Seer, Inc. Q1 FY2022 Earnings Call

Good day and thank you for standing by. Welcome to the Seer, Inc. First Quarter 2022 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. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Carrie Mendivil, Investor Relations. Please go ahead.

Thank you. Earlier today, Seer released financial results for the quarter ending March 31, 2022. 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 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 issued today. For a more complete list and description, please see the Risk Factors section of the company's quarterly report on Form 10-Q for the quarter ending March 31, 2022, and in its other filings with the Securities and Exchange Commission. 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 and is accurate only as of the live broadcast, May 04, 2022. With that, I'd like to turn the call over to Omid.

Thanks, Carrie, and thanks, everyone, for joining us this afternoon. We had a strong start to the year as we further ramp up our commercial efforts, expanded our installed base and made tangible progress across all areas of our strategic plan. These efforts led us to close the first quarter with $3.3 million in revenue and continued growth in our installed base. I'm particularly excited by the growing body of customer data, demonstrating the unique capabilities of the Proteograph Product Suite to provide proteomic insights at a depth and scale that was previously not possible. We've seen presentations at conferences from the Broad Institute, Oregon Health & Science University, Sanford Burnham Prebys Medical Discovery Institute, Protein Metrics, and PrognomIQ. To date, there have been more than 40 public presentations on Seer's technology with four more coming up in June at ASMS, and we expect an increasing number of abstract data and presentations as more customers adopt the technology and scale their use of the platform. Given the growing demonstrations of customer use of the Proteograph, coupled with the forthcoming advances on our platform, we have never been more confident about our ability to become the definitive tool leader in proteomics. To reach this ambitious goal, we have a strong balance sheet and are well capitalized with more than $470 million in cash, which we believe will support us as we execute on our multiyear strategic plan and enable us to build a durable organization that will drive meaningful impact on the trajectory of science and medicine. We're focused on five key objectives to drive growth in 2022 and to set us up for long-term success; first, supporting customers with an industry-leading onboarding experience while helping them systematically scale their use of the Proteograph Product Suite for projects of increasing size and scope; second, expanding our installed base of instruments; third, continuing to build out our commercial capabilities, geographic footprint, and team; fourth, driving our product roadmap and exploring more applications for our proprietary engineered nanoparticles in 2022 and beyond; and fifth, expanding our partnership efforts, focusing on extending our global reach, making it easier for customers to access our technology and serving an increasingly diverse customer base. Now let me give you an update on our progress across a few of these objectives. Most importantly, let's start with how our customers are using the Proteograph and review some specific examples of the progress they're making. It has been incredible to get the Proteograph Product Suite into the hands of customers. The customer experience with the Proteograph Product Suite has been excellent across key metrics, including installation and validation, training and ease of use, reproducibility, quantification, and sensitivity. Additionally, with our automated assay, customers can capture proteins across a vast dynamic range in different biosamples with peptide-level resolution, deciphering various proteoforms. I'm also excited by customers' data and interest in exploring the capabilities of our system to go beyond human plasma, including model organisms such as mouse, pig, bovine, and other species. This flexibility to analyze across species types demonstrates the inherent power of the Proteograph to be used with different applications without needing to develop a new specific panel of nanoparticles. Customers are also excited about the Proteograph data on biosamples beyond plasma, including CSF, secreted proteins, and cell culture. Finally, seeing customers integrate the Proteograph with other downstream proteomics technologies, such as tandem mass tag, also known as TMT, demonstrates the versatility of the Proteograph to work with various mass spec protocols. Now I'd like to move to two examples of the Proteograph performance that customers are sharing in conferences. A recent adopter of the Proteograph found that our product consistently and simultaneously achieves unprecedented depth of coverage and throughput compared with methods that must trade-off between depth of coverage or throughput. In their hands, the Proteograph robustly identifies more than twice as many cytokines with high throughput via an automated workflow, all while maintaining a 1% false discovery rate. The ability to detect higher numbers of cytokines and other low abundance signaling molecules enables researchers to reproducibly and comprehensively probe molecular phenotypes, such as the immune state of individuals. We expect this data to be presented at the upcoming ASMS Conference in early June. At the American Association of Cancer Research (AACR) conference in April, PrognomIQ presented data from one of their ongoing oncology studies. In a cohort of 212 subjects utilizing the Proteograph, their researchers identified more than 5,000 proteins and hundreds of glycosylated proteins in a single experiment. The simultaneous detection of native and glycosylated versions of the same peptides allowed for the analysis of differential expression of protein versions to detect associations with disease progression. This demonstrates the uniquely enabling resolution of the Proteograph Product Suite and the types of studies at scale that it will open up across markets. While PrognomIQ and OHSU have been the fastest to move to large-scale studies, we're seeing the time to ramp vary across customer sites. Customers generally go through three steps as they ramp their studies, each of which can vary in duration. First, they onboard the technology and increase their familiarity with the Proteograph and train their staff. Most of our limited release customers have completed this step, and our initial broad release customers are beginning this process now. Next, they typically perform pilot studies to expand their hands-on use of the technology and fine-tune their study design to answer specific biological questions. Finally, they take those learnings to ramp up studies of unprecedented scale designed to unlock new biological insights. While OHSU and PrognomIQ are examples of early adopters, other customers may be less familiar with large-scale proteomics workflows. For those customers, the speed of scale-up may be more protracted. We're building a support model to assist customers of all types across this scale-up curve. Now let me turn to our growing installed base. There is increasing interest and palpable excitement surrounding the Proteograph Product Suite across a wide range of customer types and applications. During the first quarter, we began our broad release phase of commercialization and delivered the first of three systems to customers around the world. We now have customers up and running across North America, Europe, and Asia, including China, where we continue to work through COVID constraints. While these constraints did not materially impact us in the first quarter of this year, they do introduce some temporal uncertainty for our customers, prospective customers, and partners in this region and challenge our ability to access the country with our own personnel. We continue to be encouraged by both the quality and quantity of prospects in our growing pipeline, which is a roughly equal mix of academic and commercial sites. We expect our pipeline to grow as we expand our hiring around the world and bring the Proteograph Product Suite and its benefits to more customers. While interest is strong across customer types, we continue to expect our early adopters to be more weighted toward commercial settings, given their ability to make decisions more quickly than academic institutions. As the first of its kind technology that is still in the early stages of commercialization, we continue to see third-party data as an important component of the sales process. While it takes time for this external data to grow, customers are inclined to undertake proof-of-principle studies, which I'll refer to as POPS. These POPS are typically small in size but provide a volume and depth of data that customers rarely had the chance to access and analyze. While highly pleased with the data, prospective customers intend to interpret it, leverage insights, and envision what is possible using the Proteograph Product Suite. As the adoption curve grows and data from existing customers increases via presentations and publications, we expect POPS studies to become less important in the sales process in the future. As we continue to develop the market and exemplify the power of the technology, we remain encouraged by our interactions with prospective customers. Additionally, we are working to make it easier for them to adopt the Proteograph Product Suite in the following ways: first, we provide one-on-one education, making it simple for them to integrate the technology into their specific workflows; second, we connect them with experienced users performing similar applications. We continue to leverage our early collaborators and limited release customers as important reference sites for this purpose. Finally, we are helping existing customers produce data that serves as independent third-party validation of the technology. Now moving on to our commercial progress. As we ramp commercialization of the Proteograph Product Suite, we continue to expand and strengthen our world-class team. Our team is key to driving our business, and we have made significant strides in attracting top-performing, passionate people at Seer. As of the end of 2021, we had expanded our team across key functions such as sales, product marketing, field application scientists, field service engineers, and support, as well as building core processes and infrastructure to support a diverse and geographically distributed customer base. In a very competitive global talent market, we continue to prioritize recruiting the best talent, and we expect to significantly grow this team by year-end. In mid-March, we welcomed Scott Thomas as our Chief Commercial Officer. Scott has spent over two decades with increasing commercial responsibilities in the life sciences industry, including 11 years at Illumina. He has run commercial organizations in North America, Europe, and Japan, building teams, launching products, and expanding geographies. We're thrilled to welcome Scott and expect his leadership and breadth of commercial experience to help us accelerate long-term growth, build a globally differentiated customer experience, and nicely complement our talented executive team. Let's now move on to the scientific evidence confirming the breakthrough nature of our technology. In mid-March, we announced the publication of a seminal paper in the Proceedings of the National Academy of Sciences (PNAS), demonstrating our technology's ability to widen the aperture to the proteome and its vast molecular information. This paper was published by an interdisciplinary team of scientists from Seer, Oregon Health & Sciences University, Massachusetts Institute of Technology, and Harvard Medical School. The paper examines in detail the relationship between the unique physical-chemical properties of the panel of proprietary-engineered nanoparticles and the diverse pattern of protein sampling that is enabled by this panel. The Seer machine-learning model described in this paper can be used to enhance the molecular interactions that occur at the nano-bio interface and to design future nanoparticles to differentially interrogate specific protein families. The technology platform simultaneously achieves an order of magnitude gain in median depth of protein coverage, twice as high precision, 2.5 times protein identification, and significant improvement in throughput compared to traditional deep workflows such as depletion or fractionation. We're proud of the growing data and excited about what is to come this year at scientific conferences. We're looking forward to several presentations at the upcoming American Society of Mass Spectrometry conference in early June, including multiple customer presentations. We're at a pivotal time in the field of proteomics. As the experience of our customers with the Proteograph Product Suite expands, we look forward to more of their data and findings becoming public, expanding the third-party demonstration of the unique capabilities of the Proteograph Product Suite and the insights that can be gained by interrogating the proteome deeply at scale and without limitations to prescribed targets. These data will redefine deep proteomic methods, enable first-of-its-kind studies, and open up a new gateway to the proteome that will be accessible to labs of nearly any type around the world. With that, I will now turn the call to David for a financial update.

Thanks, Omid. Total revenue for the first quarter of 2022 was $3.3 million, compared to $62,000 in the first quarter of 2021. The increase in first-quarter revenue was primarily due to increased sales of products related to the Proteograph Product Suite. Product-related revenue for the first quarter of 2022 was $3.2 million, including related party revenue of $1.1 million, consisting of sales of SP100 instruments, consumable kits, and platform evaluations. Related party revenue of $1.1 million represents product sales to PrognomIQ. Total gross profit inclusive of grant and other revenue was $1.2 million for the first quarter of 2022, representing a gross margin of 38%. As a reminder, in 2022, we expect gross margins to be dampened due to a larger percentage of instrument sales, a significant reduction in service and grant revenue, and our continued investment in and scaling of our operations, resulting in higher overhead absorption. We continue to target long-term gross margins between 70% and 75%. Total operating expenses for the first quarter of 2022 were $25 million, including $8.1 million of stock-based compensation, compared to $16.6 million, including $6 million of stock-based compensation in the first quarter of 2021. Research and development expenses for the first quarter of 2022 were $10.7 million, an increase of 73%, compared to $6.2 million in the first quarter of 2021. The increase in R&D expenses was primarily driven by an increase in product development efforts related to the Proteograph Product Suite, including $2.6 million in employee compensation costs and other related expenses, including stock-based compensation, due to growth in research and development personnel and $1.9 million related to the expansion of facilities, maintenance, and depreciation of laboratory equipment. Selling, general and administrative expenses for the first quarter of 2022 were $14.3 million, an increase of 39%, compared to $10.3 million in the first quarter of 2021. The increase in SG&A expenses was primarily driven by a $2.4 million increase in employee compensation and other related expenses, including stock-based compensation. Other increases are attributable to costs related to being a publicly traded company, including a $1.5 million increase in professional and consulting fees related to accounting and audit services. Net loss for the first quarter was $23.6 million, compared to $16.4 million in the first quarter of 2021. We ended the year with approximately $472 million in cash, cash equivalents, and investments and continue to be thoughtful about our level of spend and the rate of return that we will earn on our deployed capital. With our extremely strong balance sheet, we believe we are well capitalized to execute on our strategic plan for many years to come. Turning to our outlook for 2022, we are confident in the market opportunity for the Proteograph Product Suite and expect revenue to be in the range of $14 million to $16 million. As we have previously discussed, we expect revenue for 2022 to be more heavily weighted to the back half of the year as we continue to work through the natural sales cycle for disruptive technologies and ramp the productivity of our growing commercial team. As a reminder, the key factors part of the sales cycle include continuing to build market awareness of the Proteograph Product Suite, continuing to educate potential customers on the breakthrough nature of our technology and its unique capabilities, and helping customers access robust proof-of-principle data sets ahead of adoption. We remain focused on building our business over the long term and achieving our strategic objectives each year. At this point, I'd like to turn the call back to Omid for closing comments.

Thanks, David. Unlocking the power of the proteome will only be possible through deep unbiased profiling of the proteome at scale. This has not been possible with previous methods and is the path forward in driving novel biological insights to transform our understanding of human health and disease. As we move forward in pursuit of our vision this year, we will continue to drive execution against our core strategies. We're paving the way for a portfolio of products that will open up a new gateway to the proteome. I look forward to sharing updates on our progress over the course of this year. With that, we will now open it up to questions.

Our first question comes from the line of Tejas Savant from Morgan Stanley. Your line is now open.

Hey, this is Neil on for Tejas. So I just want to start on commercial sales. You previously mentioned that sales in SKU commercial are trending accordingly, given the shareholder cycles versus academic customers. Is that still the case? And have you seen any lengthening of sales cycles from biopharma customers with all the noise around funding concerns?

Yes. This is Omead Ostadan. So far, yes, the sales are more heavily weighted toward commercial versus academic. As we had mentioned to you previously, we expect that to continue for some period of time because commercial entities typically go through a different set of funding cycles and are much more able to make decisions on a short-term basis. So yes, we are more heavily weighted toward commercial versus academic, and I would expect that to continue at least through the balance of this year, if not leading into next year. We are not seeing anything that is outside of what we had expected in terms of the buying cycle with biopharma. Again, keep in mind, the numbers are small. We are still early in the broad commercial release, but we're not seeing anything specific to biopharma that is outside of what we had expected coming into the year. So hopefully, that answers your question.

Thank you. And as a follow-up to that, on the demand funnel, is that still trending 50-50 between academic and biopharma customers?

More or less, yes. Exactly.

Got it. And then one more from me. So on the product roadmap, you mentioned initiatives such as increasing throughput, content, and reducing sample volume requirements. Any progress you can share on these fronts or when we might expect to hear some updates on that end?

Neil, thanks so much. I think I'll be able to provide more details on the next product toward the second half of the year. As I had highlighted before, customers' requests were in the areas of increasing content while decreasing the required sample volume and then increasing throughput. Keep in mind that the throughput increases will come at the level of a detector, not so much at the level of the Proteograph. Those requests are, in fact, areas of R&D investment for us. You can imagine that the subsequent products reflect these customer needs. We've guided to have at least one new product coming up, and you can expect a new product in the second half of the year. That product will address some of the requirements from customers, and subsequent products will address additional needs.

Got it. That's very helpful. Thank you.

Thank you. Our next question comes from the line of Derek De Bruin from Bank of America. Your line is now open.

Hi. This is Nisarg on for Derek. So to start on cash, where do you expect to end 2022 from a cash balance perspective?

Sure, Nisarg. This is David Horn. As you saw in the release, we ended March 31 with $472 million in cash. We feel really good about where we are in terms of our cash position. I would point to the metric we track as free cash flow, which is operating cash flow plus CapEx. This quarter, we've earned about $20 million. We will continue to be prudent with our outlays and always mindful of earning an attractive rate of return on any capital we deploy. So we feel good about where the balance is and where we are for the rest of the year. We're not giving guidance on where we're going to end cash balance, but you can look at the first quarter and feel that we've got plenty of cash for many years to come.

Great, thank you. That makes sense. On OpEx, can you talk a little more about the pacing for this year? How can we think about the back half of the year? As you guys have been saying, revenues are expected to increase there. Also, a little bit of color on instruments versus consumable kits looking toward the rest of 2022 would be helpful too.

Yes. In terms of investment, we reiterated our guidance of $14 million to $16 million. We expect the majority of that revenue to be in the back half of the year. We'll continue to invest to realize that additional revenue in the back half. We are continuing to build the commercial organization. We ended the year with approximately 30 people in the commercial organization and will continue to expand that over the course of the year. You will see our spending increase along with revenue, although we are being mindful of that. You'll see us approach increased spend thoughtfully over the year. In terms of instruments versus consumables, we feel it will probably end up being around close to 50-50, maybe slightly skewed toward instruments. Most of the limited release customers we placed at the end of last year will take about nine months to ramp up. So we won't really see the benefits of the consumable pull-through until the back half of the year. Hopefully, that provides helpful color.

Yes, great. Thank you so much.

Thank you. Our next question comes from the line of Daniel Brennan from Cowen. Your line is now open.

Hi, good afternoon. This is Kyle on for Dan. Thanks for taking my question. I wanted to ask about your go-to-market strategy with heavy mass spec users. Can you sort of walk through your commercialization strategy in terms of who you are targeting first? And what pushback, if any, are you getting from customers as you try to engage with them? Also, on the publication side, how should we think about the timing of some of these publications? Are there any, in particular, that people are really looking for to drive adoption? Thank you.

This is Omid Farokhzad. Let me break that up into two questions and tackle the second part first and then the first part second. We recently published a paper in the Proceedings of the National Academy of Sciences, following a previous publication from Seer in Nature Communications. You can expect another paper toward the second half of the year in another top-tier journal, which is the way journals are typically measured. There may be another paper that also comes on top of that in the second half of the year, or at the beginning of the next. We have placed these papers in bio archives, so you're welcome to read them. But these papers are now under peer review. We've now had over 40 different presentations at conferences, posters, and abstracts, and more recently talks coming up not just from Seer but also from Seer customers. The number of presentations from customers is increasing as they gain experience with the instrument. Now for the first part of your question, which is the go-to-market strategy. We started with the collaboration phase in late 2020, which led into a limited release phase throughout 2021. This was focused on selecting lighthouse customers across key markets and applications, some of which are deeply embedded in traditional proteomics, while others are turning more towards genomics and multiomics. We aimed to cover a broad spectrum where people were looking to conduct large-scale proteomics or multiomic studies where we believe the unique power of the Proteograph can help them advance their biological understanding quickly. We're building on that with our broad commercial release that started at the beginning of this year. So far, we've been very pleased with customer experiences once they have access to the technology and start generating data. Regarding any pushback, quite frankly, I'm not qualifying anything as pushback. With any technology, customers may want to see certain enhancements and improvements—most of which I covered as customers' requests for enhancements. Overall, we're very satisfied with the acceptance of the technology across all phases of our commercialization process. I hope that answered your question.

Thanks, Omid. To elaborate on what Omid Farokhzad said, our strategy was and continues to be to start with collaboration, then move to limited release, and finally into broad commercial release. We've been pleased with the progress through each of those phases and the customer experience once they have the technology in their hands. The experience has been successful, and we've received positive feedback that guides us in our further developments. Thank you.

Definitely. That's great. Thank you.

Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.