Sera Prognostics, Inc. (NASDAQ:SERA) Q4 2022 Earnings Call Transcript

Sera Prognostics, Inc. (NASDAQ:SERA) Q4 2022 Earnings Call Transcript March 22, 2023

Operator: 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.

Peter DeNardo: 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?

Greg Critchfield: 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 relationship, 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 — we share 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 a 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 help 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. Finding 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 help as measured by a composite neonatal morbidity and mortality index. We believe that these — we believe 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 the 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 heavy a diverse demographic that is a 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 a 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 is that of the historically controlled AVERT PRETERM TRIAL. Furthermore, though AVERT included approximately 10,000 historical controls, PRIME is a much better power 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 — that we must await 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, and 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 submit the data shortly or 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 into Sera’s broader portfolio of pregnancy tests that provide valuable information to the 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.

Jay Moyes: 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 year ago. Research and development expenses for the fourth quarter or $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 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.

Greg?

Greg Critchfield: 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. Operator?

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Q&A Session

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

Patrick Donnelly: Hey, guys. Thank you for taking the questions. Greg, maybe one of the AVERT interim readout there. Obviously, the data looks pretty good. Can you just talk about the potential for that to increase some payer conversations? Is that enough where folks — you can kind of bring that I know a lot of the reimbursement. Kind of was thinking, come after the full trial readout. But does this start some of those conversations and maybe pull forward potential payer decisions? Maybe just help frame up how we should think about that?

Greg Critchfield: 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.

Patrick Donnelly: 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?

Greg Critchfield: Yes. I’ll make some general comments. And Jay, you can add anything to this. Our focus is really on early adopter systems, and we’re configuring our salesforce to make sure that we can go after them effectively. So that’s one of the things that we’re really looking at as we go into this year. And clearly, both discussions are beneficial because you — it is not like getting a single doctor office to order a test. You’re getting a system to adopt doing the testing. And the potential is much, much larger, and we believe it’s a more efficient way of addressing the market. So that’s what we’re doing. As we identify regions — and sometimes there are people that self-nominate because they have high interest in the test, they contact us, and it may be in an area where we don’t yet have people.

We evaluate those in real time and we decide where it makes sense to deploy our people. And of course, if a customer’s interested in doing something, we will always talk to them about ways that they could bring the testing on. So we react to the data and that allows us to efficiently grow the market as demand itself grows. Jay, any comments?

Jay Moyes: Yes. I think, Patrick, there won’t be an appreciable increase in 2023.

Patrick Donnelly: Okay. And maybe just last one, just on the revs, Jay, I think, you said kind of below 1 million for ’23, and we were a little bit above that. I think The Street was a little bit above. Is that just be payers coming on a little slower? Is it volumes? I’m just trying to, I guess, figure out the delta here. We were thinking a little more kind of back half ramp, maybe it’s some conservatism. Maybe just talk about, I guess the moving pieces, and then also just the potential upside. Is it — if you get a couple payers on board, does that number move meaningfully? Would just love some more color on that.