Seer, Inc. Q3 FY2023 Earnings Call

Good day, and thank you for standing by. Welcome to the Seer Third 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 hand over the conference to our first speaker today, Carrie Mendivil, Investor Relations. Please go ahead.

Thank you. Earlier today, Seer released financial results for the quarter ended September 30, 2023. If you have not received this news release, or if you would like to be added to the company's distribution list, please send us an email to investor@seer.bio. Joining me today from Seer is Omid Farokhzad, Chief Executive Officer, President, and Chair; and David Horn, Chief Financial Officer. Before we begin, I would 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 September 30, 2023, and in the 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, November 7, 2023. With that, I'd like to turn the call over to Omid.

Thanks, Carrie, and thank you, everyone, for joining us this afternoon. I will begin our call today with a review of our third-quarter results as well as the progress we are making across our core focused areas to drive growth. Then I will turn the call over to David to provide more details on our financial results. I would like to start by thanking our incredible team for their hard work and dedication to our mission at Seer. We are pushing the boundaries, entering an entirely new market in proteomics amidst a very challenging macroeconomic backdrop. Even in the best circumstances, developing a new market is never easy. Our team is working tirelessly to serve our customers and help them realize what is possible using the Proteograph Product Suite. We ended the third quarter with $4.2 million in revenue, increasing 5% year-over-year and approximately $381 million in cash, cash equivalents, and investments on our balance sheet. Given our performance year-to-date, as well as the ongoing challenges in the current macro environment, we now anticipate coming in at the lower half of our revenue guidance range of $16 million to $18 million. On our last earnings call, we outlined some of the challenges that are impacting near-term adoption of our technology as well as the actions we are taking to mitigate them. First, making it easier to access mass spec-based proteomic data. For proteomics or mass spec expert customers, we introduced a Strategic Instrument Placement Program or SIP to enable immediate access to the Proteograph and help generate the data needed to secure funding and sample to conduct larger subsequent studies. For biologists and genomics customers, we introduced the Seer Technology Access Center or STAC to enable access to a simple procedure to conduct the first study and apply the biological insight provided by the Proteograph. This will accelerate publication and help researchers secure funding for future studies and investment in bringing their workflow in house. In addition, we are increasing market awareness and continuing to lay the groundwork for market adoption with more substantial market development efforts designed to shorten the sales cycle and enable more data to become publicly accessible. We are increasing market education with expanded outreach events and supporting potential customers with proof-of-principle studies and examples of use cases in their application lab. We are making progress across these efforts, and I will share more details on each throughout the call today. We have shown, along with very early customer data, that deep unbiased proteomics at scale is possible, and we're forging a path forward with the broader research community. More papers are being submitted and published from our partners and customers with exciting data as well as great interest in STAC and our recently launched Proteograph XT Assay Kit. I have strong conviction in the unique benefits of our technology and the differentiated insights that we offer to our customers. I remain convinced that as third-party data becomes increasingly accessible to our broader research community, our market development efforts will pay off, and we will see an inflection point in adoption, size of studies, and ultimately, revenue. We're making strong progress here despite market headwinds. That said, this has been a year of learning and adapting as we change the status quo of proteomics research. We're constantly refining our approach as we figure out how to advance adoption of deep unbiased proteomics at scale. While I’m confident this will happen, it will take time, particularly in this challenging macro environment. In the near term, we continue to focus on our key critical areas to develop our business: first, enabling breakthrough discoveries with the Proteograph product suite; second, demonstrating the power of our technology; and third, catalyzing new applications and markets. Starting with our first objective of increasing the availability of public data and publications to validate the value of the Proteograph. We're aware of 180 public presentations and 48 posters or presentations by customers. This has also been an exciting year for publications with 6 manuscripts submitted to preprint servers to date, with another half a dozen that have been or will be submitted for peer review this quarter, the vast majority to high-impact journals. These publications cover a range of applications, including analyzing PQTLs, understanding the body's response to space flight, finding new biomarker signatures of disease, and validating the quantitative and precise data enabled by the Proteograph. In October, 2 new papers were added to bioarchives. First, researchers from Auburn University published a second manuscript using the Proteograph following an earlier one in June. They are utilizing skeletal muscle samples to understand molecular signatures affected by aging and resistance training, identifying a set of proteins in cellular senescence pathways that were upregulated over 100-fold following resistance training. Second, researchers from Brigham and Women's Hospital, in partnership with True Diagnostics, have developed and validated 3 distinct measures of biological age in a manuscript now available on bioarchive. These researchers have established a robust predictive biological aging phenotype, which combined with DNA methylation and multi-omics generated 2 biomarkers. Both biomarkers demonstrated a strong association with chronic disease and mortality, outperforming current biomarkers across their discovery and validation cohorts. Additionally, these biomarkers provide an opportunity to identify clinically relevant interconnections central to the aging process. This quarter, Prognomic presented exciting data from the case-controlled lung cancer cohort, demonstrating unprecedented early detection performance using the multi-omic approach, which includes the Proteograph for non-small cell lung cancer. Using 2 different subsets presented at the 2023 World Conference on Lung Cancer and CHEST annual meeting, they highlighted validation data showing significantly higher sensitivity and specificity to detect lung cancer, particularly for early-stage lung cancer than previously shown in presentations or published data. The results of these datasets show that Proteograph helped identify 4,440 proteins and over 30,000 unique peptides on average per subject. Previously published plasma proteomics studies that included over 500 subjects have typically detected fewer than 600 proteins on average per subject. These presentations reflect the first customer data set demonstrating the value of the content that can be driven from large-scale studies using the Proteograph. This is an exceptional result that could significantly impact discovery efforts for early detection of various diseases. We believe this encouraging and pivotal data will serve as the foundation for the development of multi-omics assays for blood-based liquid biopsies for the early detection of lung cancer. The data from this large cohort has been analyzed and is being prepared for manuscript submission. In a recent webinar hosted by GenomeWeb, Dr. Nate Basisty from the National Institute of Aging discussed data on the 900 sample longitudinal mouse biomarker study that they completed within just 4 months using the Proteograph product suite. Dr. Basisty and his team achieved deep quantitative proteomic profiling of low-volume mouse serum, encompassing over 4,300 total protein IDs and revealing significant alterations in lipoprotein and triacylglycerols associated pathways with age and varying by mouse strain. This demonstrated both the scalability and flexibility of the Proteograph to enable the species-agnostic bio-study at scale. We expect that the manuscript will be coming out in the coming months. Last week, we announced that Panome Bio, a world-class metabolomics service provider with Mass Spec expertise, has joined our Centers of Excellence program. By combining deep proteomic insights at the peptide level with the proprietary metabolomics workflow, Panome Bio will enable first-of-its-kind studies with robust pathway analysis to significantly advance research in biomarker discovery and drug development. As we focus on expanding access and resolving pain points to accelerate adoption, there is mounting interest in deep unbiased and scalable proteomics, and an appetite for publications demonstrating these results. As potential customers consume this groundbreaking data and capabilities, I'm confident that we will see this adoption momentum accelerate. Turning our attention to our second objective, demonstrating the power of the Proteograph product suite, we continue to expand the capabilities of our technology and increase access to the Proteograph through a number of initiatives. Back in June, we launched our second product, the Proteograph XT Assay Kit, which enables nearly any lab to conduct large-scale proteomics with higher throughput and depth of plasma proteome coverage. This product enables the analysis of 10,000 samples per year with 1 Proteograph XT and 2 mass spectrometers. We are seeing good traction with XT, and it is performing exceptionally well in the hands of customers. We're on track to have the majority of our installed base upgraded to the XT configuration of the instruments by the end of this year. The power of the Proteograph XT Assay was exemplified through the fantastic data that Thermo Fisher presented at ASMS in June, showing the power of the Orbitrap Astral mass spectrometer in combination with the Proteograph XT. Our partnership with Thermo Fisher to launch a tier technology access center STAC has been generating a lot of interest and has had a significant impact on access to mass spec readout, giving us confidence that this was the right strategy to help open up the market. We're expecting to run thousands of samples by the end of this year with a backlog of projects. We believe that as customers gain access to validate and apply the biological insights provided by the Proteograph, this will accelerate the availability of customer data using the Proteograph and will increase the pace of peer-reviewed papers. Additionally, over time, we believe these researchers will add mass spec technologies to their own labs. As I mentioned, we launched a SIP earlier this year to remove the barrier of capital investment for customers. We continue to make good progress with this program and its ability to increase accessibility to our technology for those customers that would like to bring the Proteograph in-house. Outside of our initiatives such as STAC and SIP, we're also working to expand our global presence through new distributor partnerships. We're partnering with Daniel Biotech in Israel and Genetika in Eastern Europe. With these partnerships, we will be well positioned to address interest from new geographies and customers around the globe. We're also making significant developments in validating our technology through 2 new ISO certifications received ahead of schedule. First, we received ISO 27001 certification, which helps increase our information security and cybersecurity standards. This will make us more effective with STAC in our labs and collaborations and form a bridge for GDPR compliance for European customers. Second, we received ISO 13485 certification, which establishes the processes, people, and systems for quality management. This lays the groundwork for creating the highest quality, reliable solutions and enables the utilization of our products in FDA submissions. These certifications underscore our dedication to ensuring quality and security and pave the way for our technology to make a meaningful impact in clinical settings. It is a testament to the dedication and hard work of our entire team that we achieved these significant certifications in such a timely manner. In addition to these certifications, we're making our software easier to use to simplify the process for new customers to add unbiased proteomics data to their studies. Lastly, an update on our third objective: catalyzing new applications and markets. As I mentioned earlier, the Proteograph is an inherently extensible technology. We have seen this time and time again across new cases in our application lab and in diverse STAC projects. Our technology is being used to support the development of early detection tests, biomarker discovery, veterinary applications, and aging research. To date, we have shown use cases for skeletal muscle host-cell proteins, various model organisms, secretome and conditioned media, and low sample volumes. We're working on samples to study exosomes, brain, dried blood spots, tears, horse, and joint fluid. It is exciting to see how people are imagining what they can do with deep unbiased proteomics being more accessible. I am pleased with the progress we have made this quarter to address our near-term challenges to commercial adoption. However, we still have a lot of work to do. We are actively pursuing market development activities and raising awareness about the capabilities of the Proteograph product suite. More data publications and proof are emerging, revealing high-impact biological insights. Each of these studies further demonstrates what's possible and paves the way for future customers to add deep unbiased proteomics to their studies. I'm confident in the substantial long-term opportunity ahead of us. With that, I will now turn the call over to David.

Thanks, Omid. Total revenue for the third quarter of 2023 was $4.2 million, representing an increase of 5% compared to $4 million in the third quarter of 2022. The increase in third-quarter revenue was primarily driven by increased instrument sales, services, and grants and other revenue, offset by lower consumable kit sales. Product-related revenue for the third quarter of 2023 was $3.3 million, including related party revenue of $1.4 million and consisted of sales of SB-100 instruments and consumable kits. Service revenue was $536,000 in the third quarter of 2023. As Omid mentioned, we are seeing good customer interest and traction with our STAC program, 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. Grants and other revenue was $348,000 in the third quarter of 2023, largely related to our SBIR grant from the NIH. We did receive an extension of our SBIR grant from the NIH in the third quarter, which allowed us to continue our work under this grant. Total gross profit was $2.2 million for the third quarter of 2023, representing a gross margin of 52% compared to $1.9 million in the third quarter of 2022, representing a gross margin of 49%. We continue to expect variability in our overall gross margin on a quarter-by-quarter basis as a proportion of instrument consumable and service revenue will fluctuate between any given quarter. Total operating expenses for the third quarter of 2023 were $28 million, including $8.3 million of stock-based compensation, an increase of 4% compared to $27 million, including $9.1 million of stock-based compensation in the third quarter of 2022. Research and development expenses for the third quarter of 2023 were $13.2 million, an increase of 14% compared to $11.6 million in the third quarter of 2022. The increase in R&D expenses was primarily due to an increase in product development efforts related to the Proteograph product suite, including employee compensation costs and other related expenses associated with overhead allocation, general business expenses, and depreciation of equipment. Selling, general, and administrative expenses for the third quarter of 2023 were $14.8 million, a decrease of 4% compared to $15.4 million in the third quarter of 2022. The decrease in SG&A expenses was primarily driven by a decrease in professional services, including recruiting expenses. Net loss for the third quarter of 2023 was $21.1 million compared to $24 million in the third quarter of 2022. We ended the quarter with approximately $381 million in cash, cash equivalents, and investments. Turning to our outlook for the year. As Omid mentioned, given our performance year-to-date as well as the ongoing spending constraints at our customers in light of the current macroeconomic environment, we now anticipate coming in at the lower half of our revenue guidance range of $16 million to $18 million. In terms of our cash burn, we are committed to maintaining a strong financial position and are taking a very disciplined approach with our spending. We continue to estimate that our 2023 free cash flow burn will be less than our free cash flow burn in 2022. At this point, I would like to turn the call back to Omid for closing comments.

Thanks, David. While we continue to navigate temporary headwinds and manage through the current environment, we have made tangible progress in increasing accessibility to our technology this quarter. We're seeing a growing interest with our STAC and are seeing more customer publications moving through the peer review process. I'm proud of our incredible team for their hard work and dedication throughout the year. I strongly believe that we will see an increase in the adoption of our technology as researchers see third-party validation of the capabilities of the Proteograph product suite. With that, we will now open it up to questions.

Our first question today comes from Dan Brennan with TD Cowen.

Congrats on the quarter. Maybe just the first one would just be kind of on the sales funnel. Obviously, you're not alone feeling some pressure on the demand trends given the difficult kind of environment. That said, you kind of rattled off all the initiatives, and you got the new product, and you have some publications coming out. So I'm just wondering on the publication front, in particular, if you could just speak to kind of maybe any color on what the funnel looks at qualitatively? And have you begun to see any increase in demand as some of these publications have made their way to market.

Yes. Thanks so much. We're seeing good traction with XT, and the product is performing exceptionally well in the hands of customers. We're on track to have the majority of the installed base upgraded to the XT configuration of the instruments by the end of the year. As you would expect, the revenue ramp for new product launch takes time. We factored these elements into a revised guidance. That said, we are seeing good traction and the customers have given us very favorable reviews in what they're seeing so far.

Yes. Just to jump in on the publications front, again, as we mentioned, we now have 6 on BioArchive, which is great. Obviously, that's preprint, but they'll all be submitted. And we also know of another, as we said in our remarks, another handful that we're excited about. So hopefully, again, we don't have control over the timing of the peer review process. But hopefully, in the first half of next year, we'll start to see some nice publications and could see some as early as the beginning of the year.

Got it. And then maybe just as a follow-up, maybe a 2-parter on that STAC business, could you just speak to kind of what that opportunity looks like? Is that getting reported through the service line? So any color on kind of how meaningful that could be? And then just be, I know we're not guiding for '24, but consensus has you guys growing 60% in 2024, which looks to be pretty steep given the environment. Any early way we should be thinking about a reasonable level of growth in '24 at this point?

Yes. Let me maybe comment on what the STAC means for our business, the purpose of it and what we're seeing, and then maybe I'll have David comment on the economics of it in terms of the balance of the year and also heading into 2024. So the STAC really exemplifies the power of the Proteograph XT Assay together with the Thermo Fisher Orbitrap Astral. The data is just simply fantastic. We launched the STAC at the ASMS conference in June. We've seen a lot of demand, a lot of interest in being able to access the Proteograph and a service model really lowering the barrier for a customer to go from a sample to data. We actually have a backlog in the STAC in order to process the samples on the XT and the Astral. So that's really encouraging for us. In terms of how you should model that for the balance of the year and 2024, let me have David comment on that.

Yes, Dan, just to answer your questions, yes, we do report STAC revenue through the service line. So service revenue is primarily STAC revenue. I think the only difference to think about with respect to STAC, as Omid said, we do have a nice pipeline of projects we're working on, but we do need to run those projects and deliver the data report to the customer before we can recognize revenue on that. So there will be just between when you get the PO and you get the samples in, you actually have to run and deliver the data. So there is a bit of a time lag there. And that just becomes an issue around how much capacity do you have in any given quarter. So we're optimistic about what we're able to do, but there is just an additional time component rather than with an instrument or consumable or when you ship, you can recognize revenue. So again, I think that's just something to keep in mind that we do have to work through that each quarter. But we are optimistic about where that will come out, both for the balance of the year and the contribution it will make next year.

I believe the second part of your question was about our outlook for next year. We are still facing challenges and headwinds every week and every month. However, we feel positive about our pipeline, the opportunities we have, and their current status. The main issue is the timing of these opportunities and how quickly they can progress through the funnel, depending on customer funding and capital budgets. Hence, we are being cautious regarding next year. It seems likely that the year will be more weighted towards the latter half. We will have more information during our year-end call. The environment is challenging for companies in our sector right now, made more complex by the fact that we are dealing with new technology. This makes us remain optimistic, but also appropriately conservative as we look ahead to next year.

Our next question comes from Tejas Savant from Morgan Stanley.

Just a couple of quick follow-ups on the STAC and SIP initiatives. Do you view that as essentially sufficient in terms of mitigating some of the macro headwinds here? Or is there anything else you're contemplating internally at the moment just in terms of tweaking your go-to-market on a go-forward basis?

Yes, Tejas, the STAC and SIP were designed to open up the market. We launched with a couple of key principles in mind: we didn’t want to be in the service business and aimed for a distributed model while introducing an innovative product that hadn’t previously existed. Initially, there was a significant lack of data demonstrating what could be achieved with the Proteograph. We achieved commercial success of $6.6 million in the first year and $15.5 million in the following year. However, the pace of customer publications was slower than I expected. The purpose of the STAC was to provide customers with faster access to data compared to bringing an instrument in-house, scaling up studies, and publishing. This approach has proven effective, as demand for the STAC's capabilities has been strong. We may need to increase our capacity to ensure customers don’t experience long wait times from initial interest to sample processing and data retrieval. Customer access to data presents a different challenge. The STAC and SIP cater to different customer profiles; STAC is focused on genomic customers who are not traditional mass spectrometry users but seek data, while the SIP primarily targets proteomic customers or conventional mass spec users. The SIP allows these customers to bring the capital expenditure in-house with a loaner program, with the expectation that many will eventually purchase it. They can then allocate funds not on instruments but on samples and studies, ultimately enabling them to secure funding for scaling their assays. Overall, these two solutions address distinct needs in the market. The macroeconomic conditions are challenging, with longer sales cycles and a notable slowdown in China that I don’t see clearing up in the near term. However, I believe we are taking the right steps. I don’t think we need to make any significant strategic changes right now. The next major progress will come when customer publications increase. Seer has made it possible to access proteomic content at a scale and speed that were previously unavailable. The critical next milestone is communicating the value of this biological insight in guiding clinical or scientific decisions, especially in biomarker discovery, which will drive adoption. Customer publications will be key, and the feedback we've seen from their work is confirming our expected outcomes, even exceeding my initial expectations.

Got it. That’s super helpful, Omid. And just a couple of quick follow-ups here. So on the SIP side of things, have you sort of started loaning those first instruments yet? Or is that still ahead of you? Give us a flavor? I know you mentioned sort of good progress, but any flavor around the number of customers that are interested in accessing the Proteograph through SIP. And then a quick follow-up to your comments and just the cadence of publications and how important that is. Out of all the preprints in bioarchive at the moment, are there one or two that are particularly pivotal in your mind in terms of unlocking adoption for the XT?

Yes, I’ll take the first one, Tejas, just on the SIP. We have placed instruments under that program. And I’d say it’s a handful, maybe a little bit more than a handful. And so we placed these in accounts where we fully expect them to purchase. Again, they may or may not, but they’re not obligated to. But certainly, we hope to get them excited about the data that they’ll run. So we have had some good uptake with that program both in the second quarter and the third quarter, and we expect to continue that in the fourth quarter as well.

And Tejas, let me maybe just take the one on the publication side of it, which is that the bioarchive papers—about half of them are currently under review at various different journals. Now here’s the interesting part, which is the early ones that were submitted have all gone through one round of revision, which basically means that they’re very close to being accepted. The most important part is those papers are in what I would consider to be very, very top journals, either the top one or two journals you can imagine or the sister journals from those. And that just really reflects the level of science that became possible when you did unbiased proteomics at scale—deep unbiased proteomics at scale. I emphasize this because it’s very easy to do a single-shot proteomic, meaning a neat injection in the mass spec, get 500-600 proteins, and do that to scale. But to do deep proteomics at scale, there is no other solution other than Seer’s Proteograph at that scale. The papers that are coming to us are all in great journals. And by the way, you and I were in the panel together when I had predicted that by the end of next year, we’re probably going to see the first population-scale deep unbiased proteomic study get underway. I still believe that’s going to be the case. This really falls in the realm of what was not possible is now possible. I think what I’m excited about seeing is really just the value of the biological insight of this content. It has the potential to fundamentally shape so many changes in medicine and science.

Our next question comes from Rachel Vatnsdal from JPMorgan.

This is Marta Nazarovets on for Rachel Vatnsdal from JPMorgan. So you touched a little bit on macro during your prepared remarks, but perhaps you can compare and contrast what you've seen in 3Q versus 2Q on the macro front? And then what are you seeing so far in 4Q? Is there any improvement or deterioration or stabilization?

So let me take that one. In terms of what we're seeing just on the macro front, look, I think it continues to be pretty similar throughout. I think the uncertainty is something certainly in the second and third quarter around inflation and the general macro trend of are we going into a recession or not, really just caused our customers to elongate their purchase decisions and think about their budgets. As we get into the end of the year here, that trend continues certainly on the commercial side where we are seeing customers just be more thoughtful. As we've said, certainly, for proven technologies, companies that need another mass spec will go buy another mass spec. But for new technologies such as Seer, there're just more questions that are answered and need to be answered. We’ve also seen approvals need more approvers, if you will. We continue to see that. I think that's just the general uncertainty. I think the only thing that may have changed a little bit in the third quarter and fourth quarter was just the uncertainty surrounding government funding. We don’t have much exposure around that, but we do have some. And again, I think that's just the availability of the funding will—is the government going to shut down or not shut down? It does create an impact on some of that funding. So again, I think it's been pretty steady, if you will, in terms of the uncertainty. Hopefully, as we move through the fourth quarter and into the new year, some of that gets resolved both in the macroeconomic and government funding circles as well.

Okay. And then on your updated guidance, you're now expecting it to come in towards the lower half of the prior into 18. So can you maybe unpack for us what are the updated assumptions for 4Q? And are you assuming any type of 4Q budget flush in light of the uncertain macro?

Yes. In terms of the guidance to the lower half, it's mainly due to the uncertainty around really the size of the numbers we're talking about here. Again, as we've said, 1 or 2 deals can make a difference there. So as we see and look out for the balance of the quarter here, just some uncertainty is creeping in, as I mentioned. If a deal goes one way or the other, that could make a difference. And so we're just trying to be mindful and thoughtful in that regard.

Thank you. This concludes our question-and-answer session. I would now like to turn it back to Omid for further thoughts.

Thanks so much, everyone. I really appreciate your participation in this call. Thank you.

This does conclude the program. You may now disconnect. Have a good day.