Proceeds from stock option exercises including early exercised options171 45 
Net cash provided by financing activities115,167 45 
Net increase (decrease) in cash, cash equivalents and restricted cash112,178 (2,077)
Cash, cash equivalents and restricted cash, beginning of period333,928 17,828 
Cash, cash equivalents and restricted cash, end of period$446,106 $15,751 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchases included in accounts payable$9 $2,424 
Property and equipment purchases included in accrued expenses$49 $ 
Offering costs in accounts payable$158 $ 
Offering costs in accrued expenses$478 $ 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1.ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Seer, Inc. (the Company) was incorporated in Delaware on March 16, 2017, and is based in Redwood City, California. In December 2020, the Company formed the wholly-owned subsidiary, Seer Securities Corporation, located in Massachusetts. The Company is a life sciences company focused on capturing deep molecular insights from the proteome to enable novel insights and breakthroughs in the understanding of biology and disease. Since inception, the Company has devoted its efforts principally to research and development of its technology and product candidates, recruiting management and technical staff, acquiring operating assets, and raising capital.
The Company is subject to a number of risks, similar to other early-stage life science companies, including, but not limited to, development and commercialization of its products, market acceptance of its products, development by its competitors of new technological innovations, protection of its intellectual property, and raising additional capital.
Public Offering
On February 1, 2021, the Company completed an underwritten public offering of 1,650,000 shares of its Class A common stock at a public offering price of $67.00 per share. The Company received net proceeds of $103.0 million after deducting offering costs, underwriting discounts, and commissions of $7.6 million.
Reverse Stock Split
In November 2020, the Company’s board of directors approved an amended and restated certificate of incorporation to effect a reverse split of shares of the Company’s common stock and convertible preferred stock on a 1-for-2.14 basis (the Reverse Stock Split) effective as of November 25, 2020. The par values of the common stock and convertible preferred stock were not adjusted as a result of the Reverse Stock Split. All references to common stock, options to purchase common stock, restricted stock awards, restricted stock units, convertible preferred stock, share data, per share data, and related information contained in the unaudited condensed consolidated financial statements have been retrospectively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.
Liquidity
As of March 31, 2021, the Company has incurred significant losses and has had negative cash flows from operations. As of March 31, 2021, the Company had cash, cash equivalents and investments of $531.1 million and an accumulated deficit of $71.8 million. Management expects to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while the Company makes investments to support its anticipated growth. The Company believes that its cash and cash equivalents balance as of March 31, 2021 provides sufficient capital resources to continue its operations for at least 12 months from the issuance date of the accompanying unaudited condensed consolidated financial statements.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
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). The Company has issued shares of Class A common stock, herein referred to as “Class A common stock” or “Class A,” and Class B common stock, herein referred to as “Class B common stock” or “Class B,” and collectively as “common stock.” The unaudited condensed consolidated financial statements include the accounts of Seer, Inc. and its wholly-owned subsidiary. All intercompany transactions and balances have been eliminated.
The condensed consolidated balance sheets at December 31, 2020 have been derived from the audited consolidated financial statements of the Company at that date. Certain information and footnote disclosures typically included in the Company’s audited consolidated financial statements have been condensed or omitted. The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include
6

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
only normal recurring adjustments, necessary to state fairly the Company’s financial position, results of operations, comprehensive loss and cash flows for the periods presented, but are not necessarily indicative of the results of operations to be anticipated for any future annual or interim period.
The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2020 included in the Annual Report on Form 10-K filed with the SEC on March 29, 2021.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates and assumptions, including, but not limited to, those related to the fair value of common stock, stock-based compensation, accrued research and development expenses, useful lives and valuation of property and equipment, income tax uncertainties, and tax valuation allowances.
Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from those estimates.
Impact of the COVID-19 Pandemic
As a result of the COVID-19 pandemic (COVID-19), the Company’s operations experienced disruptions and restrictions on employees’ ability to work and on the hiring of additional personnel, particularly as a result of preventive and precautionary measures taken by the Company and some of its suppliers and other service providers. In particular, some of the Company’s laboratory material and equipment suppliers, collaborators, and service providers used in the performance of its research activities and phased commercial launch plan have been similarly impacted by COVID-19, which may limit the Company’s ability to achieve its planned progress. COVID-19 has adversely affected the broader economy, which could affect the Company’s financing prospects. Continued disruptions from COVID-19 could harm the Company’s operations and the Company cannot anticipate all the ways in which it could be adversely impacted by health epidemics such as COVID-19.
The COVID-19 pandemic has mainly impacted the progress of research and development activities due to the limited ability of the Company’s employees to access laboratories during times of statewide quarantine and on some of its suppliers who have experienced a surge in demand for their products resulting in supply delays for critical hardware, instrumentation and medical and testing supplies used for product development. The Company continues to monitor and assess the effects of the COVID-19 pandemic on its business, financial condition, results of operations and cash flows.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of March 31, 2021 and December 31, 2020, all amounts recorded as cash and cash equivalents consist of money market funds and are stated at fair value.
Restricted cash as of March 31, 2021 and December 31, 2020 represents cash held by a financial institution as security for a letter of credit issued to the lessor for one of the Company’s operating leases and is classified as non-current.
7

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total of the same amounts shown in the unaudited condensed consolidated statements of cash flows (in thousands):
March 31,December 31,
20212020
Cash and cash equivalents$445,763 $333,585 
Restricted cash343 343 
Total cash, cash equivalents and restricted cash$446,106 $333,928 
Revenue Recognition
Research Revenue
The Company recognizes revenue when control of the services is transferred to its customers in an amount that reflects the consideration it expects to receive from its customers in exchange for those services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. The Company considers a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service.
The Company recognizes revenue for research and development services contracts when control is transferred, which is upon completion of the services and when results of the services have been transferred to the customer. Upfront payments and fees received are recorded as deferred revenue until the Company performs its obligations under its arrangements. Amounts payable to the Company are recorded as other receivables when its right to consideration is unconditional. 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 goods or services to the customer will be one year or less.
Grant Revenue
Grant revenue represents funding under cost reimbursement programs from federal foundation sources for qualified research and development activities performed by the Company and are not based on estimates that are subject to change. Grants received are assessed to determine if the agreement should be accounted for as an exchange transaction or a contribution. An agreement is accounted for as a contribution if the resource provider does not receive commensurate value in return for the assets transferred. Such amounts are recorded as revenue as grant-funded activities are performed up to the amount of expenses incurred. Any advance funding payments are recorded as deferred revenue until the activities are performed.
Stock-Based Compensation
The Company accounts for stock-based compensation, including from restricted common stock awards (RSAs), grants of restricted stock units (RSUs), and stock options that may be settled in shares of our common stock, based on the fair values of the equity instruments issued. The fair value is determined on the measurement date, which is generally the date of grant. The fair value of RSAs is the difference between the fair value of the underlying stock at the measurement date and the purchase price. The fair value of RSUs is the fair value of the underlying stock at the measurement date. The fair value for our stock option awards is determined at the grant date using the Black-Scholes valuation model. The fair value of share-based payment awards is recognized as expense on a straight-line basis over the requisite service period in which the awards are expected to vest. Forfeitures are accounted for in the period in which they occur. Share-based payment awards that include a service condition and a performance condition are expected to vest when the performance condition is probable of being met.
8

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The Black-Scholes model considers several variables and assumptions in estimating the fair value of stock-based awards that require judgment, for which changes if they occur can materially affect the resulting estimates of fair value. These assumptions include the per share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected annual dividend yield, and the expected stock price volatility over the expected term as follows:
Fair Value of Common Stock
For grants prior to the Company’s IPO in December 2020, the grant-date fair market value of the shares of common stock underlying stock options was determined by the Company’s Board of Directors with assistance of third-party valuation specialists. Because there has been no public market for the Company’s common stock, the Board of Directors exercises reasonable judgment and considers a number of objective and subjective factors to determine the best estimate of the fair market value, which include important developments in the Company’s operations, the prices at which the Company sold shares of its convertible preferred stock, the rights, preferences and privileges of the Company’s convertible preferred stock relative to those of the Company’s common stock, actual operating results, financial performance, external market conditions in the life sciences industry, general U.S. market conditions, equity market conditions of comparable public companies, and the lack of marketability of the Company’s common stock. For all grants subsequent to the IPO, the fair value of common stock was determined by using the closing price per share of common stock as reported on the Nasdaq Global Select Market.
Expected Volatility
The Company had no publicly available stock price information prior to its IPO and limited publicly available stock price information subsequent to its IPO and therefore the Company has used the historical volatility of the stock price of similar publicly traded peer companies. The historical volatility is calculated based on a period of time commensurate with the expected term assumptions.
Expected Term
For stock options granted to employees and directors, the expected term is calculated using the simplified method for “plain vanilla” stock option awards. The expected term for stock options granted to non-employees is the contractual term.
Risk-Free Interest Rate
The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.
Expected Dividends
The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay dividends on its common stock.
Net Loss Per Share Attributable to Common Stockholders
Net loss per share of common stock is computed using the two-class method required for multiple classes of common stock and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share attributed to common stockholders is therefore the same for Class A and Class B common stock on an individual or combined basis.
The Company’s participating securities include the Company’s convertible preferred stock, as the holders are entitled to receive noncumulative dividends on a pari passu basis in the event that a dividend is paid on common stock. The Company also considers any shares issued on the early exercise of stock options subject to repurchase to be participating securities because holders of such shares have non-forfeitable dividend rights in the event a dividend
9

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
is paid on common stock. The holders of convertible preferred stock, as well as the holders of early exercised shares subject to repurchase, do not have a contractual obligation to share in losses.
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase.
Diluted net loss per share is computed by giving effect to all potentially dilutive securities outstanding for the period using the treasury stock method or the if-converted method based on the nature of such securities. For periods in which the Company reports net losses, diluted net loss per common share attributable to common stockholders is the same as basic net loss per common share attributable to common stockholders, because potentially dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes. This standard removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing standards to improve consistent application. The Company adopted this standard as of January 1, 2021, which did not have a material impact on its financial statements as of the adoption date.
In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815). This standard clarifies the interaction between accounting standards related to equity securities, equity method investments, and certain derivative instruments. The Company adopted this standard as of January 1, 2021, which did not have a material impact on its financial statements as of the adoption date.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard clarifies the definition of a lease and requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. In November 2019, the FASB issued ASU No. 2019-10 which extends the effective date of ASU No. 2016-02 for non-public business entities, including smaller reporting companies, to fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. While the Company has not yet quantified the impact, these adjustments will increase total assets and total liabilities relative to such amounts reported prior to adoption.

10

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
3.FAIR VALUE MEASUREMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables set forth the fair value of the Company’s financial assets that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands).
March 31, 2021
Level 1Level 2Level 3Total
Assets:Classification:
Money market funds
Cash and cash equivalents$444,668 $ $ $444,668 
U.S. Treasury securitiesInvestments 85,379  85,379 
Total assets measured at fair value
$444,668 $85,379 $ $530,047 
December 31, 2020
Level 1Level 2Level 3Total
Assets:Classification:
Money market funds
Cash and cash equivalents$333,585 $ $ $333,585 
U.S. Treasury securitiesInvestments 98,278  98,278 
Total assets measured at fair value
$333,585 $98,278 $ $431,863 
There were no financial liabilities measured at fair value. The Company classifies money market funds within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted market prices. The Company classifies its investments in U.S. Treasury securities (Treasury bills, Treasury notes, and Treasury bonds) as Level 2 instruments and obtains fair value from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model-driven valuations using observable market data or inputs corroborated by observable market data.
The carrying amount of the Company’s other receivables, prepaid expenses, other current assets, accounts payable, and accrued expenses approximate fair value due to their short maturities.
The following is a summary of the Company’s cash equivalents and investments and the gross unrealized holding gains and losses (in thousands):
March 31, 2021
Amortized Cost BasisUnrealized GainsUnrealized LossesFair Value
Assets:
Money market funds
$444,668 $ $ $444,668 
U.S. Treasury securities85,351 28  85,379 
Total$530,019 $28 $ $530,047 
December 31, 2020
Amortized Cost BasisUnrealized GainsUnrealized LossesFair Value
Assets:
Money market funds
$333,585 $ $ $333,585 
U.S. Treasury securities98,223 57 (2)98,278 
Total$431,808 $57 $(2)$431,863 
As of December 31, 2020, unrealized losses on available-for-sale investments are not attributable to credit risk and are considered to be temporary. The Company believes it is more likely than not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. There were no
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SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
unrealized losses on available-for-sale investments as of March 31, 2021. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value. As of March 31, 2021 and December 31, 2020, the weighted-average remaining maturity of the Company’s investment portfolio was less than one year.
4.OTHER FINANCIAL STATEMENT INFORMATION
Inventory
Inventory consists of the following (in thousands):
March 31,December 31,
20212020
Raw materials$622 $ 
Finished goods919 551 
Total inventory$1,541 $551 
Other Receivables
Other receivables consist of the following (in thousands):
March 31,December 31,
20212020
Interest receivable$335 $120 
Other178 142 
Total other receivables$513 $262 
Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
March 31,December 31,
20212020
Laboratory equipment$8,774 $8,075 
Computer equipment and software206 182 
Furniture and fixtures241 241 
Leasehold improvements2,294 2,294 
Property and equipment11,515 10,792 
Less: accumulated depreciation and amortization2,833 2,351 
Total property and equipment, net$8,682 $8,441 
Depreciation and amortization expense related to property and equipment was $0.5 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively.
12

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Accrued Expenses
Accrued expenses consist of the following (in thousands):
March 31,December 31,
20212020
Accrued compensation$1,446 $2,866 
Accrued professional services1,314 1,074 
Restricted stock liability, current483 484 
Other958 723 
Total accrued expenses$4,201 $5,147 
5.REVENUE AND DEFERRED REVENUE
As of March 31, 2021 and December 31, 2020, the Company recorded $0.3 million and $0.3 million of deferred revenue related to the following agreements.
Research Agreements
In February 2019, the Company entered into a sponsored research agreement with a biotechnology company under which the Company is required to execute certain research and development activities as well as optional research and development activities if elected by the customer for total consideration payable of $0.4 million. During the three months ended March 31, 2021 and 2020, the Company did not recognize any research revenue with respect to this agreement.
In March 2020, the Company entered into a sponsored research agreement with a pharmaceutical company under which the Company is required to execute certain research and development activities for total consideration payable of $0.5 million, of which $0.3 million was received and recorded as deferred revenue as of March 31, 2021. During the three months ended March 31, 2021 and 2020, the Company did not recognize any research revenue with respect to the research agreement.
NIH Grant
In August 2019, the Company received a notice of a Small Business Innovation Research grant award from the National Institutes of Health, which will provide funding of approximately $1.1 million to the Company for its development of research applications. In June 2020, the Company received a notice that additional grant consideration of $0.9 million will be awarded. During the three months ended March 31, 2021 and 2020, the Company recognized grant revenue of $0.1 million and $0.2 million, respectively, with respect to the award.
6.CAPITAL STOCK AND STOCKHOLDERS’ EQUITY
As of March 31, 2021, the Company is authorized to issue 105,000,000 shares of capital stock consisting of 94,000,000 shares of Class A common stock, 6,000,000 shares of Class B common stock, and 5,000,000 shares of preferred stock.
13

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Common Stock
Common stock issued and outstanding is as follows:
March 31,December 31,
20212020
Class A common stock56,606,968 53,395,319 
Class B common stock4,702,381 5,865,732 
Total common stock issued and outstanding61,309,349 59,261,051 
Class A and Class B common stock have a par value of $0.00001 per share. Holders of Class A common stock are entitled to one vote per share and holders of Class B common stock are entitled to 10 votes per share. Class B common shares are convertible to Class A common shares at any time at the option of the holder on a one-for-one basis. Holders of common stock are entitled to dividends as declared by the Board of Directors, subject to rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date.
In the first quarter of 2021, the Company received $11.4 million related to the return of short-swing profits from one of its beneficial owners. These proceeds are recognized as a capital contribution from stockholders as an increase to additional paid-in capital on the condensed consolidated statements of changes in stockholders’ equity and as cash provided by financing activities on the condensed consolidated statements of cash flows.
7.EQUITY INCENTIVE PLANS
In 2017, the Company adopted the 2017 Stock Incentive Plan (2017 Plan), which provided for the granting of awards to employees, directors, and consultants of the Company. Awards issuable under the Plan include incentive stock options (ISO), nonqualified stock options (NSO), and restricted stock awards. In 2020, the Company adopted the 2020 RSU Equity Incentive Plan (2020 RSU Plan), which provided for the granting of RSUs to certain employees of the Company.
In 2020, the Company adopted the 2020 Equity Incentive Plan (2020 Plan), which became effective in connection with the IPO. The Company’s 2017 Plan and 2020 RSU Plan were terminated in connection with the IPO and no further grants will be made under the 2017 Plan and 2020 RSU Plan from the date that the 2020 Plan became effective.
As of March 31, 2021, there are 8,302,701 shares of Class A common stock reserved for issuance under the 2020 Plan of which 6,153,968 shares are available for issuance in connection with grants of future awards.
Stock option activity for the three months ended March 31, 2021 is as follows:
Options Outstanding
Weighted Average Exercise Price
Balance - December 31, 20209,551,105 $5.55 
Options granted768,624 59.94 
Options exercised(399,174)0.44 
Options cancelled and forfeited(81,201)5.70 
Balance - March 31, 20219,839,354 $10.00 
Vested and exercisable, March 31, 2021
1,616,370 $2.44 
14

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Restricted Stock
Certain stock options granted under the 2017 Plan provide stock option holders the right to exercise unvested stock options in exchange for restricted shares of Class A common stock. The Company has also issued restricted shares of Class A common stock to employees and directors under the 2017 Plan.
The activity of restricted shares of Class A common stock for the three months ended March 31, 2021 is as follows:
Number of Shares
Weighted-Average
Grant Date
Fair Value
Unvested at December 31, 2020775,641 $1.77 
Granted10,728 1.66 
Repurchased(876)1.55
Vested(133,075)2.07
Unvested at March 31, 2021652,418$1.71 
RSUs
The Company has granted RSUs under the 2020 RSU Plan and the 2020 Plan. RSU activity for the three months ended March 31, 2021 is as follows:
Restricted Stock Units
Weighted-Average
Grant Date
Fair Value
Balance at December 31, 2020491,318 $7.91 
Granted200,233 60.06 
Vested
(1,120)34.35
Cancelled
(947)19.00
Balance at March 31, 2021
689,484$23.05 
Employee Stock Purchase Plan
In November 2020, the Company’s board of directors adopted the 2020 Employee Stock Purchase Plan (ESPP), which was subsequently approved by the Company’s stockholders and became effective in connection with the IPO. A total of 1,195,327 shares of Class A common stock are reserved for issuance under the ESPP as of March 31, 2021. The first offering period has not commenced as of March 31, 2021 and there is no stock-based compensation related to the ESPP for the three months ended March 31, 2021.
Stock-Based Compensation
The following table summarizes the components of stock-based compensation recognized in the Company’s condensed consolidated statements of operations and comprehensive loss (in thousands):
Three Months Ended
March 31,
20212020
Research and development$1,492 $182 
Selling, general and administrative4,547 397 
Total stock-based compensation$6,039 $579 
15

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
8.COMMITMENTS
Facility Lease Agreement
On January 4, 2019, the Company entered into a lease agreement for office and laboratory space in Redwood City, California. The lease term commenced in November 2019 and ends on September 30, 2029. In connection with the lease, the Company maintains a letter of credit issued to the lessor in the amount of $0.3 million, which is secured by restricted cash that is classified as non-current at March 31, 2021 and December 31, 2020 based on the term of the underlying lease.
The Company entered into an amendment to the lease agreement with respect to its facility in Redwood City, California in June 2020. The amendment is accounted for as a new operating lease. The amendment makes certain changes to the original lease, including (i) additional office and laboratory space in the same building (Expansion Premises) and (ii) an extension of the expiration date of the original lease to 127.5 months following the delivery date of the Expansion Premises, which is estimated to be in the fourth quarter of 2021.
The amendment provides for annual base rent for the Expansion Premises of approximately $0.9 million in the first year of the lease term (subject to an abatement period of nine months), which increases on an annual basis to approximately $1.2 million in the final year of the lease term. The amendment also provides for tenant incentives in the amount of $2.4 million. Under the amendment, the Company retains its original option to renew the lease for an additional five-year term, at then-current market rates.
During the period from the lease amendment commencement until the earlier of one month after occupancy of the Expansion Premises or September 2021, the Company will be provided with temporary space. The Company is not required to pay additional rent for the temporary space, but is required to pay property taxes, insurance and normal maintenance costs with respect to the temporary space.
Rent expense was $0.2 million and $0.2 million for the three months ended March 31, 2021 and 2020, respectively. The Company is required to pay property taxes, insurance, and normal maintenance costs for the facility and will be required to pay any increases over the base year of these expenses.
As of March 31, 2021, future minimum commitments under the Company’s non-cancelable facility operating lease are as follows:
Years ending December 31,(in thousands)
2021 (nine months remaining)$596 
20221,279 
20231,783 
20241,833 
20251,884 
Thereafter13,178 
Total$20,553 
The above table does not include the amendment to the existing operating lease we entered into in April 2021. See Note 11.
Purchase Commitments and Obligations
The Company has certain purchase commitments related to its inventory management with certain manufacturing suppliers wherein the Company is required to purchase the amounts forecasted in a blanket purchase order within a certain time period. The contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude orders for goods and services entered into in the normal course of business that are not enforceable or subject to change. These outstanding commitments amounted to $4.6 million and $3.1 million as of March 31, 2021 and December 31, 2020, respectively, and are excluded from the future minimum commitments table above.
16

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Guarantees and Indemnifications
In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. The Company has entered into indemnification agreements with certain directors and officers that require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of the status or service as directors or officers. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of March 31, 2021 and December 31, 2020, the Company does not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.
Contingencies
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not currently a party to any material legal proceedings.
9.PROGNOMIQ, INC.
In August 2020, the Company formed a new entity, PrognomIQ, Inc. (PrognomIQ), and entered into a stock purchase agreement with PrognomIQ, pursuant to which the Company transferred to PrognomIQ certain assets that comprise the Company’s human diagnostics activities in exchange for all the outstanding equity interests of PrognomIQ. The Company subsequently completed a pro-rata distribution to its stockholders of most of the shares of capital stock of PrognomIQ.
The Company has concluded that PrognomIQ is a VIE due to its reliance on future financing and insufficient equity investment at risk. However, the Company is not the primary beneficiary of the VIE as it does not have the power to direct the activities that most significantly impact the economic performance of PrognomIQ and does not have control over the PrognomIQ board of directors. The Company has determined that it has the ability to exercise significant influence over PrognomIQ and therefore has accounted for its investment in PrognomIQ using the equity method. During the year ended December 31, 2020, the carrying value of the Company’s investment in PrognomIQ was reduced to nil after recognizing net losses based on its percentage of ownership in PrognomIQ.
PrognomIQ constitutes a related party and, as of March 31, 2021 and December 31, 2020, the Company recorded $0.1 million and $0.1 million in other receivables, related parties, respectively, on the condensed consolidated balance sheets representing amounts due for general transition services and support provided.
10.NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS
The following table shows the computation of basic and diluted net loss per share (in thousands, except share and per share data):
Three Months Ended
March 31,
20212020
Numerator:
Net loss attributable to common stockholders$(16,429)$(5,493)
Denominator:
Weighted-average common shares used in computing net loss per share attributable to common stockholders, basic and diluted
59,887,842 8,944,284 
Net loss per share attributable to common stockholders, basic and diluted
$(0.27)$(0.61)
17

SEER, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented, because including them would have been anti-dilutive (on an as-converted basis):
March 31,
20212020
Convertible preferred stock 22,173,216 
Class A common stock options issued and outstanding9,839,354 5,701,527 
Restricted common stock subject to future vesting652,418 2,836,759 
Restricted stock units689,484  
Total11,181,256 30,711,502 
11.SUBSEQUENT EVENTS
In April 2021, the Company entered into an amendment to its existing operating lease agreement expanding its current office and laboratory facilities by approximately 25,000 square feet for approximately $160,000 per month plus operating expenses. The lease has a term of approximately 11 years years and commences in May 2021.


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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 unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled “Special Note Regarding Forward Looking Statements.” Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled “Risk Factors.”
Overview
We aim to enable exceptional scientific outcomes by commercializing transformative products for researchers to unlock deep, unbiased biological information. Our initial product, the Proteograph Product Suite (Proteograph), will leverage our proprietary engineered nanoparticle (NP) technology to provide unbiased, deep, rapid and large-scale access across the proteome. Our Proteograph Product Suite is an integrated solution that is comprised of consumables, an automation instrument and software. Our Proteograph solution provides an easy-to-use workflow, which has the potential to make proteomic profiling, and the analysis of the thousands of samples needed to characterize the complex, dynamic nature of the proteome, accessible for nearly any laboratory. We believe that characterizing and understanding the full complexity of the proteome is foundational for accelerating biological insights and will lead to broad potential end-markets for proteomics, encompassing basic research and discovery, translational research, diagnostics and applied applications. This full understanding of the complexity of the proteome requires large-scale, unbiased and deep interrogation of thousands of samples across time, which we believe is unavailable with the proteomic approaches available today. We believe that our Proteograph has the potential to enable researchers to perform proteomics studies at scale, similar to the manner in which next generation sequencing (NGS) technologies have transformed genomics.
Since we were incorporated in 2017, we have devoted substantially all of our resources to research and development activities, including with respect to our Proteograph Product Suite, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, building our commercial infrastructure and providing general and administrative support for these activities.
Our revenue to date has been nominal and generated from research collaborations and grant-funded activities. Our initial product, the Proteograph Product Suite, has not yet been broadly commercialized, and we have not generated any revenue from product sales to date. Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful commercialization of our Proteograph. We plan to commercialize our Proteograph utilizing a three phase plan that has been shown to be effective and optimal for introducing disruptive products in numerous life sciences technology markets, including NGS. We have completed the first collaboration phase, during which we signed collaboration agreements with a small number of key opinion leaders in proteomics, whose assessment and validation of products can significantly influence other researchers in their respective markets. We recently commenced the second, or limited release, phase of our commercialization plan. We plan to sell our Proteograph Product Suite to select sites performing large-scale proteomics or genomics research. We will work closely with these sites, which we expect will serve as models for the rest of the market, to exemplify applications that demonstrate the unique value proposition of our Proteograph. We expect this phase to continue through 2021 and lead into the third phase of commercialization, broad release, in early 2022.
We are commercializing our Proteograph Product Suite as an integrated solution comprising consumables, an automation instrument and software. Our commercial strategy will focus on growing adoption by the research community of our Proteograph, expanding the installed base and increasing utilization to generate revenue from the purchase of our Proteograph consumables. We expect a highly efficient sales model since our Proteograph solution does not have a large capital expenditure component and our SP100 automation instrument integrates with most existing proteomics laboratories’ workflows and also complements large-scale genomics research.
We intend to commercialize our Proteograph Product Suite through a direct sales channel in the United States, and through both direct and distributor sales channels in regions outside the United States. Given our stage of
19


commercialization, we are currently in the early stages of building sales, marketing, support and product distribution capabilities. We intend to build the necessary infrastructure for these activities in the United States, European Union, the United Kingdom, and potentially other countries and regions, including Asia-Pacific, as we execute on our three phase commercial launch strategy for our Proteograph.
We leverage well-established unit operations to formulate and manufacture our NPs at our facilities in Redwood City, California. We procure some of our consumables, including components of our NPs, from third-party manufacturers, which includes the commonly-available raw materials needed for manufacturing our proprietary engineered NPs. We are currently manufacturing using our pilot line and building out our manufacturing capabilities as we ramp towards broad release. We obtain some of the reagents and components used in our Proteograph workflow from third-party suppliers. While some of these reagents and components are sourced from a single supplier, these products are readily available from numerous suppliers. While we currently handle packaging of our Proteograph assay and the related consumables, in the future, we may have our packaging outsourced to a third-party. While we currently plan to handle filling of our Proteograph assay reagents both internally and externally, in the future, we may have some of our internal filling outsourced to a third-party. We conduct vendor and component qualification for components provided by third-party suppliers and quality control tests on all of our NPs. We will need to substantially expand our NP manufacturing capabilities to enable the successful commercialization of our Proteograph.
We have designed our SP100 automation instrument and have outsourced the manufacturing of our SP100 automation instrument to Hamilton Company, a leading manufacturer of automated liquid handling workstations. We have entered into a non-exclusive agreement with Hamilton that covers the manufacturing of our SP100 automation instrument and its continued supply on a purchase order basis. The agreement has an initial term that runs three years following our commercial launch. Pricing for the supply of our SP100 automation instrument is on a fixed schedule during the initial term of the agreement, with tiered pricing dependent upon the number of units purchased in a twelve-month period.
On December 8, 2020, we completed our IPO, in which we sold 10,592,106 shares of Class A common stock at a price of $19.00 per share, resulting in net proceeds of $183.9 million after deducting offering costs, underwriting discounts and commissions. Concurrent with the IPO, we issued 7,105,262 shares of our common stock in a private placement for net proceeds of $130.3 million after deducting underwriting discounts and commissions. On February 1, 2021, we completed an underwritten public offering of 1,650,000 shares of our Class A common stock at a public offering price of $67.00 per share. We received net proceeds of $103.0 million after deducting offering costs, underwriting discounts and commissions of $7.6 million.
During the three months ended March 31, 2021 and 2020, we incurred a net loss of $16.4 million and $5.5 million, respectively. As of March 31, 2021, we had an accumulated deficit of $71.8 million and cash, cash equivalents, and investments of $531.1 million. We expect to continue to incur significant and increasing losses and do not expect positive cash flows from operations for the foreseeable future.
We expect our expenses to increase significantly in connection with our ongoing activities, as we:
continue to develop and commercialize our Proteograph;
attract, hire and retain qualified personnel;
establish a sales, marketing, service, support and distribution infrastructure in advance of commercialization;
build-out and expand our in-house NP manufacturing capabilities;
continue to engage in research and development of other products and enhancements to our Proteograph;
implement operational, financial and management information systems;
obtain, maintain, expand, and protect our intellectual property portfolio; and
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build the infrastructure to operate as a public company.
PrognomIQ
In August 2020, we transferred certain assets related to disease testing to PrognomIQ, Inc. (PrognomIQ), a new wholly-owned subsidiary, in exchange for all of its outstanding equity interests. Following the transfer, we completed a pro-rata distribution to our stockholders of most of the shares of capital stock of PrognomIQ. Following the distribution and a subsequent $55.0 million equity financing of PrognomIQ, we hold approximately 19% of the outstanding capital stock in PrognomIQ.
The rationale for this transaction was to enable the growth of ecosystems around new applications that leverage unbiased, deep and large-scale proteomic information. The transaction allows us to remain focused on our core strategy, which is to be a provider, rather than a consumer, of proteomics solutions to all customers across these ecosystems. By focusing on our role as a provider of proteomics solutions, we are no longer potentially competing with, or creating the perception that we are competing with, our customers. Our relationship with PrognomIQ does not preclude us from selling our Proteograph Product Suite to any customer in any geography, nor does it preclude our customers from using our Proteograph in any way. PrognomIQ has indicated that it plans to combine the protein data from our Proteograph solution with genomics and other omics data, to create a multi-omics approach to health and disease testing. We believe PrognomIQ’s use of proteomics and the potential for other similar companies which use proteomics in their research and products will help us drive the adoption of our Proteograph Product Suite in these applications.
Omid Farokhzad, Chief Executive Officer and Chair of our board of directors, serves as the Chair of PrognomIQ’s board of directors. Philip Ma, Ph.D., our former Chief Business Officer, serves as the Chief Executive Officer of PrognomIQ. Dr. Ma has fully transitioned to PrognomIQ and remains our consultant through April 2022. In addition, three of our other employees have also transitioned to PrognomIQ. We will be providing general transition services and support, including laboratory and office space to PrognomIQ during the transition period. We anticipate these services to continue through the first half of 2021.
We granted PrognomIQ a non-exclusive license to certain patents and patent applications that we own and a non-exclusive sublicense to certain patent applications we exclusively licensed from BWH, in each case relating to our core technology, to develop, manufacture and commercialize licensed products for the field of human diagnostics on a worldwide basis. In consideration of the non-exclusive sublicense to certain patent applications licensed from BWH, PrognomIQ paid us a low-five digit figure, and would pay a low single digit royalty, in an amount equivalent to what we would have to pay under our license with BWH, on net sales of sublicensed products beginning with the first commercial sale of a sublicensed product during the term of the agreement. We do not view these amounts to be material to our financial condition and results of operations nor do we expect these amounts to be material to us in the future.
COVID-19 Pandemic
As a result of the COVID-19 pandemic, we could experience disruptions that could severely impact our business. For example, we have experienced longer lead times from Hamilton for orders of our SP100 automation instruments and may experience delays and longer lead times from our other suppliers of critical hardware, instrumentation and consumables used for product development and manufacturing operations. Pandemic precautions and preventative measures may also impact our commercialization plans due to restrictions on our customers’ ability to access laboratories, causing delays in the delivery and installation of our Proteograph products, training such customers on our products, and their ability to conduct research. The ongoing build-out of our expansion facilities may also be delayed by COVID-related restrictions. Furthermore, COVID-19 has adversely affected the broader economy and financial markets, resulting in an economic downturn that could curtail the research and development budgets of our customers, our ability to hire additional personnel and our financing prospects. Any of the foregoing could harm our operations and we cannot anticipate all the ways in which it could be adversely impacted by health epidemics such as COVID-19.
For additional details, see the section titled “Risk Factors.”
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Components of Results of Operations
Revenue
We have not generated any revenue from product sales and we may not be able to generate meaningful revenues in the near future. Our revenue to date has been generated from research collaborations and grant-funded activities.
Research and Development Expenses
Research and development, or R&D, expenses include cost associated with performing services under research and development service contracts and research and development of our technology and product candidates. R&D expenses consist primarily of employee compensation, including stock-based compensation, and related benefits, laboratory supplies used for in-house research, consulting costs, costs related to clinical studies for the collection of biological samples for research use, which relate to the assets transferred to PrognomIQ, and allocated overhead, including rent, depreciation, information technology and utilities.
We plan to increase our investment in our R&D efforts related to our Proteograph Product Suite, our product development pipeline and our proprietary engineered NP and other technologies. Therefore, we expect R&D expenses will increase in absolute dollars in future periods as we incur expenses associated with hiring additional personnel, purchasing supplies and materials, and the allocation of facility expense associated with the ongoing build-out of our expansion facilities to support our R&D efforts.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of employee compensation, including stock-based compensation, and related benefits for executive management, sales and marketing, finance, administration and human resources, legal, allocated overhead, professional service fees and other general overhead costs to support our operations.
We expect to incur additional selling, general and administrative expenses as we continue to invest in our personnel as we grow our commercial operations and with the additional costs incurred as a result of operating as a public company, including accounting, human resources, legal, insurance and investor relations costs. As a result, we expect selling, general and administrative expenses to increase in absolute dollars in future periods.
Interest Income
Interest income consists of interest earned on cash, cash equivalents and investments.

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Results of Operations
Comparisons of the Three Months Ended March 31, 2021 and 2020
The following table summarizes our results of operations for the periods presented:
Three Months Ended March 31,
Change
20212020Amount%
(dollars in thousands)
Revenue:
Research revenue$— $— $— *
Grant revenue62 177 (115)(65)%
Total revenue62 177 (115)(65)%
Operating expenses:
Research and development6,227 4,222 2,005 47 %
Selling, general and administrative10,333 1,780 8,553 481 %
Total operating expenses16,560 6,002 10,558 176 %
Loss from operations(16,498)(5,825)(10,673)183 %
Other income (expense):
Interest income69 332 (263)(79)%
Interest expense— — — *
Other expense— — — *
Total other income 69 332 (263)(79)%
Net loss$(16,429)$(5,493)$(10,936)199 %
* Not meaningful
Revenue
Three Months Ended March 31,Change
20212020Amount%
(dollars in thousands)
Revenue $62 $177 $(115)(65)%
Revenue decreased by $0.1 million, or 65%, from $0.2 million during the three months ended March 31, 2020 to $0.1 million during the three months ended March 31, 2021, due to less grant-funded activities related to our SBIR grant from the NIH.

Research and Development
Three Months Ended March 31,Change
20212020Amount%
(dollars in thousands)
Research and development$6,227 $4,222 $2,005 47 %
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R&D expenses increased by $2.0 million, or 47%, from $4.2 million during the three months ended March 31, 2020 to $6.2 million during the three months ended March 31, 2021. The increase was primarily due to an increase in product development efforts related to our Proteograph Product Suite including $1.7 million in employee compensation costs, stock-based compensation and other related costs due to growth in research and development personnel, $0.5 million related to the expansion of facilities and maintenance and depreciation of laboratory equipment, and $0.2 million in professional and consulting fees. This was offset by a decrease in clinical study fees of $0.3 million related to the costs associated with the ramp down of site enrollment for clinical studies related to the collection of biological samples for research use. These clinical studies are related to the assets transferred to PrognomIQ.
Selling, General and Administrative
Three Months Ended March 31,Change
20212020Amount%
(dollars in thousands)
Selling, general and administrative$10,333 $1,780 $8,553 481 %
Selling, general and administrative expenses increased by $8.6 million, or 481% , from $1.8 million during the three months ended March 31, 2020 to $10.3 million during the three months ended March 31, 2021, primarily due to a $2.1 million increase in employee compensation and other related expenses, and a $4.1 million stock-based compensation increase, as a result of an increase in personnel, including the addition of key members of executive management. Other increases are attributable to $0.2 million in marketing costs related to our limited release commercial efforts, and costs related to becoming a publicly traded company including a $0.6 million increase in professional and consulting fees related to accounting and audit services, a $0.4 million increase in corporate and patent legal matters, and a $1.0 million increase in general business expenses which includes insurance premiums and state and local business taxes.
Total Other Income
Three Months Ended March 31,Change
20212020Amount%
(dollars in thousands)
Total other income$69 $332 $(263)(79)%
Total other income decreased by $0.3 million, or 79%, from $0.3 million during the three months ended March 31, 2020 to $0.1 million during the three months ended March 31, 2021. Short-term interest rate yields decreased significantly during fiscal year 2020 and remained low during the first quarter of fiscal year 2021. These decreases were partially offset quantitatively by higher amounts of cash invested in money market funds and U.S. Treasury securities during fiscal year 2020 and the first quarter of fiscal year 2021 as a result of multiple private and public financing events.
Liquidity and Capital Resources
Since the date of our incorporation, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from operations. Our operations have been funded primarily through the sale and issuance of equity securities since inception. We anticipate that we will continue to incur net losses and do not expect positive cash flows from operations for the foreseeable future. However, based on our cash on hand, we believe we will have adequate liquidity over the next twelve months following the date of this Quarterly Report to operate our business and to meet our cash requirements.
In connection with our IPO, we sold 10,592,106 shares of Class A common stock and received net proceeds of $183.9 million after deducting offering costs, underwriting discounts and commissions. Concurrent with the IPO, we issued 7,105,262 shares of our common stock in a private placement for net proceeds of $130.3 million after deducting underwriting discounts and commissions. On February 1, 2021, we completed an underwritten public
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offering of 1,650,000 shares of our Class A common stock and received net proceeds of $103.0 million after deducting offering costs, underwriting discounts and commissions.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31,
20212020
(in thousands)
Net cash used in operating activities$(14,872)$(5,074)
Net cash provided by investing activities11,883 $2,952 
Net cash provided by financing activities115,167 $45 
Net increase (decrease) in cash, cash equivalents and restricted cash$112,178 $(2,077)
Operating Activities
During the three months ended March 31, 2021, cash used in operating activities was $14.9 million, which was attributable to a net loss of $(16.4) million and a net change in our net operating assets and liabilities of $(5.1) million, partially offset by non-cash charges of $6.7 million. Non-cash charges primarily consisted of $6.0 million in stock-based compensation, $0.5 million of depreciation and amortization and $0.2 million of net amortization of premiums on available-for-sales securities. The change in our net operating assets and liabilities was primarily due to a decrease in accrued liabilities related to employee compensation of $1.4 million, increases in inventory levels of $1.0 million and increases of $2.6 million in prepaid expenses related to being a publicly traded company such as insurance.
During the three months ended March 31, 2020, cash used in operating activities was $5.1 million. which was attributable to a net loss of $(5.5) million and a net change in our net operating assets and liabilities of $(0.5) million offset by non-cash charges of $0.9 million. Non-cash charges primarily consisted of $0.6 million in stock-based compensation and $0.3 million of depreciation and amortization. The change in our net operating assets and liabilities was primarily due to decrease in accounts payable and accrued liabilities primarily related to employee compensation and increased procurement of laboratory supplies.
Investing Activities
During the three months ended March 31, 2021, cash provided by investing activities was $11.9 million, which related to purchases of available-for-sale securities, net of proceeds from maturities of $12.7 million, offset by $(0.8) million in payments primarily for laboratory equipment.
During the three months ended March 31, 2020, cash provided by investing activities was $3.0 million, which related to purchases of available-for-sale securities, net of proceeds from maturities of $4.0 million, offset by $(1.1) million in payments primarily for laboratory equipment.
Financing Activities
During the three months ended March 31, 2021, cash provided by financing activities was $115.2 million. This was attributable to net proceeds of $103.0 million from issuance of common stock upon our follow-on offering, net of issuance costs of $7.6 million, in addition to $11.4 million in short-swing profits from a beneficial owner.
During the three months ended March 31, 2020, cash provided by financing activities was approximately $45,000, which was all attributable to proceeds from stock option exercises.

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Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2020:
Payments due by period
TotalLess than
1 year
1-3 years3-5 yearsMore than
5 years
(in thousands)
Operating lease obligations$20,367 $795 $3,063 $3,717 $12,792 
In addition, we enter into agreements as a part of normal course of business with various vendors, which are generally cancellable without material penalty upon written notice. Payments associated with these agreements are not included in this table of contractual obligations.
Our operating lease obligations reflect our lease obligations for our headquarters facility in Redwood City, California. In June 2020, we amended the lease agreement for this facility to expand the office and laboratory space covered by the lease, extend the lease through February 2032, and increase the annual base rent for the expanded premises. Upon occupancy of the expansion facility that is anticipated to occur in the fourth quarter of 2021, the annual base rent will be $0.9 million in the first 12 months of the lease term (subject to an abatement period of nine months), and increases on an annual basis to $1.2 million in the final 12 months of the lease term. The amendment also provides for tenant incentives in the amount of $2.4 million.
The above table does not include the operating lease we entered into in Redwood City, California in April 2021, which has an approximate 11-year term. Payments associated with this operating lease agreement will result in additional operating lease obligations not included in the above table of approximately $160,000 per month plus operating expenses.
We have certain purchase commitments related to its inventory management with certain manufacturing suppliers wherein the Company is required to purchase the amounts forecasted in a blanket purchase order within a certain time period. The contractual obligations represent future cash commitments and liabilities under agreements with third parties and exclude orders for goods and services entered into in the normal course of business that are not enforceable or subject to change. These outstanding commitments amounted to $4.6 million as of March 31, 2021. These payments are not included in the table of contractual obligations above.
Off-Balance Sheet Arrangements
Since the date of our incorporation, we have not engaged in any off-balance sheet arrangements, as such term is defined in the rules and regulations of the SEC.
Critical Accounting Policies, Significant Judgments and Use of Estimates
The discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
There have been no significant changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of
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Financial Condition and Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Emerging Growth Company Status
We are an emerging growth company, as defined 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. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have 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 (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of $1.07 billion or more, (ii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years or (iii) the date on which we are deemed a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding equity securities held by non-affiliates, or (iv) the last day of the fiscal year following the fifth anniversary of completion of our initial public offering.
Recent Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We have exposure to interest rate risk that relates to our cash, cash equivalents, and investments held in money market funds and U.S. Treasury securities. The goals of our investment policy are liquidity and capital preservation. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash, cash equivalents, and investments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer (CEO), and Chief Financial Officer (CFO), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports 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, and that such information is accumulated and communicated to our management, including the CEO and the CFO, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and
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management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of March 31, 2021 because of the material weakness in internal controls further discussed below. Notwithstanding the material weakness, our management, including our CEO and CFO, has concluded that our unaudited condensed consolidated financial statements, included in this Quarterly Report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.
Specifically, our management determined that, as of March 31, 2021, we have material weaknesses in each of the following components of the “Internal Control—Integrated Framework” (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission:
insufficient accounting personnel to enable segregation of duties relating to the general ledger,     disbursement, and certain accounting functions;
no formalized processes or controls for account reconciliations, including independent review of such reconciliations, or related financial statement analysis prepared in conformity with generally accepted accounting principles in the United States (U.S. GAAP); and
an insufficient complement of accounting personnel with the necessary U.S. GAAP technical expertise to timely identify and account for complex or non-routine transactions or to formalize accounting policies, memoranda, or controls for such transactions.
These material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that may not be prevented or detected, and accordingly, it was determined that these control deficiencies constitute material weaknesses.
Remediation Plan
We have begun to take certain actions to address the control deficiencies in our financial reporting, including hiring three finance department employees with appropriate expertise, including our Chief Financial Officer and our Controller, and retaining an accounting consulting firm to provide additional depth and breadth to our technical accounting and financial reporting capabilities. We have also begun to review and document our accounting and financial processes and internal controls, build out our financial management and reporting systems infrastructure, and further develop and formalize our accounting policies and financial reporting procedures, which includes ongoing senior management review and establishing our audit committee oversight. In addition, we have commenced work with a consulting firm to assist in the design effectiveness and testing of our internal controls and we plan to hire an additional four finance and accounting personnel during 2021 to assist in executing on these specific functions, of which we have hired two personnel as of March 31, 2021.
Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls
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is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
Changes in Internal Control over Financial Reporting
Except for the identification of the material weaknesses and the remediation plan described above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2021 that has materially affected, or is 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 legal proceedings. From time to time we may be involved in legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business.
Item 1A. Risk Factors
Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information in this Quarterly Report, including our unaudited condensed consolidated financial statements and the related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report, before deciding whether to invest in our Class A common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and prospects. In such an event, the market price of our Class A common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and the market price of our Class A common stock.
Summary Risk Factor
Our business is subject to numerous risks and uncertainties that you should consider before investing in our company, as more fully described below. The principal factors and uncertainties that make investing in our company risky include, among others:
we are an early-stage life sciences technology company with a history of net losses, which we expect to continue, and we may not be able to generate meaningful revenues or achieve and sustain profitability in the future;
we have a limited operating history, which may make it difficult to evaluate the prospects for our future viability and predict our future performance;
our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide;
the size of the markets for our Proteograph Product Suite may be smaller than estimated, and new market opportunities may not develop as quickly as we expect, or at all, limiting our ability to successfully sell our products;
we have not yet commercially launched our Proteograph Product Suite broadly, and we may not be able to successfully commercially launch our Proteograph as planned;
even if we commercially launch our Proteograph Product Suite, our success depends on broad scientific and market acceptance of our Proteograph, which we may fail to achieve;
even if our Proteograph Product Suite is commercialized and achieves broad scientific and market acceptance, if we fail to improve it or introduce compelling new products, our revenues and our prospects could be harmed;
the COVID-19 pandemic and efforts to reduce its spread have adversely impacted, and are expected to continue to materially and adversely impact, our business and operations;
if we are unable to obtain and maintain sufficient intellectual property protection for our products and technology, or if the scope of the intellectual property protection obtained is not sufficiently broad, our
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competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be impaired; and
we have identified material weaknesses in our internal control over financial reporting. If our remediation measures are ineffective, or if we experience additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to report our financial condition or results of operations accurately or on a timely basis, which may adversely affect investor confidence in us and, as a result, the value of our Class A common stock.
Risks Related to Our Business and Industry
We are an early-stage life sciences technology company with a history of net losses, which we expect to continue, and we may not be able to generate meaningful revenues or achieve and sustain profitability in the future.
We are an early-stage life sciences technology company, and we have incurred significant losses since we were formed in 2017, and expect to continue to incur losses in the future. For the three months ended March 31, 2021 and 2020, we incurred net losses of $16.4 million and $5.5 million, respectively. As of March 31, 2021, we had an accumulated deficit of $71.8 million. These losses and accumulated deficit were primarily due to the substantial investments we have made to develop and improve our technology and our Proteograph Product Suite. Over the next several years, we expect to continue to devote substantially all of our resources towards continuing development and future commercialization of our Proteograph Product Suite and research and development efforts for products. These efforts may prove more costly than we currently anticipate. We have not generated any product revenue and we may never generate revenue sufficient to offset our expenses, or at all. In addition, as a newly public company, we will incur significant legal, accounting, administrative, insurance and other expenses that we did not incur as a private company. Accordingly, we cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability.
We have a limited operating history, which may make it difficult to evaluate the prospects for our future viability and predict our future performance.
We have not yet broadly commercialized our Proteograph Product Suite or any other products, and have not generated any product revenue to date. Our operations to date have been limited to developing our technology and products. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations. We have not yet achieved market acceptance for our products, produced our products at scale, established a sales model, or conducted sales and marketing activities necessary for successful broad product commercialization. Consequently, predictions about our future success or viability are highly uncertain and may not be as accurate as they could be if we had a longer operating history or a company history of successfully developing and commercializing products.
In addition, as a business with a limited operating history, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown obstacles. We will eventually need to transition from a company with a focus on research and development to a company capable of supporting broad commercial activities as well, and we may not be successful in such a transition. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by growing companies with limited operating histories in emerging and rapidly changing industries. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks successfully, our results of operations could differ materially from our expectations, and our business, financial condition and results of operations could be adversely affected.
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Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.
Our quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to:
our ability to successfully commercialize our Proteograph Product Suite on our anticipated timeline;
the timing and cost of, and level of investment in, research and development and commercialization activities relating to our Proteograph Product Suite, including our SP100 automation instrument, proprietary engineered nanoparticle (NP) technology and software, which may change from time to time;
the level of demand for any products we are able to commercialize, particularly our Proteograph Product Suite, which may vary significantly from period to period;
our ability to drive adoption of our Proteograph in our target markets and our ability to expand into any future target markets;
the prices at which we will be able to sell our Proteograph Product Suite;
the volume and mix of our sales between our Proteograph consumables, SP100 automation instruments and software, or changes in the manufacturing or sales costs related to our products;
the length of time of the sales cycle for purchases of our Proteograph, including lead time needed to procure SP100 automation instruments from our third-party contract manufacturer;
the timing and amount of expenditures that we may incur to develop, commercialize or acquire additional products and technologies or for other purposes, such as the expansion of our facilities;
changes in governmental funding of life sciences research and development or changes that impact budgets and budget cycles;
seasonal spending patterns of our customers;
the timing of when we recognize any revenues;
future accounting pronouncements or changes in our accounting policies;
the outcome of any future litigation or governmental investigations involving us, our industry or both;
higher than anticipated service, replacement and warranty costs;
the impact of the COVID-19 pandemic on the economy, investment in life sciences and research industries, our business operations, and resources and operations of our customers, suppliers, and distributors; and
general industry, economic and market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors.
The cumulative effects of the factors discussed above could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance.
This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If we are unable to commercialize products or generate revenue, or if our operating results fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance we provide is below the expectations of analysts or investors, it could cause the market price of our Class A common stock to decline.
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The size of the markets for our Proteograph Product Suite may be smaller than estimated, and new market opportunities may not develop as quickly as we expect, or at all, limiting our ability to successfully sell our products.
The market for proteomics and genomics technologies and products is evolving, making it difficult to predict with any accuracy the size of the markets for our current and future products, including our Proteograph Product Suite. Our estimates of the total addressable market for our current and future products are based on a number of internal and third-party estimates and assumptions. In particular, our estimates are based on our expectations that researchers in the market for certain life sciences research tools and technologies will view our products as competitive alternatives to, or better options than, existing tools and technologies. We also expect researchers will recognize the ability of our products to complement, enhance and enable new applications of their current tools and technologies. We expect them to recognize the value proposition offered by our products, enough to purchase our products in addition to the tools and technologies they already own. Underlying each of these expectations are a number of estimates and assumptions that may be incorrect, including the assumptions that government or other sources of funding will continue to be available to life sciences researchers at times and in amounts necessary to allow them to purchase our products and that researchers have sufficient samples and an unmet need for performing proteomics studies at scale across thousands of samples. In addition, sales of new products into new market opportunities may take years to develop and mature and we cannot be certain that these market opportunities will develop as we expect. New life sciences technology may not be adopted until the consistency and accuracy of such technology, method or device has been proven. As a result, the sizes of the annual total addressable market for new markets and new products are even more difficult to predict. Our product is an innovative new product, and while we draw comparisons between the evolution and growth of the genomics and proteomics markets, the proteomics market may develop more slowly or differently. In addition, our Proteograph may not impact the field of proteomics in the same manner or degree, or within the same time frame, that NGS technologies have impacted the field of genomics, or at all. While we believe our assumptions and the data underlying our estimates of the total addressable market for our products are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates, or those underlying the third-party data we have used, may change at any time, thereby reducing the accuracy of our estimates. As a result, our estimates of the total addressable market for our products may be incorrect.
The future growth of the market for our current and future products depends on many factors beyond our control, including recognition and acceptance of our products by the scientific community and the growth, prevalence and costs of competing products and solutions. Such recognition and acceptance may not occur in the near term, or at all. If the markets for our current and future products are smaller than estimated or do not develop as we expect, our growth may be limited and our business, financial condition and operational results of operations could be adversely affected.
We have not yet initiated a broad commercial launch of our Proteograph Product Suite, and we may not be able to successfully commercially launch our Proteograph Product Suite as planned.
We have not yet initiated a broad commercial launch of our Proteograph Product Suite. We plan to follow a three phase launch plan to commercialize our Proteograph, which includes a collaboration phase, a limited release phase and a broad release phase. We have moved into the second phase of commercialization, the limited release phase of our commercial launch plan. Our commercial launch plan may not progress as planned due to:
the inability to establish the capabilities and value proposition of our Proteograph Product Suite with key opinion leaders in a timely fashion;
the potential need or desire to modify aspects of our Proteograph solution during the second phase or prior to entering into the third phase of our commercial launch plan;
changing industry or market conditions, customer requirements or competitor offerings over the span of our commercial launch plan;
delays in building out our sales, customer support and marketing organization as needed for each of the phases of our commercial launch plan;
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delays in ramping up manufacturing, either internally or through our suppliers to meet the expected demand in each of the phases of our commercial launch plan; and,
the impact of the COVID-19 pandemic on the economy and research industries, our business operations, and resources and the operations of our customers, suppliers, and distributors.
To the extent our commercial launch plan is delayed or unsuccessful, our financial results will be adversely impacted.
During the collaboration and the limited release phases of the commercial launch of our Proteograph Product Suite, our success depends on broad scientific and market acceptance of our Proteograph, which we may fail to achieve.
Our ability to achieve and maintain scientific and commercial market acceptance of our Proteograph Product Suite will depend on a number of factors. We expect that our Proteograph will be subject to the market forces and adoption curves common to other new technologies. The market for proteomics and genomics technologies and products is in its early stages of development. If widespread adoption of our Proteograph takes longer than anticipated, or broad scientific and market acceptance does not occur, we will continue to experience operating losses.
The success of life sciences products is due, in large part, to acceptance by the scientific community and their adoption of certain products in the applicable field of research. The life sciences scientific community is often led by a small number of early adopters and key opinion leaders who significantly influence the rest of the community through publications, including peer-reviewed journals. In such journal publications, the researchers will describe not only their discoveries, but also the methods, and typically the products used, to fuel such discoveries. Mentions in publications, including peer-reviewed journal publications, is a driver for the general acceptance of life sciences products, such as our Proteograph Product Suite. During the collaboration and limited release phases of our commercialization launch plan, we intend to collaborate with a small number of key opinion leaders who are highly skilled at evaluating novel technologies and whose feedback can help us solidify our commercialization plans and processes. Ensuring that early adopters and key opinion leaders publish research involving the use of our products during the collaboration and limited release phases is critical to ensuring our products gain widespread scientific acceptance. In addition, continuing collaborative relationships with such key opinion leaders will be vital to maintaining any market acceptance we achieve. If too few researchers describe the use of our products, too many researchers utilize or shift to a competing product and publish research outlining their use of that product or too many researchers negatively describe the use of our products in publications, it may drive customers away from our products and it may delay our progression towards the broad release phase of our commercialization plan.
Other factors in achieving commercial market acceptance, include:
our ability to market and increase awareness of the capabilities of our Proteograph Product Suite;
the ability of our Proteograph Product Suite to demonstrate comparable performance in intended use applications broadly in the hands of customers as achieved in the collaboration and limited release phases of our commercialization plan;
our customers’ willingness to adopt new products and workflows;
our Proteograph’s ease of use and whether it reliably provides advantages over other alternative technologies;
the rate of adoption of our Proteograph Product Suite by academic institutions, laboratories, biopharmaceutical companies and others;
the prices we charge for our Proteograph Product Suite;
our ability to develop new products and workflows and solutions for customers;
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if competitors develop and commercialize products that perform similar functions as our Proteograph; and
the impact of our investments in product innovation and commercial growth.
We cannot assure you that we will be successful in addressing each of these criteria or other criteria that might affect the market acceptance of any products we commercialize, particularly our Proteograph Product Suite. If we are unsuccessful in achieving and maintaining market acceptance of our Proteograph, our business, financial condition and results of operations would be adversely affected.
If we are unable to establish sales and marketing capabilities, we may not be successful in commercializing our Proteograph Product Suite.
We have limited experience as a company in sales and marketing and our ability to successfully commercialize depends on our being able to attract customers for our Proteograph. Although members of our management team have considerable industry experience, in the future we will be required to expand our sales, marketing, distribution and customer service and support capabilities with the appropriate technical expertise prior to the broad release of our Proteograph Product Suite. To perform sales, marketing, distribution, and customer service and support successfully, we will face a number of risks, including:
our ability to attract, retain and manage the sales, marketing and customer service and support force necessary to commercialize and gain market acceptance for our technology;
the time and cost of establishing a specialized sales, marketing and customer service and support force; and
our sales, marketing and customer service and support force may be unable to initiate and execute successful commercialization activities.
We may seek to enlist one or more third parties to assist with sales, distribution and customer service and support globally or in certain regions of the world. There is no guarantee, if we do seek to enter into such arrangements, that we will be successful in attracting desirable or experienced sales or distribution partners or that we will be able to enter into such arrangements on favorable terms. If our sales and marketing efforts, or those of any third-party sales and distribution partners, are not successful, our Proteograph may not gain market acceptance, which could materially impact our business operations.
Even if our Proteograph Product Suite is broadly commercialized and achieves broad scientific and market acceptance, if we fail to improve it or introduce compelling new products, our revenues and our prospects could be harmed.
Even if we are able to broadly commercialize our Proteograph Product Suite and achieve broad scientific and market acceptance, our ability to attract new customers and increase revenue from existing customers will depend in large part on our ability to enhance and improve our Proteograph solution and to introduce compelling new products. The success of any enhancement to our Proteograph Product Suite or introduction of new products depends on several factors, including timely completion and delivery, competitive pricing, adequate quality testing, integration with existing technologies, appropriately timed and staged introduction and overall market acceptance. Any new product or enhancement to our Proteograph that we develop may not be introduced in a timely or cost-effective manner, may contain defects, errors, vulnerabilities or bugs, or may not achieve the market acceptance necessary to generate significant revenue.
The typical development cycle of new life sciences products can be lengthy and complicated, and may require new scientific discoveries or advancements, considerable resources and complex technology and engineering. Such developments may involve external suppliers and service providers, making the management of development projects complex and subject to risks and uncertainties regarding timing, timely delivery of required components or services and satisfactory technical performance of such components or assembled products. If we do not achieve the required technical specifications or successfully manage new product development processes, or if development work is not performed according to schedule, then such new technologies or products may be adversely impacted. If we are unable to successfully develop new products, enhance our Proteograph solution to meet customer
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requirements, compete with alternative products, or otherwise gain and maintain market acceptance, our business, results of operations and financial condition could be harmed.
The COVID-19 pandemic and efforts to reduce its spread have adversely impacted, and are expected to continue to materially and adversely impact, our business and operations.
The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our operations, particularly as a result of preventive and precautionary measures that we, other businesses, and governments are taking. Governmental mandates related to COVID-19 or other infectious diseases, or public health crises, have impacted, and we expect them to continue to impact, our personnel and personnel at third-party manufacturing facilities in the United States and other countries, and the availability or cost of materials, which would disrupt or delay our receipt of instruments, components and supplies from the third parties we rely on to, among other things, produce our SP100 automation instrument and NPs. For instance, there were standing “stay-at-home” orders in California, and specifically San Mateo County where our headquarters is located, that required businesses to implement certain social distancing protocols and other written health and safety plans and measures which affected productivity and morale. We have continued to operate within the rules applicable to our business; however, an extended implementation of these governmental mandates could further impact our ability to operate effectively and conduct ongoing research and development or other activities. The COVID-19 pandemic has also had an adverse effect on our ability to attract, recruit, interview and hire at the pace we would typically expect to support our rapidly expanding operations. To the extent that any governmental authority imposes additional regulatory requirements or changes existing laws, regulations, and policies that apply to our business and operations, such as additional workplace safety measures, our product development plans may be delayed, and we may incur further costs in bringing our business and operations into compliance with changing or new laws, regulations, and policies.
In the near term, we expect that substantially all of our revenue will be derived from sales of our Proteograph Product Suite, including our instruments and consumables, to academic, research and commercial institutions. We have moved into the limited release phase of our commercialization plan and, as a result, in the near term, our ability to drive the adoption of our Proteograph solution will depend on our ability to visit customer sites, the ability of our customers to access laboratories, and the ability to install and train on our Proteograph Product Suite and conduct research in light of the COVID-19 pandemic. Additionally, since we have moved into the limited release phase of our commercialization plan, the research and development budgets of these customers, the ability of such customers to receive funding for research, and the ability of such customers to receive instrument installations and visitors to their facilities and to travel to our facilities, other laboratories and industry events, has become increasingly important to the adoption of our Proteograph. All of these considerations are impacted by factors beyond our control, such as:
reductions in capacity or shutdowns of laboratories and other institutions as well as other impacts stemming from the COVID-19 pandemic, such as reduced or delayed spending on instruments or consumables as a result of such shutdowns and delays before re-opened laboratories and institutions resume previous levels of research activities that require new purchases of our instruments or consumables;
decreases in government funding of research and development; and
changes to programs that provide funding to research laboratories and institutions, including changes in the amount of funds allocated to different areas of research, changes that have the effect of increasing the length of the funding process or the impact of the COVID-19 pandemic on our customers and potential customers and their funding sources.
Additionally, our suppliers have also been impacted by the COVID-19 pandemic. For example, our SP100 automation instrument manufacturer, Hamilton Company, has experienced a surge in demand for equipment and associated consumables used for COVID-19 diagnostics, and as a result, we have experienced longer lead times for our instruments. We have also experienced supply delays for critical hardware, instrumentation and medical and testing supplies that we use for product development, as these other components and supplies are otherwise diverted to COVID-19-related testing and other uses.
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The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to sudden change. This impact could have a material, adverse impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely, and could worsen over time. The extent to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. While we do not yet know the full extent of potential impacts on our business, any of these occurrences could significantly harm our business, results of operations and financial condition.
Unfavorable U.S. or global economic conditions as a result of the COVID-19 pandemic, or otherwise, could adversely affect our ability to raise capital and our business, results of operations and financial condition.
While the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the COVID-19 pandemic has resulted in, and may continue to result in, extreme volatility and disruptions in the capital and credit markets, reducing our ability to raise additional capital through equity, equity-linked or debt financings, which could negatively impact our short-term and long-term liquidity and our ability to operate in accordance with our operating plan, or at all. Additionally, our results of operations could be adversely affected by general conditions in the global economy and financial markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for our Proteograph Product Suite and our ability to raise additional capital when needed on favorable terms, if at all. A weak or declining economy could strain our customers’ budgets or cause delays in their payments to us. Any of the foregoing could harm our business, and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our ability to raise capital, business, results of operations and financial condition.
If we do not sustain or successfully manage our anticipated growth, our business and prospects will be harmed.
Our anticipated growth will place significant strains on our management, operational and manufacturing systems and processes, sales and marketing team, financial systems and internal controls and other aspects of our business. Developing and commercializing our Proteograph will require us to hire and retain scientific, sales and marketing, software, manufacturing, customer service, distribution, quality assurance and other personnel. In addition, we will need to hire additional accounting, finance and other personnel in connection with our efforts to comply with the requirements of being a public company. As a newly public company, our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements and effectively manage these activities. We may face challenges integrating, developing and motivating our rapidly growing employee base. To effectively manage our growth, we must continue to improve our operational and manufacturing systems and processes, our financial systems and internal controls and other aspects of our business and continue to effectively expand, train and manage our personnel. Our ability to successfully manage our expected growth is uncertain given the fact that we have been in operation only since 2017. As our organization continues to grow, we will be required to implement more complex organizational management structures, and may find it increasingly difficult to maintain the benefits of our corporate culture, including our ability to quickly develop and launch new and innovative products. If we do not successfully manage our anticipated growth, our business, results of operations, financial condition and prospects will be harmed.
We depend on our key personnel and other highly qualified personnel, and if we are unable to recruit, train and retain our personnel, we may not achieve our goals.
Our future success depends upon our ability to recruit, train, retain and motivate key personnel. Our senior management team, including Omid Farokhzad, one of our founders and our Chief Executive Officer; Omead Ostadan, our President and Chief Operating Officer; and David Horn, our Chief Financial Officer, is critical to our vision, strategic direction, product development and commercialization efforts. The departure of one or more of our executives officers, senior management team members, or other key employees could be disruptive to our business until we are able to hire qualified successors. We do not maintain “key man” life insurance on our senior management team.
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Our continued growth and ability to successfully transition from a company primarily focused on development to commercialization depends, in part, on attracting, retaining and motivating qualified personnel, including highly-trained sales personnel with the necessary scientific background and ability to understand our systems at a technical level to effectively identify and sell to potential new customers. New hires require significant training and, in most cases, take significant time before they achieve full productivity. Our failure to successfully integrate these key personnel into our business could adversely affect our business. In addition, competition for qualified personnel is intense, particularly in the San Francisco Bay Area. We compete for qualified scientific and information technology personnel with other life science and information technology companies as well as academic institutions and research institutions. Some of our scientific personnel are qualified foreign nationals whose ability to live and work in the United States is contingent upon the continued availability of appropriate visas. Due to the competition for qualified personnel in the San Francisco Bay Area, we expect to continue to utilize foreign nationals to fill part of our recruiting needs. As a result, changes to United States immigration policies could restrain the flow of technical and professional talent into the United States and may inhibit our ability to hire qualified personnel.
We do not maintain fixed term employment contracts with any of our employees. As a result, our employees could leave our company with little or no prior notice and would be free to work for a competitor. Due to the complex and technical nature of our products and technology and the dynamic market in which we compete, any failure to attract, train, retain and motivate qualified personnel could materially harm our business, results of operations, financial condition and prospects.
We expect to be dependent upon revenue generated from the sale of our Proteograph Product Suite from the time it is commercialized through the foreseeable future.
We expect that our Proteograph Product Suite will be our first commercial product. While we have moved into the limited release phase, we do not expect to have broad release of our Proteograph until early 2022. If we are able to successfully commercialize our Proteograph, we expect that we will generate substantially all of our revenue from the sale of our Proteograph, which we expect to consist of consumables, SP100 automation instruments and software. There can be no assurance that we will be able to successfully commercialize our Proteograph, design other products that will meet the expectations of our customers or that any of our future products will become commercially viable. As technologies change in the future for life sciences research tools in general and in proteomics and genomics technologies specifically, we will be expected to upgrade or adapt our Proteograph solution keep up with the latest technology. To date, we have limited experience simultaneously designing, testing, manufacturing and selling products and there can be no assurance we will be able to do so. Our sales expectations are based in part on the assumption that our Proteograph Product Suite will increase study sizes for our future customers and their associated purchases of our consumables. If sales of our instruments fail to materialize, or our assumptions about study sizes or customer purchases of our consumables, so will the related consumable sales and associated revenue.
In our development and commercialization plans for our Proteograph, we may forego other opportunities that may provide greater revenue or be more profitable. If our research and product development efforts do not result in commercially viable products within anticipated timelines, or at all, our business and results of operations will be adversely affected. Any delay or failure by us to develop and release our Proteograph Product Suite or new products or product enhancements would have a substantial adverse effect on our business and results of operations.
Our business will depend significantly on research and development spending by academic and other research institutions, and other third parties, including commercial organizations, and any reduction in spending could limit demand for our products and adversely affect our business, results of operations, financial condition and prospects.
We expect that substantially all of our sales revenue in the near term will be generated from sales to academic institutions, other research institutions and commercial companies. Certain of these customers’ funding will be, in turn, provided by various state, federal and international government agencies. As a result, the demand for our
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Proteograph will depend upon the research and development budgets of these customers, which are impacted by factors beyond our control, such as:
decreases in government funding of research and development;
changes to programs that provide funding to research laboratories and institutions, including changes in the amount of funds allocated to different areas of research or changes that have the effect of increasing the length of the funding process;
changes in strategy and funding by commercial companies in the efforts around therapeutic and diagnostic product development and their adoption and use of our Proteograph Product Suite;
macroeconomic conditions;
opinions in the scientific community, including researchers’ opinions of the utility of our Proteograph;
citation of our Proteograph Product Suite in published research;
potential changes in the regulatory environment;
differences in budgetary cycles, especially government- or grant-funded customers, whose cycles often coincide with government fiscal year ends;
competitor product offerings or pricing;
market-driven pressures to consolidate operations and reduce costs; and
market acceptance of relatively new technologies, such as our Proteograph Product Suite.
In addition, various state, federal and international agencies that provide grants and other funding may be subject to stringent budgetary constraints that could result in spending reductions, reduced grant making, reduced allocations or budget cutbacks, which could jeopardize the ability of these customers, or the customers to whom they provide funding, to purchase our products. For example, congressional appropriations to the National Institutes of Health (NIH) have generally increased year-over-year for the last 19 years, and reached a new high in 2020, but the NIH also experiences occasional year-over-year decreases in appropriations, including as recently as 2013. In addition, funding for life science research has increased more slowly during the past several years compared to previous years and has actually declined in some countries. There is no guarantee that NIH appropriations will not decrease in the future. A decrease in the amount of, or delay in the approval of, appropriations to NIH or other similar United States or international organizations, such as the Medical Research Council in the United Kingdom, could result in fewer grants benefiting life sciences research. These reductions or delays could also result in a decrease in the aggregate amount of grants awarded for life sciences research or the redirection of existing funding to other projects or priorities, any of which in turn could cause our customers and potential customers to reduce or delay purchases of our products. Our operating results may fluctuate substantially due to any such reductions and delays. Any decrease in our customers’ budgets or expenditures, or in the size, scope or frequency of their capital or operating expenditures, could materially and adversely affect our business, results of operations, financial condition and prospects.
We rely on a single contract manufacturer to manufacture and supply our instruments. If this manufacturer should fail or not perform satisfactorily, our ability to commercialize and supply our instruments would be adversely affected.
We rely on a single contract manufacturer, Hamilton Company, a manufacturer of precision measurement devices, automated liquid handling workstations, and sample management systems located in Nevada and other locations, to manufacture and supply our instruments. Since our contract with Hamilton does not commit them to carry inventory or make available any particular quantities, Hamilton may give other customers' needs higher priority than ours, we may not be able to obtain adequate supplies in a timely manner or on commercially reasonable terms, and we may incur price increases from Hamilton Company. For example, due to the COVID-19 pandemic
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and increased demand for Hamilton’s products, we have seen the lead time for our instruments increase significantly. Further, if Hamilton is unable to obtain critical components used in our Proteograph solution or supply our instruments on the timelines we require, our business and commercialization efforts would be harmed.
In the event it becomes necessary to utilize a different contract manufacturer for our products, we would experience additional costs, delays and difficulties in doing so as a result of identifying and entering into an agreement with a new manufacturer as well as preparing such new manufacturer to meet the logistical requirements associated with manufacturing our instruments, and our business would suffer.
In addition, certain of the components used in our instruments are sourced from limited or sole suppliers. If we were to lose such suppliers, there can be no assurance that we will be able to identify or enter into agreements with alternative suppliers on a timely basis on acceptable terms, if at all. An interruption in our ability to sell and deliver instruments to customers could occur if we encounter delays or difficulties in securing these components, or if the quality of the components supplied do not meet specifications, or if we cannot then obtain an acceptable substitute. Our suppliers have also been impacted by the COVID-19 pandemic, and we have also experienced supply delays for critical hardware, instrumentation and medical and testing supplies that we use for product development, as these other components and supplies are otherwise diverted to COVID-19-related testing and other uses. If any of these events occur, our business, results of operations, financial condition and prospects could be harmed.
We have limited experience producing and supplying our products, and we may be unable to consistently manufacture or source our SP100 automation instruments and consumables to the necessary specifications or in quantities necessary to meet demand on a timely basis and at acceptable performance and cost levels.
Our Proteograph Product Suite is an integrated workstation with many different components that work together. As such, a quality defect in a single component can compromise the performance of the entire solution. In order to successfully generate revenue from our Proteograph Product Suite, we need to supply our customers with products that meet their expectations for quality and functionality in accordance with established specifications on a timely basis. Our instruments are manufactured by Hamilton Company at their facility using complex processes, sophisticated equipment and strict adherence to specifications and quality systems procedures. Given the complexity of this automation instrumentation, individual units may occasionally require additional installation and service time prior to becoming available for customer use.
We leverage well-established unit operations to formulate and manufacture our NPs at our facilities in Redwood City, California. We procure certain components of our consumables from third-party manufacturers, which includes the commonly-available raw materials needed for manufacturing our proprietary engineered NPs. These manufacturing processes are complex. As we move to towards commercial scale formulation and manufacturing of our NP panels, if we are not able to repeatably produce our NPs at commercial scale or source them from third-party suppliers, or encounter unexpected difficulties in packaging our consumables, our business will be adversely impacted.
As we continue to scale commercially and develop new products, and as our products incorporate increasingly sophisticated technology, it will be increasingly difficult to ensure our products are produced in the necessary quantities without sacrificing quality. There is no assurance that we or our third-party manufacturer will be able to continue to manufacture our SP100 automation instrument so that it consistently achieves the product specifications and produces results with acceptable quality. Our NPs and other consumables have a limited shelf life, after which their performance is not ensured. While we have completed accelerated stability testing for our NPs, our real-time long-term liquid stability studies are underway, but have not been completed. Shipment of consumables that effectively expire early or shipment of defective instruments or consumables to customers may result in recalls and warranty replacements, which would increase our costs, and depending upon current inventory levels and the availability and lead time for additional inventory, could lead to availability issues. Any future design issues, unforeseen manufacturing problems, such as contamination of our or our manufacturers’ facilities, equipment malfunctions, aging components, quality issues with components and materials sourced from third-party suppliers, or failures to strictly follow procedures or meet specifications, may have a material adverse effect on our brand, business, results of operations and financial condition and could result in us or our third-party manufacturers losing International Organization for Standardization (ISO) quality management certifications. If our third-party
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manufacturers fail to maintain ISO quality management certifications, customers might choose not to purchase products from us.
In addition, as we commercialize our Proteograph Product Suite, we will also need to make corresponding improvements to other operational functions, such as our customer support, service and billing systems, compliance programs and our internal quality assurance programs. We cannot assure you that any increases in scale, related improvements and quality assurance will be successfully implemented or that appropriate personnel will be available. As we develop additional products, we may need to bring new equipment on-line, implement new systems, technology, controls and procedures and hire personnel with different qualifications.
An inability to manufacture products and components that consistently meet specifications, in necessary quantities, at commercially acceptable costs and without significant delays, may have a material adverse effect on our business, results of operations, financial condition and prospects.
Our products could have defects or errors, which may give rise to claims against us, adversely affect market adoption of our Proteograph Product Suite, and adversely affect our business, financial condition, and results of operations.
Our Proteograph Product Suite utilizes novel and complex technology and may develop or contain undetected defects or errors. We cannot assure you that material performance problems, defects, or errors will not arise, and as we commercialize our Proteograph, these risks may increase. We expect to provide warranties that our products will meet performance expectations and will be free from defects. The costs incurred in correcting any defects or errors may be substantial and could adversely affect our operating margins.
In manufacturing our Proteograph Product Suite, we depend upon third parties for the supply of our instruments and various components, many of which require a significant degree of technical expertise to produce. If our suppliers fail to produce our SP100 automation instrument and components to specification or provide defective products to us and our quality control tests and procedures fail to detect such errors or defects, or if we or our suppliers use defective materials or workmanship in the manufacturing process, the reliability and performance of our products will be compromised.
If our Proteograph Product Suite contains defects, we may experience:
a failure to achieve market acceptance for our Proteograph or expansion of our Proteograph Product Suite sales;
loss of customer orders and delay in order fulfillment;
damage to our brand reputation;
increased warranty and customer service and support costs due to product repair or replacement;
product recalls or replacements;
inability to attract new customers;
diversion of resources from our manufacturing and research and development departments to our service department; and
legal claims against us, including product liability claims, which could be costly and time consuming to defend and result in substantial damages.
In addition, we expect that our Proteograph Product Suite will be used with our potential customers’ own mass spectrometry (MS) instruments or the MS instrument of a third-party service provider and the performance of these MS instruments is outside of our control. If such third-party products are not produced to specification, are produced in accordance with modified specifications, or are defective, they may not be compatible or perform as intended with our Proteograph. In such case, the reliability, results and performance of our Proteograph may be compromised.
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The occurrence of any one or more of the foregoing may have a material adverse effect on our business, results of operations, financial condition and prospects.
If we do not successfully develop and deploy our Proteograph Analysis Suite, our commercialization efforts and therefore business and results of operations could suffer.
The success of our Proteograph Product Suite depends, in part, on our ability to design and deploy our Proteograph Analysis Suite in a manner that enables the integration with our potential customers’ systems and accommodates our customers’ needs. Without our Proteograph Analysis Suite, the use of MS instruments can require expert knowledge and scalable high-performance computer infrastructure to run efficiently and can make it difficult for our customers to understand and evaluate the quality of their results.
We have and will continue to spend significant amounts of effort developing our Proteograph Analysis Suite, and potential enhanced versions over time, to meet our customers’ and potential customers’ evolving needs. There is no assurance that the development or deployment of our Proteograph Analysis Suite, or any potential enhancements, will be compelling to our customers. In addition, we may experience delays in our release dates of our Proteograph Analysis Suite, and there can be no assurance that our Proteograph Analysis Suite will be released according to schedule. If our software development and deployment plan does not accurately anticipate customer demands or if we fail to develop our Proteograph Analysis Suite in a manner that satisfies customer preferences in a timely and cost-effective manner, our Proteograph may fail to gain market acceptance. The occurrence of any one or more of the foregoing could negatively affect our business, financial condition, and results of operations.
If we commercialize our Proteograph Product Suite outside of the United States, our international business could expose us to business, regulatory, political, operational, financial, and economic risks associated with doing business outside of the United States.
Engaging in international business inherently involves a number of difficulties and risks, including:
required compliance with existing and changing foreign regulatory requirements and laws that are or may be applicable to our business in the future, such as the European Union’s General Data Protection Regulation (GDPR) and other data privacy requirements, labor and employment regulations, anti-competition regulations, the U.K. Bribery Act of 2010 and other anti-corruption laws, regulations relating to the use of certain hazardous substances or chemicals in commercial products, and require the collection, reuse, and recycling of waste from products we manufacture;
required compliance with U.S. laws such as the Foreign Corrupt Practices Act, and other U.S. federal laws and regulations established by the office of Foreign Asset Control;
export requirements and import or trade restrictions;
laws and business practices favoring local companies;
foreign currency exchange, longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
changes in social, economic, and political conditions or in laws, regulations and policies governing foreign trade, manufacturing, research and development, and investment both domestically as well as in the other countries and jurisdictions in which we operate and into which we may sell our products including as a result of the separation of the United Kingdom from the European Union (Brexit);
potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements, and other trade barriers;
difficulties and costs of staffing and managing foreign operations; and
difficulties protecting, maintaining, enforcing or procuring intellectual property rights.
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