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Presentation

Sera Prognostics, Inc. beats earnings expectations. Reported EPS is $-0.23, expectations were $-0.25. SERA isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon and welcome to the Sera Prognostics Conference Call to Review Fourth Quarter Fiscal Year 2023 Results. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session toward 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, Gary. Good afternoon, everyone. Welcome to Sera Prognostics’ fourth quarter fiscal year 2023 earnings conference call. At the close of the market today, Sera Prognostics released its financial results for the quarter ended December 31, 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.

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 and 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.

I would also like to note that although we will not refer to it during today’s earnings conference call, the company has just posted an updated slide presentation to the Investor Relations’ page of its website. 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. We’re pleased with our progress last year and during the fourth quarter in laying out the foundation for future growth through key advancements in our PRIME and AVERT studies and product pipeline, all while controlling operating costs to ensure such growth is well-funded. With the key drivers of revenue in our business being publications validating our technology, signing on insurance payers, and broadening consumer and physician awareness of our products, we believe 2024 will be an exciting year for Sera with a number of expected catalysts and developments to support commercial expansion and shareholder value. Just before year end, we were delighted to announce that the Data Safety Monitoring Board overseeing Sera’s pivotal PRIME study recommended stopping enrollment due to efficacy.

This was due to either of the co-primary endpoints having met the stopping criteria for statistical significance at the pre-planned interim analysis. Something like this usually doesn’t happen, so we’re highly encouraged that, following successful outcomes with our -REVENT PTB and AVERT studies, the interim PRIME readout may show similarly our test-and-treat approach enables better management and better health outcomes. It has been three months since we announced enrollment stoppage due to efficacy. Given the potentially breakthrough results we hope to report, we were urged to temper our desire to share more on PRIME and to take our time in publishing results in order to preserve the integrity of the publication. We saw the wisdom in this advice and while diligently working towards a strong publication, we’ve engaged with both the guideline-setting bodies and with our target journals, which confirmed their interest in receiving a manuscript submission.

In the next few months, we hope to have a powerful suite of accepted manuscripts, PREVENT-PTB, AVERT, and PRIME that demonstrate consistent clinically beneficial results. These results are anticipated to show that, using the PreTRM Test and acting on the information it provides can lead to reductions in severe neonatal morbidity and mortality, NICU length of stay, and the number of babies born prematurely. In the meantime, to catch up some of our newer investors and to give hopeful context for the PRIME study, detailed results of AVERT have been submitted for publication. This study was designed to determine neonatal outcomes after risk assessment using our PreTRM Test and guided intervention for those with elevated risk. As we’ve noted before, top-level primary analyses found that neonates in the prospective arm were discharged from the hospital earlier and had lower neonatal morbidity index scores.

The impact of our PreTRM Test showed a two and a half-week improvement in gestational age of infants most at risk for early delivery; 21% reduction in neonatal hospital stay; 18% reduction in severe neonatal morbidity and mortality; and a remarkable 28-day reduction in neonatal intensive care unit length of stay for infants born before 32 weeks. These results are quite compelling and encouraging and they have led to continuing conversations with prospective health insurance providers and the medical guideline community on the high-level findings. We are excited and eagerly awaiting the AVERT publication to become available to further validate our proteomic blood test for preterm birth risk. Our PreTRM commercial strategy remains focused on generating publications showing evidence of the value of our tests, increasing contracts with insurance payers, and creating greater overall awareness.

This is the traditional commercialization approach of prognostic and diagnostic players, and it takes time. We’re targeting PRIME publication in the second half of the year and only with that publication in hand as a prerequisite can we expect payers to initiate policy coverage reviews. These reviews are expected to be a multi-month or longer processes. We view 2024 as a year to put foundational prerequisites in place for a potential major revenue inflection in 2025. Diving deeper into our publication strategy. While the priority is getting the interim PRIME data published, we’re working with our principal investigators to prepare another publication, focused on our intervention portfolio tested in PRIME study, as well as publishing the cost effectiveness of the results.

Once the study completes and all of the nearly 5,000 recruited participants have delivered their babies, we will prepare the final publication, final economic results, as well as potentially one or two intervention specific publications. What is important to understand in our commercial strategy is the holistic approach to leave no stakeholder behind between payers, physicians, and consumers. The awareness of the value of this test brings to society and the healthcare ecosystem. Even in advance of the PRIME publication, we’re communicating the full value of the PreTRM Test and treat strategy to payers. The economic cost of preterm birth is staggering for all, public and private payers, and the economy. Adopting PreTRM delivers multiple sources of value for the payers.

First, our economic model showed that utilizing the test-and-treat strategy not only saves payers over $800 per member after the projected test cost, as estimated by Elevance, modeling it across 40,000 of its members. Second, the payer should realize a lower cost of care as the benefits of healthier children are born. Third, payers have an opportunity to differentiate their competitive position through improving quality of care and health equity from maternal and neonatal health in their provider networks by utilizing the test. Payers have an important role to play in driving adoption to get full value from PreTRM by providing appropriate resources and benefits to their physician networks to leverage the test-and-treat model. We will work closely with payers to help drive outcomes we can expect from our test-and-treat strategy.

We’re also engaging with employers, particularly self-insured employers, who are recognizing the tremendous value of including PreTRM Test in their benefit portfolio, not only because of cost savings and health outcomes from others and babies, but also because additional value in the ability to attract and retain parents as healthier babies increase presentism and the effectiveness of their parent workforce. Our studies have shown that care coordination is an important following use of the PreTRM Test to achieve the best possible outcomes for moms and babies. We have tested our care coordination protocol in two large studies now and have OB/GYN nurses available to support implementation of the test-and-treat strategy with our institutional customers.

We expect to work with the medical community and payers to find the best path to delivering care coordination to as many patients as possible. This is particularly important when one considers that, for example, hospital obstetric care is only available in half of the rural counties in the United States. It is a problem that needs urgent attention at the national level, especially when it comes to meeting the needs of underserved patients in healthcare deserts. We all have to do more to provide the solution. To broaden the availability of our blood test and to also address underserved communities, we have made solid strides on PreTRM sample collection and assay enhancements, which will provide simpler, cheaper collection methods and more efficient lab processing.

We’ve been working on this for a while and validation is nearly complete. With that, our plan is to launch a self-collection device for collecting dried capillary blood in the coming months across certain initial geographies. We anticipate the consumer convenience of self-collection could be a game-changer for PreTRM and other products we can bring to market for improving the maternal and neonatal experience. To use our resources efficiently, we will time broader physician and consumer education campaigns region by region to track with publication and payer coverage wins. As we gain payer coverage, we anticipate expanding our commercial activity and team. We expect to kick off broad-based traditional media and social media advertising targeted at physicians and expectant mothers in the second half of 2024.

Although our PreTRM Test is the first product we’ve brought to market, Sera is not just about PreTRM. PreTRM is the first product from our proprietary platform and the dataset that we’ve amassed from over 20,000 pregnancies and worked hard to develop proteomic capabilities that allow us to discover proteins to spell out the risks of particular pregnancy complications. This proteomics-enabled platform should allow us to take other products to market in the years ahead and offer us the opportunity to partner with or license our data to others in potentially high-value applications in maternal and neonatal health. Our platform, which enables unique pregnancy insights, has been instrumental in our activities to continue to progress our product pipeline beyond our commercially available PreTRM Test, with three products currently in later stages of development to build out our portfolio and diversify and support our revenue growth.

These include a consumer-directed time-to-birth test, predictive analytics products for consumers and for physicians, and the pregnancy risk prediction panel targeted at physicians. Our time-to-birth test addresses one of the highest interest questions in pregnancy, when is the baby due? The due date prediction methodology currently used has limited accuracy and fewer than 4% of babies are born on their due date. Our time-to-birth blood test is designed to provide mothers with a more accurate delivery date for planning time off work, family arrival, moving to a bigger place, or securing childcare support. This test is being developed as a self-order, self-pay, and self-collect kit. We are working to enable expectant mothers to orders online with a capillary blood cell collection kits sent to them by mail to be shipped back to the lab and priced as a consumer paid test.

To make it an economically accretive addition to Sera’s portfolio, this test will be launched on what is called an enzyme-linked immunosorbent assay, or ELISA platform. To ensure continued focus of our organization on our core strategic goals, we have partnered with a lab which will provide blood collection kits and analyze the blood specimen to support the launch of this product. Launching this consumer-directed product should allow us to build a relationship with women earlier in their pregnancy and should be accretive to building adoption of Sera’s clinical test PreTRM. Today’s expectant mothers are digital natives and much of the information they get about pregnancies online. The majority of digital resources, such as baby apps, mainly provide generic information about the stage of a pregnancy.

Your baby is the size of a sesame seed now, a pea, an almond. We believe mothers in the market are lacking a clinical research-based personalized pregnancy journey guide laying out the propensity for a wide range of meaningful pregnancy characteristics, from chances of gaining an above average amount of weight to chances of an early C-section. Sera is advantaged in its ability to leverage data set and portfolio of clinical research to provide information on the relative likelihood of specific outcomes or features of a pregnancy based on its proprietary predictive analytic algorithms. Over time, this could be even more valuable if our pregnancy journey companion can be enhanced by further tailoring it to specific pregnancy with the result of a biomarker test.

OB/GYNs and SMSMs are under strain in addressing a public health crisis of increasing maternal and neonatal mortality in the United States. CMS’s Innovation Center launched a nationwide initiative transforming maternal healthcare in 2021 to improve maternal healthcare experience and outcomes. This initiative aims to address shortage in staff and equity of care across the country by providing stronger access to care, quality initiatives, and comprehensive risk appropriate screening and care solutions. This shows how critical physician tools for risk stratification and shared patient physician decision-making will be in the next decade. Sera is uniquely positioned to contribute through our predictive analytics toolkits and testing solutions. Our pregnancy risk prediction blood test, which is further out on the horizon, is expected to further inform doctors and patients in care management decisions to promote better outcomes and pregnancies when about 30% of pregnancies in the United States include a major complication.

In conclusion, the combination of the predictive analytics product and our blood test is expected to give unparalleled results not achievable with mRNA or any other technologies available, and should put us in an enviable competitive position when launched. For this year, our strategic focus is aligned on two key areas. First, promoting to physicians, payers the growing evidence of the clinical utility of PreTRM to build adoption. This is essential towards showcasing to the medical payer and guideline-setting communities through peer-reviewed publications that PreTRM has been validated and can truly make a difference. While we cannot control nor guarantee the timing of the publication, we are excited by the potential of publishing and, hopefully, in the near-term, on our PRIME and AVERT studies to back up the prior findings of the PreTRM-PTB study.

Second, building awareness with expectant mothers and developing patient-facing products that can put us in direct contact with women and expand and diversify our revenue opportunities. We plan to develop a digital storefront where expectant mothers can find key information to manage their pregnancies and where we can offer our products with easier ordering. This should enable greater awareness of Sera beyond the medical community and allow us to provide more than one test to moms through convenient self-collection and generate more revenue through self-pay with a higher return on investment. Through this endeavor, we will seek to elevate and increase demand generation at the consumer level, and we will expect to share more with you as we pursue this advantageous strategic approach to the market we serve.

We expect a range of scenarios over the coming year for how fast the achievement of our critical milestones will unfold, such as publications, payer coverage, and new institutional customers. Therefore, we’re allowing for commensurate flexibility in our budget and cash expenditures to be able to invest behind our wins. With that, I will now turn the call over to Austin for a review of our fourth quarter financial results and more detail on our 2024 outlook. 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 color on our OpEx-savings actions, cash runway and business outlook on revenue, as well as activities to foster revenue generation. Revenue for the fourth quarter of 2023 was $41,000 compared to $65,000 for the fourth quarter of 2022. As we previously noted, we had expected that 2023 total revenues would be less than $400,000 and total revenue for the year came in at $306,000. Total operating expenses for the fourth quarter of $8.9 million, were down significantly from $10.5 million for the same period a year ago due to steps we took to streamline commercial operations, better focus our commercial strategy, and reduce overall operating expenses.

Research and development expenses were $3.9 million and up from $3.5 million for the fourth quarter of 2022, due primarily to higher clinical study costs. Selling, general and administrative expenses for the fourth quarter were $5 million and down significantly from $6.9 million for the same period a year ago, due to the steps we’ve taken to reduce expenses, while focusing on the best pathways to increase revenue in the quarters ahead. Net loss for the fourth quarter of 2023 was $7.9 million, which was down from $9.7 million for the fourth quarter of 2022. As of December 31, 2023, the company had cash, cash equivalents, and available-for-sale securities of approximately $79.9 million. The improvements in our company-wide cost structure and our careful management of cash burn have paid off.

The result is that our total 2023 gross cash expenses came in at $33.7 million, consistent with our shared expectation of bringing this down to about $34 million for the year, and down significantly when compared to approximately $39 million for 2022. Our total 2024 gross cash expenses are expected to be lower still as we realize the full year impact of our cost management activities. Our current run rate has us on track for annual gross cash burn of less than $25 million. We are forecasting gross cash expenses of about $26 million this year, with a potential additional investment of up to $5 million beyond that amount to invest behind the achievement of prerequisite milestones to respond to commercial opportunities for PreTRM and to advance our product pipeline.

We will continue to exercise diligent stewardship of our cash and invest opportunistically only in activities we believe could create additional value and have the greatest near and long-term revenue-generating potential. We will evaluate each activity with the goal of maintaining operating cash well into 2027. Building revenue takes time, and we’ve consistently noted that revenue acceleration requires three key drivers; publications validating our PreTRM Test, insurance coverage, and consumer and physician awareness and adoption. We are on our way there in solidifying those drivers with our PreTRM business. At the same time, we hope to expand our product portfolio by the end of this year to deepen our relationship with our customers and diversify our revenue potential.

As Zhenya noted, our 2024 strategy is focused on executing each of these objectives with achievement of key milestones to watch for in the coming year. We see 2024 as a year of executional buildup to support future revenue growth in 2025 and beyond. Exceeding 2023’s revenues by orders of magnitude, as is the current consensus expectation, would require achieving all of our key prerequisites in the first half of the year, which we think is highly uncertain. In the absence of that, we do not expect revenue to be orders of magnitude higher than our total revenue for 2023. We will update you on a quarterly basis of milestone achievements that we believe will position us well for a pivotal 2025. Operator, we can now open the call for questions.

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Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Andrew Brackmann with William Blair. Please go ahead.

Andrew Brackmann: Hi, good afternoon. Thanks for taking the questions. Maybe to start on the prime publication. I think it’s pretty clear on why you’re now waiting to share that data until such a publication comes about. But can you maybe just sort of talk about your ability to work with and show that data to the guideline groups? I think you mentioned that in your prepared remarks. But I’m just trying to better understand your ability to sort of make progress on those fronts even before we see that publication.

Zhenya Lindgardt: Thank you so much for the question Andrew. You’re absolutely right, we’ve been actually in lockstep updating the guideline-setting bodies throughout PRIME right after kickoff. We do so because our staff is closely connected to the organizations and understand deeply how the guidelines are set. And of course, step number one in that is sharing our progress, keeping them updated on to the studies that are being conducted and the results. We have indeed had conversations with them at the upcoming meetings at SMSM, and of course, we’ll have conversations at ACOG. Specifically, we’re delighted that there’s a lot of interest in the results, as well as recommendations that the guideline-setting bodies are giving us on how to further our strategy to ensure the broader adoption and, therefore, evolution of the guidelines appropriately.

So, it’s using those recommendations as we’re shaping our publication plan. We’re engaging with the guidelines-setting bodies specifically on that plan, and are looking forward to continued dialogue with them. Rest assured, these conversations are at least quarterly and we look forward to seeing the fruits of that engagement as soon as the data becomes available.

Andrew Brackmann: Great. Thanks for that. And then if I could, on the payer side, I appreciate you sort of being upfront on sort of the reality, that may take some time. But you do have a lot of momentum on the publication front moving throughout 2024. Can you maybe just expand on what else you think you might need in order to successfully engage with the payers moving forward? Anything that we should be keeping an eye on aside from the publications? Thanks.

Zhenya Lindgardt: Definitely. Thank you. Well, at least two things, and we’re working on those right now and, of course, engaging with both national and regional payers. One is, as I shared, there is a huge economic benefit of the test-and-treat strategy. So, for us to lay out for the payers what could it look like for their member population and communicate that effectively is something we’re actively working on in addition to the publication. So, of course, leveraging the model that already exists, we’re plugging in different assumptions based on the data from AVERT and PRIME. So, that will be ready alongside as the value proposition to the payer community. That’s the first thing. Second thing is, I think it’s essential for us to collaborate with payers, as I mentioned in my remarks, to drive adoption in their provider networks.

So, we’re actively thinking through what could be models and initiatives to drive density of adoption, in particular, the geographic areas, maybe particular states with dominant payers in that area, and what role they can play together with us in driving that adoption and awareness. That initiative and set of initiatives, we hope to drive together with our payer partners as soon as data is available. And of course, we will bring all three to the conversations with the payers; data, economic analysis, and where could we start in terms of showing in particular geographic areas what broad-based adoption and utilization of PreTRM test-and-treat strategy could achieve for their patient population. Thank you for the question.

Andrew Brackmann: I’ll leave it there. Thank you.

Operator: [Operator Instructions] The next question is from Dan Brennan with TD Cowen. Please go ahead.

Dan Brennan: Great. Thanks for taking the questions. Maybe just the first one, just going back to the PRIME study, can you just remind us, like in order to have — you obviously stopped on the interim look, when we eventually see the publication, what’s like the magnitude of the benefit on the primary endpoints that we should expect to come out like? And is there a range of outcomes? I’m just wondering like if it’s at the higher end or the lower end of the range. Like how much would that really matter towards ACOG or doctors? Just trying to think through what the type of outcomes that we could see when the publication eventually comes out?

Zhenya Lindgardt: Thank you so much for the question. Given the standard-of-care for expectant mothers, who unfortunately get missed because of the risk factors in the guidelines, only capture a tiny portion of those at risk for preterm birth, we believe that any improvement will make a big difference for those women and their children. So, we don’t have any particular expectation that a low range or high end of the range on any of those outcomes are a prerequisite or threshold for guideline-setting bodies to, let’s say, comment on it or put it into guidelines. So, as you think about the four endpoints we put into our PRIME study, two primary and two secondary, all of them talk about both the health of the baby, the neonatal morbidity and mortality index, and the hospital stay, whether it is general hospital stay or NICU stay.

We believe that even modest improvement on any of those make a big difference in the health outcomes. So, look forward to sharing the specifics of that once the data becomes public. But at this point, I won’t be able to comment whether it’s at the low range or high end of the range. I would just point out that it’s very consistent with the outcomes you’ve seen from the data that’s already available out there.

Dan Brennan: Got it. And then in terms of the cash well into 2027, obviously, if we just keep the same burn and run it out, that would get like, call it, breakeven in 2027. Just kind of what are — can you share any of the other assumptions that you’re assuming when you kind of comment about cash well into 2027 kind of beyond this year?

Austin Aerts: Sure. Hi Dan, this is Austin. So, at our current levels, which we just said in our prepared remarks, we can easily get into 2027 and beyond. We did talk about expanding that cash usage as we invest into our opportunities and behind our opportunities. That will obviously potentially speed up the burn, but we are remaining extremely diligent and prudent in the amount, the timing, and how we invest in those opportunities. So, really, right now, like we said, the goal is to get into 2027 and potentially beyond.

Dan Brennan: Okay. And then maybe a final one, just on the guidelines, I know Andrew asked it, but just maybe a little more color there. Just so you’re able to share the data now with them from PRIME before it’s published, you have to wait until it’s published. And then what’s the right way to think about the pace at which the guide, the ACOG, the other guide — kind of guidelines would look to possibly incorporate your test? Is it one publication, is it two publications? Like how long does that process usually take? Could it be a year or two years? And then when we think about the timing, how critical are guidelines towards payers? Thank you.

Zhenya Lindgardt: Great. Three questions in one. I will tackle them one at a time. One specific one, we do think even with the first publication, the interim PRIME results, we can expect a reaction. I do not expect changing guidelines on the basis of one study, and that’s just my expectation. That said, if the results are breakthrough and the guideline bodies see the potential of it, absolutely. History does show that it takes years and multiple results to do that. So, you’re wise to ask, is it multiple publications, multiple results. We will be adding interim study as our third in a row and the final one will be fourth. Not sure if that is just right in terms of the number of studies. What I would suggest is probably the earliest is going to come is a commentary.

Guidelines-setting bodies tend to comment on 20, 30 studies per year. We look forward to sharing the results with them as soon as they’re available so that they are very well-informed to issue such commentary. The third question you asked is, is it necessary? That’s a really, really good one. Is it necessary to be in the guidelines for payer coverage? No, I don’t believe so. Their coverage, to me, is a really critical prerequisite to drive physician adoption, and physician adoption is going to be a great vote of confidence for the guideline-setting bodies to change and evolve the guidelines. So, it’s actually going to go hand-in-hand. For really mass adoption across physicians, yes, guidelines are necessary. We do think that a lot of physicians will start adopting the test as soon as we remove the barriers that exist right now; number one is published data, number two is reimbursement.

So, hopefully, that tackles our guideline strategy. We are really focused on making sure that we do our best, yet we’re not counting on them as a key blocker to driving revenue and adoption of the test.

Dan Brennan: Got it. Actually, one final one on modeling. Should we expect any milestone payments this year? And could those persist into 2025 or are they just kind of one and done?

Austin Aerts: Yes, the minimum payments, we did have a pretty large receivable on the books at the end of 2023, and that cash was received at the beginning of 2024.

Dan Brennan: Got it. So, that’s it then?

Austin Aerts: Yes, and that’s the other — conclusion of the minimum payments, yes.

Dan Brennan: Great. Okay. Thank you.

Operator: [Operator Instructions] Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Zhenya Lindgardt for any closing remarks.

Zhenya Lindgardt: Thank you so much for everyone for attending our call today. In moving through the rest of the year, we will invest in our strategy to drive revenue growth and ROI, while addressing the public health challenge of premature birth. You absolutely can expect to see us share more in the quarters ahead and we’re excited by what’s in store in 2024. Thank you so much for your support and joining us on this journey. I’ll now turn it back over to the operator to conclude the call. Operator?

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