Sera Prognostics, Inc.

Good afternoon, and welcome to the SARA Prognostics conference call to review first quarter fiscal year 2022 results. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Peter DiNardo of Capcom Partners for a few introductory comments.

Thank you, Betsy. Good afternoon, everyone. Welcome to Sarah Prognostics' first quarter fiscal year 2022 earnings conference call. At the close of the market today, Sarah Prognostics released its financial results for the quarter ended March 31, 2022. 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 have not had a chance to review our quarterly earnings release, it can be found on our website at seraprognostics.com. This call can be heard live by a webcast at seraprognostics.com, and a recording will be archived in the Investors section of our website. Please note that some of the information presented today may contain projections or other forward-looking statements about events and circumstances that have not yet occurred, including plans and projections for our business, future financial results, and market trends and opportunities. These statements are based on management's current expectations, and the actual events or results may differ materially and adversely from these expectations for a variety of reasons. We refer you to the documents the company files from time to time with the Securities and Exchange Commission, specifically the company's annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. These documents identify important risk factors that could cause the actual results to differ materially from those contained in our projections and other forward-looking statements. As a reminder, a webcast replay of this call will be available on the Investors section of our website. I will now turn the call over to Greg Seropognostics, Chairman, President, and CEO. Greg?

Thank you, Peter, and good afternoon. Today, I will provide an overview of key business highlights during the first quarter and some color on expected developments over the near term. We are pleased with the continued progress in our commercial efforts to secure new pavement contracts, increase test revenue, and publish additional data that further demonstrate the significant health and economic benefits of CIRA's preterm test and treat strategy. This is encouraging, and today, I'll focus my comments on three pillars of our growth strategy, commercial development in support of revenue expansion, further demonstration of value of the preterm strategy through expected study readouts, and pipeline progress of new products. First, I will discuss the commercial development progress. Commercially, we noted on our last call that COVID-19 had complicated and created disruptions in normal healthcare delivery, physician engagement, and enrollment in clinical studies. In addressing these challenges, we have adjusted and streamlined our sales messaging based on experience and made changes in how we address the market opportunity efficiently. We believe these disruptions are currently abating, and our sales team delivered improved order volumes beginning in the second half of the first quarter, with orders accelerating in the February through April timeframe. In fact, to quantify this, orders during the three-month period of February through April increased 171% compared to the preceding three-month period of November to January, with at least 25% order growth in each month during that time. While we may not disclose such figures going forward due to their potential variability, we see this as a good sign that our revised sales methodologies are working. Physician reorder rates have also improved, while process simplifications have decreased order to sample collection days which is also a positive since it yields earlier revenue recognition in the overall testing process. We've begun billing under recently executed agreements, including our agreement for in-network pricing with Multiplan that we announced in February. As a reminder, 700 healthcare payers and 1.2 million healthcare providers participate in Multiplan's provider networks. As a consequence, Multi-plan network participation encompasses a large number of pregnancies annually in the U.S. We view our multi-plan agreement as evidence of recognition of the unique health and cost benefits of using our preterm tests. The first and only commercially available blood test for proactive interventions by measuring each expectant mother's risk of spontaneous preterm birth months ahead of when it occurs. Payers don't make decisions in a vacuum. They're constantly watching to see when other payers are adopting and providing payer coverage for innovative new tests, and they want to see data validating that such adoption will lead to beneficial improvements in health and reduction in health care costs that improve their bottom line. Our upcoming presentation of health and economic benefits of the preterm strategy scheduled later this month provides additional insights into the value of our technology from a clinical and economic perspective. As the market develops, we believe new payers will then be encouraged to sign up, leading to a cascading effect over time. A tipping point phenomenon could then occur in the introduction of our innovative preterm technology as more payers are contracted and where the decision to adopt by a new payer is de-risked by other payers who have already contracted. We look forward to sharing information as we complete new contracts with strategic early adopter commercial payers, healthcare systems, physician network groups, governmental third-party payers, and self-insured employers. It is believed that about 64% of U.S. employees with employer-sponsored health insurance are in self-insured plans, and the sales cycle in contracting with these plans tends to be shorter than with other payers. So this is an attractive market opportunity for us. While they use third-party administrators to carry out necessary functions for payment to take place, it is the employer who ultimately decides what is included in their benefits package. One effect of the pandemic and current economic conditions is that the intense competition for employees is driving the move for improved employee benefits, including a package that supports expectant mothers and their newborns, which is viewed as an important feature of CIRA's story for self-insured employers. And now a word on healthcare disparities. We continue to be focused on underserved individuals and segments of society where access to high-quality healthcare services is low. While Medicaid patients comprise approximately 42% of pregnancies, they account for half of all preterm births. We are engaged in active dialogue with government officials, political leaders, Medicaid leaders, health insurers, and organizations focused on improving the well-being of mothers and babies by reducing healthcare disparities among the underserved. Our preterm test is ideally poised to enable a real positive difference in these populations by objectively identify pregnancies at risk for spontaneous preterm birth, enabling healthcare practitioners to intervene proactively, to promote better care and outcomes for these mothers and babies. Our recent announcement of our collaboration with the Newborn Foundation's Every Mother, Every Baby project is one of many examples of CIRA's work to make a real difference. Now for a brief update on forthcoming data on the use of our preterm test. Later this month, we are scheduled to present a new clinical utility and health economic data analysis that illustrates the value of CIRA's test and treat strategy. This is an independent cohort of patients for whom preterm testing was performed and where the impact of applying proactive interventions in patients identified to have higher preterm risk was evaluated. While the analysis is embargoed until its presentation at the conference, we expect to share more very soon about this work. I'm also happy to report that we are seeing a ramp-up of enrollment in our large, multi-centered prime study within the Anthem Network. with new sites bringing the total of enrolling centers to 13. We believe PRIME will add to the already large and growing body of published data on our preterm test. The PRIME study is on track for an interim look readout to occur in 2023. We anticipate that this study will provide additional compelling evidence to payers of the value of implementing the preterm test and treat strategy. Finally, let me take a moment to discuss progress on our pipeline product development. We continue to progress our pipeline beyond the preterm test, an industry-first and only broadly validated and commercially available blood test in evaluating the risk of spontaneous preterm birth months ahead of time. We are also on track by mid-2022 to validate yet another industry-first with our proteomics prognostic biomarker preeclampsia test that is a complement to our preterm test. This additional important test is designed to provide a prognostic assessment of the risk for preeclampsia. Preeclampsia affects approximately 5% to 8% of all births, while preterm birth occurs in about 10% of pregnancies. Sarah's goal is to provide both tests from a single blood drop to give clinicians a more complete picture of the risk for two of the most common and important adverse conditions of pregnancy. We believe that the successful validation of our unique preeclampsia test will further establish Sarah's expertise in providing valuable pregnancy information designed to improve maternal and neonatal health. This should, in turn, strengthen our competitive lead as the first mover offering more comprehensive pregnancy information and thus solidifying our position as the pregnancy company. I'll now turn the call over to Jay for a review of our first quarter financial results.

Jay? Thanks, Greg. And good afternoon, everyone. Today, I'll briefly review our financial results for the first quarter and then provide some general commentary on our outlook. For the first quarter of 2022, we reported revenue of $38,000 compared to $13,000 for the same period of 2021. Earlier, Greg had mentioned that we are seeing some encouraging signs that awareness of our preterm test, which is the only commercially available test of its kind on the market, is leading to increases in orders, ordering providers, and providers with multiple orders, among other things that we are tracking. Although we are early in the commercialization process and building from a rather small revenue base, the increase in revenue for the quarter that we just reported is promising. Total operating expenses were $12.3 million and up significantly from the $6 million for the first quarter of 2021. The increase was primarily due to the scale-up of operations to support marketing and commercialization of our preterm tests. Research and development expenses for the first quarter of 2022 were $3.3 million compared to $2.4 million for the prior year period due primarily to increased laboratory operations and clinical study costs. Selling, general, and administrative expenses for the first quarter of 2022 were $9 million, up from $3.6 million for the first quarter of 2021, due primarily to the increased headcount as the company has scaled commercial operations and general corporate infrastructure, as well as increased costs related to operating as a public company following our IPO in July 2021. Net loss for the first quarter of 2022 was $12.2 million compared to $6.4 million for the prior year period. As of March 31, 2022, the company had cash, cash equivalents, and available for sale securities of approximately $130 million. We continue to believe we have sufficient capital resources to implement our strategy in 2025 without the need to raise additional funds. As I mentioned earlier, we are seeing encouraging and positive signs in our commercialization process. Nevertheless, we do not expect any change in the revenue projections expectations that we, for 2022, we provided on our prior teleconference and still do not expect to provide any guidance going forward unless material positive changes would call for us to do so in order to keep you updated in transparent fashion. In the meantime, We plan to continue to deploy our significant cash position in a careful and prudent manner in executing our commercialization and product development strategy, which we believe will build shareholder value in the future. I'll now turn the call back to Greg. Greg?

Thanks, Jay, and thank you to all of you for attending our call today. We continue to be encouraged by our progress across commercialization, our ability to further illustrate additional clinical utility, and beneficial health economics, all the while as we move our product pipeline forward. While being a company pioneering in a new era in neonatal and maternal health care is not easy, it is immensely rewarding to be able to make a positive difference for mothers and babies. With ample cash on the balance sheet and a keen focus on execution, we expect that it will also be rewarding for investors joining with us as we further establish our vision as the pregnancy company. And with that, we'll open up 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 touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, Please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Patrick Donnelly with Citi. Please go ahead.

Hey, guys. Thanks for taking the questions. Greg, you talked a little bit about some of the data that's coming as soon as within a few weeks here. Can you just talk about, I guess, the sense you have for payers kind of waiting on that data, kind waiting to see the health and economic piece, particularly before making their decisions? I mean, how much is this kind of a catalyst for bringing on additional payers? Do they want bigger data sets? What's the right way to think about the size of this catalyst on the ability to bring on extra payers once they see it?

As you know, Patrick, we're engaged in a number of activities on the R&D side, on the clinical development side, where we demonstrate the value of of identifying proactively who's at risk for preterm delivery. Payers are very interested in this because the ability to improve health and in so doing save them money is something they're very interested in. We already published a very large study with Anthem about the value of our test and being able to achieve those benefits from preterm testing early in pregnancy. We have further data now on a different set of patients that we will be reporting on soon. We're looking forward to seeing that. We believe that we continue to add to the large mountain of evidence that we are amassing that show there is benefit to the strategy. And payers are very interested as they see these kinds of data.

Yeah, no, that's helpful. And you talked a little bit about the order increase kind of sequentially through the quarter there. Can you just talk a little bit about what you're hearing from the field in terms of what's driving some pretty big numbers there, obviously, in terms of the growth you talked about? What pieces of the sales methodologies are working? Maybe just expand on that a little bit in terms of what you're hearing from folks out there.

Sure. There are several things that we believe have helped us to accelerate our testing in recent weeks. Drivers include lessened disruption from COVID-19. We've adjusted our sales messaging. And the third thing that we've done is simplifying the process for patient identification and intake for preterm testing in the physician office. All those things we believe are contributors to the increased performance that we're seeing in our sales team.

Okay. That's helpful. And then maybe the last one, just in terms of maybe a two-parter, just in terms of the Salesforce build-out, can you just update us there? And then, Jay, maybe just on the balance sheet, can you update us in terms of the burn and position you guys are in there as well? Thank you, guys.

Let me address the Salesforce build-out first and let Jay answer the second part. At this point in time, we have people deployed in population centers. We are distributed very well, as we said earlier, across the Anthem network. And as we deploy our Salesforce, we are making sure that they are effective where they are and that we're spending money in a very effective way. with the simplification and the kinds of tools that we put in place. Right now, we will be looking constantly as we monitor what the progress is. We spend our money where there's opportunity and where things are growing. That's what you tend to double up on as a sales team performs. And that's really the position that we're in currently at this point in time. Jay, any comments?

Yeah, as I mentioned in my remarks, we believe we have sufficient capital resources to get us into 2025. You can see from the financial statements approximately what our burn rate is. And I think that, you know, we plan on continuing to build revenue over time, you know, before and after Prime reports out in 2024. And we believe that we can carefully manage our burn rate by selectively hiring people on the commercial team. And we believe that we can ensure that all of the sales, marketing, and other corporate activities are productive against the bottom line. Understood.

Thank you, guys. You bet. Thanks, Patrick.

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

This is Dustin on the line for Brian. I'm wondering if you can talk about the structure of your minimum payments with Anthem. I know that was kind of a topic of discussion last call. Are you able to quantify what they are and how we should think about that for modeling purposes for this year and next?

Thank you.

I'll mention, I'll talk about this briefly and let Jay add color to it. There are minimum payments that Anthem has with us under contract. We've not disclosed the amounts, but what we have said is this is a multi-year contract and there are minimums that are paid by Anthem as the company moves forward. That was recorded as deferred revenue in the financials that you saw earlier. We see the same phenomenon being present in the upcoming years that call for that payment.

Yeah, I don't really have a lot to add on, Anson. We're kind of limited in what we can actually disclose. I think it's fairly well documented in the 10-Q and would refer you to that document.

Okay, got it. Thank you. And then last quarter you also talked about a change in a shift in your strategy to more diverse high-risk population. Can you talk a little bit more about that? How has that shift been progressing? And are you seeing more uptake with that strategy compared to your old one?

Clearly, society has an interest in reducing health care disparities that occur in underserved populations. As I mentioned in my remarks, we're in discussion with a number of parties that are really bent on making a difference. That includes governmental officials.

It includes Medicaid officers. It includes

insurance plans. It includes organizations that are keenly focused on making a difference. To put processes in place takes some time. We're discussing how best that be done, but make no mistake, this is a large opportunity, an important one, and for society and the individuals and their families, a critical thing for us to accomplish as we move forward, and we're excited for that opportunity. The more data that we generate, the more we engage with people, the more widely known that our test is. And when I say data we generate, that includes payment by a number of payers. As that happens, we believe we reach a point where things will change. and it will really move things forward. We're not waiting for any one event. We're actually pushing the envelope on several dimensions as we commercialize and bring the test to market.

Okay, thank you.

And one last one. And one last one. I'm wondering if you can talk about any just numbers around number of ordering positions. I know you said it's You saw an increase as a result of the simplified sales process, but just any metrics you can give us on that to help see how the ramp is going. That would be great.

Thank you. We haven't disclosed the number of ordering positions, but what I can tell you is the number of positions that are ordering is increasing. And you can see from the months where we reported those periods of time that we reported differential growth, you get some idea of the kinds of volume increases that we're seeing. Not only are we getting more physicians to order, we're also getting more orders written by any given physician in practice as well. You want to deeply penetrate those practices because having sustained ordering It becomes part and parcel of how their practice is conducted, how they take care of obstetrical patients. That's what the goal is ultimately, and we're seeing good signs of progress as we move toward that.

Okay, great. Thank you. The next question comes from Anita Duchamp with Ehrenberg.

Please go ahead.

Hi, good afternoon. Thanks for taking my questions. Greg, I just wanted to clarify what you had mentioned about the sites that are open to conduct a prime study. Did you say there was an increase in the number of sites? And if it is, then do you think the enrollment rate could be higher, which would, you know, I mean, there is opportunity to have an advancement in the data readout earlier than first half of 23?

Great question, Anita. First of all, when the prime study was designed, we envisioned approximately 10 sites. As we got into it and as we saw slowing, we increased the number of sites that actually joined in, and there's been greater interest from a large number of centers that are run by very well-respected maternal fetal medicine experts to join in in the efforts to generate the data. As we add new sites on, we do expect to see increases in the rate of enrollment from now through the time the study would be completed. The one thing about pregnancy that's important to understand is when you enroll a patient, in the program. She gets a blood test in mid-pregnancy. But from that point forward, there are a number of months that must take place before she actually delivers the child. And so while we will see increases in enrollment, and we've set the goal of reaching 2,800 deliveries before year-end, That's clearly what we're on track to do. We still have to wait for those deliveries to take place for the last patients who are enrolled that could be brought in for actually effecting the interim look analysis that would occur in 23. So we don't really see it moving forward much at all given the timeframes that we're talking about, but we will be enrolling at much higher rates as we bring on more sites and as these sites really get into the swing of actually running the test. We'll see more of these coming on and the acceleration to get to the end and even beyond the interim look to the final number of the study, we believe that that puts it closer to the time that we'll have the interim look. So it's a process. We're very encouraged. We're gratified by the interest of these meeting centers that are joined in as we increase the number of sites.

Great. That was helpful, Greg. And then just to clarify, Did you mention that the sales team is actually working to increase the number of accounts, or actually they are working towards increasing utilization per account?

Great question. They're doing both. So they're not only increasing the number of physicians that are ordering the test, but they're also increasing the number of tests that are ordered per physician practice. So both are important. Increasing the number of physicians means that we are reaching out and broadening the number of doctors that are beginning to incorporate the testing into their practice and making sure that there are more orders generated from a practice. That's how you get a sense that a physician is really buying into the idea that this is beneficial, something that he or she should offer to all the candidate patients That gives us sustained growth as we continue expanding out. Those that are de novo orders of the test, we want to convert them into reorders of the test after we do so.

I see, okay. And then lastly, in your sort of internal expectations and in your experience having done diagnostics before, Um, reasonably speaking, how many studies do you think, uh, would actually warrant for, uh, to impact guideline revisions? I know that you have a great partner such as Anthem and the Prime study being conducted, you know, with their help, uh, and support, but, but how many studies do you think would actually be needed, uh, to make a revision and guidelines to include tests like preterm as part of routine care?

But as far as insurers are concerned, it's not necessarily the number of studies. It's the quality of the studies and how compelling are the data. And what I can tell you now is that we have payers who are already making decisions. We have groups of people that are health care providers who are saying, this is ample for me to move forward. And we have contracts that we've signed with groups as we're moving forward, even in the early stages of commercialization. Typically, a payer wants to see that a test works. We have compelling data that we're able to stratify populations. And in fact, in U.S. and non-U.S. populations, our tests can identify patients who are at higher risk. With that, then the question is, if you use the test, what do you see? We have compelling health economic models One published and one that is going to be presented before the end of this month that demonstrate the value of that strategy. And then lastly, we also have prospective intervention studies where patients have been tested. Those that have higher risk are intervened upon much more proactively, and we show benefit. So those are the kinds of things that payers are looking for as they evaluate the technology and decide when it is worthwhile to make this a routine test for the population that they're serving.

Great. Thanks, Greg. You bet.

As a reminder, if you would like to ask a question, please press star then one to be joined into the question queue.

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This concludes our question and answer session. I would like to turn the conference back over to Peter DiNardo for any closing remarks.

This concludes today's call, and we look forward to providing an update on our business when we report second quarter 2022 financial results. Thank you, and good afternoon, everyone.

The conference has now concluded. Thank you for attending today's presentation.