Sera Prognostics Q4 2023 Earnings Call Transcript

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March 20, 2024

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to the Sarah Prognostics Conference Call to review 4th 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 DiNardo of CAPCOM Partners for a few introductory comments.

Speaker 1

Thank you, Gary. Good afternoon, everyone. Welcome to Serra Prognostic's 4th quarter fiscal year 2023 earnings conference call. At the close of the market today, Serra Prognostic released its financial results for the quarter ended December 31, 2023. Presenting for the company today will be Zhenya Lingard, President and CEO and Austin Ayers, our CFO.

Speaker 1

During the call, we will review the financial results we released today, after which we will 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 atceraprognostics.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 reasons.

Speaker 1

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 ks, its quarterly reports on Form 10 Q and its current reports on Form 8 ks. 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, Serafagnostic's President and CEO.

Speaker 1

Genia?

Speaker 2

Thank you so much, Peter, and good afternoon, everyone. We're pleased with our progress last year and during the Q4 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 fares and broadening consumer and physician awareness of our products, we believe 2024 will be an exciting year for SARA 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 Sara'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 preplanned interim analysis.

Speaker 2

Something like this usually doesn't happen. So we're highly encouraged that following successful outcomes with our PREVENT 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 3 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 confirm their interest in receiving a manuscript submission.

Speaker 2

In the next few months, we hope to have a powerful suite of accepted manuscripts, Prevent BTD, AVERT and PRIME that demonstrate consistent clinically beneficial results. These results are anticipated to show that using the preterm 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 helpful 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 preterm 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.

Speaker 2

The impact of our preterm test showed a 2.5 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 to become available to further validate our proteomic blood test for preterm birth risk. Our preterm commercial strategy remains focused on generating publications showing evidence of the value of our test, 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.

Speaker 2

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 1 or 2 intervention specific publications.

Speaker 2

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 preterm test and treat strategy to payers. The economic cost of preterm birth is staggering for all public and private payers and the economy. Adopting preterm delivers multiple sources of value for the payers.

Speaker 2

First, our economic model showed that utilizing the $800 per member after the projected test cost as estimated by Elavance modeling it across 40,000 of its members. 2nd, the payer should realize a lower cost of care as the benefits of healthier children are born. 3rd, payers have an opportunity to differentiate their competitive position through improving quality of care and health equity for maternal and neonatal health in their provider networks by utilizing the test. Sayers have an important role to play in driving adoption to get full value from preterm 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 they can expect from our test and treat strategy.

Speaker 2

We're also engaging with employers, particularly self insured employers who are recognizing the tremendous value of including preterm test in their benefit portfolio, not only because of cost savings and health outcomes from mothers and babies, but also because additional value in the ability to attract and retain parents as healthier babies increase presenteeism and the effectiveness of their parent workforce. Our studies have shown that care coordination is an important following use of the preterm test to achieve the best possible outcomes for moms and babies. We have tested our care coordination protocol in 2 large studies now and have OBGYN 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.

Speaker 2

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 preterm 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.

Speaker 2

We anticipate the consumer convenience of self collection could be a game changer for preterm 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 positions and expectant mothers in the second half of twenty twenty four. Although our preterm test is the first product we've brought to market, Cere is not just about preterm.

Speaker 2

Preterm is the first product from our proprietary capabilities that allow us to discover proteins that spell out the risk 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 preterm test, with 3 products currently in later stages of development to build out our portfolio and diversify and support our revenue growth. These include the consumer directed time to birth test, predictive analytics product for consumers and for physicians, a pregnancy risk prediction panel targeted at physicians. Our time to birth test addresses one of the highest interest questions in pregnancy.

Speaker 2

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 order it online with a capillary blood self collection kit sent to them by mail to be shipped back to the lab and priced as a consumer paid test.

Speaker 2

To make it an economically accretive addition to Sarah's portfolio, the stent will be launched on what is called an enzyme linked immunosorbent assay or ELISA platform. To ensure continued focus 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 Sarah's clinical test preterm. Today's expectant mothers are digital natives and much of the information they get about pregnancy is online. The majority of digital resources such as baby apps mainly provide generic information about the stage of a pregnancy.

Speaker 2

Your baby is the size of a sesame seed now, a pea, an almond. We believe mothers and 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. SARA 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 results of a biomarker test. OBGYNs and SMSMs are under strain in addressing a public health crisis of increasing maternal and neonatal mortality in the United States.

Speaker 2

CMS' innovation center launched a nationwide initiative transforming maternal healthcare in 2021 to improve maternal healthcare experience and outcomes. This initiative aims to address shortages of 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 certification and shared patient physician decision making will be in the next decade. Sarah is uniquely positioned to contribute through our predictive analytics toolkit and testing solutions. Our pregnancy risk prediction blood test, which is farther out on the horizon, is expected to further inform doctors and patients in care management decision to promote better outcomes in pregnancies when about 30% of pregnancies in the United States include a major complication.

Speaker 2

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 2 key areas. 1st, promoting to physicians, payers the growing evidence of the clinical utility of preterm to build adoption. This is essential towards showcasing to the medical, payer and guideline setting communities through peer reviewed publications that preterm 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 preterm PPD study.

Speaker 2

2nd, building awareness with expectant mothers and developing patient's ASYNC products that can put us in direct contacts 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 should enable greater awareness of Sara beyond the medical community and allow us to provide more than one test to mom through convenient self collection and generate more revenue through self pay with 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 how fast the achievement of our critical milestones will unfold, such as publications, fair coverage and new institutional customers.

Speaker 2

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 Q4 financial results and more detail on our 2024 outlook. Austin?

Speaker 3

Thanks, Genia, 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 Q4 of 2023 was $41,000 compared to $65,000 for the Q4 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 Q4 of $8,900,000 were down significantly from $10,500,000 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 $3,900,000 and up from $3,500,000 for the Q4 of 2022 due primarily to higher clinical study costs.

Speaker 3

Selling, general and administrative expenses for the Q4 were $5,000,000 and down significantly from $6,900,000 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 Q4 of 2023 was $7,900,000 which was down from $9,700,000 for the Q4 of 2022. As of December 31, 2023, the company had cash, cash equivalents and available for sale securities of approximately $79,900,000 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 $33,700,000 consistent with our shared expectation of bringing this down to about $34,000,000 for the year and down significantly when compared to approximately $39,000,000 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.

Speaker 3

Our current run rate has us on track for annual gross cash burn of less than $25,000,000 We are forecasting gross cash expenses of about $26,000,000 this year with of up to $5,000,000 beyond that amount to invest behind the achievement of prerequisite milestones to respond to commercial opportunities for preterm 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 3 key drivers: publications validating our preterm test, insurance coverage and consumer and physician awareness and adoption. We are on our way there and solidifying those drivers with our preterm business.

Speaker 3

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.

Speaker 3

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.

Operator

We will now begin the question and answer session. Our first question today comes from Andrew Brackmann with William Blair. Please go ahead.

Speaker 4

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 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.

Speaker 2

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 understands deeply how the guidelines are set. And of course, step number 1 in that is sharing our progress, keeping them updated onto, the studies that are being conducted and the results.

Speaker 2

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 antibodies 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.

Speaker 4

Great. Thanks for that. And then if I could on the payer side, appreciate you sort of being upfront on sort of the reality that this 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?

Speaker 4

Anything that we should be keeping an eye on aside from the publications? Thanks.

Speaker 2

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.

Speaker 2

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 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.

Speaker 2

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 preterm test and treat strategy could achieve for their patient population? Thank you for the question.

Speaker 4

I'll leave it there. Thank you.

Operator

The next question is from Dan Brennan with TD Cowen. Please go ahead.

Speaker 5

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?

Speaker 5

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.

Speaker 2

Thank you so much

Speaker 5

for the

Speaker 2

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 a particular expectation that a low range or high end of the range on any of those outcomes threshold for guideline setting bodies to, let's say, comment on it or put it into guidelines. So as you think about the 4 endpoints we put into our PRIME study, 2 primary and 2 secondary, All of them talk about both the health of the baby, the neonatal morbidity mortality index and the hospital stay, whether it is general hospital stay or NICU stay.

Speaker 2

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.

Speaker 5

Got it. And then in terms of the cash well into 'twenty seven, obviously, if we just keep the same burn and run it out, that would get you to like, call it, breakeven in 27. Just kind of what can you share any of the other assumptions that you're assuming when you kind of comment about cash well into 27 kind of beyond this year?

Speaker 3

Hi, Dan. This is Austin. So our 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.

Speaker 3

So really right now, like we said, the goal is to get into 2027 and potentially beyond.

Speaker 5

Okay. And then maybe final one, just on the guidelines. I know Andrew asked it, but maybe a little more color there. 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 that kind of guidelines would look to possibly incorporate your test?

Speaker 5

Is it one publication? Is it 2 publications? Like how long does that process usually take? Could it be a year or 2 years? And then when we think about the timing, how critical are guidelines towards payers?

Speaker 5

Thank you.

Speaker 2

Great. Three questions in one. I will tackle them 1 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.

Speaker 2

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 3rd in a row. The final one will be 4th.

Speaker 2

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. Guideline 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?

Speaker 2

That's a really, really good one. Is it necessary to be in the guidelines for payer coverage? No, I don't believe so. Physician adoption. And physician adoption is going to be a great vote of confidence for the guideline sending bodies to change and evolve the guidelines.

Speaker 2

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 1 is published data. Number 2 is reimbursement.

Speaker 2

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.

Speaker 5

Got it. Actually one final one on modeling. Should we expect any milestone payments this year? And could those persist in the 25% or they just kind of 1 and done?

Speaker 3

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.

Speaker 5

Got it. So that's it then?

Speaker 3

Yes. And that's the complete minimum payment.

Speaker 1

Great.

Speaker 4

Okay.

Operator

Thank

Speaker 4

you.

Operator

Showing no further questions. This concludes our question and answer session. I would like to turn the conference back over to Genia Lindgaard for any closing remarks.

Speaker 2

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 to the operator to conclude the call.

Speaker 2

Operator?

Operator

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

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