Good day, and thank you for standing by. Welcome to the Seer, Inc. Second Quarter 2023 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. Carrie, please go ahead.

Thank you. Earlier today, Seer released financial results for the quarter ended June 30, 2023. 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 e-mail to [email protected]. Joining me today from Seer is Omid Farokhzad, Chief Executive Officer, President and Chair; 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 ended June 30, 2023, and in 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 and is accurate only as of the live broadcast, August 8, 2023. With that, I’d like to turn the call over to Omid.

Thanks, Carrie, and thank you, everyone, for joining us this afternoon. We ended the second quarter with $4 million in revenue, increasing 11% year-over-year and in line with the prior quarter. Based on our first half results, combined with our outlook for the remainder of the year, we now expect full year revenue to be in the range of $16 million to $18 million for 2023, representing 10% year-over-year growth at the midpoint of the range. While our top line growth this year will be slower than our previous expectations, we firmly believe in a significant underlying market opportunity for proteomics technology. Our technology has the potential to change the trajectory and status quo of proteomics. However, changing the status quo takes time. I continue to have full confidence in the strength of our vision and our differentiated product offering to capture the opportunity ahead of us and to push the boundaries of what is possible. Just 18 months after the launch of our flagship Proteograph Assay Kit, we have launched our second product, the Proteograph XT Assay Kit. We also recently expanded our collaboration with Thermo Fisher Scientific to enable population scale studies using the recently launched Orbitrap Astral Mass Spectrometer in combination with the Proteograph XT Assay Kit in our newly launched SEER Technology Access Center, or STAC. I have never been more bullish about our opportunities than I am today. While much work remains, we're continuing to put the pieces in place to build the foundation for long-term growth. On our call this afternoon, I will walk through the near-term challenges to commercial adoption that we're experiencing and the actions we're taking to overcome them. Then I will share more detail about our new products as well as some exciting new data we're seeing from our partners and customers, which further validates my conviction for what becomes possible using the Proteograph Product Suite. Finally, I will turn the call over to David to provide more details on our second quarter financial results and our recent actions to further reduce our cash burn to preserve our robust balance sheet, which includes approximately $396 million in cash, cash equivalents and investments. As we have long said, we believe the ability to generate vast amounts of proteomic content, leveraging our technology will open up a new frontier in proteomics discovery. Prior to the Proteograph, unbiased proteomics studies were very small and therefore underpowered compared to large-scale, adequately powered studies needed to fuel discovery. That said, we believe there is currently a disconnect between our differentiated and high-performance product and the commercial adoption that we're experiencing. Similar to other new disruptive technologies preceding us, our commercial progress will not always be linear. As we're developing the market, we're learning quickly and optimizing our approach to ensure our efforts result in the highest return over time. While we see many tailwinds in this market over the coming months and years that would accelerate commercial adoption, we also see some temporary headwinds in the current market. We're taking steps to address these temporary headwinds and work to lower the barriers to commercial adoption. So what are we doing? First, we're making changes to enable easier access to mass spec proteomics data. This is especially important for biologists and genomics experts. We've always said that the addressable market for our technology spans both the proteomics and genomics market. While this continues to be the case, there are nuanced behavioral differences between genomics and proteomics customers that require us to refine our approach to encourage market adoption. Proteomics experts previously faced technological barriers limiting the scale of their deep unbiased studies. Consequently, they did not have a need to store or maintain a large core of samples. Additionally, prior to the Proteograph, investments and operations involved large capital expenditures for mass spectrometers and comparatively smaller expenditures on consumables. Therefore, while traditional mass spec technology customers recognize the value proposition of our Proteograph Product Suite, they ramp up slowly to conduct large-scale unbiased proteome studies since they need to secure funding and samples to pursue larger studies. To remove the barrier of capital investment for mass spec experts, we have introduced the Strategic Instrument Placement Program, or SIPP, to allow them to begin using the Proteograph right away by utilizing available operating budgets. This will help generate the data needed to secure funding and samples to conduct larger studies. Conversely, biologists and genomics specialists generally have access to biological samples and are very familiar with consumable expenditures for generating data for their research and are better positioned to conduct large-scale studies. These customers universally recognize the value of unbiased approaches, given their experience with the discovery potential of unbiased genomes and exomes compared to targeted microarray approaches. We're finding that many potential customers new to mass spec view instrument acquisition and use as barriers to adoption, yet appreciate the discovery potential of the Proteograph's powerful and scalable unbiased approach. For these customers, we have now introduced the Seer Technology Access Center or STAC, which allows a Proteograph user to run samples in their own lab while Seer conducts the mass spectrometry, or, alternatively, we can provide end-to-end study services from sample to data. We believe that as these important customers gain access to and validate the insights provided by the Proteograph Product Suite, they will gradually add mass spec technologies to their labs. Importantly, we have expanded our collaboration with Thermo Fisher Scientific to develop and optimize proteomics and proteogenomics workflows. As part of this program, STAC will provide mass spec services primarily leveraging the Thermo Fisher Scientific Orbitrap Astral Mass Spectrometer along with our new Proteograph XT Assay. While it is still very early, we're already seeing positive traction in the initial stages of our STAC launch and believe it will increase the velocity at which customers can access unbiased proteomics data at depth and scale, consequently improving the rate of customer adoption of the Proteograph Product Suite. This will stimulate publicly available data and publications demonstrating the power of our technology. Second, we are implementing initiatives to shorten the sales cycle. The sales cycle is generally inversely correlated with customers' comfort in adopting technology. In the absence of third-party publications, the sales cycle tends to be prolonged because proof of principle studies are necessary. It takes time to establish credibility and build relationships with new accounts while the publication base is still growing. There are currently four customer papers under peer review, with several additional submissions expected by the end of the year. We continue to see strong interest in the Proteograph Product Suite and a growing number of opportunities available to us. As we await more third-party publications to enter the public domain, we are enhancing market awareness of the Proteograph Product Suite and educating potential customers about the groundbreaking nature of our technology and its unique capabilities. We are creating more in-person opportunities for customers to engage with us, our key opinion leaders, and our technology through increased meetings and seminars. Additionally, we are continuing to support potential customers with proof of principle studies, helping them analyze robust data sets, and aiding existing customers with publishing papers and developing new studies. We have also made recent changes to the commercial team, both in terms of leadership and regional business managers. While it's going to take some time to see the impact from these changes in aggregate, I'm confident in the team and the strategy we have in place to capitalize on our commercial opportunities ahead. Finally, amidst this challenging macro environment, we are providing creative solutions for customers to obtain the Proteograph Product Suite. We're hearing from prospective customers that they are especially cautious in purchasing a new disruptive technology whose value proposition is not yet widely demonstrated through peer-reviewed publications. To address this, we're offering creative solutions for customers to access the biological insights from the Proteograph Product Suite, either through accelerating utilization through SIP or increasing data acquisition through STAC. Through SIP, we lend an instrument to the customer for a period of time, typically less than a year. This program is also aided by the fact that many potential customers may have more accessibility to funds through operating budgets rather than capital budgets. We've already seen some success with SIP since its launch earlier this year. Reducing these barriers to adoption will help us accelerate the generation of use cases and data sets that exemplify the power of the Proteograph Product Suite and unbiased proteomics at scale. These presentations and peer-reviewed publications will provide proof to other potential customers of the value of our solution and its unique ability to deliver insights at scale. As I mentioned at the top of the call, we made two important announcements at the American Society for Mass Spectrometry Conference in early June. First, the launch of the Proteograph XT Assay Kit; and second, the launch of STAC alongside the expansion of our collaboration with Thermo Fisher Scientific. The Proteograph XT assay workflow allows customers to design large-scale unbiased proteomics studies with an unprecedented combination of size, scope, speed, and scale. The Proteograph XT assay uniquely provides high-resolution insights into the proteome at the peptide level, enabling access to a broader range of species and sample types, more than doubling sample throughput without compromising performance, all in less than one hour of mass spec time. This enhances our ability to scale studies to power discovery. The Proteograph XT assay kit makes the proteome even more accessible for both proteomics and genomics researchers as they deepen their biological insights and characterize genomic variants with functional proteomics information. A single operator can process hundreds of samples per week. This is incredibly exciting since there is a vast amount of proteomic content yet to be discovered, with enormous untapped potential to improve our understanding of health and disease. At ASMS, Thermo Fisher Scientific highlighted the exceptional performance of the Orbitrap® Astral Mass Spectrometer in combination with the Proteograph XT for deep unbiased proteomics at an unprecedented scale and speed. This combination produces over 6,000 protein IDs and more than 54,000 peptide IDs per plasma sample with a 1% false discovery rate. The demonstration of this unprecedented depth, scale, and speed has led to multiple discussions regarding population-scale unbiased proteomic studies that were previously inconceivable before the Proteograph XT. As prospective customers readily access studies, we believe the unparalleled value of the depth and breadth of this unbiased content will be demonstrated, and the flywheel will begin to accelerate. The level of information we have today in the proteomic space is just the tip of the iceberg compared to what we expect to be possible 10, 5, or even two years from now. We're beginning to see signs of these customer studies accelerating. The number of customer-driven studies we witnessed in the first half of this year has doubled compared to the same period last year. Importantly, we are seeing incredible insights, including the impact of our expanded capabilities with the Proteograph XT in preliminary customer data. In June, we held a KOL panel meeting where investors had the opportunity to hear from four researchers representing different customer types and applications on their use of the Proteograph. These researchers included Steve Carr of the Broad Institute of MIT and Harvard, Josh Kuhn of the University of Wisconsin, Philip Ma of Prognomics, and Chris Mason of Weill Cornell Medical. This event showcased strong enthusiasm for the power of unbiased proteomics and what the Proteograph product suite and XT assay kit will enable that was not possible previously. Dr. Chris Mason, who is a professor of physiology, biophysics, computational genomics, and neuroscience at Weill Cornell Medicine, has utilized a combination of the Proteograph XT and Orbitrap Astral in his longitudinal plasma samples of seven astronauts pre-flight and post-flight. He identified over 7,500 proteins in his study in an unbiased manner. These results formed the basis for identifying new biomarkers that are upregulated and downregulated during space flight. Dr. Mason plans to publish these results as part of the broader multi-omic study of the effects of spaceflight on astronaut physiology. In June, another pre-print was published in bioRxiv by researchers at Auburn University, showcasing the power of the Proteograph product suite beyond plasma or biofluid samples. This paper illustrates how the Proteograph Product Suite enables the proteomic analysis of highly complex tissue such as skeletal muscle. This tissue type has a wide dynamic range of protein expression levels comparable to plasma and has been previously difficult to access. This paper provides yet another example of the flexibility and power of the Proteograph product suite to analyze novel sample types and provide differentiated insights. We are more confident than ever in the long-term opportunity ahead of us. That said, until we have more third-party data in the public domain, we face some temporary headwinds impacting our commercial adoption, which are amplified by the challenging macro environment. We are confident that the actions we are taking will begin to accelerate the pace of data acquisition and customer publications. As we continue these market development efforts, we have taken action to reduce our headcount to streamline our organization across our business areas. While it is never easy to say goodbye to valued members of our team, right-sizing the organization will better align our cash burn with our revenue. With these changes, we are preserving our ability to execute against our commercial opportunities while pushing the boundaries of what is possible in proteomics. I want to thank all of our Seer employees for their dedication and hard work every single day to help realize our vision of unlocking the power of proteomics. I truly believe that we have the technology, the team, and the strategy to bring the next phase of Omics to labs globally. With that, I will now turn the call over to David.

Thanks, Omid. Total revenue for the second quarter of 2023 was $4 million, representing an increase of 11% compared to $3.6 million in the second quarter of 2022. The increase in second quarter revenue was primarily driven by increased consumable kit sales related to the Proteograph Product Suite, service revenue, and grant and other revenue, offset by lower instrument revenue, which is partially a function of the rollout of our SIP, where we loan an instrument to a customer if coupled with an upfront purchase of consumable kits. Product-related revenue for the second quarter of 2023 was $3 million, including related party revenue of $1.4 million and consisted of sales of SP 100 instruments, consumable kits, and platform evaluations. Service revenue was $467,000 in the second quarter of 2023, primarily derived from completing a customer service project. As Omid mentioned, we also announced the launch of STAC, where we will run mass spec for our customers and, in some cases, provide a full workflow solution for customers who would like to access our technology. Grant and other revenue was $538,000 in the second quarter of 2023, largely related to our SBIR grant from the NIH. Our NIH grant expired in the second quarter, and we do not expect material grant revenue for the rest of 2023. Total gross profit was $2.3 million for the second quarter of 2023, representing a gross margin of 57% compared to $1.6 million in the second quarter of 2022, which was 44%. Gross profit was driven by greater product revenue from higher-margin consumable kits, service, and grant and other revenue. As we ramp up commercial adoption, we continue to expect variability in our overall gross margin on a quarter-by-quarter basis as the proportion of instrument and consumable sales fluctuates between any given quarter. Total operating expenses for the second quarter of 2023 were $30.2 million, including $9.8 million of stock-based compensation, an increase of 21% compared to $25 million, including $8.4 million of stock-based compensation in the second quarter of 2022. Research and development expenses for the second quarter of 2023 were $14.1 million, an increase of 30% compared to $10.9 million in the second quarter of 2022. The increase in R&D expenses was primarily due to increased product development efforts related to the Proteograph Product Suite, including employee compensation costs and other related expenses due to growth in R&D personnel and expenses associated with our facility, professional services, and equipment depreciation. Selling, general, and administrative expenses for the second quarter of 2023 were $16.1 million, an increase of 13% compared to $14.2 million in the second quarter of 2022. The increase in SG&A expenses was primarily driven by greater employee compensation expenses and stock-based compensation. Net loss for the second quarter of 2023 was $23.4 million compared to $22.8 million in the second quarter of 2022. We ended the quarter with approximately $396 million in cash, cash equivalents, and investments. Turning to our outlook for the year, as Omid mentioned at the beginning of our call, we now expect revenue to be in the range of $16 million to $18 million for 2023, representing year-over-year growth of 10% at the midpoint of the range. We are committed to maintaining our strong financial position and are continuing to take a very disciplined approach with our spending. Given that our revenue ramp is developing more slowly than anticipated, we feel it is necessary to reduce our operating expenses to align our cash burn with our revised revenue expectations. As Omid shared, we have implemented a reduction in force of approximately 12% of our workforce. We estimate that we will incur approximately $600,000 of costs, consisting primarily of cash severance payments, which we expect to recognize in the third quarter of 2023. We have also taken measures to reduce our non-personnel operating expenses for the second half of 2023 to further minimize our expenses and cash burn. As a result of these actions, we estimate that our 2023 free cash flow burn will be less than our free cash flow burn in 2022. While it is always difficult to implement these changes, we feel this step is necessary to position the organization for long-term success. At this point, I would like to turn the call back to Omid for closing comments.

Thanks, David. While this quarter was challenging as we navigate temporary headwinds and manage through the current environment, we're taking systematic steps to lower the barriers to commercial adoption of our technology. As I mentioned earlier, the path to commercializing new innovative technology is not always linear. I firmly believe that as our publication base grows, we will see increasing adoption of our technology. In the meantime, we're focused on positioning ourselves for future success, and I look forward to updating you on our progress. With that, we will now open it up for questions.

Thank you. Please stand by while we compile the Q&A roster. The first question comes from the line of Tejas Savant of Morgan Stanley. Tejas, please go ahead.

Hey, guys, good evening, and thanks for the time. Maybe Omid and David, to start with the guidance cut here, roughly about $7 million at the midpoint. Can you just help us build a bridge from the old guide to the new guide? I know you highlighted, Omid, some of the access to mass spec and budgets, etc. But any additional color that you can share on that? And then, David, if you could just elaborate on your assumptions for PrognomiQ and services and the new outlook, that would be great.

Thank you, Tejas. As we've previously discussed, we had expected revenue to be more weighted toward the second half of the year. We've been saying that since the beginning of the year. We had anticipated the speed of conversion of opportunities to actual sales to increase. However, we are not seeing that. If the speed does not pick up, then we expect revenue to fall within the range we've updated today. Given what we are observing, we still want to forecast based on what we aren't seeing and what we are seeing, which are slower-than-expected movements based on the three reasons I highlighted earlier, Tejas. I still see a path to more momentum if things start to ramp up. If they do, we'll update you. But I believe it was prudent to lower guidance to what we've stated. David, would you like to add more details?

Yes. Tejas, just to follow up on your questions regarding PrognomiQ and the services component, we believe PrognomiQ will remain fairly consistent. They will ebb and flow a little. So it will be somewhat plus or minus around what they have been doing, given that they have a larger study underway. In terms of the services piece, we anticipate some increase in service with our STAC, but it's not going to be a significant contributor. However, we do expect it to continue growing in the second half of the year.

Got it. Okay. And Omid, specifically on China, could you just provide some insights on the ground conditions there? Clearly, this was cited as a major region for weakness. Many other Life Science companies have reported similarly this quarter and into the back half, so I'm curious about what you are observing?

Tejas, we're just not seeing China bounce back in the way we anticipated. We're not observing much activity at all. It has been a contributing factor in that context. I do not have visibility on when things will change, but I don't expect that to change meaningfully over the next couple of quarters.

Got it. Okay. And then finally for me, on the Proteograph XT launch, any early feedback you can share, particularly regarding evidence of customer interest in purchasing the Proteograph in combination with the Astral? For those users who have gotten their hands on both, over what timeframe do you expect their sample sizes to increase?

Tejas, let me break that question into two parts. I'll address the first half, and then give David the last part. The feedback on XT has been tremendously positive. We are witnessing depth and speed of unbiased proteomic coverage with accuracy and precision that were previously unattainable. This is not just an incremental improvement in capabilities. We are generating data that was impossible to achieve before the XT, and now it is possible. The performance of the XT and the Astral is what our colleagues at Thermo highlighted at ASMS. The performance is exceptional. We have reached depths of 6,000 proteins with over 54,000 peptides. Moreover, customers have generated data that even exceeds that, including Dr. Mason's study with the astronauts, which reached 7,500 proteins in a study of just under 40 samples from those seven astronauts. The data is phenomenal and sets the stage for considerations of population-scale unbiased deep proteomics, which were previously inconceivable. As a scientist, exceptional data excites me, but I eagerly await these data to be published because the publications from customers are needed to get this flywheel moving. Now, regarding customer inquiries for both together, one of our customers who took an XT has initiated discussions with Thermo and may have already placed an order to acquire an Astral alongside it. They have implemented the XT already, and now they are working on placing an order to obtain the Astral.

Yes. Regarding the sample sets, Tejas, as Omid mentioned, the throughput and interest surrounding the combination of the XT and Astral is sparking discussions about larger studies. That said, it will take time to secure funding and cohorts for these studies, but the realization of the possibility to conduct this kind of work is indeed positive.

Got it. Appreciate the time, guys. Thanks.

Thanks, Tejas.

The next question comes from the line of Derek De Bruin of Bank of America. Derek, please go ahead.

Hi, good afternoon.

Hey Derek.

So, I'm curious about your current split between pharma and academic/government. I assume we are still heavily weighted towards the academic/government segment, but I have a follow-up question on that?

Yes, Derek, it has remained consistent. If you look at our total opportunity set, what's in the pipeline, it is a 50-50 split. However, for those actually moving funding faster and making purchases, it is primarily the biopharma commercial side. They have access to budgets and can move more quickly. That said, we have implemented the Strategic Instrument Placement Program or SIP to help academic customers who may have the operating budget to spend but not necessarily capital budget this year. We still see both commercial and academic sectors experiencing elongated decision-making processes for new technologies, especially in the current macro environment.

Got it. Is academic/government hesitation related to publications, or are they worried about budgets for next year? With all the moving parts concerning NIH and budget concerns, how much of this hesitation is due to not wanting to commit to new programs?

Absolutely, that's a factor, Derek. It weighs on people's decisions, especially regarding capital purchases for new instruments. However, we do have some government entities that have purchased and plan to make further purchases. The funds are there, but the caution and time it takes to reach those decision points are elongated. We see this in both commercial and academic sectors where the decision-making has just been prolonged.

Regarding the STAC and SIP programs, how should we assess those in terms of margin impact compared to outright sales? Can you elaborate on how you are structuring these programs?

Derek, Omid here. I want to clarify the purpose of STAC. The primary reason for STAC is to accelerate customer access to data, leading to a flood of available data. Filling the top of the funnel is crucial for generating more papers published. The STAC is also designed for customers who historically do not have access to or familiarity with mass spec or mass spectrometry data. The business model remains unchanged; we still prefer selling the Proteograph instrument as our primary revenue model. A customer might purchase an instrument and consumables, then use our mass spec services and send us their peptides for analysis. Many customers have already made such commitments, and we are moving forward with their mass spec work. The customers may also choose to use end-to-end services, but the goal is to showcase the gap in getting access to Proteograph data to illustrate its true power. Now, I’ll hand it over to David regarding the margins and cost-effectiveness.

On the STAC, you're correct that it is service-based. Omid mentioned that customers can use STAC primarily when they are unfamiliar with mass spec and just want their data. For those customers, it does not yield margins comparable to consumable margins, but it is better than instrument margins. It exists between instrument and consumable margins, as expected. For the SIP, these deals are structured around an initial consumable purchase, allowing us to loan an instrument. From a revenue and margin standpoint, this essentially becomes consumable revenue, which is obviously beneficial. The absolute dollar amount may be smaller since customers typically make an initial consumable purchase along with an instrument purchase. However, in that price structure, we allow customers options to buy the instrument later over time.

Thank you.

Thanks, Derek.

One moment for your next question. The next question comes from the line of Dan Brennan of TD Cowen. Dan, please go ahead.

Hey, good afternoon. This is Kyle on for Dan. Thanks for taking the questions. I had a quick one on the instrument placement model here. Is this being offered directly to every prospective customer for Proteograph now, or are you being a little bit selective about who ultimately receives this model?

Yes, Kyle, thanks for the question. We are being strategic about it, which is why we call it the Strategic Instrument Placement Program. We want customers with projects ready to go along with a desire to publish. Our objective is to ensure these instruments are placed with accounts that can generate the necessary consumable pull-through over time. We see it as a deferred purchase where they will eventually buy the instrument, but we are selective with our placements.

Got it. Is there anything factored into the guidance on increased customer traction with new publications expected in the second half of the year? Or is that more pushed out to 2024?

Kyle, we have visibility on four customer manuscripts currently under review and another handful scheduled for submission. The important factor is that it takes time for these papers to go through the peer review process. There is often an inverse correlation between the quality of the journal and the speed of review. Higher-quality journals usually take longer to review. So, while we're optimistic about these papers coming in and the data being strong, their approval will take time. Once these customer publications are out, I believe it will significantly boost adoption for us.

Got it. Thank you.

This does conclude today's conference call. You may now disconnect.