Sera Prognostics, Inc.

Good afternoon and welcome to the SARA prognostics conference call to review the first quarter fiscal year 2023 results. 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'll now like to turn the call over to Peter Donato of Capcom Partners for a few introductory comments. Please go ahead.

Thank you, Darcy. Good afternoon, everyone. Welcome to Sarah Prognostics' first quarter fiscal year 2023 earnings conference call. At the close of the market today, Sarah Prognostics released its financial results for the quarter ended March 31, 2023. Presenting for the company today will be Greg Critchfield, Chairman, President, 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 view our quarterly earnings release, it can be found on our website at sarahprognostics.com. This call can be heard via live webcast at sarahprognostics.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 and 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 early 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'll now turn the call over to Greg, Sarah Prognostic's Chairman, President, and CEO. Greg?

Thank you, Peter, and good afternoon, everyone. The start of fiscal 2023 has been both exciting and encouraging for us in our pathway toward more broadly commercializing our preterm tests while fostering early revenue growth. Kicking off what we expect will be a strong year of solid developments for seroprognostics with the announcement in February of positive top-line results from our overt preterm trial conducted at ChristianaCare Wilmington, Delaware. We are pleased to see increased numbers of tests being ordered by physicians as we continue to expand the number of providers who are offering preterm testing to their patients. A year-over-year comparison of the first quarters of 2023 and 2022 showed a 320% increase in tests reported. While these are admittedly on a small yet growing base, we are continuing to see demand grow. While we are unable to speak about many or most of the early adopter customer groups, we are making progress with hospital systems and selected physician practices who are beginning to contribute to the increased numbers of orders we are seeing. There are also early adopter integrated networks who have requested to see avert preterm trial and other clinical data that are being prepared for submission to scientific and clinical journals. A bit more on the preterm trial. If I may remind you of some key outcomes for this trial, both the co-primary outcomes, reduction of severe neonatal morbidity or neonatal death, and decreased length of neonatal hospital stay, met their endpoints. With the improvements in outcomes, with our preterm test and treat approach being statistically significant. Notably, these results demonstrate the generalizability of the preterm test and treat strategy in achieving meaningful clinical results in more widely diverse U.S. populations. The AVERT preterm trial builds on solid results from prior studies, including paper, treetop, accordant, and prevent PTV. There are two key points I would like to highlight with regard to the AVERT preterm trial findings. The announcement of these results in February resulted in our seeing increased interest from health systems parties with discussions underway. Some of the volume of our preterm testing has been driven by early adopters as they have learned of the first public availability of compelling new overt preterm trial data showing the clinical utility of our preterm test and treat strategy in a previously unstudied diverse population. And as mentioned on our last call, The detailed results of the AVERT trial, including secondary endpoints and additional subgroup analyses, are being prepared for submission to a peer-reviewed scientific journal in the coming months. We are encouraged that the publication of these results should drive growing interest by physicians, payers, and health systems. We believe that the results of AVERT and prior studies show a growing body of evidence for the preterm test clinical benefit to mothers and babies. And now a bit on the prime study. Let me briefly recap a few important points about prime and how it relates to the positive results of our EPRS study. For starters, during the recently completed quarter, increased prime study subject enrollment continued, surpassing more than 2,800 subjects required to be enrolled for the trial in the trial for the interim look analysis to occur, and we continue to believe that the interim look analysis will take place by year end. The timing for this event requires delivery, discharge of mothers and babies from the hospital, and final data cleanup prior to this analysis. We provided quite a bit of transparency on the similarities and differences between the AVERT and PRIME studies on our last call, so I'll simply summarize them today. The AVERT and PRIME studies have identical co-primary endpoints for reduction in neonatal hospital length of stay and decreased neonatal morbidity and mortality. Both have diverse demographics and preexisting risk profiles. And finally, multimodal clinical intervention strategies prescribed in the protocols for both, including care management, are similar. These similarities are compelling for the potential for positive PRIME study results, but We caution that there are some noted and possible differences that could cause results to be different. AVERT was performed in a single health system versus in at least 15 sites for PRIME, leading to possible differences in administration of the study and adherence to the clinical protocol across this number of sites. Another difference is that all enrolled patients that reached term in AVERT were treated before COVID was prevalent in the study area and ended the study early, while some prime patients will have been treated during the pandemic and others after the pandemic substantially waned. Prime subjects are receiving the same interventions, whereas avert subjects were able to elect for some interventions and opt out of others. The avert preterm trial analysis is expected to report out data from a composite set of 1,453 actively enrolled patients, and approximately 10,000 historical controls who had completed pregnancies during the two years before the trial began. We anticipate and currently believe that the PRIME study will provide strong clinical utility evidence as a rigorous multicenter RCT design by enrolling concurrently randomized control in active arms. To clarify a point from last quarter's call on the numbers of patients in each study, PRIME is a much better-powered broadly representative in contemporary randomized control study compared to Evert, by including approximately twice as many prospectively enrolled subjects, 2,800 total, with 1,400 active and 1,400 controlled patients at the interim look, and almost four times as many at full enrollment. Most important, we believe, is prime strong statistical power of approximately 80% at the interim look analysis, with even greater statistical power at final readout with higher numbers of completed pregnancies. Ultimately, although the results are encouraging, there are no guarantees of a similar outcome for PRIME, and we are hopeful the results will be positive since the availability of compelling data is a key enabler of driving test volumes as well as revenue over time. In addition to PRIME, We anticipate further publication of new, compelling clinical data to take place later this year. And now, more information on CIRA's pregnancy pipeline. We continue to make good progress on our robust pregnancy pipeline using our biobank and advanced data science methods to create meaningful predictions. A first step in developing products is to discover and validate the predictions. To that point, Our preterm preeclampsia validation data are ready for submission for scientific review prior to publication. We also made excellent progress on validating a time to birth prediction to better inform patients on the personalized timing of individual deliveries for planning purposes. We have discovered a strong mid-pregnancy gestational diabetes predictor. We will determine the best timing and ways to monetize these predictions and will communicate the timing as appropriate. We believe all these efforts help Sarah in its quest to be the pregnancy company, providing valuable pregnancy information to improve the well-being of mothers and babies and the economics of health care delivery. I'll now turn over the call to Jay for a review of our first quarter financial results.

Thanks, Greg, and good afternoon, everyone. Let me review at a high level our financial results for the first quarter and our general view for 2023. Revenue for the first quarter of 2023 was $100,000 compared to $38,000 for the first quarter of 2022. As Greg noted, we experienced an increase in test volumes, which is a promising indicator of both improved adoption of our preterm test and our potential for revenue growth. Total operating expenses for the first quarter of $11.4 million were down almost $1 million from $12.3 million for the same period a year ago. Research and development expenses were $4.1 million compared to $3.3 million for the first quarter of 2022 due primarily to increased prime study costs. Selling, general, and administrative expenses for the first quarter of 2023 were $7.3 million. This was a marked decline from $9 million for the same period a year ago and resulted primarily from our successful steps prior to the end of last year to carefully reduce costs without impairing our ability to more broadly bring our preterm tests to market. The net loss for the first quarter of 2023 was $10.6 million, down from $12.2 million for the first quarter of 2022. As of March 31, 2023, the company had cash, cash equivalents, and available for sale securities of approximately $100 million. We continue to prudently manage our cost structure and cash balances to enable us to operate into 2026 without having to raise additional capital. We are excited by the increases we've seen in testing volumes and by increased interest in our preterm tests following the availability of new positive data announced in February for the AVERT preterm trial. While this and other readouts later this year are expected to help drive adoption, we are not changing our business outlook as shared on our fourth quarter earnings call when we noted our belief that 2023 revenues will be less than a million dollars. I'll turn the call back to Greg.

Greg? Thanks, Jay, and thanks, everyone, for attending our call today. We look forward to updating you on our along with the positive AVERT study results continuing to be an encouraging tailwind. We see other potential catalysts for our business, including publication of additional study results as well as updates on our pipeline. We continue to build on CIRA's market position and reputation for providing valuable pregnancy information. This is important for mothers and babies, for health care costs, and for our society as a whole. We wake up every day excited as we work to achieve our vision and mission to make Seroprognostics the pregnancy company leader in this important healthcare space. And now we'll open up the line for questions, operator.

Thank you. We will now begin our question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Your first question comes from Tom Stevens from Cowan.

Please go ahead.

Hey, guys. Thanks for the clarity around that. I just had a question on if you'd seen, you know, a competitor dataset that came out yesterday looking at cell-free DNA, and, you know, also tried assessing preterm risk there. I wonder if you had any response to kind of that approach versus your kind of protein approach and kind of maybe how Prime would be differentiated to that. Thank you.

Yeah. The details of that publication are under review right now. What I can say is that our proteomics approach has superb sensitivity and nearly 90% for finding spontaneous preterm delivery. And the negative predictive value of our test approaches 99%. So it's a very well-performing predictor itself. The second point I would make is that we have actually used our predictor in clinical studies where its utilization has been demonstrated to improve the well-being of of babies in particular. The clinical trials data are very strong. The biomarkers we're measuring denote risk and that we actually improve the outcomes by being able to proactively intervene in patients who have higher risk. So those are some differences. There are a number of technologies that people have been trying to employ to build predictors. Ours is rigorously validated in a proper U.S. intended use population and in populations around the world. We have a very large amount of data showing that we can stratify, and furthermore, stratification can be employed to improve well-being. That's really our thesis.

Great. And then I just had a follow-up maybe more on the kind of longer-term picture. So, I mean, given kind of the positive of that result and, you know, the idea that the full prime results will kind of bleed over time, I guess, could you talk a bit about the cadence of payer adoption that you expect, assuming interim hits later this year, full results here in 2024? And I guess that kind of provider cadence, that would be really helpful for our modeling.

Yeah. What I can tell you is I can give you a qualitative picture of it. The prime study, as I said before, is multi-center. It's broadly diverse. We believe it is in many ways a definitive data set for what the impact of using our technology will be in the U.S. population. It will be very appealing to payers, those that we are in discussions with, those that have been supporting the company, all of them see this study as being an important step forward. They also view the adverse study as being a reasonable harbinger for what one might expect to see in crime. As I said, there are differences between the two, but they're both there. As far as revenues go, it takes time to build revenues. We believe that one of the key enablers of building revenues is getting payers to reimburse. That's certainly one of them. Getting the professional organizations knowledgeable about the benefits. That, we believe, can eventually lead to guidelines. And getting out and actually putting the test in the hands of doctors that use it can demonstrate utilization and benefit. So all those things take time. We see... Our current data that we're reporting out soon is being enablers. We see Prime as a stronger enabler, and the pathway to us is fairly clear about how we get there.

All right, great. Thanks. I'll hop back in the queue.

Thank you, Tom.

Thank you. Again, if you have a question, please press star, then one. Your next question comes from Dan Brennan from Cohen. Please go ahead.

Guys, you're getting two for the price of one. How are you? Good, Dan. Maybe a question on the burn. So what do we think about the burn for this year?

Yeah, Jay, do you want to talk about that? Sure. I mean, I think that, you know, based on our explanation last quarter that we felt we were in great shape to – have sufficient cash through or well into 2026, that hasn't changed. So, you know, I think you can extrapolate that from, you know, the fourth quarter to the first quarter and our burn rate is pretty modest.

Is there certainty that assuming prime is successful, that that study will be enough to trigger really, you know, kind of notable guideline and kind of payer coverage, or is there a chance that the payers under guidelines would want two large prospective studies? I know certainly, you know, the AVERT study is an important one, but it did have that surrogate on, so I'm just wondering, is there clarity, like, ahead of it that, you know, prime is going to be enough?

Yeah, there are actually three prospective studies that we've done, okay, or that we're completing. The first was the PREVENT-PTB study. That was a prospective randomized controlled trial. The AVERT study is the second one, and then PRIME is the third. So as far as numbers of studies go, we believe that if someone is simply counting numbers of studies, we've done ample work to provide prospective data. Another thing that people are going to be looking for in the future is real-world evidence by health systems that are using the technology. And those are the kinds of discussions that we're in now as we move forward. And some of those can be announced at the right time, and we will certainly be doing that as another piece of evidence. So to say is it possible that a certain payer might not want to cover, that's possible, but I can tell you With the support of payers that we know very well and their interest with positive results, the likelihood of being able to reach an endpoint that they like is fairly high. Ultimately, they make the decision of what they cover and what they don't. But we believe we're on track. And the designs of these studies were actually done in conjunction with payers so that they would meet their needs for showing clinical benefit.

Great. Thanks, Greg. And just on the impact of the interim look alone, assuming it's successful, I know it's powered well, but you're still going to, payers and guidelines will still likely want to see the full data. Let's just assume that you are successful, knock on wood. What kind of impact could that have, like, say, in 24 before, because the full data is not going to be out. Just remind us when the full data actually will be out. So two questions are timing of full data and impact of interim, you know?

Okay, that's a fantastic question, Dan, and let me explain it in very clear terms. If the interim look is positive and the Data Safety Monitoring Committee says stop the trial because it's positive, it's no longer ethical to have patients enrolled in a control arm where they don't have access to a protocol that is superior. So if that happens, then all the patients that have enrolled up to that time that have had completed deliveries, all those patients are analyzed. And we add to the 2,800 that are in the interim look that is pre-specified. You add those remaining ones. They've already delivered. So it's just a matter of doing data cleanup. It's a matter of months to be able to get the data if that happens. Okay? So I think that there's a good chance, let's assume for discussion's sake, that the interim look is positive and the trial is stopped. There's a good chance in that event that we would have completed data and a completed readout during 2024. So we don't have to wait for much longer because the patients have already delivered the trial is ended, you don't have two groups that you're comparing and following outcomes. You've got the outcomes done at the time that a positive interim look occurs. Does that help? Yeah.

Yeah, that helps. Okay. I guess that's it. I'll get back to you. Thanks.

Okay. Thanks, Dan.

Thank you. Our next question comes from Patrick Donnelly from Citi. Please go ahead.

Hey there. You got Jason on for Patrick. Maybe first just on AVERT and the submission to a peer-reviewed medical journal, what needs to take place for that to happen? And I guess what implications broadly do you see that having across physicians, health institutions, and payers?

Yeah, a great question. So when the data were read, let's remember, the data became known and available in mid-February, okay? And the PI is writing up the publication now. We anticipate that it takes a couple months for that to be completed and for the data to be submitted. But the key would be that once we have the complete readout, we look forward to seeing what the reviewers say. And there are possibilities of making data available under certain formats that are allowed by journals and authors. So we're looking into ways that we can do that. We will make announcements, of course, when the articles are published, and we'll use those. But under CDA, we're able to share things even earlier with certain health systems with whom we're having discussions. So that's something that we're looking forward to doing. What will the impact be? We've already seen doctors that have become aware and say, yeah, this shows me you've got two studies that have been done, both prospective studies. This is a large study. There's evidence that, in fact, the test and treat strategy does work. It makes a positive difference. And that is partially responsible for increased revenues along with other things.

Got it. That's helpful. And maybe just one on the guide for the year, reiterating that from the 4Q call. How should we think about that phasing throughout the year for modeling purposes? Could we see a sequential ramp during the second half, whether it be volumes or further traction with payers? you know, continue to grow. I mean, just how should we be thinking about that?

I'll make one comment.

Our focus on systems as early adopters is a good one. You don't need to build out a gigantic sales force in order to do that. So that's one way. of generating revenues in the early days that doesn't need much of a build-out. And we're looking at ways to efficiently see where we're going. The modeling that you might be thinking about doing, you always have a cost associated with revenue. But we feel that we're in a very good position to do things in a cost-efficient manner as we begin growing revenues. Once PRIMES takes place, then the company will be in a position to decide how much expansion, how do we get out to the larger number of patients that are, in fact, our intended use market of 3 million pregnancies a year for the preterm tests along. Those discussions are taking place now, and we will be looking at doing it, ramping up in a very cost-effective way. You don't want to hire... too much in advance and wait for the revenues to come. You want to build the revenues and go to places where there's promise and demand, and that's really the way to build it out.

Got it.

Thank you very much. You bet.

Thank you. Again, if you have a question, please press star, then 1. Your next question comes from Andrew Bruckman from William Blair. Please go.

Hi, guys. Good afternoon. Thanks for taking the questions. I think on PRIME, you noted that it had the same intervention across the entire study versus AVERT, which didn't. But maybe, I guess, when you're talking to current users here of the test, what interventions are they using for their patient population, and how does that sort of compare to what you used in PRIME? Thanks.

Okay. The interventions that are in PRIME that were in avert and were in the PREVENT PTP study, they were as follows. The patient was offered a form of progesterone. There was more intensive monitoring and care management of the patient by the physician. They were offered a low-dose aspirin. And then if the patient developed signs or symptoms of early delivery, very early delivery, they were encouraged to be prompt with the administration of steroids because that has been shown to be very effective in imminent delivery that occurs early. Those are the kinds of things that are in there. These are things that one typically does with patients that are at higher risk. And so the protocols, as I stated, the two clinical protocols, which include those elements, are present in a virtual They are present in the PRIME study, and the difference being in PRIME, everyone had access, everyone had the interventions in PRIME. In AVERT, some patients could elect not to do one form of treatment or the other, and that's one of the features of the study design of AVERT. Okay? Even so, Andrew, even so, when they didn't do it, we actually saw a positive result. So that's very encouraging, actually.

Yeah, certainly. Maybe if I could, just one on the pipeline here. I think you caught out making progress on the preeclampsia test. Can you just sort of talk at a high level about what else needs to get done there to take that through final validation and into commercial launch? Any other color that you might be able to provide there? Thanks.

Yeah, great question. So our preeclampsia test is a preterm preeclampsia test. Preterm preeclampsia is the most serious clinical condition where there's a dilemma. If it's early in pregnancy, when do you actually deliver the baby? Because delivery is definitive treatment for preeclampsia. So it's a challenging situation. Both the mothers and baby have more severe outcomes in preterm preeclampsia. We've done a proper validation. As I said, the data are ready for submission. One of the first steps you would want to do is publish those data, and then we are looking at ways of how this might be made available to the market. We haven't decided exactly how to do it yet, but we are learning and actually planning on ultimately making this test available to the market. There are other tests in our pipeline that may actually come sooner than pre-CLASIO. We've not made any definitive decisions about which ones come when. But that's the kind of work that we're doing across all of our pipeline right now.

Okay. Thanks, guys. Yep. Thank you.

Again, if you have a question, please press star, then one. Your next question is a follow-up from Tom Stevens from Cohen. Please go ahead.

Hey, guys. Thanks for taking this last question from me. So just on your prior commentary earlier in the call on kind of ramping that sales force and There's always a cost-benefit associated with that. I guess to any potential acquirers out there or partners out there, what kind of investment would really accelerate growth?