Sera Prognostics, Inc. (NASDAQ:SERA) Q3 2023 Earnings Call Transcript

Sera Prognostics, Inc. (NASDAQ:SERA) Q3 2023 Earnings Call Transcript November 12, 2023

Operator: Good afternoon, and welcome to the Sera Prognostics Conference Call to review Third Quarter Fiscal Year 2023 results. [Operator Instructions] 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.

Peter DeNardo: Thank you, operator. Good afternoon, everyone. Welcome to Sera Prognostics third quarter fiscal year 2023 earnings conference call. At the close of the market today, Sera Prognostics released its financial results for the quarter ended September 30, 2023. Presenting for the company today will be Zhenya Lindgardt, President and CEO; and Austin Aerts, 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’ve 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 live via webcast at seraprognostics.com, and a recording will be archived in the Investors section of our website.

A scientist peering into a microscope, exploring innovative diagnostics techniques.

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 Zhenya, Sera Prognostics President and CEO. Zhenya?

Zhenya Lindgardt: Thank you so much, Peter, and good afternoon, everyone. Since our last quarterly call, we’ve continued to evaluate the best means to pursue near-term revenue and position the company for long-term success, all the while being vigilant over controlling our costs and preserving solid balance sheet, which is free of debt, and we believe comprise of sufficient cash to generate shareholder value in the coming years. We expect the balance sheet strength and managing operating expenses while focusing on the best means to accelerate revenue will take us to a leading position in the pregnancy and women’s health market in the future. As we continue to develop evidence to support adoption of the PreTRM test, we’re also focused on developing new products to address many unmet needs in the pregnancy market.

One example is a clinical test to provide a risk assessment tool for multiple pregnancy complications, assessing both high-risk rule-in and low-risk rule-out results in a single test. Another is our work on a product to provide a more accurate estimate of when a baby will arrive to help a mother in planning maternity leave, travel and other important milestones. These are all critical pathways towards additional revenue for Sera. Key to establishing further adoption of our technology is publication of study results with supporting compelling data that showcases the benefits of our technology. With that in mind, let me start with a detailed update on our AVERT PRETERM Trial. Detailed results of AVERT, which was conducted at ChristianaCare in Wilmington, Delaware from June 2018 to September 2020, have been submitted for publication in a peer-reviewed journal.

This study was designed to determine neonatal outcomes after risk assessment using our PreTRM test and using guided intervention after targeting those with elevated risk for preventive treatment. Let me summarize the results of the study as provided in the preprint manuscript. A total of 1,463 women were screened and tested before research was ceased due to the COVID-19 pandemic, and 3 women were subsequently deemed ineligible after screening. Of these, roughly 35% or 507 patients were deemed high risk with roughly 56% or 286 of these accepting interventions. Pregnancies identified by the test to be at elevated risk for preterm birth were offered 81 milligrams of aspirin daily, 200 milligrams of vaginal progesterone daily and care management.

Our goal was to compare outcomes for women who screened either low risk or high risk and accepting treatment with those in a historical study arm of 10,000 pregnancies. Our co-primary outcomes were neonatal hospital stay and ordinal neonatal morbidity index score. The primary analysis found that neonates in the prospective arm were discharged from the hospital earlier and had lower neonatal morbidity index scores. PreTRM test impact showed driving 2.5-week improvement in gestational age of infants, most at risk for early delivery. 21% reduction in neonatal hospital length of stay, 18% reduction in severe neonatal morbidity and mortality, and an impressive 28-day reduction in neonatal intensive care unit length of stay for infants born before 32 weeks.

We are really pleased to note that AVERT validated our proteomic blood test for preterm birth risk, which improved neonatal outcomes compared to control in a racially diverse cohort when the test was coupled with treatment to those at risk. With these results, we believe our test and treatment strategy shows significant promise for mitigating and hopefully, in some cases, eliminating the negative impact of premature birth among those at risk. Moving on to the update on our PRIME study. Having observed the results from the AVERT study, we now have an updated model to project anticipated patient and physician compliance read and the expected impact of our test-and-treat strategy. Armed with those insights, we believe the PRIME study will be stronger if we add up to 1,000 more patients to have a sufficient number of high-risk treated patients.

At current rates, we expect enrolling these additional patients to only add a few months to the study, so we do not believe this change will impact our overall plan to have final PRIME results in 2025. We also decided to shift the difficult power from the interim look to the final readout to favor success in the final study readout and to give us an opportunity to enroll additional individuals without delaying the interim look. As a result, there are three possible outcomes in the interim look that we expect to be completed in December. One, the Data Safety Monitoring Board, DSMB, concludes that the study may proceed to full enrollment and the final readout. Second, the DSMB instructed the study should stop for safety reasons, although highly unlikely given that the interventions in the study are well tolerated in common use for other indications and are viewed as very low risk by the obstetrical community.

Three, the benefit is statistically demonstrated at the interim look, also highly and likely due to the shift of power from the interim to final. We would be very pleased with the scenario number one, which would result in full enrollment, deliverable babies and their outcomes available and recorded, which we anticipate will all be known, analyzed and reported in 2025. We expect the PRIME interim look to be completed as expected and communicated before by the end of this year. As a reminder, the PRIME interim look and the timing of this event requires delivery hospital discharge of mothers and babies and final cleanup of the data prior to the analysis of study results, all of which are progressing as planned. On to provide a commercial progress update.

We’re excited to be adding new large institutional customers to our roster this quarter and have rolled out care coordination offering for women identified as high-risk alongside with that. We expect new institutional customers to help us evaluate and identify what works best in coordinating care for expected mothers that are facing the risk of preterm birth. We believe that our service offering to such patients can improve test adoption by their physicians by providing better overall care. Given the size of these institutional customers, we expect to scale volume of testing within these institutions gradually over time. Sera provided care coordination is built for separately, though we don’t expect the service to become a major source of revenue for Sera in the short to medium term, but rather serve as a catalyst for better patient care and adoption.

We’re looking forward to providing two important for commercial traction updates to you in our next Q1 2024 analyst briefing: first, on our new product development progress as we’ve moved to 2 new products in the next stages of their development; and second, on the improvements we are making to logistics of blood collection to enhance our customer experience. With that, I’ll now turn over the call to Austin for a review of our third quarter financial results. Austin?

Austin Aerts: Thanks, Zhenya, and good afternoon, everyone. Let me review our financial results for the quarter, and then I’ll provide a bit of detail on our steps to reduce cash burn and extend our runway following our moves to better align our commercial approach to the market we serve. Revenue for the third quarter of 2023 was $42,000 compared to $87,000 for the third quarter of 2022. Gross revenues were $87,000 for the quarter but were offset by adjustments on old accounts as a result of our regular review of our revenue estimates. As a reminder, on our last call, we noted our expectation that 2023 revenues will be less than $400,000. Total operating expenses for the third quarter of $8.2 million were down significantly from the $11.3 million for the same period a year ago as we continue to streamline our operations.

Research and development expenses were $3.5 million compared to $4.2 million for the third quarter of 2022 due primarily to improved efficiencies in our lab operations and lower clinical study costs. Selling, general and administrative expenses for the third quarter of 2023 were $4.6 million, down significantly from $7.0 million for the same period a year ago, due primarily to steps we’ve taken over the past year to streamline commercial operations to better focus our commercial strategy while also streamlining administrative costs to match our current level of operations. Net loss for the second quarter of 2023 was $7.2 million, down from $10.7 million for the third quarter of 2022. As of September 30, 2023, the company had cash, cash equivalents and available-for-sale securities of approximately $85 million.

In addition to the aforementioned year-over-year operating cost reductions, we’ve taken additional steps in the early part of the fourth quarter to further improve our cost structure across the organization, while carefully aligning our commercial focus and development activities on what we believe are the best near- and long-term revenue opportunities. Our 2023 gross cash expenses are expected to be approximately $34 million for the year compared to approximately $39 million for the year in 2022, an approximate $5 million or 14% decrease. Our gross cash expenses for 2024 are expected to be less than $29 million as we fully recognize the impact of the streamlining efforts we’ve made in 2023. This represents an additional annual decrease of approximately $5 million or 15%.

We believe our plan for managing operating expenses in the future should enable us to operate into 2027 given our very strong cash position. Operator, we can now please open the call for questions.

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Q&A Session

Operator: [Operator Instructions] The first question is from Patrick Donnelly at Citi.

Unidentified Analyst: Hi. This is Brandon on for Patrick. Congrats on the quarter. And I wanted to start off by asking – so last quarter, you guys talked a lot about establishing partnerships and possibly licensing some of the in-house data. I was wondering if you guys had any updates there? And who may possibly sound like your ideal either partnerships or people you want to place in some of the data to?

Zhenya Lindgardt: Thank you so much for the question. I will start off and then see if Austin would like to jump in and add anything. We are still incredibly excited about the opportunity to partner with other companies both on our products and on our data. We actually have a lot of live discussions underway. I am not able to share specifics. However, for our product collaborations, we are looking for companies that have relevant capabilities in commercializing products in our space, overlap in lab presence, commercial footprint etcetera. On data, we continue developing the definition of our product, the target audience and the commercial model. So, the type of partners that we will be seeking will be driven by where we land on what is the optimal place for us to contribute with this unique asset. But, we are very excited to share more in the coming analyst calls about how those products are shaping up and alongside with them potential partnerships.

Unidentified Analyst: Great. Thank you and then one follow-up. For the timeline for the AVERT publication, I know you submitted those documents this year. Any timeline of when that may be published, whether it would be next year or kind of later into ‘24, ‘25?

Zhenya Lindgardt: Great question, the publication is currently under review. I cannot estimate the timeline. I am hoping not 2025, but there are no guarantees, but we know it’s under review at the publication where we submitted. So, the process is moving.

Unidentified Analyst: Got it. Thank you guys again.

Zhenya Lindgardt: Thank you.

Operator: The next question is from Andrew Brackmann at William Blair.

Maggie Boeye: Hey everyone. This is Maggie Boeye on for Andrew today. Thanks for taking our questions. I wanted to start maybe just on the KOL feedback you have gotten from AVERT thus far, and maybe talk about how that’s kind of shaping your conversations with institutional customers as you continue to add them?

Zhenya Lindgardt: Great question, the early conversations have been really powerful. The data that we were excited to produce brings a couple of really important takeaways that our key opinion leaders noted. And of course, the data is achieving the goal, which of course is creating more opportunities for us to add additional customers. So, what are those, number one is everybody is delighted by the diversity of the patient population and seeing the impact of test-and-treat strategy with PreTRM with varying populations because AVERT study had a significant portion of the high-risk treated patients that was of diverse backgrounds, unlike the previous studies we have shared before. Number two is the incredible impact on the babies that are born the earliest.

As you probably know, for some of the babies that are born before 32 weeks, it could be the matter of life and death as well as severe morbidities becoming some of the health impacts that can go away over time. So, the improvement in gestational age has been noted as a really significant powerful, if not breakthrough improvement in what exists today for some of these earliest births because for earliest to be born babies, 2.5 weeks, matters incredibly versus for babies who are, let’s say, after 37 weeks of gestation, extending their gestational age by 2.5 weeks is powerful. However, it doesn’t carry significant – as significant outcomes as it does for babies under 32 weeks of age. So, those two have been highlighted as the most striking insights from the data, and we are really excited to share more as we engage with more and more customers.

I will also add that due to the nature of the study with significant historical arm, we are looking to explore if we could pull out the economics-impact of the clinical endpoint results that we have shown on the customers. So, all of these will be very valuable in discussions with as important with providers as they will be with payers.

Maggie Boeye: Great. Thank you. That was super helpful. And then maybe just a follow-up there, just on your service care offerings. How are you viewing those as expanding the moat down the long-term?

Zhenya Lindgardt: It’s a great question. As you know, care management offerings exist by many providers. Majority of the time, they are generic. They are not specifically for Ob/Gyn nor are they standardized with protocols that can be replicated from one customer to another customer. So, when we engage with new customers, especially the large institutional players where we began our focus the last six months, we found that they get intrigued and excited about achieving full scale of outcomes we have demonstrated in our clinical studies, and they are interested in seeing how the protocols we have tested in randomized clinical trials will impact the patient population and their institution, even if they have their own general care management offering.

So, we found it as a great catalyst having that offering to engage to show the impact of our product. Over time, however, I would say that our strategy will be to drive standardization of care management offerings in the institutions themselves, so Sera doesn’t need to do that and present that standardization and ability to achieve outcomes for payer coverage to really drive the conversations with the payers that these results are replicable across institutions, time and again, for broader adoption.

Maggie Boeye: Great. Thank you so much.

Zhenya Lindgardt: Thank you, Maggie.

Operator: [Operator Instructions] The next question is from Tom Stevens at TD Cowen.

Tom Stevens: Hi all. Congrats on the extension of cash burn. I had a couple of follow-up questions on PRIME and kind of some of your comments around the interim readout. So, I guess my first one is, have you seen any data from PRIME? And I guess, could you give a bit more color as to why you are waiting for the full readout to give results there? Yes, I guess let’s start with that, and then we can follow-up afterwards.

Zhenya Lindgardt: Yes. It sounds great. I was anticipating somebody was going to ask a follow-up question. So, thank you for teeing that up. It fundamentally has to do with a number of high-risk treated patients that we need in the study to show the outcome and the benefit of the test-and-treat strategy. When we initially set our PRIME patient population, both for the interim and for the final, we had an estimate of how many high-risk patients we will see in this national population from the initial single study site data that we have seen from, for example, over at ChristianaCare. Second is we estimated what will be the overall compliance by the physicians with the treatment we are offering. And third is we had a model for how to estimate the number of patients needed for power in order to show the outcomes we are seeking.

So, with all of these three levers in the last three months to six months, we saw significant new data that allowed us to update our model and see how many patients we need in order to achieve full outcome. Again, we are not increasing the study by a lot, only by about 15% of patients, and we may not even need that many. And it doesn’t extend the study significantly. And as we have been reporting on a quarterly basis, we are really far along in recruiting the patient population even along our original estimates. So, when we updated our model for what is needed, in terms of the number of high-risk patients, what we saw is with the single-site studies, the high-risk population rate with homogeneous population in a single site was different than from the national, which is the study that PRIME is.