Sera Prognostics, Inc.

Good afternoon and welcome to the Sarah Prognostics conference call to review third quarter results for fiscal year 2021. At this time, all participants are in a 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.

Thank you, Danielle. Good afternoon, everyone. Welcome to Sarah Prognostics' third quarter 21 earnings conference call. At the close of the market's day, Sarah Prognostics released its financial results for the quarter ended September 30, 2021. Presenting for the company today will be Greg Critchfield, Chairman, President, and CEO, and Jay Moyes, our CFO. During the call, we will review the financial results we released today, after which we will host a question and answer session. If you've not had a chance to review our quarterly earnings relief, 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 forelooking statements about events and circumstances that have not yet occurred, including plans or projections for our business, future financial results, and market trends and opportunities. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements. I will now turn the call over to Greg Serra-Pognacic, Chairman, President, and CEO.

Greg? Thank you, Peter, and good afternoon, everyone. Today, I will provide an overview of key business highlights during the quarter and our expected developments over the near term. Serra is a company that is moving at this point in time from a clinical development stage into a commercial stage enterprise. We are very pleased with our progress during the third quarter and excited by the opportunity ahead of us to grow the company and to achieve our vision of improved health care for mothers and babies. To achieve this, we are deploying our capital judiciously to build the capabilities to engage in full commercialization that we believe will generate significant revenue growth in the future. We are engaged in ongoing publication of serious science and technology to extend our leadership in pregnancies. We are building an effective commercial organization and we are collaborating with key individuals and organizations as we move forward to achieve our goals. Let me start by discussing further validation of our preterm testing technology and the significant positive impacts that serious testing can have on healthcare costs while bettering maternal and neonatal care. I'll then discuss a new key collaboration and the build-out of our company with additional staff and advisors. During Q3, we announced the publication of a detailed health economic analysis in the peer-reviewed journal Clinical Economics and Outcomes Research. This publication illustrated the clinical benefit of combining our preterm testing with evidence-based interventions to improve neonatal health and reduce total healthcare costs. This work adds to the growing body of evidence supporting the effectiveness of CIRA's test and treat strategy in identifying women at risk for spontaneous preterm birth and providing more proactive care in those pregnancies. Proactive care in more pregnancies that are truly at higher risk of premature birth has the ability to reduce complications of preterm birth, decrease hospital length of stay, and save healthcare expenses. A recent published Health economic analysis was conducted by SARA working in partnership with Anthem's analytics subsidiary, Health Corps, using actual claims data of more than 40,000 pregnant women and infants. The analysis evaluated the application of the preterm test and treat strategy by modeling testing to be conducted during weeks 19 or 20 of pregnancy and assessed the benefits across the population by providing proactive interventions in the higher preterm test risk cases. Note that the effective compliance model in the study was very conservative, with only 60% of eligible candidates assumed to receive proactive interventions. Key findings of this comprehensive and conservative analysis include 20% reduction in preterm birth less than 37 weeks of pregnancy, 33% reduction in very early premature births, less than 32 weeks of pregnancy, 10% reduction in neonatal intensive care admissions, 7% reduction in overall hospital length of stay, $863 net savings, that's $1,608 growth savings per pregnancy that was evidenced by the $54 million reduction in total costs in the population that was studied. Based on the $863 net savings, the authors of this conservative analysis estimate that more than $850 million could be saved annually in U.S. individual and employer-sponsored health plans. We believe this work provides a compelling economic rationale that is appealing to payers and that should help foster widespread adoption of our preterm test and treat strategy by health insurance payers. On the scientific front, last week we announced a rigorous peer-reviewed preterm test validation of a risk threshold that stratifies pregnancies into higher or lower risk categories for preterm birth. This work was published in the Journal of Clinical Medicine. This threshold enables more proactive interventions to help address higher risk of premature delivery in women whose preterm risk results are at or above twice the average population risk for spontaneous preterm birth. In a pregnancy where the risk is at or above that 15% threshold, the doctor and patient can decide to more proactively address that risk with interventions designed to help the mother and baby. This preterm test risk threshold underpins the published data demonstrating the performance and value of CIRA's preterm test and treat strategy. In published validation study of prematurity prediction, in published health economic models demonstrating its impact in populations, and in intervention studies where clinical benefits of the strategy are assessed. Note that the 15% risk threshold is also employed to interpret an individual mother's risk result as higher or lower when she receives service preterm testing commercially. In the recent threshold analysis publication, it was demonstrated that patients at or above 15% or twice the intended use population risk had significantly higher risk of spontaneous preterm birth and that they had a higher frequency of adverse clinical outcomes. Publication of this work adds to the growing body of evidence supporting the clinical validity and utility of our preterm test in identifying women at risk. This additional validated data for physicians, employers, and payers further demonstrates CIRA's ongoing efforts to improve pregnancy outcomes and reduce healthcare costs through studies and collaborations with respected independent parties and individuals. These efforts highlight CIRA's vision to provide actionable insights to benefit mothers and newborns and to save on healthcare costs by improving patient outcomes. CIRA has always been interested in addressing prematurity, both in the US and abroad. In the early days of the company, we worked on building predictors that could benefit underserved populations that are disproportionately affected by prematurity, particularly in Asia, in Africa, and in the US. Our earliest studies overrepresented underserved populations as we discovered and further validated our preterm tests to make sure that our tests would work well for them. Since 2015, CIRA has conducted work in cooperation with the Gates Foundation efforts, and we anticipate upcoming publication of work in non-U.S. geographies that further demonstrate the power of our technology to assess prematurity risk in low- and middle-income populations. Finally, our prime prospective intervention study being conducted across the U.S. includes underserved populations where prematurity risks are very high. We have maintained a constant focus to ensure that our predictors work well where they are needed the most. We have just announced an important key collaboration to further help underserved U.S. communities address healthcare disparities. by partnering with Preemie World, Global Preemies, and the Alliance for Black NICU Families, leading organizations all geared to empowering and supporting families impacted by preterm birth. The long-term goal of this collaboration is to help educate and stimulate conversations between patients, their families, and their physicians to improve individualized assessment for preterm birth risk. According to a study published in 2020, African American women in the U.S. are 50% more likely to deliver prematurely when compared to Caucasian women. And we believe that education and access to information is essential to changing this unacceptable statistic. We are proud to join with these leading organizations in a united effort to effect change and improve healthcare outcomes in this underserved segment of the patient population. A word about people. Sarah works internally and externally with very talented and dedicated people that are essential in building our company for success. We were pleased to announce last week the engagement of Dr. Woodrow Myers as an advisor to the company on public and political affairs. Dr. Myers is a nationally recognized leader in developing medical quality initiatives, and he has extensive experience and leadership in addressing health equity and disparities. We are honored to have him join our team and lead on a multidisciplinary effort to execute a national and state-specific political and public affairs strategy to help address healthcare disparities that disproportionately affect underserved communities. Data and analytical capabilities are a cornerstone of our business when it comes to extensively analyzing information to validate what we're doing to provide healthcare insights to patients, physicians, and payers, and to lead to new and improved products. At quarter end, we were very pleased to announce the appointment of Dr. Paul Kearney as Chief Data Officer, whose extensive data science, bioinformatics, and proteomics experience helps us to foster further innovation for CERA. I'm also very pleased to report that we have begun our build-out of the commercial team to robustly scale preterm testing. We have now hired a talented sales force comprised of 26 representatives concentrated in regions where we begin selling our tests with a good initial basis of third-party payment. We have sales representatives hired on both coasts, Western, Midwest, Southern, Mid-Atlantic, and Northeastern territories. By the end of this quarter, we anticipate having 30 active sales territories covering approximately 12 percent of all U.S. pregnancies. These sales representatives call on physician offices, educating them about preterm testing and how to incorporate testing into their clinical practices. We also have an experienced team of market access personnel who are in discussions with payers as we emphasize the health and economic benefits of our test and treat strategy and work to secure reimbursement contracts. From this base deployment, we expect to extend our testing ultimately throughout the U.S. Note that we are receiving payment from major payers in the United States as we are initially rolling out our preterm testing. We are building and deploying digital marketing programs to engage women who are the ultimate important customer for whom our testing has been created. We believe that the coordinated efforts to address the three key customers we have, doctors, patients, and payers will help us to grow revenues as our commercial team executes on our vision. And finally, to expand our talented pool of advisors, we are pleased to have just appointed Zhenya Lingard to CIRA Prognostics Board of Directors. Zhenya possesses significant expertise and deep understanding of both healthcare and consumer technologies that are important enablers of our strategy and can help drive adoption among patients, physicians and payers through her profound knowledge of consumer centric approaches. She currently serves as CEO of the common project foundation, a global nonprofit focused on enabling trust ecosystems for individuals data. And prior to that served as vice president of platform and customer engagement on the executive team at Uber. She's also served with the Boston consulting group and has served on the board of directors of city harvest, a New York city hunger charity. She shares our passion and vision to create better lives for women and newborns globally, and we welcome her aboard. Looking forward, we see a robust opportunity to potentially ramp adoption of our preterm test and treat strategy to address prematurity. While the COVID pandemic has somewhat impaired our initial scale up in Q3 and going into Q4, we believe that this problem is something we can successfully move through and look ahead to the time it will recede in the rearview mirror. Looking forward, we expect to announce upcoming contracts with payer, employer, and physician network groups who adopt our testing. A growing revenue ramp is expected to follow the signing and implementation of testing within these groups. We foresee additional clinical and economic data readouts and publications occurring in the future as well. We are very encouraged by our execution thus far in 2021 giving us confidence as we move into year end and into an exciting 2022. I'll now turn the call over to Jay for a brief review of our third quarter financial results and some color on our expectations through year end.

Okay. Thanks, Greg. And good afternoon, everyone. We are pleased with our execution today. and our positioning from a commercial perspective as we approach year end and a new year in which we expect to see additional commercial developments occur. Today, I'll briefly review our financial results for the third quarter and then provide some color on our outlook for the near term. For the third quarter of 2021, we reported revenue of $23,000 compared to $5,000 for the same period of 2020. Total operating expenses of $9.5 million were up significantly from $4.6 million for the third quarter of 2020. The increase was primarily due to the scale-up of operations to address the significant opportunities we see ahead for our preterm test. Research and development expenses for the third quarter of 2021 were $2.7 million compared to $1.9 million for the prior year period due primarily to increased laboratory operations and clinical study costs. Selling, general, and administrative expenses for the third quarter of 2021 were $6.7 million, up from $2.8 million in the prior year. This was due primarily to increased headcount as the company scaled commercial operations and general corporate infrastructure as well as increased costs related to operating as a public company following our initial public offering this past July. Net loss for the third quarter of 2021 was $9.9 million compared to $5.1 million for the same quarter a year ago. As of September 30, 2021, the company had cash and cash equivalents of approximately $82.5 million and an additional $67.5 million of available for sale securities. We believe this significant cash position is sufficient to enable us to successfully scale testing for revenue on our anticipated timeline and meet our profitability objectives. Turning now to our expectations for the remainder of the year, as Greg mentioned, and as numerous companies have noted recently, we experienced some challenges during the quarter from COVID-19 that impacted our testing revenue for the third quarter. We anticipate these challenges will impact testing revenue through the fourth quarter as well. And with that, we'll open the line for questions. Operator?

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question comes from Patrick Donnelly of Citi. Please go ahead.

Hey, guys. Thanks for taking the questions. Maybe one on the sales reps. It's encouraging to hear you guys have 26 out there already going to 30. How should we think about that ramp continuing over the next 12, 24 months, particularly as you get more payers on board? How many do you envision a critical mass a few years out, and what's that look like over the next year or so? Yeah, great question, Patrick.

We believe that we currently have a very good sized footprint to begin testing. And as I said before, we're focusing on areas where there is payment by insurance companies. And what you do is you expand out over time as more data become available, as more contracts are secured. That allows you to grow the company in a much more profitable manner. We believe that to cover the entire U.S., a sales force of about 250 sales representatives is required to address the OBGYN channel. This is the same size that Jay and I built the sales force to be at Marriott when that was the second of the specialty sales forces that we built there. So that's what we see happening. We believe it can be done in a planful way, in a way that does not waste effort and money, And we are clearly looking at growing over time as Salesforce moves forward.

That's helpful. And then just on the payer ramp, what's the right way to think about some of these other large national payers coming on board in terms of a timeline? Is it waiting on some of the bigger data reveals? Is it kind of seeing a little more health economics? What are those conversations like? And, again, what should we think about in terms of timing for some of those catalysts?

What I can tell you, Patrick, is that right now we are in conversation with regional payers, with self-insured employer groups, and national payers. Those conversations are ongoing. We share data. We discuss where things are going. And what will happen over time, we believe that the smaller payers will come first and then larger ones later. And that's what we see happening. We anticipate the ability before year end of being able to announce one or more of these collaborations with payer groups and look forward. You should look forward to that. And in the future, of course, there will be many more announcements as we grow our footprint and our payer coverage map.

Okay, great. And then maybe last one, if I can, just in terms of practice accessibility, again, as you kind of build out the Salesforce, what are you seeing in terms of whatever metrics you guys have in terms of what practices your sales reps can actually get into, kind of the efficiency of some of their calls in person, if they're able to get in person with the COVID impact? Just wondering if how you're seeing that ramp, and again, how you're expecting that to trend over the next few quarters as hopefully we turn the corner on this.

Yeah, that's great. So as I said before, some of our discussions are with physician groups. That's an efficient way of doing things. Some are with integrated health networks. Some are with large practices that are in just different geographies. Our salespeople are looking Based on data, they have a target list of high potential candidates, and those are the ones that we go to first. We believe that doing that in a way where the OBGYN and the MFM to whom they refer difficult cases, working together to establish protocols is a way to systematize the testing that's done in any geography, and that's part of the discussion that takes place.

All right. Thanks a lot, Greg.

You bet.

The next question comes from Brian Weinstein of William Blair. Please go ahead.

Yes, hi. This is Dustin for Brian. We know it's kind of early on, but we're just wondering how we should think about the trajectory of volume expansion here and whether you guys can give us some idea of how you're thinking about that over the next few months.

I lost one word in your question. Could you repeat that? What expansion are you talking about?

That's volume expansion.

Yeah. Jay, do you want to start, and I'll finish that up?

Well, I think, you know, The volume is expanding. It's early days, and the sales force has been in place since really the beginning of July this past year. And it takes a certain amount of time for the sales force to get up to full efficiency. And I don't know, maybe, Greg, you can add some additional color to that? You bet.

Sure. So we were effectively not doing material commercialization before July. Since July, we've hired the sales team that I mentioned, where now we have 26 active reps that are there. And it's really a combination of things that you want to pay attention to. You want to reduce the burden on patients of paying for the testing themselves. a good basis of insurance coverage first. You also work with payers that are not in the initial group of payers paying for testing, and you work to secure contracts with them. Those things are happening in real time. At the end of the day, it's the doctor that orders the test. And so one of the key things is making sure that we arm the doctor with information tools and practical ways of identifying patients in their practice that are candidates for testing and actually initiate the testing within their practice. Those activities take time. If you look at traditional numbers, it takes six to nine months for a sales rep to come up to speed to begin paying for testing. him or herself. That's an industry standard among oncology, and we think of it similarly in our space now.

And I might add too, Greg, that we have been seeing encouraging order volume towards the end of Q3. I think that's important to note. Yeah.

Yes, and the orders we're getting are patients They're both Anthem and non-Anthem patients where borders are being generated.

Great, thank you. And I'm specifically wondering what's happening with Anthem. What are you guys hearing from them? How are they promoting doctors to use the products? And overall, just how are they assisting on the commercialization efforts? And what kind of feedback are you getting on the field in terms of how effective that is.

We're having many discussions about specialized programs to go after the question of how do you roll out testing within a large insurance network. Those things are happening. Our sales reps are in the field educating doctors, and the strategy is a very simple one. The sales rep talks to a doctor, educates them about the need for better identification for preterm birth testing. And once they have understood that, then the idea is to encourage them to offer the testing to all patients in their practice. And then for those patients that are covered by insurance companies that don't, they're not yet paying for things, we begin discussions with them. And I can tell you that we're already seeing revenues from those kinds of payers now.

Great.

As a reminder, if you have a question, please press star one. The next question comes from Dan Brennan of Cowan. Please go ahead.

Hey, guys, thanks for taking the questions. Maybe first one, just going back to volumes, obviously, we're at the first pitch to first inning here, but I'm wondering, do you guys plan to provide any guidance as we get to the fourth quarter about 2022 volumes or just kind of what can we expect in terms of visibility?

Yeah. At this early stage, we're not prepared to give guidance at this point in time. We're very early in the game. We are just beginning our commercialization efforts to yield orders. And over time, we are going to have a much better understanding of things. So we did not at this time plan on giving guidance now. So that's where we are currently.

In terms of upcoming data that we should be aware of, obviously there's a bunch of, you know, studies still ongoing. Can you just kind of remind us what's coming up in 2022 from a data standpoint and related to that in terms of key publications, any key publications either that are in the works right now or you think are forthcoming in 2022 that could be important?

Yeah. From this point and into next year, we see publications, additional publications of validations of our prediction in non-U.S. populations, as I mentioned. We see additional economic modeling that will talk about the benefit, the economics of the test and treat strategy using our validated threshold. And then we also anticipate upcoming clinical readouts by the year end or into the beginning of next year. We anticipate having enough deliveries having occurred In the prime study, this is a large multi-center study within Anthem, where the interim look will be read out. And that occurs after 2,800 deliveries have occurred.

Got it. And maybe in terms of health economics, can you just give us a sense of the Anthem study? There was a savings level, I think, in the most recent, maybe, cost-benefit peer review. I think, you know, there's also a savings, maybe it wasn't as great as you said. How do we think about health economics? What, you know, what are the right numbers that are justifying or, you know, persuading payers to, you know, adopt, you know, your test?

Yeah, what I can tell you is that when we share a spreadsheet model with payers and have them put their own numbers into the model, And one of the things in the publication that was quite evident is no matter what numbers you put in, there is a way to save money. And because of that, that's termed a dominant strategy. And that's the way the authors characterize the strategy. When we show this to payers, the savings are enormous. If anything, the publication was conservative in its views. And we hear some payers telling us we believe these savings are even higher. They're quite impressed with the amount, with the savings that are there. Remember, the great majority of preterm deliveries cannot be detected by today's current clinical practice. About one in six are. Those are pregnancies in women carrying a single fetus. Those are pregnancies at risk who will deliver prematurely. only about one in six are identified by current methods. Using our test with current methods, it increases the detection by four-fold. That's a significant increase. And being able to intervene early, as the Anthem data show, and as our prospective intervention trial, the PREVENT-PTB trial shows, there is benefit in finding those pregnancies and being more proactive in the individualized care you can give to those pregnancies who truly are at risk.

Great, okay, thanks, guys.

Again, if you have a question, please press star, then 1. Seeing there are no further questions, I would like to turn the conference back over to Mr. Crishfield for closing remarks. Okay.

We'd like to thank everyone for attending our call today. We are very excited to see the progress as we achieve our vision of improving the health of mothers and newborns and thereby saving healthcare costs. We're pleased with the efforts of our internal team and the work performed with a number of external collaborators as we seek to improve pregnancy outcomes. Although these are early days, we believe that the strong alignment of science, economics, and commercial execution will enable CIRA to more rapidly generate revenues over time. And finally, we look forward to sharing our progress with you as we complete 2021 and move into next year. Thanks again for your attention and interest. As a reminder, a webcast of this call will be available on the investor section of our website. This concludes the call, and we look forward to providing the next update on our progress following the close of 2021. Thank you, and good afternoon, everyone.

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