Seer, Inc. Q1 FY2021 Earnings Call

Good day, and thank you for standing by. Welcome to Seer's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker, Carrie Mendivil with Investor Relations.

Thank you. Earlier today, Seer released financial results for the quarter ending March 31, 2021. If you have not received this news release or if you'd like to be added to the company's distribution list, please send an email to investor@seer.bio. Joining me today from Seer is Omid Farokhzad, Chairman, Chief Executive Officer and Founder; Omead Ostadan, President and Chief Operating Officer; and David Horn, Chief Financial Officer. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled forward-looking statements in the press release Seer issued today. For a more complete listing of this description, please see the Risk Factors section in the company's quarterly report on Form 10-Q for the quarter ending March 31, 2021, and in its other filings with the Securities and Exchange Commission. Except as required by law, Seer disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast, May 10, 2021. With that, I'd like to turn the call to Omid.

Thanks, Carrie. We're making strong progress across all areas of our business and business strategy, adding to our talented team, expanding our commercial reach, and broadening access to the Proteograph Product Suite. We're enabling more researchers to undertake proteomic studies that will not only drive novel biological insights, create and expand new markets, and ultimately improve human health. To further drive this momentum, we continue to be focused on four areas: first, setting the pace for innovation in the proteomics space; second, leveraging the unique capabilities of our differentiated solutions; third, coupling exceptional customer experience with transformative products; and fourth, forming strategic relationships with key customers and partners. And of course, most importantly, the foundation for all of this is predicated on continuing to grow an incredibly talented team. Since we last updated you at the end of March, we have continued to build on our strong start to the year. Demand for the Proteograph Product Suite is exceptionally strong, and our value proposition is resonating with prospective customers across the globe. We expect our message to amplify even more as we ramp up on marketing activities and scale our commercial organization. Even with this strong market demand, we remain committed to a measured commercial approach, and you will hear more about this from Omead. With all full collaboration customers up and running, we have commenced limited release by signing multiple customers since our last earnings call. We expect to have a high single-digit number of limited release customers before we commence broad release, and we're on track to deliver against this objective. These initial limited release customers also include PrognomIQ, which we spun out last fall and retained 19% ownership. PrognomIQ will be using the Proteograph Product Suite for liquid biopsies across a range of applications, including early disease detection and proteogenomics. We believe PrognomIQ can play a key role in demonstrating the impact of unbiased and deep plasma proteomics in these applications, accelerating the realization of a market opportunity that we already believe to be very large. Our goal is to create an ecosystem around our technology and its broad use in proteomics and proteogenomics. This is a critical part of our strategy. Our partnership with the leading mass spec companies, our three-phased commercial approach, and our spin-out of PrognomIQ are all evidence of this strategy in action. We believe this will set us up for long-term success and broad-scale adoption of our Proteograph Product Suite. It is clear that customers are eager to perform studies using unbiased deep plasma proteomics at scale, and early customer data is providing strong evidence of the depth and breadth of proteomic access that can be generated easily from our platform. Both OHSU Knight Cancer Institute and the Broad have completed their initial evaluation studies, which demonstrated encouraging results. They are progressing towards the next set of larger scale studies, in particular, OHSU's initial pilot has spurred plans for several large scale projects, including one looking at proteomic signatures of prostate cancer. Again, Omead will give you more color on this shortly. Discovery Life Sciences is already preparing to run samples for large-scale proteogenomic projects in a complex disease, which is one of the use cases uniquely enabled by our technology. The Salk Institute, our fourth collaboration site, has received their instrument and we have already completed installation. They will be up and running with samples in the coming weeks. We expect you will begin to hear more from each of these collaboration customers as their studies progress, and they're in a position to share the experiences and results through presentations or publications. We continued to strengthen our leadership team, welcoming Kenny Ross as our new Vice President for Operations and Quality. Kenny brings with him over 30 years of experience in operations and quality in life sciences, having previously held senior leadership roles at Applied Biosystems, Life Technologies, and most recently, Illumina, where he served as Vice President of Manufacturing Strategy. Finally, we doubled our Redwood City footprint to support our growing organization, expanding our lead to a total of 50,000 square feet of state-of-the-art office and research space. There continues to be a growing enthusiasm and energy in the proteomics space, and what we're doing at Seer is truly differentiated. We are developing innovative solutions to empower the scientific community to arrive at exceptional proteomic outcomes. We have developed the Proteograph Product Suite, a first-of-its-kind solution, leveraging our proprietary nanoparticle technology to enable unbiased deep proteomics at scale, eliminating the needs for scientists to make the trade-offs between depth of coverage and scale when designing their unbiased proteograph studies. Our solution is the only available state-of-the-art technology to deliver peptide and amino acid level resolution, which is necessary to match nucleotide level genomics information and broadly enable proteogenomics. The proteograph has been designed to fit in front of nearly any detector, making it easy for those who are adding proteomics to their studies to easily integrate it into their workflow. The proteograph allows nearly any lab to undertake these studies in a way that is not possible today without trade-offs. And through these capabilities, we expect our solution will enable population field studies that will enrich biological data sets and enhance the number of biomarkers and drug targets, and we believe the overall impact on human health will be enormous. We are very much at the onset of this journey to transform accessibility of the proteome by finally eliminating the longstanding technology barrier that has prevented researchers from tapping into this rich critical source of biological information. And while much work remains, we're excited and inspired by the opportunities that lie in front of us. With that, I will now turn the call over to Omead for more detail on our commercial progress.

Thanks, Omid. There is increasing enthusiasm and evidence that we are on the right path and that our current and future offerings have the potential to play a significant role in advancing our understanding of biology. We are seeing and sensing this in our ongoing interactions with our customers, our discussions with prospective customers and the early peaks at data coming from a growing list of studies using our Proteograph Product Suite. The response we're getting from our expanding engagements is reaffirming our belief that we have the right strategy, the right product and the right value proposition. We believe the continued progress of our collaboration customers will provide clear examples of the unique and differentiated value of the Proteograph Product Suite. All four of our collaboration customers now have their Proteograph Product Suite installed, and in fact, three of these sites are already on the verge of or in the midst of larger scale studies. One such example is OHSU Knight Cancer Institute, the first site to receive a Proteograph Product Suite. Recently, Dr. Mark Flurry and his colleagues at OHSU Knight Cancer Institute completed a pilot study looking at prostate cancer. The aim of this study was to demonstrate that the Proteograph Product Suite can be used to power large-scale and deep plasma proteomics across a range of applications, including the early detection of cancer. Dr. Flurry and colleagues were able to demonstrate that the Proteograph Product Suite not only enables a far more efficient and scalable approach to plasma proteomics, but it does so while covering previously known proteins and a number of potentially novel protein biomarker candidates that have not previously been associated with prostate cancer. With the findings of this pilot study, Dr. Flurry and colleagues are moving forward to implement a larger study of 500 to 1,000 samples, opening up a whole new set of possibilities. We are thrilled about the progress Dr. Flurry and his team are making with the proteograph. Truly, everything we're doing at Seer is done with the aim of delivering exceptional customer experience that enables our customers to realize their scientific vision. Market response for access to the proteograph has exceeded my already high expectations coming into this year. The value proposition of the Proteograph Product Suite is resonating with prospective customers, and people are highly interested to access this transformative technology. However, as Omid stated, we remain committed to our phased approach as we believe this is the best way to commercialize a first-of-its-kind product, both for near and long-term success. To that end, we have officially moved into the second phase of commercialization and now have agreements in place with multiple limited release customers, among them PrognomIQ. We expect to add other limited release customers throughout the coming weeks and months to reach our target of high single digits of customers for this phase of our commercialization. We believe this is the best path for developing the right customer relationships, the right proof points, and most importantly, the right trajectory for current and future growth. These relationships will enhance our ability to rapidly develop applications, open up approaches that create markets, and drive the next phase of adoption. We are very focused on partnering with customers who are driven to leverage the potential of the Proteograph Product Suite to accelerate the realization of their scientific vision. Each limited release customer must have a shared vision of the disruptive power of unbiased deep proteomics at scale to unleash novel biological insights, access to large sample cohorts, infrastructure and know-how to efficiently scale projects, commitment to rapidly undertake large-scale exemplary studies and share aspects of their findings and willingness to collaborate deeply to serve as a lighthouse account and to help others scale. We are excited for our limited release customers to get up and running and to demonstrate the power and utility of the Proteograph Product Suite across a wide range of applications, including oncology, complex diseases, therapeutics, and more. We will work closely with our limited release customers and leverage their success and experience to broaden and accelerate adoption. Many of our limited release customers will likely serve as strong reference sites, and their experience will provide clear blueprints that others can follow to have similarly successful experiences in adopting the Proteograph Product Suite. To address the broader near-term demand for access to the Proteograph Product Suite, we are prioritizing setting up select limited release customers as centers of excellence. These centers of excellence will offer end-to-end unbiased plasma proteomic services using the Proteograph Product Suite. In the process, providing researchers and entities globally access to Seer technology in advance of broader release. Through these partnerships, we will demonstrate the scaled uses of proteograph across an ever-expanding range of applications and customers, enable more and more research to access our technology and see the power and impact it can deliver to their research. We continue to scale our commercial efforts, building the team, infrastructure, and partnerships that will expand our reach and allow us to serve our customer base around the world. Over the past few months, we have added a number of highly talented individuals across marketing, sales, and support. We are prioritizing the customer experience by implementing foundational commercial tools that will allow us to seamlessly and efficiently launch, install, and support customers as we scale globally. We are also deepening our interactions with our mass spec partners to continue to develop the market and facilitate adoption, especially among new to proteomics customers. Overall, I'm extremely encouraged by our commercial progress and look forward to continuing to work with our growing group of customers to demonstrate the unique capabilities of the proteograph for a wide range of applications. We have much to do and we will remain intensely focused on the tasks ahead of us so that we can truly deliver on the promise of this transformational technology. With that, I will now turn the call over to David for more details around our financials.

Thanks, Omead. Total revenue for the first quarter of 2021 was $62,000 compared to $177,000 in the first quarter of 2020. The decrease was due to less activity associated with our small business innovation research grant from the NIH. As a reminder, all of our revenue to date has been generated from grant funded activities and research collaborations with biopharma companies. We expect to begin to recognize revenue from product sales in the second quarter. Total operating expenses for the first quarter of 2021 were $16.6 million compared to $6 million in the first quarter of 2020. Research and development expenses for the first quarter of 2021 were $6.2 million compared to $4.2 million in the first quarter of 2020. The increase in R&D expenses was primarily driven by an increase in product development efforts related to our Proteograph Product Suite, including increased compensation costs and other related expenses with the hiring of additional R&D personnel. Selling, general and administrative expenses for the first quarter of 2021 were $10.3 million compared to $1.8 million in the first quarter of 2020. The increase in SG&A expenses was primarily driven by increased employee compensation costs and other related expenses due to being a publicly traded company. Net loss for the first quarter was $16.4 million compared to $5.5 million in the first quarter of 2020. We ended the first quarter 2021 with approximately $531 million in cash, cash equivalents, and investments. This amount includes approximately $103 million in net proceeds from our follow-on offering, which closed in February of 2021. As we work to realize our vision of providing novel biological insights that will lead to new discoveries, and ultimately improve human health, we will significantly increase our investment to grow and scale the company. In 2021, we are focusing our investments on building our commercial organization, broadening our reach, and providing an exemplary customer experience for our current and future customers. We're exploring new areas of research to explore the power of our Proteograph Product Suite and its unique capabilities, continuing to build our product pipeline, and scaling our operational capabilities ahead of broad release. Finally, we are expanding our intellectual property portfolio through continued innovation and advancements in our products and technology. At this point, I would like to turn the call back to Omid for closing comments.

Thanks, David. I could not be more excited about what's ahead for Seer. Unbiased deep rapid proteomics at scale will pave the way for broad scale and novel biological insight with incredible impact across science and medicine. I'm so incredibly proud of and amazed by our team and the progress we have made this quarter. We look forward to continuing to build our commercial momentum throughout 2021, as we bring the next phase of omics to the labs all around the globe. With that, we will now open it up to questions.

Our first question is from Tejas Savant with Morgan Stanley.

Omid, just one opening question for you on the collaboration customers you now have. Can you just shed some light on what have been the key learnings for you so far that you hope to leverage going forward here, not just into limited release but also the broader commercial rollout? Perhaps some pain points that you've ironed out or the way you train those customers, any key learnings there?

Just to clarify which Omead you were referring to, Tejas, that’s a really good question. I would categorize the response into a few different areas. Regarding the pain points you mentioned, there’s nothing out of the ordinary. We typically encounter issues like ensuring clarity on site preparation requirements and confirming that everything needed for installation is in place. Overall, installations have gone quite smoothly, with nothing unusual arising. In fact, as we’ve progressed through these installations, the time taken for each one has decreased, which is a positive trend. This is encouraging for moving toward a limited release and building on that success. Concerning our engagement with collaboration customers, early data is looking very promising. Our collaborators are feeling optimistic about the outcomes, which reassures me that our product will continue to offer unique value to customers. Hopefully, that addresses your question.

And then one for the other Omead. So now that you’re a few months into limited early release, Omead. You mentioned signing multiple sort of agreements with customers, you’re including PrognomIQ. Can you quantify how many customers and then perhaps shed some color on how that order funnel is shaping up? I believe you mentioned sort of one to two installs across six customer segments in the past. And then on a related note, if you can update us on your conversations around setting up those centers of excellence in the reference sites, that will be terrific as well.

Let me break it down into several parts. First, as we mentioned, we will have a high single-digit number of limited release sites, and there has been significant demand for them. We will not disclose the names of our customers moving forward, but I can confirm that we have signed some for the limited release, including PrognomIQ. Some of these limited release sites are going to become centers of excellence for us. Think of it as a temporary solution due to the high demand we are witnessing. Many of the interested parties aren't necessarily specialists in proteomics; they work with large-scale omics data but lack the necessary capabilities. They seek access to large-scale proteomics, and our centers of excellence will offer them the opportunity to obtain the information they need as they develop their infrastructure and install their own proteographs or detectors. Tejas, is there anything else in your question that I haven't addressed?

No, I think that covers. And then one for David, on the OpEx. Should we still be thinking of a $50 million target for OpEx, David, outside of stock comp? And anything you can comment on the cadence through the year-over-year?

As we've said in the past, we're not giving guidance either on revenue or on OpEx. I do think we still see a lot of significant opportunities for investment, both on the commercial side and the R&D side. So we have said that, obviously, that investment will increase this year. But again, we are being disciplined about how we go about that in the areas we invest, such that we will generate a good return over the long term for those areas.

Our next question comes from Derik De Bruin with Bank of America.

Just a bigger picture question, I think, to start with. It's like given the growing number of proteomic companies that are going public, emerging from stealth. Are you seeing a similar increase in funding for proteomics? And also, could you sort of like gauge your interest at this point from pharma and biotech, or is it still too early?

I think we're just way too early in this game for me to give you clarity. Remember, these companies that you're mentioning that are all coming public, this is all happening in just the last three or four months. So I think it's a bit early to see how that movie plays out. I can tell you that proteomics has obviously been around for a long time. The value of proteomics is clear to scientists that do this. The magnitude of what is now becoming possible in terms of deep unbiased proteomics at large scale is something that's going to play out over the coming months and years. And frankly, as you think of academic grant cycles and from the time you submit the grant until funding starts, I mean, these are not in the order of weeks, they're typically in the order of many, many months. So I think any change in grant funding, I think you're going to have to give it more time to see that. But what we're seeing is that there's a high degree of demand. Frankly, we had expected it. It's actually nice to see that it exceeds our own expectations in terms of interest in deep unbiased proteomics. And specifically, plasma proteomics is an area of interest to a lot of the customers that we're talking to.

Just one follow-up on that. So your first releases of 5 nanoparticle set. Have you sort of found when you were sort of looking at those particles and what they cover? Are there certain parts of the plasma proteom that maybe are underrepresented and so that you need to add incremental particles on it? I'm just sort of wondering now as you've had it now you've gone much deeper and across different customers, if there's any sort of like nuances you're noticing that you might need to expand or change the current offering?

Derek, let me say the following. Because obviously, we have a tremendous amount of experience with the use of that panel and those particles with our own samples, we know what we see and the implication of the content, the proteomic content that we get. What is super exciting for me is when I hear feedback from Omead about the emergence of data from our customers. Let me turn it to Omead, who may be able to give you some indication of the kind of content that is being generated and the enthusiasm around that.

As we entered this year, it became clear that there was a demand for a product capable of facilitating unbiased and comprehensive plasma proteomics at a large scale. This is unfolding as we anticipated. Our customers are beginning to produce increasingly large datasets, although I want to emphasize that this is just the beginning, and we need to create even larger datasets. What we are discovering is that this technology is truly empowering, enabling customers to explore the proteome extensively and deeply, particularly with an increasing number of samples. From my perspective, coming from a genomics background, as sample sizes increase, the ability to identify more proteins across larger project sizes using our technology is tremendously impactful. This level of ease has not been achieved before. Therefore, I want to highlight that this product, as it stands, is remarkably enabling and opens up substantial opportunities for us in the years to come. While we will continue to develop other products, this particular product is exceptionally potent, allowing customers to explore depths and breadths that were previously unattainable, especially as sample sizes grow and the cataloging of protein and peptide variants becomes possible. I believe we will go far with just the five nanoparticles we have, empowering our customers. As we've discussed previously, you can expect a continuous flow of products that will enhance our market opportunities moving forward. The initial five nanoparticles are performing as expected and even exceeding our expectations.

Our next question is from Tycho Peterson with JPMorgan.

This is Casey on for Tycho. How quickly do you expect the typical customer to scale up their studies, and where do you think cost per sample needs to go for customers to effectively scale up? And then as a follow-up to that, how does that cost per sample compare with existing targeted proteomics?

I mean, we obviously have experience with just a limited number of customers and our first customer, Oregon, has reached this stage that you're kind of referring to. Let me have maybe, Omead, let me give you a little bit of additional color in terms of the size of the studies and their viewpoint about the costs associated with it.

So again, as Omid mentioned, it's still early. Our expectation is that initially, a quarter of customers will familiarize themselves with the technology, conduct pilots, and we've observed this at OHSU and other places. After about three months, they typically start to scale their projects over the next few quarters. Following that, they reach a significant turning point. This observation is based on experiences in genomics, and I see no reason for it to be different here, as it's influenced by overall capabilities, sample size, and how studies are scaled. We're anticipating this general timeline for customers. With our limited release customers, we are concentrating on those who can scale and possess a clear scientific vision, allowing us to see them in action sooner. In terms of pricing per sample, we believe the value of our products at these price points is substantial, significantly better than alternatives for deep and unbiased plasma proteomics, which often involves depletion and fractionation. Even when considering labor costs, the price per protein group we offer is far superior to available alternatives. So far, we haven't encountered any concerns regarding pricing from limited release customers, and I don't foresee it hindering scalability. Additionally, the price points we're discussing are on par with what people pay for large-scale genomic studies. For the right biological value, especially if we enable a unique research avenue, these prices haven't been an issue in genomics or in plasma proteomics thus far.

And maybe just one last one. Can you talk about the thought process around choosing the number of limited release customers here during Phase 2? How do you plan to balance the number and pace of publications along with the depth of early customer engagement?

All of this went into the overall strategy coming into this year, which is why we’ve approached it with four collaboration customers, and then you layer on top of that high single digits of limited release customers, we believe, are going to put us in a position to be able to have the right balance of customer critical mass. And what's more important than sheer number is the type of customer, the type of experiment that they're going to do and their willingness and, quite frankly, the credibility to stand up and deliver that data. And so we're being very thoughtful in not only the number of customers but the type of customers and the engagements because exactly to your point, so much of this is about making it very clear broadly that this technology platform has a unique and differentiated value proposition that can absolutely be realized in the context of large scale unbiased and deep proteomics; this has to be done in the context of several customers speaking about it, which is why we're very much focused on having the right type of partnerships in limited release to couple with the right type of partnerships we have in collaboration so that we have these substantial proof points coming out. Because again, it's not so much the number of customers, it's what do those customers do and how fast they move. So I feel very good that we are going to be able to strike that right balance between the customer number and pace of publication and proof points coming out.

And this concludes our Q&A session and program for today. Thank you for your participation, and you may now disconnect.