Seer, Inc. (NASDAQ:SEER) Q3 2023 Earnings Call Transcript November 7, 2023
Operator: 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. [Operator Instructions]. Please be advised that today’s conference is being recorded. I would now hand over conference to our first speaker today, Carrie Mendivil, Investor Relations. Please go ahead.
Carrie Mendivil: 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 e-mail 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 were 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.
Omid Farokhzad: 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, enforcing 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 to 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 of cash, cash equivalents and investments on our balance sheet. Given our performance year-to-date, as well as these 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 earning calls, 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.
Probiologists and genomics’ customers we introduced the Seer Technology Access Center or STAC to enable access to a simple-to-conduct the first study and apply the biological insight provided by the Proteograph. This will accelerate publication and help researchers to secure funding for future studies and investment in bringing in workflow in house. In addition, building 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 we are supporting potential customers with proof-of-principle studies and examples of use cases with 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 proteomic 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 the OMIX customers. I remain convinced that one third-party data becomes increasingly accessible to our broader research community, our market development efforts will pay off as we will see an inflection point in adoption to 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 adopting 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 proteomic at scale. What 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, our line of sites took another half a dozen that have been or will be submitted to peer review this quarter, the vast majority to high-impact journals. These publications cover range of applications, including analyzing PQTLs, understanding the body’s response to space/flight, finding new biomarker signatures of backend 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’re using skeletal muscle samples to understand molecular signatures affected by aging and resistance training, finding 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 developed a robust predictive biological aging phenotype, which combined with DNA methylation and multi-omics generated 2 biomarkers. Both biomarkers demonstrated strong association with chronic disease and mortality, outperforming current biomarkers across their discovery and validation cohorts.
Additionally, these biomarkers provide 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 multiomic 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 data sets show that Proteograph helped to 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 at-scale studies using the Proteograph. This is an exceptional result that could have a significant impact on discovery efforts for early detection of various diseases. We believe this encouraging and pivotal data will serve as the foundation for the development of multiomics assay 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, NIA, 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 major alteration 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 on biostudy and scale. We expect that 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 inter-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 the publications demonstrating these results. As potential customers consume this groundbreaking data and capabilities, I’m confident that we will see these 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 via a number of initiatives. Back in June, we launched our second product, the Proteograph XT Assay Kit, which enables nearly any lab to take 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’re seeing good traction with XT and 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. In addition, 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 the creation of the highest quality, reliable solutions and enable the utilization of our products in FDA submissions.
These certifications underscore our dedication to ensuring quality and security and pave the way for 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 make it simple for new customers to add unbiased proteomics data to their studies. And 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 test, biomarker discovery, veterinary applications and aging research.
To date, we have shown use cases for skeletal muscle host-cell proteins, various model organism, secretome and conditioned media and low sample volume. We’re working on samples to study exomes, brain, dried blood spots, tears, horse and joint fluid. It is very 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 demonstrate what’s possible and pave 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.
David Horn : 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 spend. 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.
Omid Farokhzad: 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 so proud of our incredible team for their hard work and dedication throughout the year. I strongly believe that we will see an increase in adoption of our technology as will researchers see third-party validation of the capabilities of the Proteograph product suite. With that, we will now open it up to questions.
Operator: [Operator Instructions] Our first question today comes from Dan Brennan with TD Cowen.
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Q&A Session
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Dan Brennan : 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.
Omid Farokhzad: 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 maturity 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 customer have given us very favorable reviews in what they’re seeing so far.
David Horn: 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 kind of handful of half a dozen 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.
Dan Brennan : 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 that could be? And then just be, I know we’re not guiding for ’24, but consensus has you guys growing 60% in 2024, looks to be pretty steep given the environment. Any early way we should be thinking about a reasonable level of kind of growth in ’24 at this point?
Omid Farokhzad: 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 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 on 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.
David Horn: 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 you — as soon as you ship, you can recognize revenue.
