Sera Prognostics, Inc. Q4 FY2022 Earnings Call

Good afternoon, and welcome to the Sera Prognostics Conference Call to Review Fourth Quarter and Fiscal Year 2022 results. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Peter DeNardo of CapComm Partners for a few introductory comments.

Thank you, MJ. Good afternoon, everyone. Welcome to Sera Prognostics fourth quarter fiscal year 2022 earnings conference call. At the close of the market today, Sera Prognostics released its financial results for the quarter ended December 31, 2022. Presenting from the company today will be Greg Critchfield, Chairman, President and CEO; and Jay Moyes, our CFO. During the call, we will review the financial results we released today. After which, we will host a question-and-answer session. If you have not had a chance to review our quarterly earnings release, it can be found on our website at seraprognostics.com. This call can be heard via live webcast at seraprognostics.com, and a recording will be archived in the Investors section of our website. Please note that some of the information presented today may contain projections or other forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, future financial results and market trends, and opportunities. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections and other forward-looking statements. As a reminder, a webcast replay of this call will be available on the Investors section of our website. I will now turn the call over to Greg, Sera Prognostics Chairman, President and CEO. Greg?

Thank you, Peter, and good afternoon, everyone. Fiscal 2022 was a solid year of continued progress in positioning Sera Prognostics for commercial growth in the quarters and years ahead. During 2022, we made incremental progress in adding new payer contracts and more recently have publicized new data that we believe will support the growth of our business in future periods. Although our revenue was nominal for the year, we are seeing percentage growth in test volumes. For Q4 year-over-year 2022 versus 2021, the increase was six-fold and for total units 2022 versus 2021, it was 11-fold. Of course, these are increases from a small baseline in 2021. While it takes time to broaden commercial relationships, we are seeing positive results from our strategy in terms of both payer and physician response, and we look forward to reporting additional traction during 2023. Ultimately, at this time, the single biggest way to further accelerate adoption of our PreTRM technology and testing volumes is the publication of compelling new data that continues to demonstrate the value of our tests. This growth is first manifested in the use of our technology by early adopters and should result in growing reimbursement by increased numbers of payers, while we execute our strategy. And we have strong new data that's published from clinical studies. In terms of customers, we've maintained a continued focus on early adopter systems. For example, integrated delivery networks or IDNs, hospital systems and physician practice groups. We continue to work with early adopter systems, not only by sharing data, but also by discussing ways with them to implement the PreTRM testing within their institutions. We anticipate making selective announcements as permitted in the course of bringing the PreTRM test-and-treat strategy into these systems. While implementations among these customers take time, we believe there may be an inflection point ahead as multiple customers among our growing relationships rescale in future quarters where the number of tests and the amount of revenue increases accordingly. Another important event in our quest to help build up testing volumes among these customers is to broaden PreTRM testing availability while reducing our costs and growing our business. For that end, last quarter, I touched on the successful validation of an ambient blood collection and transport system for PreTRM testing, which we launched commercially in December. This not only expands the number of sites where patients' blood can be more easily collected by reducing the need for dry ice availability for transport to our labs, but it also reduces our costs. Just as importantly, we note that ambient shipping now newly deployed is growing as a proportion of tests being ordered this year. And we believe that even from these early moments of ambient collection shipping launch, it will continue to contribute to increases in test volume over the next months and years to come. Let's now turn to the growing body of published new data supporting our mission to improve the health of mothers and babies. First, the ACCORDANT study. Building strong evidence for the use of the PreTRM test is an important part of Sera’s strategy. In terms of addressing healthcare disparities, during Q4, we announced the publication of results from ACCORDANT, a clinical utility and cost-effectiveness modeling study based on rigorous clinical utility health economic analysis. This work published in the Journal of Health Economics illustrates the impact of Sera’s test-and-treat strategy and its specific benefits in underserved racial and ethnic populations. ACCORDANT, where the secondary analysis of 847 women from the Multicenter Assessment of a Spontaneous Preterm Risk Predictor study or TREETOP study. The findings showcased that care management with or without pharmaceutical treatment was effective in reducing maternal and neonatal hospital length of stay. Results indicated that by combining the PreTRM test with enhanced prenatal care management, real progress may be made in better serving the most disadvantaged populations to enable better medical outcomes. Now, a bit on new clinical outcomes data supporting the PreTRM test-and-treat strategy, the AVERT PRETERM TRIAL. A few weeks ago, we announced the top-line results for our large AVERT PRETERM TRIAL, which showed statistically significant improvements in both of its primary endpoints, neonatal hospital length of stay, and neonatal health as measured by a composite neonatal morbidity and mortality index. We believe that these results solidify the benefit of the PreTRM test-and-treat strategy to improve the health of babies, giving those most vulnerable a better chance at a stronger start in life. The detailed results of the AVERT TRIAL, including secondary endpoints and additional subgroup analyses are being prepared for submission to a peer-reviewed scientific journal in the coming months. In our announcement of the top-line AVERT study results, we mentioned that we believe these results bode well for our very large prospective multi-center, randomized controlled PRIME study. We are pleased to announce that PRIME has surpassed 2,800 enrolled patients, the number required to enable the pre-planned interim look. And though there are moving parts that can delay this thing, we believe that the interim analysis is on track to take place during this year. I would like to take a minute to describe how different pieces of evidence fit together in our broader strategy by clarifying why we believe AVERT top-line results bode well for PRIME. First, both studies have identical co-primary endpoints: reduction in neonatal hospital length of stay and decreased neonatal morbidity and mortality. Second, both studies have a diverse demographic that is representative of broad, racial, socioeconomic, and pre-existing risk profiles. Third, the multimodal clinical intervention strategies prescribed in the protocols of both studies are the same or similar. Specifically, this includes the use of low-dose aspirin, the same form of progesterone, and additional care management for mothers identified by the PreTRM test to be at higher risk of premature delivery. Care management consists of more frequent clinical monitoring and more intensive education for higher-risk patients. It is also important to note that, while these similarities between AVERT and PRIME give us optimism for the PRIME study, there is always the potential that differences could weigh in the other direction. To point out a few, the AVERT PRETERM TRIAL was performed within a single-cell system, while PRIME involves over 15 sites, which could lead to possible differences in administration of the study and adherence to the trial's clinical protocol across these sites. As another difference, all patients who reached term in AVERT were treated before COVID was prevalent locally in Delaware and ended the study early, while some patients in PRIME will have been treated during the pandemic and others after the pandemic has substantially waned. Finally, the prospective, randomized controlled design of PRIME is a stronger study design. And in terms of the evidence generated, it is historically controlled AVERT PRETERM TRIAL. Furthermore, though AVERT included approximately 10,000 historical controls, PRIME is a much better powered study. In that, it includes approximately twice as many subjects as in AVERT in its perspective arm at the interim look analysis and almost 4x as many at full enrollment. The larger size of the test and treatment arm of the PRIME study helps to provide higher statistical power. Oftentimes, clinical studies are statistically powered at approximately 80% to see the effects of interest, the primary outcomes at full enrollment. The PRIME study was designed to have that level of statistical power for the interim look analysis, before the trial is fully enrolled and even higher power for the final readout. Considering these and other factors, while we believe the AVERT results are encouraging given these differences are clearly not completely predictive of the outcome of the PRIME trial, and we must wait for PRIME's results to know to what extent they support Sera's PreTRM test-and-treat strategy. In that regard, it's also important to recognize that many studies — and for a number of reasons, interim look analysis endpoints are rarely met. And studies usually proceed to their original pre-specified final enrollment numbers at which time the final analysis occurs. The interim look allows the external monitoring group overseeing the study to determine whether the study enrollment should continue and then recommend either continuing enrollment of the trial, which happens in most cases, or ending enrollment early because interim look results are good enough that continuing to enroll patients is inadvisable. We are encouraged by the data resulting from controlled prospective studies thus far, and look forward to sharing the results of the PRIME study with you as soon as we can. Now a word on Sera's biomarker pipeline. Lastly, let me take a moment to update you on our biomarker pregnancy pipeline, specifically our preeclampsia prediction. About 5% to 8% of all pregnancies are impacted by preeclampsia, a sizable medical problem among expectant mothers. The most serious preeclampsia is preterm preeclampsia occurring before the 37th week of pregnancy, which is more severe for mothers and babies. Preterm preeclampsia poses a most challenging clinical decision for the physician at the time of when to deliver the baby. In that there's a need to balance serious adverse outcomes for an incompletely developed newborn against the rapidly deteriorating health of the expectant mother. Medical goals that can be at odds with one another. Identification of these cases well in advance before clinical preeclampsia occurs enables more informed and proactive decision-making and management. Late last year, we successfully clinically validated the prediction of preterm preeclampsia and made the validation data public to the scientific community, and now the manuscript is being prepared to be submitted shortly for publication in a peer-reviewed scientific journal. As the only rigorously validated preeclampsia predictor when a patient is asymptomatic, we believe that our work on preterm preeclampsia is groundbreaking and valuable. We will determine how and when it gets commercially incorporated into Sera’s broader portfolio of pregnancy tests that provide valuable information to doctors and patients. In summary, we are continuing to build the solid foundation of data to enable us to carefully implement our commercial strategy as we also work to extend our runway. We are pleased to see the progress and expect it to continue strongly during this year. I'll now turn over the call to Jay for a review of our fourth quarter financial results.

Thanks, Greg, and good afternoon, everyone. Let me briefly review our financial results for the fourth quarter, and then I'll provide some color on what our views are for 2023. Revenue for the fourth quarter of 2022 was $65,000 compared to $26,000 for the fourth quarter of 2021. As we noted in our last earnings call, we expect the testing adoption and commercial traction will be more impactful on our top line in 2023. Total operating expenses for the fourth quarter of $10.5 million were down from $12.6 million for the same period of the year ago. Research and development expenses for the fourth quarter were $3.5 million compared to $3.1 million for the fourth quarter of 2021 as a result of increased headcount and research activities. Selling, general and administrative expenses for the fourth quarter of 2022 were $6.9 million. This was down significantly from $9.5 million for the same period of the year ago, due primarily to the steps we outlined in our prior earnings call to streamline our salesforce and focus our commercial strategy on early adopter systems. It is noteworthy that this significant decrease in SG&A did not negatively impact our revenue during the year. Net loss for the fourth quarter of 2022 was $9.7 million, down from $12.5 million for the fourth quarter of 2021. As of December 31, 2022, the company had cash, cash equivalents, and available-for-sale securities of approximately $104 million, which did not include a receivable of approximately $6 million collected in the first week of January. With the cost reduction actions we took in the third quarter of last year, coupled with our solid balance sheet and prudent management of our capital resources, we continue to expect this will give us operational room to execute our strategy into 2026 without having to raise additional capital. Given that we are still in the early stage of market development, the availability of new positive data, both the AVERT PRETERM TRIAL and other readouts later this year, all of which are of keen interest to early adopter customers and the growth we experienced last year on a small base, it is still difficult to predict precisely what the revenues will be for this year. However, we currently believe that 2023 revenues will be less than $1 million. I'll now turn the call back to Greg.

Thank you, Jay, and thanks to all of you for attending our call today. We are looking forward to an exciting 2023 and see a number of valuable achievements potentially taking place this year. This includes the anticipated positive impact of the AVERT study, additional study results being published, completion of the interim look analysis of PRIME, and announcements of additional commercial implementations. We are strongly positioned to address prematurity and other adverse conditions of pregnancy. This is what drives us, improving the health of both mothers and babies by providing valuable pregnancy information to the medical community and patients. The improvement of health can actually drive down healthcare costs. We believe that this provides a win for all parties: mothers, babies, families, as well as medical professionals and payers. And with that, we'll open up the line for questions.

Thank you, Greg. Today's first question comes from Patrick Donnelly with Citi. Please go ahead.

Thank you for taking the questions. Greg, could you provide an update on the AVERT interim readout? The data seems quite promising. Can you discuss the possibility of this impacting payer conversations? Is it significant enough that we might initiate discussions earlier than originally planned, despite the expectation for most reimbursement discussions to occur after the full trial results? It would be helpful to understand how we should think about this moving forward.

Yes. Great question, Patrick. First of all, the AVERT readout was not an interim look, just to be clear. Those were top-line results from the final analysis. So I want to make sure that's clear to people. You are absolutely right. There has been keen interest in the announcement, but payers always want to see a peer-reviewed publication that more fully reports the results of the AVERT TRIAL and others. Because that process can typically take months. The impact on '22 revenues is not yet clear. However, I can tell you that following that announcement, there has been keen interest on the part of the payers with whom we are having conversations, and we anticipate that to accelerate as the results themselves become available.

Okay. That's helpful. And then maybe on the sales side, I think Jay touched on the expense side a little bit there at the end. Just how do you think about '23 on the expense side in terms of scaling up the salesforce? Maybe just in terms of headcount, whatever the best metrics are, just how you think about spend for this year and just as we kind of think about the model, and then also just the salesforce side?

Yes. I'll share some general thoughts, and Jay can contribute as well. We are concentrating on early adopter systems and are adjusting our salesforce to effectively target them. This is a key focus for us as we enter this year. Clearly, the discussions we are having are advantageous because it’s not just about getting a single doctor's office to order a test; rather, it's about getting a system to adopt the testing process. This approach presents a much larger potential and we believe it's a more efficient way to engage with the market. We are actively identifying regions, and sometimes potential clients reach out to us because of their strong interest in the test, even in areas where we may not yet have representatives. We assess these opportunities in real-time and determine the best locations to deploy our team. Additionally, if a customer is interested in pursuing testing options, we will engage with them about how they can implement the testing. This responsive approach enables us to grow the market efficiently as demand increases. Jay, do you have any comments?

Yes. I think, Patrick, there won't be an appreciable increase in 2023.

Okay. Just to clarify on the revenues, Jay mentioned that they expect to be below 1 million for 2023, while we anticipated being slightly above that. It seems like the Street had similar expectations. Is this delay due to payers onboarding slowly or is it related to volumes? I'm trying to understand the reasons for this difference. We were expecting a stronger ramp in the latter half of the year, which might indicate some conservatism on our part. Can you discuss the factors at play and any potential upside? If we onboard a few more payers, would that significantly impact the numbers? I would appreciate some additional insights on this.

Yes. I think, we just have to understand that we're in the early days of commercialization, and where we believe we're typical of companies in the diagnostic space. Beyond that, I don't have a whole heck of a lot to add, other than what we mentioned in the call. So we look forward to more data coming out, and we believe that will be helpful in growing our revenues.

The next question comes from Andrew Brackmann with William Blair.

This is Dustin on for Andrew. To maybe follow on Pat's question. I know there's a lot of uncertainty this year, and it's hard to predict revenues. But is that signaling maybe that PRIME comes in towards the end of the year, like maybe end of third quarter, fourth quarter, and that doesn't allow adopters to really pick up any utilization of the test there? Is that any signaling of a later than expected timeframe on PRIME for this year?

That's a really good question. Let me clarify the expectations. First, as we mentioned earlier, payers want to see final publications as indicators of benefit. We anticipate more publications this year and will provide additional data as we progress. This will be beneficial. Some early adopters believe that the available data will be sufficient for them to proceed prior to the PRIME results, while others prefer to wait for the final results from PRIME. Remember, this year we will have an interim look. With 2,800 patients being enrolled, it takes time for them to be processed, which spans several months. We also need time to finalize the data after the last participant leaves the hospital. We work in real-time to expedite this process, but there are some requirements involved. After data collection, the analysis is done, followed by the release of results. Currently, we can assure you that arrangements are in place for the trial's interim look to occur by year-end. We will also provide information once enrollment is complete, which may occur this year or later. We believe that we are quite confident the interim look will happen this year, which is the first step. The final analysis will follow once the last patient has been processed. The interim look comes first, with the final analysis following. Does that help?

Yes. It does. So more on the early adopter systems. I was wondering if you could go into more detail on the willingness of each of those to interact with you. Have some of them more promising than the others, such as like universities or self-insured employers? And then what is really required to drive utilization once these networks are signed?

Yes, that's a great question. I would say that the integrated delivery networks of physician groups, physician-hospital groups, and managed Medicare groups are very interested. The discussions have been quite positive about how we can move forward toward implementation. These are key targets we are focusing on. To achieve this, it requires commitment and coordination of all activities, allowing the physicians involved in these systems to coordinate effectively to perform the testing. Additionally, as I mentioned earlier, we are not only discussing the importance of the data but are also exploring ways to assist them in implementing the testing within their systems.

Okay, great. Thank you.

The next question comes from Tom Stevens with TD Cowen. Please go ahead.

So this is going to be more focused on kind of PRIME and what your results kind of mean there. So, if we assume you kind of hit statistical significance in that interim look, what's the material impact on kind of NICU mortality there? And how does the materiality of that impact your ultimate ASP you hope to get from PRIME?

I'll let Jay discuss ASP. I'm going to address the material impact. A positive interim look indicates that either one or both of the primary endpoints have been achieved. In the case of the AVERT PRETERM TRIAL, both were achieved. This further strengthens the benefits of our test-and-treat strategy for the PreTRM test. As a result, discussions can occur with systems, allowing people to consider what this means for their risk. As is the case with any new product, there will be early, mid, and late adopters. We believe that having more positive data will always be advantageous. Our goal is to reach a stage where the data are overwhelmingly supportive from multiple studies, demonstrating a positive impact on outcomes that are most significant—length of stay, which drives costs, and, most importantly for individuals, improvements in neonatal health. These are the primary outcomes in those studies. Jay, would you like to add anything regarding the cost?

Yes, sure. I think that any time you get stronger data, it's going to help improve our ASPs as more payers adopt the strong reimbursement of the PreTRM test.

Got it. Thanks for that. Looking ahead, it seems that we can expect some developments later this year, possibly ramping up around mid-2024, along with securing reimbursement. I would like a few details concerning the reimbursement aspect and a question about revenue stability once we reach that stage. First, is this the appropriate timeline to anticipate the ramp-up? Secondly, will the reimbursement cover all necessary follow-up treatments and interventions required to achieve the projected cost benefits? How do these elements fit into your health economic models?

Sure, I'll address both points and ensure I get it right. Regarding the readouts and timeline, we are guiding that we will complete the interim look of the PRIME study this year. Once fully enrolled, we will need to wait for the recently enrolled infants to be born to obtain outcomes and conduct data cleanup and analysis. This process will take several months, and we aren’t ready to provide specifics beyond that at this time. However, we can confirm that we have the 2,800 patients necessary for the interim look this year, with the final results being available later. Does that make sense?

That makes a lot of sense. And then just following up on the reimbursement side, if you get a positive PRIME readout, do you expect insurance to cover all the other interventions required to ensure that you get the impact on NICU mortality that you’re going to test?

You have partially addressed the question, and I'll elaborate on it. The economics of health are crucial. Our multiple analyses have shown that it is very cost-effective, with significant savings for payers through the test-and-treat strategy. By identifying patients at higher risk for preterm delivery and positively impacting their outcomes, they spend less time in the NICU, experience fewer complications, and have healthier babies. This benefits the child and mother first, then families, the medical community, and payers. We believe this aligns with the goal of cost savings and provides insight into effective pricing decisions as it enhances the value of the test. We are looking for continued positive results and will have a good idea from the interim data before the final results are available.

Got it. And then just last quick one. So you kind of assume at a 250 ASP in '25, what kind of gross margin should we be expecting on that?

We haven't really discussed a 250 ASP. We haven't established anything regarding that. Jay?

No. We haven't put any guidance out on ASP or gross margins.

Yes. That's right.

The next question comes from Francois Brisebois from Oppenheimer. Please go ahead.

Hi. Thanks for taking the question. I dropped off for a second and came back on. So I apologize if you mentioned this. But can you explain the importance of the publication following the top-line data for AVERT? Is there something specific in it that we should really focus on? Also, when the interim PRIME top line is released, which I assume will be presented in a similar format to AVERT, will that be sufficient, or will people want to see the publication as well? If that's the case, I assume there wouldn't be a publication on the interim look. Thank you.

Yes. I'll address the first question. Regarding the AVERT study, we released top-line data, which is not an interim look. We expect that it will take several months before the data is published, but we can share it very cautiously with select individuals. We take this responsibility seriously to align with the authors’ wishes for publication. We are working diligently with them to facilitate the submission of the paper for review and aim for a timely publication. Payers, particularly on the medical policy side, seek to understand the data source thoroughly. They are interested in the differences between the controls and the intervention population and want to see the demonstrated benefits of the strategy. Typically, they prefer to have the complete publication before making conclusions. Discussions with payers regarding this clinical data with economic implications are ongoing. Does that answer your question?

No, that helps a lot. I was also wondering about AVERT and PRIME. I understand AVERT has full data, but regarding PRIME, I assume you won’t proceed unless the interim results are compelling enough to advise stopping the study, at which point a publication might follow. My question is, how important will the publication on PRIME be to payers? Or will the topline results be more significant since they won’t involve historical data as a control?

If one or more factors arise, the modest board could decide to stop the trial. However, we are continuing to enroll patients in the meantime. Therefore, the actual number of patients enrolled will be significantly higher than the 2,800 currently in place for the interim analysis. It takes time to complete those deliveries before we can review the data. Some payers and systems that are early adopters believe that the data collected so far provides valuable insights, which allows them to move forward before the final results of the PRIME study. Others prefer to wait until they see the card slip before deciding on coverage. It varies based on their interests and, for some systems, their experiences with premature complications. If they are dealing with a high rate of complications in the populations they cover, they may be more inclined to proceed sooner. Across different payers, there are substantial variations in their approaches.

Understood. That's very helpful. Thank you.

Seeing no further questions in the queue, I would like to turn the call back over to Mr. Peter DeNardo for any closing remarks.

Thank you, MJ. This concludes the call. We look forward to providing an update on our business when we report first quarter 2023 financial results. Thank you, and good afternoon, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.