Sera Prognostics, Inc.

Good afternoon and welcome to the Sarah Prognostics conference call to review first quarter fiscal year 2024 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 would now like to turn the call over to Peter DiNardo of Capcom Partners for a few introductory comments.

Thank you, operator. Good afternoon, everyone. Welcome to Sarah Pugnostics' first quarter fiscal year 2024 earnings conference call. At the close of the market today, Sarah Pugnostics released its financial results for the quarter ended March 31, 2024. Presenting for the company today will be Jenya Lingard, President and CEO, and Austin Ayers, 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 release, it can be found on our website at serapognostics.com. This call can be heard live via webcast at serapognostics.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 Zhenya, Serapognostics President and CEO. Zhenya?

Thank you, Peter, and good afternoon, everyone. We continue to make progress in putting key prerequisites in place for inflection in test volumes and revenue growth coupled with improved margins. As Austin will detail, we believe 2024 is a foundational year of development for SARA with strategic goals we are pursuing to position the company for increased test adoption in the quarters ahead while diligently preserving our strong balance sheet and cash position as we manage the business for future growth. These strategic goals include publication of our important, overt, and prime clinical study results to showcase the health and economic benefits of the preterm test, building awareness of our capabilities to help improve patient care and outcomes, continuing our strong focus on R&D to bring new products in our pipeline and new collection methods to market, all the while improving access to our products to afford better health equity scalability for our lab once demand inflection occurs, as well as increased product margins and profitability. Since the beginning of the year, we've made progress across these strategic priorities, including submission of prime study interim findings for publication, shipped first whole blood collection kits to our customers, shifted to a more cost-effective laboratory test analysis process, resulting in an estimated 60% COGS savings at scale, prepared two television programs, which will air on public and network stations later this year to increase awareness surrounding preterm births, deliveries of prime study participants, the remaining 2,200 who were enrolled before the enrollment stopped per DSMB recommendation in December 2023, are also now complete, and we're now planning analyses and data for the final prime study publication. We're pleased to report that we've validated ambient whole blood collection and have begun shipping our new kits to customers. We expect to see whole blood collection kits start running through our laboratory in the coming weeks. This, together with our laboratory enhancements, are expected to yield several distinct advantages, primarily ease of collection, increased lab capacity and decreased turnaround time, and reduced cost of goods. By improving and simplifying the collection method, we expect to enable greater patient access to our test, which should really allow us to reach more mothers across the country. Simplified collection also means an improved user experience for the patient and provider. We believe less friction for the physician ordering process will lead to more repeat orders by providers. The processing of whole blood samples is coupled with the rollout of our newly validated laboratory process that leverages seroproprietary antibodies used in mass spectrometry. In addition to enabling the processing of whole blood specimens, this new technology affords an approximate five-fold improvement in sample processing capacity per laboratory technician, an approximate 10-fold increase in throughput and cuts our turnaround time by about 50%. In addition to capacity and scalability enhancements, a faster and simpler laboratory process reduces material and labor costs, while whole blood ambient samples can be drawn and shipped at a much reduced cost when compared to frozen serum. Overall, we expect an estimated cost of goods reduction of up to 60%, possibly higher, beyond certain scale milestones. These improvements to our margins should serve to increase access to our technology, a key prerequisite to our growth strategy. While we work to communicate data from our vert and prime studies, we believe this will provide strong validation of the benefit of utilizing the preterm test for guideline development and adoption. A recent ACOG note on guidelines on biomarker testing for preeclampsia points to the attention from guideline-setting bodies to preterm birth complications. For now, we're continuing engagement with various stakeholders to increase adoption of our test in order to improve pregnancy and maternal outcomes. These stakeholders include providers we're teaming up with to target the states hit hardest by spontaneous premature birth rates. Our plans include working with payers and providers in collaboration with other stakeholders on targeted state implementation programs to promote health equity to address spontaneous premature births and improve pregnancy care, particularly among undisturbed populations and communities. This could provide a way to resolve a big problem and broaden awareness and increase adoption of preterm by patients, physicians, and the medical community overall. There has been a lot of interest in the potential impact of the FDA's review of laboratory-developed tests, often called LDTs. The FDA published its final LDT rule last week on April 29th, and while there may be subsequent changes given pushback from certain industry stakeholders, we share the goal of keeping patients safe with a reasonable oversight of LDTs. A higher level of review and approval for new tests whether under FDA's final LDT rule or the valid act that has been pending in Congress for a while, could set a new and higher bar for new entrants into the space we serve. There's always uncertainty whether a new regulation may be challenged, but we believe we're well-placed to work within the FDA's proposed LDT framework to continue bringing our tests to patients. For example, The FDA's new LDT rule includes continued enforcement discretion, the preexisting status quo for LDTs approved by the New York State Clinical Laboratory Evaluation Program, which includes our preterm test. Given our strong, long-term, R&D-driven history and extensive clinical study data, we believe the higher bar set by stronger regulations could serve as a source of advantage for SARA by requiring competitors to dedicate years of work and significant investments. FDA states that increased oversight may help promote adequate representation in validation studies, which would help advance health equity and which lines up nicely with our mission. As a reminder, about one in 10 babies is born prematurely in the United States at a rate of 10.4% according to CDC for 2022. while racial and ethnic differences in preterm birth rates remain. For 2022, the rate of preterm birth among African American women of 14.6% was about 50% higher than the rate of preterm birth among white or Hispanic women at 9.4% and 10.1% respectively. We need to do more, and we can, with preterm. Sarah was recently invited to support broadening awareness of innovative solutions available to expectant mothers and their physicians to understand the risk of preterm birth. Later this year, SARA will be featured on two television programs, Viewpoint with Dennis Quaid and Empowered with Meg Ryan. Distribution of these programs is expected to reach over 100 million people in the United States. This will be a strong awareness building tool for SARA in 2024 to follow the physician education campaigns we're launching this summer. Outside of our current core market in the United States, we're exploring attractive international markets. This process is expected to involve engaging with regulators in countries with a significant number of premature births, where the addressable market for the SARA preterm test is compelling. Upon publication of our pivotal AVERT and PRIME studies, we plan to share the data with regulators, We also plan to engage with multiple potential partners to assess what may be needed to enter key international markets. If we ultimately enter such markets, our ambient whole blood kit collection methods are expected to ease market access, promote accessibility to address healthcare equity, and have optionality on test cost to promote adoption while still leveraging healthy product margins. Developing test processing via ELISA would also make it easier for SARA to go to market internationally. In conclusion, we're pursuing multiple shots on goal to build awareness and adoption and believe our pathway will not only become easier upon publication of the studies I mentioned, but such validated and compelling data in regard to preterm will also bolster and embolden the pursuit of our mission. Now over to you, Austin.

Thanks, Xenia, and good afternoon, everyone. Let me review our financial results for the quarter and then briefly review our thinking on commercial investment. Net revenue for the first quarter of 2024 was nil due to revenue adjustments made as part of our normal revenue recognition process, updating our expected collection amounts through periodic refinement of revenue estimates as described in detail in our 10-K. Gross revenues before adjustments were approximately $39,000 compared to $100,000 for the first quarter of 2023. This reduction in our revenue is an expected outcome of optimizing our investment in commercial activities and preserving capital to deploy for future commercial investments once we have built our evidence portfolio and executed on other prerequisites for success. Our decision to right-size our cost structure last year has materially improved our cash runway. As we've previously noted, it was highly uncertain that we would achieve all of the key requirements that could foster an immediate revenue ramp such as publications validating our preterm test, insurance coverage, and consumer and physician awareness and adoption during the first half of 2024. As Jenny mentioned in this call, we are working diligently to execute each of these prerequisites in the first half of this year and hope to share exciting news with you in the coming quarters. Total operating expenses for the first quarter of $9.1 million were down 20% from $11.4 million for the same period a year ago, due to steps we took to streamline commercial operations, better focus our commercial strategy, and reduce overall operating expenses. Net loss for the first quarter of 2024 was $8.1 million, down 24% from $10.6 million for the first quarter of 2023. Research and development expenses were $3.7 million, and down 10% from $4.1 million for the first quarter of 2023, due primarily to lower clinical study costs. selling general and administrative expenses for the first quarter were $5.4 million, down 26% from $7.3 million for the same period a year ago due to the steps we've taken to reduce expenses while focusing on the most efficient means to build revenue in the quarters ahead. We have begun planning for a prudent expansion of our commercial operations and, while we are not expecting an immediate return to previous expense levels, We are prepared to invest quickly into any commercial opportunities generated by study publications and increase market awareness when appropriate. As of March 31st, 2024, the company had cash, cash equivalents, and available for sale securities of approximately $85.4 million. This was an improvement of about $5.5 million. over $79.9 million at December 31, 2023, and resulted primarily from a payment received from our strategic partner in January, offset by regular cash operating expenses. We continue to be mindful of our cash burn rate and understand the uncertainties of the current and future capital markets environment. We will remain diligent in our strong fiduciary management of cash, balancing this with strategic investment and execution that we believe will position the company for commercial progress in the quarters and years ahead.

Operator, we can now please open the call for questions.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the number one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star, followed by the number two. If you are using a speakerphone, please lift the handset before pressing any key.

One moment, please, for your first question. Our first question comes from the line of Andrew Brackman from William Blair.

Go ahead, please.

Hi, this is Dustin on the line for Andrew. Thanks for taking our questions. First question I have, just on the latest updates you're having with conversations with KOL since the publication or positive update on PRIME with DSMB. And then similarly, what kind of conversations are you having with guideline bodies as well? And do you think they'll give sort of any statement that very shortly after PRIME gets published in the interim analysis? Thank you.

Dustin, hi, this is Eugenia. Thank you so much for your question. You're absolutely right. We're engaging far and wide with KOLs and regulators. In our last touchpoint with the guideline setting bodies, professional society members, was as soon as we are closer to the publication, we will reconvene with them to share all of the details of the results. It's certainly something that guideline setting bodies do. issue commentary on breakthrough results. I can't foresee or guarantee that they will do that. But their level of interest and engagement so far certainly points to some signal from their side.

And we will absolutely update all of the investors to any developments on that front.

Understood. Thank you.

A question on the pipeline. Just wondering where the time-to-birth assay is in development now, and then what can we expect in terms of data generation? I think you previously said some data may be this year or next year for time-to-birth. Thank you.

That's right, Dustin. The time-to-birth product is Getting enhanced as we speak, as I mentioned, we decided to put it on ELISA platform to really ensure that there are strong economics for this product. Certainly, making data available on the product will be on our mind as the first step in the sequence of launch. So absolutely counting on that happening in the coming months I don't have a precise timeline on that, but as you suggested in your question, certainly before the end of the year or early next year is what I would expect as the timing for that, shortly before launch.

Okay, that's helpful.

Thank you. And then just one more from us. I know previously you talked about an additional $5 million investment option in the context of expenses that you baked in the guidance. Is the marketing that you announced today, those two campaigns, is that part of that $5 million or would that $5 million be on top of that?

Thank you.

Austin, do you want to take that one?

Sure. Yeah, the marketing campaigns, as Jenny mentioned, are actually incredibly cost-effective and don't really have a material impact on our current budget or current operating expenses. As Jenny mentioned, these opportunities came to us and are very beneficial for us in terms of the low cost and the reach. As far as the $5 million that we've talked about previously, we've talked about how we budgeted this $5 million of additional investment beyond our current run rate. to invest behind the achievement of our milestones and into commercial opportunities. The majority of that will be in sort of commercial deployments, but we're going to remain vigilant. You know, we're not going out and spending that quite yet. We're going to evaluate each opportunity in terms of ROI and creating near and long-term value for the company before we start to really dig into that sort of $5 million pot that we talked about last time.

Yep, spot on. And Dustin, so basically the two campaigns are already paid for and baked into our costs.

That makes sense. Okay. That's it from us. Thank you.

Thank you for the question. Thank you.

Ladies and gentlemen, just a reminder, should you have a question, please press star followed by the number one on your touchdown sound.

And ladies and gentlemen, just a reminder, should you have a question, please press star one on your touchstone phone.

As there seems to be no further questions at this time, I'd now like to turn the call back over to Ms. Zinnia Linkard for final closing comments.

Thank you so much, operator. And thank you all for attending our call today. We have a lot of work to do through the remainder of the year, launching self-pay and employer-paid channels in parallel to pursuing pay reimbursement, as well as education and awareness campaigns for preterm. We are invigorated by growing interest in our technology portfolio and our expectation of publications of overt and prime studies. We believe these studies, when published, will fuel even greater interest in preterm and pave the way for adoption that can solve the crisis of premature birth, help solve the crisis, of premature birth while helping accelerate our growth. I'll now turn it back over to the operator to conclude the call. Operator?

Thank you, ma'am. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.