Filed Pursuant to Rule 424(b)(3)
Registration No.
333- 259954
Prospectus Supplement No. 2
(To Prospectus dated October 24, 2022)
This prospectus
supplement updates, amends and supplements the prospectus dated October 24, 2022 (the “Prospectus”), which forms a part of
our Registration Statement on Form S-1 (Registration No. 333-259954). Capitalized terms used in this Prospectus Supplement
and not otherwise defined herein have the meanings specified in the Prospectus.
This Prospectus Supplement updates, amends and
supplements the information in the Prospectus with the information contained in our Annual Report on Form 10-K filed with the Securities
and Exchange Commission on March 28, 2023 (the “Annual Report”). Accordingly, we have attached the Annual Report to this
Prospectus Supplement.
You should read this Prospectus Supplement in
conjunction with the Prospectus, including any amendments and supplements thereto. This Prospectus Supplement is qualified by reference
to the Prospectus, except to the extent that the information contained in this Prospectus Supplement supersedes the information contained
in the Prospectus. This Prospectus Supplement is not complete without, and may not be utilized except in connection with, the Prospectus.
Investing in our securities involves significant
risks. See “Risk Factors” beginning on page 7 of the Prospectus and in Item 1A of the Annual Report to read about factors
you should consider before investing in our securities.
Neither the SEC nor any state securities commission
has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete.
Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is March
28, 2023
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________________________________
FORM
10-K
___________________________________
(Mark One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended December 31,
2022
OR
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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 001-39796
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SOMALOGIC,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware |
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85-4298912 |
(State
or other jurisdiction of
incorporation
or organization) |
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(I.R.S.
Employer
Identification
Number) |
2945
Wilderness Place
Boulder,
Colorado
80301
(303)
625-9000
(Address,
including zip code, and telephone number, including area code, of registrant’s principal executive offices)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
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Trading
Symbol |
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Name
of each exchange on which registered |
Common
Stock, $0.0001 par value |
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SLGC
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Nasdaq
Capital Market |
Warrants
to purchase Common Stock |
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SLGCW |
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Nasdaq
Capital Market |
Securities
registered pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
o
No
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Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
o
No
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Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes
ý
No
o
Indicate
by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was
required to submit such files). Yes
ý
No
o
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.
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Large
accelerated filer |
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Accelerated
filer |
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Non-accelerated
filer |
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Smaller
reporting company |
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Emerging
growth company |
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of
its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. o
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
o
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
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No
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The
aggregate market value of common stock held by non-affiliates as of June 30, 2022, the last business day of the registrant’s
most recently completed second quarter, was approximately $647.8
million. This amount is based on the closing price of the registrant’s common stock on the NASDAQ on that date. Solely for purposes
of this disclosure, shares of common stock held by executive officers and directors of the registrant have been excluded from the calculation
because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination
for any other purposes.
As
of March 17, 2023, there were approximately 187,889,569
shares of the registrant's common stock outstanding.
Documents
Incorporated by Reference
Portions
of the registrant’s definitive proxy statement for its 2023 Annual Meeting of Stockholders (the “2023 Proxy Statement”),
which will be filed with the United States Securities and Exchange Commission within 120 days of December 31, 2022, are incorporated
by reference into Part III of this Annual Report on Form 10-K where indicated.
TABLE
OF CONTENTS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The
information in this Annual Report on Form 10-K includes “forward-looking statements” within the meaning of the “safe
harbor” provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements, other
than statements of historical fact included in or incorporated by reference into this Annual Report on Form 10-K, regarding our strategy,
future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are
forward-looking statements. When used in this report, the words ““will be,” “will,” “expect,”
“anticipate,” “continue,” “project,” “believe,” “plan,” “could,”
“estimate,” “forecast,” “guidance,” “intend,” “may,” “plan,” “possible,”
“potential,” “predict,” “pursue,” “should,” “target” and similar expressions
are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These
forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently
available information as to the outcome and timing of future events.
These
statements include, but are not limited to the following:
•the
occurrence of any event, change or other circumstances, including the outcome of any legal proceedings that may be instituted against
the Company;
•the
ability to comply with the listing requirements of the Nasdaq;
•the
risk of disruption, including in the Company’s information technology systems, to the Company’s current plans and operations;
•the
ability to recognize the anticipated benefits of the Company’s business, which may be affected by, among other things, competition
and the ability to grow and manage growth profitably and retain its key employees;
•costs
related to the Company’s business;
•changes
in applicable laws or regulations;
•the
ability of the Company to raise financing in the future;
•the
success, cost and timing of the Company’s product development, sales and marketing, and research and development activities;
•the
ability to protect the Company’s intellectual property;
•the
Company’s plans to engage in acquisition activities and the anticipated impact of such activities on the Company’s financial
results;
•the
impact of the procurement and budgetary cycles of customers;
•the
Company’s ability to obtain and maintain regulatory approval for its products, and any related restrictions and limitations of any
approved product;
•the
Company’s ability to maintain existing license agreements and manufacturing arrangements;
•the
Company’s ability to attract or retain sales and distribution partners;
•the
Company’s ability to compete with other companies currently marketing or engaged in the development of products and services that
serve customers engaged in proteomic analysis, many of which have greater financial and marketing resources than the Company;
•the
size and growth potential of the markets for the Company’s products, and the ability of each to serve those markets, either alone
or in partnership with others;
•the
Company’s estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
•the
ability to use net operating losses and certain other tax attributes;
•the
Company’s financial performance; and
•the
impact of the COVID-19 pandemic on the Company.
The
forward-looking statements contained in this Annual Report on Form 10-K are based on the Company’s current expectations and beliefs
concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting
the Company will be those that the Company has anticipated. These forward-looking statements involve a number of risks, uncertainties
(some of which are beyond the Company’s control) or other assumptions that may cause actual results or performance to be materially
different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited
to, those factors described under Part I, Item 1A – “Risk Factors” in this Annual Report on Form 10-K. Should one or
more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material
respects from those projected in these forward-looking statements. The Company will not and does not undertake any obligation to update
or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required
under applicable securities laws.
PART
I
Item
1. Business
Unless
expressly indicated or the context requires otherwise, the terms “SomaLogic,” the “Company,” “we,”
“us” and “our” in this report refer to SomaLogic, Inc., and, where appropriate, our wholly-owned subsidiaries.
Company
Overview
Overview
SomaLogic
is a leading commercial-stage proteomics company. We have built an integrated proteomics platform that we believe is capable of robust,
high throughput proteomics analysis with broad proteome coverage, low limits of detection, high reproducibility and at low costs. We designed
our platform with the goal of being a universal proteomics platform, with the breadth (number of proteins measured) and precision (accuracy
of measurement) important for discovery and research applications, and both the reproducibility and robustness important for clinical
applications. Our platform is underpinned by our proprietary assay technology, our protein database (which we believe is one of the largest
proteomics databases worldwide), and artificial intelligence and machine learning capabilities. As of December 31, 2022, our assay can
measure approximately 7,000 protein target measurements in a single sample using only approximately 55 µL of plasma, serum, or other
matrices. Our proteomics database contains over 4.2 billion protein measurements and our clinical database contains over 675,000 participant-years
of clinical follow-up. Leveraging our artificial intelligence-enabled bioinformatics capability, we use our database to power diagnostic
product development for our research and clinical customers. We currently run our platform within our own laboratory, receive samples
from customers and perform proteomics analysis on their behalf.
Our
foundational assay technology includes our library of modified aptamer protein identification reagents, referred to as “SOMAmer®
reagents,” and our SomaScan® assay. Our SOMAmer® reagents are proprietary modified aptamers, which are short, synthetic
single stranded DNA (ssDNA) sequences developed to bind specific protein targets with high affinity and specificity across the proteome.
The SomaScan® assay is utilized for Research Use Only (“RUO”) applications, and our SomaSignal™ tests, which are
run on the SomaScan® Platform, are available as Laboratory-Developed Tests (“LDT”) in the United States.
Life
Sciences
Our
business model is currently focused on customers conducting life sciences research or biopharmaceutical development. Our assay services
delivered to the research market are focused on pharmaceutical and biotechnology companies, and academic and government research institutions.
We facilitate drug development, analysis of clinical trials and new human biology insights by assessing protein-protein and protein-gene
interaction networks. In addition to providing protein data for research customer use, as of December 31, 2022, we offered 29 SomaSignal™
RUO protein-pattern recognition tests covering multiple applications, including facilitation of clinical trials (patient inclusion/exclusion,
therapeutic effects of pharmaceuticals during trials, and other use cases). We continue to work with collaborators to explore new applications
of our technology for life sciences research and clinical proteomics. As a result of our significant government- or grant-funded customer
base, whose cycles often coincide with government fiscal year ends, our business is subject to significant seasonal factors which may
cause sales of our products to vary on a quarterly or yearly basis and increase the magnitude of quarterly or annual fluctuations in our
operating results.
Diagnostics
Our
services and products delivered into the clinical market are focused on providing data-driven diagnostic tests aimed at enabling high
predictive power of biological disease and risks to patients based on high-plex proteomic measurement and bioinformatics predictive model
development. We offered 19 SomaSignal™ tests for use as LDTs under our Clinical Laboratory Improvement Amendments (“CLIA”)
certification as of December 31, 2022. We also have a pipeline of several unique tests that could be developed and use claims targeting
multiple applications, including offerings for health and wellness, preventative medical and disease management for pharmaceutical companies,
health system providers and payors. We have developed a number of health system partnerships in the United States which we are studying
use cases and benefits for SomaSignal™ tests for patient populations.
Recent
Developments
SomaLogic
entered into an exclusive, multi-year partnership pursuant to a Collaboration Agreement (the “Collaboration Agreement”) with
Illumina Cambridge. Ltd. (“Illumina Cambridge”) and Illumina, Inc. (together with Illumina Cambridge, collectively, “Illumina”)
to develop co-branded, distributable Next-Generation Sequencing (“NGS”) based proteomic products. As part of the collaboration,
which began in early 2022, Illumina began developing NGS-based protein identification and measurement tools to be used in laboratories
worldwide and facilitating the development and use of high-plex protein pattern recognition tests.
In
August 2022, the Company completed its acquisition of Palamedrix, Inc., an innovator in DNA nanotechnology, which the Company intends
to leverage as it develops the next generation of the SomaScan® Assay and which SomaLogic
believes
will accelerate the SomaScan Platform utilization in global biopharma and academic markets, as well as the emerging proteomic diagnostics
space.
As
part of a broader strategic review of the Company’s business and organizational structure in October 2022, the Company’s Board
appointed Troy Cox, a current director of the Company and veteran executive in the life sciences industry, as Executive Chair of the Board
with oversight responsibilities as the Company’s principal executive officer. In addition to the new executive leadership of Mr.
Cox, and also in connection with the strategic review, in December 2022 the Company also began implementing a strategic reorganization
involving, among other things, a workforce reduction and reprioritization of the Company’s operating costs and long-term growth
strategy, including a renewed focus on the growth of the Company’s life sciences business.
Proteomics
and Existing Technologies
Background
We
believe the value of proteomics remains largely untapped. Over the past decade, the genomics revolution has led to an acceleration of
biological insights arising from the development and incorporation into research and clinical medicine of large-scale, high-throughput
molecular profiling techniques. Although increased knowledge of biological systems from the standpoint of both genomics and transcriptomics
has led to significant scientific advancements and biological discoveries, we believe the critical role of protein function in human biology
remains largely unexplored due to several inherent difficulties in proteomics, which do not exist in genomics and which slow technological
progress to fully interrogate the proteome, such as the unique characteristics of each protein, including shapes, sizes (20,000 different
protein structures versus the fairly simple structure of nucleic acid), half-lives, and presence in myriad locations throughout the human
body in organs, tissues and cells (compared to the localization of nucleic acid in the nuclei of cells and in mitochondria). Therefore,
unlike DNA, proteins can have unstable and variable chemical structures, and their presence in diverse human biological samples can span
an exceptionally large dynamic range. This can make proteins difficult to detect and identify in a sample, especially at low concentrations.
We believe that to extract the multidimensional networks of biological information encoded in proteins, researchers generally have to
be able to measure many proteins at scale, over a very wide dynamic range, and with a high degree of precision (to suggest otherwise,
we believe, would require an assumption that each of the 20,000 known protein-encoding genes selected over millions of years of human
evolution is not important to the achievement of a complete understanding of human biology). In addition, we view robust and reproducible
proteomic analysis as a requirement for driving adoption of proteomic tests in the clinical setting. Although there are several approaches
widely practiced today that can identify and measure a large number of proteins, the ability to capture a sufficiently broad number of
proteins with high accuracy and repeatability and therefore enable a more comprehensive picture of the dynamic state of a cell, tissue
or organism has presented the life sciences industry with a difficult and ongoing challenge.
Key
limitations of current proteomics technologies
We
believe there are currently few widely practiced methodologies for broad interrogation of the proteome, and each has its own specific
set of limitations. The key methodologies utilized today include mass spectrometry and antibody-based approaches. Protein sequencing and
counting technologies are recent innovations in the field but, generally, are not applied commercially at scale.
Our
Offerings
We
are using our platform to target life sciences research and development. Our offerings focused on life sciences research are intended
for basic research, target identification and biomarker discovery, as well as translational research and biopharmaceutical development
applications. We also have a clinical diagnostics business, through which we have established relationships with several large health
systems in the United States.
SomaLogic®
Offerings and Applications
We
have an established revenue stream from the life sciences research market, which as of December 31, 2022, consists primarily of a service
model whereby we receive samples (including from pharmaceutical, biotechnology or academic clients), perform the SomaScan® assay,
and subsequently use bioinformatics and analytics to further refine the collected data and deliver the results back to the customer.
SomaScan®
Assay. As of December
31, 2022, our SomaScan® assay measures approximately 7,000 protein targets in a single sample, with planned development to expand
to an approximately 10,000-plex assay for release in late 2023. The SomaScan® assay is designed to have breadth (or number of proteins
measured), precision, specificity, dynamic range, depth (or lower limits of detection), and throughput. SomaScan® assay customers
can also gain access to individual SOMAmer® reagents for a wide range of follow-up studies, which is a feature we consider to be
a unique addition to our research services in comparison to the offerings of other proteomic platforms.
SomaScan®
Certified Sites. The
SomaScan Certified Sites program allows global pharmaceutical and biotech companies, academic and core labs, and government research institutions
to run our industry leading proteomics platform
on
site with the same precision, robustness, and reproducibility seen in our assay services facility. Certified Sites run the assay on the
same equipment as in the SomaLogic Assay Service facility utilizing a reagent based kit.
SomaSignal™
Tests. As of December
31, 2022, we had 19 SomaSignal™ tests currently available for use as LDT under our CLIA certification, with several more in various
stages of development. As of December 31, 2022, we have 29 RUO tests primarily targeting clinical trial applications, such as characterizing
and monitoring patients through the clinical trial cycle. We believe our SomaSignal™ tests will provide health systems and national
health services with a leading-edge scientific tool set to allocate resources, risk stratify both populations and individual patients
and personalize therapy.
SOMAmer®
Reagents. Customers have
been granted licenses to use a limited subset of our SOMAmer reagents and to access to our Systematic Evolution of Ligands by Exponential
enrichment (“SELEX”) technology in three ways: (i) through the transfer of individual reagents that have been developed by
SomaLogic, (ii) through the transfer of custom reagents developed by SomaLogic on behalf of a customer, and (iii) through the development
of custom reagents by a customer after receiving a license to perform the SELEX process and to use the subsequently developed reagents.
An example of the commercial use of SOMAmer® reagents by a licensee of SomaLogic is the inclusion of SOMAmer reagent-based inhibitors
of thermophilic enzymes, such as polymerases used in a product category offered by certain biotechnology companies referred to as “hot-start”
PCR amplification.
Our
Market Opportunity
Due
to extensive existing applications and broad potential, we believe proteomics represents one of the largest untapped opportunities in
the life sciences industry today. Currently, approximately 95% of FDA-approved drugs target a protein, and most other drugs interact with,
or are influenced by, signal transduction cascades mediated by proteins. Our platform aims to address a large opportunity across multiple
proteomics-based markets and is uniquely designed to attract, capture and retain customers representing a substantial share of each of
these markets. With the increasing breadth of our foundational protein assay serving as a source for the development of new products and
services, we believe we are well positioned to expand to adjacent markets within proteomics. Our target markets are life sciences research
and biopharmaceutical development, and the breadth of our customers and collaborators demonstrate that we are establishing a market presence
in both.
Our
Strategy
Our
goal is to drive adoption of our integrated platform of proteomic solutions and services in the life sciences research and biopharmaceutical
development markets and then expand into other attractive markets. Our strategy centers on lowering barriers to adoption and actively
engaging with our broad community of customers and KOLs to accelerate the adoption of proteomics. Our growth strategy includes:
•Drive
adoption of our platform as the industry standard for discovery with life sciences research customers.
•Create
the case for enhanced pharmaceutical development productivity through proteomics, including the use of SomaSignal tests in clinical trials
•Leverage
our database and artificial intelligence and machine learning capabilities to strengthen our value proposition for our customers.
•Strengthen
our partnerships and collaborations to validate our integrated platform and expand its capabilities.
•Enhance
our integrated platform for use in decentralized settings through SomaScan® Certified Sites.
•Build
commercial product development and sales channel relationships with Genomics, Transcriptomics and other molecular biology-based testing
enterprises.
Manufacturing
and Supply
We
depend on our manufacturing and supply chain operations for reagents and other components we use in our products and solutions. Our suppliers
and manufacturer are also the primary source of the instruments required to complete our assays and tests.
We
currently have supply agreements with two single source suppliers, Agilent Technologies, Inc (“Agilent”) and Global Life Sciences
Solutions USA LLC (“GLSS”). The agreement with Agilent, which was amended in November of 2021, relates to the supply of a
microarray readout system, including slide and supporting reagents, and will terminate in April 2025 subject to the parties’ agreement
to renew the agreement for an additional 2 years. The agreement with GLSS relates to the supply of streptavidin beads and has been extended
through December 31, 2023. Additionally, we and our SomaLogic Certified Sites purchase from Tecan Trading AG (“Tecan”) the
Fluent 780 automated liquid handling instrument to perform the current version of the SOMAscan assay. The SomaScan assay could be adapted
to other commercially available automated liquid handling platforms, with suitable development time, if supply of the Tecan Fluent 780
is interrupted in the future.
Some
of our products and services, such as our SomaScan® assay, utilize unique components, but the majority of the components that enable
our products and services are commonly sourced or off-the-shelf. While we purchase some of the components and materials used in manufacturing
our products and performing our services from single-source suppliers, we have qualified second sources for most, but not all, of our
critical components and reagents. The loss of any of these suppliers could potentially harm SomaLogic. We believe alternatives would be
available; however, it may take time to identify and validate replacement components, which could negatively affect our ability to supply
our products and perform our services on a timely basis. To mitigate this risk, we typically carry a significant inventory of our critical
components. For further discussion of the risks relating to our third-party suppliers, see the section entitled “Risk
Factors.”
Intellectual
Property
Our
success depends in part on our ability to maintain intellectual property protection for our products, services and technology. We utilize
a variety of intellectual property protection strategies, including patents, trade secrets, trademarks and other methods of protecting
proprietary information.
Patents
We
have an extensive global patent portfolio to protect our proteomics platform, products and services. Our owned and controlled patents
and pending applications, if issued, are expected to expire between 2023 and 2042, in each case without taking into account any possible
patent term adjustments or extensions and assuming payment of all appropriate maintenance, renewal, annuity or other government fees.
Our proprietary, foundational aptamer chemistry and other technology is supported by approximately 950 patents (issued or pending), including
granted patents and pending patent applications in-licensed from California Institute of Technology, such patent license assumed from
our acquisition of Palamedrix, Inc., and supports unsurpassed sensitivity, specificity, and dynamic range.
Trademarks
We
own various registered trademarks, trademark applications, and unregistered trademarks in the United States and in important markets outside
the United States, including our company name and various product and service names, including SomaLogic, SomaSignal, SOMAmer, SomaScan,
SomaScan by SomaLogic, and Powered by SomaLogic. Our trademark portfolio is designed to protect the brands for our products and services,
both current and in the pipeline.
Trade
Secrets
In
addition to our reliance on patent protection for our inventions, products and technologies, we also rely on trade secrets, know-how,
confidentiality agreements and continuing technological innovation to develop and maintain our competitive position. For example, most
of our aptamers and some elements of our analytical techniques and processes, as well as some of the bioinformatics methodologies and
software used to analyze assay data, are based on unpatented trade secrets and proprietary know-how that has not been publicly disclosed.
Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees,
advisors and consultants, these agreements may be breached, and we may not have adequate remedies for any breach. In addition, third parties
may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets
or disclose our technology. As a result, we may not be able to meaningfully protect and maintain our trade secrets.
In-Licensing
of Intellectual Property
We
do not currently rely on any third party in-licensed intellectual property to provide any of our services or products.
Out-Licensing
of Intellectual Property
In
June 2008, SomaLogic and New England Biolabs, Inc. (“NEB”) entered into an exclusive licensing agreement, whereby SomaLogic
provides a license to use certain proprietary information and know-how relating to its aptamer technology to make and use commercial products.
SomaLogic received royalties from NEB in exchange for this license. In September 2022, SomaLogic and NEB entered into a license and settlement
agreement (“NEB Agreement”) that terminated the existing exclusive licensing arrangement and provided for a settlement of
$8.0 million of owed royalties. The NEB Agreement also provided a non-exclusive license arrangement for the same proprietary information
and know-how under which SomaLogic is guaranteed fixed minimum royalties of $15.0 million to be received over the term of the agreement.
The license agreement will terminate in June 2028, after which the intellectual property rights behind the proprietary information and
know-how and any previously unexpired licensed patents will have expired.
We
intend to pursue additional intellectual property protection to the extent we believe it would be beneficial and cost-effective. We cannot
provide any assurance any of our current or future patent applications will result in the issuance of patents, or any of our current or
future issued patents will effectively protect any of our products, services or technology or prevent others from commercializing infringing
products, services or technology. For further discussion of the risks relating to intellectual property, see the section entitled “Risk
Factors — Risks Related to Intellectual Property.”
Collaboration
Agreements
SomaLogic
has several collaboration agreements with collaborators to facilitate various research efforts focused on proteomic profiling of several
diseases and conditions. Our current collaborators include many universities and private companies in the biotechnology space.
On
September 20, 2019, SomaLogic entered into a Master Collaboration Agreement (“MCA”) with Novartis Pharma AG, a Swiss company
(“Novartis”), pursuant to which the parties engage in collaborative research efforts to advance the study of proteomic medicine.
Under the MCA, SomaLogic agrees to provide SomaScan® assay services to Novartis upon Novartis’s submission of samples to SomaLogic.
Effective January 1, 2023, SomaLogic and Novartis entered into Amendment #2 to Master Collaboration (“Amendment 2”), under
which the parties extended the term of the MCA until December 31, 2033 unless either earlier terminated by the parties in accordance with
the MCA or extended for an additional five (5) years by mutual written agreement. Under the MCA, for services performed after the satisfaction
of all Projected Annual Minimums (as defined in the Collaboration Agreement) in accordance with timelines contemplated by the MCA, the
fees Novartis and its affiliates pay for samples provided by the Company will increase and, in lieu of annual minimums, Novartis will
provide SomaLogic with rolling, non-binding forecasts of its assay requirements on a quarterly basis.
On
March 30, 2020, SomaLogic entered into a Joint Development & Commercialization Agreement (the “JDCA”) with NEC Solution
Innovators, Ltd. (“NES”). Under the JDCA, NES was granted (1) a ten (10) year exclusive license to certain of SomaLogic’s
intellectual property to develop and commercialize tests in Japan for human healthcare management, which will convert to a non-exclusive
license at the end of the ten (10) year period of exclusivity and then continue for the remainder of the term of the agreement; and (2)
a non-exclusive license to develop and commercialize in Japan non-healthcare life sciences tests that employ SomaScan® services in
exchange for annual payments for five (5) years and revenue sharing payments over the term of the agreement. Under the agreement, NES
grants SomaLogic an exclusive license under NES’ and its affiliates’ technology and under any joint technology or patents
to develop and commercialize tests in the rest of the world.
On
October 13, 2020, SomaLogic entered into an Amended and Restated Master SomaScan Discovery Services Agreement (“MSDS”) with
Amgen Inc., a Delaware corporation based in California (“Amgen”), pursuant to which SomaLogic agrees to use its SomaScan®
assay technology to study protein samples provided by Amgen and provides reports for such studies, as outlined in individual statements
of work (“SOWs”) from time to time. Each individual SOW sets forth the sample requirements, and fees payable to SomaLogic
pursuant thereto, that Amgen agrees to supply to SomaLogic in order for SomaLogic to provide SomaScan® assay services. The MSDS will
terminate on October 13, 2025, unless earlier terminated by the parties in accordance with the MSDS and in any event not until any open
SOW is completed.
On
December 31, 2021, SomaLogic entered into the Collaboration Agreement with Illumina, in connection with the development of the Licensed
Products and related commercial arrangements. Under the Collaboration Agreement, SomaLogic grants Illumina rights to use SOMAmer reagents
and certain related intellectual property to develop, pursuant to a mutually agreed upon development plan, the Licensed Products, in exchange
for, among other things, an upfront payment and certain royalty payments. Unless earlier terminated in accordance with its terms, the
Collaboration Agreement will remain in effect until the expiration of the last-to-expire royalty period for the Licensed Products.
Employees
and Human Capital
Fostering
and maintaining a strong, healthy culture is a key strategic focus. Our core values reflect who we are and the way our employees interact
with one another, our customers, partners and shareholders. We believe this kind of corporate culture results in employees who are happier,
more creative, and more productive.
As
of December 31, 2022, after giving effect to our recent strategic reorganization, we had approximately 451 full-time employees, including
a research and development team of more than 94 employees. Most of our employees hold an academic degree, with a significant number also
holding advanced degrees.
None
of our employees are represented by a labor union or covered under a collective bargaining agreement. We have not experienced any material
work stoppages and we consider our relationship with our employees to be good, healthy, and transparent. We actively engage with managers
to collect feedback and ideas on how to improve our working environment.
Our
ability to attract, acquire, develop, engage, and retain a diverse workforce is critical for us to execute our strategy and grow our business.
We continuously monitor the hiring, retention and management of our employees. We regularly conduct confidential surveys to seek feedback
from our employees and use those results to improve our workplace. We attract and reward our employees by providing market competitive
compensation and benefit practices, including equity and cash incentives and recognition plans that extend to all levels in our organization.
We invest in our workforce through education, training and development programs and offering tuition assistance programs for continuing
education. The health and safety of our employees is a key priority, and we are committed to providing and maintaining a safe and healthy
working environment. Compliance with environmental, health and safety laws and regulations underlies the basis of applicable programs
and policies we have in place. In response to the COVID-19 pandemic, we implemented and will continue to
implement
measures to ensure the safety of our employees. We are continuously evaluating the guidance from federal and local authorities and have
created strict policies and guidelines that put our employees’ health and safety first.
Facilities
Our
corporate headquarters and laboratory facilities are located in Boulder, Colorado, where we lease approximately 77,000 square feet of
space under three leases at 2945 Wilderness Place, 2950 Wilderness Place and 2995 Wilderness Place. One building lease terminates at the
end of 2023 and the other two leases have extension options through 2026 and 2036. As a result of the Palamedrix acquisition, we also
lease approximately 10,000 square feet of office and laboratory space in La Jolla, California and the lease terminates in 2024.
We
do not own any real property, and believe our current facilities are sufficient to meet our immediate needs. In anticipation of future
growth, we believe we will be able to obtain additional facilities on commercially reasonable terms and on an acceptable timeline.
Competition
The
life sciences market is highly competitive and dynamic. Other companies, both established and early-stage, have indicated they are designing,
manufacturing, and marketing products and services for, among other things, multiplexed or high-throughput proteomic analysis. These companies
include Nautilus, Olink, Quanterix, Quantum-Si and Seer, among others, each of which has products and services that may compete to varying
degrees with some of our services and products. Some of these companies are actively executing their commercial and operating plans, actively
commercializing products and services and growing established marketing teams and sales forces. Other competitors are developing technologies
for the life sciences market which may lead to services and products that rival or replace our products over time.
Our
commercial opportunity could be reduced if our competitors develop and commercialize products or services that offer better performance
or are more convenient and cost-effective to use than our products or services. However, we believe we are substantially differentiated
from our competitors for a multitude of reasons, including our novel approach and platform, the unique and proprietary nature of our aptamer
and other technology (developed over more than two decades), our rigorous product development processes and quality of science, our highly
experienced and multidisciplinary teams, our breadth of both proteomics-research-enabling and applied clinical solutions, and our access
to an immediate growing market with options to expand into adjacent market opportunities over time.
Government
Regulation
Our
products are intended for either (1) RUO or (2) clinical use applications; our RUO products are not used for clinical applications. Our
customers include entities such as healthcare providers, academic institutions, research laboratories, and biopharmaceutical and biotechnology
companies. Our products are used for obtaining proteomics information from pre-clinical or clinical trials, biomarker discovery, and monitoring
patients’ physiological states, among others.
Under
a long-standing FDA regulation and policy, in vitro diagnostic (“IVD”) products intended for research use only are subject
to a regulatory classification separate from classifications for products with clinical use applications. In particular, products that
are RUO and that comply with certain labeling requirements (e.g., labeling that explains that the product is RUO) are typically not regulated
by the FDA as medical devices and are not subject to the regulatory requirements discussed below for clinical diagnostic products. Therefore,
in many cases, RUO products can be used or distributed for research use without first obtaining FDA clearance, authorization, or approval.
Such products must bear the statement: “For Research Use Only. Not for Use in Diagnostic Procedures,” and comply with other
legal requirements. RUO products cannot make any claims related to safety, effectiveness or diagnostic utility, and they cannot be intended
for human clinical diagnostic use.
In
November 2013, the FDA issued final guidance on products labeled RUO, which, among other things, reaffirmed a company may not make any
clinical or diagnostic claims about an RUO product, stating that merely including a labeling statement the product is for research purposes
only will not necessarily render the device exempt from the FDA’s clearance, approval, or other regulatory requirements if the totality
of circumstances surrounding the distribution of the product indicates the manufacturer knows its product is being used by customers for
diagnostic uses or the manufacturer intends such a use. A product labeled RUO but intended or promoted for clinical diagnostic use may
be viewed by the FDA as adulterated and/or misbranded under the Federal Food, Drug, and Cosmetic Act (“FDCA”) and subject
to FDA enforcement action. The FDA will consider several factors surrounding distribution and use of an RUO product, including how the
product is marketed and to whom, when determining its intended use. If the FDA disagrees with a company’s RUO status for its product,
the company may be subject to FDA enforcement actions. In addition, the FDA may require the company to seek clearance, authorization or
approval for the product.
Clinical
Diagnostics in the United States
In
the United States, the FDA defines a medical device as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent
or other similar or related article, including any component part or accessory, which is (i) intended for
use
in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals,
or (ii) intended to affect the structure or any function of the body of man or other animals and which does not achieve any of its primary
intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized
for the achievement of any of its primary intended purposes. Medical devices are subject to extensive regulation by the FDA under the
FDCA and its implementing regulations, and other federal and state statutes and regulations. The laws and regulations govern, among other
things, medical device design and development, pre-clinical and clinical testing, pre-market clearance, authorization or approval, establishment
registration and product listing, product manufacturing, product packaging and labeling, product storage, advertising and promotion, product
distribution, recalls and field actions, servicing and post-market clinical surveillance. A number of states in the United States also
impose licensing and compliance regimes on companies that manufacture or distribute prescription devices into or within the state.
The
Federal Trade Commission (“FTC”) also oversees the advertising and promotion of SomaLogic’s current and future products
pursuant to its broad authority to police deceptive advertising for goods or services within the United States. Under the Federal Trade
Commission Act, the FTC is empowered, among other things, to (a) prevent unfair methods of competition and unfair or deceptive acts or
practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; and (c) gather and
compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in
commerce. In the context of performance claims for products such as SomaLogic’s goods and services, compliance with the FTC Act
includes ensuring there is scientific data to substantiate the claims being made, the advertising is neither false nor misleading, and
any user testimonials or endorsements SomaLogic or its agents disseminate related to the goods or services comply with disclosure and
other regulatory requirements.
IVDs
are a type of medical device and include reagents and instruments used in the diagnosis or detection of diseases, conditions or infections,
including, without limitation, the presence of certain chemicals, genetic information or other biomarkers. Predictive, prognostic, and
screening tests can also be IVDs. Most medical devices, including IVD products, must undergo pre-market review by and receive clearance,
authorization, or approval from the FDA prior to commercialization, unless the device is of a type exempted from such review by statute,
regulation, or an FDA exercise of enforcement discretion.
The
FDA classifies medical devices into three classes based on risk. The level of regulatory control increases from Class I (lowest risk)
to Class III (highest risk). Marketing of most Class II and III medical devices within the United States must be preceded either by pre-market
notification and FDA clearance pursuant to Section 510(k) of the FDCA or by the granting of a premarket approval application (“PMA”).
Both 510(k) notifications and PMA applications must be submitted to the FDA with significant user fees, although reduced fees for small
businesses are available. Class I devices are generally exempt from pre-market review and notification, as are some moderate-risk Class
II devices. Manufacturers of all classes of devices must comply with the FDA’s Quality System Regulation (“QSR”), establishment
registration, medical device listing, labeling requirements, and medical device reporting (“MDR”) regulations, which are collectively
referred to as medical device general controls. Class II devices may also be subject to special controls such as performance standards,
post-market surveillance, FDA guidelines, or particularized labeling. Some Class I and Class II devices can be exempted by regulation
from the requirement of compliance with substantially all of the QSR. The FDA currently exercises enforcement discretion with respect
to the regulation of LDTs.
Regulation
of Laboratory Developed Tests in the United States
Our
SomaSignal™ tests are available as LDTs for use in obtaining proteomics information from patients and monitoring patients’
physiological states, among others. LDTs are generally considered to be tests that are designed, developed, validated and used within
a single laboratory. The FDA has historically taken the position that it has the authority to regulate such tests as medical devices under
the FDCA, but the FDA has exercised enforcement discretion for certain LDTs and has not required clearance, authorization, or approval
of such LDTs prior to marketing, unless the product poses health or safety concerns or the product is a direct-to-consumer test. Laboratories
certified as “high complexity” under CLIA may develop, manufacture, validate and run LDTs. The CLIA requirements are discussed
below in the section entitled “United States Federal and State Regulation of Laboratories.”
On
October 3, 2014, the FDA issued two draft guidance documents proposing a new regulatory paradigm for oversight of LDTs. These draft guidance
documents proposed more active review of LDTs. The draft guidance documents were the subject of considerable controversy, and in November
2016, the FDA announced that it would not be finalizing the 2014 draft guidance documents. On January 13, 2017, the FDA issued a discussion
paper which laid out elements of a possible revised future LDT regulatory framework but did not establish any regulatory requirements.
Meanwhile, the FDA issued several warning letters against marketers of LDTs, although focusing on issues that the FDA considered to pose
high risks to the public. But in August 2020, the Department of Health and Human Services (“HHS”) declared that FDA will not
be requiring premarket reviews for LDTs unless the FDA issues such a requirement by notice-and-comment rulemaking. Following the change
of the administration in 2021, it is not clear what the HHS or FDA policy will be on the regulation of LDTs. Given the changing regulatory
requirement, the FDA may decide to take action against certain LDTs on a case-by-case basis if the FDA views them as presenting a risk
to patients. The FDA may regulate products that it does not consider to be LDTs as medical devices that are subject to the requirements
that are described above.
United
States Federal and State Regulation of Laboratories
Given
aspects of SomaLogic’s business at certain facilities involve acting as a clinical laboratory, SomaLogic is required to hold certain
federal and state licenses, certifications and permits to conduct our business. As to federal certifications, CLIA establishes rigorous
quality standards for all laboratories that perform testing on specimens derived from humans for the purpose of providing information
for the diagnosis, prevention or treatment of disease, or the impairment of, or assessment of health. As a clinical laboratory, SomaLogic
must obtain a CLIA certificate based on the complexity of testing performed at the laboratory, such as a Certificate of Compliance for
high-complexity testing. CLIA also mandates compliance with various operational, personnel, facilities administration, quality and proficiency
requirements, intended to ensure clinical laboratory testing services are accurate, reliable and timely. CLIA compliance and certification
is also a prerequisite to be eligible to bill for services provided to government payors and for many private payors. Furthermore, SomaLogic
is subject to survey and inspection every two years to assess compliance with program standards and may be subject to additional unannounced
inspections. Laboratories performing high-complexity testing are required to meet more stringent requirements than laboratories performing
tests that are not as complex.
In
addition to CLIA requirements, SomaLogic participates in the accreditation program of the College of American Pathologists (“CAP”).
CMS, the agency that oversees CLIA, has deemed CAP standards to be equally or more stringent than CLIA regulations and has approved CAP
as a recognized accrediting organization. Inspection by CAP is performed in lieu of CMS inspections for accredited laboratories. Therefore,
because SomaLogic is accredited by the CAP Laboratory Accreditation Program, we are deemed to also comply with CLIA. CLIA provides a state
may adopt laboratory regulations more stringent than those under federal law, and a number of states have implemented their own more stringent
laboratory regulatory requirements.
Select
states have laboratory regulations that have been deemed by the federal government to be at least as stringent as CLIA, and thus laboratories
licensed under those state regimes are exempt from CLIA and the state Department of Health is permitted to issue a CLIA number, along
with a state Medical Test Site license, rather than a certificate being issued by CMS. State laws may require that laboratory personnel
meet certain qualifications, specify certain quality control procedures, facility requirements or prescribe record maintenance requirements.
Several states additionally require the licensure of out-of-state laboratories that accept specimens from those states. For example, New
York requires a laboratory to hold a permit, which is issued after an on-site inspection, and approval of each LDT offered by a laboratory,
and has various, more stringent requirements than CLIA and CAP, including those for personnel qualifications, proficiency testing, physical
facility and equipment and quality control standards.
If
a clinical laboratory is found to be out of compliance with CLIA certification, CAP accreditation or a state license or permit, the applicable
regulatory agency may, among other things, suspend, restrict or revoke the certification, accreditation, license or permit to operate
the clinical laboratory, assess civil monetary penalties and impose specific corrective action plans, among other sanctions.
United
States Fraud and Abuse Laws and Other Compliance Requirements
Successfully
commercializing our clinical products and services depends on obtaining broad health insurance or third-party payor coverage. Government
and private payors institute coverage criteria to ensure the appropriate utilization of products and services and to control costs. Limited
third-party payor coverage for a technology or procedure may limit adoption and commercial viability, while broader coverage supports
optimal market uptake. These laws can be implicated by inappropriate sales and marketing arrangements with healthcare providers. Many
commonly accepted commercial practices are illegal in the healthcare industry and violations of these laws are punishable by criminal
and civil sanctions, including, in some instances, exclusion from participation in United States federal and state healthcare programs,
including Medicare and Medicaid. These laws may include, but are not limited to, (i) the federal Anti-Kickback Statute, which prohibits
persons from knowingly and willfully soliciting, receiving, offering or providing remuneration directly or indirectly to induce either
the referral of an individual, or the furnishing, recommending, or arranging of a good or service, for which payment may be made under
a federal healthcare program such as Medicare and Medicaid; (ii) the federal False Claims Act, which prohibits knowingly presenting, or
causing to be presented a false claim or the knowing use of false statements or records to obtain payment from the federal government;
(iii) the federal Physician Self-Referral Law, also referred to as the Stark Law, which prohibits a physician (or an immediate family
member of a physician) who has a financial relationship with an entity from referring patients to that entity for certain designated health
services, including durable medical equipment and supplies, payable by Medicare, unless an exception applies; (iv) the Civil Monetary
Penalties Law, which authorizes the imposition of substantial civil money penalties against an entity that engages in certain prohibited
activities including but not limited to violations of the Stark Law or Anti-Kickback Statute, and knowing submission of a false or fraudulent
claim; (v) analogous state laws intended to protect against fraud and abuse in the health care industry and more broadly; (vi) the federal
Health Insurance Portability and Accountability Act (“HIPAA”) of 1996, as amended by the American Recovery and Reinvestment
Act of 2009, and implementing regulations, which includes criminal prohibitions against healthcare fraud, embezzlement, and making false
statements relating to healthcare matters; (vii) the United States Foreign Corrupt Practices Act (“FCPA”), which prohibits
United States corporations and their representatives from offering, promising, authorizing or making payments to any foreign government
official, government staff member, political party or political candidate in an attempt to obtain or retain business abroad; and (viii)
the Physician Payment Sunshine Act, which requires manufacturers to track and annually
report
to CMS certain payments and other transfers of value made to United States-licensed physicians or United States teaching hospitals.
In
addition, there has been a recent trend of increased federal and state regulation of payments and other transfers of value provided to
healthcare professionals and entities. Similar to the federal law, certain states also have adopted marketing and/or transparency laws
relevant to device manufacturers, some of which are broader in scope. Certain states also mandate that device manufacturers implement
compliance programs. Other states impose restrictions on device manufacturer marketing practices and require tracking and reporting of
gifts, compensation, and other remuneration to healthcare professionals and entities. The need to build and maintain a robust compliance
program with different compliance and/or reporting requirements increases the possibility that a healthcare company may violate one or
more of the requirements, resulting in fines and penalties.
United
States and International Data Security and Data Privacy Laws
SomaLogic
is or in the future may be subject to diverse laws and regulations relating to data privacy and security, including, in the United States,
the California Consumer Privacy Act 2018, as amended by the California Privacy Rights Act 2020 (collectively, the “CCPA”)
and HIPAA, in the United Kingdom (“UK”), the UK General Data Protection Regulation (“UK GDPR”), and, in the European
Union (“EU”), Regulation 2016/679, known as the General Data Protection Regulation (“EU GDPR”) (the EU and UK
GDPR collectively the “GDPR”). Some countries, such as Brazil, China, and Japan, have enacted or amended omnibus laws, and
others, such as Russia, have also passed laws that require personal data relating to their citizens to be maintained in the country under
certain circumstances and impose additional data transfer restrictions. In addition, India is considering proposed new privacy legislation,
the Digital Personal Data Protection Act, 2022 (“PDP”). If enacted, the PDP will overhaul the personal data protection and
regulatory regime in India. Complying with these numerous, complex and often changing regulations is expensive and difficult, and failure
to comply with any privacy laws or data security laws or any security incident or breach involving the misappropriation, loss or other
unauthorized use or disclosure of personal data (including sensitive or confidential patient or consumer information), whether by SomaLogic
or a third-party, could have a material adverse effect on SomaLogic’s business, reputation, financial condition and results of operations,
including but not limited to: material fines and penalties; damages; litigation; consent orders; extensive audits and inspections; bans
on all or some processing of personal data carried out by noncompliant actors; and injunctive relief. The GDPR also confers a private
right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and
obtain compensation for damages resulting from violations of the GDPR.
HIPAA,
as well as a number of other federal and state privacy-related laws, extensively regulate the use and disclosure of individually identifiable
health information, known as “protected health information” or “PHI.” HIPAA applies to health plans, healthcare
providers who engage in certain standard healthcare transactions electronically, such as electronic billing, and healthcare clearinghouses,
all of which are referred to as “covered entities” under HIPAA. HIPAA also directly regulates “business associates,”
which are certain types of entities that act as service providers to covered entities and receive or have access to PHI as part of providing
the relevant services to the covered entity customer. Business Associates are responsible for complying with certain provisions of HIPAA
and can be subject to direct enforcement for violations of HIPAA. State imposed health information privacy and security laws typically
apply based on licensure, for example, licensed providers or licensed entities are limited in their ability to use and share health information.
Additionally,
many states have enacted legislation protecting the privacy and/or security of “personal data”. These laws overlap in certain
circumstances and can apply simultaneously with federal privacy and security requirements and regulated entities must comply with all
of them. The CCPA that went into effect January 1, 2020, is one of the most restrictive state privacy laws, protecting a wide variety
of personal data and granting significant rights to California residents with respect to their personal data. In dealing with health information
for the development of its technology or for commercial purposes, SomaLogic will be affected by HIPAA and state-imposed omnibus and health
information privacy and security laws because these laws regulate the ability of SomaLogic’s potential customers and research collaborators
to share personal data with SomaLogic and may in certain circumstances impose additional direct obligations on SomaLogic. Additionally,
SomaLogic must also identify and comply with all applicable state laws for the protection of other types of personal data (e.g., consumer,
employee, B2B information) that the company collects. In addition to the CCPA, many other states have proposed similar data privacy and
security laws.
In
the EU and UK, stringent data protection and privacy rules have and will continue to have substantial impact on the use of personal and
patient data across the healthcare industry. The GDPR applies across the UK and EU (as well as the European Economic Area) and includes,
among other things, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances
and significant fines for non-compliance. The GDPR fine framework can be up to 20 million euros, or up to 4% of the company’s total
global turnover of the preceding fiscal year, whichever is higher. The GDPR sets out a number of requirements that must be complied with
when handling the personal data of individuals (i.e., data subjects) in the UK and EU including: providing expanded disclosures about
how their personal data will be used; higher standards for organizations to demonstrate that they have obtained valid consent or have
another legal basis in place to justify their data processing activities; the obligation to appoint data protection officers in certain
circumstances; new rights for individuals to be “forgotten” and rights to data portability, as well as enhanced current rights
(e.g., access requests); the principal of accountability and demonstrating compliance through policies, procedures, training and audit;
and the new mandatory data breach regime. In particular, medical or health data, genetic data and biometric data,
where
the latter is used to uniquely identify an individual, are all classified as “special category” data under the GDPR and are
afforded greater protection and require additional compliance obligations. Noncompliance could result in the imposition of fines, penalties,
or orders to stop noncompliant activities. SomaLogic is subject to the GDPR since we offer products or services to individuals in the
UK an EU or otherwise enter into contracts with UK and EU entities that handle the collection and processing of data of individuals within
the UK and EU.
SomaLogic
could also be subject to evolving UK and EU laws on data export, for transfers of data outside the UK and EU to itself or third parties.
The GDPR only permits transfers of data outside the UK and EU to jurisdictions that ensure an adequate level of data protection. The United
States has not been deemed to offer an adequate level of protection, so in order for SomaLogic to transfer personal data from the UK and
EU to the United States, SomaLogic must identify a legal basis for data transfer (e.g., the European Union Commission and the UK’s
Information Commission Officer approved Standard Contractual Clauses) and any supplementary measures taken, or to be taken, to provide
an adequate level of protection for the data. On July 16, 2020, the Court of Justice of the European Union or the CJEU, issued a landmark
opinion in the case Maximilian Schrems vs. Facebook (Case C-311/18), called Schrems II. This decision (a) calls into question commonly
relied upon data transfer mechanisms as between the EU member states and the United States (such as the Standard Contractual Clauses)
and (b) invalidates the EU-U.S. Privacy Shield, an adequacy decision on which many companies had relied as an acceptable mechanism for
transferring such data from the EU to the United States. The CJEU is the highest court in Europe and the Schrems II decision heightens
the burden on data exporters and data importers to assess United States national security laws on their business and future actions of
EU data protection authorities are difficult to predict. Negotiations are underway between the US and EU for the approval of a new data
privacy framework (“Framework”) whereby companies that adhere to the Framework will be able to receive EU personal data without
having to put in place additional transfer safeguards. The Framework, if ultimately approved by the European Commission, will almost certainly
face legal challenge.
In
China, rules relating to personal data protection and data security are part of a complex framework and are found across various laws
and regulations. The three main pillars of the personal data protection framework in China are the Personal Information Protection Law
(“PIPL”), the Cybersecurity Law (“CSL”), and the Data Security Law (“DSL”). The DSL came into force
on September 1, 2021, and focuses on data security across a broad category of data (not just personal data). Most significantly, the PIPL
came into effect on November 1, 2021. The PIPL is the first comprehensive, national–level personal data protection law in the China.
The PIPL mirrors certain provisions found under the GDPR such as the purpose limitation principle, the concept of a data protection officer,
data subject rights, the requirement to conduct data protection impact assessments, and restrictions on data exports. With respect to
data exports, China has adopted its own standard contractual clauses which qualifying businesses can use to legitimize their data exports.
Other
Governmental Regulation
SomaLogic
is subject to laws and regulations related to the protection of the environment, the health and safety of employees and the handling,
transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials. For example, the United States
Occupational Safety and Health Administration, or OSHA, has established extensive requirements relating specifically to workplace safety
for employers in the United States. This includes requirements to develop and implement multi-faceted programs to protect workers from
exposure to blood-borne pathogens, including preventing or minimizing any exposure through needle stick injuries. For purposes of transportation,
some biological materials and laboratory supplies are classified as hazardous materials and are subject to regulation by one or more of
the following agencies: the United States Department of Transportation, the United States Public Health Service, the United States Postal
Service and the International Air Transport Association. We generally use third-party vendors to dispose of regulated medical waste, hazardous
waste and radioactive materials that we may use during our research.
International
Laws and Regulations for IVD Products
Whether
or not we are required to comply with requirements for marketing clinical diagnostic products in the United States, we anticipate that
we will still be required to obtain the requisite approvals from regulatory authorities in non-United States countries prior to the marketing
of any product for clinical diagnostic use in those countries. The regulations in other jurisdictions vary from those in the United States
and may be easier or more difficult to satisfy and are subject to change. For example, the EU published in 2017 new regulations that will
result in greater regulation of medical devices and IVDs. This new IVD regulation (“new IVD Regulation”) is significantly
different from the European directive for in vitro diagnostic products that it replaces in that it will ensure that the new requirements
apply uniformly and on the same schedule across the member states, include a risk-based classification system and increase the requirements
for conformity assessment. The new IVD Regulation will become fully applicable in May 2022, and it will increase the requirements for
covered products and involve conformity assessments done by third parties that are designated under the IVD Regulation as notified bodies.
Outside
of the EU, regulatory authorization needs to be sought on a country-by-country basis in order for us to market any clinical diagnostic
products. Some countries have adopted medical device regulatory regimes, such as the Classification Rules for Medical Devices published
by the Hong Kong Department of Health, the Health Sciences Authority of Singapore regulation of medical devices under the Health Products
Act, and Health Canada’s risk classification system for invasive devices, among others, that incorporate IVD products like the FDA’s
current system. Each country may have its own
processes
and requirements for IVD licensing, approval/clearance, and regulation, therefore requiring us to seek any regulatory approvals on a country-by-country
basis.
Implications
of Being an Emerging Growth Company
We
are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging
growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to
public companies. We also qualify as a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K under the
Exchange Act, and as such we may also take advantage of specified reduced disclosure and other requirements that are available to smaller
reporting companies.
We
may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of certain reduced reporting obligations
in this Annual Report on Form 10-K. These include extended transition periods for complying with new or revised accounting standards,
an attestation of our internal controls as required by Section 404(b) of the Sarbanes-Oxley Act, providing only two years of audited financial
statements, and scaled disclosures in our MD&A. Accordingly, the information contained herein may be different than the information
you receive from other public companies in which you hold stock. To the extent we take advantage of any reduced disclosure obligations,
it may make comparison of our financial statements with other public companies difficult or impossible.
Available
Information
The
Company is headquartered in Boulder, Colorado. Our principal executive offices are located at 2945 Wilderness Place, Boulder, CO 80301,
and our telephone number at that address is (303) 625-9000.
Our
website address is www.somalogic.com. Information contained on our website is not incorporated by reference into this Annual Report on
Form 10-K, and you should not consider information contained on our website to be part of this Annual Report on Form 10-K or in deciding
whether to purchase shares of our common stock. The U.S. Securities and Exchange Commission (“SEC”) maintains an internet
site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the
SEC at www.sec.gov. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports
filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act are also available free of charge on our investor relations
website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Item
1A. Risk Factors
Summary
of Risk Factors
In
evaluating an investment in our securities, investors should carefully read the risks described below, this report and especially consider
the factors discussed in the section entitled “Risk Factors.” If any of the following events occur, our business, financial
condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline,
and you could lose all or part of your investment. Such risks include, but are not limited to:
•We
expect to make significant investments in our continued research and development of new services and products, which may not be successful.
•We
have incurred losses since we were formed and we may incur losses in the future.
•Seasonality
may cause fluctuations in our revenue and results of operations.
•We
may need to raise additional capital to fund commercialization plans for our services and products, including manufacturing, sales and
marketing activities, expand investments in research and development and commercialize new products and applications.
•Our
ability to use our net operating losses and certain other tax attributes may be limited.
•Our
operating results have in the past fluctuated significantly and may continue to 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
current and future services and products may never achieve significant commercial market acceptance.
•Errors
or defects in our services or products could harm our reputation, decrease market acceptance of our services or products or expose us
to product liability claims.
•Our
business will depend significantly on research and development spending by pharmaceuticals, biotechnology, and academic, governmental
and other research institutions, and any reduction in spending could limit demand for
our
services and products and adversely affect our business, results of operations, financial condition and prospects.
•The
life sciences industry is subject to rapid change, which could make our proteomics platform and related services and products that we
develop obsolete.
•Any
disruption at our current headquarters and laboratory facility could negatively impact our business.
•Our
reliance on distributors for sales of our services and products in certain geographies outside of the United States could limit or prevent
us from selling our services and products and impact our revenue.
•A
significant disruption in our information technology systems or the failure to maintain the integrity of our computer hardware, software
and internet applications and related tools and functions could result in damage to our reputation, data integrity and/or subject us to
costs, fines or lawsuits under data privacy or other laws or contractual requirements.
•We
rely on assumptions and estimates and data to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics
may harm our reputation and negatively affect our business.
•Our
current revenues are derived almost entirely from our research-based business operations with a limited number of customers and collaborators
in a concentrated and competitive business sector.
•The
Company identified material weaknesses in our internal controls 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 control
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 Common Stock.
•We
have limited experience producing and supplying our products. We may be unable to consistently manufacture our products or source our
components to the necessary specifications or in quantities necessary to meet demand.
•Our
research and development efforts will be hindered if we are not able to contract with third parties for access to samples.
•We
rely on a limited number of suppliers for some of the equipment and materials, or components thereof, that we use for our services and
products and the loss of such suppliers could adversely impact our business.
•Certain
aspects of our business rely on relationships with collaborative partners, distributors and other third parties and such collaborative
partners or other third parties could fail to perform sufficiently.
•We
may experience problems with supply chain efficiencies, manufacturing processes, or logistical management, which could adversely affect
our business operations.
•Global
economic conditions, including inflation and supply chain disruptions, may negatively impact our business operations and financial results.
•Intellectual
property rights do not necessarily protect us from all potential threats.
•Claims
by third parties that we infringe or misuse their proprietary technology could subject us to significant liability.
•Involvement
in lawsuits to defend against third-party claims of intellectual property infringement, or to enforce or defend our intellectual property
rights against infringers, could be time-intensive and costly.
•Confidentiality
and trade secret protection agreements with employees and others may not adequately prevent disclosure of trade secrets and protect other
proprietary information.
•If
we cannot license rights to use technologies on reasonable terms, we may not be able to commercialize new services and products in the
future.
•Our
use of open source software could compromise our ability to offer our services and subject us to possible litigation.
•We
rely on strategic collaboration and licensing arrangements with third parties for research and development of commercial products and
to further develop intellectual property. We may not be able to successfully establish and maintain such intellectual property.
•Our
business is subject to state, federal and foreign regulations, including regulations related to data privacy and security, intellectual
property, environmental health and safety, consumer protection, false or fraudulent claims, anti-bribery, and laboratory licensing, that
could result in compliance costs.
•Changes
in regulations or violations of regulations may, directly or indirectly, reduce our revenue, adversely affect our results of operations
and financial condition and harm our business.
•Our
employees, principal investigators, consultants and collaborators may engage in misconduct or other improper activities, including non-compliance
with regulatory standards and requirements and insider trading.
•Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
•The
requirements of being a public company may strain our resources.
•Our
principal stockholders and management own a significant percentage of our Common Stock and will be able to exercise significant influence
over matters subject to stockholder approval.
•We
do not expect to pay dividends for the foreseeable future.
•Investors
may never obtain a return on their investment.
•The
price of our Common Stock and Public Warrants may be volatile.
RISK
FACTORS
You
should carefully review and consider the following risk factors and the other information contained in report, including the financial
statements and notes to the financial statements included herein and the section entitled “Management’s Discussion and Analysis
of Financial Condition and Results of Operations,” before deciding whether to invest in our securities. We cannot assure you that
any of the events discussed below will not occur. These events could have a material and adverse impact on our business, financial condition,
results of operations and prospects. In such event, the trading price of our Common Stock could decline, and you could lose all or part
of your investment. The risks and uncertainties described below represent the material risks known to us, but they are not the only ones
we face. We may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which
may also impair our business or financial condition. The following discussion should be read in conjunction with the financial statements
and notes to the financial statements included herein. Unless expressly indicated or the context requires otherwise, the terms “SomaLogic,”
the “Company,” “we,” “us” and “our” in this filing refer to SomaLogic, Inc., and where
appropriate, our wholly-owned subsidiaries. Some statements in this Annual Report on Form 10-K, including statements in the following
risk factors, constitute forward-looking statements. Please refer to “Cautionary Note Regarding Forward-Looking Statements.”
Risks
Related to Our Business and Industry
We
expect to make significant investments in our continued research and development of new services and products, which may not be successful.
We
have a library of thousands of protein target measurements and plan to increase our library to approximately 10,000 protein target measurements
in late 2023, and an even greater number over time. We also plan to invest in our sales and marketing infrastructure to grow our customer
base and sell more products and services to existing customers. We expect to incur significant expenses to advance these development efforts,
but they may not be successful. Even if we are ultimately successful in these efforts, our gross margins may suffer as we invest in advance
of potential revenue growth. Further, despite our plans to increase our library of protein targets over time, we cannot guarantee this
trajectory.
Products,
services or software that initially show promise may fail to achieve the desired results or may not achieve acceptable levels of analytical
accuracy or clinical utility. We may need to alter our products in development and repeat studies before we identify a potentially successful
product or service. Product development is expensive, may take years to complete and can have uncertain outcomes. Failure can occur at
any stage of the development. If, after development, a product appears successful, we or our collaborators may, depending on the nature
of the product, need to obtain the United States Food and Drug Administration (the “FDA”), European Medicines Agency (“EMA”)
and other regulatory clearances, authorizations or approvals before we can market the product. The FDA’s and EMA’s clearance,
authorization or approval pathways are likely to involve significant time, as well as additional research, development and clinical study
expenditures. The FDA, EMA or other applicable regulatory authority may not clear, authorize or approve any future product we develop.
Even if we develop a product that receives regulatory clearance, authorization or approval, we or our collaborators would need to commit
substantial resources to commercialize, sell and market the product before it could be profitable, and the product or service may never
be commercially successful. Additionally, development of any product or service may be disrupted or made less viable by the development
of competing products or services.
New
potential products and services may fail at any stage of development or commercialization and if we determine that any of our current
or future services, products or software is unlikely to succeed, we may abandon them without any return on our investment. If we are unsuccessful
in developing additional services, products or software, our potential for growth may be impaired.
We
have incurred losses since we were formed and we may incur losses in the future.
We
have incurred net losses since we were formed. We may incur additional losses in the future as we plan to invest significant additional
funds toward expansion of our commercial organization, the improvement and development of our technology and new product and service development.
We may incur additional losses in the future for a number of other reasons, many of which are beyond our control, including the other
risks described in this “Risk
Factors” section,
the market acceptance of our new services, future service development and our market penetration and margins. Our failure to become profitable
could depress the value of our Common Stock, could impair our ability to raise capital, expand our business, maintain our research and
development efforts or continue our operations. A decline in the value of our Common Stock could also cause you to lose all or part of
your investment.
Seasonality
may cause fluctuations in our revenue and results of operations.
We
operate on a December 31 fiscal year end and believe that there are significant seasonal factors which may cause sales of our products
to vary on a quarterly or yearly basis and increase the magnitude of quarterly or annual fluctuations in our operating results. We believe
that this seasonality results from a number of factors, such as customer purchasing cycles - the procurement and budgeting cycles of many
of our customers, especially government- or grant-funded customers, whose cycles often coincide with government fiscal year ends or biopharmaceutical
companies whose approved budget expires by year end. These factors have contributed, and may contribute in the future, to substantial
fluctuations in our quarterly operating results, which may cause our operating results in some quarters to fall below the expectations
of securities analysts or investors. These fluctuations, among other factors, also mean that our operating results in any particular period
may not be relied upon as an indication of future performance. Seasonal or cyclical variations in our sales have in the past, and may
in the future, become more or less pronounced over time, and have in the past materially affected, and may in the future materially affect,
our business, financial condition, results of operations and prospects.
We
may need to raise additional capital to fund commercialization plans for our services and products (including manufacturing, sales and
marketing activities), expand investments in research, and development, and commercialize new products and applications.
Our
operations have consumed substantial amounts of cash since inception. We expect to expend substantial additional amounts to continue to
commercialize our services and products and to develop new ones, and may require additional capital to do so. In addition, our operating
plans may change as a result of many factors that may currently be unknown to us, and we may need to seek additional funds sooner than
planned.
We
cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Moreover, the
terms of any future financing may adversely affect the holdings or the rights of new stockholders and the issuance of additional securities,
whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our Common Stock to decline. The incurrence
of indebtedness could result in increased fixed payment obligations, and we may be required to agree to certain restrictive covenants,
such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property
rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to
seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable, and we
may be required to relinquish rights to some of our technologies or products or otherwise agree to terms that are unfavorable to us, any
of which may have a material adverse effect on our business, operating results and prospects. In addition, raising additional capital
through the issuance of equity or convertible debt securities would cause dilution to holders of our equity securities, and may affect
the rights of then-existing holders of our equity securities. Even if we believe that we have sufficient funds for our current or future
operating plans, we may seek additional capital if market conditions are favorable or if it has specific strategic considerations.
Our
ability to use our net operating losses and certain other tax attributes may be limited.
Under
legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act, as modified by the Coronavirus Aid, Relief, and Economic Security
Act, or CARES Act, unused federal net operating losses (“NOLs”) generated in tax years beginning after December 31, 2017,
will not expire and may be carried forward indefinitely, and generally may not be carried back to prior taxable years, except that under
the CARES Act, net operating losses generated in 2018, 2019 and 2020 may be carried back five taxable years. Additionally, the deductibility
of such federal NOLs in tax years beginning after December 31, 2020, is limited to 80% of taxable income. Similar provisions of state
tax law may also apply, for example, the state of Colorado conforms to the 80% limitation under the Tax Cuts and Jobs Act. In addition,
under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,” generally defined as a cumulative
change of more than 50 percentage points (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s
ability
to
use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income
or taxes may be limited. We may experience ownership changes in the future as a result of shifts in our stock ownership (some of which
may be outside our control). As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset
such taxable income may be subject to limitations. Similar provisions of state tax law may also apply to limit our use of accumulated
state tax attributes. As a result, even if we attain profitability, we may be unable to use a material portion of our NOL carryforwards
and other tax attributes, which could adversely affect our future cash flows.
Our
operating results have in the past fluctuated significantly and may continue to 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 the various
other factors described elsewhere in this “Risk Factors” section.
The
cumulative effects of such factors 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.
Our
current and future services and products may never achieve and sustain sufficient commercial market acceptance.
Our
success depends on the market’s confidence that we can provide products and services that aid in research efforts directed at the
better understanding of human biology, and enable better biopharmaceutical development. Failure of our services and products, or those
jointly developed with our collaborators, to perform as expected could significantly impair our operating results and our reputation.
We believe academic institutions and biopharmaceutical companies are likely to be particularly sensitive to defects, errors, inaccuracies,
delays in or associated with our services. We and our collaborators may not succeed in achieving and sustaining sufficient commercial
market acceptance for our current or future services and products due to a number of factors, including:
•the
impact of our investments in service and product innovation and commercial growth;
•our
ability to demonstrate the utility of our platform and related services and their potential advantages over existing technologies to academic
institutions, biopharmaceutical companies and the medical community;
•our
ability, and that of our collaborators, to comply with regulatory requirements; and
•the
rate of adoption of our services and products by academic institutions, key opinion leaders, advocacy groups and key customers and potential
customers.
Additionally,
our customers and collaborators may decide to decrease or discontinue their use of our services due to changes in their research and development
plans, financial constraints, the regulatory environment, negative publicity about our services or competing products both of which are
circumstances outside of our control. We may not be successful in addressing these or other factors that might affect the market acceptance
of our services and technologies. Failure to achieve widespread market acceptance of our services and products could materially harm our
business, revenues, financial condition and results of operations.
Errors
or defects in our services or products could harm our reputation, decrease market acceptance of our services or products or expose us
to product liability claims.
We
are creating new services and products. The testing processes utilize a number of complex and sophisticated biochemical, informatics,
optical and mechanical processes, many of which are highly sensitive to external factors. An operational or technology failure in one
of these complex processes or fluctuations in external factors may result in less efficient processing or variation between testing runs.
Refinements to our processes may initially result in unanticipated issues that reduce the efficiency or increase variability. In particular,
sequencing, which is a key component of these processes, could be inefficient with higher than expected variability thereby increasing
total sequencing costs and reducing the number of samples we can process in a given time period. Therefore, inefficient or variable processes
can cause variability in our operating results and damage our reputation.
In
addition, our laboratory operations could result in any number of errors or defects. Our quality assurance system may fail to prevent
us from inadvertent problems with samples, sample quality, lab processes including sequencing, software, data upload or analysis, raw
materials, reagent manufacturing, assay quality or design, or other components or processes. In addition, our assays may have quality
or design errors, and we may have inadequate procedures or instrumentation to
process
samples, assemble our proprietary primer mixes and commercial materials, upload and analyze data, or otherwise conduct our laboratory
operations. We believe our customers are likely to be particularly sensitive to service and product defects, errors and delays. In drug
discovery, such errors may interfere with our customers’ clinical studies or result in adverse safety or efficacy profiles for their
products in development. This may harm our customers’ businesses and may cause us to incur significant costs, divert the attention
of key personnel, encourage regulatory enforcement action against us, create a significant customer relations problem for us and cause
our reputation to suffer. We may also be subject to warranty and liability claims for damages related to errors or defects in our services
or products. Any of these developments could harm our business and operating results.
We
rely on certain scientific methodologies and metrics to evaluate our services and products, and real or perceived inaccuracies in such
metrics or new developments in the industry may adversely affect our reputation and business.
As
part of achieving commercial market acceptance for our current and future services and products, our management and experts regularly
review and use a number of methodologies and metrics, including affinity levels, to evaluate and measure the performance of our services
and products. Although we believe that the current science and data available to us, including metrics such as affinity levels, demonstrates
that our services and products are superior in the proteomics field, there is always potential that through discoveries, innovations and
advances in technology in an emerging field like proteomics, the metrics underlying our assumptions and estimations could be perceived
to be inaccurate or misplaced, or our services and products could be proved to be outdated or inferior to new technologies.
Our
business will depend significantly on research and development spending by pharmaceuticals, biotechnology, and academic, governmental
and other research institutions, and any reduction in spending could limit demand for our services and 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 pharmaceuticals, biotechnology, and
academic, governmental and other research institutions. Much of these customers’ funding will be provided by various state, federal
and international government agencies. As a result, the demand for our services and products 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;
•macroeconomic
conditions and the political climate;
•researchers’
opinions of the utility of our technology platform;
•citation
of our technology platform 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
services and product offerings or pricing;
•market-driven
pressures to consolidate operations and reduce costs; and
•market
acceptance of relatively new technologies.
In
addition, various state, federal and international government 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 assay services. There is no
guarantee that the National Institutes of Health (“NIH”) appropriations will not decrease in the future. A decrease in the
amount of, or delay in the approval of, appropriations to, or a decrease in the aggregate amount of grants awarded for life sciences research
or the redirection of existing funding to other projects or priorities by, 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. Our operating
results may fluctuate substantially due to any such reductions and delays.
The
life sciences industry is subject to rapid change, which could make our proteomics platform and related services and products that we
develop obsolete. Our long-term results depend upon our ability to improve existing services and products, and our ability to introduce
and market new services and products successfully.
Our
business is dependent on the continued improvement of our existing services and products and our development of new services and products
utilizing our existing technology or other potential future technology. As we introduce new services and products or refine, improve or
upgrade versions of existing services and products, we cannot predict the level of market acceptance or the amount of market share these
services and products will achieve, if any. We cannot assure you that we will not experience material delays in the introduction of new
services and products in the future.
We
generally sell our services and products in industries that are characterized by rapid technological changes, frequent new product introductions
and changing industry standards. If we do not develop new services and products and service enhancements based on technological innovation
on a timely basis, our services and products may become obsolete over time and our revenues, cash flow, profitability and competitive
position will suffer. Our success will depend on several factors, including our ability to:
•correctly
identify customer needs and preferences and predict future needs and preferences;
•allocate
our research and development funding to services and products with higher growth prospects;
•anticipate
and respond to our competitors’ development of new services and products and technological innovations;
•innovate
and develop new technologies and applications, and acquire or obtain rights to third party technologies that may have valuable applications
in the markets we serve;
•successfully
commercialize new technologies in a timely manner, price them competitively and manufacture and deliver sufficient volumes of new services
and products of appropriate quality on time; and
•convince
customers to adopt new technologies.
In
addition, if we fail to accurately predict future customer needs and preferences or fail to produce viable technologies, we may invest
heavily in research and development of services and products that do not lead to significant revenue. Even if we successfully innovate
and develop new services and products and service enhancements, we may incur substantial costs in doing so, and our profitability may
suffer.
Our
ability to develop new services and products based on innovation can affect our competitive position and often requires the investment
of significant resources. Difficulties or delays in research, development or production of new products and services or failure to gain
market acceptance of new services and products and technologies may reduce future revenues and adversely affect our competitive position.
The
majority of our operations and laboratory processes are currently conducted at a single location and any disruption at our facility could
negatively impact our operations and increase our expenses.
Our
headquarters in Boulder, Colorado contains nearly all of our corporate and administrative functions, the majority of our research, laboratory
facilities, and all of our in-house manufacturing. A natural or man-made disaster or casualty event could cause substantial delays or
other disruptions in our operations, damage or destroy our manufacturing equipment or inventory, and cause us to incur additional expenses.
The inability to perform our laboratory processes or to reduce the backlog that could develop if our facilities are inoperable, for even
a short period of time, may result in the loss of customers or harm to our reputation, and we may be unable to regain those customers
or repair our reputation in the future.
Additionally,
although we maintain insurance that may cover certain losses in connection with a fire and certain types of other casualty events, we
cannot be certain our insurance coverage will be adequate for losses actually incurred, that insurance will continue to be available to
us on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future losses. One or more large
losses that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or
the imposition of large deductible requirements, could have a material adverse effect on our business, including our financial condition,
results of operations and reputation.
If
we are unable to support demand for our commercial assay services, our business could suffer.
As
demand for our assay services grows, we will need to continue to scale our assay capacity and processing technology in order to support
our data retention. We will also need to expand customer service, billing and systems processes and enhance our internal quality assurance
program in order to support demand for assay services. We will also need additional certified laboratory scientists and other scientific
and technical personnel to process higher volumes of samples. We cannot guarantee that any increases in scale, related improvements and
quality assurance will be successfully implemented or that appropriate personnel will be available.
Further,
our data and bioinformatics platform leverages third parties heavily for day-to-day operations. If we cannot expand capabilities or have
any issues relying on third parties it could negatively impact our growth and our business. Additionally, if there are advancements in
artificial intelligence technologies that we do not have access to or the ability to use and our competitors can use them then they may
create a superior or more desirable service.
Failure
to implement necessary procedures, transition to new processes or hire the necessary personnel could result in higher costs of processing
samples, quality control issues or inability to meet demand. There can be no assurance that we will be able to perform our assay services
on a timely basis at a level consistent with demand, or that our efforts to scale our operations will not negatively affect the quality
of assay services results. If we encounter difficulty meeting market demand or quality standards, our reputation could be harmed and our
future prospects and our business could suffer.
Certain
aspects of our business rely on relationships with collaborative partners, distributors and other third parties in certain geographies
outside of the United States for development, supply and marketing of certain services and potential services, and such collaborative
partners or other third parties could fail to perform sufficiently and could limit or prevent us from selling our services and products
and impact our revenue.
We
believe that success in penetrating certain geographic markets and maximizing the commercial opportunity for our business internationally
depends in part on our ability to develop and maintain relationships with key third-party distributors of our services and products. Most
of our distribution relationships are non-exclusive and permit such distributors to distribute competing services. Relying on distribution
relationships is risky because, among other things, our distributors may: not devote sufficient resources to the sales of our services
and products; fail to obtain approvals necessary to distribute our services and products; be acquired by other companies and terminate
our distribution agreements or become insolvent; decline to renew existing agreements on acceptable terms or choose to favor marketing
the services of our competitors. Because these and other factors may be beyond our control, the distribution of our services and products
in certain jurisdictions may be delayed or otherwise adversely affected. If we or any of our distributors terminate a distribution agreement,
we may be required to devote additional resources to commercialization and distribution, which could adversely affect our business, financial
condition and results of operations. If current or future distributors do not perform adequately or we are unable to enter into effective
arrangements with distributors in particular geographic areas, we may not realize long-term international revenue growth.
A
significant disruption in our information technology systems or the failure to maintain the confidentiality, integrity and availability
of our computer hardware, software and internet applications and related tools and functions, could result in damage to our reputation,
data integrity and/or subject us to costs, fines or lawsuits under data privacy or other laws or contractual requirements.
We
rely on information technology (“IT”) systems to keep financial records, manage our manufacturing operations, fulfill customer
orders, capture laboratory data, maintain corporate records, communicate with staff and external parties and operate other critical functions.
Our IT systems, and those of our vendors, are potentially vulnerable to disruption due to breakdown, malicious intrusion and computer
viruses or other disruptive events including but not limited to natural disaster. If we were to experience a prolonged system disruption
in our IT systems or those of certain of our vendors, it could negatively impact our ability to serve our customers, which could adversely
impact our business. Although we maintain offsite back-ups of our data, if operations at our facilities were disrupted, it could cause
a material disruption in our business if we are not capable of restoring function on an acceptable timeframe. See also risk factor - “The
Company identified material weaknesses in our internal controls 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 control
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 Common Stock.”
In
addition, our IT systems, and those of our vendors, are potentially vulnerable to hacking, social engineering, phishing, or other causes
could lead to the accidental or unlawful destruction, loss, alteration, unauthorized disclosure of, or access to confidential information,
trade secrets or other intellectual property, or personal information (including sensitive personal information) of our employees, customers
and others (“Security Incident”). The techniques used by criminal elements to attack computer systems are sophisticated, change
frequently and may originate from less regulated and remote areas of the world. As a result, we may not be able to address these techniques
proactively or implement adequate preventative measures. We are also reliant on the quality of our training of employees to allow them
to spot and appropriately respond to cyber security threats. We have been subject to a number of phishing attempts and require employees
to remain vigilant to ensure that such attempts are unsuccessful. A Security Incident could have a material adverse effect on our business,
reputation, financial condition and results of operations. In addition, a Security Incident could result in legal claims, investigations
or proceedings by governmental entities or private parties and/or related fines and penalties, and liability under laws or regulations,
including US federal and state data protection regulations and the GDPR (as defined below), and other regulations. For extensive breaches,
notice may need to be made to the media or state Attorneys General. Such a notice could harm our brand and reputation and adversely affect
our ability to compete. These breaches and other inappropriate access can be difficult to detect, and any delay in identifying them may
lead to increased harm of the types described above. We expect to continue to expend significant resources to protect against, and where
appropriate respond to and remediate, Security Incidents.
Although
we maintain insurance that may cover certain liabilities and losses in connection with a security breach or other security incident, we
cannot be certain our insurance coverage will be adequate for liabilities or losses actually incurred, that insurance will continue to
be available to us on commercially reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The
successful assertion of one or more large claims against us or experience of losses that exceed available insurance coverage, or the occurrence
of changes in our insurance policies, including premium increases or the imposition of large deductible requirements, could have a material
adverse effect on our business, including our financial condition, results of operations and reputation.
We
rely on assumptions and estimates and data to calculate certain of our key metrics, and real or perceived inaccuracies in such metrics
may harm our reputation and negatively affect our business.
In
addition to our financial results, our management regularly reviews a number of operating and financial metrics, including a breakdown
of assay services revenue, product revenue and other revenue, and status of pipeline opportunities that represent customers in test, trials,
pilots and full deployments, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial
projections and make strategic decisions. As both the industry in which we operate and our businesses continue to evolve, so too might
the metrics by which we evaluate our businesses. While the calculation of the metrics we use is based on what we believe to be reasonable
estimates, our internal tools are not independently verified by a third party and have a number of limitations and our methodologies for
tracking these metrics may change over time. Further, our pipeline opportunities may fail to materialize, which may lead to an inability
to develop our business at all. Accordingly, investors should not place undue reliance on these metrics.
Our
current revenues are derived almost entirely from our research-based business operations with a limited number of customers and collaborators
in a concentrated and competitive business sector.
Our
current and largest customer base is primarily composed of pharmaceutical and academic institutions, as well as biopharmaceutical organizations.
Given that our current revenues are derived from these concentrated business sectors and a limited number of customers and collaborators
our ability to conduct our business and generate revenue could be harmed by the loss of major customers in our research-based business
operations, and any events or circumstances that broadly affect research-based sectors within our customer base, including pharmaceuticals,
biotechnology, contracted research and academia. Although research-based business is a large sector of the life sciences industry, it
is a concentrated sector and our future revenues and success will depend upon our ability to respond to the evolving needs of the marketplace,
including among existing customers and collaborators, and through increasing our customer base both in our research-based business and
other sectors of the life sciences industry, such as our clinical-based business and direct-to-consumer business operations. Although
we have recently experienced success in the life sciences industry, which we believe is in part due to a growing customer base and wider
acceptance of our technology, it is not advisable to rely on our past results as an indication of our future performance in a competitive
industry where our continued success will be dependent upon our ability to expand our existing customer base and attracting new types
of customers.
If
we were to be sued for product liability or professional liability, we could face substantial liabilities that exceed our resources.
The
marketing, sale and use of our services and products could lead to the filing of product or professional liability claims were someone
to allege that our services or products identified inaccurate, incomplete or untimely information regarding the binding specificity and/or
performance of our reagents for their respective protein targets, the performance consistency of our SomaScan® assay, or that our
services or products otherwise failed to perform as designed or intended. We may also be subject to liability for errors in, a misunderstanding
of or inappropriate reliance upon, the information we provide in the ordinary course of our business activities. A product liability or
professional liability claim, regardless of merit or eventual outcome, could result in substantial damages and be costly and time-consuming
for us to defend, and such claims may result in loss of revenue, injury to our reputation and significant negative media attention, and/or
decreased demand for, or inability to commercialize, any products, services or clinical solutions that we have developed or may develop.
Although
we maintain insurance that may cover certain product liability and professional liability claims, we cannot be certain our insurance coverage
will be adequate for claims actually asserted, that insurance will continue to be available to us on commercially reasonable terms, or
at all, or that any insurer will not deny coverage as to any future liabilities. One or more large claims that exceed available insurance
coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible requirements,
could have a material adverse effect on our business, including our financial condition, results of operations and reputation. Any product
liability or professional liability claim brought against us, with or without merit, could increase our insurance rates or prevent us
from securing insurance coverage in the future. Additionally, any product liability lawsuit could cause current collaborators to terminate
existing agreements or potential collaborators to seek other companies, any of which could impact our results of operations.
We
have limited experience producing and supplying our products, we may be unable to consistently manufacture our products or source our
components to the necessary specifications or in quantities necessary to meet demand at an acceptable cost or at an acceptable performance
level.
Our
SomaScan® assay requires 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 SomaScan®
assay services, we need to acquire products that meet our expectations for quality and functionality in accordance with established specifications
on a timely basis. Our equipment and components are manufactured with complex processes, sophisticated equipment and strict adherence
to specifications and quality systems procedures.
In
order to successfully generate revenue from our services and products, we need to supply our customers with services and products that
meet their expectations for quality and functionality in accordance with established specifications. While customer complaints regarding
defects in our services and products have historically been low, we have experienced quality control and manufacturing defects in the
past. Our ability to generate revenue could be impacted by any future quality control issues.
As
we continue to grow and introduce new services and products, and as our services and products incorporate increasingly sophisticated technology,
it will be increasingly difficult to ensure our services and products are produced in the necessary quantities without sacrificing quality.
There is no assurance that we or our third-party suppliers will be able to continue to manufacture our services, products and components
thereof so that they consistently achieve the product specifications and quality that our customers expect. Certain of our raw materials
are subjected to a shelf life, after which their performance is not ensured. While we have implemented liquid stability and expiry standards,
our long-term stability studies are underway and not complete. Use of raw materials that effectively expire early or shipment of defective
products or components to customers, or using such defective supplies, products or components in our own labs may result in incorrect
assay results, which could increase our costs or damage our reputation with customers, 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 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, financial condition and operating results. If we or our third-party suppliers fail to maintain quality standards
or certifications, our customers might choose not to purchase services or products from us.
In
addition, as we increase manufacturing capacity, we will also need to make corresponding improvements to other operational functions,
such as our customer service and billing systems, compliance programs and our internal quality assurance programs. We will also need additional
equipment, manufacturing time, warehouse space and trained personnel to process higher volumes of services and products. We cannot assure
that any increases in scale, related improvements and quality assurance will be successfully implemented or that equipment, manufacturing
and warehouse space and appropriate personnel will be available. As we develop additional services and products, we may need to bring
new equipment on-line, implement new systems, technology, controls and procedures and hire personnel with different qualifications. Our
ability to increase our manufacturing capacity at our Boulder, Colorado location and in supplying services and products to our customers
is complicated by the use of our proprietary equipment that is not readily available from third-party manufacturers.
Our
research and development efforts could be hindered if we are not able to contract with third parties for access to samples, including
sources such as biobanks.
Under
standard clinical practice, samples collected from patients, including serum, plasma, blood and other tissues, are preserved and stored
onsite. We rely on our ability to secure access to these archived samples, as well as information pertaining to the clinical outcomes
of the patients from which they were derived for our clinical development activities. Others compete with us for access to these samples.
Additionally, the process of negotiating access to archived samples is lengthy because it typically involves numerous parties and approval
levels to resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights, intellectual
property ownership and research parameters.
Furthermore,
existing legal requirements concerning the collection and archiving of human samples and privacy related thereto, or other legal factors
arising in the future, may impact our ability to negotiate access to samples with biobanks, hospitals, clinical partners, pharmaceutical
companies, or companies developing diagnostics or therapeutics on a timely basis or on commercially reasonable terms. Other laboratories
or our competitors may secure access to archived samples before us, and may therefore delay or limit our ability to research, develop
and commercialize future services or products.
We
rely on a limited number of suppliers, or in some cases, a sole supplier, for some of the equipment and materials, or components thereof,
that we use for our services and products and the loss of such suppliers or the need to find replacements or immediately transition to
alternative suppliers could adversely impact our business.
We
rely on a limited number of suppliers for equipment and materials, or components thereof, that we use in our services and products or
laboratory operations. See Part I, Item 1 – “Business—Manufacturing and Supply” for additional details. Any disruption
in certain of our supplier’s operations, or our inability to negotiate an extension to the applicable agreements on acceptable terms,
or at all, or any competitive pressures, could negatively impact our supply chain and operations and our ability to conduct our business
and generate revenue. Our suppliers could cease supplying these materials and equipment, or components thereof, at any time, or fail to
provide us with sufficient quantities to meet our specifications. Any such interruption could significantly affect our business, financial
condition, results of operations, and reputation.
We
believe that there are only a select number of manufacturers other than those we rely on that are currently capable of supplying and servicing
the arrays and other equipment and materials necessary for our operations. 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 services and products, and our business would suffer.
Additionally,
the use of equipment or materials provided by these replacement suppliers could require us to alter our current operations, establish
new quality or performance standards, or revalidate our tests. Transitioning to new suppliers could also result in interruptions to our
operations and affect our ability to service our customers and collaborators 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.
Therefore, we cannot assure you that, if we were forced to replace any of our limited or sole suppliers on which we rely, we would be
able to secure alternative equipment and materials, or components thereof, or integrate such alternatives or replacements into our business
without affecting our services and products or interrupting our current operations and business. If we encounter delays or difficulties
in securing, replacing, reconfiguring, or revalidating the equipment and materials, or components thereof, and other supplies we require
for our services and products and operations, it could adversely affect our business, revenue, financial condition and reputation.
Our
suppliers have also been impacted by the COVID-19 pandemic, and we have also experienced supply delays for certain equipment, instrumentation
and other supplies that we use for our services and products, as certain medical and testing supplies are otherwise diverted to COVID-19-related
uses. If any of these events occur, our business, results of operations, financial condition and prospects could be harmed.
Certain
disruptions in supply of, and changes in the competitive environment for, raw materials integral to the manufacturing of our services
and products may adversely affect our profitability.
We
use a broad range of materials and supplies, including metals, chemicals and other electronic components, in our services and products.
A significant disruption in the supply of these materials could decrease production and shipping levels, materially increase our operating
costs and materially adversely affect our profit margins. Shortages of materials or interruptions in transportation systems, labor strikes,
work stoppages, war, acts of terrorism or other interruptions to or difficulties in the employment of labor or transportation in the markets
in which we purchase materials, components and supplies for the production of our services and products, in each case may adversely affect
our ability to maintain production of our services and products and sustain profitability. Unforeseen end-of-life for certain components,
such as enzymes, could cause backorders as we modify our product specifications to accommodate replacement components. If we were to experience
a significant or prolonged shortage of critical components from any of our suppliers and could not procure the components from other sources,
we would be unable to manufacture our services and products and to ship such services and products to our customers in a timely fashion,
which would adversely affect our sales, margins and customer relations.
We
may experience problems with supply chain efficiencies or logistical management, which could adversely affect our business operations.
Certain
aspects of our business depend upon supply chain efficiencies and logistical management of samples. For example, our technology and assay
services depend on processing specifically sized samples from multiple locations while maintaining the integrity of the samples such they
remain free from corruption or contamination. If there are interruptions to the supply chain or sample logistics, including circumstances
that cause the improper handling of the samples, it would limit our ability to complete high quality assays and properly service our customers
and collaborators. Therefore, unlike some of our competitors, which do not need high-quality, uncorrupted samples of the size that we
require, our supply chain operations and logistical management are more integral to our sample processing and testing, and the breakdown
of the supply chain or sample logistics would negatively impact our business operations. Likewise, if there are technological advancements
that improve our competitors’ business operations, but which we are unable to utilize due to our specific requirements for the supply
chain and sample logistics, we would be at a competitive disadvantage which could harm our business, revenue and reputation.
We
may experience manufacturing problems or delays that could limit our growth or adversely affect our operating results.
Our
products and services are manufactured or performed at our facilities located in Boulder, Colorado using complex processes, sophisticated
equipment and strict adherence to specifications and quality systems procedures. Any unforeseen manufacturing problems, such as contamination
of our facilities, equipment malfunction, quality issues with components and materials sourced from third-party suppliers or failure to
strictly follow procedures or meet specifications, could result in delays or shortfalls in performance. Identifying and resolving the
cause of any such manufacturing or supplier issues could require substantial time and resources. If we are unable to keep up with demand
for our products or services by successfully manufacturing and delivering our products or services in a timely manner, our revenue could
be impaired, market acceptance for our products or services could be adversely affected and our customers might instead purchase our competitors’
products or services.
We
have multi-step manufacturing processes some with long cycle times (months/years) that will continue to expand as our platform content
expands. We will need to begin outsourcing some unit operations over time to ensure raw material availability and that has risks associated
with it, as these are complex process chemistry operations with quality and yield requirements. Our batch sizes for key internal manufactured
items are relatively fixed and generate multiple years of production in single lots. This may lead to inventory write-offs if technology
advancements occur at a faster pace than our consumption of existing inventories allow generating early obsolescence. Additionally, we
are reliant on a number of sole or single-sourced vendors for key raw material and those have relatively long lead times which may limit
our ability to quickly respond to market changes without large inventory investments. We have scalable service capacity as adequate raw
materials are available for surge capacities as we currently are not running a 24/7 operating model.
In
addition, the introduction of new products and services may require the development of new manufacturing processes and procedures as well
as new suppliers. While all of our assay services are performed using the same basic processes, significant variations may be required
to meet new product or service specifications. Developing new processes and negotiating supply agreements can be very time consuming,
and any unexpected difficulty in doing so could delay the introduction of a product or service.
Global
Economic Conditions, including inflation and supply chain disruptions, may negatively impact our business operations and financial results.
Challenging
current and future United States or global economic conditions, including the COVID-19 pandemic, the war in Ukraine and inflation and
supply chain disruptions may negatively impact our business operations and financial results. These conditions have resulted in, and may
continue to result in, extreme volatility and disruptions in the capital and credit markets and increased inflation and interest rate
uncertainty. Current global economic challenges, including relatively high inflation and supply chain constraints may continue to put
pressure on our business.
When
challenging economic conditions exist, our customers may delay, decrease or cancel purchases from us, and may also delay payment or fail
to pay us altogether. Suppliers may have difficulty filling our orders and distributors may have difficulty getting our products to customers,
which may affect our ability to meet customer demands, and result in a loss of business. Weakened global economic conditions may also
result in unfavorable changes in our product prices, product mix and profit margins. Although we take measures to mitigate the impact
of inflation, including through pricing actions and productivity programs, if these actions are not effective our cash flow, financial
condition, and results of operations could be adversely impacted. In addition, there could be a time lag between recognizing the benefit
of our mitigating actions and when the inflation occurs and there is no assurance that our mitigating measures will be able to fully mitigate
the impact of inflation.
Political
volatility may also contribute to the general economic conditions and regulatory uncertainty in regions in which we operate. Future unrest
and changing policies could result in an adverse impact to our financial condition. Political developments can also disrupt the markets
we serve and the tax jurisdictions in which we operate and may affect our business, financial condition and results of operations.
Expansion
of our business exposes us to business, regulatory, political, operational, financial and economic risks.
In
addition to pursuing organic growth in the United States and internationally, we may also acquire other businesses, products or technologies
as well as pursue strategic alliances, joint ventures, technology licenses or investments in complementary businesses. The anticipated
benefit of any strategic transaction, including the Palamedrix acquisition, may not materialize and our ability to successfully pursue
such transactions is unproven. Any of these transactions could be material to our financial condition and operating results and expose
us to many risks, including disruptions to our commercial relationships, acquiring unanticipated liabilities, difficulties integrating
acquired businesses, diversion of management time and focus from operating our business, increases in our expenses and reductions in our
cash available for operations and other uses, and possible write-offs or impairment charges relating to acquired businesses. The expected
benefits may not be achieved within the anticipated time frame, or at all. The failure to meet the challenges involved and to realize
the anticipated benefits of any such transaction could adversely affect our business and financial condition. Moreover, acquisitions can
also involve litigation and/or post-transaction disputes, including with the counterparty regarding purchase
price
or other working capital adjustments or liabilities for which we believe we were indemnified under the relevant transaction agreements,
among other matters. Furthermore, foreign acquisitions involve unique risks in addition to those mentioned above, including those related
to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory
risks associated with specific countries. Additionally, because we and our collaborators currently market our services and products outside
of the United States and may market future services and products outside of the United States, if cleared, authorized or approved, our
business is subject to risks associated with doing business outside of the United States, including an increase in our expenses and diversion
of our management’s attention from the development of future services and products. Accordingly, our business and financial results
in the future could be adversely affected due to a variety of factors, including:
•multiple,
conflicting and changing laws and regulations such as privacy, security and data use regulations, tax laws, export and import restrictions,
economic sanctions and embargoes, employment laws, anticorruption laws, regulatory requirements, and other governmental approvals, permits
and licenses;
•failure
by us, our collaborators or our distributors to obtain regulatory clearance, authorization or approval for the use of our services and
products in various countries;
•additional
potentially relevant third-party patent rights;
•complexities
and difficulties in obtaining intellectual property protection and enforcing our intellectual property;
•difficulties
in attracting talent, staffing, and retention, and managing foreign operations;
•logistics
and regulations associated with shipping samples, including infrastructure conditions and transportation delays;
•limits
in our ability to penetrate international markets if we are not able to conduct our immunosequencing services locally;
•financial
risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on
demand and payment for our services and products and exposure to foreign currency exchange rate fluctuations;
•natural
disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, retaliatory
measures or economic sanctions imposed by governments, curtailment of trade and other business restrictions;
•regulatory
and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may
fall within the purview of the United States Foreign Corrupt Practices Act (“FCPA”), its books and records provisions, or
its anti-bribery provisions, or laws similar to the FCPA in other jurisdictions in which we may now or in the future operate; and
•anti-bribery
requirements of several member states in the EU and other countries, such as the United Kingdom’s Bribery Act of 2010, that are
constantly changing and require disclosure of information to which United States legal privilege may not extend.
Any
of these factors could significantly harm our future international expansion and operations and, consequently, our revenue and results
of operations.
An
impairment in the carrying value of goodwill and other intangible assets could negatively impact our consolidated results of operations
and net worth.
Goodwill,
including with respect to any acquisitions we make, such as Palamedrix, is initially recorded as the excess of amounts paid over the fair
value of net assets acquired. While goodwill is not amortized, it is reviewed for impairment at least annually or more frequently, if
impairment indicators are present. Other intangible assets represent in-process research and development (“IPR&D”) acquired
from Palamedrix. During the development phase, these assets are not amortized but are tested for impairment annually or more frequently
if impairment indicators are present. In assessing the carrying value of goodwill and intangible assets, we make qualitative and quantitative
assumptions and estimates about revenues, operating margins, growth rates and discount rates based on our business plans, economic projections,
anticipated future cash flows and marketplace data. There are inherent uncertainties related to these factors and management’s judgment
in applying these factors. We could be required to evaluate the carrying value of goodwill and intangible assets prior to the annual assessment
if we experience unexpected, significant declines in operating results or sustained market capitalization declines. These types of events
and the resulting analyses could result in impairment charges in the future. Impairment charges could substantially affect our results
of operations and net worth in the periods of such charges.
Implementing
and maintaining compliance with applicable laws, regulations, standards and obligations relating to data privacy and security is operationally
and financially taxing and the failure to comply could result in damage to our reputation and/or subject us to costs, fines or lawsuits
under data privacy or other laws or contractual requirements.
As
an organization with a global impact, we are subject to data privacy and security laws, regulations, and customer-imposed controls in
numerous jurisdictions as a result of having access to and processing confidential, personal and/or sensitive data in the course of our
business. There are numerous United States federal and state laws and regulations related to the privacy and security of personal information.
In particular, regulations promulgated pursuant to the HIPAA establish privacy and security standards that limit the use and disclosure
of PHI and require the implementation of administrative, physical and technological safeguards to protect the privacy of PHI and ensure
the confidentiality, integrity and availability of electronic protected health information. Determining whether PHI has been handled in
compliance with applicable privacy standards and our contractual obligations can require complex factual and statistical analyses and
may be subject to changing interpretation.
In
addition, many states in the United States in which we operate now or may operate in the future have laws that protect the privacy and
security of sensitive and personal information. Certain state laws in the United States may be more stringent or broader in scope, or
offer greater individual rights, with respect to sensitive and personal information than federal, international or other state laws, and
such laws may differ from each other, which may complicate compliance efforts. For example, the California Consumer Privacy Act of 2018
(“CCPA”) imposes stringent data privacy and security requirements and obligations with respect to the personal information
of California residents and households. Among other things, it requires covered companies to provide new disclosures to California consumers
and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information.
The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the
loss of personal information that may increase the likelihood of, and risks associated with, data breach litigation. In November 2020,
the California Privacy Rights Act (“CPRA”), which supersedes the CCPA, was passed and went into force on January 1, 2023.
The CPRA draws California law closer to core concepts that were first articulated in the EU’s GDPR (discussed below) and imposes
new obligations on covered entities. It remains unclear how various provisions of the CRPA will be interpreted and enforced, and multiple
states have enacted or are expected to enact similar laws. The effects of the CCPA and other similar state laws on our business are potentially
significant and may require us to modify our data processing practices and policies and to incur costs and expenses in an effort to comply.
State laws are changing rapidly, and there is discussion in the United States Congress of a new federal data protection and privacy law
to which we may be subject.
In
Europe, laws, regulations and standards in many jurisdictions apply broadly to the collection, use, retention, security, disclosure, transfer
and other processing of personal information. For example, in the European Economic Area (“EEA”) and the United Kingdom (“UK”),
the collection and use of personal data is governed by the EU General Data Protection Regulation — 2016/679 (“EU GDPR”)
and related guidance together with the UK General Data Protection Regulation (“UK GDPR,” collectively with the EU GDPR, the
“GDPR”). The GDPR, together with national legislation, regulations and guidelines of the EU member states and the UK govern
the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose,
transfer and otherwise process personal data. In particular, the GDPR includes obligations and restrictions concerning the consent and
rights of individuals to whom the personal data relates, the transfer of personal data out of the EEA or the UK, data breach notifications
and the security and confidentiality of personal data. Both the EU and the UK GDPR authorize fines for certain violations of up to 4%
of a company’s global annual revenue or €20 million/£17.5 million, whichever is greater. Such fines are in addition to
any civil litigation claims by customers and data subjects. European data protection authorities may interpret the GDPR and national laws
differently and impose additional requirements, which contributes to the complexity of processing personal data in or from the EEA or
UK. Guidance on implementation and compliance practices is often updated or otherwise revised. Several other countries, including China,
have enacted laws that require personal data relating to their citizens to be maintained on in the country under certain circumstances
and impose additional data transfer restrictions. Implementing and maintaining compliance with applicable security and privacy regulations
may increase our operating costs, increase the complexity of delivering our services, and/or adversely impact our ability to market our
services and products to customers.
Complying
with all applicable laws, regulations, standards and obligations relating to data privacy, security and transfers may cause us to incur
substantial operational costs or require us to modify our data processing practices and processes. Government enforcement actions can
be costly and interrupt the regular operation of our business, and violations of data privacy laws can result in significant fines, reputational
damage and civil lawsuits, any of which may adversely affect our business, financial condition and results of operations. We may not be
able to respond quickly or effectively to regulatory, legislative and other developments, and these changes may in turn impair our ability
to commercialize our assay services or increase our cost of doing business. In addition, if our practices are not consistent or viewed
as not consistent with legal and regulatory requirements, including changes in laws, regulations and standards or new interpretations
or applications of existing laws, regulations and standards, we may become subject to audits, inquiries, whistleblower complaints, adverse
media coverage, investigations, loss of export privileges, severe criminal or civil sanctions or reputational damage. Any of the foregoing
could have an adverse effect on our competitive position, business, financial condition, results of operations and prospects.
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 on our ability to recruit, train, retain and motivate key personnel, including our senior management, research
and development, manufacturing and sales, customer service and marketing personnel. In particular, Troy Cox, our Executive Chair and Roy
Smythe, our Chief Executive Officer are critical to our vision, strategic direction, culture and products. Competition for qualified personnel
is intense, particularly in the areas of Molecular Biology, Software and BioInformatics. As we grow, we may continue to make changes to
our management team, which could make it difficult to execute on our business plans and strategies. We may face challenges in retaining
and recruiting key personnel due to sustained declines in our stock price that could reduce the retention value of equity awards.
Our
continued growth depends, in part, on attracting, retaining and motivating 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. In
addition, the continued development of complementary software tools, such as our analysis tools and visualization software, requires us
to compete for highly trained software engineers and for highly trained sales and customer service personnel globally. We also compete
for computational biologists and qualified scientific personnel with other life sciences companies, academic institutions and research
institutions.
We
do not maintain key person life insurance or fixed term employment contracts with any of our employees. As a result, our employees could
leave the Company with little or no prior notice and would be free to work for a competitor. Because of the complex and technical nature
of our services and products and the dynamic market in which we compete, any failure to attract, train, retain and motivate qualified
personnel could materially harm our operating results and growth prospects.
Risks
Related to Intellectual Property
If
we are unable to protect our intellectual property effectively, our business would be harmed.
We
rely on patent protection as well as protection afforded by trademark, copyright, trade secret and other intellectual property rights
and contractual restrictions to protect our proprietary technologies, all of which provide limited protection and may not adequately protect
our rights or permit us to gain or keep any competitive advantage. Our proprietary, foundational aptamer-based technology and processes
are supported by approximately 950 patents (issued or pending) and support unparalleled sensitivity and specificity, and dynamic range.
We continue to file new patent applications to attempt to obtain further legal protection of the full range of our technologies. If we
fail to protect our intellectual property, third parties may be able to compete more effectively against us and we may incur substantial
litigation costs in our attempts to recover or restrict the use of our intellectual property.
Our
success depends in part on obtaining patent protection for our services and processes, preserving trade secrets, registering copyrights
and trademarks, operating without infringing the proprietary rights of third parties and if needed acquiring licenses for certain aspects
of our technology or services. We may exercise our business judgment and choose to not pursue trade secret protection but file patent
applications that disclose and describe our inventions to seek patent protection for our services and technology. We cannot assure investors
that any of our currently pending or future patent applications will result in issued patents and we cannot predict how long it will take
for such patent applications to issue as patents. Further, securing patent protection may require us to participate in interference proceedings,
derivation proceedings or other post-grant proceedings declared by the United States Patent and Trademark Office (“USPTO”)
that could result in substantial cost to us. The outcome of such proceedings is uncertain. If third parties bring post-grant opposition
proceedings against our patents, we could experience significant costs and management distraction. Further, in some cases, we have only
filed provisional patent applications on certain aspects of our services and technologies and each of these provisional patent applications
is not eligible to become an issued patent until, among other things, we file a non-provisional patent application within 12 months of
the filing date of the applicable provisional patent application. Such provisional patent applications may not become issued patents for
a variety of reasons, including our failure to file a non-provisional patent application within the permitted timeframe or a decision
that doing so no longer makes business or financial sense.
Further,
we cannot assure investors that other parties will not challenge any patents issued to us or that courts or regulatory agencies will hold
our patents to be valid or enforceable. We cannot guarantee investors that we will be successful in defending challenges made against
our patents and patent applications. Any successful third-party challenge to our patents could result in the unenforceability or invalidity
of such patents and could deprive us of the ability to prevent others from using the technologies claimed in such issued patents.
Further,
certain services and technology may not be able to be patented, or cannot reasonably become patented due to the extensive scope and nature
of the relevant technology. As a result, we often can only rely on trade secrets to protect this technology. If we cannot protect our
un-patentable trade secrets or keep them confidential, our business results of operation will be adversely impacted.
With
respect to all categories of intellectual property protection, our competitors could purchase our services and products and attempt to
replicate some or all of the competitive advantages we derive from our development efforts, willfully
infringe
our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside
of our intellectual property rights. In addition, competitors may develop their own versions of our services and products in countries
where we did not apply for patents, where our patents have not issued or where our intellectual property rights are not recognized and
compete with us in those countries and markets.
Issued
patents covering our services and products could be found invalid or unenforceable if challenged.
Although
patents granted by the USPTO or other patent granting authority are generally entitled to a presumption of validity and enforceability,
a granted patent’s scope, validity or enforceability can still be challenged. Some of our patents or patent applications (including
in-bound licensed patents) have been or may be challenged at a future point in time in opposition, derivation, reexamination, inter partes
review, post-grant review or interference proceedings. Any successful third-party challenge to our patents in this or any other proceeding
could result in the unenforceability or invalidity of such patents, which may lead to increased competition to our business, which could
harm our business. In addition, in patent litigation in the United States, defendant affirmative defenses and counterclaims alleging invalidity
and unenforceability are commonplace. Therefore, if we enforced our patents against an infringing third party, it is very likely that
the validity and unenforceability of our patents asserted in litigation would be challenged. The outcome of such assertions of invalidity
and unenforceability during patent litigation is unpredictable. If a defendant were to prevail on a legal assertion of invalidity or unenforceability,
we would lose at least part, and perhaps all, of the patent protection on certain aspects of our technologies. In addition, if the breadth
or strength of protection provided by our patents is threatened by such invalidity or unenforceability contentions, regardless of the
outcome, it could dissuade companies from collaborating with us to license, develop, or commercialize current or future services and products.
We may not be aware of all third-party intellectual property rights potentially relating to our services and products.
If
our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and
our business may be adversely affected.
If
our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and
our business may be adversely affected. We currently own issued trademark registrations and have trademark applications pending, any of
which may be the subject of a governmental or third-party objection, which could prevent the registration or maintenance of the same.
We cannot assure you that any currently pending trademark applications or any trademark applications we may file in the future will be
approved.
Our
efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual
property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial
condition or results of operations. We own the following registered or pending trademarks: SomaLogic®, SomaScan®, SOMAmer®,
SomaSignal™, Power by SomaLogic™ and corresponding and related logos.
Claims
by third parties that we infringe or misuse their proprietary technology could subject us to significant liability and could force us
to redesign our services and products or to incur significant costs.
Our
competitors protect their intellectual property rights by means such as trade secrets, patents, copyrights and trademarks. Although we
have not been involved in any litigation related to intellectual property rights of others, from time to time we receive letters from
third parties alleging, or inquiring about, violations of their intellectual property rights. Any third party asserting that our services
and products infringe their intellectual property rights would force us to defend ourselves, and possibly defend our customers, against
the alleged infringement claims. These claims and any resulting lawsuit, if successful, could subject us to significant liability for
damages and could enjoin us from manufacturing and selling our infringing services and products. The risk of such a lawsuit will likely
increase as our size and the number and scope of our services and products increase, as our geographic presence and market share expand
and as the number of competitors in our market increases. Any such claims or litigation could:
•require
us to stop selling, incorporating or using our services and products that use the other party’s intellectual property;
•require
us to enter into royalty or licensing agreements with third parties, which may not be available on terms that we deem acceptable, if at
all;
•prevent
us from operating all or a portion of our business or force us to redesign our services and products, which could be difficult and expensive
and may degrade performance of our services and products, or withdraw one or more of our services and products altogether;
•subject
us to significant liability for damages or result in significant settlement payments;
•require
us to indemnify our customers, distribution partners or suppliers; and
•refund
deposits and other amounts received for allegedly infringing technology or services and products.
Intellectual
property litigation can be costly. Even if we prevail, the cost of such litigation could deplete our financial resources. Litigation is
also time-consuming and could divert management’s attention and resources away from our business. Furthermore, during the course
of litigation, confidential information will be disclosed in the form of documents or testimony in connection with discovery requests,
depositions or trial testimony under a protective order. Inadvertent disclosure of our confidential information despite an attorney’s
eyes only protective order and our involvement in intellectual property litigation could materially adversely affect our business. Some
of our competitors may be able to sustain the costs of complex intellectual property litigation more effectively than we can because they
have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation
could significantly limit our ability to continue our operations. Any of the foregoing could disrupt our business and have a material
adverse effect on our operating results and financial condition.
Involvement
in lawsuits to defend against third-party claims of intellectual property infringement, or to enforce or defend our intellectual property
rights against infringers, could be time-intensive and costly and may adversely impact our business or stock price.
Numerous
significant intellectual property claims have been litigated, and will likely continue to be litigated, between existing and new participants
in our existing and targeted markets. Our success depends in part on our non-infringement of patents and proprietary rights of third parties.
We develop complex services and products that integrate a wide range of technologies which may impact our ability to do so clear of third-party
intellectual property rights and therefore may require a license to intellectual property rights of a third party or a successful challenge
to the validity of the intellectual property rights of a third party to achieve clearance to commercialize future services and products.
As we develop new technologies and move into new markets and applications for our services and products, we expect that incumbent participants
in such markets may assert their patents and other proprietary rights against us as part of a business strategy to slow our entry into
such markets, impede our successful competition and/or extract substantial license and royalty payments from us. In addition, we may be
unaware of pending third-party patent applications that relate to our technology and our competitors and others may have patents or may
in the future obtain patents and claim that use of our services and products infringes these patents. Our competitors and others may now,
and in the future, have significantly larger and more mature patent portfolios than we currently have. In addition, future litigation
may involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own patents
may provide little or no deterrence or protection. Therefore, our commercial success may depend in part on our non-infringement of the
patents or proprietary rights of third parties. Thus, litigation may be necessary to defend ourselves from third-party claims against
us.
We
have received notices of claims of infringement and misappropriation or misuse of other parties’ intellectual property in the past
and may from time to time receive additional notices. We cannot assure investors that we will prevail in such actions, or that other actions
alleging misappropriation or misuse by us of third-party trade secrets, infringement by us of third-party patents and trademarks or other
rights, will not be asserted or prosecuted against us in the future.
In
addition, it may be necessary to enforce our intellectual property against third-party infringers. Typically, defendants named in intellectual
property lawsuits challenge the validity of the asserted intellectual property as a defense. Thus, any enforcement litigation we may assert
against an infringer could put our intellectual property at risk, including by adversely affecting the scope of our patent protection
or invalidating our patents.
Litigation
could result in substantial legal fees and could adversely affect our ability to compete in the marketplace. Any adverse ruling or perception
of an adverse ruling in defending ourselves against these claims could have an adverse impact on our stock price, which may be disproportionate
to the actual impact of the ruling itself. Parties making claims against us may be able to obtain injunctive or other relief, which could
block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us. In the
event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties,
or be prohibited from selling certain services and products. We may not be able to obtain these licenses at a reasonable cost, if at all.
We could therefore incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively
affect our gross margins. In addition, we could encounter delays in product introductions while we attempt to develop alternative methods
or products to avoid infringing third-party patents or proprietary rights. Defense of any lawsuit or failure to obtain any of these licenses
on favorable terms could prevent us from commercializing services and products, and the prohibition of sale of any of our services and
products could materially affect our ability to grow and gain market acceptance for our services and products.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some
of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this
kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments.
If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of
our Common Stock.
In
addition, our agreements with some of our suppliers, distributors, customers, collaborators and other entities with whom we do business
require us to defend or indemnify these parties to the extent they become involved in infringement claims against us, including the claims
described above. We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so
if we determine it would be important to our business relationships. If we
are
required or agree to defend or indemnify any of these third parties in connection with any infringement claims, we could incur significant
costs and expenses that could adversely affect our business, operating results, or financial condition.
Confidentiality
and trade secret protection agreements with employees and others may not adequately prevent disclosure of trade secrets and protect other
proprietary information.
We
consider proprietary trade secrets, confidential know-how and unpatented know-how to be important to our business. We may rely on trade
secrets or confidential know-how to protect our technology, especially where patent protection is believed to be of limited value. However,
trade secrets and confidential know-how are difficult to maintain as confidential.
To
protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants,
contractors and advisors to enter into confidentiality and trade secret protection agreements with us. However, current or former employees,
consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality
agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that
a third party obtained illegally and is using trade secrets or confidential know-how is expensive, time consuming and unpredictable. The
enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction. Furthermore, if a competitor lawfully obtained
or independently developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information
to compete with us, which could harm our competitive position. Additionally, if the steps taken to maintain our trade secrets are deemed
inadequate, we may have insufficient recourse against third parties for misappropriating the trade secret.
Failure
to obtain or maintain trade secrets or confidential know-how trade protection could adversely affect our competitive position. Moreover,
our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in
respect of the same. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets or confidential
know-how.
Under
certain circumstances, we may also decide to publish some know-how to attempt to prevent others from obtaining patent rights covering
such know-how.
Obtaining
and maintaining our patent protection depends on compliance with various required procedures, document submissions, fee payments and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with
these requirements.
Periodic
maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid
to the USPTO and various governmental patent agencies outside of the United States at several stages over the lifetime of the patents
and/or pendency of the patent applications. We have systems in place to remind us to pay these fees, and we engage an outside service
and rely on our outside counsel to pay these fees due to non-United States patent agencies. The USPTO and various non-United States governmental
patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent
application process. We employ reputable law firms and other professionals to help us comply, and in some cases, an inadvertent lapse
can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which
non-compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent
rights in the relevant jurisdiction. In such an event, our competitors may be able to enter the market without infringing our patents
and this circumstance could have a material adverse effect on our business.
Our
inability to effectively protect our proprietary technologies, including the confidentiality of our trade secrets, could harm our competitive
position.
We
currently rely upon trade secret protection and copyright, as well as non-disclosure agreements and invention assignment agreements with
our employees, consultants and third parties, and to a limited extent patent protection, to protect our confidential and proprietary information.
Although our competitors have utilized and are expected to continue utilizing similar methods and have aggregated and are expected to
continue to aggregate similar databases of proteomic testing information, our success will depend upon our ability to develop proprietary
methods and databases and to protect any advantages afforded to us by such methods and databases relative to our competitors. If we do
not protect our intellectual property adequately, competitors may be able to use our methods and databases and thereby erode any competitive
advantages we may have. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that
our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. If any of our
confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information
was independently developed by a competitor, our competitive position could be harmed.
We
may not be able to protect our intellectual property rights throughout the world.
Filing,
prosecuting and defending patents on our services and products and technologies in every country throughout the world would be prohibitively
expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United
States.
The
laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and we
and our licensor may encounter difficulties in protecting and defending such rights in foreign jurisdictions. Consequently, we and our
licensor may not be able to prevent third parties from practicing our inventions in some or all countries outside the United States, or
from selling or importing services and products made using our or our licensor’s inventions in and into the United States or other
jurisdictions. Competitors and other third parties may use our technologies in jurisdictions where we have not obtained patent protection
to develop their own services and products and technologies and may also export infringing services and products to territories where
we have patent protection, but enforcement is not as strong as that in the United States. These services and products may compete with
our services and products. Our and our licensor’s patents or other intellectual property rights may not be effective or sufficient
to prevent them from competing. In addition, certain countries have compulsory licensing laws under which a patent owner may be compelled
to grant licenses to other parties. Furthermore, many countries limit the enforceability of patents against other parties, including government
agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the
value of any patents.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. In
some countries, local authorities retain broad discretion to compel technology transfer or disclosure of proprietary trade secrets on
the basis of national interests or national security, cybersecurity or data protection, regulatory requirements pertaining to foreign
direct investments or joint ventures, or other regulations governing foreign companies’ business activities in these countries.
The legal systems of many other countries do not favor the enforcement of patents and other intellectual property protection, which could
make it difficult for us to stop the misappropriation or other violations of our intellectual property rights including infringement of
our patents in such countries. The legal systems in certain countries may also favor state-sponsored or companies headquartered in particular
jurisdictions over our first-in-time patents and other intellectual property protection. The absence of harmonized intellectual property
protection laws and effective enforcement makes it difficult to ensure consistent respect for patent, trade secret, and other intellectual
property rights on a worldwide basis. As a result, it is possible that we will not be able to enforce our rights against third parties
that misappropriate our proprietary technology in those countries.
Proceedings
to enforce our or our licensor’s patent rights in foreign jurisdictions could result in substantial cost and divert our efforts
and attention from other aspects of our business, could put our and our licensor’s patents at risk of being invalidated or interpreted
narrowly and our and our licensor’s patent applications at risk of not issuing, and could provoke third parties to assert claims
against us. We and our licensors may not prevail in any lawsuits that we or our licensor initiate, or that are initiated against us or
our licensor, and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, changes in the law and
legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our services
and products, services and other technologies and the enforcement of intellectual property. Accordingly, our efforts to enforce our intellectual
property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we
develop or license. Any of the foregoing events could have a material adverse effect on our business, financial condition, results of
operations and prospects.
Changes
in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing our ability
to protect our services and products.
Changes
in either the patent laws or in interpretations of patent laws in the United States or other countries or regions may diminish the value
of our intellectual property. We cannot predict the breadth of the claims that may be allowed by the USPTO nor scope and meaning of issued
claims by a court during enforcement of our patents or in third party patents. We may not develop additional proprietary products, methods
and technologies that are patentable. Assuming that other requirements for patentability are met, prior to March 16, 2013, in the United
States, the first to invent the claimed invention was entitled to a patent, while outside the United States, the first to file a patent
application for the invention was entitled to a patent. On or after March 16, 2013, under the Leahy-Smith America Invents Act (“AIA”),
enacted in September 16, 2011, the United States transitioned from a first-to-invent to a first-to-file system in which, assuming that
other requirements for patentability are met, the first inventor to file a patent application for a particular invention will be entitled
to a patent regardless of whether a third-party was the first to invent the claimed invention. A third party that files a patent application
in the USPTO on or after March 16, 2013, but before us could therefore be awarded a patent covering an invention similar to or the same
as our invention, even if we had made the invention before such third party. This requires us to be cognizant of the conception of an
invention and the time it takes to filing a patent application on that invention. Since patent applications in the United States and most
other countries are confidential for a period of time after filing, we cannot be certain that we or our licensors were the first to either
(i) file any patent application related to our services and products or (ii) invent any of the inventions claimed in our or our licensor’s
patents or patent applications.
The
AIA also includes a number of significant changes that affect the way patent applications are prosecuted and also affects adversarial
patent proceedings at the Patent Trials and Appeals Board (“PTAB”). These changes include allowing third party submission
of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent in post-grant proceedings,
including post-grant review, inter parties review and derivation proceedings. Because there is a lower evidentiary standard needed to
invalidate a patent in these USPTO proceedings as compared to the evidentiary standard in a United States federal court, a third party
could successfully invalidate a patent before the PTAB on less evidence than would be required to meet the higher evidentiary standard
to invalidate a patent in a federal district court. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our
patent claims that would not have been invalidated if first challenged by the third party in a district court action. Therefore, the AIA
and its implementation could increase the uncertainties and costs surrounding the prosecution of our owned or in-bound licensed patents
or patent applications and the enforcement or defense of our owned or in-bound licensed issued patents, all of which could have a material
adverse effect on our business, financial condition, results of operations, and prospects.
In
addition, the patent position of companies in the biotechnology field is particularly uncertain. Various courts, including the United
States Supreme Court, have rendered decisions that affect the scope of patentability of certain inventions or discoveries relating to
biotechnology. These decisions state, among other things, that a patent claim that recites an abstract idea, natural phenomenon or law
of nature are not themselves patentable. Precisely what constitutes a law of nature or abstract idea is uncertain, and it is possible
that certain aspects of our technology could be considered natural laws. Accordingly, the evolving case law in the United States could
adversely affect our ability to obtain patents and may facilitate third party challenges to any owned or licensed patents.
If
we cannot license rights to use technologies on reasonable terms, we may not be able to commercialize new services and products in the
future.
In
the future, we may identify additional third-party intellectual property we may need to license in order to engage in our business, including
to develop or commercialize new products or services. However, such licenses may not be available on acceptable terms or at all. Even
if such licenses are available, we may be required to pay the licensor substantial royalties based on sales of our products and services.
Such royalties are a component of the cost of our products or services and may affect the margins on our products and services. In addition,
such licenses may be nonexclusive, which could give our competitors access to the same intellectual property licensed to us. If we are
unable to enter into the necessary licenses on acceptable terms or at all, if any necessary licenses are subsequently terminated, if our
licensors fail to abide by the terms of the licenses, if our licensors fail to prevent infringement by third parties, or if the licensed
patents or other rights are found to be invalid or unenforceable, our business, financial condition, results of operations, and prospects
could be materially and adversely affected.
If
licenses to third-party intellectual property rights are or become required for us to engage in our business, the rights may be non-exclusive,
which could give our competitors access to the same technology or intellectual property rights licensed to us. Moreover, we could encounter
delays in the introduction of tests while we attempt to develop alternatives. Defense of any lawsuit or failure to obtain any of these
licenses on favorable terms could prevent us from commercializing tests, which could materially affect our ability to grow and thus adversely
affect our business and financial condition.
Our
use of open source software could compromise our ability to offer our services and subject us to possible litigation.
We
use open source software in connection with our services and products. Companies that incorporate open source software into their products
have, from time to time, faced claims challenging their use of open source software and compliance with open source license terms. As
a result, we could be subject to lawsuits and other allegations by parties claiming ownership of what we believe to be open source software
or claiming noncompliance with open source licensing terms. Some open source software licenses require users who distribute software containing
open source software to publicly disclose all or part of the source code to the licensee’s software that incorporates, links or
uses such open source software, and make available to third parties for no cost, any derivative works of the open source code created
by the licensee, which could include the licensee’s own valuable proprietary code. While we monitor our use of open source software
and try to ensure that none is used in a manner that would require us to disclose our proprietary source code or that would otherwise
breach the terms of an open source agreement, such use could inadvertently occur, or could be claimed to have occurred, in part because
open source license terms can be ambiguous. Legal precedent in this area is not well established and any actual or claimed requirement
to disclose our proprietary source code or pay damages for breach of contract could harm our business and could help third parties, including
our competitors, develop products and services that are similar to or better than ours. Any of the foregoing could harm our business,
financial condition, results of operations, and prospects.
We
rely on strategic collaboration and licensing arrangements with third parties for research and development of commercial products and
to further develop intellectual property. We may not be able to successfully establish and maintain such intellectual property.
Our
research and development of our services and products relies, directly or indirectly, upon strategic collaborations and licensing agreements
with third parties. We have collaboration and licensing arrangements with numerous academics,
pharmaceutical
companies, and others, under which the collaborator provides us with biological samples and associated clinical information. We use the
biological samples for research and development by generating SomaScan® data (typically owned by SomaLogic) and obtaining relevant
clinical information related to each biological sample (typically owned by the collaborator). Our collaboration and licensing arrangements
also contain cross-licenses to permit the collaborator to use our SomaScan® data for limited purposes, e.g., drug development or
academic research, and the collaborator grants us the right to use the clinical data for our products and services. Some collaborators
limit our right to use their clinical data.
There
can be no assurance that any current contractual arrangements between us and third parties, such as Illumina, for example, or between
our strategic partners and other third parties will be continued on materially similar terms and will not be breached or terminated early.
Any failure to obtain or retain the rights to necessary technologies on acceptable commercial terms could require us to re-configure our
products and services, which could negatively impact their commercial sale or increase the associated costs, either of which could materially
harm our business and adversely affect our future revenues and ability to achieve sustained profitability.
We
expect to continue and expand our reliance on collaboration and licensing arrangements. Establishing new strategic collaboration and licensing
arrangements is difficult and time-consuming. Discussions with potential collaborators or licensors may not lead to the establishment
of collaborations on favorable terms, if at all. To the extent we agree to work exclusively with one collaborator in a given area, our
opportunities to collaborate with other entities could be limited. Potential collaborators or licensors may reject collaborations with
us based upon their assessment of our financial, regulatory or intellectual property position or other factors. Even if we successfully
establish new collaborations, these relationships may never result in the successful commercialization of any product or service. In addition,
the success of the projects that require collaboration with third parties will be dependent on the continued success of such collaborators.
There is no guarantee that our collaborators will continue to be successful and, as a result, we could expend considerable time and resources
developing products or services that will not ultimately be commercialized.
We
may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information
of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
We
employ, and expect to employ in the future, individuals who were previously employed at universities or other companies, including our
competitors or potential competitors. Although we try to ensure that our employees, consultants and independent contractors do not use
the proprietary information or know-how of others in their work for us, we may be subject to claims that our employees, consultants or
independent contractors have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former
employers or other third parties, or to claims that we have improperly used or obtained such trade secrets. Litigation may be necessary
to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual
property rights or personnel, which could adversely impact our business. A loss of key research personnel work product could hamper or
prevent our ability to commercialize potential products and services, which could harm our business. Even if we are successful in defending
against these claims, litigation could result in substantial costs and be a distraction to management and other employees.
Risks
Related to Government Regulation
The
FDA may require us to obtain premarket authorizations and comply with the FDA requirements for some of our products and services. Failure
to obtain such authorizations or failure to comply with FDA requirements may delay or prevent the marketing of our products and services.
We
believe that our services are not presently regulated as medical devices by the FDA. However, the FDA’s policies may change or the
FDA may disagree with our conclusion, and the agency may require us to obtain a premarket authorization. Failure to comply with such requirements
or the additional, extensive and ongoing post-marketing obligations imposed by the FDA or other regulatory requirements of other regulatory
agencies could result in unanticipated compliance expenditures, a range of administrative enforcement actions, injunctions, and/or criminal
prosecution. FDA post-market obligations include, among other things, compliance with the FDA Quality System Regulations (“QSR”),
establishing registration and device listings, labeling requirements, reporting of certain adverse events and malfunctions, and reporting
of certain recalls. In addition, circumstances may arise that cause us to recall equipment used in connection with our products and services.
Such recalls could have an adverse effect on our ability to provide those products and services, which in turn would adversely affect
our financial condition. Our collaborators may also be required to maintain FDA clearance, authorization or approval for the products
and services that we jointly develop. Any failure by us or our collaborators to maintain such clearance, authorization or approval could
impair or cause a delay in our ability to profit from these collaborations.
We
conduct our business in a heavily regulated industry, and changes in regulations or violations of regulations may, directly or indirectly,
reduce our revenue, adversely affect our results of operations and financial condition and harm our business.
The
life sciences industry is highly regulated, and the regulatory environment in which we operate may change significantly and adversely
to us in the future. Areas of the regulatory environment that may affect our ability to conduct business include, without limitation,
federal and state laws relating to:
•laboratory
testing, including Clinical Laboratory Improvement Amendments (“CLIA”) and state laboratory licensing laws;
•the
development, testing, use, distribution, promotion and advertising of research services, kits, clinical diagnostics and cellular therapies,
including certain LDT, which are regulated by the FDA under the Food, Drug, and Cosmetic Act (“FDCA”);
•cellular
therapies, medical device and in vitro diagnostic clearance, marketing authorization or approval;
•laboratory
anti-mark-up laws;
•the
handling and disposal of medical and hazardous waste;
•Occupational
Safety and Health Administration rules and regulations;
•HIPAA
and other federal and state medical data privacy and security laws; and
•the
Genetic Information Nondiscrimination Act (“GINA”) and similar state laws.
In
particular, while we believe that our services are not presently regulated as medical devices because they are RUO or LDTs, the laws,
regulations and policies of the FDA and non-United States regulators governing the marketing of RUO products, LDTs, and clinical diagnostic
tests and services are extremely complex and the regulatory or judicial interpretations of the relevant laws and regulations may change
in the future. For example, our SomaScan® assay services and kits offered as RUO could, in the future, be subject to greater regulation
by the FDA pursuant to the medical device provisions of the FDCA beyond the current regulations governing RUO labeling. In addition, while
we believe certain of our services are LDTs and thus not subject to premarket review requirements, FDA may disagree with our assessment
or change its position in the future and assert that our products are medical devices that must receive FDA’s premarket review,
as discussed under “Risk Factors – The FDA may require us to obtain premarket authorizations and comply with the FDA requirements
for some of our products and services. Failure to obtain such authorizations or failure to comply with FDA requirements may delay or prevent
the marketing of our products and services.”
If
we fail to comply with federal and state laboratory licensing requirements, we could lose the ability to perform our tests or experience
disruptions to our business.
We
are subject to CLIA, a federal law that regulates clinical laboratories that perform testing on specimens derived from humans for the
purpose of providing information for the diagnosis, prevention or treatment of disease. CLIA regulations establish specific standards
with respect to personnel qualifications, facility administration, proficiency testing, quality control, quality assurance and inspections.
CLIA certification is also required in order for us to be eligible to bill state and federal healthcare programs, as well as many private
third-party payers, for our tests. We have current CLIA certifications to conduct our tests at our laboratory in Boulder, Colorado. To
renew these certifications, we are subject to survey and inspection every two years. Moreover, CLIA inspectors may make random inspections
of our clinical reference laboratories.
We
also maintain out-of-state laboratory licenses to conduct testing on specimens from California, Maryland, Pennsylvania and Rhode Island.
States
may currently have or later adopt laboratory licensure requirements, which, if operating in those states, may require us to modify, delay
or stop our operations in such jurisdictions. We may also be subject to regulation in foreign jurisdictions as we seek to expand international
utilization of our assay and tests or such jurisdictions adopt new licensure requirements, which may require review of our assay and tests
in order to offer them or may have other limitations such as restrictions on the transport of samples necessary for us to perform our
assay or tests that may limit our ability to make our tests available outside of the United States. Complying with licensure requirements
in new jurisdictions may be expensive, time-consuming, and subject us to significant and unanticipated delays.
Failure
to comply with applicable clinical laboratory licensure requirements may result in a range of enforcement actions, including license suspension,
limitation, or revocation, directed plan of action, onsite monitoring, civil monetary penalties, criminal sanctions, and cancellation
of the laboratory’s approval to receive Medicare and Medicaid payment for its services, as well as significant adverse publicity.
Any sanction imposed under CLIA, its implementing regulations, or state or foreign laws or regulations governing clinical laboratory licensure,
or our failure to renew our CLIA certificate, a state or foreign license, or accreditation, could have a material adverse effect on our
business, financial condition and results of
operations.
Even if we were able to bring our laboratory back into compliance, we could incur significant expenses and potentially lose revenue in
doing so.
The
College of American Pathologists (“CAP”), maintains a clinical laboratory accreditation program. CAP asserts that its program
is “designed to go well beyond regulatory compliance” and helps laboratories achieve the highest standards of excellence to
positively impact patient care. While not required to operate a CLIA-certified laboratory, many private insurers require CAP accreditation
as a condition to contracting with clinical laboratories to cover their tests. In addition, some countries outside the United States require
CAP accreditation as a condition to permitting clinical laboratories to test samples taken from their citizens. We have CAP accreditations
for our laboratories. Failure to maintain CAP accreditation could have a material adverse effect on the sales of our tests and the results
of our operations.
RUO
products and services may be subject to regulatory scrutiny.
Certain
of our services and products are currently labeled and sold for RUO and not for the diagnosis or treatment of disease. Because such products
are not intended for diagnostic use, and the products do not include clinical or diagnostic claims or provide directions for use as diagnostic
products, they are not subject to the same level of regulation by the FDA or by regulatory agencies of the EU as medical devices. In particular,
while the FDA regulations require that RUO products be appropriately labeled, “For Research Use Only,” the regulations do
not subject such products to the FDA’s pre- and post-market controls for medical devices provided that certain conditions are met.
Pursuant to FDA guidance on RUO products, a company may not make clinical or diagnostic claims about an RUO product or provide clinical
directions or clinical support services to customers of RUO products. A product labeled RUO but deemed by the FDA to be intended for clinical
diagnostic use may be viewed by the FDA as adulterated and misbranded under the FDCA and subject to FDA enforcement action. The FDA considers
the totality of the circumstances surrounding distribution and use of a product labeled as RUO, including how the product is marketed
and to whom, when determining its intended use. If the FDA were to disagree with our RUO classification or modify its approach to regulating
products labeled for RUO, we could experience reduced revenue or increased compliance and other costs, which could adversely affect our
business, prospects, results of operations and financial condition. In the event that the FDA requires marketing authorization of our
RUO products in the future, the FDA may not ultimately grant any clearance, authorization or approval requested by us in a timely manner,
or at all.
We
could be adversely affected by alleged violations of the Federal Trade Commission Act or other truth-in-advertising and consumer protection
laws.
Our
advertising for current and future assay services is subject to federal and state laws that prohibit deceptive or unfair advertising and
marketing practices. Under federal and state law, regulators such as the Federal Trade Commission (“FTC”) and the attorneys
general (“AG,” or district attorneys in some states) of the various states have authority to bring actions against firms that
engage in false or deceptive advertising or marketing practices. The FTC’s authority emanates from the Federal Trade Commission
Act (“FTC Act”), which empowers the FTC to investigate and seek injunctive relief against deceptive or unfair acts or practices,
including the dissemination of advertising claims without possession at the time of dissemination of a reasonable basis for belief that
the claims are true and non-deceptive. Substantiation in the case of efficacy claims pertaining to health, safety, and life sciences generally
must take the form of competent and reliable scientific evidence. Failure to have substantiation of this type is deceptive under the FTC
Act and may subject the advertiser to an injunction to stop the advertising and possibly to engage in other remedial steps such as corrective
advertising. Failure to comply with an FTC administrative order subjects the advertiser to significant civil penalties. States have similar
unfair and deceptive acts and practices statutes (sometimes called “little FTC Acts” or “UDAP” statutes). They
vary, but often the state regulator can seek monetary relief along with an order of discontinuance.
Both
the FTC and the state AGs have broad powers, and failure to abide by the substantive requirements of the FTC Act and other consumer protection
laws can result in administrative or judicial penalties, including civil penalties, injunctions affecting the manner in which we would
be able to market services or products in the future, or in extreme instances criminal prosecution if significant fraud is involved. These
laws relate not only to the advertising produced and disseminated by us but also to statements made by endorsers or others in third-party
testimonials that are used by us in advertising in any form, including but not limited to social media.
Federal
and state laws also give causes of action to competitors to seek injunctive and monetary relief for false and misleading advertising statements.
Any person who is or may be likely to be damaged by false or misleading advertising statement may bring an action in federal court pursuant
to the Lanham Act, § 43(a). Proven damages may be trebled and attorney’s fees and costs may be awarded in appropriate cases.
There are state analogs of this sort of unfair competition statute as well.
Under
state UDAP statutes, consumers can bring private claims against companies who disseminate false or deceptive advertising claims. Although
those UDAP statutes often provide for statutory damages in the case of individual consumers, more often such cases take the form of class
actions, which can lead to massive damages awards and significant awards of attorney’s fees.
We
are also subject to self-regulatory risks. The BBB National Programs, Inc. operates the National Advertising Division (“NAD”),
which is the country’s leading self-regulatory body dedicated to truth and accuracy in advertising. A competitor can
challenge
advertising before the NAD. The process is non-public until the decision is rendered by the NAD, at which point the BBB National Programs
issues a press release about the decision. Most advertisers comply with the recommendations of the NAD; those that refuse to comply can
be referred to the FTC for investigation.
Any
of the potential action described above if brought against us could disrupt our business operations, cause damage to our reputation, and
result in a material adverse effects on our business.
We
could be adversely affected by violations of the United States Foreign Corrupt Practices Act and other worldwide anti-bribery laws by
us or our agents.
We
are subject to the FCPA which prohibits companies and their intermediaries from making payments in violation of law to non-United States
government officials for the purpose of obtaining or retaining business or securing any other improper advantage. Our reliance on independent
distributors to sell our assay services internationally demands a high degree of vigilance in maintaining our policy against participation
in corrupt activity, because these distributors could be deemed to be our agents, and we could be held responsible for their actions.
We are also subject to similar anti-bribery laws in the jurisdictions in which we operate, including the United Kingdom’s Bribery
Act of 2010, which also prohibits commercial bribery and makes it a crime for companies to fail to prevent bribery. We have limited experience
in complying with these laws and in developing procedures to monitor compliance with these laws by our agents. These laws are complex
and far-reaching in nature, and, as a result, we cannot assure you that we would not be required in the future to alter one or more of
our practices to be in compliance with these laws or any changes in these laws or the interpretation thereof. Any violations of these
laws, or allegations of such violations, could disrupt our operations, involve significant management distraction, involve significant
costs and expenses, including legal fees, and could result in a material adverse effect on our business, prospects, financial condition,
or results of operations. We could also incur severe penalties, including criminal and civil penalties, disgorgement, and other remedial
measures.
Our
business is subject to environmental regulation and regulations relating to the protection of health and safety matters that could result
in compliance costs. Any violation or liability under environmental laws or health and safety regulations could harm our business.
We
are subject to environmental and safety laws and regulations governing the use, storage and disposal of hazardous substances or wastes,
including radioactive materials and wastes, and imposing liability for the cleanup of contamination from these substances. We handle hazardous
substances in our manufacturing processes and in the compilation of our chemical library, and we could be liable for any improper use,
storage, or disposal of such substances. We cannot completely eliminate the risk of contamination or injury from hazardous substances
or wastes, and, in the event of such an incident, we could be held liable for any damages that result. In addition, we may be required
to incur significant additional costs to comply with environmental laws and regulations in the future. The failure to comply with environmental
or safety regulations could also result in fines by government authorities and payment of damages to private litigants, which could harm
our business.
The
Occupational Safety and Health Act of 1970 (“OSHA”), establishes certain employer responsibilities, including maintenance
of a workplace free of recognized hazards likely to cause death or serious injury, compliance with standards promulgated by the Occupational
Safety and Health Administration and various record keeping, disclosure and procedural requirements. Various OSHA standards may apply
to our operations. We have incurred, and will continue to incur, capital and operating expenditures and other costs in the ordinary course
of our business in complying with OSHA and other state and local laws and regulations.
Risks
Related to SomaLogic Being a Public Company
Our
disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We
are in the process of implementing disclosure controls and procedures designed to provide reasonable assurance that information we must
disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized,
and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures,
no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur
because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion
of two or more people or by an unauthorized override of the controls. As a result, because of these inherent limitations in our control
system, misstatements or omissions due to error or fraud may occur and may not be detected, which could result in failures to file required
reports in a timely manner and filing reports containing incorrect information. Any of these outcomes could result in SEC enforcement
actions, monetary fines or other penalties, damage to our reputation, and harm to our financial condition.
The
Company identified material weaknesses in our internal controls 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 control
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
Common Stock.
In
prior years, and in fiscal 2022, we identified material weaknesses in our internal control over financial reporting. See - “Management’s
Report on Internal Control Over Financial Reporting.”
We
are in the process of remediating the deficiencies. We cannot assure you that the material weaknesses will be remediated by us on the
timelines currently anticipated, or at all, and/or that there will not be additional material weaknesses in our internal control over
financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability
to accurately report our financial condition, results of operations or cash flows.
If
we are we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public
accounting firm determines we have a material weakness in our internal control over financial reporting, investors may lose confidence
in the accuracy and completeness of our financial reports, the market price of our Common Stock could decline, and we could be subject
to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal
control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also
restrict our future access to the capital markets.
The
requirements of being a public company may strain our resources, result in litigation and divert management’s attention.
As
a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the listing requirements of Nasdaq and other applicable securities rules and regulations. Complying
with these rules and regulations has increased and will increase our legal and financial compliance costs, make some activities more difficult,
time-consuming, or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth
company” as defined in the JOBS Act. The Exchange Act requires, among other things, that we file annual, quarterly, and current
reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over financial reporting. We are required to disclose changes made in our internal
control and procedures on a quarterly basis. In order to maintain and, if required, improve our disclosure controls and procedures and
internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a
result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating
results. We may need to hire additional employees or engage outside consultants to comply with these requirements, which will increase
our costs and expenses.
In
addition, changing laws, regulations, and standards relating to corporate governance and public disclosure are creating uncertainty for
public companies, increasing legal and financial compliance costs and making some activities more time-consuming.
These
laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result,
their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in
continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.
We intend to invest resources to comply with evolving laws, regulations, and standards, and this investment will result in increased general
and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing
bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us
and our business may be adversely affected. By disclosing information in filings required of a public company, our business and financial
condition will become more visible, which we believe may result in threatened or actual litigation, including by competitors and other
third parties. If those claims are successful, our business could be seriously harmed. Even if the claims do not result in litigation
or are resolved in our favor, the time and resources needed to resolve them could divert our management’s resources and seriously
harm our business. We also expect that being a public company and these new rules and regulations will make it more expensive for us to
obtain director and officer liability insurance and, in the future, we may be required to accept reduced coverage or incur substantially
higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our
board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
In
addition, as a result of our disclosure obligations as a public company, we have reduced strategic flexibility and may be under pressure
to focus on short-term results, which may materially and adversely affect our ability to achieve long-term profitability.
Risks
Related to Our Common Stock and Public Warrants
Our
principal stockholders and management own a significant percentage of our Common Stock and will be able to exercise significant influence
over matters subject to stockholder approval.
As
of December 31, 2022, our directors, executive officers, holders of more than 5% of our outstanding shares of Common Stock and their respective
affiliates beneficially owned, collectively, approximately 25% of the outstanding shares of Common Stock. As a result, these stockholders,
if they act together, may significantly influence all matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change
in control of our company that our other stockholders may believe is in their best interests. This in turn could have a material adverse
effect on our stock price and may prevent attempts by our stockholders to replace or remove the board of directors or management.
We
do not expect to pay any dividends for the foreseeable future. Investors may never obtain a return on their investment.
You
should not rely on an investment in our Common Stock to provide dividend income. We do not anticipate that we will pay any dividends to
holders of our Common Stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our existing operations,
fund our research and development programs and continue to invest in our commercial infrastructure. In addition, any future credit facility
or financing we obtain may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our Common Stock.
Accordingly, investors must rely on sales of our Common Stock after price appreciation, which may never occur, as the only way to realize
any return on their investment. As a result, investors seeking cash dividends should not purchase our Common Stock.
Our
warrants are accounted for as liabilities and the changes in value of our warrants could have a material effect on our financial results.
Our
5,519,991 Public Warrants and 5,013,333 Private Placement Warrants are classified as derivative liabilities measured at fair value, with
changes in fair value each period reported in earnings. Accounting Standards Codification 815, Derivatives and Hedging, provides for the
remeasurement of the fair value of such derivatives at each balance sheet date, with a resulting non-cash gain or loss related to the
change in the fair value being recognized in earnings in the statement of operations. As a result of the recurring fair value measurement,
our financial statements and results of operations may fluctuate quarterly, based on factors, which are outside of our control. Due to
the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our warrants each reporting period
and that the amount of such gains or losses could be material.
We
may amend the terms of the Public Warrants with the approval by the holders of at least 50% of the then-outstanding Public Warrants in
a manner that may be adverse to holders. As a result, the exercise price of a holder’s Public Warrants could be increased, the exercise
period could be shortened and/or the number of shares of our Common Stock purchasable upon exercise of a Public Warrant could be decreased,
all without the approval of that warrant holder.
Our
Public Warrants were issued in registered form under a warrant agreement between CM Life Sciences II Inc. (“CMLS II”) and
Continental Stock Transfer & Trust Company, as warrant agent. The warrant agreement provides that the terms of the Public Warrants
may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by
the holders of at least 50% of the then-outstanding Public Warrants to make any change that adversely affects the interests of the registered
holders. Accordingly, we may amend the terms of the Public Warrants in a manner adverse to a holder if holders of at least 50% of the
then-outstanding Public Warrants approve of such amendment. Although our ability to amend the terms of the Public Warrants with the consent
of at least 50% of the then-outstanding Public Warrants is unlimited, examples of such amendments could be amendments to, among other
things, increase the exercise price of the Public Warrants, convert the warrants into cash or stock, shorten the exercise period or decrease
the number of shares of Common Stock purchasable upon exercise of a Public Warrant.
We
may redeem unexpired Public Warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their
Public Warrants worthless.
We
have the ability to redeem outstanding Public Warrants (i) at any time after they become exercisable and prior to their expiration, at
a price of $0.01 per Public Warrant; provided that the last reported sales price of our Common Stock equals or exceeds $18.00 per share
(as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day
period ending on the third trading day prior to the date on which we give notice of such redemption to the warrant holders; and (ii) at
any time after they become exercisable and prior to their expiration, at a price of $0.10 per Public Warrant; provided that the last reported
sales price of our Common Stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations
and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which we give
notice of such redemption to the warrant holders; provided further that, if the last reported sales price of our Common Stock is less
than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any
20
trading days within a 30-trading day period ending on the third trading day prior to the date on which we give notice of such redemption
to the warrant holders, the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding
Public Warrants, as described above.
If
and when the Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify
the underlying securities for sale under all applicable state securities laws. We will use our best efforts to register or qualify such
shares of Common Stock under the blue sky laws of the state of residence in those states in which the warrants were offered by us. Redemption
of the outstanding Public Warrants could force the warrant holders: (i) to exercise their Public Warrants and pay the exercise price therefor
at a time when it may be disadvantageous for them to do so; (ii) to sell their Public Warrants at the then-current market price when they
might otherwise wish to hold their Public Warrants; or (iii) to accept the nominal redemption price which, at the time the outstanding
Public Warrants are called for redemption, is likely to be substantially less than the market value of their Public Warrants. None of
the Private Placement Warrants will be redeemable by us (except as described in the section entitled “Redemption of Warrants When
the Price per Share of Common Stock Equals or Exceeds $10.00”) so long as they are held by the Sponsor or its permitted transferees.
Our
warrants are exercisable for our Common Stock, which will increase the number of shares eligible for future resale in the public market
and result in dilution to our stockholders.
Our
Public Warrants are exercisable for up to 5,519,991 shares of Common Stock at $11.50 per share. Our Private Placement Warrants are exercisable
for up to 5,013,333 shares of Common Stock at $11.50 per share. The additional shares of our Common Stock issuable upon exercise of our
warrants will result in dilution to the then existing holders of our Common Stock and increase the number of shares eligible for resale
in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of our
Common Stock.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties
We
currently maintain our executive offices at 2945 Wilderness Place, Boulder, Colorado 80301. We lease approximately 77,000 square feet
of space under three leases in Boulder, Colorado, which serve as our corporate headquarters and laboratory facilities. In February 2022
we entered into two lease agreements, each for commercial buildings to be constructed in Louisville, Colorado. In August 2022 the Company
evaluated the cost of the two Louisville, Colorado leases and determined that it would be in the best interest of the Company to terminate
these agreements and maintain the location of its current headquarters. . As a result of the Palamedrix acquisition, we also lease approximately
10,000 square feet of office and laboratory space in La Jolla, California and the lease terminates in 2024.
We
do not own any real property, and believe our current facilities are sufficient to meet our immediate needs. In anticipation of future
growth, we believe we will be able to obtain additional facilities on commercially reasonable terms and on an acceptable timeline.
Item
3. Legal Proceedings
We
are party to lawsuits arising in the ordinary course of our business. We cannot predict the outcome of any such lawsuits with certainty,
but based upon the Company’s experience, current information and applicable law, management believes it is remote that pending or
threatened legal matters will have a material adverse impact on our consolidated results of operations, financial condition, or liquidity.
Due
to the nature of our business, we are, from time to time, involved in other routine litigation or subject to disputes or claims related
to our business activities. In the opinion of our management, none of these other pending litigation, disputes or claims against us, if
decided adversely, will have a material adverse effect on our financial condition, cash flows or results of operations.
On
February 12, 2023, the Company filed a petition in the Delaware Court of Chancery (the “Court of Chancery”) pursuant to Section
205 of the Delaware General Corporation Law (“DGCL”), seeking validation of an amendment to our certificate of incorporation
(the “Certificate Amendment”) which, among other things, increased the authorized shares of the Company’s common stock
from 400,000,000 to 600,000,000 shares of common stock (eliminating our Class B common stock and renaming Class A common stock as “common
stock”) (the “Section 205 Action”). On March 6, 2023, the Court of Chancery held a hearing on the Section 205 Action
and granted an order pursuant to Section 205 of the DGCL validating the Company’s Certificate Amendment and all shares of capital
stock of the Company issued in reliance on the effectiveness of the Company’s Certificate Amendment, each as of the date and time
of the original issuance of such shares.
However,
in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters,
if unfavorable, may be materially adverse to the Company’s business, financial condition, results of operations or liquidity. For
additional details, see Part II, Item 8, Note 9, Commitments and Contingencies - “Legal Proceedings”, in the Notes to Consolidated
Financial Statements in Item 15 of this Form 10-K, which is incorporated by reference.
Item
4. Mine Safety Disclosures
Not
applicable.
PART
II
Item
5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common
Stock
Our
Common Stock is listed on the Nasdaq Capital Market under the symbol “SLGC.” Our certificate of incorporation authorizes the
issuance of 600,000,000 shares of Common Stock with a par value of $0.0001 per share. The Company had 187,647,973 shares of Common Stock
issued and outstanding as of December 31, 2022.
Preferred
Stock
Our
certificate of incorporation authorizes the issuance of 1,000,000 shares of Preferred Stock with a par value of $0.0001 per share. As
of December 31, 2022, no shares of Preferred Stock were issued and outstanding, and no designation of rights and preferences of preferred
stock had been adopted. Our preferred stock is not quoted on any market or system, and there is not currently a market for our preferred
stock.
Holders
Based
on information supplied by its transfer agent, the Company estimates that there are approximately 247 holders of record of our Common
Stock and 1 holder of record of our public warrants. Such numbers do not include beneficial owners holding our securities through nominee
names.
Dividends
We
have not paid any cash dividends on our ordinary shares to date. The payment of cash dividends in the future will be dependent upon our
revenues and earnings, if any, capital requirements and general financial condition and will be within the discretion of our board of
directors at such time. Our board of directors is not currently contemplating and does not anticipate declaring any share dividends in
the foreseeable future.
Securities
Authorized for Issuance Under Equity Compensation Plans
Refer
to Part III, Item 12, for information related to our equity compensation plans.
Item
6. [Reserved]
Item
7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis of SomaLogic’s results of operations and financial condition should be read in conjunction with
the consolidated financial statements and accompanying notes included in Part II, Item 8 of this Form 10-K. This discussion contains forward-looking
statements based upon SomaLogic’s current expectations, estimates and projections that involve risks and uncertainties. Actual results
could differ materially from those anticipated in these forward-looking statements due to, among other considerations, the matters discussed
under “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Annual Report on Form 10-K.
Business
Overview
•As
of December 31, 2022, our current SomaScan® assay includes reagents to measure approximately 7,000 protein targets of the approximately
20,000 canonical human proteins, and we plan to increase this commercially available number of protein targets to approximately 10,000
in late 2023.
•Currently,
we primarily generate revenue through our assay services model, whereby we receive samples from pharmaceutical, biotechnology or academic
clients, perform the SomaScan® assay, and subsequently use bioinformatics and analytics to further refine the collected data and
deliver the results back to the customer.
•In
addition to the SomaScan® assay, we have developed and released SomaSignal™ tests into an observation market. The SomaSignal™
tests are data-driven diagnostic tests with high predictive power of biological disease and risks to patients that have a wide range of
potential applications. We are currently evaluating a variety of different partnerships to drive adoption of SomaSignal™ tests.
•We
also generate product revenue, primarily through the sale of SomaScan® kits and equipment for SomaScan® Certified Sites, which
allow customers to bring our proteomic platform in-house.
•As
of December 31, 2022, we had approximately 451 full-time employees, including a research and development team of more than 94 employees.
•Our
commercial and product development teams are consistently partnering with our customers to develop products and services that speed up
the adoption of proteomics for our customers, including data analysis, data integration and ease of use tool sets. We are also actively
exploring several potential co-marketing and new channel and product development opportunities with various partners in closely aligned
scientific verticals, such as genomics.
•We
have historically and will continue to invest in new products and solutions. Our research and development efforts are primarily focused
on developing new proteomic content and additional SomaSignal™ tests as well as developing new applications for existing technologies.
•Since
our inception, we have incurred net losses in each year. Our net losses were $109.2 million and $87.5 million for the years ended December 31,
2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $608.1 million, cash and cash equivalents
of $421.8 million, and short-term investments of $117.8 million. We expect to continue to incur significant expenses for the foreseeable
future and to incur operating losses.
•In
August 2022, the Company completed its acquisition of Palamedrix, Inc., an innovator in DNA nanotechnology, which the Company intends
to leverage as it develops the next generation of the SomaScan® Assay and which SomaLogic believes will accelerate the SomaScan Platform
utilization in global biopharma and academic markets, as well as the emerging proteomic diagnostics space.
•As
part of a broader strategic review of the Company’s business and organizational structure, in October 2022, the Company’s
Board appointed Troy Cox, a current director of the Company and veteran executive in the life sciences industry, as Executive Chair of
the Board with oversight responsibilities and as the Company’s principal executive officer.
•In
addition to the new executive leadership of Mr. Cox, and also in connection with the strategic review, in December 2022, we announced
a workforce reduction plan to reduce operating costs and focus on long-term growth opportunities in our life sciences business. As a result,
we reduced our workforce by approximately 16%, with a majority of these employees separating in December of 2022 and the remaining affected
employees separating over the next three-month period.
SPAC
Merger
On
September 1, 2021 (the “Closing Date”), we consummated a business combination with a special purpose acquisition company (the
“SPAC Merger”) contemplated by the Merger Agreement, dated March 28, 2021 by and among CMLS II, S-Craft Merger Sub, Inc.,
a Delaware corporation and a direct, wholly-owned subsidiary of CMLS II (“Merger Sub”), and SomaLogic Operating (“Old
SomaLogic”). Pursuant to the Merger Agreement, Merger Sub merged with and into Old SomaLogic, with Old SomaLogic surviving the merger
as a wholly-owned subsidiary of CMLS II. Upon the closing of the SPAC Merger, CMLS II changed its name to SomaLogic, Inc., and Old SomaLogic
changed its name to SomaLogic Operating Co., Inc.
Unless
the context otherwise requires, the terms “we”, “us”, “our”, “SomaLogic" and “the Company"
refer to, for periods prior to the completion of the SPAC Merger, SomaLogic, Inc. and its subsidiaries, and, for periods upon or after
the completion of the SPAC Merger, SomaLogic, Inc., the combined company and its subsidiaries. See Note 3, Business
Combinations, for
more details of the SPAC Merger and, the presentation of historical amounts and balances after the SPAC Merger. Our Common Stock and warrants
to purchase Common Stock are listed on the Nasdaq under the ticker symbols “SLGC” and “SLGCW”, respectively.
Factors
Affecting Our Performance
The
following factors have been important to our business and we expect them to impact our results of operations and financial condition in
future periods:
•Continued
adoption of our services and products:
•We
have a well-established base of marquee customer and Key Opinion Leaders (“KOL”) relationships in place, and as we grow further,
we expect to win contracts with new customers and expand the scope of existing contracts with existing customers.
•We
plan to develop and grow our offering of reagents and corresponding solutions, including both small and large plex capabilities, site-of-service
deployed assay options, and bioinformatics offerings to attract additional customers and cross-sell to existing customers.
•We
continue to focus on growing our proteomics database and artificial intelligence and machine learning analytics to drive value and market
opportunities.
•We
expect our total revenue may vary from period to period based on, among other things, the timing and size of new contracts, fluctuations
in customer consumption of and adoption trends, ramp time and productivity of our salesforce, the impact of significant transactions,
and seasonality. Failure to effectively develop and expand our sales and marketing capabilities or improve the productivity of our sales
and marketing organization could harm our ability to expand our potential customer and sales pipeline, increase our customer base, and
achieve broader market acceptance of our offering.
•Continued
investment in growth:
•We
continue to invest significantly in our laboratory process and commercial infrastructure.
•Investments
in research and development will include hiring of employees with the necessary scientific and technical backgrounds to enable enhancements
to our existing services and products and bring new services and products to market.
•Ability
to lower the costs associated with performing the assay:
•We
intend to reduce the cost of manufacturing inventory by, in part, modifying our assays and laboratory processes to use materials and technologies
that provide equal or greater quality at lower cost, improving how we manage our materials and negotiating favorable terms for our materials
purchases.
•We
intend to reduce the cost of performing our SomaScan® assay as we move to either a less expensive array or Next Generation Sequencing
system for our DNA readout of the protein concentrations present in a sample.
•Seasonality:
•Our
revenue can be seasonal dependent upon the procurement and budgeting cycles of many of our customers, especially government- or grant-funded
customers, whose cycles often coincide with government fiscal year ends.
•Development
and commercialization of clinical diagnostic tests:
•We
aim to continue to advance our portfolio of clinical diagnostic tests that leverage our proprietary proteomics platform and artificial
intelligence-enabled bioinformatics. By developing additional tests, the Company can provide more options to customers and collaborators
and further commercialize our platform driving growth in revenue.
•Expansion
of our proteomic content:
•To
maintain our competitive advantage, we plan to increase the number of protein reagents for commercial availability based on allocated
funding, resource availability, and the successful validation of new reagents.
•Macroeconomic
conditions:
•A
deterioration in macroeconomic economic conditions including risk of recession, decreased government funding, effects of inflation, labor
shortages, supply chain issues and higher interest rates could impact both our and our customers’ operations. We could experience
pricing pressure and decreased demand as a result.
Components
of Results of Operations
Revenue
We
derive our revenue from four primary sources: (1) assay services revenue, (2) product revenue, (3) collaboration revenue,
and (4) other revenue. Customers include top biopharmaceutical companies and leading academic research universities.
Assay
services revenue
We
generate assay services revenue primarily from the sale of SomaScan®
services. SomaScan®
service revenue is derived from performing the SomaScan®
assay on customer samples to generate data on protein biomarkers. We expect assay services revenue to increase over the long-term with
new and recurring sales opportunities. With the enhancement of our proteomic services, we expect to capture more market opportunities
outside of the United States region, as well as winning contracts with new customers and expanding the scope of sales with existing
customers.
Product
revenue
Product
revenue primarily consists of equipment and kit sales, which enable our customers to bring the SomaScan®
proteomic platform in-house and to build lines of business based on this technology. The establishment of SomaScan®
Certified Sites will allow SomaLogic to quickly grow into new geographic regions and expand our customer base.
Collaboration
revenue
Collaboration
revenue consists of fees earned for research and development services, except for grant revenue research and development services that
are classified in other revenue. Collaboration revenue currently relates to an arrangement with one customer, NEC Solution Innovators,
Ltd. (“NES”), a wholly owned subsidiary of NEC Corporation (“NEC”). We believe expanding collaborative arrangements
with KOLs will allow for further enhancements of our integrated platform, lower barriers to adoption and introduce or expand new market
channels and customers within geographic regions and markets we do not currently operate in.
Other
revenue
Other
revenue includes royalty revenue and revenue received from research grants. The Company recognizes royalty revenue for fees paid by customers
in return for a license to make, use or sell certain licensed products in certain geographic areas in the period in which the subsequent
sale or usage has occurred. A license arrangement entered into in September 2022 with New England BioLabs (“NEB”) includes
guaranteed fixed minimum royalties for which revenue has been recognized, net of the effect of a significant financing component. Any
revenue above the guaranteed fixed minimum royalties is recognized in the period in which the subsequent sale or usage has occurred. Grant
revenue represents funding under cost reimbursement programs from government agencies, and non-profit foundations for qualified research
and development activities performed by the Company. We expect other revenue to continue to grow as we expand our commercial team and
continue to pursue additional licensing relationships.
Cost
of revenue
Cost
of assay services revenue
Cost
of assay services revenue consists of raw materials and production costs, salaries and other personnel costs, overhead and other direct
costs related to assay services revenue. It also includes costs for production variances, such as yield losses, material usages, spending
and capacity variances. Cost of assay services revenue is recognized in the period the related revenue is recognized.
We
expect cost of assay services revenue to increase as we grow our sample volume. We expect the cost per sample to decrease over the long
term due to the efficiencies we may gain as sample volume increases from improved utilization of our laboratory capacity and other value
engineering initiatives. If our sample volume throughput is reduced cost of revenue as a percentage of total revenue may be adversely
impacted due to fixed overhead cost.
Cost
of product revenue
Cost
of product revenue consists primarily of raw materials, equipment and production costs, salaries and other personnel costs, overhead and
other direct costs related to product revenue. Cost of product revenue is recognized in the period the related revenue is recognized.
Shipping and handling costs incurred for product shipments are included in cost of product revenue in the consolidated statements of operations
and comprehensive loss.
Research
and development
Research
and development expenses consist primarily of salaries and benefits, laboratory supplies, clinical study costs, consulting fees and related
costs. We believe that our continued investment in research and development is essential to our long-term competitive position. We plan
to continue to invest significantly in our research and development efforts, including hiring additional employees, with an expected focus
on advancing our assay and our bioinformatics platform, new clinical studies, as well as lowering the cost of assays. As a result of these
and other initiatives, we expect research and development expenses will increase in absolute dollars in future periods and vary from period
to period as a percentage of revenue.
Selling,
general and administrative
Selling
expenses consist primarily of personnel and marketing related costs. General and administrative expenses consist primarily of personnel
costs for our finance, human resources, business development and general management, as well as professional services, such as legal and
accounting services.
As
we continue to introduce new services and products, broaden our customer base and grow our business, we expect selling, general and administrative
expenses to increase in future periods as the number of sales and marketing and administrative personnel grows. We also anticipate incurring
increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs, as well as, investor and public relations
expenses associated with operating as a public company.
Interest
income and other, net
Interest
income and other, net primarily consists of interest earned on our cash equivalents and investments, which are invested in money market
funds, commercial paper, U.S Treasuries, asset-backed securities, corporate bonds, and agency bonds. Interest income and other, net also
includes interest income recognized related to a significant financing component.
Interest
expense
Interest
expense is attributable to our borrowings under debt agreements.
Change
in fair value of warrant liabilities
Change
in fair value of warrant liabilities consists of changes in fair value related to the Public Warrant and Private Warrant liabilities.
The warrant liabilities are classified as marked-to-market liabilities pursuant to ASC 815,Derivatives
and Hedging (“ASC 815”),
and the corresponding increase or decrease in value impacts our net loss.
Change
in fair value of earn-out liability
Change
in fair value of earn-out liability consists of changes in the earn-out liability related to Earn-Out Shares issuable to former stockholders
of Old SomaLogic. The earn-out liability is classified as a marked-to-market liability pursuant to ASC 815 and the corresponding increase
or decrease in value impacts our net loss.
Loss
on extinguishment of debt, net
Loss
on extinguishment of debt, net consists of a loss on extinguishment of debt due to conversion of the Convertible Debt and repayment of
the Amended and Restated Credit Agreement, and offset by a gain on extinguishment of debt due to forgiveness of the Paycheck Protection
Program (“PPP”) loan during the year ended December 31, 2021.
Results
of Operations
Comparison
of the year ended December 31, 2022 versus the year ended December 31, 2021
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
Change |
(in
thousands) |
2022 |
|
2021 |
|
$ |
|
% |
Revenue: |
|
|
|
|
|
|
|
Assay
services revenue |
$ |
63,038 |
|
|
$ |
68,038 |
|
|
$ |
(5,000) |
|
|
(7) |
% |
Product
revenue |
4,243 |
|
|
1,277 |
|
|
2,966 |
|
|
NM |
Collaboration
revenue |
3,051 |
|
|
3,051 |
|
|
— |
|
|
— |
% |
Other
revenue |
27,334 |
|
|
9,260 |
|
|
18,074 |
|
|
195 |
% |
Total
revenue |
$ |
97,666 |
|
|
$ |
81,626 |
|
|
$ |
16,040 |
|
|
20 |
% |
NM A
percentage calculation is not meaningful due to change in signs, a zero-value denominator or a percentage change greater than 200.
Total
revenue increased by $16.0 million, or 20%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Assay
services revenue decreased by $5.0 million, or 7%, for the year ended December 31, 2022 compared to the year ended December 31,
2021 primarily due to a decrease in average selling price driven by customer mix, offset by a slight increase in sample volumes resulting
from fluctuations in consumer consumption.
Product
revenue increased by $3.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily
due to the sale of equipment and kits to new kits customers.
Other
revenue increased by $18.1 million, or 195%, for the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily due to a $17.7 million increase in royalty revenue driven by recognition of $8.0 million of previously constrained royalty revenues
and $13.2 million related to guaranteed fixed minimum royalties, net of the effect of a significant financing component, offset by a $3.5
million decrease in sales-based royalties driven by a decrease in COVID research testing.
Cost
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
Change |
(in
thousands) |
2022 |
|
2021 |
|
$ |
|
% |
Cost
of assay services revenue |
$ |
41,419 |
|
|
$ |
32,782 |
|
|
$ |
8,637 |
|
|
26 |
% |
Cost
of product revenue |
1,945 |
|
|
681 |
|
|
1,264 |
|
|
186 |
% |
Total
cost of revenue |
$ |
43,364 |
|
|
$ |
33,463 |
|
|
$ |
9,901 |
|
|
30 |
% |
Total
cost of revenue increased by $9.9 million, or 30%, for the year ended December 31, 2022 compared to the year ended December 31,
2021.
Cost
of assay services revenue increased by $8.6 million, or 26%, for the year ended December 31, 2022 compared to the year ended December 31,
2021. The increase in cost of assay services revenue was primarily due to slight increase in sample volume and varying degrees of production
inefficiencies due to delays in sample receipts, along with inventory scrap charges.
Cost
of product revenue increased by $1.3 million, or 186%, for the year ended December 31, 2022 compared to the year ended December 31,
2021 primarily due to the sale of equipment and kits to new kits customers.
Research
and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
Change |
(in
thousands) |
2022 |
|
2021 |
|
$ |
|
% |
Research
and development |
$ |
73,444 |
|
|
$ |
43,496 |
|
|
$ |
29,948 |
|
|
69 |
% |
Research
and development increased by $29.9 million, or 69%, for the year ended December 31, 2022 compared to the year ended December 31,
2021. The increase in research and development was primarily due to an $18.3 million increase in professional services and supplies related
to projects for content expansion and cost reduction, a $6.4 million increase in internal clinical studies, a $7.0 million increase in
wages and benefits due to increased headcount, a $3.6 million increase in stock-based compensation expense due to new equity awards and
Earn-Out Shares issued to Earn-Out Service Providers, offset by a $6.5 million non-recurring, non-cash stock-based compensation expense
incurred in the prior year related to the sale of stock and vested options by an employee to an economic interest holder in excess of
fair value.The Company has also incurred $1.1 million of restructuring charges during the year ended December 31, 2022.
Selling,
general, and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
Change |
(in
thousands) |
2022 |
|
2021 |
|
$ |
|
% |
Selling,
general and administrative |
$ |
156,619 |
|
|
$ |
77,971 |
|
|
$ |
78,648 |
|
|
101 |
% |
Selling,
general, and administrative increased by $78.6 million, or 101%, for the year ended December 31, 2022 compared to the year ended
December 31, 2021. The increase in selling, general and administrative was primarily due to
a $6.7 million increase
in advisory and management services incurred in relation to public-company compliance and other transactions, including costs incurred
in relation to the Palamedrix acquisition, a $27.7 million increase in wages and benefits due to increased headcount in our commercial
and administrative teams, a $15.9 million increase in services incurred related to marketing initiatives and product development, and
a $10.2 million increase in stock-based compensation expense due to new equity awards and Earn-Out Shares issued to Earn-Out Service
Providers. Additionally, the Company has incurred $5.0 million of lease termination fees, a $7.8 million stock-based compensation expense
related to the accelerated vesting of options held by terminated executives, $1.4 million severance related to the terminated executives,
and a $2.4 million loss on disposals of assets related to abandonment of certain uncompleted internally developed software projects. The
Company has also incurred $1.5 million of restructuring charges during the year ended December 31, 2022.
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
Change |
(in
thousands) |
2022 |
|
2021 |
|
$ |
|
% |
Other
income (expense): |
|
|
|
|
|
|
|
Interest
income and other, net |
$ |
8,049 |
|
|
$ |
263 |
|
|
$ |
7,786 |
|
|
NM |
Interest
expense |
— |
|
|
(1,324) |
|
|
1,324 |
|
|
(100) |
% |
Change
in fair value of warrant liabilities |
30,968 |
|
|
(6,952) |
|
|
37,920 |
|
|
NM |
Change
in fair value of earn-out liability |
26,870 |
|
|
(1,869) |
|
|
28,739 |
|
|
NM |
Loss
on extinguishment of debt, net |
— |
|
|
(4,323) |
|
|
4,323 |
|
|
(100) |
% |
Total
other income (expense) |
$ |
65,887 |
|
|
$ |
(14,205) |
|
|
$ |
80,092 |
|
|
NM |
NM A
percentage calculation is not meaningful due to change in signs, a zero-value denominator or a percentage change greater than 200.
Interest
income and other, net increased by $7.8 million, for the year ended December 31, 2022 compared to the year ended December 31,
2021 primarily due to an average higher cash equivalents and investment balances as well as rising interest rates during the year ended
December 31, 2022 compared to the year ended December 31, 2021.
Interest
expense decreased by $1.3 million, or 100%, for the year ended December 31, 2022 compared to the year ended December 31, 2021
primarily due to the interest on the Amended and Restated Credit Agreement during the period ended December 31, 2021. The credit
agreement was paid back in full in April 2021.
Change
in fair value of warrant liabilities of $37.9 million for the year ended December 31, 2022, due to the remeasurement of the warrant
liabilities.
Change
in fair value of the earn-out liability of $28.7 million for the year ended December 31, 2022, due to the remeasurement of the earn-out
liability.
Loss
on extinguishment of debt, net of $4.3 million for the year ended December 31, 2021 is due to a $5.2 million loss on extinguishment
of debt as a result of the repayment of the Amended and Restated Credit Agreement in April 2021, a $2.7 million loss on extinguishment
of debt as a result of the conversion of the Convertible Debt in July 2021 offset by a $3.6 million gain on extinguishment of debt as
of result of the forgiveness of the PPP loan in June 2021.
Income
Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
Change |
(in
thousands) |
2022 |
|
2021 |
|
$ |
|
% |
Income
tax benefit (provision) |
$ |
717 |
|
|
$ |
(38) |
|
|
$ |
755 |
|
|
NM |
NM A
percentage calculation is not meaningful due to change in signs, a zero-value denominator or a percentage change greater than 200.
The
income tax benefit for the year ended December 31, 2022 resulted primarily from changes in the valuation allowance due to deferred
tax liabilities resulting from acquired indefinite lived intangible assets as part of the acquisition of Palamedrix.
Non-GAAP
Financial Measures
We
present non-GAAP financial measures in order to assist readers of our consolidated financial statements in understanding the core operating
results used by management to evaluate and run the business, as well as, for financial planning purposes. Our non-GAAP financial measure,
Adjusted EBITDA, provides an additional tool for investors to use in comparing our financial performance over multiple periods.
Adjusted
EBITDA is a key performance measure that our management uses to assess its operating performance. Adjusted EBITDA facilitates internal
comparisons of our operating performance on a more consistent basis, and we use this measure for business planning, forecasting, and decision-making.
We believe that Adjusted EBITDA enhances an investor’s understanding of our financial performance as it is useful in assessing our
operating performance from period-to-period by excluding certain items that we believe are not representative of our core business.
Adjusted
EBITDA should not be considered as an alternative to, or more meaningful than, net loss as determined in accordance with GAAP or as an
indicator of our operating performance. Certain items excluded from Adjusted EBITDA are significant components in understanding and assessing
a company’s financial performance. Our presentation of Adjusted EBITDA should not be construed as an inference that our results
will be unaffected by those adjusted items. Our Adjusted EBITDA may not be comparable to similarly titled measures of other companies
because they may not calculate this measure in the same manner.
Adjusted
EBITDA
We
calculate Adjusted EBITDA as net loss adjusted to exclude interest income and other, net, interest expense, income tax benefit, depreciation
and amortization, and other non-recurring items. The other non-recurring items include the loss on extinguishment of debt, net, stock-based
compensation related to the secondary sale transaction, change in the fair value of warrant liabilities and the earn-out liability, stock
compensation expense related to equity award modifications and restructuring charges
The
following table is a reconciliation of net loss in accordance with GAAP to non-GAAP adjusted EBITDA for the year ended December 31,
2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
(in
thousands) |
|
2022 |
|
2021 |
Net
loss |
|
$ |
(109,157) |
|
|
$ |
(87,547) |
|
Adjustments
to reconcile to EBITDA: |
|
|
|
|
Interest
income and other, net |
|
(8,049) |
|
|
(263) |
|
Interest
expense |
|
— |
|
|
1,324 |
|
Income
tax benefit (provision) |
|
(717) |
|
|
38 |
|
Depreciation
and amortization |
|
4,571 |
|
|
2,569 |
|
EBITDA |
|
(113,352) |
|
|
(83,879) |
|
Adjustments
to reconcile to Adjusted EBITDA: |
|
|
|
|
Loss
on extinguishment debt, net (1) |
|
— |
|
|
4,323 |
|
Change
in fair value of warrant liabilities (2) |
|
(30,968) |
|
|
6,952 |
|
Change
in fair value of earn-out liability (3) |
|
(26,870) |
|
|
1,869 |
|
Stock-based
compensation expense related to the secondary sale transaction (4) |
|
— |
|
|
6,461 |
|
Stock
compensation expense related to equity award modifications (5)
|
|
7,661 |
|
|
700 |
|
Restructuring
charges (6)
|
|
2,888 |
|
|
— |
|
Adjusted
EBITDA |
|
$ |
(160,641) |
|
|
$ |
(63,574) |
|
(1) Represents
the $5.2 million loss on extinguishment of debt as a result of the repayment of the Amended and Restated Credit Agreement in April 2021,
a $2.7 million loss on extinguishment of debt as a result of the conversion of the Convertible Debt in July 2021 and offset by the $3.6
million gain on extinguishment of debt as a result of the forgiveness of the PPP loan in June 2021.
(4) Represents
a one-time non-cash stock-based compensation expense of $6.5 million related to the sale of stock and vested options by an employee to
an economic interest holder in excess of fair value. See Note 13, Stock-based
Compensation, for
more details.
(5) Represents
stock-based compensation expense related to equity modifications. See Note 13, Stock-based
Compensation, for
more details.
(6) Represents
restructuring charges related to the Strategic Reorganization consisting of severance, other termination benefit costs, and non-cash stock-based
compensation expense. See Note 18, Restructuring,
for more details.
Liquidity
and Capital Resources
Historically,
our primary sources of liquidity have been revenue collected from our customers, net proceeds from sale of our capital stock, and borrowings
from debt facilities. We received net proceeds of $530.1 million from the SPAC Merger and PIPE Investment on September 1, 2021. We expect
our operating cash flows to further improve as we increase operational efficiencies and experience economies of scale.
We
believe that our existing cash and cash equivalents and investments will be sufficient to support working capital and capital expenditure
requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our sample volume
growth rate, the pace of expansion of sales and marketing activities, the timing and extent of spending to supporting research and development
efforts, the introduction of new and enhanced products and services, and the level of costs to operate as a public company.
Our
borrowings from debt facilities were provided from three different sources.
•On
April 9, 2021, the Company repaid the Amended and Restated Credit Agreement in full and the obligation was extinguished. In addition to
the outstanding principal balance of $33.3 million as of that date, the Company also paid a prepayment penalty of approximately $4.0 million.
•In
April 2020, we received a loan in the aggregate amount of $3.5 million, pursuant to the Paycheck Protection Program, established pursuant
to the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and administered by the United States
Small Business Administration. Under the terms of the
CARES
Act, we applied for and received forgiveness on June 21, 2021 for the full amount borrowed under the PPP loan, including less than $0.1
million of accrued interest, which was recognized as a gain on extinguishment of debt during the year ended December 31, 2021.
•On
July 9, 2021, the holder of the Convertible Debt converted the Convertible Debt into 682,070 shares of Old SomaLogic Class B common stock.
The 682,070 shares of Old SomaLogic Class B common stock that were issued for the conversion of the Convertible Debt are presented in
the consolidated statements of stockholders’ equity as 571,642 shares of Common Stock as a result of the reverse recapitalization.
As of December 31, 2022 and 2021, no debt obligations are outstanding.
We
may be required to seek additional equity or debt financing. In the event the Company requires additional financing, we may not be able
to raise such financing on terms acceptable to us or at all. If we are unable to raise additional capital or generate cash flows necessary
to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business,
operations, and financial condition.
We
have also entered into various operating lease agreements for administrative and laboratory facilities in Boulder, Colorado. As of December 31,
2022, our total future lease payments were $4.7 million.
Cash
flows
The
following table summarizes our cash flows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
(in
thousands) |
2022 |
|
2021 |
Net
cash used in operating activities |
$ |
(100,669) |
|
|
$ |
(40,384) |
|
Net
cash provided by (used in) investing activities |
82,542 |
|
|
(182,019) |
|
Net
cash provided by financing activities |
5,185 |
|
|
497,491 |
|
Effect
of exchange rates on cash, cash equivalents and restricted cash |
(43) |
|
|
(14) |
|
Net
(decrease) increase in cash, cash equivalents and restricted cash |
$ |
(12,985) |
|
|
$ |
275,074 |
|
Cash
flows from operating activities
Cash
used in operating activities for the year ended December 31, 2022 was $100.7 million, which was primarily attributable to a net loss
of $109.2 million, which included a non-cash gain on the change in fair value of the earn-out liability of $26.9 million, a non-cash gain
on the change in fair value of warrant liabilities of $31.0 million, a non-cash amortization of premium on available-for-sale securities,
net, of $1.0 million, and a non-cash income tax benefit of $0.8 million. This was partially offset by non-cash stock-based compensation
expense of $43.6 million, non-cash depreciation and amortization of $4.6 million, non-cash provision for excess and obsolete inventory
of $0.5 million, and loss on disposal of assets of $2.4 million. Additionally, we incurred $11.1 million in cloud computing arrangement
expenditures and experienced a net increase in our operating assets and liabilities of $28.0 million.
Cash
used in operating activities for the year ended December 31, 2021 was $40.4 million, which was primarily attributable to a net loss of
$87.5 million and was partially offset by non-cash stock-based compensation expense of $28.4 million, non-cash change in the fair value
of the warrant liabilities of $7.0 million, non-cash change in the fair value of the earn-out liability of $1.9 million, loss on extinguishment
of debt, net of $4.3 million, non-cash depreciation and amortization of $2.6 million, non-cash PIK interest expense of $0.2 million, non-cash
provision for excess and obsolete inventory of $0.7 million, non-cash amortization of premium on available-for-sale securities, net, of
$0.4 million, non-cash amortization of debt issuance costs, discounts and premiums of $0.3 million. Additionally, we incurred $3.4 million
in cloud computing arrangement expenditures and experienced a net increase in our operating assets and liabilities of $4.9 million.
Cash
flows from investing activities
Cash
provided by investing activities for the year ended December 31, 2022 was $82.5 million, consisting of proceeds received of $101.0
million from maturities of available-for-sale securities, net of purchases. This was offset by $5.2 million for the purchase of property
and equipment, and $13.3 million acquisition of Palamedrix, net of cash acquired.
Cash
used in investing activities for the year ended December 31, 2021 was $182.0 million, consisting of $178.7 million for the purchase of
available-for-sale securities, net of proceeds from maturities of available-for-sale securities, and $3.3 million for the purchase of
property and equipment.
Cash
flows from financing activities
Cash
provided by financing activities for the year ended December 31, 2022 was $5.2 million, which was attributable to the proceeds from
the exercise of options to purchase our common stock.
Cash
provided by financing activities for the year ended December 31, 2021 was $497.5 million, consisting of the $357.2 million in net
proceeds from the PIPE investment, $172.9 million in net proceeds from the SPAC Merger, and $3.9 million in proceeds from the exercise
of options to purchase our common stock. The cash provided by financing activities was partially offset by the $36.5 million repayment
of the Amended and Restated Credit Agreement.
Critical
Accounting Policies and Estimates
Our
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which
have been prepared in accordance with United States generally accepted accounting principles, or GAAP. The preparation of the
consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenue, costs, expenses and related disclosures. We evaluate our estimates and judgments on an on-going basis. We base our estimates
on current facts, historical and anticipated results, trends, and other relevant assumptions that we believe are reasonable under the
circumstances. Actual results could differ from these estimates, and such differences could be material to the Company’s consolidated
financial position and results of operations. Within the context of these critical accounting policies, we are not currently aware of
any reasonably likely event that would result in materially different amounts being reported.
While
our significant accounting policies are described in more detail in Note 2, Significant
Accounting Policies,
in “Item 8. Financial Statements and Supplementary Data”, we believe that the following accounting policies are those most
critical as they require difficult, subjective, and/or complex judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue
recognition
We
recognize revenue from sales to customers under ASC 606, Revenue
from Contracts with Customers.
ASC 606 provides a five-step model for recognizing revenue that includes identifying the contract with a customer, identifying
the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations,
and recognizing revenue when, or as, an entity satisfies a performance obligation.
We
recognize revenue when or as control of promised goods or services is transferred to the customers, in an amount that reflects the consideration
we expect to be entitled to in exchange for those goods or services. Sales, value add, and other taxes collected concurrent with revenue-producing activities
are excluded from revenue and products are sold without the right of return.
Payment
terms may vary by customer, are based on customary commercial terms, and are generally less than one year. We do not adjust revenue for
the effects of a significant financing component for contracts where the period between the transfer of the goods or services and collection
is one year or less. We expense incremental costs to obtain a contract as incurred since the amortization period of the asset that would
otherwise be recognized is one year or less.
Assay
services revenue
We
generate assay services revenue primarily from the sale of SomaScan® services. SomaScan® service revenue is derived
from performing the SomaScan® assay on customer samples to generate data on protein biomarkers. Revenue from SomaScan® services
is recognized at the time the analysis data or report is delivered to the customer, which is when control has been transferred to the
customer. SomaScan® services are sold at a fixed price per sample without any volume discounts, rebates or refunds.
The
delivery of each assay data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction
price must be allocated to each performance obligation based on its relative standalone selling price. When assay services are included
with other products or services within a customer contract, judgment is required to determine whether the promises are distinct or should
be combined and to determine the transaction price allocation and standalone selling price. Standalone selling price is primarily determined
based on amounts invoiced to customers in observable transactions. Standalone selling price varies depending on customer size, volume
and contract length.
Product
revenue
Product
revenue primarily consists of equipment and kit sales to customers that assay samples in their own laboratories. Equipment is generally
accounted for as a bundle with installation, qualification and training services. Revenue is recognized based on the progress made toward
achieving the performance obligation utilizing input methods, including costs incurred. The Company receives fixed consideration per kit
and revenue from kit sales is recognized upon transfer of control to the customer. Shipping and handling costs billed to customers are
included in product revenue in the consolidated statements of operations and comprehensive loss.
Collaboration
revenue
We
provide research and development services that are accounted for in accordance with ASC 808, Collaborative
Arrangements, because
both parties are active participants and are exposed to significant risks and rewards depending on the activity’s commercial failure
or success. The most critical judgments used to estimate revenue from collaborative arrangements include the determination of units of
account within the scope of ASC 606, the number of distinct performance obligations, estimation of transaction price including allocation
to the identified performance obligations, and determination of the pattern of recognition.
Other
revenue
Other
revenue includes royalty revenue and revenue received from research grants. We recognize royalty revenue for fees paid by customers in
return for a functional license of intellectual property to make, use or sell certain licensed products in certain geographic areas in
the period in which the subsequent sale or usage has occurred. A royalty arrangement entered into in September 2022 with New England BioLabs
(“NEB”) includes guaranteed fixed minimum royalties for which revenue has been recognized, net of the effect of a significant
financing component. Any revenue above the guaranteed fixed minimum royalties is recognized in the period in which the subsequent sale
or usage has occurred.
Grant
revenue represents funding under cost reimbursement programs from government agencies and non-profit foundations for qualified research
and development activities performed by the Company. For efforts performed under these grant agreements, our policy is to recognize revenue
when it is reasonably assured that the grant funding will be received as evidenced through the existence of a grant arrangement, amounts
eligible for reimbursement are determinable and have been incurred, the applicable conditions under the grant arrangements have been met,
and collectability of amounts due is reasonably assured. The classification of costs incurred related to grants is based on the nature
of the activities provided by the Company. Grant revenue is recognized when the related costs are incurred and recorded in other revenue
in the consolidated statements of operations and comprehensive loss.
Illumina
Cambridge, Ltd.
On
December 31, 2021, the Company entered into a multi-year arrangement with Illumina Cambridge, Ltd. (“Illumina Agreement”)
to jointly develop and commercialize co-branded kits that will combine Illumina’s Next Generation Sequencing (“NGS”)
technology with SomaLogic’s SomaScan technology. Pursuant to the agreement, we received a non-refundable upfront payment of $30.0
million on January 4, 2022. This arrangement is accounted for in accordance with ASC 606 by analogy. The Company concluded there are two
performance obligations:: (1) SOMAmer reagents necessary to develop and commercialize NGS based proteomic products, inclusive of the rights
to licenses, patents and training to allow for the use of such reagents and (2) an option to purchase goods post-commercialization with
a material right (“Material Right”). The total transaction price is subject to a constraint since it is uncertain that commercialization
will be achieved; and therefore the transaction price was determined to be $30.0 million and was allocated to each of the performance
obligations identified on a relative standalone selling price basis. Revenue from the performance obligations is recognized as follows
in product revenue on the condensed consolidated statements of operations and comprehensive loss:
Reagents:
Revenue is recognized as control transfers when the SOMAmer reagents are shipped. The Company estimated the standalone selling price (“SSP”)
based on observable pricing of similar performance obligations.
Material
Right: Revenue is recognized
when Illumina exercises its option to purchase goods post-commercialization. The Company estimated the SSP based on an incremental discount
to be provided to the customer adjusted for the likelihood that Illumina will exercise the option.
In
June 2022, Illumina issued a purchase order that changed the future obligations due from SomaLogic under the Illumina Agreement. The purchase
order represents a contract modification that is accounted for prospectively as if it were a termination of the existing contract and
the creation of a new contract.
As
a result, the Company determined that there were three new performance obligations (total of five performance obligations): (1) equipment
bundle that includes customization services, integration services, system qualification services, site initiation services and training
(“Equipment Bundle”), (2) qualification kits, and (3) support services. The contract modification resulted in an increase
in the transaction price of $0.5 million. The updated transaction price was allocated between the performance obligations on a relative
SSP basis. Revenue from the performance obligations is recognized as follows in product revenue on the condensed consolidated statements
of operations and comprehensive loss:
Equipment
Bundle: Revenue is recognized
over time based on the progress made toward achieving the performance obligation utilizing input methods, including costs incurred. The
Company estimated the SSP based on observable pricing of similar performance obligations.
Qualification
Kits: Revenue is recognized
as control transfers when the qualification kits are shipped. The Company estimated the SSP based on observable pricing of similar performance
obligations.
Support
Services: Revenue is
recognized for the support services over the service period, using an input method based on time. The Company estimated the SSP based
on observable pricing of similar performance obligations.
During
the year ended December 31, 2022, the Company recognized $0.1 million of revenue pursuant to the Illumina Agreement.
The
Company also recognizes revenue for the sale of kits to Illumina under separate contracts
In-process
research and development
Acquired
in-process research and development(“IPR&D”) intangible assets were initially recognized at fair value and are considered
indefinite-lived until the completion or abandonment of the associated research and development efforts. During the development phase,
these assets are not amortized but are tested for impairment annually or more frequently if events or changes in circumstances indicate
that it is more likely than not that the asset is impaired. Once the IPR&D activities are completed, the intangible asset is amortized
over its useful life on a straight-line basis.
Goodwill
We
recognized goodwill as a result of the Palamedrix acquisition. Goodwill is the difference between the total consideration paid in a business
combination and the fair value of the net identifiable assets acquired and liabilities assumed. Goodwill is not amortized but is tested
for impairment on an annual basis and in interim periods if events or changes in circumstances indicate that it is more likely than not
that the fair value of a reporting unit is below its carrying amount. All of the Company’s goodwill is assigned to its one reporting
unit.
Inventory
Inventory
is stated at the lower of cost or net realizable value on a first-in, first-out basis. Cost is determined using a standard cost
system, whereby the standard costs are updated periodically to reflect current costs. The Company estimates the recoverability of inventory
by referencing estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory
levels to identify inventory that may expire prior to expected usage, no longer meets quality specifications, or has a cost basis in excess
of its estimated realizable value and records a charge to cost of revenue for such inventory as appropriate. In some cases, we have determined
a certain portion of inventories to be in excess or obsolete. In those cases, we write down the value of those inventories to their net
realizable value based upon judgment and estimates about future demand and market conditions. If actual market conditions are less favorable
than those projected by management, additional inventory write-downs may be required. Direct and indirect manufacturing costs incurred
during research and development activities are expensed to research and development as consumed. Judgment is required in determining the
value of inventory that is not expected to be used in our assay services within 12 months of the current reporting period and is
recorded as non-current inventory on the consolidated balance sheets.
Stock-based
compensation
The
Company incurs stock-based compensation expense related to our equity awards, net of an estimated forfeiture rate over the employee’s
requisite service period, which is generally the vesting period, on a straight-line basis. Stock-based compensation costs are estimated
at the grant date based on the fair value of the equity for financial reporting purposes. We utilize the Black-Scholes valuation
model for estimating the fair value of stock options granted. The fair value of each option is estimated on the date of grant. The model
assumptions include expected volatility, term, dividend yield and the risk-free interest rate. Assumptions used in applying the
Black-Scholes option-pricing model to determine the estimated fair value of stock options granted are complex, involve inherent
uncertainties and the application of judgment. As a result, if factors or expected outcomes change and significantly different assumptions
or estimates are used, the Company’s equity-based compensation could be materially different.
Set
forth below are the assumptions used in valuing the stock options granted and a discussion of the Company’s methodology for developing
each of the assumptions used:
•Expected
dividend yield — The Company did not pay regular dividends on its common stock and does not anticipate paying any dividends
in the foreseeable future. Therefore, the Company used an expected dividend yield of zero in the option valuation model.
•Expected
volatility — Volatility is a measure of the amount by which a financial variable, such as share price, has fluctuated
(historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company analyzes the volatility used by
similar public companies at a similar stage of development to estimate expected volatility. The comparable companies are chosen based
on their similar size, stage in the life cycle or area of specialty.
•Risk-free interest
rate — We use a range of United States Treasury rates with a term that most closely resembles the expected life
of the option as of the date of which the option was granted.
•Expected
average life of options — The expected life assumption is the expected time to exercise. The Company uses a simplified
method to develop this assumption, which uses the average of the vesting period and the contractual terms.
Determination
of Fair Value of Common Stock
As
there was no public market for the Old SomaLogic common stock prior to the consummation of the SPAC Merger, on each grant date, Old SomaLogic
developed an estimate of the fair value of the Old SomaLogic common stock based on the information known to Old SomaLogic on the date
of grant, upon a review of any recent events and their potential impact on the estimated fair value per share of the Old SomaLogic common
stock, and in part on input from a third-party valuation firm.
The
valuations of the Old SomaLogic common stock were determined in accordance with the guidelines outlined in the American Institute of Certified
Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (“Practice Aid”).
To determine the fair value of the Old SomaLogic common stock, Old SomaLogic utilized the probability-weighted expected return method
and incorporated valuations under different scenarios and methods, included the option pricing, or “backsolve” method, which
estimated the fair value of Old SomaLogic by reference to the value and preferences of its last round of financing, as well as its capitalization.
The
assumptions used to determine the estimated fair value of the Old SomaLogic common stock were based on numerous objective and subjective
factors, combined with management’s judgment, including:
•the
progress of Old SomaLogic’s research and development efforts, Old SomaLogic’s stage of development, and business strategy;
•the
rights, preferences, and privileges of Old SomaLogic’s redeemable convertible preferred stock relative to those of the Old SomaLogic
common stock;
•the
prices at which Old SomaLogic sold shares of its redeemable convertible preferred stock;
•Old
SomaLogic’s financial condition and operating results, including its levels of available capital resources;
• equity
market conditions affecting comparable public companies; and
•general
United States market conditions and the lack of marketability of the Old SomaLogic common stock.
As
the public trading market for our Common Stock has been established in connection with the consummation of the SPAC Merger, it is no longer
necessary for our Board of Directors to estimate the fair value of our Common Stock in connection with our accounting for granted stock
options and other such awards we may grant, as the fair value of our Common Stock will be determined based on the quoted market price
of our Common Stock.
Warrant
Liabilities
We
classify the warrants as liabilities on the consolidated balance sheets as these instruments are precluded from being indexed to our own
stock given that the terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815,
Derivatives
and Hedging (“ASC
815”). Since the warrants meet the definition of a derivative under ASC 815-40, the Company recorded these warrants as long-term
liabilities at fair value on the date of the SPAC Merger, with subsequent changes in their respective fair values recognized within change
in fair value of warrant liabilities in the consolidated statements of operations and comprehensive loss at each reporting date.
Earn-Out
Liability
As
a result of the SPAC Merger, the Company recognized Earn-Out Shares contingently issuable to former stockholders of Old SomaLogic as a
liability in accordance with ASC 815. The liability was included as part of the consideration transferred in the SPAC Merger and was recorded
at fair value. The earn-out liability is remeasured at the end of each reporting period, with the corresponding change in fair value recognized
within change in fair value of earn-out liability in the consolidated statements of operations and comprehensive loss at each reporting
date.
Recently
Issued Accounting Pronouncements
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
Not
required for smaller reporting companies.
Item
8. Financial Statements and Supplementary Data
Index
to Financial Statements
Report
of Independent Registered Public Accounting Firm
To
the Stockholders and the Board of Directors of SomaLogic, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of SomaLogic, Inc. (the Company) as of December 31, 2022 and 2021, the related
consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the
period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December
31, 2022, in conformity with U.S. generally accepted accounting principles.
Basis
for Opinion
These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits
we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide
a reasonable basis for our opinion.
/s/
Ernst & Young LLP
We
have served as the Company’s auditor since 2014.
Denver,
Colorado
March 28,
2023
SomaLogic,
Inc.
Consolidated
Balance Sheets
(in
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
|
|
2022 |
|
2021 |
|
ASSETS |
|
|
|
|
Current
assets |
|
|
|
|
Cash
and cash equivalents |
$ |
421,830 |
|
|
$ |
439,488 |
|
|
Investments |
117,758 |
|
|
218,218 |
|
|
Accounts
receivable, net |
17,006 |
|
|
17,074 |
|
|
Inventory |
13,897 |
|
|
11,213 |
|
|
Deferred
costs of services |
1,337 |
|
|
462 |
|
|
Prepaid
expenses and other current assets |
9,873 |
|
|
5,097 |
|
|
Total
current assets |
581,701 |
|
|
691,552 |
|
|
Non-current
inventory |
4,643 |
|
|
4,085 |
|
|
Accounts
receivable, net of current portion |
9,284 |
|
|
— |
|
|
Property
and equipment, net |
19,564 |
|
|
9,557 |
|
|
Other
long-term assets |
5,083 |
|
|
908 |
|
|
Intangible
assets |
16,700 |
|
|
— |
|
|
Goodwill |
10,399 |
|
|
— |
|
|
Total
assets |
$ |
647,374 |
|
|
$ |
706,102 |
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
|
|
|
Current
liabilities |
|
|
|
|
Accounts
payable |
$ |
16,794 |
|
|
$ |
15,089 |
|
|
Accrued
liabilities |
20,678 |
|
|
11,109 |
|
|
Deferred
revenue |
3,383 |
|
|
3,021 |
|
|
Other
current liabilities |
2,477 |
|
|
66 |
|
|
Total
current liabilities |
43,332 |
|
|
29,285 |
|
|
Warrant
liabilities |
4,213 |
|
|
35,181 |
|
|
Earn-out
liability |
15 |
|
|
26,885 |
|
|
Deferred
revenue, net of current portion |
31,732 |
|
|
2,364 |
|
|
Other
long-term liabilities |
5,524 |
|
|
363 |
|
|
Total
liabilities |
84,816 |
|
|
94,078 |
|
|
Commitments
and contingencies (Note 10) |
|
|
|
|
Stockholders’
equity: |
|
|
|
|
Preferred
stock, $0.0001
par value; 1,000,000
shares authorized; no
shares issued and outstanding at December 31, 2022 and 2021 |
— |
|
|
— |
|
|
Common
stock, $0.0001
par value; 600,000,000
shares authorized; 187,647,973
and 181,552,241
shares issued and outstanding at December 31, 2022 and 2021, respectively |
19 |
|
|
18 |
|
|
Additional
paid-in capital |
1,171,122 |
|
|
1,110,991 |
|
|
Accumulated
other comprehensive loss |
(513) |
|
|
(72) |
|
|
Accumulated
deficit |
(608,070) |
|
|
(498,913) |
|
|
Total
stockholders’ equity |
562,558 |
|
|
612,024 |
|
|
Total
liabilities and stockholders’ equity |
$ |
647,374 |
|
|
$ |
706,102 |
|
|
The
accompanying notes are an integral part of these consolidated financial statements.
SomaLogic,
Inc.
Consolidated
Statements of Operations and Comprehensive Loss
(in
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
2022 |
|
2021 |
Revenue |
|
|
|
Assay
services revenue |
$ |
63,038 |
|
|
$ |
68,038 |
|
Product
revenue |
4,243 |
|
|
1,277 |
|
Collaboration
revenue |
3,051 |
|
|
3,051 |
|
Other
revenue |
27,334 |
|
|
9,260 |
|
Total
revenue |
97,666 |
|
|
81,626 |
|
Operating
expenses |
|
|
|
Cost
of assay services revenue |
41,419 |
|
|
32,782 |
|
Cost
of product revenue |
1,945 |
|
|
681 |
|
Research
and development |
73,444 |
|
|
43,496 |
|
Selling,
general and administrative |
156,619 |
|
|
77,971 |
|
Total
operating expenses |
273,427 |
|
|
154,930 |
|
Loss
from operations |
(175,761) |
|
|
(73,304) |
|
Other
income (expense) |
|
|
|
Interest
income and other, net |
8,049 |
|
|
263 |
|
Interest
expense |
— |
|
|
(1,324) |
|
Change
in fair value of warrant liabilities |
30,968 |
|
|
(6,952) |
|
Change
in fair value of earn-out liability |
26,870 |
|
|
(1,869) |
|
Loss
on extinguishment of debt, net |
— |
|
|
(4,323) |
|
Total
other income (expense) |
65,887 |
|
|
(14,205) |
|
Net
loss before income tax benefit (provision) |
(109,874) |
|
|
(87,509) |
|
Income
tax benefit (provision) |
717 |
|
|
(38) |
|
Net
loss |
$ |
(109,157) |
|
|
$ |
(87,547) |
|
|
|
|
|
Other
comprehensive loss |
|
|
|
Net
unrealized loss on available-for-sale securities |
$ |
(424) |
|
|
$ |
(68) |
|
Foreign
currency translation loss |
(17) |
|
|
(2) |
|
Total
other comprehensive loss |
(441) |
|
|
(70) |
|
Comprehensive
loss |
$ |
(109,598) |
|
|
$ |
(87,617) |
|
|
|
|
|
Net
loss per share, basic and diluted |
$ |
(0.59) |
|
|
$ |
(0.64) |
|
Weighted-average
shares used to compute net loss per share, basic and diluted |
183,991,643 |
|
137,157,283 |
The
accompanying notes are an integral part of these consolidated financial statements.
SomaLogic,
Inc.
Consolidated
Statements of Stockholders’ Equity
(in
thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock |
|
|
|
Additional
Paid-In Capital |
|
Accumulated
Other Comprehensive Loss |
|
Accumulated
Deficit |
|
Total
Stockholders’ Equity |
|
Shares |
|
Amount |
|
|
|
|
December
31, 2020 |
|
114,266,515 |
|
|
11 |
|
|
|
|
|
|
597,274 |
|
|
(2) |
|
|
(411,366) |
|
|
185,917 |
|
Issuance
of Common Stock upon exercise of options |
|
1,311,326 |
|
|
— |
|
|
|
|
|
|
4,001 |
|
|
— |
|
|
— |
|
|
4,001 |
|
Issuance
of Common Stock for services |
|
228,199 |
|
|
— |
|
|
|
|
|
|
1,337 |
|
|
— |
|
|
— |
|
|
1,337 |
|
Issuance
of Common Stock upon conversion of convertible debt |
|
571,642 |
|
|
— |
|
|
|
|
|
|
4,631 |
|
|
— |
|
|
— |
|
|
4,631 |
|
Stock-based
compensation |
|
— |
|
|
— |
|
|
|
|
|
|
27,042 |
|
|
— |
|
|
— |
|
|
27,042 |
|
Surrender
of shares in cashless exercise |
|
(15,189) |
|
|
— |
|
|
|
|
|
|
(56) |
|
|
— |
|
|
— |
|
|
(56) |
|
Issuance
of Common Stock upon SPAC Merger, net of transaction costs of $35,111 |
|
28,689,748 |
|
|
3 |
|
|
|
|
|
|
119,568 |
|
|
— |
|
|
— |
|
|
119,571 |
|
Common
Stock issued pursuant to the PIPE Investment, net of transaction costs of $7,802 |
|
36,500,000 |
|
|
4 |
|
|
|
|
|
|
357,194 |
|
|
— |
|
|
— |
|
|
357,198 |
|
Net
unrealized loss on available-for-sale securities |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
(68) |
|
|
— |
|
|
(68) |
|
Foreign
currency translation loss |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
(2) |
|
|
— |
|
|
(2) |
|
Net
loss |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
— |
|
|
(87,547) |
|
|
(87,547) |
|
Balance
at December 31, 2021 |
|
181,552,241 |
|
|
$ |
18 |
|
|
|
|
|
|
$ |
1,110,991 |
|
|
$ |
(72) |
|
|
$ |
(498,913) |
|
|
$ |
612,024 |
|
Issuance
of Common Stock upon vesting of RSUs |
|
12,031 |
|
|
— |
|
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Issuance
of Common Stock upon exercise of options |
|
1,906,530 |
|
|
— |
|
|
|
|
|
|
4,813 |
|
|
— |
|
|
— |
|
|
4,813 |
|
Shares
issued under employee stock purchase plan |
|
146,699 |
|
|
— |
|
|
|
|
|
|
372 |
|
|
— |
|
|
— |
|
|
372 |
|
Issuance
of Common Stock for services |
|
— |
|
|
— |
|
|
|
|
|
|
50 |
|
|
— |
|
|
— |
|
|
50 |
|
Stock-based
compensation |
|
— |
|
|
— |
|
|
|
|
|
|
43,064 |
|
|
— |
|
|
— |
|
|
43,064 |
|
Issuance
of Common Stock upon Palamedrix acquisition |
|
4,030,472 |
|
|
1 |
|
|
|
|
|
|
11,832 |
|
|
— |
|
|
— |
|
|
11,833 |
|
Net
unrealized loss on available-for-sale securities |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
(424) |
|
|
— |
|
|
(424) |
|
Foreign
currency translation loss |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
(17) |
|
|
— |
|
|
(17) |
|
Net
loss |
|
— |
|
|
— |
|
|
|
|
|
|
— |
|
|
— |
|
|
(109,157) |
|
|
(109,157) |
|
Balance
at December 31, 2022 |
|
187,647,973 |
|
|
$ |
19 |
|
|
|
|
|
|
$ |
1,171,122 |
|
|
$ |
(513) |
|
|
$ |
(608,070) |
|
|
$ |
562,558 |
|
The
accompanying notes are an integral part of these consolidated financial statements.
SomaLogic,
Inc.
Consolidated
Statements of Cash Flows
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
|
2022 |
|
2021 |
Operating
activities |
|
|
|
|
Net
loss |
|
$ |
(109,157) |
|
|
$ |
(87,547) |
|
Adjustments
to reconcile net loss to cash used in operating activities: |
|
|
|
|
Stock-based
compensation expense |
|
43,609 |
|
|
28,415 |
|
Depreciation
and amortization |
|
4,571 |
|
|
2,569 |
|
Noncash
rent expense |
|
(186) |
|
|
— |
|
Amortization
of debt issuance costs, discounts and premiums |
|
— |
|
|
258 |
|
|
|
|
|
|
Change
in fair value of warrant liabilities |
|
(30,968) |
|
|
6,952 |
|
Change
in fair value of earn-out liability |
|
(26,870) |
|
|
1,869 |
|
Change
in fair value contingent consideration |
|
167 |
|
|
— |
|
Amortization
of premium (accretion of discount) on available-for-sale securities, net |
|
(977) |
|
|
380 |
|
Provision
for excess and obsolete inventory |
|
490 |
|
|
703 |
|
Provision
for (recovery of) doubtful accounts |
|
150 |
|
|
(8) |
|
Cloud
computing arrangement expenditures |
|
(11,127) |
|
|
(3,412) |
|
Loss
on extinguishment of debt, net |
|
— |
|
|
4,323 |
|
Loss
on disposal of property and equipment |
|
2,411 |
|
|
— |
|
Paid-in-kind
interest |
|
— |
|
|
165 |
|
Income
tax benefit |
|
(806) |
|
|
— |
|
Other |
|
15 |
|
|
19 |
|
Changes
in operating assets and liabilities: |
|
|
|
|
Accounts
receivable |
|
(9,366) |
|
|
383 |
|
Inventory |
|
(3,732) |
|
|
(2,957) |
|
Deferred
costs of services |
|
(875) |
|
|
988 |
|
Prepaid
expenses and other current assets |
|
133 |
|
|
(3,909) |
|
Other
long-term assets |
|
(106) |
|
|
— |
|
Accounts
payable |
|
2,340 |
|
|
6,460 |
|
Deferred
revenue |
|
29,730 |
|
|
208 |
|
Accrued
and other liabilities |
|
9,885 |
|
|
4,509 |
|
Payment
of paid-in-kind interest on extinguishment of debt |
|
— |
|
|
(752) |
|
Net
cash used in operating activities |
|
(100,669) |
|
|
(40,384) |
|
Investing
activities |
|
|
|
|
Palamedrix
acquisition, net of cash acquired of $2,521 |
|
(13,256) |
|
|
— |
|
|
|
|
|
|
Purchases
of property and equipment, net of proceeds from sales |
|
(5,215) |
|
|
(3,307) |
|
Purchases
of available-for-sale securities |
|
(186,687) |
|
|
(279,918) |
|
Proceeds
from maturities of available-for-sale securities |
|
287,700 |
|
|
101,206 |
|
Net
cash provided by (used in) investing activities |
|
82,542 |
|
|
(182,019) |
|
Financing
activities |
|
|
|
|
Proceeds
from exercise of stock options and employee stock purchase plan |
|
5,185 |
|
|
3,947 |
|
|
|
|
|
|
Repayment
of long-term debt |
|
— |
|
|
(36,512) |
|
Proceeds
from PIPE Investment, net of transaction costs |
|
— |
|
|
357,198 |
|
Proceeds
from SPAC Merger, net of transaction costs |
|
— |
|
|
172,858 |
|
Net
cash provided by financing activities |
|
5,185 |
|
|
497,491 |
|
Effect
of exchange rates on cash, cash equivalents and restricted cash |
|
(43) |
|
|
(14) |
|
Net
(decrease) increase in cash, cash equivalents and restricted cash |
|
(12,985) |
|
|
275,074 |
|
Cash,
cash equivalents and restricted cash at beginning of period |
|
440,268 |
|
|
165,194 |
|
Cash,
cash equivalents and restricted cash at end of period |
|
$ |
427,283 |
|
|
$ |
440,268 |
|
|
|
|
|
|
SomaLogic,
Inc.
Consolidated
Statements of Cash Flows
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
|
2022 |
|
2021 |
Supplemental
cash flow information: |
|
|
|
|
Cash
paid for interest |
|
$ |
— |
|
|
$ |
1,627 |
|
Supplemental
disclosure of non-cash investing and financing activities: |
|
|
|
|
Purchase
of property and equipment included in accounts payable |
|
$ |
395 |
|
|
$ |
615 |
|
Operating
lease assets obtained in exchange for lease obligations |
|
5,318 |
|
|
— |
|
Issuance
of Common Stock upon Palamedrix Acquisition |
|
11,832 |
|
|
— |
|
Contingent
consideration payable for Palamedrix Acquisition |
|
1,448 |
|
|
— |
|
Issuance
of Common Stock upon SPAC Merger |
|
— |
|
|
151,082 |
|
Surrender
of shares in cashless exercise |
|
— |
|
|
56 |
|
|
|
|
|
|
Issuance
of Common Stock for services |
|
50 |
|
|
1,334 |
|
|
|
|
|
|
Forgiveness
of Paycheck Protection Program loan and accrued interest |
|
— |
|
|
3,561 |
|
Issuance
of Common Stock for conversion of convertible debt |
|
— |
|
|
4,631 |
|
|
|
|
|
|
Reconciliation
of cash, cash equivalents and restricted cash |
|
|
|
|
Cash
and cash equivalents |
|
$ |
421,830 |
|
|
$ |
439,488 |
|
Restricted
cash included in prepaid expenses and other current assets |
|
4,658 |
|
|
— |
|
Restricted
cash included in other long-term assets |
|
795 |
|
|
780 |
|
Total
cash, cash equivalents and restricted cash at end of period |
|
$ |
427,283 |
|
|
$ |
440,268 |
|
The
accompanying notes are an integral part of these consolidated financial statements.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Note
1 — Description
of Business
Organization
and Operations
SomaLogic,
Inc. (“SomaLogic” or the “Company”) operates as a protein biomarker discovery and clinical diagnostics company
that develops slow off-rate modified aptamers (“SOMAmers®”), which are modified nucleic acid-based protein binding reagents
that are specific for their cognate protein, and offer proprietary SomaScan® services, which provide multiplex protein detection
and quantification of protein levels in complex biological samples. The SOMAmers®/SomaScan® technology enables researchers to
analyze various types of biological samples for protein biomarker signatures, which can be utilized in drug discovery and development.
Biomarker discoveries from SomaScan® can lead to diagnostic applications in various areas of diseases including cardiovascular and
metabolic disease, nonalcoholic steatohepatitis, and wellness, among others.
SomaLogic,
Inc. was incorporated in Delaware on December 15, 2020 as a special purpose acquisition company (“SPAC”) under the name CM
Life Sciences II Inc. (“CMLS II”) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization, or similar business combination with one or more businesses.
On
September 1, 2021, we consummated a business combination (the “SPAC Merger”) wherein SomaLogic Operating Co. Inc. (“SomaLogic
Operating”), a Delaware corporation formed on October 13, 1999, became a wholly-owned subsidiary of CMLS II. In connection
with the closing of the SPAC Merger, we changed our name from CM Life Sciences II Inc. to SomaLogic, Inc.
Unless
the context otherwise requires, the terms “we”, “us”, “our”, “SomaLogic" and “the Company"
refer to SomaLogic, Inc. and its consolidated subsidiaries. See Note 3, Business
Combinations,
for more details of the SPAC Merger and, the presentation of historical amounts and balances after the SPAC Merger. Our Common Stock and
warrants to purchase Common Stock are listed on the Nasdaq under the ticker symbols “SLGC” and “SLGCW”, respectively.
Note
2 — Summary
of Significant Accounting Policies
Basis
of Presentation
The
consolidated financial statements and accompanying notes include the accounts of SomaLogic and our wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States (“GAAP”) for financial information. Any reference
in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”)
and Accounting Standards Updates (“ASUs”) of the Financial Accounting Standards Board (“FASB”).
Certain
reclassifications have been made to prior period amounts to conform to the current presentation.
Revisions
of prior period consolidated financial statements
Capitalized
costs incurred in relation to the development of software under hosting arrangements that are service contracts should be classified as
operating activities in the statement of cash flows. The Company determined that the prior classification of these capitalized costs under
purchases of property and equipment, net of proceeds from sales within investing activities in the consolidated statement of cash flows
was not material to the prior period consolidated financial statements as a whole. The
prior period’s consolidated statement of cash flows has been revised to reflect the proper classification of capitalized costs in
the accompanying consolidated financial statements as follows:
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2021 |
(in
thousands) |
As
Previously Reported |
|
Reclassification |
|
Revised |
Operating
Activities |
|
|
|
|
|
Cloud
computing arrangement expenditures |
$ |
— |
|
|
$ |
(3,412) |
|
|
$ |
(3,412) |
|
Net
cash used in operating activities |
$ |
(36,972) |
|
|
$ |
(3,412) |
|
|
$ |
(40,384) |
|
|
|
|
|
|
|
Investing
Activities |
|
|
|
|
|
Purchases
of property and equipment, net of proceeds from sales |
(6,719) |
|
|
3,412 |
|
|
(3,307) |
|
Net
cash provided by (used in) investing activities |
$ |
(185,431) |
|
|
$ |
3,412 |
|
|
$ |
(182,019) |
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activities: |
|
|
|
|
|
Purchase
of property and equipment included in accounts payable |
$ |
1,492 |
|
|
$ |
(877) |
|
|
$ |
615 |
|
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
periods. Actual results could differ from those estimates. Significant estimates and assumptions reflected in these financial statements
include, but are not limited to, revenue recognition, inventory valuation, the fair value of common stock used in the valuation of stock-based
compensation awards prior to the SPAC Merger, intangible asset valuations, contingent consideration valuations, and earn-out liability
valuations. We base our estimates on current facts, historical and anticipated results, trends, and other relevant assumptions that we
believe are reasonable under the circumstances. Actual results could differ from these estimates, and such differences could be material
to our consolidated financial position and results of operations.
Concentration
of Credit Risk and Other Risks and Uncertainties
Financial
instruments that potentially expose the Company to concentrations of credit risk consist principally of cash and cash equivalents, investments,
and accounts receivable. The Company does not require collateral or other security related to its receivables. Our cash and cash equivalents
are deposited with high-quality financial institutions. Deposits at these institutions may, at times, exceed federally insured limits.
Significant
customers are those that represent more than 10% of the Company’s total revenues or gross accounts receivable balances for the periods
in the consolidated statements of operations and comprehensive loss and as of each balance sheet date presented. For
each significant customer, revenue as a percentage of total revenues and gross accounts receivable as a percentage of total gross accounts
receivable as of the periods presented were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable |
|
Revenue |
|
December
31, |
|
Year
Ended December 31, |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
Customer
A |
11% |
|
10% |
|
19 |
% |
|
21 |
% |
Customer
B |
* |
|
* |
|
* |
|
13 |
% |
Customer
C |
51% |
|
20% |
|
27 |
% |
|
10 |
% |
Customer
D |
* |
|
26% |
|
* |
|
* |
|
|
|
|
|
|
|
|
*less
than 10%
International
sales entail a variety of risks, including currency exchange fluctuations, longer payment cycles, and greater difficulty in accounts receivable
collection. Customers outside the United States collectively represented 35%
and 31%
of the Company’s revenues for the years ended December 31, 2022 and 2021, respectively. Customers outside of the United States
collectively represented 23%
and 18%
of the Company’s gross accounts receivable balance as of December 31, 2022 and 2021, respectively.
Certain
components included in our products require customization and are obtained from a single source or a limited number of suppliers.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Business
Combination
The
Company accounts for business combinations using the acquisition method of accounting in accordance with ASC 805, Business
Combinations.
A business combination is one that combines inputs and processes to create outputs, and where substantially all of the fair value of assets
acquired is not concentrated in a single identifiable asset or group of similar identifiable assets. Identifiable assets acquired and
liabilities assumed are recorded at their acquisition date fair values. When determining the fair values of assets acquired and liabilities
assumed, management makes significant estimates and assumptions. The excess of the fair value of purchase consideration over the fair
values of these identifiable assets and liabilities assumed is recorded as goodwill. Acquisition related costs are expensed as incurred
and included in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.
See Note 3, Business
Combinations, for
additional details.
Contingent
Consideration
Contingent
consideration arrangements represent a promise to deliver Common Stock and/or cash to former owners of an acquired business after the
acquisition if certain specified events occur or conditions are met in the future are classified as liabilities and recognized at fair
value at the acquisition date and at each subsequent reporting period. The contingent consideration liabilities contractually due beyond
12 months are recorded in other long-term liabilities on the consolidated balance sheets. Subsequent changes in fair value are recorded
in selling, general and administrative expenses in the consolidated statements of operations and comprehensive loss.
See Note 3, Business
Combinations, for
additional details.
Foreign
Currency Translation
The
functional currency of the Company’s foreign subsidiary is the British pound sterling. In preparing its consolidated financial statements,
the Company is required to translate the financial statements of this subsidiary from British pounds sterling to U.S. dollars. Accordingly,
the assets and liabilities of the Company’s subsidiary are translated into U.S. dollars at current exchange rates and the results
of operations are translated at the average exchange rates for the period. Since the Company’s functional currency is deemed to
be the local currency, any gain or loss associated with the translation of its consolidated financial statements is included in other
comprehensive income (loss) in the consolidated statements of operations and comprehensive loss. Net foreign currency transaction gains
(losses) were not significant for the years ended December 31, 2022 and 2021.
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash deposits and short-term, highly liquid investments that are readily convertible into cash, with original
maturities of three months or less. Cash equivalents consist primarily of amounts invested in money market funds and are stated at fair
value.
Restricted
Cash
Restricted
cash represents cash on deposit with a financial institution as security for letters of credit outstanding for the benefit of the landlords
related to operating leases and a bank guarantee with an international customer. The portion of restricted cash expected to be released
within twelve months is classified as prepaid expenses and other current assets on the consolidated balance sheets and was $4.7
million and nil
as of December 31, 2022 and 2021, respectively. Cash expected to be restricted for greater than twelve months is classified as other
long-term assets on the consolidated balance sheets and was $0.8
million as of December 31, 2022 and 2021.
Investments
The
Company has designated all investments, which consist of U.S. Treasury securities, asset-backed securities, commercial paper, corporate
bonds and agency bonds, as available-for-sale securities. Available-for-sale securities are reported at fair value on the consolidated
balance sheets, with unrealized gains and losses excluded from earnings and reported as a component of other comprehensive (loss) income.
Realized gains and losses, amortization of premiums and accretion of discounts, and interest and dividends earned on available-for-sale
securities are included in interest income and other, net in the consolidated statements of operations and comprehensive loss. The cost
of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method. The
Company determines the appropriate classification of its debt securities at the time of purchase based on their maturities and re-evaluates
such classification at each balance sheet date.
A
decline in the fair value of a security below its cost that is deemed to be other-than-temporary is recorded as interest income and other,
net and results in the establishment of a new basis for the security. Factors evaluated to determine if an investment is other-than-temporarily
impaired include significant deterioration in earnings performance, credit rating, asset quality or business prospects of the issuer;
adverse changes in the general market conditions in which the issuer operates; the Company’s intent to sell the security, and whether
or not the Company will be required to sell the security before the recovery of its amortized cost.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Fair
Value Measurements
Fair
value is defined as the exchange price that would be received for an asset or paid to transfer a liability, or the exit price, in the
principal or most advantageous market for that asset or liability to be transferred in an orderly transaction between market participants
on the measurement date. ASC 820, Fair
Value Measurements, establishes
a fair value hierarchy that requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable
inputs when measuring fair value. The hierarchy defines three levels of inputs that may be used to measure fair value:
•Level
1 — Quoted prices in active markets for identical assets or liabilities;
•Level
2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets
that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities;
•Level
3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
A
financial instrument categorization within the hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. Our financial instruments consist of Level 1, Level 2, and Level 3 assets and liabilities. The carrying amounts of certain
financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities, approximate
fair value due to their relatively short-term maturities.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are stated at the amount management expects to collect from customers based on their outstanding invoices. We review accounts
receivable regularly to determine if any receivable may not be collectible. Management estimates the amount of the allowance for doubtful
accounts necessary to reduce accounts receivable to its estimated net realizable value by analyzing the status of significant past due
receivables and current and historical bad debt trends. The Company writes off accounts receivable against the allowance when it determines
a balance is uncollectible and ceases collection efforts. We did not write off any material accounts receivable balances
during the years ended December 31, 2022 and 2021. We recorded a long-term receivable for guaranteed fixed minimum royalties net
of a discount related to a significant financing component. The related interest income is recognized over the term of the agreement on
an effective interest rate basis.
Accounts
receivable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
(in
thousands) |
2022 |
|
2021 |
Accounts
receivable |
$ |
26,441 |
|
|
$ |
17,146 |
|
Less:
allowance for doubtful accounts |
(151) |
|
|
(72) |
|
Accounts
receivable, net |
$ |
26,290 |
|
|
$ |
17,074 |
|
Accounts
receivable, net (current) |
$ |
17,006 |
|
|
$ |
17,074 |
|
Accounts
receivable, net of current portion |
$ |
9,284 |
|
|
$ |
— |
|
Inventory
Inventory
is stated at the lower of cost (on a first-in, first-out basis) or net realizable value. Cost is determined using a standard cost system,
whereby the standard costs are updated periodically to reflect current costs. The Company estimates the recoverability of inventory by
referencing estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory
levels to identify inventory that may expire prior to expected usage, no longer meets quality specifications, or has a cost basis in excess
of its estimated net realizable value and records a charge to cost of revenue for such inventory as appropriate. The value of inventory
that is not expected to be used within 12 months of the balance sheet date is classified as non-current inventory in the accompanying
consolidated balance sheets.
Deferred
Costs of Services
Deferred
costs of services relate to costs incurred to run customer samples through the SomaScan® assay. These costs are deferred until the
final report is provided to the customer and the related revenue is recognized.
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation and amortization. Additions and improvements that extend the lives of the
assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Depreciation
for property and equipment is recorded on a straight-line basis over the estimated useful lives of the assets, which we estimate to be:
lab equipment, 1
to 5
years; computer equipment, 3
years; furniture and fixtures, 4
years; and software, the shorter of 5
years or its useful life. Leasehold improvements are amortized over the shorter of the life of the lease term or the estimated useful
life of the assets.
The
Company capitalizes certain internal and external costs related to the acquisition and development of internal use software or cloud computing
arrangements during the application development stages of projects. When the software is ready for its intended use, the Company amortizes
these costs using the straight-line method over the estimated useful life of the asset, or, for cloud computing service arrangements,
over the term of the hosting arrangement. Costs incurred during the preliminary project or the post-implementation/operation stages of
the project are expensed as incurred.
Costs
for capital assets not yet placed into service are capitalized as construction in progress and depreciated once placed into service. Upon
retirement or sale, the cost of assets disposed of and the related accumulated depreciation and amortization are removed from the accounts
and any resulting gain or loss is included within loss from operations in the consolidated statements of operations and comprehensive
loss.
In-process
research and development
Acquired
in-process research and development (“IPR&D”) relates to substantial research and development efforts that are incomplete
at the acquisition date. IPR&D intangible assets are considered indefinite-lived until the completion or abandonment of the associated
research and development efforts. During the development phase, these assets are not amortized but are tested for impairment annually
during the fourth quarter of the year or more frequently if events or changes in circumstances indicate that it is more likely than not
that the asset is impaired. Once the IPR&D activities are completed, the intangible asset is amortized over its useful life on a straight-line
basis.
Goodwill
Goodwill
is the difference between the total consideration paid in a business combination and the fair value of the net of identifiable assets
acquired and liabilities assumed. Goodwill is not amortized but is tested for impairment on an annual basis during the fourth quarter
of the year and in interim periods if events or changes in circumstances indicate that it is more likely than not that the fair value
of a reporting unit is below its carrying amount. All of the Company’s goodwill is assigned to its one
reporting unit.
The
Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is
less than its carrying amount, including goodwill. If, after assessing the totality of events or circumstances, the Company determines
that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill
impairment test is unnecessary. For the quantitative goodwill impairment test, the fair value of the reporting unit is compared to its
carrying value and an impairment is recorded for the excess carrying value over fair value, not to exceed the carrying amount of goodwill.
There were no goodwill impairment losses recorded for the year ended December 31, 2022. The Company had no
goodwill as of December 31, 2021.
Impairment
of Long-Lived Assets
The
Company evaluates a long-lived asset (or asset group) for impairment whenever events or changes in circumstances indicate that the carrying
value of the asset (or asset group) may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that
the asset (or asset group) is expected to generate are less than the carrying value of the asset (or asset group), an impairment loss
is recorded to write down the asset (or asset group) to its estimated fair value based on a discounted cash flow approach.
There were no
impairment losses recorded for the years ended December 31, 2022 and 2021.
Leases
Following
the adoption of ASU 2016-02, Leases (Topic 842), on January 1, 2022, we determine if an arrangement is a lease at inception of the contract.
Operating lease right-of-use (“ROU”) assets are included in other long-term assets,
and operating lease liabilities are included in other current liabilities and other long-term liabilities in the consolidated balance
sheets.
ROU
assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement
date. As the implicit rate in the Company's leases is generally unknown, the Company uses its incremental borrowing rate based on the
information available at the lease commencement date in determining the present value of future lease payments. The Company gives consideration
to its credit risk, term of the lease, total lease payments and adjusts for the impacts of collateral, as necessary, when calculating
its incremental borrowing rates.
Operating
lease ROU assets include lease incentives and initial direct costs incurred. When the lease incentives specify a maximum level of reimbursement
and we are reasonably certain to incur reimbursable costs equal to or exceeding this
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
level,
we include the lease incentive in the measurement of the ROU assets and lease liabilities at commencement. The lease terms may include
options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. Lease costs for our
operating leases are recognized on a straight-line basis within operating expenses over the lease term in the consolidated statements
of operations and comprehensive loss.
We
have lease agreements with lease and non-lease components. However, we have elected the practical expedient to not separate lease and
non-lease components for all of our existing classes of assets. Therefore, the lease and non-lease components are accounted for as a single
lease component. We have also elected to not apply the recognition requirement to any short-term leases with a term of 12 months or less.
We
monitor for events or changes in circumstances that may require a reassessment or impairment of our leases, at which time our ROU assets
for operating leases may be reduced by impairment losses.
Warrant
Liabilities
During
February 2021, in connection with CMLS II’s initial public offering, CMLS II issued 5,519,991
warrants (the “Public Warrants”) to purchase shares of Common Stock at $11.50
per share. Simultaneously, with the consummation of the CMLS II initial public offering, CMLS II issued 5,013,333
warrants through a private placement (the “Private Placement Warrants”, and together with the Public Warrants, the “Warrants”)
to purchase shares of Common Stock at $11.50
per share. All of the Warrants were outstanding as of December 31, 2022.
We
classify the Warrants as liabilities on our consolidated balance sheets as these instruments are precluded from being indexed to our own
stock given that the terms allow for a settlement adjustment that does not meet the scope for the fixed-for-fixed exception in ASC 815,
Derivatives
and Hedging
(“ASC 815”). Since the Warrants meet the definition of a derivative under ASC 815-40, the Company recorded these warrants
as long-term liabilities at fair value on the date of the SPAC Merger, with subsequent changes in their respective fair values recognized
within change in fair value of warrant liabilities in the consolidated statements of operations and comprehensive loss at each reporting
date. See Note 12, Stockholders'
Equity, for more
information on the Warrants.
Earn-Out
Liability
As
a result of the SPAC Merger, additional shares of Common Stock were provided to SomaLogic Operating shareholders and to certain employees
and directors of SomaLogic (“Earn-Out Service Providers”) of up to 3,500,125
and 1,499,875,
respectively (the “Earn-Out Shares”). The Earn-Out Shares are payable if the price of our Common Stock is greater than or
equal to $20.00
for a period of at least 20
out of 30
consecutive trading days at any time between the 13- and 24-month anniversary of the closing date of the SPAC Merger (the “Triggering
Event”). Any Earn-Out Shares issuable to an Earn-Out Service Provider ( the “Service Provider Earn-Outs”) shall be issued
only if such individual continues to provide services (whether as an employee or director) through the date of occurrence of the corresponding
Triggering Event (or a change in control acceleration event, if applicable) that causes such Earn-Out Shares to become issuable. Any Earn-Out
Shares that are forfeited pursuant to the preceding sentence shall be reallocated to the SomaLogic Operating shareholders in accordance
with their respective pro rata Earn-Out Shares.
The
Earn-Out Shares granted to shareholders are recognized as a liability in accordance with ASC 815. The liability was included as part of
the consideration transferred in the SPAC Merger and was recorded at fair value. The earn-out liability is remeasured at the end of each
reporting period, with subsequent changes in fair value recognized within change in fair value of earn-out liability in the consolidated
statements of operations and comprehensive loss.
As
the issuance of the Service Provider Earn-Outs is contingent on services being provided, they are accounted for in accordance with ASC
718, Compensation
- Stock Compensation.
See Note 13, Stock-based
Compensation,
for additional information regarding Service Provider Earn-Outs.
Revenue
Recognition
The
Company recognizes revenue from sales to customers under ASC 606, Revenue
from Contracts with Customers (“ASC 606”).
ASC 606 provides a five-step model for recognizing revenue that includes identifying the contract with a customer, identifying the
performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations,
and recognizing revenue when, or as, an entity satisfies a performance obligation.
The
Company recognizes revenue when or as control of promised goods or services is transferred to the Company’s customers, in an amount
that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Sales, value add, and other
taxes collected concurrent with revenue-producing activities are excluded from revenue.
Payment
terms may vary by customer, are based on customary commercial terms, and are generally less than one year. The Company does not adjust
revenue for the effects of a significant financing component for contracts where the
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
period
between the transfer of the good or service and collection is one year or less. The Company expenses incremental costs to obtain a contract
when incurred since the amortization period of the asset that would otherwise be recognized is one year or less.
Assay
Services Revenue
The
Company generates assay services revenue primarily from the sale of SomaScan®
services. SomaScan®
service revenue is derived from performing the SomaScan®
assay on customer samples to generate data on protein biomarkers. Revenue from SomaScan®
services is recognized at the time the analysis data or report is delivered to the customer, which is when control has been transferred
to the customer. SomaScan®
services are sold at a fixed price per sample without any volume discounts, rebates, or refunds.
The
delivery of each assay data report is a separate performance obligation. For arrangements with multiple performance obligations, the transaction
price must be allocated to each performance obligation based on its relative standalone selling price. Judgment is required to determine
the standalone selling price for each distinct performance obligation as there are few directly comparable products in the market and
factors such as customer size are factored into the determination of selling price. We determine standalone selling prices based on amounts
invoiced to customers in observable transactions.
Product
Revenue
Product
revenue primarily consists of equipment and kit sales to customers that assay samples in their own laboratories. Equipment is generally
accounted for as a bundle with installation, qualification and training services. Revenue is recognized based on the progress made toward
achieving the performance obligation utilizing input methods, including costs incurred. Revenue from kit sales is recognized upon transfer
of control to the customer. Shipping and handling costs billed to customers are included in product revenue in the consolidated statements
of operations and comprehensive loss.
Collaboration
Revenue
In
July 2011, NEC Corporation (“NEC”) and the Company entered into a Strategic Alliance Agreement (the “SAA”) to
develop a professional software tool to enable SomaScan®
customers to easily access and interpret the highly multiplexed proteomic data generated by SomaLogic’s SomaScan®
assay technology in the United States. To support this development, NEC made an upfront payment of $12.0
million. This agreement includes a clause whereby if there is a material breach of the contract or change in control of the Company, the
Company may be required to pay a fee to terminate the agreement.
The
Company determined that the SAA met the criteria set forth in ASC 808, Collaborative
Arrangements, (“ASC
808”) because both parties were active participants and were exposed to significant risks and rewards dependent on commercial failure
or success. The Company recorded the upfront payment as deferred revenue to be recognized over the period of performance of 15
years. The revenue was recorded in collaboration revenue in the consolidated statements of operations and comprehensive loss.
In
March 2020, NEC and the Company mutually terminated the SAA and concurrently the Company and NEC Solution Innovators, Ltd. (“NES”),
a wholly owned subsidiary of NEC, entered into a new arrangement, the JDCA, to develop and commercialize SomaScan®
services in Japan, as described in the section entitled “Collaboration Agreements” above. NES agreed to make annual payments
of $2
million for five
years, for a total of $10.0
million, in exchange for research and development activities, as described below. The Company determined the JDCA should be accounted
for as a modification of the SAA. Therefore, the remaining SAA deferred revenue balance as of the date of the modification was included
as consideration under the JDCA resulting in total consideration of $15.3
million for research and development activities. We determined that this arrangement also meets the criteria set forth in ASC 808.
The JDCA contains three separate performance obligations: (i) research and development activities, (ii) assay services, and
(iii) a 10-year
exclusive license of the Company’s intellectual property.
(i) Research
and Development Activities
The
Company determined that NES is not a customer with respect to the research and development activities associated with the collaboration
arrangement under ASC 808. The Company recognizes revenue from these activities based on the progress made toward achieving the performance
obligation utilizing input methods, including costs incurred, in collaboration revenue in the consolidated statements of operations and
comprehensive loss.
(ii) Assay
Services
The
Company determined that NES is a customer for the assay services performance obligation, which should be accounted for using the criteria
under ASC 606. The Company receives a fixed fee (standalone selling price) per sample in exchange for assaying samples, which is
a service performed for other customers in the ordinary course of business. This
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
performance
obligation is recognized at a point in time when the assay data report is delivered to the customer and recorded in assay services revenue
in the consolidated statements of operations and comprehensive loss.
(iii) License
of Intellectual Property
The
Company determined that NES is a customer for the license performance obligation, which should be accounted for using the criteria under
ASC 606. The Company receives royalties based on NES’ net sales and determined the allocation of royalties solely to this performance
obligation is consistent with the objectives in ASC 606. This performance obligation was satisfied at the beginning of the license
term. Subject to the sales and usage-based royalty exception, revenue is recognized in the period in which the subsequent sale or usage
has occurred. Royalties are recorded in other revenue in the consolidated statements of operations and comprehensive loss.
Other
Revenue
Other
revenue includes royalty revenue and revenue received from research grants. The Company recognizes royalty revenue for fees paid by customers
in return for a license to make, use or sell certain licensed products in certain geographic areas. These fees are equivalent to a percentage
of the customer’s related revenues. The Company recognizes revenue for sales-based or usage-based royalties promised in exchange
for a functional license of intellectual property when the later of the following events occurs: (i) the subsequent sale or usage
occurs, or (ii) the performance obligation to which some or all of the sales-based or usage-based royalty has been satisfied. As
such, revenue is recognized in the period in which the subsequent sale or usage has occurred.
In
June 2008, the Company and New England Biolabs, Inc. (“NEB”) entered into an exclusive licensing agreement, whereby the
Company provides a license to use certain proprietary information and know-how relating to its aptamer technology to make and use commercial
products. In exchange, the Company receives royalties from NEB for this functional license of intellectual property. In September 2022,
the Company and NEB entered into a license and settlement agreement (“NEB Agreement”) that terminated the existing exclusive
licensing arrangement and provided for a settlement of $8.0
million of previously constrained royalties. The NEB Agreement also provided a non-exclusive license arrangement for the same proprietary
information and know-how under which the Company is guaranteed fixed minimum royalties of $15.0
million to be received over the next 3
years. The Company recognized revenue for the guaranteed fixed minimum royalties of $13.2
million for the year ended December 31, 2022, net of a significant financing component of $1.8
million. Any revenue above the guaranteed fixed minimum royalties is recognized in the period in which the subsequent sale or usage has
occurred. The Company has recorded a receivable of $13.5
million as of December 31, 2022, of which $9.1
million is recorded in accounts receivable, net of current portion and $4.4
million is recorded in accounts receivable, net on the consolidated balance sheets. Interest income related to the significant financing
component was $0.3
million for the year ended December 31, 2022, and is included in interest income and other, net in the consolidated statements of
operations and comprehensive loss.
Grant
revenue represents funding under cost reimbursement programs or fixed rate arrangements from government agencies and non-profit foundations
for qualified research and development activities performed by the Company. The Company recognizes grant revenue when it is reasonably
assured that the grant funding will be received as evidenced through the existence of a grant arrangement, amounts eligible for reimbursement
are determinable and have been incurred, the applicable conditions under the grant arrangements have been met, and collectability of amounts
due is reasonably assured. The classification of costs incurred related to grants is based on the nature of the activities performed by
the Company. Grant revenue is recognized when the related costs are incurred and recorded in other revenue in the consolidated statements
of operations and comprehensive loss.
Illumina
Cambridge, Ltd.
On
December 31, 2021, the Company entered into a multi-year arrangement with Illumina Cambridge, Ltd. (“Illumina Agreement”)
to jointly develop and commercialize co-branded kits that will combine Illumina’s Next Generation Sequencing (“NGS”)
technology with SomaLogic’s SomaScan technology. Pursuant to the agreement, we received a non-refundable upfront payment of $30.0
million on January 4, 2022. This arrangement is accounted for in accordance with ASC 606. The Company concluded there are two performance
obligations: (1) SOMAmer reagents necessary to develop and commercialize NGS based proteomic products, inclusive of the rights to licenses,
patents and training to allow for the use of such reagents and (2) an option to purchase goods post-commercialization with a material
right (“Material Right”). The total transaction price is subject to a constraint since it is uncertain that commercialization
will be achieved; and therefore the transaction price was determined to be $30.0
million and was allocated to each of the performance obligations identified on a relative standalone selling price basis. Revenue from
the performance obligations is recognized as follows in product revenue in the consolidated statements of operations and comprehensive
loss:
Reagents:
Revenue is recognized
when control transfers to the customer (i.e., when the SOMAmer reagents are shipped). The Company estimated the standalone selling price
(“SSP”) based on observable pricing of similar performance obligations.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Material
Right:
Revenue is recognized
when Illumina exercises its option to purchase goods post-commercialization. The Company estimated the SSP based on an incremental discount
to be provided to the customer adjusted for the likelihood that Illumina will exercise the option.
In
June 2022, Illumina issued a purchase order that changed the promises under the Illumina Agreement. The purchase order represents a contract
modification that is accounted for prospectively as if it were a termination of the existing contract and the creation of a new contract.
As
a result, the Company determined that there were three new performance obligations (total of five performance obligations): (1) equipment
bundle that includes customization services, integration services, system qualification services, site initiation services and training
(“Equipment Bundle”), (2) qualification kits, and (3) support services. The contract modification resulted in an increase
in the transaction price of $0.5 million.
The updated transaction price was allocated between the performance obligations on a relative SSP basis. The Company estimated the SSP
based on observable pricing of similar performance obligations. Revenue from the performance obligations is recognized as follows in product
revenue in the consolidated statements of operations and comprehensive loss:
Equipment
Bundle:
Revenue is recognized
based on the progress made toward achieving the performance obligation utilizing input methods, including costs incurred.
Qualification
Kits:
Revenue is recognized
when control transfers to the customer (i.e., when the qualification kits are shipped).
Support
Services:
Revenue is recognized
for the support services as the services are provided.
During
December 31, 2022, the Company recognized $0.1
million of revenue pursuant to the Illumina Agreement for performance obligations satisfied.
Cost
of Assay Services Revenue
Cost
of assay services revenue consists of raw materials and production costs, salaries and other personnel costs, overhead and other direct
costs related to assay services revenue. It also includes costs for production variances, such as yield losses, material usages, spending
and capacity variances. Cost of assay services revenue is recognized in the period the related revenue is recognized.
Cost
of Product Revenue
Cost
of product revenue consists primarily of raw materials, equipment and production costs, salaries and other personnel costs, overhead and
other direct costs related to product revenue. Shipping and handling costs incurred for product shipments are included in cost of product
revenue in the consolidated statements of operations and comprehensive loss. Cost of product revenue is recognized in the period the related
revenue is recognized.
Research
and Development
Research
and development expenses, consisting primarily of salaries and benefits, laboratory supplies, clinical study costs, consulting fees and
related costs, are expensed as incurred.
Selling,
General and Administrative
Selling
expenses consist primarily of personnel and marketing related costs and are expensed as incurred. Advertising costs totaled approximately
$3.5 million
and $0.7 million
during the years ended December 31, 2022 and 2021, respectively.
General
and administrative expenses consist primarily of personnel costs for the Company’s finance, human resources, business development
and general management, as well as professional services, such as legal and accounting services. General and administrative expenses are
expensed as incurred.
Income
Taxes
We
use the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are determined
based on differences between the tax bases of assets and liabilities and their respective financial reporting amounts, based on enacted
tax laws and statutory tax rates applicable to the periods in which these temporary differences are expected to reverse. The Company evaluates
the need to establish or release a valuation allowance based upon expected levels of taxable income, future reversals of existing temporary
differences, tax planning strategies, and recent financial operations. Valuation allowances are established to reduce deferred tax assets
to the amount expected to be more likely than not realized in the future.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
The
effect of income tax positions is recognized only when it is more likely than not to be sustained. Interest and penalties associated with
uncertain tax positions are recorded in income tax benefit (provision) in the consolidated statements of operations and comprehensive
loss.
Stock-Based
Compensation
The
Company incurs stock-based compensation expense related to its equity awards granted under its stock-based compensation plans. These awards
include stock options and restricted stock units. The fair value of stock option awards is estimated using a Black-Scholes valuation model.
The fair value of restricted stock units is the closing market price per share of the Company’s stock on the grant date. The Company
recognizes compensation expense on a straight-line basis over the vesting period.
The
Company estimates forfeitures based on historical experience. Stock-based compensation expense is adjusted over the term of the awards
to reflect their probability of vesting.
Set
forth below are the assumptions used in valuing the stock options granted and a discussion of the Company’s methodology for developing
each of the assumptions used:
•Expected
dividend yield — The Company did not pay regular dividends on its common stock and does not anticipate paying any dividends in the
foreseeable future. Therefore, the Company used an expected dividend yield of zero
in the option valuation model.
•Expected
volatility — Volatility is a measure of the amount by which a financial variable, such as share price, has fluctuated
(historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company analyzes the volatility used by
similar public companies at a similar stage of development to estimate expected volatility. The comparable companies are chosen based
on their similar size, stage in the life cycle or area of specialty.
•Risk-free interest
rate — We use a range of United States Treasury rates with a term that most closely resembles the expected life
of the option as of the date of which the option was granted.
•Expected
average life of options — The expected life assumption is the expected time to exercise. The Company uses a simplified
method to develop this assumption, which uses the average of the vesting period and the contractual terms, as the Company has limited
historical information to develop reasonable expectations about future exercise patterns.
Fair
Value of Common Stock
Prior
to the SPAC Merger, the grant date fair 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 was no public market for the Company’s common
stock, the Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors, combined with
management’s judgments, to determine the best estimate of the fair value, which include financial condition and actual operating
results; the progress of the Company’s research and development efforts; its stage of development; business strategy; the rights,
preferences and privileges of the Company’s redeemable convertible preferred stock relative to those of the Company’s common
stock; the prices at which the Company sold shares of its redeemable convertible preferred stock; equity market conditions of comparable
public companies; general U.S. market conditions; and the lack of marketability of our common stock.
Following
the SPAC Merger, the grant date fair values of these awards are determined based on the closing price of the Company’s common stock
on the date of the grant.
Comprehensive
Loss
Comprehensive
loss is comprised of net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that are recorded as an
element of stockholders’ equity but excluded from net loss. Our other comprehensive loss consists of foreign currency translation
adjustments and net unrealized gain or losses on investments in available-for-sale securities.
Net
Loss Per Share
Basic
net loss per share is computed by dividing net loss by the weighted average number of shares of common stock issued and outstanding during
the period. Diluted net loss per share is similarly computed, except that the denominator includes the effect of contingently issuable
shares, warrants, and stock options, using the treasury stock method, if including such potential shares of common stock is dilutive.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Segment
Information
The
Company has one
operating segment. The Company’s chief operating decision maker (the “CODM”) role is performed by the Company’s
Chief Executive Officer. The CODM manages the Company’s operations on a consolidated basis for purposes of allocating resources
and assessing performance. Substantially all of the Company’s operations and decision-making functions are located in the United States.
Recent
Accounting Pronouncements
We
are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the
“JOBS Act”). The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for
complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards
until those standards would otherwise apply to private companies. We have elected to use this extended transition period and, as a result,
we will not be required to adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required
for other public companies so long as we remain an emerging growth company.
Recently
Adopted Accounting Standards
Goodwill
Impairment. In January
2017, the FASB issued ASU 2017-04, Intangibles
- Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment, to
simplify the goodwill impairment test.
ASU 2017-04 removes the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting
unit’s “implied” goodwill. A goodwill impairment will now be the amount by which a reporting unit’s carrying value
exceeds its fair value, not to exceed the carrying amount of goodwill. We adopted ASU 2017-04 upon completing the Palamedrix Acquisition
in August 2022, which is when the Company recognizing goodwill for the first time.
Leases.
In February 2016, the FASB issued ASU 2016-02, Leases
(Topic 842), which requires
lessees to recognize assets and liabilities for the rights and obligations created by most leases on their balance sheet. In June 2020,
the FASB issued ASU 2020-05, Revenue
from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates for Certain Entities,
which extended the effective date of ASU 2016-02 for non-public business entities.
We
adopted ASU 2016-02, as amended, on January 1, 2022 using a modified retrospective approach and elected to apply the legacy lease guidance
and disclosure requirements (“ASC 840”) in the comparative periods presented for the year of adoption.
We
elected the package of transition practical expedients, permitting us to not reassess our prior conclusions about lease identification,
lease classification and initial direct costs.
The
new lease standard impacted our consolidated balance sheets as a result of the ROU assets and operating lease liabilities, but did not
impact our consolidated statements of operations or consolidated statements of cash flows. The adoption did not require any cumulative-effect
adjustments to opening accumulated deficit. We currently have no finance leases. Upon adoption, we recorded $4.1
million of ROU assets, $1.0
million of current operating lease liabilities, and $3.6
million of non-current operating lease liabilities.
For
more information on our leases, refer to Note 6, Leases.
Income
Taxes. In December 2019,
the FASB issued ASU 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
which removes certain exceptions to the general principles of ASC 740 as part of an overall simplification initiative. We adopted
ASU 2019-12 prospectively when it became effective on January 1, 2022 and the adoption did not have a material impact on our consolidated
financial statements and related disclosures.
Accounting
Standards Not Yet Adopted
Financial
Instruments — Credit
Losses. In June 2016,
the FASB issued ASU 2016-13, Financial
Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,
as amended, which sets forth a “current expected credit loss” (CECL) model that requires us to measure all expected credit
losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable
forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured
at amortized cost and applies to some off-balance sheet credit exposures. In November 2019, the FASB issued ASU 2019-10, Financial
Instruments — Credit
Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which
extends the effective date of ASU 2016-13 for non-public business entities. ASU 2016-13, as amended, is effective for us on January
1, 2023. We do not expect the adoption to have a material impact on our consolidated financial statements and related disclosures.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Note
3 — Business
Combinations
SPAC
Merger
As
described in Note 1, Description
of Business, on September
1, 2021 (“Closing Date”), we consummated the SPAC Merger wherein SomaLogic Operating (“Old SomaLogic”) became
a wholly-owned subsidiary of CMLS II. Pursuant to the terms of the Merger Agreement, the merger consideration payable to stockholders
of Old SomaLogic at the Closing Date was $1.25 billion,
consisting of cash payments of $50
million and equity consideration in the form of (i) the issuance of shares of Common Stock and (ii) rollover of Old SomaLogic’s
outstanding options. The number of shares of Common Stock issued to Old SomaLogic stockholders was based on a deemed value of $10.00
per share after giving effect to the Exchange Ratio. Each share of Old SomaLogic Class B common stock (including shares of Old SomaLogic
Class B common stock resulting from the deemed conversion of Old SomaLogic redeemable convertible preferred stock) converted into the
right to receive 0.8381
shares (the "Exchange Ratio”) of our Class A common stock, par value $0.0001,
which was renamed as common stock (“Common Stock”).
The
SPAC Merger was accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, CMLS II was treated
as the “acquired” company for financial reporting purposes and SomaLogic Operating was treated as the accounting acquirer.
Accordingly, our financial statements represent a continuation of the financial statements of SomaLogic Operating with the SPAC Merger
being treated as the equivalent of SomaLogic Operating issuing stock for the net assets of CMLS II, accompanied by a recapitalization.
The net assets of SomaLogic Operating was stated at historical cost, with no goodwill or other intangible assets recorded. Operations
prior to the SPAC Merger in these financial statements are those of SomaLogic Operating. The recapitalization of our Common Stock was
reflected retrospectively to the earliest period presented.
Earn-Out
Shares
The
Merger Agreement also provides additional shares of Common Stock to Old SomaLogic shareholders and to certain employees and directors
of SomaLogic (“Earn-Out Service Providers”) of up to 3,500,125
and 1,499,875,
respectively (the “Earn-Out Shares”). The Earn-Out Shares are payable if the price of our Common Stock is greater than or
equal to $20.00
for a period of at least 20
out of 30
consecutive trading days at any time between the 13- and 24-month anniversary of the Closing Date (the “Triggering Event”).
Any Earn-Out Shares issuable to an Earn-Out Service Provider shall be issued only if such individual continues to provide services (whether
as an employee or director) through the date of occurrence of the corresponding Triggering Event (or a change in control acceleration
event, if applicable) that causes such Earn-Out Shares to become issuable (refer to Note 13, Stock-based
Compensation). Any Earn-Out
Shares that are forfeited pursuant to the preceding sentence shall be reallocated to the Old SomaLogic stockholders in accordance with
their respective pro rata Earn-Out Shares. As of December 31, 2022, the contingency has not been met and, accordingly, no shares
of Common Stock have been issued.
PIPE
(Private Investment in Public Entity) Investment
In
connection with the SPAC Merger, CMLS II entered into subscription agreements with certain institutional and accredited investors (the
“PIPE Investors”), pursuant to which the PIPE Investors purchased, concurrently with the closing, an aggregate of 36,500,000
shares of Common Stock at a purchase price of $10.00
per share for an aggregate purchase price of $365.0
million (the “PIPE Investment”).
CMLS
II Shares
In
connection with the closing, certain CMLS II holders exercised their right to redeem certain of their outstanding shares for cash, resulting
in the redemption of 809,850
shares of CMLS II common stock at an approximate price of $10.00
per share, for an aggregate of approximately $8.1
million, which was paid to such holders at the Closing Date (the “CMLS II Redemption”). Immediately following the Closing
Date, all of the 6,900,000
issued and outstanding shares of CMLS II Class B common stock (“CMLS II Founder Shares”), automatically converted, on a one-for-one
basis, into shares of Common Stock in accordance with CMLS II’s amended and restated certificate of incorporation.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Summary
of Shares Issued
The
following table details the number of shares of Common Stock issued immediately following the consummation of the SPAC Merger:
|
|
|
|
|
|
|
Shares |
CMLS
II Class A common stock, outstanding prior to SPAC Merger |
27,600,000 |
|
Less:
CMLS II Redemption shares |
(809,850) |
|
Class
A common stock of CMLS II, net of redemptions |
26,790,150 |
|
Conversion
of CMLS II Founder Shares for Common Stock |
6,900,000 |
|
Shares
issued pursuant to PIPE Investment |
36,500,000 |
|
Conversion
of Old SomaLogic shares for Common Stock (1) |
110,973,213 |
|
Total
shares of SomaLogic Common Stock, immediately after SPAC Merger |
181,163,363 |
|
(1)
The number of Old SomaLogic shares was determined as the 75,404,883
shares of Old SomaLogic Class B common stock and 31,485,973
shares of Old SomaLogic redeemable convertible preferred stock (assuming deemed conversion to Old SomaLogic Class B common stock) outstanding
immediately prior to the closing of the SPAC Merger multiplied by the Exchange Ratio of 0.8381.
Summary
of Net Proceeds
On
the Closing Date, SomaLogic received gross proceeds of $619.4 million,
consisting of $365.0
million from the PIPE Investors and $254.4
million from CMLS II. The gross proceeds were reduced by $50
million of cash payments made to Old SomaLogic stockholders (based on certain Old SomaLogic stockholders’ election to receive cash
instead of equity consideration) and $39.3
million of direct transaction costs incurred by the Company. These direct transaction costs were included in additional paid-in capital
and reflected as an offset against the proceeds.Transaction costs associated with liability-classified instruments were not material.
Acquisition
of Palamedrix, Inc.
On
July 25, 2022, we entered into an Agreement and Plan of Merger to acquire 100%
of the equity interests in Palamedrix, Inc. ("Palamedrix") (the “Palamedrix Acquisition”). Palamedrix is a DNA nano tech firm
that provides scientific and engineering expertise, miniaturization technology and enhanced ease-of-use capabilities that the Company
intends to leverage as it develops the next generation of SomaScan® Assay. The Palamedrix Acquisition provides for up to $0.5
million to be paid to the founders contingent upon settlement of pre-acquisition legal matters. It also provides for three
potential additional payments of up to $17.5 million
to the owners, including non-founder and founder employees, to be settled in cash and/or Common Stock contingent on the achievement of
certain net sales milestone targets by the fifth and sixth year anniversary of the closing date of the acquisition (the “Milestone
Consideration”). The acquisition closed on August 31, 2022.
The
acquired business contributed revenue and expenses of nil
and $2.1 million,
respectively, for the year ended December 31, 2022.
The
following table summarizes the fair value of consideration transferred to acquire Palamedrix:
|
|
|
|
|
|
(in
thousands) |
|
Cash |
$ |
15,778 |
|
Common
Stock |
11,832 |
|
Contingent
consideration |
1,448 |
|
Fair
value of replaced Palamedrix equity awards relating to pre-combination service |
625 |
|
Total
consideration transferred |
$ |
29,683 |
|
Consideration
transferred includes 3,215,295
shares of Common Stock issued to Palamedrix securityholders. An additional 815,177
shares of Common Stock were issued to Palamedrix employees and founders that were accounted for as post-combination compensation expense.
The fair value of Common Stock is based on a per share price of $3.68
on August 31, 2022, the acquisition date.
We
are in the process of completing our purchase accounting, whereby the purchase price is allocated to the identifiable assets acquired
and liabilities assumed based upon their estimated fair values on the acquisition date. The purchase accounting is considered preliminary
and is subject to revision based on final determinations of fair value and allocations of purchase price to the acquired identifiable
assets acquired and liabilities assumed.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
The
following table represents the preliminary allocation of consideration transferred to the identifiable assets acquired and the liabilities
assumed based on the fair values as of August 31, 2022:
|
|
|
|
|
|
(in
thousands) |
|
Cash
and cash equivalents |
$ |
2,521 |
|
Prepaid
expenses and other current assets |
251 |
|
Property
and equipment |
1,246 |
|
Intangible
assets |
16,700 |
|
Other
long-term assets |
1,289 |
|
Accounts
payable |
(68) |
|
Accrued
liabilities |
(81) |
|
Other
current liabilities |
(634) |
|
Deferred
income taxes, net |
(1,390) |
|
Other
long-term liabilities |
(550) |
|
Net
identifiable assets acquired |
19,284 |
|
Goodwill |
10,399 |
|
Total
consideration transferred |
$ |
29,683 |
|
The
goodwill is generated from operational synergies and cost savings the Company expects to achieve from the combined operations and Palamedrix’s
knowledgeable and experienced assembled workforce. The goodwill is not deductible for tax purposes.
All
unvested awards of non-founder employees were accelerated on a discretionary basis as part of the Palamedrix Acquisition. These awards
were exchanged at the close date for cash, Common Stock, and Milestone Consideration. As a result, the Company allocated $1.3
million of the total consideration transferred to post-combination compensation expense. The amount is recorded in selling, general and
administrative in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2022.
In
addition, the unvested awards of the Palamedrix founders were exchanged for cash, Common Stock, and Milestone Consideration on a consistent
basis with all other shareholders. However, the Common Stock and Milestone Consideration replacement awards granted to the Palamedrix
founders require continuing employment for a period of three
years. The Common Stock awards vest ratably over the service period and are equity classified. The Milestone Consideration
awards vest after a three
year service period or upon the achievement of the milestones.
The
Milestone Consideration replacement awards of non-founder and founder employees are accounted for under ASC 718. As the milestone payments
are a fixed monetary value settled in cash and/or Common Stock, they are liability classified. A liability of $1.3
million as of December 31, 2022 is recorded in other long-term liabilities on the consolidated balance sheets.
As
of December 31, 2022, we incurred $3.7
million of acquisition-related costs included in selling, general, and administrative expense in the consolidated statements of operations
and comprehensive loss.
Unaudited
Pro Forma Financial Information
The
following supplemental pro forma information has been prepared as if the Palamedrix acquisition had occurred on January 1, 2021 and is
for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved as if the
acquisition had taken place as of January 1, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma year ended |
(in
thousands) |
|
December 31,
2022
(Unaudited) |
|
December 31,
2021
(Unaudited) |
Net
loss |
|
$ |
(111,077) |
|
|
$ |
(100,837) |
|
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
The
unaudited supplemental pro forma information includes the estimated impact of certain material, nonrecurring adjustments directly attributable
to the Palamedrix Acquisition. These
pro forma adjustments primarily include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro
forma year ended |
(in
thousands) |
December 31,
2022
(Unaudited) |
|
December 31,
2021
(Unaudited) |
Increase
(decrease) to net loss to adjust for transaction costs |
$ |
4,877 |
|
|
$ |
(4,877) |
|
Increase
(decrease) to net loss to reflect income tax benefit from the release of a portion of the valuation allowance |
(622) |
|
|
622 |
|
Increase
(decrease) to net loss to adjust for compensation expense associated with replacement awards |
62 |
|
|
(3,161) |
|
These
pro forma amounts have been calculated after applying our accounting policies and adjusting the results of Palamedrix to reflect the impact
of transaction expenses incurred, income tax benefit from the release of a portion of the valuation allowance, and additional compensation
expense that would have been charged assuming the replacement awards issued in conjunction with the Palamedrix Acquisition were issued
and outstanding on January 1, 2021.
Note
4 — Revenue
The
following table provides information about disaggregated revenue by product line:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
(in
thousands) |
2022 |
|
2021 |
Assay
services revenue |
$ |
63,038 |
|
|
$ |
68,038 |
|
Product
revenue |
4,243 |
|
|
1,277 |
|
Collaboration
revenue |
3,051 |
|
|
3,051 |
|
Other
revenue: |
|
|
|
Royalties |
26,190 |
|
|
8,515 |
|
Other |
1,144 |
|
|
745 |
|
Total
other revenue |
27,334 |
|
|
9,260 |
|
Total
revenue |
$ |
97,666 |
|
|
$ |
81,626 |
|
Contract
Balances and Remaining Performance Obligations
Contract
liabilities represent the Company’s obligation to transfer goods or services to customers from which we have received consideration.
Deferred revenue is classified as current if the Company expects to be able to recognize the deferred amount as revenue within 12 months
of the balance sheet date. Deferred revenue is recognized as or when the Company satisfies its performance obligations under the contract.
At
December 31, 2022 and 2021, deferred revenue of $35.1
million and $5.4
million, respectively, was comprised of balances related to our collaboration, product, assay services, and other revenue. At December 31,
2022 and 2021, the portion of deferred revenue related to collaboration revenue was $2.9
million and $3.9
million, respectively. As of December 31, 2022, the estimated remaining performance period related to the deferred collaboration
revenue is approximately 2.3
years. At December 31, 2022 and 2021, the portion of deferred revenue related to assay services and other revenue was $1.8
million and $1.5
million, respectively. As of December 31, 2022, the deferred revenue related to assay services and other revenue will be recognized
within 12 months.
As
of December 31, 2022 and 2021, the deferred product revenue related to the Illumina Agreement amounted to $30.4
million and nil,
respectively. As of December 31, 2022, the estimated remaining performance obligation period is approximately eight
years.
A
summary of the change in contract liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
(in
thousands) |
2022 |
|
2021 |
Balance
at beginning of period |
$ |
5,385 |
|
|
$ |
5,177 |
|
Recognition
of revenue included in balance at beginning of period |
(2,772) |
|
|
(1,762) |
|
Revenue
deferred during the period, net of revenue recognized |
32,502 |
|
|
1,970 |
|
Balance
at end of period |
$ |
35,115 |
|
|
$ |
5,385 |
|
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Note
5 — Fair
Value Measurements
Assets
measured at fair value on a recurring basis
The
following tables set forth our financial assets measured at fair value on a recurring basis and the level of inputs used in such measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2022
(in
thousands) |
Amortized Cost |
|
Gross Unrealized Gain |
|
Gross Unrealized Loss |
|
Aggregate Fair
Value |
|
Fair
Value Level |
Cash
and cash equivalents: |
|
|
|
|
|
|
|
|
|
Cash |
$ |
44,045 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
44,045 |
|
|
Level
1 |
Money
market funds |
377,785 |
|
|
— |
|
|
— |
|
|
377,785 |
|
|
Level
1 |
Total
cash and cash equivalents |
421,830 |
|
|
— |
|
|
— |
|
|
421,830 |
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
Commercial
paper |
58,794 |
|
|
— |
|
|
(195) |
|
|
58,599 |
|
|
Level
2 |
U.S. Treasuries |
35,252 |
|
|
— |
|
|
(175) |
|
|
35,077 |
|
|
Level
2 |
Asset-backed
securities |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Level
2 |
Corporate
bonds |
11,782 |
|
|
— |
|
|
(39) |
|
|
11,743 |
|
|
Level
2 |
Agency
bonds |
12,426 |
|
|
— |
|
|
(87) |
|
|
12,339 |
|
|
Level
2 |
Total
investments |
118,254 |
|
|
— |
|
|
(496) |
|
|
117,758 |
|
|
|
Total
assets measured at fair value on a recurring basis |
$ |
540,084 |
|
|
$ |
— |
|
|
$ |
(496) |
|
|
$ |
539,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 31, 2021
(in
thousands) |
Amortized
Cost |
|
Gross Unrealized Gain |
|
Gross Unrealized Loss |
|
Aggregate Fair
Value |
|
Fair
Value Level |
Cash
and cash equivalents: |
|
|
|
|
|
|
|
|
|
Cash |
$ |
114,533 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
114,533 |
|
|
Level
1 |
Money
market funds |
324,955 |
|
|
— |
|
|
— |
|
|
324,955 |
|
|
Level
1 |
Total
cash and cash equivalents |
439,488 |
|
|
— |
|
|
— |
|
|
439,488 |
|
|
|
Investments: |
|
|
|
|
|
|
|
|
|
Commercial
paper |
177,852 |
|
|
16 |
|
|
(57) |
|
|
177,811 |
|
|
Level
2 |
U.S. Treasuries |
12,021 |
|
|
— |
|
|
(9) |
|
|
12,012 |
|
|
Level
2 |
Asset-backed
securities |
12,084 |
|
|
— |
|
|
(8) |
|
|
12,076 |
|
|
Level
2 |
Corporate
bonds |
16,332 |
|
|
— |
|
|
(13) |
|
|
16,319 |
|
|
Level
2 |
Total
investments |
218,289 |
|
|
16 |
|
|
(87) |
|
|
218,218 |
|
|
|
Total
assets measured at fair value on a recurring basis |
$ |
657,777 |
|
|
$ |
16 |
|
|
$ |
(87) |
|
|
$ |
657,706 |
|
|
|
All
of the commercial paper, U.S. Treasuries, asset-backed securities, corporate bonds, and agency bonds are designated as available-for-sale
securities and have an effective maturity date that is less than one year from the respective balance sheet date, and accordingly, have
been classified as current in the consolidated balance sheets.
We
classify our investments in money market funds within Level 1 of the fair value hierarchy because they are valued using quoted market
prices. We classify our commercial paper, U.S Treasuries, asset-backed securities, corporate bonds and agency bonds as Level 2 and obtain
the fair value from a third-party 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.
As
all of our available-for-sale securities have been held for less than a year as of both December 31, 2022 and 2021, no security has
been in an unrealized loss position for 12 months or greater. We evaluated our securities for other-than temporary impairment and
considered the decline in market value for the securities to be primarily attributed to current economic and market conditions. It is
not more likely than not that we will be required to sell the securities before their scheduled maturities, and we do not intend to do
so prior to the recovery of the amortized cost basis. Based on this analysis, the available-for-sale securities were not considered to
be other-than-temporarily impaired as of December 31, 2022 and 2021.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Liabilities
measured at fair value on a recurring basis
The
following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis, and indicates
the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
|
Fair
Value |
(in
thousands) |
2022 |
|
2021 |
|
Level |
Liabilities: |
|
|
|
|
|
Warrant
liability - Public Warrants |
$ |
2,208 |
|
|
$ |
18,437 |
|
|
Level
1 |
Warrant
liability - Private Placement Warrants |
2,005 |
|
|
16,744 |
|
|
Level
2 |
Earn-out
liability |
15 |
|
|
26,885 |
|
|
Level
3 |
Milestone
contingent consideration |
1,165 |
|
|
— |
|
|
Level
3 |
Holdback
contingent consideration |
450 |
|
|
— |
|
|
Level
3 |
|
|
|
|
|
|
Total
liabilities measured at fair value on a recurring basis |
$ |
5,843 |
|
|
$ |
62,066 |
|
|
|
Warrant
liabilities
The
Public Warrants were valued using Level 1 inputs as they are traded in an active market. The fair value of the Private Placement Warrants
is equivalent to that of the Public Warrants as they have substantially the same terms; however, as they are not actively traded, they
are classified as Level 2 in the hierarchy table above.
Earn-out
liability
The
fair value of the Earn-Out Shares was estimated using a Monte Carlo simulation model. The fair value is based on the simulated price of
the Company over the maturity date of the contingent consideration and increased by estimated forfeitures of Earn-Out Shares issued to
Earn-Out Service Providers.
The
significant unobservable inputs used in the Monte Carlo simulation to measure the Earn-Out Shares that are categorized within Level 3
of the fair value hierarchy were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2022 |
|
December
31, 2021 |
Stock
price on valuation date |
|
$ |
2.51 |
|
|
$ |
11.64 |
|
|
|
|
|
|
Volatility |
|
78.10 |
% |
|
85.60 |
% |
Risk-free
rate |
|
4.75 |
% |
|
0.34 |
% |
Dividend
yield |
|
— |
% |
|
— |
% |
The
change in the fair value of the earn-out liability is summarized as follows:
|
|
|
|
|
|
|
|
|
(in
thousands) |
|
Fair
Value |
Balance
as of Fair value of earn-out liability at Closing Date |
|
$ |
25,016 |
|
Change
in fair value of earn-out liability |
|
1,869 |
|
Balance
as of December 31, 2021 |
|
$ |
26,885 |
|
Change
in fair value of earn-out liability |
|
(26,870) |
|
Balance
as of December 31, 2022 |
|
$ |
15 |
|
Milestone
Contingent Consideration
The
fair value of milestone contingent consideration was estimated using a Monte Carlo simulation model. The fair value is based on an option
pricing framework, whereby a range of possible scenarios were simulated around forecasted net sales.
The
significant unobservable inputs used in the Monte Carlo simulation to measure the milestone contingent consideration that are categorized
within Level 3 of the fair value hierarchy were as follows:
|
|
|
|
|
|
|
|
|
|
|
December
31, 2022 |
Volatility |
|
35.0 |
% |
Risk-free
rate |
|
4.0 |
% |
Weighted
average cost of capital |
|
30.0 |
% |
Cost
of debt |
|
10.0 |
% |
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
The
change in the fair value of the milestone contingent consideration is summarized as follows:
|
|
|
|
|
|
(in
thousands) |
Fair
Value |
Fair
value of milestone contingent consideration at date of Palamedrix Acquisition |
$ |
998 |
|
Change
in fair value of milestone contingent consideration |
167 |
|
Balance
as of December 31, 2022 |
$ |
1,165 |
|
Holdback
Contingent Consideration
The
fair value of holdback contingent consideration was estimated using a scenario-based analysis. The fair value is based on the expected
holdback release date and expected holdback payment. The future expected payments were discounted to the valuation date using the cost
of debt.
The
significant unobservable inputs used in the scenario-based analysis to measure the holdback contingent consideration that are categorized
with Level 3 of the fair value hierarchy were as follows:
|
|
|
|
|
|
|
|
|
|
|
December
31, 2022 |
Cost
of debt |
|
10.2 |
% |
There
was no change in fair value between the acquisition date of August 31, 2022 and December 31, 2022.
Note
6 — Leases
We
have operating leases for certain office spaces with lease terms ranging from two to five
years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term.
Certain of these leases also include renewal options at our election to renew or extend the leases for additional periods ranging from
three to ten
years. These optional periods have not been considered in the determination of the ROU assets or lease liabilities associated
with these leases as we did not consider the exercise of these options to be reasonably certain. The ROU asset is included in other
long-term assets on the consolidated balance sheets and was $3.9
million as of December 31, 2022.
Lease
Costs
Lease
costs for operating leases are recognized on a straight-line basis over the lease term. The
total lease cost for the period was as follows:
|
|
|
|
|
|
|
|
(in
thousands) |
December
31, 2022 |
|
|
Operating
lease cost (1) |
$ |
6,879 |
|
|
|
Short-term
lease cost |
959 |
|
|
|
Variable
lease cost |
46 |
|
|
|
Total
lease cost |
$ |
7,884 |
|
|
|
(1)
Operating lease cost includes $5.0
million lease termination fee incurred during the year ended December 31, 2022.
Rent
expense for the year ended December 31, 2021 for operating leases was $1.8
million.
Lease
Maturities
The
table below reconciles the undiscounted lease payment maturities to the lease liabilities for our operating leases as of December 31,
2022:
|
|
|
|
|
|
(in
thousands) |
December
31, 2022 |
2023 |
$ |
2,561 |
|
2024 |
1,143 |
|
2025 |
834 |
|
2026 |
143 |
|
Thereafter |
— |
|
Total |
4,681 |
|
Less:
amount of lease payments representing interest |
(141) |
|
|
|
Present
value of future lease payments |
4,540 |
|
Less:
current operating lease liabilities (included in other current liabilities) |
(2,477) |
|
Long-term
operating lease liabilities (included in other long-term liabilities) |
$ |
2,063 |
|
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Supplemental
Lease Information
Supplemental
information related to our operating leases was as follows:
|
|
|
|
|
|
|
December
31, 2022 |
Weighted
average remaining lease term |
2.3
years |
Weighted
average discount rate |
2.5 |
% |
Cash
paid for amounts included in the measurement of our operating lease liabilities for the period ended December 31, 2022 was $2.1 million.
In
February 2022, we executed two
separate lease agreements (the “Leases”) to lease buildings pending construction that had not yet commenced. Both leases were
set to expire on November 30, 2033, unless extended or early terminated in accordance with the terms of the lease. In accordance with
the lease agreements, we made a deposit of $4.1 million
during the first quarter of 2022. The deposit is restricted from withdrawal and held by a bank in the form of collateral for an irrevocable
standby letter of credit held as security.
On
August 25, 2022, we entered into a lease termination agreement (the “Lease Termination”) for the Leases prior to lease
commencement. As consideration for the termination of the Leases, we agreed to pay the landlord a termination fee of $6.0 million
of which $2.5 million
was paid on the termination date. During the fourth quarter of 2022 the remaining liability was reduced by $1.0 million
after the landlord entered into a separate lease with a third party. The remaining $2.5 million
liability is recorded in accrued liabilities on the consolidated balance sheets and was paid in January 2023. The $4.1
million deposit is classified as restricted cash and included in prepaid expenses and other current assets in the consolidated balance
sheets and was released from restricted cash once the termination fee was paid in full.
Note
7 — Inventory
Inventory
was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
(in
thousands) |
2022 |
|
2021 |
Raw
materials |
$ |
16,710 |
|
|
$ |
15,030 |
|
Work
in process |
1,191 |
|
|
175 |
|
Finished
goods |
639 |
|
|
93 |
|
Total
inventory |
$ |
18,540 |
|
|
$ |
15,298 |
|
Inventory
(current) |
$ |
13,897 |
|
|
$ |
11,213 |
|
Non-current
inventory |
$ |
4,643 |
|
|
$ |
4,085 |
|
Note
8 — Property
and Equipment
Property
and equipment was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
(in
thousands) |
2022 |
|
2021 |
Lab
equipment |
$ |
14,978 |
|
|
$ |
10,504 |
|
Computer
equipment |
1,600 |
|
|
1,416 |
|
Furniture
and fixtures |
1,343 |
|
|
951 |
|
Software |
891 |
|
|
1,081 |
|
Cloud
computing arrangements |
12,520 |
|
|
3,785 |
|
Leasehold
improvements |
2,395 |
|
|
2,275 |
|
Construction
in progress |
3,736 |
|
|
4,789 |
|
Total
property and equipment, at cost |
37,463 |
|
|
24,801 |
|
Less:
Accumulated depreciation and amortization |
(17,899) |
|
|
(15,244) |
|
Property
and equipment, net |
$ |
19,564 |
|
|
$ |
9,557 |
|
Depreciation
expense was $1.9
million and $1.8 million
for the years ended December 31, 2022 and 2021, respectively. Amortization expense related to internal use software was $2.7 million
and $0.8 million
for the years ended December 31, 2022 and 2021, respectively. The unamortized costs related to cloud hosting arrangements as of December 31,
2022 and 2021 was $8.4 million
and $2.4 million,
respectively.
SomaLogic,
Inc.
Notes
to Consolidated Financial Statements
Note
9 — Accrued
Liabilities
Accrued
liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
(in
thousands) |
2022 |
|
2021 |
Accrued
compensation |
13,897 |
|
|
9,832 |
|
Accrued
restructuring costs |
2,223 |
|
|
— |
|
Accrued
lease termination fee |
2,500 |
|
|
— |
|
Accrued
real estate agent commission |
764 |
|
|
— |
|
Accrued
charitable contributions |
— |
|
|
400 |
|
Accrued
medical claims |
663 |
|
|
398 |
|
Other |
631 |
|
|
479 |
|
Total
accrued liabilities |
$ |
20,678 |
|
|
$ |
11,109 |
|
Note
10 — Commitments
and Contingencies
Legal
Proceedings
We
are subject to claims and assessments from time to time in the ordinary course of business. We will accrue a liability for such matters
when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss
can be established, the most probable amount in the range is accrued. If no amount within this range is a better estimate than any other
amount within the range, the minimum amount in the range is accrued. We are not currently party to any material legal proceedings in which
a potential loss is probable or reasonably estimable.
Indemnification
In
the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties
and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that
may be made against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required
to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of
these indemnification obligations.
Note
11 — Debt
As
of December 31, 2022 and 2021, we did not have any debt outstanding.
The
loan resulting from the Paycheck Protection Program was forgiven during the second quarter of 2021 and resulted in a gain on extinguishment
of debt of $3.6
million for the year ended December 31, 2021. The debt under the Company’s credit agreement was settled in 2021, which resulted
a $5.2
million loss on extinguishment of debt for the year ended December 31, 2021. In July 2021, the convertible debt was converted into
571,642
shares of Common Stock (as converted), which resulted in a $2.7
million loss on extinguishment of debt.
Total
interest expense related to these forms of debt totaled $1.3
million for the year ended December 31, 2021.
Note
12 — Stockholders'
Equity
Common
and Preferred Stock
On
September 1, 2021, in connection with the SPAC Merger, the Company amended and restated its certificate of incorporation to authorize
600,000,000
shares of Common Stock, par value of $0.0001
per share, and 1,000,000
shares of preferred stock, par value $0.0001
per share.
Warrants
As
of December 31, 2022, there were an aggregate of 5,519,991
and 5,013,333
outstanding Public Warrants and Private Placement Warrants, respectively. Each warrant entitles the holder to purchase one share of our
Common Stock at a price of $11.50
per share at any time commencing on February 25, 2022. The Warrants will expire on September 1, 2026 or earlier upon redemption or liquidation.
The
Private Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants, so long as they are held
by CMLS Holdings II LLC, a Delaware limited liability company (the “Sponsor”) or any of its permitted transferees, (i) will
not be redeemable by the Company (except as described below in “Redemption
of Warrants When the Price per Share of Common Stock Equals or Exceeds $10.00”),
(ii) may be exercised by the holders on a cashless basis,
SomaLogic,
Inc.
Notes to Consolidated Financial Statements
and
(iii) will be entitled to certain registration rights. If the Private Placement Warrants are held by a holder other than the Sponsor or
any of its permitted transferees, the Private Placement Warrants will be redeemable by the Company in all redemption scenarios applicable
to the Public Warrants and exercisable by such holders on the same basis as the Public Warrants.
Redemptions
of warrants when the price per share of Common Stock equals or exceeds $18.00
- Once the warrants become
exercisable, the Company may redeem the outstanding Public Warrants:
•in
whole and not in part;
•at
a price of $0.01
per warrant;
•upon
a minimum of 30 days’ prior written notice of redemption to each warrant holder; and
•if,
and only if, the closing price of the Common Stock equals or exceeds $18.00
per share for any 20
trading days within a 30-trading
day period ending three
business days before the Company sends to the notice of redemption to the warrant holders.
Redemptions
of warrants when the price per share of Common Stock equals or exceeds $10.00
- Once
the warrants become exercisable, the Company may redeem the outstanding Public Warrants:
•in
whole and not in part;
•at
$0.10
per warrant upon a minimum of 30
days’ prior written notice of redemption, provided that holders will be able to exercise their warrants on a cashless basis prior
to redemption and receive that number of shares, based on the redemption date and the “fair market value” of our Common Stock
(as defined below) except as otherwise described below;
•if,
and only if, the closing price equals or exceeds $10.00
per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20
trading days within a 30-trading
day period ending three
trading days before the Company sends the notice of redemption to the warrant holders; and
•if
the closing price of the Common Stock for any 20
trading days within a 30-trading
day period ending three trading days before the Company sends notice of redemption to the warrant holders is less than $18.00
per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like), the Private Placement
Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above.
The
“fair market value” of our Common Stock shall mean the volume weighted average price of our Common Stock during the 10
trading days immediately following the date on which the notice of redemption is sent to the holders of warrants. We will provide our
warrant holders with the final fair market value no later than one business day after the 10-trading
day period described above ends. In no event will the warrants be exercisable in connection with this redemption feature for more than
0.361
shares of Common Stock per warrant (subject to adjustment).
We
will not redeem the Warrants as described above unless an effective registration statement under the Securities Act of 1933, as amended,
covering our Common Stock issuable upon exercise of the warrants is effective and a current prospectus relating to those shares of Common
Stock is available throughout the 30-day redemption period. If the foregoing conditions are satisfied and we issue a notice of redemption,
each warrant holder will be entitled to exercise their warrants prior to the scheduled redemption date.
The
Company may not redeem the Private Warrants, so long as they continue to be held by the original purchasers or permitted transferees.
However, if the Private Warrants are transferred and no longer held by the original holder (or permitted transferees), such Warrants will
automatically convert into Public Warrants and become subject to the same redemption provisions. Such Warrants will cease to exist as
Private Warrants.
Note
13 — Stock-based
Compensation
We
maintain three
equity incentive plans – the 2009 Equity Incentive Plan (the “2009 Plan”), the 2017 Equity Incentive Plan (the “2017
Plan”), and the 2021 Equity Incentive Plan (the “2021 Plan”) under which incentive and nonstatutory stock options to
purchase shares of Old SomaLogic’s common stock were granted to employees, directors, and non-employee consultants. The 2009 Plan
was terminated upon the adoption of the 2017 Plan, and no further awards were granted under the 2009 Plan thereafter. The outstanding
options previously granted under the 2009 Plan continued to remain outstanding under the 2017 Plan.
Upon
consummation of the SPAC Merger, all outstanding options were converted into an option to acquire an adjusted number of shares of Common
Stock of SomaLogic at an adjusted exercise price per share based on the Exchange Ratio.
SomaLogic,
Inc.
Notes to Consolidated Financial Statements
Such
options continue to be governed by substantially the same terms and conditions, including vesting, as were applicable to the original
instrument.
In
September 2021, our Board of Directors adopted, and our stockholders approved, a new incentive plan (the “2021 Plan”), under
which the Company may grant cash and equity incentive awards in the form of stock options, stock appreciation rights, restricted stock,
other stock-based awards, other cash-based awards, and performance awards to employees, directors, and consultants of the Company. The
2021 Plan became effective upon the closing of the SPAC Merger. The 2017 Plan was terminated when the Board adopted the 2021 Plan but
continues to govern certain terms and conditions of awards granted thereunder. In January 2022, we increased the reserve of Common
Stock for issuance under all incentive plans by 9,077,612
shares in accordance with our 2021 Plan. As of December 31, 2022, we were authorized to issue a maximum of 30,377,612
shares of Common Stock. As of December 31, 2022, 13,635,529
awards have been granted under the 2021 Plan. As of December 31, 2022, we have reserved 44,695,641
shares of Common Stock for issuance under all incentive plans.
Stock-based
compensation includes grants of equity incentive awards in the form of stock options and other stock-based awards as well as the issuance
of common stock under a consulting agreement, issuance of Earn-Out Shares to service providers in connection with the SPAC Merger, issuance
of common stock subject to vesting conditions issued to Palamedrix founder employees, and Milestone Consideration replacement awards of
non-founder and founder employees. Stock-based compensation also includes the impact of common stock purchased through our employee stock
purchase plan, which allows eligible employees to purchase shares of our Common Stock at a price equal to 85%
of their fair market value on the last day of a defined offering period.
Stock-based
compensation was recorded in the consolidated statements of operations and comprehensive loss as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
(in thousands) |
2022 |
|
2021 |
Cost
of assay services revenue |
$ |
1,080 |
|
|
$ |
633 |
|
Cost
of product revenue |
53 |
|
|
14 |
|
Research
and development |
8,186 |
|
|
10,958 |
|
Selling,
general and administrative |
34,290 |
|
|
16,810 |
|
Total
stock-based compensation |
$ |
43,609 |
|
|
$ |
28,415 |
|
Stock-based
compensation will fluctuate based on the grant-date fair value of awards, the number of awards, the requisite service period of the awards,
modification of awards, employee forfeitures and the timing of the awards. Expense related to each stock option and restricted stock unit
(“RSU”) award is recognized on a straight-line basis over the requisite service period of the entire award.
Stock
Options Awards
At
December 31, 2022, there were 19,644,029
options outstanding within the 2009 Plan, the 2017 Plan, and the 2021 Plan and 3,897,165
options outstanding that were granted outside of the incentive plans. Generally, options vest over four years, with 25%
vesting upon the first-year anniversary of the grant date and the remaining options vesting ratably each month thereafter.
The
following table shows a summary of all stock option activity for the year ended December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Options |
|
Weighted Average Exercise
Price (per share) |
|
Weighted Average Remaining Contractual
Life (in years) |
|
Aggregate Intrinsic
Value (in thousands) |
December
31, 2021 |
19,702,845 |
|
|
$ |
5.83 |
|
|
|
|
|
Granted |
7,361,072 |
|
|
$ |
7.13 |
|
|
|
|
|
Exercised |
(1,906,530) |
|
|
$ |
2.52 |
|
|
|
|
|
Forfeited |
(1,616,193) |
|
|
$ |
6.8 |
|
|
|
|
|
Expired |
— |
|
|
$ |
— |
|
|
|
|
|
Outstanding
as of December 31, 2022 |
23,541,194 |
|
|
$ |
6.44 |
|
|
8.17 |
|
$ |
368 |
|
Exercisable
as of December 31, 2022 |
11,647,109 |
|
|
$ |
5.57 |
|
|
7.41 |
|
$ |
368 |
|
Vested
and expected to vest as of December 31, 2022 |
20,887,358 |
|
|
$ |
6.33 |
|
|
8.07 |
|
$ |
368 |
|
SomaLogic,
Inc.
Notes to Consolidated Financial Statements
The
assumptions used in valuing the stock options granted are set forth in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
2022 |
|
2021 |
Expected
dividend yield |
— |
% |
|
— |
% |
Expected
volatility |
76.4
– 80.3% |
|
71.4
– 92.8% |
Risk-free
interest rate |
1.58
– 4.16% |
|
0.64
– 1.38% |
Expected
weighted-average life of options |
6.03
years |
|
6.04
years |
The
total intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was approximately $9.9
million and $4.7
million, respectively.
The
weighted-average grant date fair value for options granted during the years ended December 31, 2022 and 2021 was $4.85
and $4.78,
respectively.
Based
on options granted to employees as of December 31, 2022, total compensation expense not yet recognized related to unvested options
is approximately $38.9
million, which is expected to be recognized over a weighted average period of 2.73
years.
During
2022, the Company modified options and RSUs held by certain terminated executives and certain employees whose employment was terminated
as part of the Strategic Reorganization to accelerate the vesting and/or extend contractual terms. In connection with these modifications,
the Company incurred incremental stock-based compensation expense of $8.3
million during the year ended December 31, 2022.
In
June 2021, the Company modified options held by directors that resigned from our Board of Directors to accelerate the vesting and/or
extend contractual terms. In connection with these modifications, the Company recorded incremental stock-based compensation expense of
$0.7
million during the year ended December 31, 2021.
Restricted
Stock Units
RSUs
vest subject to the satisfaction of service requirements. The grant-date values of these awards are determined based on the closing price
of the Company’s common stock on the date of the grant.
The
following table shows a summary of all RSU activity for the year ended December 31, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs |
|
Weighted-Average
Grant Date Fair Value Per Share |
Unvested
at December 31, 2021 |
— |
|
|
$ |
— |
|
Granted |
3,330,009 |
|
|
$ |
4.65 |
|
Vested |
(12,031) |
|
|
$ |
9.08 |
|
Forfeited |
(233,599) |
|
|
$ |
5.84 |
|
Unvested
at December 31, 2022 |
3,084,379 |
|
|
$ |
4.55 |
|
Unrecognized
stock-based compensation expense at December 31, 2022 (in millions) |
$ |
8.6 |
|
|
|
Weighted
average remaining period at December 31, 2022 |
2.84
years |
|
|
The
total fair value of RSUs that vested during the year ended December 31, 2022 was $0.1 million.
We have not recognized any tax benefits related to the effects of employee stock-based compensation expense. No RSUs were granted or vested
prior to 2022.
Service
Provider Earn-Out Shares
As
of December 31, 2022, 1,146,159
Service Provider Earn-Outs were outstanding after forfeitures. Upon forfeiture, the forfeited shares will be redistributed to the Old
SomaLogic stockholders. The weighted average grant date fair value of the Service Provider Earn-Outs was $7.04
per share, and was recognized as stock-based compensation expense on a straight-line basis over the derived service period of 1.2
years. The assumptions used in valuing the Service Provider Earn-Outs using the Monte Carlo simulation included volatility of 89.8%,
risk-free interest rate of 0.10%
to 0.11%,
and a stock price of $10.63
to $10.67.
The Company recorded $5.8
million and $2.9
million in stock-based compensation expense related to the Service Provider Earn-Outs during the years ended December 31, 2022 and
2021, respectively. As the derived service period has passed, expenses related to the Service Provider Earn-Outs have been fully recognized
as of December 31, 2022.
SomaLogic,
Inc.
Notes to Consolidated Financial Statements
Replacement
Awards Subject to Vesting Conditions
In
connection with the Palamedrix Acquisition, we issued 1,209,801
shares of Common Stock and Milestone Consideration to founder employees that require continuing employment for a period of three
years. Related stock-based compensation expense of $0.6 million
was recorded in research and development expense in the consolidated statement of operations and comprehensive loss during the year ended
December 31, 2022.
Secondary
Sale Transaction
In
July 2021, an employee of the Company sold shares of the Company’s common stock and vested options to acquire shares of our common
stock at a sales price that was above the then-current fair value. Since the purchasing parties are holders of economic interest in the
Company and acquired shares and options from a current employee at a price in excess of fair value of such shares and options, the amount
paid in excess of the fair value at the time of the secondary sale was recognized as stock-based compensation expense.
Total
stock-based compensation expense related to the secondary sale transaction of $6.5
million was recorded within research and development expenses in the consolidated statements of operations and comprehensive loss during
the year ended December 31, 2021.
Performance
Awards
In
July 2021, we entered into a consulting agreement (the “Consulting Milestone Agreement”) with a vendor, Abundant Venture Innovation
Accelerator (“AVIA”), to provide services related to expanding our contractual relationships with health system providers.
The Consulting Milestone Agreement includes a fixed amount of compensation in our Common Stock for achievement of certain milestones related
to our business. We account for these awards as stock compensation liabilities with a performance condition, which are measured at fair
value on the date of the grant and recognized over the expected performance period when it is probable the milestone will be achieved.
In
August 2021, we issued 14,727
shares of Old SomaLogic Class B common stock related to this Consulting Milestone Agreement for milestones achieved. These shares are
presented in the consolidated statements of stockholders’ equity as 12,342
shares of Common Stock as a result of the reverse recapitalization. In December 2021, we issued additional 53,120
shares of Common Stock related to the Consulting Milestone Agreement. We recognized approximately $0.8
million of stock-based compensation expense during the year ended December 31, 2021. In June 2022, we amended the Consulting Milestone
Agreement to redefine the milestones and payment terms. There were no issuances of or further commitment to issue Common Stock for the
year ended December 31, 2022.
Note
14 — Income
Taxes
The
components of the Company’s provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
(in
thousands) |
2022 |
|
2021 |
Current
income tax expense (benefit) |
|
|
|
Federal |
$ |
— |
|
|
$ |
— |
|
State |
76 |
|
|
17 |
|
Foreign |
13 |
|
|
21 |
|
|
89 |
|
|
38 |
|
Deferred
tax expense (benefit) |
|
|
|
Federal |
(982) |
|
|
— |
|
State |
176 |
|
|
— |
|
Foreign |
— |
|
|
— |
|
|
(806) |
|
|
— |
|
Provision
for income taxes |
$ |
(717) |
|
|
$ |
38 |
|
The
Company recorded $0.7
million of income tax benefit for the year ended December 31, 2022 resulting from changes in the valuation allowance due to deferred
tax liabilities resulting from acquired indefinite lived intangible assets as part of the Palamedrix Acquisition.
SomaLogic,
Inc.
Notes to Consolidated Financial Statements
A
reconciliation of the income tax benefit calculated at the federal statutory rate to the total income tax provision is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
(in
thousands) |
2022 |
|
2021 |
Income
tax benefit at the federal statutory rate |
$ |
(23,073) |
|
|
$ |
(18,404) |
|
State
income taxes, net of federal income tax benefit |
(5,296) |
|
|
(3,008) |
|
Nondeductible
stock-based compensation |
(4,804) |
|
|
1,049 |
|
Expiration
of net operating loss and research and development credits |
3,084 |
|
|
3,244 |
|
Change
in valuation allowance |
36,441 |
|
|
15,092 |
|
Other
permanent items |
(5,658) |
|
|
1,311 |
|
Research
and development credits |
(2,691) |
|
|
(1,110) |
|
Return
to provision adjustments |
829 |
|
|
855 |
|
Other,
net |
451 |
|
|
1,009 |
|
Provision
for income taxes |
$ |
(717) |
|
|
$ |
38 |
|
The
components of the deferred income tax assets and liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
(in
thousands) |
2022 |
|
2021 |
Deferred
income tax assets: |
|
|
|
Net
operating loss carryforwards |
$ |
104,666 |
|
|
$ |
98,032 |
|
Research
and development credits |
13,780 |
|
|
11,264 |
|
Depreciation
and amortization |
288 |
|
|
598 |
|
Deferred
revenue |
8,548 |
|
|
1,344 |
|
Accrued
expenses and non-deductible reserves |
471 |
|
|
200 |
|
Compensation
accruals |
2,415 |
|
|
1,796 |
|
Stock-based
compensation |
19,065 |
|
|
11,952 |
|
Interest
expense carryforward |
4,920 |
|
|
6,628 |
|
Section
174 expense |
17,714 |
|
|
— |
|
Lease
liability |
1,105 |
|
|
— |
|
Other |
862 |
|
|
1,139 |
|
|
173,834 |
|
|
132,953 |
|
Valuation
allowance |
(169,394) |
|
|
(132,953) |
|
Deferred
tax assets (net) |
4,440 |
|
|
— |
|
|
|
|
|
Deferred
income tax liabilities: |
|
|
|
Intangible
assets |
(4,065) |
|
|
— |
|
Right
of use asset |
(960) |
|
|
$ |
— |
|
Net
deferred income tax liabilities |
$ |
(585) |
|
|
$ |
— |
|
As
of December 31, 2022, and 2021, a valuation allowance of $169.4
million and $133.0
million was established against the Company’s deferred tax assets as the Company believes it is more likely than not these tax attributes
would not be realizable in the future. The valuation allowance increased by $36.4
million for the year ended December 31, 2022.
The
Company evaluates the need to establish a valuation allowance by considering all available positive and negative evidence, including expected
levels of taxable income, future reversals of existing temporary differences, tax planning strategies, and recent financial operations.
The Company establishes a valuation allowance to reduce deferred tax assets to the extent it is more likely than not that some, or all,
of the deferred tax assets will not be realized. Accordingly, the Company has established a valuation allowance equal to the net realizable
deferred tax assets. The Company will continue to monitor its available positive and negative evidence in assessing the realization of
its deferred tax assets in the future, and should there be a need to release the valuation allowance, a tax benefit will be recorded.
As
of December 31, 2022, and 2021, the Company had federal net operating losses (“NOLs”) of $416.3
million and $385.5
million, respectively. Of the aggregate federal NOLs at December 31, 2022, $221.8
million can be carried forward indefinitely, and the remaining $194.5
million will begin to expire in 2023.
SomaLogic,
Inc.
Notes to Consolidated Financial Statements
As
of December 31, 2022, and 2021, the Company had state NOLs of $359.5
million and $359.9
million, respectively, which begin to expire in 2023.
As
of December 31, 2022, and 2021, the Company had research and development credit carryforward of $14.8
million and $12.5
million, respectively, which begin to expire in 2023.
Our
U.S. deferred tax assets are also subject to annual limitation under Section 382 of the Internal Revenue Code of 1986 due to stock ownership
changes that have occurred, primarily as a result of the SPAC Merger completed on September 1, 2021. Based on an analysis completed during
2021, we have concluded that all of our historical U.S. deferred tax assets generated through December 31, 2020 are available to us for
future use to offset taxable income. We may experience ownership changes in the future as a result of shifts in our stock ownership (some
of which may be outside our control). Therefore, available U.S. deferred tax assets may be further limited in the event of another significant
ownership change.
The
Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions with varying statutes of
limitations. As of December 31, 2022, the Company is not under examination in any jurisdiction and the tax years 2018 through 2021
remain open to examination in its federal and state jurisdictions. The Company believes no significant changes in the unrecognized tax
benefits will occur within the next 12 months.
A
reconciliation of the unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, |
(in
thousands) |
2022 |
|
2021 |
Unrecognized
tax benefit – beginning balance |
$ |
1,251 |
|
|
$ |
1,176 |
|
Increase
related to tax positions taken in the current year |
269 |
|
|
111 |
|
Increase
related to tax positions taken in the prior year |
— |
|
|
— |
|
Decrease
related to tax positions taken in the prior year |
(38) |
|
|
(36) |
|
Unrecognized
tax benefit – ending balance |
$ |
1,482 |
|
|
$ |
1,251 |
|
The
unrecognized tax benefits are classified as a reduction of deferred tax assets on the consolidated balance sheets. As of December 31,
2022, and 2021, there are $1.5
million and $1.3 million
of unrecognized tax benefits that, if recognized, would favorably affect the Company’s effective tax rate, respectively.
The
Company did not
recognize any interests or penalties in all periods presented or accrue any interests or penalties as of December 31, 2022, and 2021.
Note
15 — Employee
Benefit Plans
The
Company sponsors a 401(k) plan, covering all employees in the United States. The Company matches 100%
of the first 4%
of employee contributions with immediate vesting. We made matching contributions of approximately $2.1
million and $1.1
million during the years ended December 31, 2022 and 2021, respectively.
Note
16 — Related
Parties
The
Company paid $0.4
million and $0.2
million of an unconditional contribution to a related party during the years ended December 31, 2022 and 2021, respectively. As of
December 31, 2022, there is no additional remaining pledge.
Casdin
Partners Master Fund, L.P (“Casdin”), founded by Eli Casdin, a member of the Company’s Board of Directors and principal
owner of the Company, was a shareholder of Palamedrix. Upon the Company’s acquisition of Palamedrix, Casdin received $0.8 million
in cash, $0.8 million
in equity, and the right to receive up to $0.3
million of Milestone Consideration related to the achievement of net sales milestones.
Note
17 — Net
Loss Per Share
The
following table sets forth the computation of basic and diluted net loss per share (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
(in
thousands, except share and per share data) |
2022 |
|
2021 |
Net
loss |
$ |
(109,157) |
|
|
$ |
(87,547) |
|
Weighted-average
shares outstanding, basic and diluted |
183,991,643 |
|
|
137,157,283 |
|
Net
loss per share, basic and diluted |
$ |
(0.59) |
|
|
$ |
(0.64) |
|
SomaLogic,
Inc.
Notes to Consolidated Financial Statements
During
periods in which the Company incurs a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares
outstanding because the effect of all awards is anti-dilutive. The
following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the
periods presented because including them would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, |
|
2022 |
|
2021 |
Anti-dilutive
shares: |
|
|
|
Stock
options to purchase common stock |
23,541,194 |
|
|
19,702,845 |
|
Public
Warrants and Private Placement Warrants |
10,533,324 |
|
|
10,533,324 |
|
Unvested
RSUs outstanding |
3,084,379 |
|
|
— |
|
Replacement
awards subject to vesting conditions |
1,209,801 |
|
|
— |
|
|
|
|
|
Total
anti-dilutive shares |
38,368,698 |
|
|
30,236,169 |
|
The
calculation of diluted net loss per share does not consider the effect of contingently issuable shares that are contingent on the occurrence
of a future event that has not yet occurred. As of December 31, 2022, the contingency for the Earn-Out Shares had not been met and
therefore the Earn-Out Shares were not considered in the computation of diluted net loss per share.
Note
18 — Restructuring
On
December 16, 2022, following the completion of a strategic review of our business, we announced a workforce reduction plan (the "Strategic
Reorganization") to reduce operating costs and focus on long-term growth opportunities in our life sciences business. Under this Strategic
Reorganization, we reduced our workforce by approximately 16%,
with a majority of these employees separating in December and the remaining affected employees separating over the next three-month period.
Employees who were impacted by the restructuring were eligible to receive severance benefits contingent upon an impacted employee's execution
of a separation agreement, which included a general release of claims against us. Certain impacted employees were covered by employment
agreements or an existing severance plan that provides termination benefits.
Employee
severance and benefits are comprised of severance, other termination benefit costs, and non-cash stock-based compensation expense for
the extension of the exercise period of vested options. One-time termination benefits were recorded pursuant to ASC 420, Exit
or Disposal Cost Obligations, while
termination benefits under ongoing benefit arrangements were recorded pursuant to ASC 712, Compensation
- Nonretirement Postemployment Benefits.
See Note 13, Stock-based
Compensation,
for additional information about benefits related to the extension of the exercise period of vested options.
The
Company recognized restructuring charges of approximately $2.9 million
during the year ended December 31, 2022. Restructuring charges are comprised of $1.2 million
related to one-time termination benefits, $1.0 million
related to termination benefits under ongoing benefit arrangements, and $0.7 million
related to non-cash stock-based compensation expense. We expect to incur additional employee severance and benefits expense up to $0.8 million.
This reflects the best estimate of the Company, which may be revised in subsequent periods as the Strategic Reorganization progresses.
The
following table outlines the components of the restructuring charges included in the consolidated statement of operations and comprehensive
loss:
|
|
|
|
|
|
(in
thousands) |
Year
Ended December 31, 2022 |
Cost
of assay services revenue |
$ |
284 |
|
Research
and development |
1,126 |
|
Selling,
general and administrative |
1,478 |
|
Total
employee severance and benefits |
$ |
2,888 |
|
The
following table outlines the changes in liabilities associated with our Strategic Reorganization, including restructuring expenses incurred
and cash payments as of December 31, 2022:
|
|
|
|
|
|
(in
thousands) |
Year
Ended December 31, 2022 |
Beginning
balance |
$ |
— |
|
Accruals |
2,223 |
|
Payments |
— |
|
Balance
at December 31, 2022 |
$ |
2,223 |
|
SomaLogic,
Inc.
Notes to Consolidated Financial Statements
The
restructuring liabilities are included in accrued liabilities in the consolidated balance sheets. We expect that substantially all of
the remaining accrued restructuring liabilities will be paid in cash over the next 12 months. The charges recognized in the rollforward
of our accrued restructuring liabilities do not include items charged directly to expense for extension of the exercise period of vested
options.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
None.
Item
9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Under
supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2022. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2022,
based on the material weaknesses described below. In light of these material weaknesses, we performed additional analysis as deemed necessary
to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Based on such
analysis and notwithstanding the identified material weaknesses, management, including our Chief Executive Officer and Chief Financial
Officer, believe the consolidated financial statements included in this Annual Report on Form 10-K fairly represent in all material respects
our financial condition, results of operations and cash flows at and for the periods presented in accordance with GAAP.
Limitations
on the Effectiveness of Disclosure Controls and Procedures
Our
management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures
or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and
implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, 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. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues within a company are detected. The inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple errors or mistakes. 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.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting as such term as defined
in Rules 13a-15(f)and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles in the United States of America.
Our
internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that, in reasonable
detail, accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary
for preparation of our financial statements in accordance with generally accepted accounting principles and that the receipts and expenditures
of company assets are made in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding
the prevention of or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with policies or procedures may deteriorate.
As
of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting based on the criteria
for effective internal control over financial reporting established in "Internal Control – Integrated Framework (2013)", issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment and those criteria,
management determined that our internal control over financial reporting was not effective as of December 31, 2022, due to the material
weaknesses described below.
Material
Weaknesses
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is
a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected
on a timely basis.
The
following material weaknesses were identified as a result of management’s assessment:
•As
discussed in our Annual Reports on Form 10-K filed for the years ended December 31, 2021 and 2020, we identified a material weakness in
our internal control over financial reporting due to ineffective controls over the
financial
statement close process and lack of sufficient accounting and financial reporting personnel to ensure consistent application of GAAP and
compliance with SEC rules and regulations.
The
Company began implementing certain of the following measures of our remediation plan in 2021 and throughout 2022.
◦We
hired additional accounting and finance personnel with technical public company accounting and financial reporting experience.
◦In
addition to adding experienced accounting personnel, we are also utilizing third-party consultants and specialists to supplement our internal
resources with technical accounting experience.
◦We
engaged a third-party consulting firm to assist us with risk assessments, control and process documentation, control design, and control
testing.
◦We
implemented enhanced accounting and financial reporting training.
◦We
report regularly to the audit committee on the state of our internal controls over financial reporting, such as internal control deficiencies
identified through management self-assessment, internal control testing and the status and resolution of internal control deficiencies.
◦We
designed and implemented additional automation and integration in our financially relevant IT systems, and are in the process of implementing
additional enhancements to our software.
While
we believe that significant progress has been made in various areas of accounting and financial reporting with the above initiatives,
the Company continued to identify material weaknesses related to the design and operation of controls supporting key principles related
to the control activities, information and communication, and monitoring components of the COSO framework over: (i) significant nonrecurring
transactions and events, (ii) inventory costing and classification, and (iii) the classification and presentation of the consolidated
statement of cash flows. Specifically, management failed to design and implement certain risk assessment controls related to identifying
and analyzing risks to achieve control objectives, and failed to address the impact of changes in the business on the system of internal
controls.
•The
Company identified a material weakness related to the Company’s information technology general controls. Specifically, effective
controls were not maintained over user access to the Company’s Enterprise Resources (ERP) system that supports the accounting and
reporting processes, causing a lack of segregation of duties in key processes.
These
material weaknesses will not be considered remediated until management designs and implements effective controls that operate for a sufficient
period of time and management has concluded through testing that these controls are effective. See “Remediation Plan” for
details.
Remediation
Plan
•We
will enhance the design of existing controls, and where necessary, implement additional controls, over our accounting for significant
nonrecurring transactions and will maintain evidence of management review controls.
•We
will increase the deployment of both internal and external specialists to assist our management with the evaluation of the accounting
for significant nonrecurring transactions.
•We
will design and implement controls over inventory costing and classification.
•We
will design and implement controls to ensure that all cash inflow and outflow activity is appropriately classified and presented within
the statements of cash flow.
•We
will remove unnecessary user access to our financially relevant IT systems based on job responsibilities and are in the process of reconfiguring
the mapping of “roles and assigned privileges” to “duties” to ensure adequate segregation of duties is maintained
within our ERP system.
•We
will implement timely periodic reviews of existing user and administrator security roles and privileges.
•We
will enhance the design of our information technology general controls over user access provisioning and monitoring controls to enforce
appropriate system access and segregation of duties.
Attestation
Report of the Registered Public Accounting Firm
This
annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over
financial reporting. Our independent registered public accounting firm will not be required to formally attest to the effectiveness of
our internal controls over financial reporting for as long as we are an “emerging growth company” pursuant to the provisions
of the JOBS Act.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act)
that occurred during the fourth quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Item
9B. Other Information
None.
Item
9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
Information
as to Item 10 is incorporated by reference from the information in our 2023 Proxy Statement.
Our
board of directors has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and employees, which is available
on our website (www.investors.somalogic.com) under “Corporate Governance” within the “Governance Highlights” section.
We will provide a copy of this document to any person, without charge, upon request, by writing to us at SomaLogic, Inc., Investor Relations,
2945 Wilderness Place, Boulder, Colorado 80301. We intend to satisfy the disclosure requirement under Item 406(d) of Regulation SDK regarding
an amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics by posting such information on our website at
the address and the location specified above.
Item
11. Executive Compensation
Information
as to Item 11 is incorporated by reference from the information in our 2023 Proxy Statement.
Item
12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters
Information
as to Item 12 is incorporated by reference from the information in our 2023 Proxy Statement.
Item
13. Certain Relationships and Related Transactions, and Director Independence
Information
as to Item 13 is incorporated by reference from the information in our 2023 Proxy Statement.
Item
14. Principal Accounting Fees and Services
Information
as to Item 14 is incorporated by reference from the information in our 2023 Proxy Statement.
PART
IV
Item
15. Exhibits, Financial Statement Schedules
(a)(1)
and (a)(2) Financial Statements and Financial Statement Schedules
(a)(3)
Exhibits
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|
|
Incorporated
by Reference |
Exhibit
Number |
|
Description |
|
Form |
|
Exhibit |
|
Filing
Date |
2.1† |
|
|
|
S-4/A |
|
2.1 |
|
8/5/2021 |
2.2# |
|
|
|
8-K |
|
2.1 |
|
7/27/2022 |
3.1 |
|
|
|
8-A/A |
|
3.1 |
|
9/1/2021 |
3.2 |
|
|
|
8-A/A |
|
3.1 |
|
9/1/2021 |
4.1 |
|
|
|
S-4/A |
|
4.1 |
|
8/5/2021 |
4.2 |
|
|
|
8-K |
|
10.1 |
|
2/26/2021 |
4.3 |
|
|
|
10-K |
|
4.2 |
|
3/29/2022 |
10.1+ |
|
|
|
S-4/A |
|
10.1 |
|
8/5/2021 |
10.2+ |
|
|
|
S-4/A |
|
10.2 |
|
8/5/2021 |
10.3+ |
|
|
|
S-4/A |
|
10.3 |
|
8/5/2021 |
10.4+ |
|
|
|
S-4/A |
|
10.4 |
|
8/5/2021 |
10.5+ |
|
|
|
S-4/A |
|
10.5 |
|
8/5/2021 |
10.6+ |
|
|
|
S-4/A |
|
10.6 |
|
8/5/2021 |
10.7+ |
|
|
|
S-4/A |
|
10.7 |
|
8/5/2021 |
10.8+ |
|
|
|
S-4/A |
|
10.8 |
|
8/5/2021 |
10.9+ |
|
|
|
S-4/A |
|
10.9 |
|
8/5/2021 |
10.10+ |
|
|
|
S-4/A |
|
10.1 |
|
8/5/2021 |
10.11+ |
|
|
|
S-4/A |
|
10.11 |
|
8/5/2021 |
10.12+ |
|
|
|
S-4/A |
|
10.12 |
|
8/5/2021 |
10.13+ |
|
|
|
S-4/A |
|
10.13 |
|
8/5/2021 |
10.14+ |
|
|
|
S-4/A |
|
10.14 |
|
8/5/2021 |
10.15+ |
|
|
|
S-4/A |
|
10.15 |
|
8/5/2021 |
10.16+ |
|
|
|
S-4/A |
|
10.16 |
|
8/5/2021 |
10.17+ |
|
|
|
S-4/A |
|
10.17 |
|
8/5/2021 |
10.18+ |
|
|
|
S-4/A |
|
10.18 |
|
8/5/2021 |
10.19+ |
|
|
|
S-4/A |
|
10.19 |
|
8/5/2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.20+ |
|
|
|
S-4/A |
|
10.2 |
|
8/5/2021 |
10.21 |
|
|
|
8-K |
|
10.1 |
|
3/29/2021 |
10.22 |
|
|
|
8-K |
|
10.2 |
|
3/29/2021 |
10.23 |
|
|
|
8-K |
|
10.3 |
|
3/29/2021 |
10.24 |
|
|
|
8-K |
|
10.4 |
|
3/29/2021 |
10.25 |
|
|
|
8-K |
|
10.5 |
|
3/29/2021 |
10.26 |
|
|
|
8-K |
|
10.6 |
|
3/29/2021 |
10.27 |
|
|
|
8-K |
|
10.2 |
|
2/26/2021 |
10.28 |
|
|
|
8-K |
|
10.3 |
|
2/26/2021 |
10.29 |
|
|
|
8-K |
|
10.4 |
|
2/26/2021 |
10.30 |
|
|
|
8-K |
|
10.5 |
|
2/26/2021 |
10.31 |
|
|
|
8-K |
|
10.6 |
|
2/26/2021 |
10.32 |
|
|
|
8-K |
|
10.7 |
|
2/26/2021 |
10.33†† |
|
|
|
S-4/A |
|
10.33 |
|
8/5/2021 |
10.34†† |
|
|
|
S-4/A |
|
10.34 |
|
8/5/2021 |
10.35†† |
|
Supply
Agreement, dated April 8, 2019, between SomaLogic, Inc. and Agilent Technologies, Inc., as amended by that certain First Amendment to
Supply Agreement, dated October 1, 2021, between SomaLogic, Inc. and Agilent Technologies, Inc. |
|
10-K |
|
10.34 |
|
3/29/2022 |
10.36†† |
|
|
|
10-K |
|
10.35 |
|
3/29/2022 |
10.37††# |
|
|
|
10-K |
|
10.36 |
|
3/29/2022 |
10.38††#* |
|
|
|
|
|
|
|
|
10.39† |
|
|
|
8-K |
|
10.1 |
|
2/16/2022 |
10.40† |
|
|
|
8-K |
|
10.2 |
|
2/16/2022 |
10.41+ |
|
|
|
8-K |
|
10.1 |
|
10/17/2022 |
10.42+ |
|
|
|
8-K |
|
10.2 |
|
10/17/2022 |
21.1* |
|
|
|
|
|
|
|
|
23.1* |
|
|
|
|
|
|
|
|
31.1* |
|
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
|
|
32.1** |
|
|
|
|
|
|
|
|
32.2** |
|
|
|
|
|
|
|
|
101.IN* |
|
Inline
XBRL Instance Document |
|
|
|
|
|
|
101.SCH* |
|
Inline
XBRL Schema Document |
|
|
|
|
|
|
101.CAL* |
|
Inline
XBRL Calculation Linkbase Document |
|
|
|
|
|
|
101.LAB* |
|
Inline
XBRL Label Linkbase Document |
|
|
|
|
|
|
101.PRE* |
|
Inline
XBRL Presentation Linkbase Document |
|
|
|
|
|
|
101.DEF* |
|
Inline
XBRL Taxonomy Extension Definition LinkBase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104* |
|
Cover
Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
|
|
|
|
|
|
* |
|
Filed
herewith. |
|
|
|
|
|
|
** |
|
Furnished
herewith |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
† |
|
Certain
of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). |
|
|
|
|
|
|
†† |
|
The
Company has omitted portions of the exhibit as permitted under Regulation S-K Item 601(b)(10). The Registrant agrees to furnish on a supplemental
basis an unredacted copy of this exhibit and its materiality and privacy or confidentiality analysis if requested by the SEC. |
|
|
|
|
|
|
# |
|
Portions
of this exhibit have been omitted pursuant to a request for confidential treatment. Omitted material for which confidential treatment
has been requested has been filed separately with the SEC. |
|
|
|
|
|
|
+ |
|
Management
contract or compensatory plan or arrangement. |
|
|
|
|
|
|
Item
16. Form 10-K Summary
None.
Signatures
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SomaLogic,
Inc. |
|
|
|
|
|
|
|
Date: |
March
28, 2023 |
By: |
/s/
Troy Cox |
|
|
|
|
Name: |
Troy
Cox |
|
|
|
|
Title: |
Executive
Chairman |
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/
Troy Cox |
|
Executive
Chairman |
|
March
28, 2023 |
Troy
Cox |
|
(Principal
Executive Officer) |
|
|
|
|
|
|
|
/s/
Shaun Blakeman |
|
Chief
Financial Officer |
|
March
28, 2023 |
Shaun
Blakeman |
|
(Principal
Financial and Accounting Officer) |
|
|
|
|
|
|
|
/s/
Robert Barchi |
|
Director |
|
March
28, 2023 |
Robert
Barchi |
|
|
|
|
|
|
|
|
|
/s/
Eli Casdin |
|
Director |
|
March
28, 2023 |
Eli
Casdin |
|
|
|
|
|
|
|
|
|
/s/
Charles M. Lillis |
|
Director |
|
March
28, 2023 |
Charles
M. Lillis |
|
|
|
|
|
|
|
|
|
/s/
Anne Margulies |
|
Director |
|
March
28, 2023 |
Anne
Margulies |
|
|
|
|
|
|
|
|
|
/s/
Ted Meisel |
|
Director |
|
March
28, 2023 |
Ted
Meisel |
|
|
|
|
|
|
|
|
|
/s/
Richard Post |
|
Director |
|
March
28, 2023 |
Richard
Post |
|
|
|
|
|
|
|
|
|
/s/
Roy Smythe |
|
Director |
|
March
28, 2023 |
Roy
Smythe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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