Sera Prognostics, Inc.

Good afternoon and welcome to the SARA prognostics conference call to review second quarter fiscal year 2023 results. At this time, all participants are in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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, Gary. Good afternoon, everyone. Welcome to Sarah Prognostics' second quarter fiscal year 2023 earnings conference call. At the close of the market today, Sarah Prognostics released its financial results for the quarter ended June 30, 2023. Presenting for the company today will be Xenia Lingard, interim president and CEO, and Austin Ayers, our interim CFO. During the call, we will review the financial results we released today, after which we'll host a question and answer session. If you've not had a chance to review our quarterly earnings release, it can be found on our website at serapugnostics.com. This call can be heard live via webcast at serapugnostics.com, and a recording will be archived in the investor 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 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 quarterly reports on Form 10-Q, and its current reports on Form 8K. 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 Jenya Serapognosik, Interim President and CEO. Jenya?

Thank you so much, Peter, and good afternoon, everyone. Having served on Sarah's board of directors since November 2021, and now just a few weeks into my role as interim president and CEO, I've developed an even greater appreciation of the company's technology and talented employees these past few weeks. Frankly, after spending significant time with the team and working hard since May with our outside advisors at a leading strategy consulting firm to conduct a rigorous evaluation of our business and its strengths, I'm highly encouraged by what I've seen and what we're capable of achieving going forward. Mindful of the fact that I've been in the role a short time, I will focus most of my comments today on Sarah's vision, key learnings to date, and strategic priorities to accelerate test adoption and revenue in the near and midterm, as well as key aspects of our longer-term strategic roadmap. Sarah is in a unique position to have pioneered our preterm blood draw-based prognostic tests, to usher in what we believe will mark a new and improved era in pregnancy care. This test provides unique insights into the risk of spontaneous preterm birth. In the process of development and commercialization of preterm, we compiled and continue building a unique, nearly 20,000 strong pregnancies data set. We anticipate this data set should yield actionable data to determine risk of pregnancy complications like preeclampsia, and potentially of more accurate time to birth, as well as many other pregnancy predictors we're exploring. As I'll touch on momentarily, we believe this data will be commercially valuable and support longer-term shareholder value creation, as well as help us fulfill our vision to be the pregnancy company. What we've learned to date through commercializing our preterm test is that the data it provides can truly have an impact on patient care and save lives. as well as save health care costs. We've also learned that scaling such a novel offering among payers, patients, and the medical community takes time. And we're still in the early stages of this commercial build-out. What is essential to test adoption and growing our revenue are successful study outcomes, publications illustrating test and treat effectiveness, payer coverage and market awareness, and finally, established standard of care methods. These essentials have become even more evident through our rigorous business evaluation over the last few weeks, which we anticipate will lend itself towards better positioning center for commercial success. To date, we've already presented compelling data, and most recently, we're excited to share data from our recent overt trial, a manuscript of which was submitted for publication, and we look forward to sharing the results once they become publicly available. However, As announced in February, the results do show that we met our two primary endpoints, reduced neonatal length of stay and improved neonatal health. We expect detailed results of AVERT will be published in a peer-reviewed journal in due course. Fares and institutions see the value given the growing cost of medical care and particularly for NICU care of prematurely born infants. And patients and doctors obviously want to see better outcomes to keep mothers and babies safe during pregnancy when one out of 10 babies are born prematurely with long-term health complications. That said, what we've noted is that along with clinical study evidence to show the test and treat approach works, all of the stakeholders, particularly doctors and patients, also need to know what the informed standard of care is so that they can follow specific approved guidelines. This requires supporting the establishment of standard of care guidelines, so once the test results are in, there's no guesswork in regards to the best treatment path forward. We believe we already have in place several of these essentials, but our need to establish better awareness of preterm and support the establishment of standard of care guidelines, which takes time, is why we need to refocus our business and take actions to optimize the business for market success cost effectively. We are undertaking this effort diligently while carefully protecting our strong balance sheet. So, what have we identified during our evaluation thus far as key points of focus in the near and mid-term to more quickly activate increased revenue opportunities? Number one are three levers to improve near-term revenues. We see that these include, first, engaging and re-engaging institutions with the new data we are bringing out this year. Two, initiating an extending pilot of care coordination offering. Three, launching real-world evidence studies illustrating the value of preterm. For example, the AVERT outcomes show reduction in neonatal length of stay and lower neonatal morbidity test values. The PREVENT subanalysis has been submitted for peer review and in the manuscript demonstrated that the pregnancy was significantly prolonged in subjects screened with preterm tests compared to controls. In the preterm screen positive group, interventions that were associated with pregnancy prolongation included care management and low-dose aspirin. Additionally, in the AVERT study in particular, we studied impact in racially diverse populations and we're aiming to bring this exciting, outcomes to the customers have been waiting to see additional evidence of effectiveness of our test and treat strategy using preterm in a more diverse population, which we now can provide. We're in the process of launching a pilot program offering care coordination for women identified as high risk for preterm birth using our preterm test. We believe the service offering to patients can address a hurdle to test adoption by physicians by increasing the comfort level of physicians who cannot provide care coordination to their high-risk patients. This pilot resulted in a significant positive trend for test orders in the quarter after the pilot launch versus the quarter before. In view of this, we expect to extend the pilot to additional institutions as quickly as we can in the next 6 to 12 months. we're aiming to expand our commercialization and evidence generation activities via additional real-world evidence studies. Our goal is to launch at least two studies in the next six months, aiming for more in the coming years to show that outcomes of randomized controlled trials can be replicated in real life. We are engaging large, nationally recognized, leading institutions to partner with us in this work. As a result of these efforts, we believe we can achieve not only revenue growth, but also a higher ROI on our commercial investment and stronger value proposition to physicians and a broader set of key opinion leaders who are already familiar with SARA and are willing to use the test and educate other clinicians on the value of preterm. Longer term, beyond these levers, our five-year vision calls for ramping up preterm in the United States, as well as globally, where we're currently exploring opportunities and also developing multiple revenue streams beyond that. This would entail successfully executing on a more wholesome pregnancy care platform approach by enhancing our value proposition to physicians through broadening our portfolio. This would potentially include bringing additional products to market, such as those in our current development pipeline, and reviewing additional market penetration approaches, such as patient-paid options as advantageous price and margin points. We also plan to explore complementary product or company acquisition targets in a highly disciplined fashion to potentially boost revenue while not overextending our balance sheet or capital structure. Launching new products may also allow us to broaden relationships with the clinicians and patients, which could be accretive to driving preterm growth. Finally, and something we're rather excited about longer term in regards to our vision, is the potential to launch and monetize our data as an asset strategy. Here we see a compelling opportunity to partner on the use of proteomics and predictive analytics using our high-value data set across nearly 20,000 pregnancies to date and growing day by day to create breakthroughs in the care of a broad range of issues in pregnancy. Ultimately to date, we've profiled many important pregnancy complications such as preeclampsia and gestational diabetes in addition to preterm birth. With these data sets, we have the capability to integrate them with clinical and demographic data within our proprietary pregnancy assay. Combined, this provides powerful data-driven utility and health insights, which we believe in identifying human health issues as early as infancy through serous insights and then possibly leveraging others' technologies for better care management. If executed well, we anticipate this approach could open up significant high-margin revenue opportunities for possible partnering on complementary products and technologies, and potentially even from licensing options. Before I hand the call over to Austin, let me take a moment to update you on our prime study. As noted last quarter, prime study subject enrollment has surpassed more than 2,800 subjects required to be enrolled in the trial for the interim look analysis to occur and now stands at over 3,800. We continue to be really excited about the potential prime interim look, and the timing for this event requires delivery, hospital discharge of mothers and babies, and we're looking to get the final deliveries completed by the end of August, then followed by cleanup of the data prior to the analysis of study results, We are mindful as although we may be excited about increased interest and given the key learnings I noted earlier, we look forward to seeing those results by the end of the year, though they may not immediately translate into accelerated test adoption given the need for a defined standard of care guidelines for physicians to follow. That said, the bundled treatment we're testing now with Prime could help change the guidelines in our favor after Prime is completed. We would expect that volumes would be levered up more demonstrably once standard of care has been established for the medical community to have an accepted course of action in order to mitigate premature delivery health problems and proven to yield positive benefits. Moving forward, through our planned care coordination pilot program and other activities to engage physicians and patients, we plan to do our part to help establish care guidelines as soon as possible. And going back to my comments earlier on our five-year vision, there may be a future where precision recommendations for care could be made based on leveraging our advantage data sets to determine likelihood of risk factors in pregnancy and which interventions would be proven to work best. I'll now turn the call over to Austin for a review of our second quarter financial results. Austin?

Thanks, Jenya, and good afternoon, everyone. Let me review our financial results for the second quarter and provide our view on expectations for the remainder of 2023, given the actions that you discussed that will refocus our business for success. Revenue for the second quarter of 2023 was $123,000 compared to $78,000 for the second quarter of 2022. While we are pleased with steady expansion of our early adopter pool of customers, we expect revenue for the full year to come in at less than $400,000 as we continue optimizing test adoption and our revenue model. Total operating expenses for the second quarter were $11.6 million, down somewhat from $11.8 million for the same period a year ago. As a result of streamlining our commercial operations and other cost reductions, we expect our GAAP operating expenses to decrease by around 10% in the second half as compared to the first half of the year. Based on the actions we've already taken, we expect our cash expenditures to decrease by about 15% in the second half as compared to the first half of the year. We hope to recognize even greater savings on an annualized basis as we continue to search for efficiencies in our operations in the near term while continuing to invest in our future. Research and development expenses were $3.7 million compared to $3.3 million for the second quarter of 2022, due primarily to increased clinical study costs as we accelerated prime enrollment year over year. Selling general and administrative expenses for the second quarter of 2023 were $7.8 million. This represents an 8% decrease from $8.5 million for the same period a year ago, due primarily to steps we took prior to year-end 2022 to streamline sales operations and better focus our commercial strategy. Additional streamlining efforts occurring late in the second quarter 2023 are expected to further reduce SG&A expenses by 15% to 20% in the second half of the year. Net loss for the second quarter of 2023 was $10.5 million, down from $11.5 million for the second quarter of 2022. As of June 30, 2023, the company had cash, cash equivalents, and available for sale securities of approximately $92.1 million. We are carefully managing our cost structure and cash balances with the goal of maintaining our runway for several years based on our existing operating plans and to better position SARA for revenue growth through test adoption, while continuing the exploration of our proprietary datasets to improve the health of moms and babies. This will take time, but we are leaning into these activities to create operational and commercial improvements as soon as possible. I'll now turn the call back to Jenya. Jenya?

Thanks, Austin. And thank you all for attending our call today. As a mom and SARA stakeholder myself, I am really eager to maximize the company's potential and accelerate our impact on the well-being of moms and babies. We have the pathway ahead of us to create change. especially when as many as 30% of pregnancies are impacted by complications, and given the fact that maternal mortality has doubled in the United States in the last 20 years, the wrong trend. And we have a lot of work to do, and Sarah has a technology platform to affect positive change to address these trends to improve human health. We know how critical our mission is. We know what work we need to do for our shareholders, for our patients, for our clinicians, and the payers. And we know we have the opportunity to succeed in our mission to create societal change by helping mothers and babies. We really thank all of you for your support and helping us get there. And now 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 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. Our first question today comes from Patrick Donnelly with Citi. Please go ahead.

Hi, this is Brendan on for Patrick. Thank you so much for taking our questions. First, I want to start with the guidance for the year. How should we think about the phasing in the back half of the year? Would you say it's more evenly split between 3Q and 4Q, or is it kind of more of a ramp into 4Q?

Yeah, thanks for the question.

Yeah, thanks, and thanks, Brendan, for the question. At this point, the shift in our strategy a little bit to be more focused on institutions, we think it's probably too early to really determine exactly how that is going to play out for the rest of the year. But we are confident based on the revenue we have through Q2 that we will be able to achieve that or that we'll be within that guidance range that we just gave.

Okay, great. Thank you. And then one follow-up, I was wondering if you'd be able to talk a little about the cash burn in the quarter and if the runway through 2026 is still kind of there or if those expectations have changed at all.

Yeah, so regarding runway, we're certainly still on track for the runway guidance we've given previously and Our goal, as I mentioned in my prepared remarks, is to extend that runway as far as we can while continuing to invest into our future.

Great. Thank you so much for taking my questions.

The next question is from Daniel Samarco with TD Cowan. Please go ahead.

Hey, guys. Thank you for taking our questions today. I'm on for Dan. I think I'm just I'm curious, Jenya, you're new to the role. We'd be interested in hearing about how you're thinking about payer progression as you're waiting for Prime and what your plans for commercializing are with respect to reimbursement, given that that is further down the line here.

Thank you so much for the question. Indeed, payers are our key stakeholders, and we're really excited to bring the new data we've generated that is getting published this summer. We've submitted four publications and are excited to engage with payers in the coming weeks to share the data as soon as it becomes available. As you know, we talk to policy, medical policy departments frequently, and all of them are really excited about the outcomes we're showing and the potential impact on cost of care. If you're asking for us to predict whether the current data avert preterm, prevent sub-analysis and other publications we're publishing now is sufficient to start turning medical policy opinions into broad-based coverage, we don't know yet. but we will certainly disseminate the data as soon as possible. We're also excited to see the interim look of PRIME by the end of the year. So we're excited to share all of that with the payers. As we complete PRIME, I think that data set will be even stronger to bring to the table for payer discussion.

Great, thank you. And maybe a follow-up, I think it would be just to get an update from you on how you think the pipeline is shaping up, especially with how you're overseeing transition and any updates on when more readouts on gestational diabetes or time to birth?

Yes. No, thank you so much for the question. Indeed, we are very excited about our pipeline. We just completed a rigorous review of all of the products in the pipeline. Indeed, we'll be imminently testing in the market some of our new products. I'm not in a position to announce the launch timing today, but as soon as we see some of the successful pilots, we will be undertaking in the next six plus months. We will come back to you with announcements and to share our excitement about these product launches. I know you mentioned specifically time to birth and gestational diabetes. There are a couple of other products that we've identified in our pipeline that could be equally exciting to bring to market. and we're going through estimates of how long the validation and the commercial pilots will take in order to successfully bring them to market. Of course, of all of these, we want to make sure that we keep our focus on preterm and not overextend the team. So, what I can say is we'll aim to go steady as opposed to broaden our portfolio too quickly and not lose our focus on our product and be successful with them in the market.

Appreciate it, Nicole.

Again, if you have a question, please press star then one. The next question is from Andrew Brackman with Blair. Please go ahead.

Hey, everyone. This is Andrew. Thanks for taking our questions. Just on the institutions that you're going after at this point, what's the willingness of them to interact with you and which of these, you know, if you were to break them up by subtype of institutions, which ones are most promising so far? Is there a certain category that's saying that the standard of care and establishing after the pilot programs is more important at this point?

Great question. I will say we've noticed a very exciting trend that larger, more scaled institutions are more excited to start working with us on preterm. As you know, institutional sales is a different bird from targeting physician practices. It takes a long lead time to engage with them. and they're very much excited to engage with us on new clinical data that we're bringing forward. So we see a very positive trend and look forward to communicating if these institutions are willing to disclose our partnership as we launch new institutions and bring them online with preterm. The short answer is they're very willing to engage, very excited about the results that our studies show, and very excited to bring them to their institutions. Of course, it's about logistics because some of these institutions have hundreds and hundreds of physicians, and making sure that our test flow is integrated into their standard operating procedures, that also takes time.

Understood. And then just on the sales force and what they're hearing at this point, I guess post-avert, have they been hearing more that the standard of care from these physicians is more important, or has this been something that's been going on for a long time and just the investment there has not been made in an effort to conserve the cash runway?

Sorry, let me just clarify the question. Is the question more about what is the reaction to avert since we published that we met our primary endpoints, or is it something else? I think there may be two questions in one. Could you restate it?

Yeah. Understandable. You know, and understanding your new management team here, but why is, you know, this realization about the standard of care and the interventions that can be made post the test, why is this coming up again? or has this been a longstanding issue and the investment behind a pilot program has not been made?

Oh, no, it's been known all along, and you will probably trace it to the conversations Greg had with all of you over the years, and it shaped our clinical trial strategy to very methodically, study after study, show effectiveness of interventions in order to influence standards of care. So we continue investing and doing it and are seeing that we are being successful in convincing clinicians in effectiveness of the study. So not new and that's why we have a number of studies in the pipeline and we're going to broaden it even further

to show with real-world evidence that interventions work.

Understood. Thank you. That's it for our questions.

Once again, if you have a question, please press star, then 1. Please stand by as we poll for questions. Showing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Peter DiNardo for any closing remarks.

Thank you, Gary. This concludes the call, and thank you for joining us today. Good afternoon, everyone.

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