psnl-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 001-38943

 

Personalis, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-5411038

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1330 O’Brien Drive

Menlo Park, California 94025

94025

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (650) 752-1300

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001

 

PSNL

 

The Nasdaq Global 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, 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 filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

Emerging 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 4, 2020, the registrant had 31,710,477 shares of common stock, $0.0001 par value per share, outstanding.

 


Table of Contents

 

 

 

Page

 

Special Note Regarding Forward-Looking Statements

3

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations

5

 

Condensed Consolidated Statements of Comprehensive Loss

6

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

7

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II.

OTHER INFORMATION

33

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

68

Item 3.

Defaults Upon Senior Securities

68

Item 4.

Mine Safety Disclosures

68

Item 5.

Other Information

68

Item 6.

Exhibits

69

Signatures

70

 

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “hope,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

the evolution of cancer therapies and market adoption of our services;

 

estimates of our total addressable market, future revenue, expenses, capital requirements, and our needs for additional financing;

 

the impact of the COVID-19 pandemic on our business, our customers’ and suppliers’ businesses and the general economy;

 

our ability to compete effectively with existing competitors and new market entrants;

 

our ability to scale our infrastructure;

 

our ability to manage and grow our business by expanding our sales to existing customers or introducing our products to new customers;

 

expectations regarding our relationship with the U.S. Department of Veterans Affairs’ Million Veteran Program;

 

our ability to establish and maintain intellectual property protection for our products or avoid claims of infringement;

 

potential effects of extensive government regulation;

 

our ability to hire and retain key personnel;

 

our ability to obtain financing in future offerings;

 

the volatility of the trading price of our common stock;

 

our belief that approval of personalized cancer therapies by the Food and Drug Administration may drive benefits to our business; and

 

our expectation regarding the time during which we will be an emerging growth company under the JOBS Act.

Actual events or results may differ from those expressed in forward-looking statements. As such, you should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, prospects, strategy, and financial needs. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a highly competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. While we believe that such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q or to reflect new information, actual results, revised expectations, or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements.

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to the “company,” “Personalis,” “we,” “us” and “our” refer to Personalis, Inc.

 

 

 

3


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

PERSONALIS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

46,694

 

 

$

55,046

 

Short-term investments

 

 

73,339

 

 

 

73,243

 

Accounts receivable, net

 

 

5,508

 

 

 

3,300

 

Inventory and other deferred costs

 

 

6,438

 

 

 

4,606

 

Prepaid expenses and other current assets

 

 

3,437

 

 

 

3,383

 

Total current assets

 

 

135,416

 

 

 

139,578

 

Property and equipment, net

 

 

13,402

 

 

 

14,106

 

Operating lease right-of-use assets

 

 

1,529

 

 

 

1,845

 

Other long-term assets

 

 

1,531

 

 

 

1,762

 

Total assets

 

$

151,878

 

 

$

157,291

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

10,337

 

 

$

7,337

 

Accrued and other current liabilities

 

 

7,375

 

 

 

6,648

 

Contract liabilities

 

 

34,408

 

 

 

35,977

 

Total current liabilities

 

 

52,120

 

 

 

49,962

 

Other long-term liabilities

 

 

556

 

 

 

639

 

Total liabilities

 

 

52,676

 

 

 

50,601

 

Commitments and Contingencies (Note 12)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value — 10,000,000 shares authorized; none issued

 

 

 

 

 

 

Common stock, $0.0001 par value — 200,000,000 shares authorized; 31,530,443 and 31,243,029 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

248,854

 

 

 

247,282

 

Accumulated other comprehensive income (loss)

 

 

73

 

 

 

(6

)

Accumulated deficit

 

 

(149,728

)

 

 

(140,589

)

Total stockholders’ equity

 

 

99,202

 

 

 

106,690

 

Total liabilities and stockholders’ equity

 

$

151,878

 

 

$

157,291

 

 

See accompanying notes to condensed consolidated financial statements.

4


PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Revenues

 

$

19,161

 

 

$

14,075

 

Costs and expenses

 

 

 

 

 

 

 

 

Costs of revenues

 

 

15,122

 

 

 

10,091

 

Research and development

 

 

6,390

 

 

 

5,245

 

Selling, general and administrative

 

 

7,274

 

 

 

4,170

 

Total costs and expenses

 

 

28,786

 

 

 

19,506

 

Loss from operations

 

 

(9,625

)

 

 

(5,431

)

Interest income

 

 

510

 

 

 

84

 

Interest expense

 

 

(2

)

 

 

(184

)

Other income (expense), net

 

 

8

 

 

 

(152

)

Loss before income taxes

 

 

(9,109

)

 

 

(5,683

)

Provision for income taxes

 

 

(30

)

 

 

(2

)

Net loss

 

$

(9,139

)

 

$

(5,685

)

Net loss per share, basic and diluted

 

$

(0.29

)

 

$

(1.84

)

Weighted-average shares outstanding, basic and diluted

 

 

31,345,029

 

 

 

3,091,342

 

 

See accompanying notes to condensed consolidated financial statements.

5


PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(9,139

)

 

$

(5,685

)

Other comprehensive income (loss), net of tax

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(5

)

 

 

15

 

Change in unrealized gain on available-for-sale debt securities

 

 

84

 

 

 

 

Comprehensive loss

 

$

(9,060

)

 

$

(5,670

)

 

See accompanying notes to condensed consolidated financial statements.

 

6


PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (unaudited)

(in thousands, except share data)

 

 

 

Redeemable

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Convertible

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Stockholders'

 

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Accumulated

 

 

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

(Deficit)

 

Balance—December 31, 2018

 

 

18,474,742

 

 

$

89,404

 

 

 

 

3,085,307

 

 

$

1

 

 

$

9,131

 

 

$

(15

)

 

$

(115,505

)

 

$

(106,388

)

Issuance of common stock warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

572

 

 

 

 

 

 

 

 

 

572

 

Proceeds from exercise of stock options

 

 

 

 

 

 

 

 

 

81,009

 

 

 

 

 

 

354

 

 

 

 

 

 

 

 

 

354

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

609

 

 

 

 

 

 

 

 

 

609

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,685

)

 

 

(5,685

)

Balance—March 31, 2019

 

 

18,474,742

 

 

$

89,404

 

 

 

 

3,166,316

 

 

$

1

 

 

$

10,666

 

 

$

 

 

$

(121,190

)

 

$

(110,523

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance—December 31, 2019

 

 

 

 

$

 

 

 

 

31,243,029

 

 

$

3

 

 

$

247,282

 

 

$

(6

)

 

$

(140,589

)

 

$

106,690

 

Proceeds from exercise of stock options

 

 

 

 

 

 

 

 

 

277,415

 

 

 

 

 

 

323

 

 

 

 

 

 

 

 

 

323

 

Restricted stock units released

 

 

 

 

 

 

 

 

 

9,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,249

 

 

 

 

 

 

 

 

 

1,249

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

 

(5

)

Unrealized gain on available-for-sale debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84

 

 

 

 

 

 

84

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,139

)

 

 

(9,139

)

Balance—March 31, 2020

 

 

 

 

$

 

 

 

 

31,530,443

 

 

$

3

 

 

$

248,854

 

 

$

73

 

 

$

(149,728

)

 

$

99,202

 

 

See accompanying notes to condensed consolidated financial statements.

 

7


PERSONALIS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(in thousands)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(9,139

)

 

$

(5,685

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,396

 

 

 

1,047

 

Noncash operating lease cost

 

 

315

 

 

 

214

 

Stock-based compensation expense

 

 

1,249

 

 

 

609

 

Change in fair value of convertible preferred stock warrant liability

 

 

 

 

 

134

 

Accretion of noncash interest and debt reduction

 

 

 

 

 

22

 

Other

 

 

(64

)

 

 

13

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(2,208

)

 

 

1,346

 

Inventory and other deferred costs

 

 

(1,832

)

 

 

548

 

Prepaid expenses and other current assets

 

 

178

 

 

 

(108

)

Accounts payable

 

 

2,385

 

 

 

(820

)

Accrued and other current liabilities

 

 

729

 

 

 

1,587

 

Contract liabilities

 

 

(1,569

)

 

 

1,419

 

Other long-term liabilities

 

 

(83

)

 

 

(260

)

Net cash (used in) provided by operating activities

 

 

(8,643

)

 

 

66

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of available-for-sale debt securities

 

 

(27,242

)

 

 

 

Proceeds from maturities of available-for-sale debt securities

 

 

27,283

 

 

 

 

Purchases of property and equipment

 

 

(76

)

 

 

(960

)

Net cash used in investing activities

 

 

(35

)

 

 

(960

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payments of costs related to initial public offering

 

 

 

 

 

(477

)

Proceeds from borrowings

 

 

 

 

 

20,000

 

Payments of borrowing costs

 

 

 

 

 

(490

)

Repayments under borrowing arrangements

 

 

 

 

 

(5,000

)

Proceeds from exercise of stock options

 

 

323

 

 

 

353

 

Net cash provided by financing activities

 

 

323

 

 

 

14,386

 

Effect of exchange rates on cash flows and cash equivalents

 

 

3

 

 

 

1

 

Net change in cash and cash equivalents

 

 

(8,352

)

 

 

13,493

 

Cash and cash equivalents, beginning of period

 

 

55,046

 

 

 

19,744

 

Cash and cash equivalents, end of period

 

$

46,694

 

 

$

33,237

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

8


 

PERSONALIS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Company and Nature of Business

Personalis, Inc. (the “Company”) was incorporated in Delaware on February 21, 2011 and began operations in September 2011. The Company formed a wholly owned subsidiary, Personalis (UK) Ltd., in August 2013. The Company is a growing cancer genomics company transforming the development of next-generation therapies by providing more comprehensive molecular data about each patient’s cancer and immune response. The Company provides sequencing and data analysis services to support the development of cancer therapies. The Company also provides sequencing and data analysis services to support population sequencing initiatives, which accounts for the majority of revenues. Cancer genomic services are sold primarily to pharmaceutical companies, biopharmaceutical companies, universities, non-profits, and government entities, while services for population sequencing initiatives are sold primarily to government entities. The principal markets for the Company’s services are the United States and Europe. The Company operates and manages its business as one reportable operating segment, which is the sale of sequencing and data analysis services.

The Company has incurred losses to date and expects to incur additional losses for the foreseeable future. The Company continues to invest the majority of its resources in the development and growth of its business, including investments in product development and sales and marketing efforts. The Company’s activities have been financed to date primarily through the sale of equity securities and cash from operations.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The condensed consolidated financial statements include the accounts of Personalis, Inc. and its wholly owned subsidiary, Personalis (UK) Ltd. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying condensed consolidated financial statements reflect all normal recurring adjustments that are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ending December 31, 2020.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates include, but are not limited to, useful lives assigned to long-lived assets, the valuation of common and convertible redeemable preferred stock and related warrants and options, the valuation of stock-based awards, and provisions for income taxes and contingencies. Actual results could differ from these estimates, and such differences could be material to the Company’s condensed consolidated financial position and results of operations.

Initial Public Offering

On June 20, 2019, the Company completed an IPO in which it issued and sold 9,109,725 shares of its common stock at a public offering price of $17.00 per share. The Company received net proceeds of $139.8 million after deducting underwriting discounts, commissions, and offering expenses. Offering expenses were $4.2 million and consisted of fees and expenses incurred in connection with the sale of the Company’s common stock in the IPO, including legal, accounting, printing, and other IPO-related costs, all of which were paid by December 31, 2019.

9


 

A warrant to purchase 188,643 shares of our common stock was exercised prior to completion of the Company’s IPO. In addition, in connection with the IPO, all shares of the Company’s then-outstanding redeemable convertible preferred stock were automatically converted into 18,474,703 shares of the Company’s common stock, and all then-outstanding warrants to purchase the Company’s convertible preferred stock were automatically converted into warrants to purchase 84,585 shares of the Company’s common stock, of which 62,096 are still outstanding as of March 31, 2020 (see Note 10).

Concentration of Credit Risk and Other Risks and Uncertainties

The Company is subject to credit risk from its portfolio of cash and cash equivalents. The Company’s cash and cash equivalents are deposited with high-quality financial institutions. Deposits at these institutions may, at times, exceed federally insured limits. Management believes these financial institutions are financially sound and, accordingly, that minimal credit risk exists. The Company has not experienced any losses on its deposits of cash and cash equivalents.

The Company also invests in investment‑grade debt instruments and has policy limits for the amount it can invest in any one type of security, except for securities issued or guaranteed by the U.S. government. The goals of the Company’s investment policy are as follows: preservation of principal; liquidity of investments sufficient to meet cash flow requirements; avoidance of inappropriate concentration and credit risk; competitive after‑tax rate of returns; and fiduciary control of cash and investments. Under its investment policy, the Company limits the amounts invested in such securities by credit rating, maturity, investment type, and issuer. As a result, management believes that these financial instruments do not expose the Company to any significant concentrations of credit risk.

The Company purchases various reagents and sequencing materials from sole source suppliers. Any extended interruption in the supply of these materials could result in the Company’s inability to secure sufficient materials to conduct business and meet customer demand.

The Company routinely assesses the creditworthiness of its customers and does not require collateral. The Company has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company maintains an allowance for doubtful accounts, which was $0.1 million as of March 31, 2020 and December 31, 2019. During the three months ended March 31, 2020 and 2019, the Company had no bad debt expense.

Significant customers are those that represent more than 10% of the Company’s total revenues or accounts receivable balance at each respective balance sheet date. For each significant customer, revenue as a percentage of total revenues and accounts receivable as a percentage of total accounts receivable are as follows:

 

 

 

Revenues (unaudited)

 

 

Accounts Receivable

 

 

 

Three Months Ended

March 31,

 

 

March 31,

2020

 

 

December 31,

2019

 

 

 

2020

 

 

2019

 

 

(unaudited)

 

VA MVP

 

77%

 

 

59%

 

 

36%

 

 

19%

 

Pfizer Inc.

 

*

 

 

17%

 

 

12%

 

 

23%

 

Indivumed GmbH

 

*

 

 

*

 

 

22%

 

 

30%

 

 

*

Less than 10% of revenues or accounts receivable

Revenue Recognition

The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”).

Revenue Recognition

The revenue guidance provides a five-step framework through which revenue is recognized when control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that the Company concludes are within the scope of Topic 606, management performs the following five steps: (i) identifies the contract(s) with a customer; (ii) identifies the performance obligations in the contract(s); (iii) determines the transaction price, including whether there are any constraints on variable consideration; (iv) allocates the transaction price to the performance obligations; and (v) recognizes revenue when (or as) the Company satisfies a performance obligation. At contract inception, once a contract is determined to be within the scope of the new revenue standard, the Company assesses whether individual goods or services promised within each contract are distinct and, therefore, represent separate performance obligations.

10


 

The Company derives revenues from sequencing and data analysis services to support the development of personalized cancer vaccines and other next-generation cancer immunotherapies, as well as to support population sequencing initiatives. The Company’s contracts are in the form of a combination of signed agreements, statements of work, and/or purchase orders. Under Topic 606, the Company accounts for a contract with a customer when there is approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and it is probable that the Company will collect substantially all of the consideration to which it will be entitled.

The sequencing and data analysis services are the only distinct services that meet the definition of a performance obligation and are accounted for as one performance obligation under Topic 606. The Company recognizes revenue from such services at the point in time when control of the test results is transferred to the customer. The Company has elected to exclude all sales and value added taxes from the measurement of the transaction price. Sequencing and data analysis services are based on a fixed price per test.

Payment terms and conditions vary by contract and customer. The Company’s standard payment terms are less than 90 days from the invoice date. In instances where the timing of the Company’s revenue recognition differs from the timing of its invoicing, the Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised services to the customer will be one year or less. After assessing each of its revenue-generating arrangements to determine whether a significant financing component exists, the Company concluded that a significant financing component does not exist in any of its arrangements. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the Company’s services and to provide payment protection for the Company.

Practical Expedients and Exemptions

As a practical expedient, the Company recognizes the incremental costs of obtaining contracts, such as sales commissions, as an expense when incurred since the amortization period of the asset the Company otherwise would have recognized is one year or less. Sales commissions are recorded within selling, general, and administrative expenses in the condensed consolidated statements of operations.

Costs of Revenues

The Company’s costs of revenues primarily consist of production materials, personnel costs (e.g., salaries, bonuses, benefit, and stock-based compensation), cost of expensed equipment, consumables and laboratory supplies, information technology (“IT”) and facility costs, and depreciation and service maintenance contracts on capitalized equipment.

Stock-Based Compensation

For options granted to employees, non-employees, and directors, stock-based compensation is measured at grant date based on the fair value of the award. The Company determines the grant-date fair value of the options using the Black-Scholes option-pricing model, except for certain performance-based awards for which an alternative valuation method may be used. The Company determines the fair value of restricted stock unit awards using the closing market price of the Company’s common stock on the date of grant. The grant-date fair value of awards is amortized over the employees’ requisite service period on a straight-line basis, or the non-employees’ vesting period as the goods are received or services rendered. Forfeitures are accounted for as they occur. Additionally, the Company’s 2019 Employee Stock Purchase Plan is deemed to be a compensatory plan and therefore is included in stock-based compensation expense.

Inputs used in Black-Scholes option-pricing models to measure fair value of options are summarized as follows:

Expected Term. The expected term is calculated using the simplified method, which is available if there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting tranche for awards with graded vesting. The midpoint of the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting tranches, the times from grant until the midpoints for each of the tranches may be averaged to provide an overall expected term.

Expected Volatility. The Company used an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as the Company did not have sufficient trading history for its common stock. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size, and financial leverage of potential comparable companies. For each grant, the Company measured historical volatility over a period equivalent to the expected term.

11


 

Risk-Free Interest Rate. The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with remaining terms equivalent to the expected term of a stock award.

Expected Dividend Rate. The Company has not paid and does not anticipate paying any dividends in the near future. Accordingly, the Company has estimated the dividend yield to be zero.

Net Loss per Share Attributable to Common Stockholders

Basic net loss per common share 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, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the redeemable convertible preferred stock, convertible preferred stock warrants, common stock warrants, common stock subject to repurchase, and stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock is considered a participating security. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss is attributed entirely to common stockholders. Because the Company has reported a net loss for the reporting periods presented, the diluted net loss per common share is the same as basic net loss per common share for those periods.

Cash and Cash Equivalents

 

Cash equivalents consist of highly liquid investments with maturities at the time of purchase of three months or less. Cash equivalents include bank demand deposits and money market accounts that invest primarily in cash, U.S. Treasury bills, notes, and other obligations issued or guaranteed as to principal and interest by the U.S. Government, its agencies or instrumentalities, and repurchase agreements secured by such obligations or cash. Cash equivalents also include commercial paper, which are marketable debt securities recorded at fair value and accounted for in the same manner as other marketable debt securities described below.

 

Short-term Investments

 

The Company’s investments in marketable debt securities are classified as available-for-sale and recorded at fair value. Investments with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Short-term investments primarily consist of U.S. agency bonds, commercial paper, corporate bonds, asset-backed securities, and U.S. treasuries.

 

Unrealized gains and losses are included in accumulated other comprehensive loss in stockholders’ equity. Any discount or premium arising at purchase is accreted or amortized to interest income or expense. Realized gains and losses and declines in fair value, if any, judged to be other than temporary are reported in other income (expense), net. When securities are sold, any associated unrealized gain or loss initially recorded as a separate component of stockholders’ equity is reclassified out of stockholders’ equity on a specific-identification basis and recorded in earnings for the period.

 

The Company periodically evaluates whether declines in fair values of its investments below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the marketable security, duration and severity of the decline in value, and management’s strategy and intentions for holding the marketable security. To date, the Company has not recorded any impairment charges on its marketable securities related to other-than-temporary declines in market value.

 

12


 

Fair Value Measurements

Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. Observable inputs reflect market data obtained from independent sources while unobservable inputs reflect market assumptions made by the reporting entity.

The three-level hierarchy for the inputs to valuation techniques used to measure fair value is briefly summarized as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.

Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

 

Quoted prices for similar assets and liabilities in active markets.

 

Quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals).

 

Inputs that are derived principally from or are corroborated by observable market data by correlation or other means.

Level 3 — Unobservable inputs for the assets or liabilities (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value.

Inventory and Other Deferred Costs

Inventory, consisting of supplies used in the Company’s genomic analysis contracts, are valued at the lower of cost or net realizable value. Cost is determined using actual costs, on a first-in, first-out basis.

Other deferred costs relate to work in process for costs incurred on genomic analysis contracts that have not been completed or recognized as revenues. Other deferred costs represent materials used in sequencing services, labor, and overhead allocations.

Leases

The Company categorizes leases with contractual terms longer than twelve months as either operating or finance leases. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset over its estimated life. All other leases are categorized as operating leases. As of March 31, 2020, the Company had no finance leases.

Certain lease contracts include obligations to pay for other services, such as maintenance. The Company elected to account for these other services as a component of the lease (i.e., the Company elected the practical expedient not to separate lease and non-lease components).

Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives, using a discount rate based on the Company’s current borrowing rate at the lease commencement date, adjusted for various factors including level of collateralization and term (the “incremental borrowing rate”), unless the rate implicit in the lease is readily determinable. The current portion of lease liabilities is included in “Accrued and other current liabilities” and the noncurrent portion included in “Other long-term liabilities.” Lease assets are recognized based on the initial present value of the fixed lease payments, reduced by landlord incentives, plus any direct costs from executing the leases or lease prepayments reclassified from “Other long-term assets” upon lease commencement. Lease assets are presented as “Operating lease right-of-use assets” as a long-term asset. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

13


 

The Company has made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from leases with a term of 12 months or less. Lease payments are recognized as an expense on a straight-line basis over the lease term.

Recent Accounting Pronouncements

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The accounting update also made minor changes to the impairment model for available-for-sale debt securities. In November 2019, the FASB delayed the effective date for Topic 326 as applicable to smaller reporting companies to the first quarter of 2023. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures. The Company will apply the new guidance by means of a cumulative-effect adjustment to the opening retained earnings as of the beginning of the first reporting period in which the guidance is effective.

JOBS Act Accounting Election

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act (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. The Company has irrevocably elected not to avail itself of this exemption from new or revised accounting standards, and therefore, the Company will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Note 3. Revenues

The following table presents the Company’s revenues disaggregated by customer type (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

VA MVP

 

$

14,756

 

 

$

8,343

 

All other customers

 

 

4,405

 

 

 

5,732

 

    Total

 

$

19,161

 

 

$

14,075

 

 

Revenues from countries outside of the United States, based on the billing addresses of customers, represented approximately 9% and 2% of the Company’s revenues for the three months ended March 31, 2020 and 2019, respectively.

Contract Assets and Liabilities

The Company had no contract assets as of March 31, 2020 and December 31, 2019.

The Company’s contract liabilities consist of customer deposits in excess of revenues recognized and are presented as current liabilities in the condensed consolidated balance sheets.

The balance of contract liabilities was $34.4 million and $36.0 million as of March 31, 2020 and December 31, 2019, respectively. Revenues recognized for the three months ended March 31, 2020 and 2019 that were included in the contract liability balance at the beginning of each reporting period were $10.7 million and $7.8 million, respectively.

Revenues allocated to remaining performance obligations represent contracted revenues that have not yet been recognized (“contracted not recognized revenues”), which include VA MVP contract liabilities and amounts that will be invoiced and recognized as revenues in future periods. Contracted not recognized revenues were $54.0 million as of March 31, 2020, which we expect to recognize as revenues over the next 12 months.

14


 

Note 4. Balance Sheet Details

Inventory and other deferred costs consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Raw materials

 

$

3,919

 

 

$

1,424

 

Other deferred costs

 

 

2,519

 

 

 

3,182

 

Total inventory and other deferred costs

 

$

6,438

 

 

$

4,606

 

 

Property and equipment. Depreciation and amortization expense for the three months ended March 31, 2020 and 2019 was $1.4 million and $1.0 million, respectively. Accumulated depreciation and amortization was $10.2 million and $9.1 million as of March 31, 2020 and December 31, 2019, respectively.

Accrued and other current liabilities consist of the following (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Accrued compensation

 

$

5,399

 

 

$

4,147

 

Operating lease liabilities

 

 

1,107

 

 

 

1,361

 

Accrued taxes

 

 

57

 

 

 

210

 

Accrued liabilities

 

 

268

 

 

 

689

 

Other current liabilities

 

 

544

 

 

 

241

 

Total accrued and other current liabilities

 

$

7,375

 

 

$

6,648

 

 

Note 5. Fair Value Measurements

The following tables show the Company’s financial assets and liabilities measured at fair value on a recurring basis and the level of inputs used in such measurements as of March 31, 2020 and December 31, 2019 (in thousands):

 

 

 

As of March 31, 2020

 

 

Adjusted Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

Fair Value Level

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

4,015

 

 

$

 

 

$

 

 

$

4,015

 

 

 

Money market funds

 

 

25,042

 

 

 

 

 

 

 

 

 

25,042

 

 

Level 1

Commercial paper

 

 

17,648

 

 

 

 

 

 

(11

)

 

 

17,637

 

 

Level 2

Total cash and cash equivalents

 

 

46,705

 

 

 

 

 

 

(11

)

 

 

46,694

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

17,645

 

 

 

4

 

 

 

(13

)

 

 

17,636

 

 

Level 2

U.S. government securities

 

 

2,003

 

 

 

5

 

 

 

 

 

 

2,008

 

 

Level 2

Corporate debt securities

 

 

12,893

 

 

 

4

 

 

 

(3

)

 

 

12,894

 

 

Level 2

U.S. agency securities

 

 

38,498

 

 

 

105

 

 

 

 

 

 

38,603

 

 

Level 2

Asset-backed securities

 

 

2,199

 

 

 

 

 

 

(1

)

 

 

2,198

 

 

Level 2

Total short-term investments

 

 

73,238

 

 

 

118

 

 

 

(17

)

 

 

73,339

 

 

 

Total assets measured at fair value

 

$

119,943

 

 

$

118

 

 

$

(28

)

 

$

120,033

 

 

 

15


 

 

 

 

As of December 31, 2019

 

 

Adjusted Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

 

Fair Value Level

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

1,271

 

 

$

 

 

$

 

 

$

1,271

 

 

 

Money market funds

 

 

12,495

 

 

 

 

 

 

 

 

 

12,495

 

 

Level 1

Commercial paper

 

 

41,281

 

 

 

 

 

 

(1

)

 

 

41,280

 

 

Level 2

Total cash and cash equivalents

 

 

55,047

 

 

 

 

 

 

(1

)

 

 

55,046

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

 

17,898

 

 

 

 

 

 

(6

)

 

 

17,892

 

 

Level 2

U.S. government securities

 

 

4,011

 

 

 

 

 

 

 

 

 

4,011

 

 

Level 2

Corporate debt securities

 

 

13,953

 

 

 

1

 

 

 

(6

)

 

 

13,948

 

 

Level 2

U.S. agency securities

 

 

32,776

 

 

 

20

 

 

 

(2

)

 

 

32,794

 

 

Level 2

Asset-backed securities

 

 

4,598

 

 

 

 

 

 

 

 

 

4,598

 

 

Level 2

Total short-term investments

 

 

73,236

 

 

 

21

 

 

 

(14

)

 

 

73,243

 

 

 

Total assets measured at fair value

 

$

128,283

 

 

$

21

 

 

$

(15

)

 

$

128,289

 

 

 

 

There have been no realized gains or losses on sales of marketable securities for the periods presented. The Company began investing in marketable debt securities during the third quarter of 2019 and, therefore, no security has been in an unrealized loss position for 12 months or greater. The Company determined that it did have the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery. As of March 31, 2020, the Company does not consider any of its marketable debt securities to be other-than-temporarily impaired.

The Company’s marketable debt securities at March 31, 2020 have maturities due in one year or less, except for debt securities with an aggregate cost basis and fair value of $13.2 million that have maturities ranging from 13 to 18 months.

The Black-Scholes option-pricing model was used to estimate the fair value of the redeemable convertible preferred stock warrants at the date of issuance and at each subsequent consolidated balance sheet date. The fair value of the redeemable convertible preferred stock warrants was also estimated at the time of conversion to common stock warrants (see Note 10). Under this option-pricing model, redeemable convertible preferred stock warrants were valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the redeemable convertible preferred stock and common stock are inferred by analyzing these options.

The fair value of each redeemable convertible preferred stock warrant was estimated using the Black-Scholes option-pricing model with the assumptions described below. Upon conversion to common stock warrants in the second quarter of 2019 (see Note 10), no further fair value measurements were made. Therefore, there is no activity with respect to periods after the second quarter of 2019. For the periods indicated, the Company has limited historical volatility information available, and the expected volatility was based on actual volatility for comparable public companies projected over the expected terms of the warrants. The Company did not apply a forfeiture rate to the warrants as there is not enough historical information available to estimate such a rate. The risk-free interest rate was based on the U.S. Treasury yield curve over the expected term of the warrants.

 

 

 

Three Months Ended

 

 

March 31,