Seer, Inc.

Good day, and thank you for standing by. Welcome to the SEER, Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. So if drawing your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Carrie Mendeville, Investor Relations. Please go ahead.

Thank you. Earlier today, SEER released financial results for the quarter ended September 30th, 2024. If you've not received this news release, or if you'd like to be added to the company's distribution list, please send an email to investor at seer.bio. Joining me today from SEER is Omid Farraqzad, Chief Executive Officer and Chair, and David Horn, Chief Financial Officer and President. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release SEER issued today. For a more complete list and description, please see the Risk Factors section of the company's quarterly report on Form 10-Q from the quarter ended September 30, 2024, and its other filings with the Securities and Exchange Commission. Except as required by law, SEER disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast, November 6, 2024. With that, I'll turn the call over to Omid.

Thanks, Kerry, and thank you, everyone, for joining us this afternoon. I will begin our call today by providing updates on our business, and I will then turn the call over to David to provide more detail on our financial results for the third quarter of 2024 and our outlook for the remainder of the year. We continue to see growing enthusiasm for the Protograd product suite during the third quarter, despite the ongoing macro environment pressures, especially for the adoption of new technology. We ended the third quarter with $4 million in revenue and approximately $312 million in cash, cash equivalents, and investments. In particular, we were pleased to see multiple large orders from government agencies and continued strong interest in our stack. While the capital purchasing environment remains challenging and a continuous headwind for us, we believe we're starting to see the flywheel effect and an increasing tailwind that comes with a growing number of cluster publications and preprints highlighting the value of the photograph. In the near term, we expect to see fluctuations in the relative strength of these two vectors. That said, I'm confident that directionally we're picking up momentum as the data and evidence is strongly supportive of proteographs' unique value proposition. At SEER, we're continuing to push the boundaries of what is possible to provide access to large-scale, deep, unbiased proteomics and help researchers generate meaningful insights into human health and disease. To that end, we're delighted that Thermo Fisher Scientific the leading mass spectrometry provider is partnering with SEER, a pioneer and leader in proteomics, to co-market and sell the Proteograph product suite alongside their Orbitrap Astral mass spectrometers. Under this non-exclusive agreement, starting in early 2025, Thermo Fisher's global sales force will have the ability to quote and sell the Proteograph product suite, which includes an automation instrument, proprietary engineered nanoparticles, and software analysis suite enhancing the accessibility of this innovative technology to life science researchers worldwide. We believe Thermo Fisher's Orbitrap Astral sets the gold standard for mass spectrometry. The robustness and performance of the FEAR platform and the sensitivity of the Orbitrap Astral make it possible for the first time to do population scale deep unbiased proteomics with unprecedented power to drive biological insights. Last year, we collaborated with Thermo Fisher to exclusively use their Orbitrub Astral in our SEER Technology Access Center in the U.S., and earlier this year, we expanded the program to Europe. We have seen firsthand the highly differentiated and exceptional data that our customers are getting by working with our stack, as well as the exceptional results from a growing number of customers who are using the Orbitrap Astral and the Protograph product suite in their own labs. This new collaboration makes it possible for customers to acquire the Protograph product suite in conjunction with the acquisition of the Orbitrap Astral. We will also condone joint marketing initiatives, including conference promotions, seminars, and webinars, and collaborate on joint research studies, including population scale studies, to showcase the combined power of the proteomics platforms. We're excited by the expanded geographic reach and distribution that this partnership with Thermo Fisher will provide. By aligning our technologies, we're providing researchers with a robust solution that enables comprehensive proteomic insights, ultimately driving breakthroughs in understanding human biology and disease. We continue to serve customers through the SEER Technology Access Center, or STAC, which allows a Proteograph user to run samples in their own lab and have SEER run the mass spec, or alternatively, provide end-to-end study services from sample to data. We continue to see strong demand for STAC and have a strong pipeline heading into the end of the year, despite continuing to navigate a challenging funding environment. STAC has been successful in enhancing access to the proteograph and bringing the power of unbiased proteomics data to a growing number of researchers. We believe this increased access will catalyze the generation of third-party data and publications, further highlighting the transformative potential of our technology and facilitating broader adoption. Earlier this year, we launched a second STAC lab in Germany and we're excited to see increasing demand from prominent researchers in Europe that want to access the unique data that the Protograph provides. We continue to see SAC as a strategic asset to invest in groundbreaking studies and run large sample cohorts for key collaborators, providing SAC services at lower price points. We expect these customers will present and publish their studies shortly, further reinforcing the differentiated value proposition of the Protograph product suite and serve as key reference to drive continued adoption of our technology. In addition, we're seeing traction with our Strategic Instrument Placement Program, or SIP, which continues to be an important catalyst for adoption, particularly for large pharma customers, many of which have purchased instruments through this program. Now moving to the exemplification of our technology. We continue to see a growing number of preprints and publications showcasing the value of the Portograph product suite. Notably, our conversations with potential customers are becoming increasingly productive, as more researchers see the value and insights our data provides, and we're seeing the scale of projects getting larger. We had a strong presence at the 23rd Human Proteome Organization, or HUPO, World Congress in Germany in late October. where our customers, collaborators, and SEER scientists showcased a total of 12 posters and oral presentations. This research revealed new insights into Alzheimer's pathways, population-scale plasma analysis, and capture immune dynamics in xenotransplantation. One of our collaborators, Dr. Mike Snyder from Stanford University, presented data that highlighted the value of the proteograph product suite for deep proteomic analysis in model organisms. In collaboration with SEER, Dr. Snyder and his team are conducting an aging study in a non-human primate model, specifically in pigtail macaques. In this study, 230 monkey plasma samples and 25 human plasma samples were analyzed using the ProteoGraph XT coupled with the Orbitrap Astral. A total of 8,472 unique protein groups were identified across the 230 monkey plasma samples. As a comparison, the proteograph assay identified 11 times more protein groups in this cohort versus direct digestion workflow using the Orbitrap Astral alone without the proteograph. Combined with the depth of proteomic coverage and the protein and peptide level resolution that the SEER platform provides, they're now able to investigate shared and species-specific human and macaque biology in a deep and unbiased manner. While they're early in their analysis, they're encouraged by the types of protein biomarkers differentially expressed in male versus female monkeys and across various age groups in the monkey cohort. For example, they have found many interesting biological differences in cytokines or hormones and immune response-related proteins which can be difficult to detect due to the low abundance in plasma samples. This is yet another example of the power of the proteograph to enable unbiased proteomics that revealed interesting insights and pathways for further study in non-human primate models. I remain incredibly bullish on the long-term value of our differentiated technology and its potential to transform our understanding of the proteome. Looking ahead, We will continue to execute against our core strategies of driving evidence and publications, continuing to enhance access to the prototype, innovate with our products, and expand our applications. With that, I will now turn the call over to David.

Thanks, Amit. Total revenue for the third quarter of 2024 was $4 million, representing a decrease of 3% compared to $4.2 million in the third quarter of 2023, and was primarily due to a decrease in related party revenue and grant revenue recognized in the quarter. Revenue recognized primarily consisted of sales of the Protograph SP-100 instruments, consumable kits, and service revenue, of which $366,000 was attributed to related parties. Product revenue for the third quarter of 2024 was $3.1 million, including $180,000 of related party revenue, and consisted of sales of SP100 instruments and consumable kits. Product revenue grew year over year, primarily driven by an increase in instrument sales and consumable kit sales. Despite seeing continued pressure on CapEx budget and elongated sales cycles for the outright purchase of new instrumentation in the third quarter, we were encouraged by signs of a more constructive capital purchasing environment. Service revenue was $847,000 in the third quarter of 2024, including $186,000 of related party revenue, and primarily consisted of revenue related to STAC service projects. We continue to be encouraged by the customer interest in running projects through STAC and their ability to gain access to prototype data. We also continue to undertake projects for key strategic studies that will result in additional presentations and publications in the near term, but are conducted at a lower price point than our typical STAC service projects. This had the effect of lowering the amount of service revenue that was realized in the third quarter. Grant and other revenue was $90,000 for the third quarter of 2024 and consisted of lease and shipping revenue. Total gross profit was $1.9 million for the third quarter of 2024, representing a gross margin of 48%, compared to $2.2 million in the third quarter of 2023, representing a gross margin of 52%. Gross margins were driven by higher instrument sales and lack of grant revenue in the third quarter of 2024 relative to the third quarter of 2023. We continue to expect variability in our gross margin on a quarter-by-quarter basis since the proportion of instrument, consumable, and service revenue will fluctuate in any given quarter. Total operating expenses for the third quarter of 2024 were $26.3 million, including $6.1 million of stock-based compensation, a decrease of 6% compared to $28 million including $7.9 million of stock-based compensation in the third quarter of 2023. Research and development expenses for the third quarter of 2024 were $13 million, a decrease of 2% compared to $13.2 million in the third quarter of 2023. The decrease in R&D expenses was primarily due to a decrease in employee and stock-based compensation expenses. Selling general and administrative expenses for the third quarter of 2024 were $13.3 million, a decrease of 10%, compared to $14.8 million in the third quarter of 2023. The decrease in SG&A expenses was primarily due to a decrease in employee and stock-based compensation expenses. Net loss for the third quarter of 2024 was $21.3 million, compared to $21.1 million in the third quarter of 2023. We ended the quarter with approximately $312 million in cash, cash equivalents, and investments. During the third quarter, we invested $10 million in Prognomics Series D financing alongside other existing investors and a new large strategic investor. As previously announced, our board of directors authorized a $25 million share repurchase program in May of this year. Under this program, we repurchased approximately 3.7 million shares of SEER Class A common stock at an average cost of $1.78 per share during the third quarter. As of September 30th, we had approximately $14.7 million in authorization remaining under this share repurchase program. Free cash flow loss was approximately $39 million for the nine months ended September 30, 2024. And as previously stated, we estimate that our 2024 free cash flow loss will be less than our free cash flow loss in 2023. Turning to our outlook for the year, we continue to expect revenue to be in the range of $13 to $15 million for 2024. At this point, I would like to turn the call back to Omid for closing comments.

Thank you, David. I'd like to thank our incredible team for their hard work this quarter as we continue navigating through a challenging macro environment for the adoption of new technology. We have made solid progress on a number of initiatives that we established to enhance access to the Protograph product suite and assist our customers to generate novel data. Looking ahead, we believe these initiatives position us well for growth in 2025 and beyond. I look forward to keeping you updated on our progress. With that, we will now open it up to questions. Operator?

Thank you. At this time, we will conduct our question and answer session. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Yoku Oku with Morgan Stanley. Your line is now open.

Hi, this is Jason on for Yuko. Congratulations on the quarter and thank you for taking our questions. So maybe just starting off, given the midpoint of your 2024 guide of 14 million, it seems to imply a flat or slightly negative sequential step down from 3Q to 4Q, which seems to break with the 4Q seasonality trends for your company the past few years. So maybe can you talk a bit about your assumptions surrounding this? So is it mostly conservatism? And what are your assumptions surrounding the budget flash dynamic?

Yeah, thanks, Jason. It's David. Yeah, in terms of the guidance, given where we are in the quarter, we do have a number of opportunities in our pipeline. And as we look at those, it really just comes down to a timing issue. So if some of those come timing of those deals roll in our favor. We'd expect to be at the high end of the range, but if some of them get pushed out, then it's obviously going to be a different outcome. So it's really just given where we are and given the timing of some of the things and given our revenue base, that could break either way. So we're really just trying to to be, you know, just to continue with that range that we have, just depending on the timing of the deals. We do continue to see pressure on budgets, and so we're not really forecasting in a budget flush for the fourth quarter. So we're, you know, again, you could be that conservative, but it's just kind of where we're sitting right now.

Go ahead, thanks for the color. And then maybe as a follow-up question, during 2Q, you talked about significantly expanding your sales and marketing team to include the addition of multiple new regional sales managers. So did that initiative drive the beat at all? If it hasn't, then presumably it might take some time to ramp up. So when can you expect benefits from this initiative to flow through to the P&L?

Yes, yes. Jason, this is Omid. As we mentioned at the last earning call, we had significantly expanded the sales and marketing team. We had added multiple new regional business managers. We had added our new VP of global marketing, Zach Crother, to the team. Now these new team members are ramping up. They're already making good progress. We feel very good about the opportunities that they're creating. getting us to the end of the year and into 2025. I think the additional build that we did to the team was just the right move and the benefit of it we should be seeing later this year and into 2025. Got it.

And then maybe if I could just sneak one more in. So I think you've also previously commented on your sales channel, kind of flipping from a 60-40 mix of commercial and academic historically to now being 60-40 academic and commercial. So I was wondering, like, what's kind of driving this shift towards academic customers? Like, how much would you attribute this shift to benefits from the cadence of publications that you have seen to date versus, like, headwinds and capital constraints from larger biopharma customers who are maybe, like, announcing strategic shifts or printing their portfolio? Thank you.

Let me take a crack at it and maybe I'll also have David comment on the back end of it if I leave anything out. So our pipeline of customer and the closed accounts, meaning customers that we actually close, that's different. So we're seeing more and more academic folks end up in our pipeline of customers. And as I mentioned, An increasing number of academics are coming on board in terms of opportunities but if I look at our install base, and if I look at the The accounts that were closing it still tilted Jason toward the commercial Probably exactly the flip ratio meaning about 60 40 or so tilted toward commercial you're making an interesting point that I whether it's the increased evidence and publications that's driving the academics. I think that's part of it. The other part of it is that academics need time to get grants. That's different than the commercial budget framework. So the product has been out there, the evidence has been growing, and these academics are beginning to to secure the funding for the type of research needed to work with SEER. So I think that's also in part driving it. And then the comment you made about the capital constraints in terms of the commercial customers, and that is correct. I mean, clearly the macro picture is making it difficult for CapEx purchases, especially for new technologies like SEER. that said also the increased publications are helping us with those dialogue and increasingly we're seeing the size of the studies that we're having conversations with whether it's for commercial entities or academic entities to be getting larger and larger i mean we're now in multiple conversations of uh studies that are 10 000 plus in study size and i can tell you about a year ago you know, we were having very, very few of those kind of conversations. So I think that the data and the evidence is also driving larger and larger studies to become possible for us. David, do you want to add anything? Okay, perfect.

I think that was great.

Great. Thank you, guys.

Thank you. One moment for our next question, please. Our next question comes from the line of Dan Brennan with TD Coley. Your line is now open.

Hi, guys. This is William. I'm for Dan. First question I have is about kind of a competition question. The proteomics space is gaining a lot of attention, and there are other solutions that think to overcome the same problems as proteographs. Just wondering how we should think about the evolution of the affinity-based proteomics market. as more solutions become available? And is growing overall awareness a tailwind?

Yeah. William, thank you for the question. So the proteomic market, by the way, I think is at its infancy and it's only going to grow. And the growth is going to be among the omics customer or the genomic customers that are going to begin to connect their genomic information functionally to proteomic information and get a ton more value in terms of that content. The targeted approaches scaled first, and that's because the untargeted approaches, like the approach that SEER takes with the proteograph leveraging a mass spec, those approaches were not available, and so the customer you know, years ago had only the optionality to use a targeted approach if they were going to do a study of any size. Today, that dynamic is changing. I had predicted, by the way, that in 2025, the first population scale unbiased, deep unbiased proteomic study will go underway. I actually have increasing visibility for that statement to be correct. I mean, the notion of doing tens of thousands of samples, deep unbiased proteomics on a mass spec, would seem like a pipe dream. Today, that is completely a reality because of the ProteoGraph product suite and because the mass specs are getting better and better. So the customers are progressively recognizing this, and I think going forward, there's going to be room for targeted approaches to exist, and there's going to be a very important role for untargeted approaches to add the content in proteomics that today has not been discovered yet. I think as content is discovered more and more, there's actually utility and a need for targeted approaches to interrogate those very specific proteins that have been discovered using unbiased approaches. So both are going to coexist. I think it's a flywheel where, more and more untargeted approaches is probably going to drive more and more demand for targeted approaches. I don't see the other side working other than the fact that untargeted approaches were the first to become at scale available. But I think the way this will work is that untargeted approaches will drive content. Those content will drive value for targeted approaches to exist and then potentially new end markets would get created and existing end markets would expand because of it.

Thank you. I appreciate the answer. One more question I have is on the margins. I'm just wondering how we should think about margins exceeding the year and into 2025. Previously, we're targeting around 50% gross margins. Should next year see a dip in gross margins if instrument placements ramp?

Yeah, William, thanks for that. I think for the back half of the year, I think we're still on track to kind of be in that area. You know, we were 48%, and I think we're trending for the nine months. I think we're around 49, 49.5. So I think we're going to be in that 50% area. We're not giving any guidance right now on next year, and we'll kind of give you an update and more detail on that on our year-end call at the beginning of the year. But Again, we'll have more clarity around that and more color to provide you at that time.

Thank you. Appreciate it.

Thank you so much for your question. And as a reminder, everyone, to ask a question, please press star 1-1 on your telephone and your hand will be raised and wait for your name to be announced. So if you are your question, please press star one one again. Our next question comes from the line of Rachel Vance at all with JPL. Your line is now.

Hi, this is Jaden resume on for Rachel van stall from JP Morgan. Thank you so much for taking my question. So first, maybe just to start off, how do you anticipate your recently announced collaboration with Thermo will impact Sears market reach, customer base, and ultimately the top line? And are there any specific customers where you expect to see the most growth as a result of this partnership? Thank you.

Jayden, thank you for the question. This is Omid. So first of all, let me give you context. I think the timing was just right to do this kind of a partnership, and the reason is that the value proposition of the proteograph was getting more and more accepted and recognized by KOLs and by customers. And that made it easier for our partners to be able to sell our products versus requiring the very, very experts that reside within SEER to sell our products. So I think that's the timing part of it, and it was perfect. Now, we signed the agreement with our partners at Thermo Fisher Scientific. We still need to work through a lot of the implications for 2025. Over the course of the coming weeks, We're going to be in discussion with them to operationalize this partnership and to be able to launch it in Q1. I think I'll have a better idea in terms of what you can expect from a revenue perspective on the top line, given this partnership, probably on our next call, on our Q4 call, year-end call. Now, the beauty of the partnership is that Thermo already has a number of opportunities for the placement of the astral that are at various stages of the sales process. Now, the opportunity for SEER is that we may be able to shorten the proteograph cell cycle by essentially piggybacking on existing astral instruments that will be placed. Now, that said, keep in mind that the length of a typical capital equipment cell cycle is not short. And so I expect that to still exist for the astral and consequently for the proteograph that's going to be placed. You asked about what type of a customer would this likely benefit. I think the astral customers that are likely to do proteomic studies in biofluids and plasma and serum, they're likely the ones that are going to take advantage of a proteograph immediately. Those that would look at, for example, cells or tissue, they have less of a motivation to do that with the proteograph. The astral does a fantastic job on its own without the proteograph. But if you look at something like a plasma, then the proteograph adds very significant value. So, for example, in plasma, the astral alone can detect about 750 proteins, whereas the astral with the proteograph can detect 6,000 or 7,000 or 8,000 proteins depending on the biological sample that may be different with different people. So the value proposition in plasma is very significant, and I think those are the customer type that are likely going to benefit from it. But the good news is that that is actually a very significant portion of the astral placement are exactly that customer profile. So I'm very optimistic about this, and I have to say, I'm very happy that we're doing this with Thermo, who's been a great partner to us over the course of the last three years, and I'm thrilled by this partnership expansion.

Yeah, that's perfect. Thank you. And then for my second question, I was wondering, what are you seeing from the stack program you launched in Germany, and how has the regression of that service been so far, and any expectations for the end of year and into 2025? Thank you.

Yeah, thanks a lot, Jayden. I appreciate this, David. So, yeah, we continue to see good traction, both in our U.S. stack as well as our EU stack. We've seen, you know, I think just in the ramp up and the operationalizing of the EU stack during the third quarter, we've seen good demand from those customers in Europe to be able to use our service over there. So, We are very optimistic about that. And, you know, I think we'll continue to see the trend of, you know, continuing, you know, nice, steady growth in terms of the service business for the fourth quarter. And then we, you know, we certainly anticipate, you know, continuing that into 2025. Obviously, we can give you more thoughts on that on our year-end call. But, you know, we are... pleasantly surprised with the amount of interest we've had. We are continuing to also invest strategically, so we'll do some projects at a lower cost for collaborators such that we can get data and they publish studies and publish papers. So it's actually a strategic asset for us as well as we work to get data out there quickly into the hands of our customers. that want to publish and do various studies. So, overall, we're very pleased with it, and I think we'll continue to see, you know, nice steady growth out of it.

All right.

Thank you so much. I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.